Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, August 8, 1995 TAG: 9508080058
SECTION: VIRGINIA PAGE: C-1 EDITION: METRO
SOURCE: KATHY LOAN STAFF WRITER
DATELINE: LENGTH: Medium
One out of every three orders for shoes and hosiery - most placed by elderly women on fixed incomes - never was filled. But the Lynchburg shoe company kept taking orders and sending out catalogs that carried a satisfaction-guaranteed statement.
The federal government charged that Hoffman, president of the shoe company, stole money from customers by accepting orders the company couldn't fill. Hoffman failed to tell customers that many orders weren't filled, and the company did not make refunds on the unfilled orders.
The businessman pleaded guilty Monday in U.S. District Court to 12 counts of mail fraud. Judge James Turk found him guilty but delayed sentencing until October.
Each charge carries a maximum sentence of five years in prison and a $250,000 fine.
Hoffman, 60, was indicted in November on 41 counts of mail, bank and wire fraud over a three-year period. After Hoffman pleaded guilty to the 12 mail fraud charges as part of a plea agreement Monday, Turk dismissed the other 29 charges.
Assistant U.S. Attorney Tom Eckert said Hoffman bought the shoe company in 1988, when it was in bankruptcy, and never got it off the ground financially.
``Almost from the outset, [Hill Brothers] was undercapitalized,'' Eckert said. Orders and refund requests weren't filled in a timely manner, and the U.S. Postal Service and the Better Business Bureau ``received thousands of complaints,'' he said.
``The delays in refunds ranged from several months to years,'' Eckert said, noting that in December 1990, Hill Brothers had written $1.7 million in refund checks but hadn't mailed them.
``The refund checks were never sent because there was no money in the bank to pay,'' Eckert said.
With Hoffman in personal bankruptcy, Eckert said he had ``serious doubts restitution will be forthcoming.''
The victims - many of whom were on Social Security - reported average losses of $55 each, with total losses estimated at $2.5 million.
Eckert conceded that ``customers who got their shoes were typically satisfied with them.''
Shortly after Hoffman took over Hill Brothers, Eckert told Turk, Hoffman made Hill Brothers the only client of DCM, a Salem direct-mail consulting business of which he also was president. While Hoffman was drawing no salary from Hill Brothers, the shoe company paid DCM $20,000 a month.
The shoe company was shut in February 1992 when the landlord changed the locks for nonpayment of rent, Eckert said. Employment had declined from about 60 workers to three or four, and finally to none. Hill Brothers' stock was bought by another company for $62,000. Hoffman got $50,000 of that, although he said he used $20,000 of it to pay employees, Eckert said.
Barry Tatel, Hoffman's attorney, agreed that ``when this company was purchased, it was very thinly capitalized'' - had little value with which to carry out its business.
Hoffman had made strides in obtaining lines of credit, but suffered bad luck and got bad advice from his then-lawyer and other investors, Tatel told Turk. They were ``leading a raid on his company while it was an ongoing business'' and began bankruptcy proceedings that ``destroyed the credit-worthiness of the company.
``It began a spiral of not having sufficient cash to make the refunds,'' Tatel said. ``He was behind the eight ball before he ever got the shoes in the mail.''
Hoffman, who now lives in Ann Arbor, Mich., already faces two years in prison after being found guilty this year of participating in a ``straw man'' loan scheme involving the late Salem developer Richard Hess and the now-defunct First Security Bank.
Hoffman was one of many people who signed for loans that went to Hess. He was trying to get in the good graces of the banker involved in the scheme, hoping he could get loans for Hill Brothers, prosecutors said.
He is free on bond while appealing that conviction.
by CNB