Late North Bay businessman suspected of multimillion-dollar fraud

Santa Rosa's Clay Stephens, the widely-respected founder of Warren Capital who died suddenly in November, is now suspected of bilking friends and family alike out of as much as $23 million, according to investors.|

Santa Rosa businessman Clay Stephens, the widely respected founder of Warren Capital who died suddenly in November, is now suspected of bilking friends and family alike out of as much as $23 million, according to investors who are discovering the extent of their losses.

Had he lived, Stephens could have faced fraud charges over the collapse of his Novato company, an attorney representing Stephens’ company told stunned investors last week, according to several people who attended the meeting.

The disclosure has left investors feeling betrayed by a man who gave every outward appearance of being a successful businessman, upstanding family man and committed philanthropist. Stephens was active in the Santa Rosa Chamber of Commerce, heavily involved in its BEST job creation program and a past president of the board of Cardinal Newman High School, which his four sons attended.

What no one appeared to have known, however, was that at the time of his death of a heart attack Nov. 10, the 72-year-old Stephens was taking money from investors that was supposed to fund new business loans and instead using it to prop up his company and pay existing investors, according to several people who were briefed last week on the company’s collapse.

“There is no doubt in my mind that if Clay Stephens were alive he would probably be spending the rest of his life in jail, and justly so,” said Fred Ptucha, a longtime Santa Rosa financial adviser.

Ptucha invested his own retirement savings with Stephens and now hopes to receive just 15 to 20 cents on the dollar of his principal, he said. He and other investors are struggling to reconcile their impressions of Stephens as a man of integrity with what attorneys and forensic accountants have learned about his now-shuttered company.

“I just felt Clay was a very upstanding guy that I felt I could really trust,” Ptucha said. “We all got snookered.”

After learning of problems at his company shortly after his death, Stephens’ family hired an attorney and quietly canceled a planned public memorial at Cardinal Newman. The family is devastated by the revelations and had “absolutely no knowledge of any wrongdoing until it came to light” after his death, attorney Scott Palmer said.

“The family is in shock and disbelief and feels extremely betrayed, and at the same time is struggling to mourn Clay Stephens’ passing,” Palmer wrote in a statement.

Two of Stephens’ sons lost a total of more than $1 million they invested with their father, and Stephens even encouraged one to invest another $100,000 over the summer, according to people familiar with the matter who spoke on condition of anonymity. Stephens also had significant debts and drew most of the equity out of the $1 million Bennett Valley home he shared with his second wife, the sources indicated.

“His wife, Anne, is left with a sense of bewilderment, betrayal and anxiety about her future,” Palmer wrote. “At the same time, she is sad and worried for many of her friends who lost money.”

Warren Clay Stephens, an Alabama native and Notre Dame football standout, founded Warren Capital in 1984 after working in finance on the East Coast. The company specialized in brokering alternative financing and leasing deals, particularly of specialized equipment used in the food and beverage and health care industries.

The company worked with such well-known local firms as Frank Howard Allen Realtors, Stark Reality Restaurants and Manzana Products in Graton.

Around 2000, Stephens decided that instead of brokering deals for other lenders, he would finance some leases himself, establishing a subsidiary called Warren Equipment Finance.

To raise the capital to fund those leases, he offered friends and associates the promise of a healthy return on their money - one investor said annual returns ranged between 8.5 percent and 10.25 percent, paid quarterly, depending on the term of the note. The investments were supposedly secure because the leases were backed by the physical equipment which could be repossessed in the event the business stopped making the lease payments, according to those familiar with the company.

But instead of a diverse portfolio of lucrative equipment leases, it now appears the handsome investment returns being paid to investors were being funded by new investors, according to several people who attended a presentation for investors in San Rafael last week.

Of the $23 million in outstanding notes owed to more than 100 investors, leases worth only about $300,000 existed at the time of his death, several people at the meeting said. Combined with a corporate life insurance policy of $1.75 million and about $1 million in cash, investors are left with about $3 million in recoverable assets, according to investors.

Many noteholders have been receiving quarterly payments for years, and when those are taken into consideration, the net losses to investors’ principal are estimated to be about $11.2 million.

How those losses are divvied up will largely be up to Michael Kasolas, a certified public accountant who was appointed as receiver for the company by San Francisco Superior Court. The law firm of Arent Fox has been hired to represent the company through the process.

Steve Bledsoe, an attorney with Arent Fox, said that “due to the sensitive nature of this matter” Kasolas would not be discussing his investigation with the press, but would “confine his reports to the court and communications to the noteholders of Warren Equipment Finance.”

An investors committee is being formed and is expected to get a report next month. The aim of the receiver is to find, preserve and equitably distribute as much money as possible to investors.

Scott Shapiro, chief operating officer of Warren Capital since June and the one many assumed would take over the firm, did not return a call for comment. Shapiro has worked for the company since 2001 and has been senior vice president since about 2006.

Despite its small size, Warren Capital, which had just six employees, had an outsized influence on the North Bay. Stephens claimed to have put together deals worth $1.8 billion for 4,000 clients around the country, with $600 million of that being new capital brought into the North Bay, according to a story published in June by the North Bay Business Journal.

According to people at Thursday’s presentation, Warren Capital was “borrowing” about $4 million per year from investors in Warren Equipment Finance. Stephens paid himself about $500,000 in salary and expenses annually, according to attendees.

Business and community leaders expressed surprise at the allegations Tuesday.

Sean Lovett, owner of Revive Kombucha, said Stephens was an invaluable resource in helping his growing company refinance a $120,000 bottling line at the company’s Windsor location.

“This is a guy I trusted like a grandpa,” Lovett said. “It was really a huge loss for me.”

Stephens and others in the company were experienced, professional, responsive and seemed genuinely interested in steering him toward business and financial resources that would help the company succeed, Lovett said.

Cardinal Newman Principal Graham M.A. Rutherford said the family never indicated why they didn’t move forward with the memorial. He assumed it had to do with the rainy weather. The idea that Stephens defrauded anyone is difficult to believe, Rutherford said.

“That would be more than stunning,” he said.

Stephens created the Millicent Stephens scholarship fund, named after his first wife, who died of cancer in 1981. The fund paid about $5,000 to worthy students, Graham said. The school board had recently talked of establishing a leadership award in Stephens’ name, but has yet to do so, Graham said.

You can reach Staff Writer Kevin McCallum at 521-5207 or On Twitter @srcitybeat.


EDITOR’S NOTE: This story has been updated to more precisely describe the nature of the returns paid to investors and to correct Scott Shapiro’s tenure as chief operating officer.

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