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Highly Promoted Real Estate ‘Expert’ Loses Another Round in Fraud Case

September 14, 1993

LOS ANGELES (AP) _ A self-styled real estate expert and philanthropist accused of defrauding investors lost a bid to reclaim his company.

U.S. District Judge Consuelo B. Marshall appointed a permanent receiver Monday night for Stephen J. Murphy’s American Capital Investments. She also ordered Murphy to refrain from violating anti-fraud statutes and laws governing the sale of securities without proper registration.

Securities and Exchange Commission lawyers said investors gave Murphy $14.5 million, but he spent just $5 million on properties, and allegedly misused or misappropriated $7.5 million. The SEC said $3 million was unaccounted for, $700,000 went directly to Murphy, and $1.5 million was spent on ads and self- published books.

Murphy was known for full-page ads in national journals, TV chats with Larry King and Tom Snyder, and his books ″Formerly One Up on Trump″ and ″Trickle ‘Up’ Economics.″ A Vietnam veteran and former homeless alcoholic, he was a prominent supporter of programs that helped substance- abusing veterans.

He acknowledged he had violated securities law in courting investors. In federal court papers, though, he said his mistakes were inadvertent failures to disclose all pertinent investment information and hire proper legal and accounting help.

He said he had defrauded no one and believed he would succeed in making money on his investments, which involved distressed commercial real estate. His lawyer argued that American Capital Investments’ problems had been corrected, and the investors’ best hope of realizing profits was to let Murphy, not a receiver, run the company.

″We’ve not painted him as a saint,″ attorney Irving Einhorn told Marshall. ″He’s made mistakes. But the fact is that Stephen Murphy has given investors everything that they were promised.″

Einhorn asked for the appointment of a monitor to keep tabs on Murphy as he runs ACI. However, the judge left control of ACI in the hands of Richard G. Shaffer, the receiver appointed earlier at the request of the SEC.

″Murphy had previously defrauded investors and misappropriated funds, and we didn’t think it appropriate for him to continue running the company under any circumstances,″ said Karen Matteson, senior trial counsel for the SEC in Los Angeles.

The SEC, accusing him in a complaint of a scheme to pay off old investors with new investors’ money, persuaded Marshall on Sept. 3 to temporarily appoint a receiver and freeze Murphy’s assets.

Worried investors jammed the courtroom Monday along with Vietnam veterans, many in camouflage gear. Murphy has helped fund two Los Angeles apartment houses and one in New Haven, Conn., to house down-and-out veterans.

″This guy was homeless not long ago,″ said John Keaveney, executive director of the New Directions program that helped Murphy and in turn benefited from his foundation. ″He’s always given back to us.″

Murphy’s lawyers submitted letters from 81 investors who said they did not want ACI taken over by a receiver. But in interviews outside court, several investors expressed grave reservations about Murphy.

″It should have been a giveaway when he promised me the 25 percent return,″ said a retired savings and loan executive who spoke on condition of anonymity. He was worried he would lose a $50,000 investment.

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