Winsted-Lester Prairie Journal, Aug. 23, 1999

Micron Rubber deal falls flat

By Luis Puga

The first sign that something was amiss in the Mircron Rubber deal was when a special meeting scheduled to discuss the business proposal was cancelled two weeks ago.

Initially, when the Winsted City Council heard of the lucrative business proposal, whereby the city would enter into $100 million trust with the tire recycling company, members were skeptical and cautious.

One reason was that Micron wanted the deal finalized by Aug. 15. The council set up special meetings to facilitate the process, but also had City Administrator Aaron Reeves begin checking with the Minnesota Department of Trade and Economic Development (DTED) and other agencies to verify the legitimacy of the company.

At Tuesday's regular meeting, Reeves said that DTED could not find any reference to Micron as an actual company.

Furthermore, Alamin, Inc., the bank that Micron was using as a trustee, had an injunction placed against it by the Department of the Treasury, Office of the Comptroller. Alamin is based on an island in Micronesia, an island group in the Pacific Ocean near the Phillipines.

The Department of Treasury indicated the company had been attempting to enter into trusts with cities for some time, and that the tire recycling factory was a new aspect of the deal.

Reeves said that the trust could be used as collateral for loans, which the company would default on. While the city would not be obligated to pay the loan, it would destroy the city's credit record.

Reeves said he also dismissed the deal after City Attorney Fran Eggert's review of the trust agreement. Eggert, who simply reviewed the document for legal accuracy, said "A three page trust on a $100 million deal? That's red flag number one."

In general, Eggert found the document vaguely worded, with few specifics, or definitions of terms or the purpose of the trust.

The trust named Dr. George L. Vaugn as a trustee and seemed to give that individual power of attorney, but it neither explained who Vaugn was or why he was a trustee.

Eggert even questioned the validity of how the document gave Vaugn power of attorney.

One paragraph in the trust gave the trustee the power to authenticate documents for the city. Eggert found that to be too vague and was not sure what that would have empowered the trustee to do on the city's behalf.

"In other words, it is like signing a blank check," he said.

Further, the trust does not talk about any construction to be completed or mention of the facility that Micron was proposing.

When asked whether he would qualify the proposal as a scam, City Administrator Aaron Reeves said "definitely."

That determination was not made by Reeves alone, but also based on some of the financial history Alamin had in Oceanside, Calif.

An article from the San Diego Daily Transcript indicates that Oceanside's Treasury Manager Carole Gierhart and City Treasurer Rosemary Jones found the terms of Alamin's proposed deal so dubious, that they stopped their mayor, Richard Lyons, from entering into the deal.

The article also states that both the district attorney and the FBI were looking into the matter and that the Oceanside mayor had come under intense scrutiny due to his investment of city funds in Alamin.

The city did not lose any money, but was asked to "carve out $100 million of its $135 million investment portfolio so the company could use it as collateral," according to Gierhart.

In another article published on the Thomson Investors Network, Gierhart said she became skeptical when the principle player, George L. Vaugn, would not give the city any more information unless it swore to secrecy.

That article further states that Alamin, a company incorporated in Nevada, had not paid its incorporation fees. Gierhart said that she hopes other small municipalities would not fall victim to the company's proposed business venture.

Reeves elaborated that New Germany was approached by Micron to enter into a trust to build a facility for $17 million. Howard Lake was also approached.

Howard Lake City Administrator Christina Frankenfield stated Howard Lake was still in the process of investigating the deal. No one from the City of New Germany was available for comment.

Reeves said he hopes no other city gets involved with this company. As such, the City of Winsted has turned over all the information it has to the Minnesota Attorney General's Office.


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