Miscarriage of Justice: Beach couple's American Dream becomes their worst nightmare

VIRGINIA BEACH (August 1, 2007) - - Back in 1986 Mike and Barbara Agnew were young. Full of confidence. Determined to make their millions and establish a wonderful, happy, and successful life for themselves.

Little did they know their pursuit of the American dream would become their worst nightmare. Little did they know that in 20 short years they'd find success, have the perfect family, a girl and boy, lose everything, and go to jail. Little did they know that they'd be the victims, caught in a web of legal conspiracy touching almost every powerful person from Tidewater to Richmond. Or an incredible coincidence. Which is it?

Back then, Barbara was working for Pepsi Cola. Mike at Century Concrete when love stepped into the picture. That was in 1986 and the couple had two goals: Marriage and owning their own company. They accomplished both goals that very year.

"Mike," said Barbara, had a strong desire to build something from the ground up and fittingly, our new company specialized in concrete work." Both working with the zeal, ambition, and innocence of youth first started doing what they could do best: Residential driveways and sidewalks and then started gradually working their way into the commercial market.

Barbara worked like a dog alongside Mike. They were a team. About 2 years later along came Katelin and after that Sam. It was a hard life, but they were young and had a goal. They could handle it.

"Profit margins are unpredictable," Barbara said, "due to many variables involved. The concrete business was not flashy or sexy like tech company or dot.coms. We struggled with the elements, high labor turnover, and constant worries over cash flow issues.

"We worked long hours, taking first our young daughter and then our son into our office with us when necessary and day care wasn't available."

It all started to pay dividends. "Mike's knowledge of the concrete industry, along with his reputation for honesty and hard work did much to fuel this growth. He was constantly seeking ways to become more productive. We were a leader in our area in using cutting edge equipment to increase productivity," she said.

The Dream is on....Big jobs are coming

Payment terms in the construction industry and the practice of 'retaining' 10% of the total contract until the whole project was finished, causes cash flow to always be tight, as anyone in business will tell you. "Because we were typically one of the first contractors on the job," Barbara said, "our wait to collect our retainage was longer than for most others.

"All subcontractors in construction deal with these issues, and traditionally, banks aren't excited about loaning money with 'big yellow equipment' as collateral," she explained.

AGM was no exception. They turned to a factor, Reservoir Capital, which restricted funding to receivables which had been approved by the general contractors, but did not include retainage funding.

"Reservoir," Barbara explained, "was a true factor. Before they purchased our invoices, they sent personnel to examine our records, performed a due diligence inspection, and set strict guidelines, including requiring signatures of the officers of the general contractor.

That's a hard way to go and grow, but Mike and Barbara had to have money and so they signed on with Reservoir with a contract that included a significant penalty if terminated before 12 months.

The view from prison

Sitting high on a mountain top in the unfenced, minimum security camp portion of the relatively new Lee County Federal Prison in southwest Virginia, Mike walked into the interview room. Prohibited from speaking until given permission by the 'CO' - correctional officer. After being taken into a private room for a search, he sat at the table.

Youthful. He'd lost more than 30 pounds. He taught GED classes for the inmates for a short while each day. Rest of the time was his. He walked about 15 miles in laps around the camp and worked out.

Bright-eyed, proud, smiling his childish grin, and holding his head high, he shook hands.

Why are you in here? "I really don't know," he replied. He talked. Explained his innocence. The problems with contracting, the FBI investigation, what he called, 'ineffective' counsel that misled he and Barbara into agreeing to a bench trial by a judge, whom Barbara later discovered had been in a multi-million dollar business deal with Dan Hoffler and Russell Kirk.

Hoffler, owner of Armada Hoffler, one of the largest Tidewater area developers and AGM's biggest customer, claimed to have lost more than $1 million because of the Agnews. Kirk was president of Armada Hoffler, member of the Resource Bank Board, and its 3rd largest stockholder. Both victims. Both partners with U.S. District Judge Jerome Friedman who tried, found guilty, and sentenced the Agnews.

Is this where the conspiracy comes in? "That's part of it," Mike said, "but there's a lot more to it."
He gave up names of people who could back up his story of innocence. Charged he'd been set up by the bank, aided and abetted by the investigating agents, and the judge's conflict of interest.

What the biggest mistake you made? "We grew too big, too fast," Mike said. Something like from $2-3 million to $20 million in 3 years.

How did Resource get involved?

Barbara said that in the fall of '95, they got a cold call solicitation from Mary Smith, senior vice president of Resource Bank, hawking a new program called a "Cash Flow Maximizer Program."

"This program was presented as receivables financing which was much more flexible than 'factoring,' with slightly lower fees," Barbara said. Because they were only a couple months into the program with Reservoir, Mike and Barbara turned down the offer, but by late '95 their volume was growing so rapidly, "...we saw the need for a traditional long term financing program."

Voila! The program, Smith said, "was one that could be tailored to our needs," Barbara said they were told.

They offered to allow the bank to take over their accounts receivable, but Smith declined, saying she'd let AGM handle its own customers. "She indicated," Barbara said, "that she did not want to contact our customers and they they (the customers) did not have to know we were utilizing the CFM Program. The Agnews signed on. (See: The CFM Agreement )

There's no question the CFM is ambiguous and could be interpreted anyway that would suit the bank, but the Agnews were desperate for funding to keep AGM available to handling the increasing work load. And Mary Smith said they'd be liberal in administering it.

The Agnews had to pay Reservoir a penalty of $156,000 to get out of its contract and move ahead. Resource purchased $1.5 MILLION of AGM's outstanding receivables in January, 1996.

New partnership formed with Resource

Barbara said, "Smith told me that Resource would fund up to the contract amount on any job we were awarded, without regard to completed work." (Remember, with factoring the work had to be completed before funds were released. Resource offered to fund the full contract (less retainage) before the work was completed. This freed up funds for labor, supplies, and expenses. It was almost too good to be true.

"This CFM plan would allow us to draw funds for future growth without limitation up to the total amount of the contract," Barbara said. Resource would also fund AGM's retainage receivables as they accumulated - not at the end of the contact. But it was stipulated if the invoices were not paid within 120 days, "we would have to 'replace' them with new invoices or pay them off through our reserve account," Barbara said.

For the next 18 months, the program ran exactly as outlined

In 1997, AGM suffered 'significant' losses due to 3 projects. Mike went to see Resource president Lawrence Smith (See: Barbara's history of Smith's record) and advised him of the situation.

"Had Mike and I heeded the advice of our attorney and our accountants, we would have simply filed corporate bankruptcy and walked away," said Barbara. That would have left the bank holding almost $4 MILLION in bad loans.

"We made, what in hindsight was perhaps the worst decision of our life. We decided not to file bankruptcy, but to work through our financial problems.

Bank operating beyond its legal limits

The bank had a legal lending limit for borrowers. At the end of 1997 that limit was $2.43 MILLION, but AGM had loans totaling $4.364 MILLION, more than $2 MILLION over the bank's legal limit, but the bank approved it. (See: Banks legal lending limits vs. loans it had outstanding with AGM)

But the storm clouds had set in and the spring of 1999, bank examiners came in, 'discovered' the CFM situation "and we were told they told the bank it had problems with the CFM program.

"We weren't the only ones using this program. Armada Hoffler, our biggest customer, was always borrowing from the bank. We don't know that they were on the CFM program," Barbara said.

"Smith advised Mike," Barbara explained, "the examiners were 'out for blood'. We had already repaid the bank more than $50 MILLION in 3.5 years on the program.

By the fall of 1999, the end was near. The rules changed. The bank had to bail out of the program "and make us the scapegoats, I guess," Barbara said, "because at 2 p.m. on August. 6, 1999, Resource refused to fund our payroll and faxed us a letter to assemble our collateral." Mike said, "If they'd told us they were going to do this on Friday, we could have gotten someone to fund us the previous Monday."

"Mike and I went to the office" Barbara said, "and advised our personnel that the company was out of business. About 200 people lost their jobs that afternoon."

Looking back the seizures were illegal by most standards, but on Saturday morning, Aug. 7, 1999, Mary Smith, her boyfriend, bank employees swarmed the Resource office, taking everything down to paper clips and the copier. They took all records, all paper, personal, private, or corporate. "It looked like the place had been cleaned out by a cleaning service," Barbara said.

"What they failed to do, however, at any time was secure more than $3 MILLION in equipment, much of it financed, that was scattered among jobs throughout Tidewater," Barbara explained.

Were the Agnews blind-sided? Maybe, but Mike while on the Armada Hoffler Renaissance Hotel job in Portsmouth was told 2 weeks earlier by another contractor that Hoffler had told him they would be replacing AGM.

How did Armada Hoffler know so much earlier? Remember Russell Kirk was on the bank board.

So the Agnews were left to wonder after the reported visit by bank examiners: Was a big crack down planned against the bank? Or did the bank convince them it would take immediate action - picking the little guys, AGM, while giving the other bigger customers and Armada Hoffler time to square their accounts? Was action against the Agnews a smoke screen for the bank to cover its more egregious evils?

That's how conspiracy theories start: Unexplained events and knowledge prior to an actual action? In this case against the Agnews.

[For the record Resource Bank did not respond to email queries. Fulton Financial its parent bank said all the above happened before they bought Resource and other litigation may be pending between them and the Agnews. Fulton, described by those familiar with the company says it is known for its corporate conscience and integrity, also declined to comment.

See previous stories:

• A Tale of Miscarriage of Justice: Conspiracy or Coincidence?
• The view of the miscarriage of justice through eyes of an innocent teen: Miscarriage of Justice: Conspiracy or Coincidence - Part 2
• Miscarriage of Justice: Beach couple's American Dream becomes their worst nightmare

Conspiracy? Coincidence?
What a web the story weaves.

Friday: The investigation. Questionable FBI behavior. Questions the FBI won't answer. Prosecute. Don't prosecute. Who was calling the shots here? And Why?