Documents obtained by the Daily Sun following Monday’s Beatrice City Council meeting provide a clearer picture behind the council’s decision to deny an economic development loan application filed by Dempsters Inc.
Canadian court records and newspaper clippings show Dempsters president Ryan Mitchell defaulted on loans, conducted illegal sales of a Canadian company’s shares where he is listed as president, and encouraged Canadian taxpayers to skirt the country’s tax laws through charitable giving schemes.
Mitchell acquired Dempsters' assets for $1 million earlier this year in a sale from a Canadian holding company. He then applied for $300,000 in Community Development Block Grant funding from the city and another $200,000 from the Nebraska Department of Economic Development.
The loan is state administered to businesses for creation or retention of low and moderate income jobs. To secure the state loan, Mitchell must first be approved by the city council.
Through those two loans, Mitchell said he hoped to secure another loan from a private bank to restart operations at the Beatrice plant which produces windmills, submersible water pumps, recycling trailers and fertilizer spreaders.
The Citizens Advisory Review Committee gave Mitchell first-round approval in late October, concluding that if the proper collateral documentation was provided, the city should give Dempsters a loan.
Mitchell pledged to put up Dempsters' assets and inventory, as well as interest in several U.S. companies and even his own home as additional collateral. But city officials said Mitchell did not provide proper collateral documentation to secure the loan during Monday’s meeting.
Mitchell's previous business dealings also played a role in the city council's decision to deny the loan, city officials said Tuesday.
According to court documents, Mitchell completed a borrowing application with the Canadian Imperial Bank of Commerce on Oct. 27, 2006, setting up an $80,000 revolving loan fund through the bank.
The loan agreement stipulated Mitchell could withdraw any or all of the loan up to the credit limit and pay off any part of the loan at anytime. The court noted Mitchell had paid off a balance of more than $80,000 on April 1, 2008, but withdrew another $75,000 from the credit line nine days later.
Michell made minimum payments on the loan for the next year before the bank demanded full payment on May 26, 2009. When no payments were made, the bank executed the power of sale on the mortgage.
According to the Saskatchewan court's summary judgment, Mitchell claimed he requested a discharge of the mortgage when he made final payment on the $80,000 loan and that he was not responsible for the $75,000 taken out of the fund. He could not produce any evidence of the request to the bank, however, and he continued paying back the new loan over the next year.
“(Mitchell) claims that he inadvertently withdrew the $75,000 amount from the account less than two weeks after the $80,000 sum was paid,” the court said. “He claims it was unintended even though the evidence of the bank’s records shows that virtually the entire credit limit amount that was available to him was deposited into his personal bank account.”
The withdrawal slip used to secure the $75,000 loan was endorsed with Mitchell’s signature, court records state, and the payments made by Mitchell on the credit line also show he was aware of the debt.
According to the loan agreement, the account could only be closed if Mitchell gave CIBC written notice of termination, or if he paid off all the debts and was then terminated by the bank.
The Canadian court ordered Mitchell to pay the balance of the loan, listed as $76,505 in 2010, with 2.25 percent interest.
Also in 2010, Mitchell came under scrutiny of the Saskatchewan Financial Services Commission when he conducted an illegal sale of shares in Pure Water Box, a Calgary water desalination and sterilization company for which he serves as president.
Court records indicate Mitchell opened a corporate bank account in Pure Water Box’s name at the Bank of Montreal on May 20, 2010 and later hosted a luncheon seminar in Regina, Saskatchewan promoting the sale of 11.6 million shares of the company.
A total of 35 Saskatchewan residents and nine other Canadians paid more than $1.1 million for the shares prior to June 15, 2010, court documents state, and the money was deposited into a bank account Mitchell had sole control over.
Pure Water Box was not registered to trade securities in Saskatchewan during the sale, however, and Saskatchewan securities exchange officials froze the account, saying Mitchell and his partner Randy Shoeman illegally operated within the province.
Mitchell later filed the necessary paperwork on July 30, 2010, asking for exemptions for accredited investors as well as friends, family and close business associates.
The matter was settled on Sept. 28, 2010, when Mitchell agreed to pay a penalty of $10,000 and costs of $2,500, while the money was refunded to the investors from the bank account.
Other documents obtained by the Daily Sun show Mitchell was involved in a tax shelter program as a managing partner for the Canadian-based Global Learning Giving Initiative which promotes charitable giving in Canada in exchange for lower income taxes.
The National Post reported some Canadians who donated through the program were receiving tax credits as much as five times larger than the amount they had given. The Toronto Star reported that Canada had lost out on as much as $1.4 billion in tax revenue, while the targets of the donation received very little actual assistance.
The group and several others like it came under fire from the Canada Revenue Agency which said the programs were ultimately tax avoidance schemes.
More than 106,000 taxpayers who donated to groups in exchange for a rebate received letters informing them their donation tax credits were not allowed.Those taxpayers faced a reassessment from the CRA and a potentially large tax bill with high interest included.
A lawsuit between the CRA and Global Learning Gifting Initiative is pending in the Canadian federal courts.
City Administrator Tobias Tempelmeyer said the business problems were communicated to the city council before Monday evening's meeting and likely contributed to the council rejecting the application.
"It certainly was taken into consideration," Tempelmeyer said. "I don't think any of (the issues) had more pull than any of the other ones, but when taken in totality, it certainly impacted the recommendation that was made."
Tempelmeyer said he discussed the issues with Mitchell on Tuesday, and said the Canadian businessman had an explanation for each, citing some as a miscommunication between the two countries.
Mitchell did not return the Daily Sun's phone calls seeking comment on this story.
Reach Chris Dunker at email@example.com. Follow him on Twitter @ChrisDunkerDS.