Ken Paxton

Wednesday, December 12, 2007

Former Seguin Businessman Arrested, Indicted in Scheme to Funnel Funds to Prop Up Business

SEGUIN The former head of two Seguin-based media companies surrendered to authorities after an investigation by Texas Attorney General Greg Abbott’s office led to several criminal charges Monday.

A Guadalupe County grand jury indicted James Michael Story, 56, for several financial crimes. The felony charges against Story include misapplying wages that were withheld from individual employees’ 401(k) plans. Until 2006, Story ran the now-defunct Story Communications and its printing operation, Webstar.

Story is also charged with providing false financial information to a local bank, a first-degree felony. The inaccurate information allowed Story to obtain a $700,000 line of credit which funded his business.

According to court documents, Story misused his employees’ 401(k) money from 2003 until 2006. Criminal investigators with the Attorney General’s Office found that during this period, Story did not provide quarterly earnings statements reflecting employees’ 401(k) contributions, an attempt to conceal the fact that employee funds were not being properly invested in a timely manner and in turn were at risk of being taxed. Story Communications filed for bankruptcy in July 2006. However, just prior to the bankruptcy, Story had failed to deposit more than $20,000 into the employees’ 401(k) plan, a third-degree felony.

Beginning in 2001, Story was named general partner of Seguin Media Group (SMG), which owned KWED radio and the Seguin Daily News. The second misapplication of fiduciary property indictment alleges that Story exerted his influence as partner to illegally transfer funds between SMG and Story Communications bank accounts, which he controlled.

State investigators believe Story engaged in a scheme to illegally transfer money from the SMG partnership to his wholly owned entities, Story Communications and Webstar, the business that prints the Seguin Daily News. Investigators flagged these suspicious transfers as unjustifiable or unexplained, warranting further review. This offense is a first-degree felony, which carries a range of punishment from five to 99 years or life, and up to a $10,000 fine.

In addition to the charges of misapplication of fiduciary property, Story is charged with securing the execution of a document by deception, another first-degree felony. In this scheme, Story Communications’ relied on a $700,000 revolving line of credit from a local bank to sustain its operations during the period advertisers remitted their payments for catalog advertising services. At some point during 2002, advertising revenue dipped to a level that Story knew could not adequately collateralize the revolving line of credit with the bank. At that point, the company began to falsify its accounts receivables to deceive the bank about actual advertising revenue.