Former Bonneville Pacific director John T. Dunlop pleaded guilty Tuesday to federal charges of insider trading, making a false statement to the Securities and Exchange Commission and aiding in the preparation of a false income tax return.
A nervous Dunlop appeared before U.S. District Judge J. Thomas Greene at 10 a.m. Dunlop took the stand and answered questions from Greene for about a half hour. Greene asked him if he was entering his plea by his own choice."I've had plenty of opportunities to not do this, and I have chosen to do this," Dunlop said.
Dunlop began negotiating a deal with federal prosecutors shortly after the public learned of possible fraud at Bonneville Pacific.
He agreed last December to plead guilty to the three charges in exchange for recommendation by federal prosecutors that he serve between two and three years in prison.
During Tuesday's hearing, Greene told Dunlop that he faces a penalty of 10 years in prison and $1 million on the first count; 5 years in prison and $250,000 on the second count; and 3 years in prison and $250,000 on the third count. Greene told Dunlop that he was not bound by the agreement that Dunlop had reached with prosecutors, and ordered federal probation officers to do a thorough background check on Dunlop and make a sentencing recommendation.
"This court will not deviate up or down from that recommendation, unless it finds extraordinary circumstances," Greene told Dunlop.
FBI agents began interviewing Dunlop about Bonneville Pacific more than a month ago. He has spent dozens of hours detailing Bonneville Pacific's transactions with other companies also owned by Bonneville Pacific officials.
Dunlop pleaded guilty Tuesday to three charges not previously discussed in earlier civil investigations of Bonneville Pacific.
In June, bankruptcy examiner Alan V. Funk submitted a report to the bankruptcy court which revealed that Dunlop converted $2.1 million of Bonneville Pacific money to his own use.
But Dunlop's attorney JamesMcConkie has been negotiating with federal prosecutors over charges that fell far short of an embezzlement charge.
The insider trading charge stems from a 1988 transaction between Video Releasing Corp. and Comm-tron.
Dunlop owned part of Video Releasing Corp. He used 115,000 shares of Bonneville Pacific stock to guarantee a May 1988 loan Commtron made to Video Releasing.
The stock was supposed to guarantee all of the $1.5 million loan. However, as a director of Bonneville Pacific, Dunlop had inside information that the stock was not worth $1.5 million.
According to the charges, he knew Bonneville Pacific would not make its projected earnings for the first three quarters of 1989 because of a $10 million sale of a major project had fallen through.
Dunlop had an obligation to disclose what he knew or refrain from trading Bonneville Pacific stock.
In late December, Commtron began selling the Bonneville Pacific stock. By January 1989 it had sold all of the 115,000 shares but netted far less than the $1.5 million in the sale.
The second charge Dunlop pleaded guilty to relates to Sallah International, a Panamanian company owned by Dunlop, several other Bonneville Pacific directors and Salt Lake Mayor Deedee Cor-ra-dini.
According to the charge, Dunlop and others indirectly owned 63,150 shares of Bonneville Pacific stock held by Sallah International.
Dunlop concealed from the SEC the fact that he and others were the real owners of the stock held by Sallah.
The tax charge stems from an arrangement Dunlop had with an undisclosed friend in 1990 to conceal $35,000 of the friend's income from the IRS.
The friend reported the $35,000 on his 1990 tax return as a loan from Dunlop that was repaid in 1991. Dunlop signed a false promissory note to help the friend deceive the IRS.
Dunlop has been more vulnerable to criminal prosecution than other principals at Bonneville Pacific, according to Funk's report.
The company fired him on March 17, 1992, after new company bosses discovered that Dunlop had taken $2.1 million from Recomp coffers. Recomp is a subsidiary of Bonneville Pacific and was for several years the parent company's biggest cash drain.
Bonneville Pacific bought Recomp in 1989 for $17 million from Dunlop and others. In the next three years, Bonneville Pacific lent Recomp more than $30 million. Recomp today is worth only a few million dollars.
During the 1,000 days it took Recomp to blow through approximately $47 million of Bonneville Pacific's money, Dunlop was Recomp's president and chief financial officer. Corradini and Bonneville Pacific officers Wynn Johnson and Robert Pratt served as directors of Recomp.
Dunlop took $2.1 million from Recomp to cover personal losses he suffered when Bonneville Pacific's stock plummeted. Dunlop had used his stock as collateral on several personal loans, according to company records.
Dunlop said he had the permission of Bonneville Pacific director Robert Wood to take the money. But Wood told Dunlop the money had to be replaced with something of equal value, according to a company memo.
It was not.
Dunlop took the money by creating three sham contracts between Recomp and three fictitious clients. Dunlop made it appear that Recomp had contracts with these clients - including two cities - to process their industrial waste.