Saturday, September 23, 2017

As Securities and Exchange Commission investigates, Steve Down tightens connection to Evergreen Aviation and Space Museum in McMinnville, Oregon

Last summer, supporters of the embattled Evergreen Aviation and Space Museum in McMinnville hoped a new era of stability and calm was at hand after Utah entrepreneur Steve Down bought much of the property out of bankruptcy.

But a year later, uncertainty is again at the museum’s door.

In the first detailed interview he’s granted in Oregon, Down confirmed the U.S. Securities and Exchange Commission in June notified The Falls Event Center -- the Down company that purchased the Evergreen assets out of bankruptcy -- that it had found evidence of wrongdoing and could launch an enforcement action.

Down denies he did anything wrong and remains confident the SEC will back off. He acknowledges, however, that his companies have suffered some significant setbacks, particularly in its fundraising from investors. By this spring, Down told The Oregonian/OregonLive, his companies had fallen $20 million short of expectations. The resulting cash bind prompted Down to sell two important planes out of the museum because he needed the money.

The latest twist in the saga came this week, when Down filed a $25 million lawsuit against two Oregon men, one of them a former museum insider, accusing them of launching a stealth campaign to sabotage his business.

In a lengthy interview, Down described his business, his financial philosophy and goals for McMinnville.

He says his diversified family of companies -- which includes a chain of sandwich restaurants, event centers for weddings and corporate meetings, a financial coaching firm and several others -- has made him wealthy.

He practices what he calls “cause capitalism.” Even Steven, his restaurant chain, provides a sandwich to a homeless shelter for everyone it sells, he said.

It’s apparently a winning formula for attracting investors. Down said he’s raised between $70 million and $80 million from 300 individual investors.

Down returned to his native Oregon last summer when his Falls Event Center emerged as the winning bidder for most of the buildings that house the Evergreen museum and adjacent real estate.

For just under $11 million, Down said, The Falls Event Center obtained property worth more than $110 million, in a bankruptcy sale. The deal also gave Down’s company all future revenue from the water park at the site.

In recognition of that, Down agreed to donate $70,000 a month to the museum. Down also agreed not to charge the museum any rent.

“That was a proud day for this Oregonian,” Down said. “I felt like I had saved the museum.”

Everything was proceeding as planned, Down said, until last spring. Someone stole data from their computer system, including lists of lenders and investors, he said. The cyber-thieves urged investors to steer clear of Down's organization, Down said.

Fundraising suddenly became much more difficult, he added.

In dire need of cash, he sold two aircraft out of the museum for nearly $3 million. This summer, two prized WWII planes -- a P-51 Mustang and a Corsair -- were packed up and shipped to new owners.

The move outraged some aviation buffs. One of them was Paul Peterson, who helped run an education program for high school students at the museum. The Mustang and Corsair were two of the most historically significant planes in the entire place, Peterson said, and here was Down selling them for fire-sale prices.

Peterson said the two planes are worth $6 million to $8 million in their current condition and would fetch $10 million or more if restored to flying condition.

Down’s cash crunch worsened after The Oregonian/OregonLive broke the news of the SEC investigation in July. Down said his detractors sent copies of the stories to all of his investors.

Down’s organization informed investors this summer that The Falls Event Center lost $8.5 million in the first half of 2017 on $2.5 million in revenue.

It’s not just the aviation museum feeling the impact of Down’s financial travails. The Falls Event Center owes the city of Beaverton more than $33,000 in unpaid utility bills. The company bought 14,000 square feet of ground-floor space at The Round, an office and condo complex. It intends to make the space into one of its event centers. But months after the purchase work has yet to begun.

None of this has deterred the Evergreen museum board from tightening its relationship with down. Earlier this month, the board signed a new 30-year lease with The Falls Event Center. Brandon Roben, the museum executive director, said the museum is not going to get a similar, rent-free deal from another owner.

Federal investigators began looking into Down’s organization last October. Down’s team didn’t inform company investors until Aug. 5.

“The reason we waited to advise private equity partners is because, quite honestly, we believed we had answered their (the SEC’s) questions so thoroughly that they would go away,” said John Neubauer, Down’s corporate general manager. “And even if they file charges, we are quite prepared and confident of being able to successfully defend ourselves in court, as the issues in the Wells letter we have already responded to and addressed - we believe - quite satisfactorily.”

But the SEC put Down on notice in June that it may not agree.  The agency, which declined to comment, could still refrain from taking any action, said Tung Yin, a law professor at Lewis and Clark Law School in Portland.

“But this is the SEC saying in effect “we think you’ve done something wrong and we’re investigating it seriously,” Yin said. “It’s not good news. Other than getting a target letter from the U.S. Attorneys’ office, I can’t think of a worse letter to get.”

Down went on the attack this week.

The Falls Event Center sued Peterson and JW Millegan, a McMinnville hedge fund operator, in federal court on Thursday. The lawsuit claimed the duo launched a sustained campaign to disparage Down in hopes it would cause him to default on his debt, which would allow the defendants to buy the museum at a bargain price. He is seeking $25 million in damages.

Peterson and Millegan said Down’s accusations are untrue.

Peterson said he was told Friday to leave the museum campus.

Down, meanwhile, vowed to carry on. He said is working on a major refinancing deal that will allow him to begin work on a major four-star hotel on the museum grounds.

“We’ve got a lot of things in the pipeline,” Down said. “The big hotel is part of this.”

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1 comment:

  1. You might want to update this article - TFEC has gone bankruptcy, SEC has cited Steve Down a second time and the FBI is investigation. Only months left and the Museum is at major risk of closing.

    Recent Oregonian article also: