4 Arkansans Face Lawsuit Over Failed Mortgage Company

In late 2003, Florian Homm thought he could turn around UCAP Inc., a publicly traded mortgage company in Denver run by four Arkansas businessmen.

ðlease treat my money as if it were your own,ðÐHomm said in an e-mail to UCAPð# president and CEO, Dan Moudy of Benton, and board member William McCord of Hot Springs on Nov. 19, 2003, after he agreed to pump $5.1 million into UCAP. ðõverybody ðÐplease make sure we do not satisfy those creditors who make the most noise but ðÐthose that accept a large hair cut.ðì/p>

Within a few months, Hommð# money was spent. By July 2005, the Securities & Exchange Commission had delisted UCAP.

Homm of Majorca, Spain, was one of three investors who now say they were duped into pouring more than $10 million into UCAP.

Homm, Joseph McAdams of Hot Springs and Richard Smyth of Amelia Island, Fla., are suing Moudy; McCord; Lynn Bradley of El Dorado, UCAPð# chief financial officer; and David Colwell, UCAPð# chief operating officer. The investors also have named the Little Rock accounting firm Moore Stephens Frost in their lawsuit filed in U.S. District Court in Hot Springs.

The investors are seeking more than $30 million in damages for alleged fraud, violations of sate and federal securities laws, breach of contract, and breach of fiduciary duty.

ðhe defendants used false and misleading financial reports that hid more than $30 million in losses and glorified financial forecasts to induce further investment including investments by Homm and McAdams,ðÐaccording to the lawsuit filed in May by the investors. ðØMoore Stephens Frost) was an active participant in the scheme to defraud, recklessly issuing false financial statements which it knew would be used to raise money from plaintiffs.ðÐ

Moudy and McCord deny the allegations. Bradley and Colwell havenð$ filed their answers yet and couldnð$ be reached for comment.

Moore Stephens Frost vehemently has denied that it did anything wrong and has asked that the case be thrown out of court.

ðhe complaint does not plead a single fact ðÐa single document, memorandum, e-mail, meeting, etc. ðÐthat even arguably raises any (much less a strong) inference that MSF made or issued a false statement knowing that it was false or that MSF had any improper motive to engage in fraudulent conduct,ðÐMSF said in its court documents.

MSF also said the statute of limitations has run on the allegations.

McCord and Moudy said they too lost millions in UCAP, which had operations in Arkansas through its main subsidiary, United Capital Mortgage Corp. of Aurora, Colo.

McCord and Moudy have filed their own lawsuit against UCAP seeking a judgment for any amount that they have to pay related to UCAP.

McCord is seeking more than $3.5 million that he has lost as result of being a creditor and investor of UCAP.

Moudy said in his court papers that there was never any ðraudulent schemeðÐby anyone to encourage the plaintiffs to invest in UCAP or loan the company money.

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