A Richmond insurance agent funneled millions of dollars from people who thought they were investing in two of his companies into other ventures and used some of the money to pay earlier investors, state regulators said yesterday.

But Julius Everett "Bud" Johnson's two companies never put a dime from any actual business operations into their bank accounts, State Corporation Commission senior investigator Gail Moore testified at a commission hearing yesterday.

The bulk of their funds came from $3 million that investors placed in the two companies, Moore said.

The commission's staff alleges that Johnson misled investors in Benefit Contract Administrators, Livingwell Healthcare of Virginia LLC and 12 other firms about the risks and terms of millions of dollars worth of securities.

The Benefit Contract and Livingwell firms alone used $431,000 of the $3 million from investors to make payments to other investors, Moore testified. The rest of the money went to other Johnson companies, or employees, or to firms owned by an associate, Walter Ray Reinhardt, the salesman who dealt directly with investors.

Some 160 to 170 investors, mainly in the Richmond area, put funds into Johnson's ventures, SCC senior investigator Thomas Bayly testified yesterday.

The staff has asked the commission to order Johnson and Reinhardt to pay back investors and pay fines for their alleged violations of state securities laws.

Last week, Johnson's lawyer, Michael Unti, said at the SCC hearing that Johnson's companies were worth less than $1 million but that Johnson is working on a plan that should allow investors to be repaid in four to five years.

He said Johnson had tried to build a "business empire" of several operating companies - ranging from insurance to awnings to linen services - but grew too quickly and was not as careful as he should have been about bookkeeping and management.

Johnson presented financial material this year to an investors group indicating that he had sold more than $14 million of notes but had repaid only $2.8 million

After yesterday's hearing, Unti said neither he nor Johnson could comment, as they still had to digest thousands of pages of documents in order to put them into perspective.

Reinhardt said he hopes that Johnson will get a chance to come up with a plan to repay investors, adding "I deeply regret that anyone was inconvenienced or has suffered any harm . . . I did everything possible to observe the statutes."

A commission hearing examiner will now consider testimony from the three-day hearing, as well as legal briefs due to be filed in the weeks to come, before making a recommendation to the three SCC members.

Contact David Ress at (804) 649-6051 or dress@timesdispatch.com
July 29, 2010