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Taking the rap.

Taking The Rap

Is Doug Wood The Fall Guy For Bob Shamburger, Or Just A Victim Of The Newspaper War?

To hear state Rep. Doug Wood tell his side of the story, he's just one more victim of the newspaper war and the Arkansas Democrat's aggressive business news coverage.

Wood's public demise started on Jan. 27.

On that day Wood's role as president of Reserve Energy and Capital Corp. was the subject of a lengthy Democrat article that questioned the company's financial statements.

Preparing to go public, Reserve's figures showed it had nearly $11 million in assets in oil and gas holdings. But the general tone of the article and the skepticism of three University of Arkansas at Little Rock economics professors and former Securities Commissioner Beverly Bassett, who reviewed and commented on Reserve's financials, was clear: Something improper is going on.

A photo of Wood showed an exhausted man who looked like he hadn't slept in weeks. The photo hammered home the overall impression of wrongdoing.

"It was just devastating," Wood says.

At the time, Wood says he was prohibited from talking about Reserve by a confidentiality agreement with the Louisiana Department of Insurance, and he couldn't tell his side of the story.

Such as the reason Reserve's financial statements were performed out of sequence was because the Securities and Exchange Commission required a financial form that Reserve didn't have on file.

"They made it look like some kind of sham," Wood says. "I chalked it up to being a public official. [The attitude is] there must be something wrong if a politician is included in this thing."

But that was just the beginning.

A little over two weeks later, the Democrat published an even longer article saying that as president of Midwest Life Insurance Co. for the previous 10 months Wood had shifted more than $70 million in assets from "conservative" investments, like Treasury bonds, into risky projects such as a $13.6-million bankrupt resort in Destin, Fla.

Worst of all, the article said Wood -- in possible violation of Louisiana insurance regulations -- helped move up to $20 million of Midwest's assets into projects controlled by the owners of Midwest, Bob F. Shamburger and Gary Jackson.

Shamburger and Jackson, both Arkansas natives, also owned 100 percent of Reserve Energy. The well-known Shamburger had a controversial business track record.

When the article was printed, Wood lost his $72,000-a-year job as head of Midwest, and within a month, lost his position as head of Reserve Energy.

Worst of all, he lost his reputation.

"My political, personal and business reputation has been dealt a devastating blow as a result of that article," Wood says.

Undaunted, Wood says he has answers for all the questions raised. He says the Democrat article is riddled with inaccuracies and he believes in Shamburger's integrity.

"He's a very honorable person," Wood says. "I would be very disappointed if that turned out not to be the case."

Midwest Declared Insolvent

Wood says among the Feb. 17 Democrat article inaccuracies are the following:

For one, he says, there is no connection between Shamburger/Jackson and a Florida real estate corporation called 98 Holding Inc.

"I'm still not aware of any relationship," Wood says. A Democrat flowchart with the article showing a relationship between the two is wrong, Wood says. "They [Shamburger and Jackson] didn't have a thing to do with it."

Shamburger and Jackson both have assured Wood that the alleged relationship doesn't exist, Wood says.

Most important, Wood says Reserve Energy gave Midwest $4 million in stock to help it build up its capital base; it didn't sell the stock as the Democrat reported.

"This is absolutely legitimate and was approved by the Louisiana Insurance Department," Wood says. Wood further alleges that the Democrat news article's report of the $4 million stock swap spurred the Louisiana attorney general's office to begin its investigation.

"That started all this stuff," Wood says of the Democrat article. "This is absolutely bogus."

Wood says there are many other problems with the Democrat article, but because of the pending attorney general's investigation he can't discuss them.

Wood says he has three years to consider filing a libel suit.

"They have made their bed. They will have to back that story. Sooner or later they're going to have to account to me on that story," Wood says.

At the Democrat, business editor Bob Dunn says his paper is ready to do that.

"Everything in that story was obtained through public documents and we stand by the report," says Dunn. The story was thoroughly examined before the paper ran it and Dunn says he has had no second thoughts.

Within weeks of the first articles, Midwest's operations in Texas and Louisiana were put under regulatory control, and operations in Wyoming and Florida were suspended.

About the same time, the Louisiana attorney general's office announced it was investigating the company -- plus an affiliated company, Public Investors Life Insurance Co., which Wood also headed. PILICO missed a payment on a $12-million bond issue in early March.

The attorney general's office speculated that Shamburger's holding company, Southshore Holding Co. of Metairie, La., which controls dozens of insurance firms, could become one of the biggest insurance scandals the state has ever seen.

The Press Brought Him Down

Last week, in his Sherwood law office where he now works alone and where he has no secretary in the late afternoons and has to answer the phone himself, Doug Wood at 48 years old says the press, and only the press, has been his downfall.

Sitting at a desk flanked by Arkansas and United States flags, an unrepentant Wood denies that Shamburger or Jackson might have used him as a front man and used his eight terms as a state representative to give an air of legitimacy to the insurance company.

"I'm very proud of the accomplishments we had," he says. "This company [Southshore] was $39 million under water when they took it over."

But calls to many of Wood's friends and acquaintances who have known Shamburger and have had business dealings with him elicited a common response: Wood has made a serious judgment mistake. They say he is Shamburger's fall guy.

"[Shamburger's] got the wool pulled over Doug Wood's eyes," says a North Little Rock insurance executive. "Bob Shamburger is not above using Doug Wood. I was really surprised to see Doug Wood involved in that deal."

If it's true, Wood won't be the first person who has felt Bob Shamburger has gotten the best of him or her.

In his time, besides selling insurance, Shamburger has been a television preacher, a salesman for a battery revitalization product that many said didn't work, a storm door and window broker and a small-time sports film producer. Among other things.

"He's such a great salesman; he's one of the world's greatest," says an ex-business associate. "You'd follow him anywhere."

The Super Salesman

A tiny man in his mid-50s who wears hearing aids in both his ears and has had hair transplants, Bob Shamburger appeared down on his luck in 1988.

At that time, Shamburger was operating the Outdoor Sports Network, a shoe-string film production company that made free-lance sports shows for cable television.

Located in a nondescript strip center in Stuart, Fla., Shamburger's office was sparsely furnished. A large room in the back doubled as a production studio and fledgling bible church for 20 or 30 of Shamburger's followers at that time.

An acquaintance of Jerry Falwell, Shamburger's small ministry was broadcast on local television. He told friends he was considering expanding his TV ministry.

With his extensive knowledge of the Bible, Shamburger struck people in the tiny enclave 35 miles north of Palm Beach as a religious, dedicated, sincere businessman who had fallen on hard times. Shamburger had just left some oil and gas ventures that had been crunched by lower oil prices, he told them.

But some of Shamburger's oil and gas investors had a different story to tell.

The Arkansas Democrat reported March 10 three lawsuits were filed in El Dorado and Kentucky by disgruntled investors against Shamburger for oil and gas participations. Some said they had been cheated.

"There was just a complete misrepresentation from the very beginning," Thomas F. Roberds, an El Dorado investor, told the Democrat. "I wouldn't touch him again with a 10-foot pole. I don't believe the man is honest, that's my personal opinion."

Similar sentiments were expressed earlier by purchasers of a Shamburger product -- Chem Tabs -- that promised to lengthen the life of batteries.

Shamburger founded the company in 1973 and ran a small factory in North Little Rock to manufacture the sodium tablets. Four years later, he claimed to have 70 independent distributors in 28 states, including Skaggs Albertson, Magic Mart and Wal-Mart.

At the same time, he launched Energy Engineered Products, which sold aluminum storm doors and windows and sponsored matinee movies on Sunday afternoon television.

By 1978, newspaper complaint columns were reporting that Chem Tabs didn't work and a year later the Arkansas attorney general's office said the warranty on the products was worthless because the company was defunct.

Shamburger began his business career with his father, Frank L. Shamburger, in 1959 when they formed Christian Foundation Life Insurance Co. in Little Rock. Before long they ran into the ire of insurance commissioner John Norman Harkey in 1967. Harkey said they were peddling stock, not insurance.

"I ran [Christian Foundation and the Shamburgers] out of here and they went to Kentucky," Harkey told the Democrat. "They called themselves |the insurance company with the Christian purpose.' They held open board meetings that began with a prayer. Then all these leeches would be turned out all over the state to get people to pay three or four times more than they were paying for."

Shamburger was in England last week and unavailable for comment.

The First Article

Wood says it is all sour grapes.

Wood says that he has searched the Insurance Department files and that Harkey never took any action against the Shamburgers. Plus, Harkey was notorious for getting into conflicts with insurance companies. He was sued by seven insurance companies and had the shortest term of any insurance commissioner in the state's history.

"There is no love lost between us," Wood says of his relationship with Harkey, which has also involved political differences. "I think Shamburger has a good case of libel against him."

Harkey also questioned Wood's qualifications to run Midwest. Wood counters and says his legal experience makes him eminently qualified to run an insurance company.

In 1983, Wood assisted in the restructuring of $3.6-billion Baldwin United of New York, which had three-fourths of its insurance assets tied up in Arkansas-based companies.

"That was the single largest restructuring of an insurance carrier in the country," Wood says. "We had lawsuits going on all over the country. We were pulling out firms left and right."

Wood also says he has performed legal work in bonding insurance cases for years.

In its defense, Southshore distributed a 23-page press release Feb. 26. Wood quoted freely from it last week.

Essentially, the release says that in late 1989 Southshore came to the rescue of an ailing insurance conglomerate named The Riverside Cos. In early 1990, Southshore assumed Riverside's operations, which were then $39 million in the hole.

"When we came to the table, we saw a tangled mess, but agreed to look for a way to restructure and salvage the companies," Shamburger says in the press release. "We considered walking away right then and there, but after further analysis and discussion with the regulators we decided to take on the challenge of rebuilding the troubled companies."

The Louisiana Insurance Department helped put the deal together, and when it was completed, asked that all restructuring be kept confidential until the problems were solved. This was to prevent policy holders from fleeing the companies.

For the next 14 months, the release says, Southshore moved assets around to gain more liquidity for the 12 operating companies, which had 450 employees. All of this was under a cover of public silence.

By year end, Southshore's corporations were streamlined, $14 million in new assets was pumped into the companies, $5 million in new premiums was written at Midwest, and new insurance products were added on. At the same time, $60 million in insurance coverage was paid.

Best of all, Wood says, Midwest finally made a profit of $200,000 after five years of straight losses. As well, its overall yield on bonds and mortgage loans increased by over a percentage point to 10.34 percent.

A large part of that was due to Wood's hard work, he says. He flew daily in his private plane throughout the South.

"I signed all the checks on that company," Wood says. "It was a tremendous opportunity. How often do you get a chance to go right from a law practice and do something like that?"

While all this sounds reasonable, what has complicated it is that the insurance commissioner who authorized it, Doug Green, was convicted March 14 on 31 counts of mail fraud, money laundering and conspiracy. Green's conviction was tied to the $225-million collapse of Louisiana automobile insurer Champion Insurance Co. in June 1989.

Further linking Southshore to Green, the commissioner's brother, Donald Green, was employed by a Southshore subsidiary as a project coordinator.

(Donald Green was also indicted on state charges of accepting bribes for promising favors for Champion Insurance and other subsidiary companies.)

Too Depressing

Just a few years ago, Wood ran his law firm on Broadway in North Little Rock with as many as 13 lawyers at its peak. But Wood decided to scale back and attempt to leave the practice of law.

"I really don't want to practice law. It's so depressing," Wood says.

Wood moved in December 1989 to a small office complex on Highway 107 in Sherwood and sold some of his law books. Then when Shamburger and Jackson approached him in the spring of 1990 to take control of $95-million Midwest and PILICO, he said yes.

"I was hired specifically for the purpose of rehabilitating the company," he says. "To me it was a tremendous opportunity."

In the 10 months Wood ran the companies, he proudly points out, Midwest increased new premium sales by 500 percent and built up the capital surplus to $11.5 million.

But now with the current investigation, and regulators in Nebraska and Kansas also looking critically at Midwest, Wood says the insurance company may not make it.

And Doug Wood may be headed for tough times.

Unless Southshore, Shamburger and Jackson are completely vindicated by the intricate world of Louisiana insurance politics, Wood's name may be tainted permanently. He is seriously considering a lawsuit against the Democrat depending upon the outcome of the Louisiana investigation.

Meanwhile, he returns to his law practice and the difficulties of getting investors for his other projects -- like a $1 million renovation of the Center Theater on Main Street.

"The question now is can I go out and get any investors to back me with all this," he says.

Plus, his political career may end with all the ammunition the bad publicity gives a future opponent.

"When I'm cut, I'll bleed. It hurts," Wood says. "But this is not going to stop me."

Pressed again on whether he thinks Shamburger has set him up, Wood admits he may be too willing to believe in people's promises.

"Yes, I'm too trusting. I am," Wood says. But in this case, Wood still believes he's right.

PHOTO : SAYS HE'S A VICTIM: State Rep. Doug Wood has been the subject of inches and inches of bad newspaper publicity over the past month because of his involvement with Southshore Holding Co. of Louisiana. Wood says the Arkansas Democrat started it all with a series of slanted news articles filled with errors; but the Democrat stands firmly behind their stories.

Wythe Walker Jr. Arkansas Business Staff
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Title Annotation:Doug Wood slandered for involvement with Southshore Holding Co. of Lousiana
Author:Walker, Wythe, Jr.
Publication:Arkansas Business
Article Type:Cover Story
Date:Apr 15, 1991
Words:2661
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