A Virginia businessman who bilked more than 1,000 Ocean City time-share buyers out of $4 million has received the stiffest sentence for a white-collar crime in Maryland since Jeffrey A. Levitt was jailed for his role in the collapse of a savings and loan.
Harold Lloyd Hensley, 53, one of the largest time-share developers in Maryland with several such projects in Ocean City, was sentenced to 20 years in prison on Thursday by Worcester County Circuit Court Judge Theodore R. Eschenburg.
Eschenburg gave Hensley the maximum penalties of 15 years for theft and five years for fraudulent misappropriation by a fiduciary.
The judge said he was so outraged by Hensley's schemes, which included collecting twice on notes for time-shares, that he rejected a recommendation from the Maryland attorney general's office that he suspend a portion of the 20-year sentence if Hensley paid back more than $2.2 million to his victims.
In rejecting the recommendation, Eschenburg said it was not realistic to expect that Hensley would ever pay back the money he stole. He also said he wanted to send a strong message to other white-collar criminals that Maryland courts are going to be tough on them.
In 1986, Levitt was sentenced to 30 years in state prison for stealing $14.7 million from now-defunct Old Court Savings and Loan.
Attorneys representing Hensley were deciding whether they would appeal the sentence.
Hensley has been held without bail at the Worcester County Jail since his arrest last spring.
G; Assistant Attorney General Julia Paschal Davis said Hen
sley will be moved to the state Reception, Diagnostic and Classification Center in Baltimore until officials decide where he will serve his sentence.
Eschenburg termed the Hensley matter "the most major case of theft Worcester County has ever had" and said that in terms of both the amount stolen and the number of victims it will serve as a model by which all such future cases will be judged.
Hensley's actions were even more culpable because he stole thousands of dollars from each of his victims "one at a time," the judge said after sentencing.
"In white-collar crimes, the money is not stolen in a single moment when a gun is pointed at the victim's head; rather, the money is stolen through hundreds of acts of subterfuge only detectable in accounting ledgers to which victims do not have access," the prosecution wrote in its sentencing recommendation.
Davis said Hensley stole mainly to keep his time-share businesses going.
"An honest man, when he saw the business going bad, would have closed down or filed for bankruptcy," Davis said. "A bad business doesn't justify stealing from other people."
Hensley stole the money from customers between 1986 and 1990, according to the attorney general's office and the Worcester County state's attorney.
The thefts involved time-share properties at eight Ocean City developments -- the Point on the Bay, Atlantic Resorts, Sandy Square, the Waves, St. Tropez, Ocean High, Ocean Time and the Bay Club.
In time-share arrangements, purchasers buy the use of a property for a specific period -- typically a week or two every year. The owner can sell the time-share to another individual.
Prices for time-shares at projects controlled by Hensley ranged from about $5,000 for a week in the winter to $14,500 for a week in the summer.
Hensley originally financed the purchase of his interests in Ocean High, Ocean Times, St. Tropez, Bay Club, Atlantic Resorts and Sandy Square by borrowing $20 million from Old Court in the early 1980s. Even though sales at the resorts were brisk, he was delinquent in repaying the loans at the time the Maryland Deposit Insurance Fund took over supervision of Old Court.
In 1987, MDIF placed Hensley's time-share portfolio in receivership. To avoid close scrutiny of his businesses, Hensley sought alternative financing, the attorney general's office said. In 1988, he borrowed $8.8 million from First Atlantic Savings and Loan, of New Jersey, to buy out the Old Court interest held by MDIF.
Hensley also misappropriated $2.2 million from victims by promising to reduce the price of their time-shares by $500 if they paid off their notes rather than finance the deals through his credit company, prosecutors said.
Hensley, however, did not tell the victims that he had already sold their notes to First Atlantic. When Hensley received time-share payments, he deposited the money into his own bank account and did not send the funds to First Atlantic as agreed. Essentially, he was paid twice for the time-shares.
Hensley would tell First Atlantic that the victims had not made any payments and were delinquent on their accounts, according to Davis.
The theft conviction stems from Hensley's failure to pay off liens on the time-shares he sold. Instead of using a percentage of the money from the sale of time-shares to pay off liens, Hensley used the money to keep his businesses going.
Owners discovered the theft when they attempted to sell their time-shares and found they could not because of the outstanding liens, Davis said.
Hensley avoided paying off the lien holders, which included banks and construction companies, by simply not telling them ++ when a time-share had been sold.
Regulators were especially appalled by Hensley's criminal actions because some of the Ocean City time-shares he sold had been formerly owned by Kenneth F. Puckett, who was jailed in 1983 for committing almost similar crimes. Puckett was sentenced to 10 years, with five years being suspended. In that case, Eschenburg was also the sentencing judge.
Puckett misappropriated $1.39 million in funds from consumers seeking a week or more of vacation time at the Seatime condominium project in Ocean City. Seatime's managers took in more than $4 million from about 1,300 people by selling time-shares the corporation did not own; by selling the same weekly intervals to several purchasers and by taking money that was to be held in escrow.
"Hensley said he was going to go in and clean up the mess Puckett caused and he turned around and did the same thing," Davis said.
Puckett's fraud led the state legislature in 1984 to pass the Maryland Real Estate Time-Sharing Act, which protects consumers.
The law requires time-share developers to register with the Maryland Real Estate Commission and post surety bonds ranging from $100,000 to $1 million. The bond serves to shut out developers who are under-capitalized and as protection against developers who hold money from time-share purchasers. The law also allows commission auditors to inspect developers' books.
Although Hensley held purchase money from time-share buyers well in excess of $100,000, he never posted a bond in a higher amount, as required by the law. As a result, in 1990, the real estate commission revoked his time-share development registration and fined him $92,950. He has not paid the fine.
George A. Meyls III, the real estate broker for some of Hensley's time-share projects, was fined $91,850 and his real estate license was revoked.
Maryland Attorney General J. Joseph Curran Jr. said that his office will be working with the state Consumer Protection Division and the real estate commission to resolve the problems of people who bought time-shares in Hensley's projects.
In the Seatime case, the commission authorized a payout of $900,000 from its $1.25 million Real Estate Guaranty Fund -- money contributed by real estate brokers -- to clear up title problems of nearly 1,500 time-share purchasers.
Curran said it took his office more than a year to investigate Hensley and the office sought the maximum penalty in an effort to deter other white-collar crimes.
"A clear message must be sent that it is not enough to simply pay the money back, nor is it enough to spend some token amount of time in jail, but rather a jail term commensurate with the gravity of the offense will be imposed," Curran said.