Interstate General Co. Ltd. Partnership may be forced out of business because of federal fines and loan defaults stemming from its conviction on felony wetlands violations, according to Securities and Exchange Commission documents filed by the company.
The Charles County developer, scheduled to be sentenced in June, could be liable for millions of dollars in both criminal and civil penalties for violating four counts of the Clean Water Act.
In addition, the convictions have resulted in loan defaults on $5.5 million in debt owed to Signet Banking Corp. and NationsBank Corp., and the company may be called into default on $47.3 million in debt -- representing substantially all of its recourse bank debt, according to a statement by its accounting firm.
"As a result of the uncertainty regarding the magnitude of fines, events of default, multiple loan defaults and uncertainty regarding the ability to obtain future financing, which may cause the company to have negative cash flow in 1996, there is substantial doubt about the company's ability to continue as a going concern," IGC said in its annual 10-K statement filed with the SEC, a copy of which was obtained yesterday.
The February criminal convictions, stemming from charges by the U.S. Attorney's Office and a subsequent grand jury investigation, involved the filling of wetlands at four parcels totaling 70 acres within IGC's 9,100-acre St. Charles community.
Under the law, IGC and company Chairman James J. Wilson could face a maximum penalty of $2 million -- or $50,000 per day on each of the four criminal counts -- plus a negotiated loss of profits on the parcels in question and remediation costs.
Wilson also could spend three years in jail.
But a spokesman for IGC, which is appealing the criminal convictions, said the "going concern opinion" was mandated by accounting firm Arthur Andersen LLP as part of an audit accompanying the filing.
"We're confident we'll work through these problems in the future in regard to the appeals," said Gregory A. TenEyck, an IGC vice president.
He said that negotiations are under way to cure the default with the banks.
It is the second time IGC has been forced to include a warning about its future in a public filing, Mr. TenEyck said. Four years ago, the company included the statement because of a debt restructuring that was under way.
Independent accountants, however, said the "going concern" statement in a 10-K is unusual, and underscores the serious jeopardy facing IGC.
"It's a relatively rare occurance, because in most cases there are viable means to continue the business," said George Garrett, an accountant with Wolpoff & Co., a major Baltimore accounting firm.
IGC, too, appears to be bracing itself for a protracted legal fight. Yesterday, as the company reported a net loss of $2.8 million for 1995 vs. a net gain of $6.6 million the year before, it reported a $4.1 million increase in reserves to cover legal and consulting expenses. In 1994, IGC's provision for legal proceedings was $498,000.
In addition to the criminal proceedings, IGC also faces potential civil penalties for allegedly violating nine counts of Clean Water Act laws. Under the civil statutes, IGC could be liable for fines of as much as $25,000 per day on the nine separate counts, according to the SEC filing.
Pub Date: 4/03/96