Trustee questions funds funneled to firms tied to NADN executives

Kevin Rademacher

Monday, July 12, 2004 | 11:06 a.m.

National Audit Defense Network paid more than $12 million to companies controlled by top executives and managers in the months before it sought bankruptcy protection and, ultimately, liquidation.

William Leonard, trustee for the failed Las Vegas company's estate, grilled two top executives on the financial dealings in a hearing last week. He said the volume and nature of the transactions were "absolutely unusual."

Weston Coolidge, NADN's president and owner, said the arrangements were in place when he bought the company in 2002 from Cort Christie and Robert Bennington.

Under the deal, employees would be paid a fixed salary and their associated companies would then receive additional compensation for work above normal expectations or additional consulting work.

"This is a style, a management tool, I inherited with the company," Coolidge said. "(The employees) were the source of the future of our company. They set up this structure to motivate them."

Coolidge and companies he controlled received $1.36 million during NADN's final 36 months of operation, Leonard said.

Coolidge also conceded that as the company began to falter that the deals could be difficult to explain. "There could be more than one way to interpret these payments."

Such transactions, Leonard said, allow money to be paid to employees, under the guise of the corporations, without proper tax filings.

"Businesses don't do this," he said.

Al Rodrigues, NADN's general manager, said the arrangements were handled by Coolidge. Leonard claimed that Rodrigues and companies controlled by him received $2.55 million in NADN's final 23 months.

The liquidation is the most recent chapter in a series of problems involving the company. In 2002 both the Federal Trade Commission and the Nevada attorney general's office sued NADN, alleging it failed to honor money-back guarantees.

Last summer, NADN's troubles mounted when it filed for bankruptcy protection. The largest creditor in the filing was the Internal Revenue Service, which had a $1.3 million claim against the company.

At that time, Coolidge blamed the bankruptcy filing not on the IRS claim but on a $1 million claim against the company by the Securities and Exchange Commission. He said the SEC's action was based on an investment NADN executives made in a company that later turned out to be running a Ponzi scheme.

The IRS took on the tax firm with an April court filing that sought a temporary restraining order against the company. Attorneys for the Department of Justice said NADN was engaged in running a tax scam and filing false federal income tax returns for customers, costing the government an estimated $324 million.

Last month, the Justice Department also filed court documents claiming that former executives and employees of the company were illegally using NADN's customer list and database "and are continuing to scam customers through other entities."

The filing claims that the new entities are contacting customers who purchased products from NADN and offering to support those products.