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Scheman defends CaroLinks against critics, charges
By Dan McCue
Staff Writer
An investigation by the S.C. Attorney General’s office into financial dealings of CaroLinks’ founder Lucy Duncan-Scheman continues with no word on whether criminal charges will be filed, according to a spokesman for the agency.
“This matter first came to the office’s attention by way of a customer complaint, and a review of the documents provided prompted a referral to the State Law Enforcement Division,” said Mark Plowden of the state attorney general’s office.
“There’s been no change in the status of this case,” he said.
The S.C. Attorney General’s office filed a formal administrative charge of securities fraud against CaroLinks’ founder Lucy Duncan-Scheman on Oct. 12, charging that almost $5 million provided to her by 27 investors was used inappropriately.
Duncan-Scheman has until Nov. 12 to request an administrative hearing on the charges. If she were to request a hearing and lose, she could be liable for up to $10,000 per violation.
In the immediate aftermath of the filing, Alan Capper, spokesman for CaroLinks, described the situation as a “serious misunderstanding of the facts and the measures taken by CaroLinks to protect its shareholders,” adding that the company intended to “vigorously contest the matter.”
Duncan-Scheman later told the Charleston Regional Business Journal that she believed she had not done anything wrong and that if it turned out she did, it was entirely inadvertent and “we’ll act quickly to make it right.”
On another legal front, Bart Daniel, attorney for Duncan-Scheman and her husband, Ron Scheman, has yet to file a response to a lawsuit filed by two of CaroLinks biggest initial investors.
G. Robert Kraus Jr. of Charlotte, N.C., and his father, George Kraus, of Southampton, N.Y., are seeking a preliminary injunction that would wrest control of the company’s financial assets from the Schemans.
A certified public accountant asked to review CaroLinks’ books by an investor in May deemed the company insolvent. Robert Faulkner, a licensed CPA and a principal officer with the Rock Hill accounting firm of Faulkner and Thompson P.A., said CaroLinks incurred operating losses of $7.8 million in its initial two years of existence.
But if the Schemans’ haven’t begun their formal defense against the charges, Ron Scheman has been spirited in his public defense of his wife and the company for which he serves as an officer.
In a lengthy e-mail to the Charleston Regional Business Journal and in subsequent conversations in which he emphasized that he was speaking for himself and not officially on behalf of CaroLinks, Scheman roundly rejected those accusations and media coverage of them.
According to Scheman, published reports have focused on money disbursed from the company to him and his wife but have neglected to mention that “we loaned the company far more (than was disbursed) and every disbursement to us was registered as a loan repayment.”
Scheman said that at the time CaroLinks sold its options on 1,300 acres in Orangeburg to Dubai-based Jafza International, he and his wife still had more than $400,000 of their own money outstanding in loans to the company.
“That’s hardly taking money from the company,” Scheman said.
Scheman also said that his wife deferred her full salary as CEO during the startup phase of CaroLinks “until she could assure shareholders that their confidence in her was well placed.”
“Is that someone who would seek to benefit herself at the expense of shareholders? In other words, she and I put ourselves fully on the line that we would accomplish what we said we could do and took nothing until we did it,” Scheman said.
“We worked for nothing—and even loaned the company a sizable amount of our own money based on confidence that Lucy would do the deal.”
Scheman also categorically rejected the Faulkners’ conclusion that CaroLinks was insolvent.
CaroLinks “is hardly an insolvent company,” Scheman said.
“A startup provides projections to shareholders when it begins. A startup always has more expenses than income for two to three years, sometimes more. In regard to CaroLinks, the company did not project positive flow, to my recollection, until after three years. Everyone who bought shares was aware of that,” he said.
“CaroLinks was losing money in its early years as do many startups. Its negative cash position was being helped by several people. It is today far, far ahead of the financial projections it provided to shareholders.”
He went on to discuss Jafza International’s purchase of the CaroLinks’ Orangeburg options.
“Remember, getting Jafza to come to Orangeburg was a complicated deal, which (Lucy) expected to close by last April. It ran into more than the usual delays. But rather than giving up, she persisted,” he said. “Yes, she did overextend herself. But she did so because she knew—and I knew—she would prevail and everyone would be made whole, and South Carolina as well as her shareholders would come out huge winners.
“CaroLinks, I assure you, is a company in excellent shape (with) a substantial positive balance sheet, no debts, and solid business prospects in its core business. Unless, that is, the company is subverted by people who are motivated by greed, have absolutely zero experience in this business, and who want to steal it from her to take the money for themselves.”
Scheman said Jafza International’s decision to commit itself to creating a $600 million logistics and manufacturing park in Orangeburg was “100 percent Lucy.”
“She succeeded in bringing one of the biggest investors in the world to South Carolina, and convinced them to invest in one of the most depressed areas of the state,” Scheman said. “Not easy.”
Scheman said his wife worked on the Jafza deal for almost a year before it came to fruition and that since February 2007 she had been bound by a strict confidentiality agreement, a lot of which still applies.
“This was a spectacular deal for South Carolina, creating huge investment and job creation in an area where no one in the state had the vision to act, nor the sophistication to pull it off. Lucy did,” he said.
A representative of Jafza International confirmed that Duncan-Scheman initiated contact with a sister entity of the company under the Dubai World umbrella and said, “If it wasn’t for her, we wouldn’t be at that location.”
Scheman also charged that several of the “old boys” tried to steal the land deal away from his wife “up to the last minute.”
Scheman described his wife as the smartest person he has ever met.
“We met through her work with (a) high-tech company,” he said. “She is self taught in the high-tech field in which she has been working over 15 years. Some of the transactions she pulled off (as a consultant) in Russia and China were groundbreaking.”
Scheman described his wife as a quick learner “who studies hard everything she can lay her hands on.
“She is brilliant in math,” he said. “This is one extraordinary woman with total integrity and a great desire to do things that benefit the underprivileged.”
Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@setcommedia.com.
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