Jackson Jambalaya

While the controversy rages over the of role former Hinds County District Attorney Ed Peters in the Dickie Scruggs scandal, the media has so far ignored his involvement in the long-forgotten NASA fraud case from the mid-1970's. (469 F. Supp. 54) See http://groups.google.com/group/jackson-jambalaya/files (click on Peters case link)

NASA (National Account Systems Association) was an investment scheme cooked up by Mr. Peters and Charles Steen which promised to pay a rate of return at 12% interest (The market rate then was 6%) to investors. Charles Steen was earlier convicted in Alabama of operating a similar bogus investment scheme and served a three-year prison sentence. NASA was shut down by then-Mississippi Secretary of State Heber Ladner in 1974 for violating state securities laws after the scheme took in $340,000 from Mississippi investors. ( See "Peters Liable for NASA Fraud" by Bill Minor, Capitol Reporter, December 7, 1978)

The victims sued Mr. Peters and three other defendants in federal court to recover for alleged violations of federal and state securities law. The Court ruled Mr. Peters "was a controlling person of the issuer and is jointly liable for all violations of the Securities Act and the Exchange Act". The scheme involved the selling of accounts receivables purchased at a discount(with the money from the promissory notes) as promissory notes to investors. Unfortunately for the investors, the receivables originated from STARCO, a bogus paper company. Mr. Peters was also the attorney for STARCO (Conflict of interest?).

"NASA itself never issued any stock and never had any paid-in capital as required by law. Neither Peters nor Steen paid for any stock and none was issued. NASA was a corporate sham." (page 10 of Court's opinion). It should also be noted these companies had no reserves nor collateral, in violation of the law.

U.S. District Judge Orma Smith issued the following findings about Mr. Peters in the opinion:
"In the present case, Peters owed a special duty of diligent investigation and disclosure. Not only was he the lawyer responsible for the issuer's compliance with applicable laws, he also permitted his name (and his office) to be exploited as “president” of NASA when he clearly knew the daily operation of NASA would be controlled by Steen. He permitted NASA to utilize his signature stamp and made no effort to determine how his signature was being used...."

"Peters, as lawyer for the issuer, secured an exemption based on promotional material furnished to him by Steen. He did not make a reasonable inquiry to ascertain the truth or falsity of the representations when these statements could have been readily verified by a lawyer. He secured the certificate of exemption without which these securities would not have been offered or sold when he knew or should have known that NASA was in violation of law, had issued no stock and had no paid-in capital. During the term of the offering, when Peters had ample opportunity to detect the misrepresentations, he failed to report violations to NASA, to the Secretary of State of to the Securities & Exchange Commission."

The court concludes that without the active, affirmative assistance of Peters as lawyer for the issuer, including the use and exploitation of his name, the sale would not have been accomplished. Therefore, under applicable law, Peters was a participant in the sale and is jointly liable with the issuer for all damages....

Further, the Court concludes that, because of his approved designation as “president” and his role in connection with the sale, Peters was a controlling person of the issuer and is jointly liable for all violations of the Securities Act and the Exchange Act..

Peters, moreover, materially and substantially aided and abetted the issuer in connection with the offer and sale of these securities. The “scienter” requirement is satisfied because the evidence establishes overwhelmingly that Peters' conduct was grossly negligent and reckless. His conduct was an extreme departure from and a gross violation of the duties imposed on him as lawyer for the issuer. The preparation and assistance with the materially false and misleading statements and the course of conduct of Peters clearly imposes aiding and abetting liability on him as a matter of law...

The court concludes, therefore, that Peters, as lawyer for the issuer, is jointly liable for all violations of s 12(2) and s 17(a) of The Securities Act, s 10(b) of the Exchange Act, Rule 10b-5, Mississippi “Blue Sky” law and common law....

It should be noted the same court ruled "In the case of defendant Peters, the evidence does not show that he profited financially in any way in the subject transactions and the court cannot find that he intended to defraud plaintiffs.."

Despite this Panglossian finding by the court, it does not take a genius to figure out what happened. Mr. Peters acted as President of NASA and the attorney for other companies in the scheme controlled by his partner, Mr. Steen. Mr. Peters was so negligent in this deception the NASA phone line rang in the Hinds County District Attorney's office. (To think Tyrone Lewis was demoted for less). The offices of NASA and the District Attorney were in the same building. Mr. Peters inexplicably did not check the background of Mr. Steen, which would have revealed a criminal record. He allowed Mr. Steen to have his signature stamp, something an attorney should never do. It boggles the mind to think Mr. Peters took a prominent role in the companies involved yet was able to escape a harsher judgement. Bernie Ebbers is probably wondering right now why this defense did not work for him.

Mr. Peters' claim was he was just a Mississippi bumpkin who had no clue as to what a security was even though he was the District Attorney for the largest county in Mississippi and one of the sharpest lawyers in the state. The Court accepted his defense and merely charged him with being reckless, ignorant, and negligent BUT liable for the fraud anyway even if he did not profit from it. Hmmm....he gets involved in a case that blows up but yet there is no finding he profited from it. Does anyone see a pattern here?

The plaintiffs were awarded damages of $240,000. The defendants appealed to the Fifth Circuit Court of Appeals but the case was settled before it was heard. Despite the Court's findings, the state of Mississippi NEVER PROSECUTED ANYONE IN THE CASE! One must wonder where the true negligence occurred: in the office of the Hinds County District Attorney or the Mississippi Attorney General.

Do not even ask what action the Mississippi Bar took against Mr. Peters as it waited two years before issuing a cute little public reprimand to the District Attorney. However, it should come as not surprise to anyone who studies this case that Mr. Peters is once again involved in a controversy involving corruption and fraud.

Additional reading:
The Clarion-Ledger, "Hinds D.A. Reprimanded for 1974 Legal Job", January 6, 1981
The Clarion-Ledger, "Peters Stays Quiet on Reprimand by Peers, November 13, 1980
The Clarion-Ledger, "D.A. Asks Overturn of Ruling", March 8, 1979
The Clarion-Ledger, "Ex-D.A. Peters, Lawsuit was only NASA Benefit", October 6, 1978
The Capitol Reporter, "Book Closed on Ed Peters' NASA Boondoggle", January 8, 1981