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Premium Sales Corp.'s investors lose big

Kenneth Thenen, a Miami entrepreneur, found investors for his company the old-fashioned way. On the golf course. Over dinners.

Michael H. Weisser, now a retired lawyer in North Miami Beach, recalls a tennis game four years ago with his good friend Thenen during which the latter urged Weisser to invest in his new concern. Others were escorted to intimate French restaurants or went on three-day junkets to Europe, often on the Concorde.

All were being enticed to place their money on Premium Sales Corp., a company that specializes in the high-risk, low-margin business of "diverting." Such concerns buy huge quantities of grocery store products in one part of the country and then sell them at a higher price in another. It's a business that relies heavily on computers _ and cash.

Weisser took his friend's advice. As, indirectly, did more than 1,000 other wealthy, intelligent and normally cautious investors, many of whom live on Florida's Gold Coast. They include lawyers, accountants and real-estate developers.

And now, they all may have lost as much as $400-million.

Premium Sales was placed in receivership last week by a federal judge in Miami after the Securities and Exchange Commission accused the company and its president, Thenen, of defrauding investors and conducting sham transactions.

Regulators, creditors' attorneys and representatives of Premium Sales are now in U.S. District Court in Miami wrangling over the company's future. On Monday, a court-appointed receiver won a court order freezing the assets of Thenen, his wife and son and Daniel Morris, Thenen's sales manager.

Interviews in recent days with investors, as well as with employees of Premium Sales, investigators and lawyers, have begun to provide a picture of how the company worked, of Thenen's extravagant lifestyle, of how he persuaded so many to part with so much, and how it all fell apart.

Premium Sales was founded by Thenen in 1989. The 56-year-old executive was a longtime member of Miami's business community. He turned to his group of well-to-do acquaintances with a seemingly preposterous promise: returns of as much as 40 percent on their money.

For the easily charmed, there were evenings at professional basketball games, or even trips to the Caribbean on a private plane. For skeptics, there was the Premium Sales headquarters itself, the entire fifth floor of a black-glass office tower in the opulent Aventura area of north Miami, where about 150 people could be found bustling about.

Business looked good. Visitors were always sure to be led past a giant LCD display that flashed product names like "Ralston Rice Chex" and the selling price. Both Thenen and Morris, his sales manager, had their own suite of offices; the former with a private recreation room featuring a half-moon bar, the latter with a Bang & Olufsen television in a private viewing room. Memos from those suites began with the heading: "From the desk of God . . ."

In all, Premium Sales claimed to have a total of 550 employees in its main office and warehouses in Fort Lauderdale; Las Vegas; Lexington, Ky.; Seattle; Puerto Rico; and Southern California.

Visitors to the facilities found first-class operations equipped with forklifts, computers and other equipment. And as proof of the company's transactions, investors were supplied with copies of invoices, complete with names and telephone numbers of the suppliers and buyers with whom Premium Sales was allegedly doing business.

According to investors, about a dozen partnerships eventually were formed to provide investment funds to Premium Sales. In almost all cases, the required investment was substantial _ a minimum of $50,000 to $100,000. But the returns, delivered "every week or every month," were "wonderful," says Weisser, the retired lawyer. "Everyone I knew was in on it."

The problem is that Premium Sales may have been little more than a "classic Ponzi scheme," says Thomas Tew, a Miami lawyer who served temporarily as the company's receiver last week. Instead of actual returns, investors were likely getting back their own money or money raised from new investors, according to regulators and lawyers.

Premium Sales did conduct some business, regulators say, but that business probably amounted to just 10 percent of the $2-billion or so in sales the company indicated it might report this year.

Thenen, according to one investor, said he was giving investors a 3 percent cut of sales, keeping 3 percent for himself and spending 3 percent on salaries and expenses. He also said sales last year totaled $900-million.

But the company never produced a balance sheet, financial statement or budget in 1992, according to Laurie Holtz, a forensic accountant who reviewed the company's finances last week. Premium Sales also neglected to fill out an income tax form last year, according to Holtz.

Meanwhile, Thenen, along with Morris, Premium's sales manager _ and several members of their families who had been brought on board _ were doing quite nicely.

Thenen, according to investors, lives in a condominium on exclusive Williams Island, where tall white towers, a health spa and restaurants dominate the Intracoastal Waterway. Morris, a weightlifter who often wore polo shirts to work, alternately drove a Corvette convertible, a Jeep, a Jaguar convertible and a red Ferrari, employees say.

However, Morris, unknown to investors, had been president of a company that had financial difficulties in the past. That company, Southern Merchandise Distributing, a wholesale distributor of drugstore products in Hialeah, filed for bankruptcy protection in December 1985, according to federal bankruptcy filings. The company owed creditors $3.1-million at the time, filings show.

News of Morris' past, including alleged financial difficulties involving Thenen, surfaced last month in Forbes magazine and brought investors up short. Plans to raise an additional $100-million fell through. Robert Shevin, a lawyer with Stroock & Stroock & Lavan, said he was contacted on June 4 by Thenen, who asked the lawyer to meet with investors and to help Premium Sales develop a reorganization plan. Stroock & Stroock hired an accountant and began sifting through Premium Sales' books and inventory.

A showdown took place at Stroock & Stroock's Miami offices on Tuesday of last week. About 35 people, including general partners of Premium Sales and their attorneys, were present. The grim news: Premium had sales of about $240-million to $300-million a year, the accountant told them, and a liquidating value of about $68-million to $80-million. Investors had poured $515-million into the company, regulators say.

Furious, the group stormed out. Several headed straight for the local SEC office. The next day, the company was placed in temporary receivership.

Neither Morris nor Thenen was available for comment for this article. The latter's attorney, Edward Shohat, says some investors are trying to "sandbag" Premium Sales.

Leonard H. Bloom, another attorney for Thenen, says he can't comment on sales figures at the company because "I don't know what investors were told." He says it is "probably correct" that Premium Sales had no financial statements in 1992. He also doesn't think the company filed taxes that year. And he doesn't dispute the comments made at last week's briefing to the general partners.

Finally, Bloom declined to comment on whether the activities at the company represented a Ponzi scheme or whether investors were simply getting back their own money. "That's something that has to be proven in the courts," he says.

_ Michael McCarthy contributed to this article.

Reprinted with permission from the Wall Street Journal. 1993 Dow Jones & Co. Inc. All rights reserved.