West Virginia's Cause Cl

Few people outside West Virginia have heard of Diversified Mountaineer Corp., and by now a lot of West Virginians wish they had never heard of it either. After 14 years of garish existence, the company has gone bust in the biggest cause celebre of the state's not-exactly-voluminous financial history. Its collapse has brought embarrassment or worse to citizens from Governor Arch Moore to thousands of small investors who put their money into high-interest but uninsured D.M.C. savings accounts, and now have little idea how much they can recover.

It all began in 1960, when a group of promoters offered West Virginians up to $10 million in stock in a company organized for the vague purpose of "engaging in diversified types of business." Though the promoters never spelled out what those businesses might be, they somehow sold 1.5 million shares at $2 each. At first they seemed to have little idea what to do with the money. They tried some ill-defined ventures that did not come off. D.M.C. might have suffered an early and unmourned demise had it not entered the obscure "industrial savings and loan" business.

An industrial S and L accepts savings and makes loans at rates unregulated by the Federal Government; by the early 1970s, D.M.C. could pay 7 1/2% to attract savings and collect 15% on consumer loans, both rates much higher than commercial banks or conventional S and Ls could fix. But the freedom from regulation carries a penalty. The deposits are not insured by the Government, as deposits in banks and regular S and Ls are, so if an industrial S and L squanders the money in unwise loans, the depositors have no protection. Between 1960 and 1970, D.M.C. opened or bought seven industrial S and Ls in West Virginia and four more in Virginia, Kentucky and Tennessee. At its peak last year, D.M.C. pulled in savings of $52 million and made $47 million in loans.

The 1962 acquisition of one West Virginia industrial S and L brought D.M.C. the services of Ted R. Price. A superconfident college dropout who had acquired a working knowledge of banking during service with the Army Finance Corps, Price, now 42, swiftly became the company's driving force and, in 1967, its president. Price immediately set out to make D.M.C. West Virginia's biggest corporation.

He started an advertising campaign that featured hillbilly singers twanging the virtues of saving at D.M.C. He also diversified the company's holdings by buying the biggest motel in Charleston, the state capital city; setting up two insurance companies that wrote policies for D.M.C. lending corporations; and organizing a brokerage house that dealt exclusively in D.M.C. stock. If shareholders complained that D.M.C. paid no dividends after 1972, Price replied with the statesmanlike observation that "Sometimes it is necessary to sacrifice profitability for growth." Last year he vowed to buy the First National Bank of South Charleston (assets: $27 million) and in anticipation he had already ordered installation of a bank vault on the ground floor of D.M.C.'s new Charleston headquarters.

It was an odd ambition because the Charleston banking community had consistently shunned Price. One possible reason: though deposits in D.M.C. were not insured, its offices were decorated with a trademark that bore a striking resemblance to the shield that symbolizes the Federal Deposit Insurance Corp. At any rate, the Federal Reserve Board refused to approve the acquisition, and D.M.C. was forced to recall a $1.5 million stock offering that it had planned to finance the purchase.

That was only one of D.M.C.'s troubles. As the Fed's tight-money policies sent interest rates rocketing, the interest that D.M.C. had to pay on savings leaped from a manageable $2.9 million in 1972 to a staggering $4.1 million in 1973. A change in rules adopted by the accounting profession caused D.M.C. to reclassify some balance-sheet items that it had carried as assets and call them liabilities; adjusting to the new rules added $3.3 million to a D.M.C. 1973 loss. About $3.9 million in loans that the company made in 1973 were later classified by an independent auditor as questionable. Worse yet, it had loaned $282,000 to Price and another $26,000 to State Banking Commissioner George Jordan.

Zsa Zsa. In January Jordan finally ordered the company to shut down in West Virginia. A subsequent audit showed that it had lost $8.2 million last year. Governor Moore is now under fire for assuring West Virginians last December that all was well. A federal grand jury is now investigating.

Ted Price has emerged relatively unscathed. Just before Jordan ordered his business to close, he married Susie Anna Pennington, popularly known as "the Zsa Zsa Gabor of Charleston." She had been part proprietor of the Candy Club, a nightspot that featured life-size portraits of herself and a co-owner clad in bikinis. At last report, the newlyweds were honeymooning on a yacht off Florida, where the sailing is considerably smoother than in the rugged mountains of West Virginia.

This file is automatically generated by a robot program, so viewer discretion is required.