International developer or broke small-timer?

Mike Stuckey Senior news editor • Profile • E-mail

A key player in the most ambitious post-Katrina development in Mississippi is back in court and his employer is at risk for contempt proceedings in the wake of an MSNBC.com exposé.

Attorneys with the U.S. Securities and Exchange Commission have filed papers in federal District Court in New York accusing Richard S. Kern of Florida-based Paradise Properties of lying under oath in a “brazen” bid to avoid paying the more than $9 million he and his brother owe the government.

Seeking to dodge the debt, the SEC lawyers say, Kern portrayed himself to them as a broke, small-time real estate agent and vitamin hustler with a string of failed business plans. But Kern told officials of Hancock County, Miss., and his business partners that he is an international developer with the experience and vision to plot residential and commercial development on a scale never before seen in their Gulf Coast community.

“It sounds like two completely different people,” SEC attorney Richard Simpson told MSNBC.com.

To determine the truth, the SEC is seeking to grill Kern under oath again and review scores of Paradise Properties business records. While Simpson suspects that Kern’s claims in Mississippi could be in keeping with his “track record of dissembling about his background and experience,” it is “my responsibility to amass all possible information about Kern’s assets and sources of income.”

‘A fishing expedition’
Kern's lawyer calls the SEC action "a fishing expedition without any foundation in fact," a sentiment echoed by an attorney for Paradise Properties. Both lawyers accuse the SEC of trying to harass Kern by getting Paradise to sever its ties with him.

Eager for new tax revenue and economic development, Hancock County, with a pre-Katrina population of about 43,000, has accommodated Paradise Properties with zoning changes to allow the company to proceed with plans for $5 billion worth of residential and commercial projects over the next few years. That would be more than 10 times the value of all taxable property in the county before Hurricane Katrina struck on Aug. 29, 2005.

The difference in Kern’s two tales came to light after MSNBC.com reported on June 28, 2006, that Kern and his brother, Donald R. Kern, also a Paradise Properties employee, were participants in a late-1990s stock market scam that bilked investors out of more than $12 million. Found by U.S. District Judge Sidney H. Stein to have “violated the security laws repeatedly and with regularity,” the Kerns were ordered to pay the SEC more than $9 million in penalties and ill-gotten gains. And Stein noted that Richard Kern had been barred for life from participating in the franchise business after his involvement in an earlier scam that fleeced 400 franchisees out of $6 million.

The story also reported that when repeatedly pressed for any evidence of their experience as developers, neither Kern brother would provide the name or address of a single project in which they had been involved.

The Kerns and their associates brushed aside the story and continued to portray themselves as big-time players in commercial and residential real estate, including flashy presentations on the Web about the condos, casinos, marinas, estate homes and shopping centers they say they plan to build in Hancock County.

Just prior to the MSNBC.com piece, however, in a May 17 deposition taken in connection with the stock scam case, Richard Kern told the SEC a very different story.

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