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America's War Within: Fear and fortune

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Posted: Thursday, September 10, 2009 10:00 pm

It seemed impossible that John C. Mattman could fail. But a mere seven months after his company went public in 2006 and began selling shares boasting that its success was assured, the unthinkable happened.

By the end of that year, Mattman had just $200 in a personal bank account and $2.3 million in outstanding claims from creditors. To make matters worse, someone had stolen his Ford pickup truck.

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Mattman Specialty Vehicles was one of dozens of businesses that experienced a meteoric rise after the Sept. 11 attacks. Demand for sophisticated law-enforcement gadgets, baggage screening technology and emergency preparedness gear was insatiable. Police and firefighters had to be equipped for the next major catastrophe, and Mattman was well-positioned as the all-American company ready to satisfy a boundless need to keep the nation safe.

The abrupt and dramatic collapse of Mattman illustrates how small businesses and communities alike struggled to manage the seemingly limitless spending spree on homeland security that emerged after 9/11. Not until years after the hijackings would California officials in charge of federal homeland security funds for the state enact rules to prevent local communities from losing money as a result of companies going bankrupt without warning.

Congress helped fuel the industry's explosion by appropriating vast pools of money to local governments across the country in the form of antiterrorism grants. Topping wish lists everywhere were new muscle-bound but tremendously expensive incident-response vehicles that authorities wanted for fighting terrorism and disasters.

Packed with elaborate tools such as bomb robots, satellite communications, video monitors, biological-testing equipment, computer terminals and more, the vehicles can cost as much as $1 million. These custom trucks were Mattman's specialty.

"Finally a police department could get what they wanted instead of what they had to take," John Mattman said in a recent interview.

At its height, the truck maker had a backlog of $14 million in contracts. In California alone, trucks were delivered to Long Beach, Glendale, Marin, San Bernardino and Santa Monica, among others. The CEO of a small investment firm that loaned the company money, Huntington Capital, gushed to the San Diego Business Journal in the spring of 2006 that Mattman Specialty Vehicles, also known as J. Mattman Security, could be doing $50 million within a year or two of going public.

Two months later, something else occurred entirely.

"They were there one day, and then they were gone," said Todd Newman, chief of the San Marcos Fire Department in San Diego County, where Mattman was based at the time. "Their building was closed up and they had product half-finished in the parking lot."

Despite a line of waiting customers, Mattman still needed cash to buy nuts and bolts for assembling the trucks in the first place.

"Extreme growth can be just as lethal as the opposite," John Mattman said.

In court filings, he would blame the need to spend substantial funds up front for the chassis and other truck components. He also complained that government officials were too slow in making payments.

But Newman said the city of San Marcos agreed to pay the company more than $70,000 in advance for a new emergency operations trailer the fire department wanted. San Marcos lost the deposit when the company shuttered, and fire officials were not given even a half-finished truck, Newman said.

The Los Angeles County Fire Department signed a $1.5 million deal with the truck maker for three vehicles in June of 2005. The county paid $372,531 as a deposit when the chassis arrived at Mattman's facility, but the trucks weren't completed before the company went under. The county was forced to turn to another builder and ended up paying $682,000 more than originally planned, said Linda Estrada, a county manager.

The North Carolina Highway Patrol inked a $527,000 contract with the company in December of 2005 and made a down payment of more than $105,000 toward a mobile communications center for catastrophes and special events. But the department canceled the check after the truck maker imploded. They were eventually able to get the command bus for a similar price from a Florida company, according to Capt. Everett Clendenin.

Five months before closing, the company also announced a $2.1 million deal with Bank of America to build seven mobile banking units that could serve as temporary locations for customers if a disaster had damaged local branches. The truck maker wasn't able to carry out the contract. A spokeswoman for Bank of America declined to discuss the purchase.

As Mattman sees it, he shouldn't be held responsible for choices that may have led to the company's demise because someone else took over as president and CEO when the company went public.

"There were decisions made in the day-to-day running of the company that I didn't really agree with," Mattman said.

He did nonetheless still hold positions as board chairman, vice president and secretary after the transition.

The decision to go public in 2006 was made because the company needed much more capital than could be satisfied through simple bank loans. Executives also thought it would be cheaper than taking on more debt.

What happened next, as John Mattman describes it, led to a downward spiral. A Florida businessman named Ronald Glenn Williams offered to help create the new corporate entity needed to sell shares and raise funds. They did so by merging the privately held J. Mattman Security into a Nevada-based shell corporation registered with the Securities and Exchange Commission that Williams controlled, a process known as a reverse merger.

According to Mattman, Williams made a quick profit selling some of the shares he was awarded as a result of the merger. But the value of the remaining stock began to drop. That made it impossible to generate the desired financing, Mattman said.

Only later did Mattman become aware that Williams was not who he appeared to be. No law enforcement agency has examined whether Williams did anything illegal involving the truck maker. But records show he was convicted in 1998 on multiple counts of securities fraud, conspiracy, racketeering, grand theft and lending practices violations.

Citing interviews with witnesses, Florida investigators in a 1995 court affidavit described how Williams and a group of associates engineered reverse mergers involving small companies like Mattman. Police alleged that they carried out the mergers solely for the purpose of enriching themselves, leaving victims with worthless stock. Williams was released from state custody in 2002. Prosecutors again accused him of fraud and money laundering in late 2007 following an FBI sting operation, but he died in February of this year before facing trial.

The truck maker's changed fortunes left a trail of angry customers and employees.

San Marcos filed suit in September of 2006 hoping to get its $70,000 back. Two other creditors filed similar lawsuits after loaning the company cash to keep Mattman afloat during its waning months. One employee of 15 years, Jim Reed, said in a complaint that he'd given the truck maker essentially his life savings of $143,951 to help the company cover payroll and manufacturing expenses. But $89,000 of it was not paid back. Reed was a production manager when he lost his job along with more than 60 other people.

"I was part of that company," said Reed, now 74 and struggling to find work. "I'd been there longer than anybody else." Reed said he believed the company had problems even before Williams came aboard. "We were always borrowing from Peter to pay Paul."

John Mattman acknowledged that not everything was perfect before Ron Williams arrived, but he argues that the entire industry long struggled with front-end financing, which is why the company sought a reverse merger.

Many of the claims against John Mattman were halted when he filed for bankruptcy in late 2006. Today he lives in Michigan and is the government sales executive of a Texas-based company with a slightly different name: Mobile Specialty Vehicles. A bio for him on the company's Web site mentions only that he took his last company public before moving on "to pursue other ventures." There's no reference to the bankruptcy, the lawsuits over unpaid loans or the police and fire departments left with unfinished trucks.

Using what assets still remained of Mattman Specialty Vehicles, Huntington Capital of San Diego forged ahead last year with a new company called Mattman Global Specialty Vehicles. But no members of the Mattman family are involved. Records show Mattman Global recently won a contract from Fort Bend County in Texas to deliver a $112,000 communications trailer.

The California Emergency Management Agency, which is responsible for overseeing homeland security grants received by the state, began two years ago to require that communities secure performance bonds for vehicles they buy worth more than $250,000. It is a form of insurance designed to ensure local governments will be compensated if the product can't be completed.

"The change was made after certain jurisdictions had delivery issues on big equipment purchases," said Brendan Murphy, director of grants management for the state agency. "But this was not a response to any one incident."

John Mattman's father, Jurg, a former secret service agent, originally founded the business during the 1980s providing VIP security at high-profile events. By the end, his son said, everyone had walked away while his name was still on the building. "It was one of those things where you felt like you'd run out of gas at the finish line."

California Watch is a new investigative reporting unit started by the nonprofit Center for Investigative Reporting. Last year, CIR began examining the effectiveness of America's homeland security efforts in partnership with the Center for Public Integrity. To learn more about California Watch go to www.californiawatch.org.

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