Freedom Financial Group emerging from troubled past

The Springfield-based consumer finance company – now five years old – is the product of a bankruptcy reorganization plan involving its troubled predecessor, Stevens Financial Group, known in local circles for bilking some 2,800 investors out of $54 million.

Freedom Financial, which specializes in subprime auto loans, inherited those investors, or at least the ones that didn’t sell their shares of common stock for 4 cents on the dollar and put the whole affair behind them.

Since its January 2003 inception, FFG has limped along in hopes of someday achieving long-term profitability. CEO Jerry Fenstermaker described the company’s performance last year as “ho-hum,” but his expectations for 2008 are much higher with 20 employees on board, including sales associates scattered across the Midwest.

In late January, FFG secured a two-year, $15 million revolving line of credit through New York-based ReMark Capital Group LLC, a Goldman Sachs Group Inc. affiliate. Fenstermaker said the financing agreement has enabled the company to expand its portfolio of auto loans and hire additional salespeople to expand its Midwestern presence. FFG, based at 3058 E. Elm St., has agreements with 330 independent car dealers in Missouri, Kansas, Illinois, Indiana, Oklahoma and Tennessee.

“The idea over the next two years is to use substantially all of that money to buy car paper,” said Fenstermaker, whose career includes stints with Citicorp and Loansurfer.com. “We’re not going to put up an office building. We have infrastructure in place. We’re just going to buy the paper and – for the most part – leave it on the books and get the interest income to the point where the company becomes consistently profitable.”

‘A start-from-scratch approach’

Most of FFG’s stockholders are holdovers from Stevens Financial Group, a company that promised investors fixed interest rates as high as 12 percent.

The dividends paid out by Stevens were short-lived, though. The Secretary of State’s office ordered the company to stop selling securities in January 2001, and two months later, owner Clarence Stevens filed for Chapter 11 bankruptcy protection in Arizona.

State and federal prosecutors later charged several Stevens Financial officials with securities fraud and related offenses. Damian Sinclair, who owned predecessor Sinclair Financial Group before selling to Stevens in 1999, also was charged, but he died in December 2003 before he stood trial. Stevens was sentenced to five years in prison, and the other company officials – a group that included Sinclair’s ex-wife – received probation.

Investors who didn’t cash out their shares became begrudging stockholders in Freedom Financial Group (OTC: FFGR). Company shares closed Feb. 27 at 13 cents, compared to a 52-week range of 7 cents to 25 cents.

Fenstermaker said two separate insurance settlements and the sale of the Stevens Financial Group office on South Fremont Avenue provided about $10 million in startup capital for FFG. Aside from a $3 million loan from St. Louis-based Heartland Bank, the company has been turned away by about 80 lenders in five years, he added.

“We kept the company going at a modest level with those sources of financing,” Fenstermaker said. “There was no cash reserve of any kind inside the company when they went into bankruptcy. It was kind of a start-from-scratch approach.”

Then a brochure arrived in the mail from Falconbridge Capital Markets LLC, a Dallas-based investment banking firm. Falconbridge helped FFG align with ReMark, Fenstermaker said.

Bob Chancellor, a former Stevens Financial Group investor who now sits on FFG’s board of directors, said the financing agreement forged with ReMark is a coup, especially given the firm’s Goldman Sachs connection.

“I was delighted that we got this line of credit,” said Chancellor, a former Springfield City Council member. “We have known for a year or two that we needed it … to grow.”

Hard feelings persist

FFG’s goal is to recoup the investment of those swindled by Sinclair and Stevens.

Whether the company is able to do that – or when – remains a concern for stockholders, especially those who invested their money with retirement in mind. Fenstermaker said the company’s stock would have to climb more than 3,000 percent to $3 a share for investors to break even.

Troy Compton, a former Montgomery Ward manager who sits on FFG’s board, said he invested a “substantial” sum with Sinclair prior to the company’s collapse.

“The stockholders now – for the most part – are older people and many of them had invested their life savings into Sinclair/Stevens and were hoping to get a decent return on their money,” Compton said. “Now all they’re hoping to get is the return of their money, and it’s going to take a long time.”

Chancellor agreed with Compton’s assessment.

“I think there’s been some frustration that it’s been slower than what they anticipated it would be,” he said. “I think realistically anybody’s who’s going to break even is going to be in the next generation.”

Fenstermaker said the market for subprime auto loans is strong, because low-income people with jobs need reliable transportation. FFG targets individuals with “less-than-perfect” credit who are looking to buy a used car for $10,000 or less, he said.

The ongoing credit crisis driven largely by defaults on mortgage loans also has rattled some of FFG’s competitors, Fenstermaker said.

“What we think is happening is that many of the larger lenders are backing away from the lower credit scores,” he said. “It’s the old phenomenon. It looks like a recession, so it must be a recession. So big banks tend to pull back, and we think, ‘OK, if you all are going to pull back, we’re going to step in.’”

Despite some of the lingering resentment, Fenstermaker said he’s glad he moved to Springfield from St. Louis to run the beleaguered company.

“I hated to see these folks have no one really make a long-term, concerted effort to help them,” he said. “The challenge was big and that’s what I like.”[[In-content Ad]]