John HazlehurstOn Oct. 25, 2013, the Business Journal published a lengthy piece about Colorado Springs mining stock promoter Shannon Murphy.

Patrick Holmes, a local investor who believed that he and other investors had been the victims of an elaborate gold mining swindle, had contacted us. It sounded like something from Cripple Creek in the 1890s, not the 2010s. One thing seemed clear: Murphy allegedly raised millions from investors during the previous decade, and hadn’t produced an ounce of gold.

Convinced that Murphy had fraudulently induced them and scores of others to invest in his companies, Holmes and Gary Nelson led an investor group that sought access to the companies’ books. Murphy refused, so the investor group sued. Holmes and Nelson had each invested hundreds of thousands in the deal, and were determined to find out where the money had gone.

Here are some excerpts from CSBJ’s 2013 piece.

“Since 2004, Shannon P. Murphy of Colorado Springs has sought to develop several gold mining claims on the slopes of Tenderfoot Hill near Cripple Creek. He has formed a number of companies to carry out mining operations, including Murphy Mining and Exploration (MME) and Murphy Mining International (MMI).

“Some work had been done at the site, where an extensive mining operation was in place during the 1890s. According to MME’s website, ‘The Company completed a series of surface core drilling holes for the period 2005-2009 and is continuing with this program in order to further delineate the various systems and geology on Tenderfoot Hill.’

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“But according to a civil action filed Sept. 24 [2013] in El Paso County District Court, Murphy has been systematically looting his own companies. Claiming that Murphy has refused to provide them with audited financial data that would enable them to verify that their funds were properly utilized, the plaintiffs want Murphy to step aside as CEO while they undertake an independent examination of the company’s books.”

“We think he took millions and converted it to personal use,” Holmes said in 2013.

The law moved at a glacial pace.

“Gary and I spent literally thousands of hours on this, sitting side-by-side at our computers, and going through boxes and boxes of documents,” Holmes recalled. “Murphy had been a fraudster for decades, and the total amount that he had scammed from investors was about $44 million. The statute of limitations had expired on a lot of his deals, so those investors couldn’t be part of this suit.”

But plenty could — and did — participate. In January 2018, a Colorado State Grand Jury indicted Murphy on 10 counts of securities fraud, listing 125 investors as complainants. Their investments ranged from $10,000 to $1 million, totaling almost $13 million.

“Pat and I gave the attorney general his whole case on a silver platter,” said Gary Nelson. “We had won our suit demanding to examine the company records, so we had all the documentation they needed.”

The trial was finally scheduled for this past December, almost two years after the indictment. Appropriately enough, the trial was held at the Teller County District Court in Cripple Creek.

“He thought he’d get probation,” said Nelson. “He was even trying to sell a bunch of mining equipment that belongs to the companies on the day before the trial started. I think the judge understood that this wasn’t a one-off deal, but something that had been going on for 20 years.”

As the trial concluded Dec. 19, Murphy made a last-minute proposal. He claimed to have an anonymous investor who was willing to buy one of his gold mining properties for $1.5 million, which would be available for restitution to investors, on the condition that Murphy manage the property for four years at an annual salary of $100,000.

The judge didn’t buy it. Noting the size and scope of the charges, he sentenced Murphy to six years imprisonment, followed by five years of probation. Deemed a flight risk, Murphy was handcuffed and taken to jail.

On March 9, there will be a restitution hearing at the court to determine what assets may be available to compensate defrauded investors. Holmes, Nelson and the other 123 victims are hopeful, but not optimistic. They shouldn’t be.

Fifty years ago, an investment banker cautioned me to stay away from mining deals.

“What’s the definitions of a mine?” he asked. “A hole in the ground. And what’s a mining company? A hole in the ground with a liar on top!”

“I never heard that one before,” Nelson said.

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