Probe targets Maryville, Tenn., computer hardware firm Procynet

Nov 06, 2008 (The Knoxville News Sentinel - McClatchy-Tribune Information Services via COMTEX) -- RF | Quote | Chart | News | PowerRating -- Ed Whitehouse, the businessman associated with the defunct Maryville company Procynet, is under federal investigation involving the U.S. Attorney's office, Whitehouse's lawyer confirmed Wednesday.

Procynet, a company with ties to several other local businesses, closed in June and was forced into bankruptcy by creditors in July. Whitehouse and his attorney, David Eldridge, were present at a creditor meeting held Wednesday at U.S. Bankruptcy Court in Knoxville.

At the meeting, Whitehouse invoked his Fifth Amendment right against self-incrimination and declined to answer most questions related to operations of Procynet and other companies with which he may have been involved.

At present, Procynet, also known in bankruptcy documents as Direct IS, a computer hardware and services firm that operated in Knoxville, is the only entity related to Whitehouse involved in the bankruptcy proceedings. The company and other related firms were unexpectedly closed five months ago, leaving more than 100 people without jobs and many without severance, medical insurance, expense reimbursements or pay for their final days of work.

Those companies include Resource Imaging, a Maryville medical imaging company; Data Management Services, a medical office management firm also based in Maryville; and Basic Communications in Nashville.

According to bankruptcy trustee G. Wayne Walls, who conducted the creditor meeting and questioned Whitehouse, Procynet was owned by Data Center LLC and Medical Data Specialists, both located in Maryville.

At a bankruptcy hearing in July, attorneys representing Procynet creditors and local branches of BankEast and Regions Bank indicated that Whitehouse owes millions of dollars in loans and reportedly is under federal investigation, which Eldridge confirmed.

"Mr. Whitehouse has been cooperating with an investigation into these matters that we are hopeful will resolve in the near future," Eldridge said following the creditor meeting, which was continued until a proposed date of Dec. 5.

"It is a federal investigation," Eldridge said.

During the meeting, bankruptcy trustee Walls questioned Whitehouse regarding his and family members' ties to Procynet and other entities associated with the bankruptcy case. To most questions, Whitehouse took the Fifth.

Walls asked about more than $1.3 million in funds transferred to organizations known as Medconsoft Corp., which received payments totaling $947,328.75 between April 28 and June 10, and Accu-Tech Corp., to which payments of $14,400 were made between April 29 and June 6, according to a financial statement filed by Procynet attorney Thomas H. Dickenson.

According to the documents, payments made to Medconsoft went to Henderson Springs, an organization that Whitehouse declined to describe. And funds transferred to Accu-Tech were "made payable to cash & Ed Whitehouse received the funds," according to the financial statement.

Whitehouse pleaded the Fifth when asked if he received the funds or knew of their whereabouts.

Other questions involved names of family members mentioned in the financial statement, their roles in the company and the list of creditors provided by Procynet.

In one instance, Walls asked about the identity of Phyllis Mycoff, who Whitehouse acknowledged to be his wife.

According to the filings, the company owes Mycoff $113,375.

"How does Procynet owe her that kind of money?" Walls asked. "I assert my privilege," Whitehouse said.

Later, Walls asked about Procynet's ownership, to which Whitehouse gave the same reply.

"Can you tell me who does own Procynet?" Walls asked.

"I assert my privilege," Whitehouse said.

"Can you tell me who controls Procynet?" Walls asked.

"I assert my privilege," Whitehouse said.

"Do you know when Procynet was first established?" Walls asked.

"I assert my privilege," Whitehouse said.

"Who was the attorney that established Procynet for you?" Walls asked.

"I assert my privilege," Whitehouse said.

Whitehouse did respond to questions pertaining to family relationships, including that of his mother, Arlene Whitehouse. However, he would not elaborate on their roles within the company.

After about 20 minutes, Walls asked when the meeting might be continued.

Eldridge responded that he would like as much time as possible in order to resolve other matters that might allow Whitehouse to be more forthcoming.

"There are developments that may affect Mr. Whitehouse's position as it relates to the creditors meeting," Eldgridge said. "The time frame related to those developments is relatively uncertain. ... That's all I know to tell you at this time."

Bankruptcy filings show Procynet has $1.9 million in assets and nearly $4.8 million in liabilities. The company received $11.1 million in income in 2006, $13.9 million in 2007 and $5.3 million in 2008 before closing its doors, according to the filings.

Procynet's unsecured creditor listing includes a number of employees the company owes expense reimbursements and compensation, ranging in amounts from $5 to $4,043.32.

Other unsecured claims include a $50,000 "potential claim for improperly diverted loan proceeds" to Eagle Investments, a name that has repeatedly popped up in association with Whitehouse and Procynet; a "potential claim for invested money prior to 2004" for an unknown amount by a Maryville doctor; and tens of thousands of dollars in loans from various parties throughout Tennessee.

The company also owes more than $38,000 in taxes to the Internal Revenue Service for the second and third quarters of this year.

In the meantime, assets of Procynet or related businesses are being liquidated on behalf of secured creditors, including Regions Banks and BankEast, which presently are not part of the bankruptcy proceeding.

Last month, Furrow Auction sold medical imaging vans and office furniture and equipment once owned by Resource Imaging on behalf of Regions Bank and BankEast.

Blake Wilson with Furrow Auction said he could not disclose the total amount of the sale.

"It was a positive auction. We had great participation," he said.

Next week, the auction company will sell the assets of Direct IS for Regions Bank at Direct IS's former offices at 129 Perimeter Park Drive, Suites B, C, D and E in West Knoxville.

Direct IS served as a distributor for HP, Compaq, Lexmark and other suppliers, Wilson said, and the sale will feature computers, laptops and computer equipment.

"This stuff is new in the box," he said.

The auction begins at 10 a.m. Nov. 12 with an inspection from 9 a.m. to 4 p.m. on Tuesday, Nov. 11. For more information, see www.furrow.com.

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