Gold Diggers of '97

Page 6 of 7

In June 1995 Durango was sued by three Los Angeles investors who'd poured money into the Mogul project. The trio of angry Californians told the court they needed to see Durango's books to "prevent Hartley from transferring, misappropriating, converting, and concealing corporate property and funds for his own purpose rather than for legitimate corporate business." That lawsuit was dismissed on technical grounds, says plaintiff Daniel Cohen. "The bottom line was that we didn't get access to the books," adds Cohen, who estimates that between $2 million and $5 million was put into Durango by investors like himself.

In 1996 Island Investments turned around and sued Durango, Hartley and Tatman for breach of contract, claiming that when it took over the Gold Hill Mill, the facility had been virtually looted. That same year Durango also became embroiled in a legal battle over a mine it leased in Clear Creek County.

In a final legal blast, Durango sued Rugg again last year, alleging that the retired miner was preventing the company from gaining access to claims it still owns inside the mine. Durango also says Rugg misled the company about what claims he owns inside the mine, a charge Rugg emphatically denies. That suit is still pending.

Hartley now asserts that Rugg never really owned the Mogul tunnel at all. He says the original owner of the tunnel never sold it and that the Rugg family simply assumed control of it in the 1920s. "He's never owned the tunnel or the land in front of it," insists Hartley.

But Rugg says his grandfather acquired the tunnel in 1925 after the original owners dropped their claim to the Mogul. His grandfather ran advertisements to see if anybody else had claims to the tunnel, says Rugg, and was awarded title to it in Boulder County District Court that year. Rugg's lawyer acknowledges that another family owns ten square feet directly in front of the tunnel entrance but says there is no question as to who owns the Mogul tunnel.

"Mr. Rugg has had uninterrupted possession through his mother, father and aunt since the 1920s," says attorney Thomas Morris.

The most recent humiliation for Durango came at the hands of the IRS. The feds seized a Skyhawk A-4B attack jet owned by the company in Texas. Durango acquired the jet three years ago in a stock swap with a Texas investor, who apparently traded the aircraft for shares in the Mogul venture. The IRS says Durango owes $120,000 in delinquent payroll taxes and is asking for a $170,000 minimum bid on the "bantam bomber," which is capable of traveling at 645 miles per hour.

After constant urging by Maher, whose lawsuit against Durango is expected to go to trial sometime next year, the federal Securities and Exchange Commission also investigated the company's operations. Several people contacted for this story, including Hartley, say they have been interviewed by SEC investigators. But the federal agency has taken no action against the firm, which Hartley says proves it did nothing wrong. A spokesman for the SEC declines to comment.

Despite Durango's controversial history, some investors still believe in the company's potential. They say shareholders like Maher are simply pulling down a good company by filing suit.

"Durango is an honest, straightforward company trying to make a dream come true," says Randy Levin, a Wisconsin doctor who owns shares in the company. "Tim Hartley has been libeled by people who are dishonest and greedy. I'm very angry about what has happened to a company that was successful."

However, Maher and other Durango critics say people like Levin simply don't want to face the facts. "I've never seen such a group of lying, cheating people in my life," says White of her former colleagues.

Emotions grew so intense during one of the hearings in the lawsuit between Rugg and Durango that Hartley's wife reportedly started yelling at Sasha White, and several bystanders in the courtroom, including Rugg's daughter, had to intervene.

"Cindy had to stop that old lady from hitting Sasha," says Rugg. "She was screaming at her, 'How'd you like to be sued three times?' Our lawyer had to break the fight up."

After he began to suspect that he was being cheated by the Mogul promoters, Rugg confronted Tatman one day in 1994 at the Gold Hill Mill.

"He was bragging to me about what a great mill man he was," says Rugg. "I said, 'I think you're bullshitting me,' and he pulled a gun on me. I went up to him like I was going to bat it out of his hands, and he backed off."

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Stuart Steers
Contact: Stuart Steers