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An F.B.I. 'Sting' in Denver Leaves Robert Phelps Holding the Government's Bar Tab

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Five years ago Robert G. Phelps was a well-to-do Denver-area real estate broker. Today he is in debt, has lost his business and, worst of all, is—he says—the victim of a “scam” perpetrated by the FBI that has ruined his life. As Phelps tells it, he was approached by an agent of the Federal Bureau—a man he knew as a friend—and asked to act as a front man in the purchase of a small business. The agent, according to Phelps, promised that there would be no financial risk and that the FBI would cover any debts that he incurred. To date Phelps, 48, has lost approximately $200,000 on the deal and has filed suits to recover that amount plus $20 million for additional compensation. For its part, the Bureau refuses to discuss the case publicly while court action is pending.

Phelps says he became a victim in 1978 when the FBI started planning an undercover operation, reportedly to expose Denver-area white-collar crime. Federal agents persuaded him to buy a saloon for the Bureau. In return, Phelps says, he was assured that he’d never have to set foot in the place. He contributed $39,333 toward the $140,000 purchase price, and says FBI agents came up with $26,667, promising to cover all remaining monthly payments. Though he claims he knew the bar was “an incredibly bad investment,” Phelps went along with the deal, primarily because he had always had good relations with the Bureau; FBI agents transferred into and out of the Denver office had been a significant part of his real estate clientele. And besides, he remembers thinking, “With the U.S. government behind it, I was not too worried.”

The establishment was opened under the name Scotland Yard in June 1978. FBI agents tended bar and waited tables while Phelps stayed away. Eleven months later Phelps got a call from the agents saying “We’re pulling out” and offering him $9,000 as the limit of the Bureau’s financial liability. “I felt they had put the burden of the whole operation on me,” Phelps says. Suddenly he was no longer the front man but the actual owner of the bar. And he found it wasn’t merely an incredibly bad investment, it was a virtual red-ink machine, running up $6,000 per month in debts.

Phelps knew that if he ever hoped to sell Scotland Yard, he would first have to make it succeed. So he began working there from 10 a.m. to 2 a.m. seven days a week. His real estate commissions dwindled to the point where he lost his job. Then his twin-engine Cessna was repossessed. “This thing took him from being an award-winning salesman to nearly nothing,” says Pat Kelly, Phelps’ former boss, adding, “He was an honest, careful Realtor.”

“Whatever I did was wrong,” Phelps laments, blaming high monthly payments and his inexperience as a bar owner for his continued losses. After six months of fruitless struggle, he was forced to sell Scotland Yard at half of the original purchase price. He has since found a job in auto sales, but his debts remain. He still owes more than $121,000. There have been other losses as well, such as his credit rating. To Phelps, this development is particularly ironic: From 1957 to 1970, he had advanced to a position as an assistant credit manager for Phillips Petroleum.

His family has also suffered. “My stepchildren are both college age and both are working,” he complains. “At least one would almost certainly be in college now if it weren’t for this mess.” As for his wife, Judy, “She’s suffered too, because we have not been able to do any of the things we had planned.”

There is no indication the FBI’s 11-month operation of Scotland Yard resulted in any significant grand jury indictments. It appears the only person stung in the affair was Phelps, who refuses to declare bankruptcy and is paying off his debts at a snail’s pace of $1,000 per month. “I owe a lot of money to innocent people,” he says.

Phelps decided to strike back with his lawsuits only after exhausting all FBI administrative claim procedures. Though he is the only one talking at this point, he is eager for the day when the government will have to respond. “If a court can hear it like it is,” he says, “I’m confident the American system will make it right.”

Still, he adds wistfully, “I sometimes dream about where my life would be if I’d just said ‘No.’ ”