Ex-Detroit mayor Kilpatrick released from state prison – what next?

August 6, 2011

Still facing a host of federal charges – Southlake, Texas resident and former Detroit Mayor Kwame Kilpatrick walked out of prison a free man after serving just over 14 months of a 5-year sentence at a state facility in Jackson, Michigan.

Kilpatrick had been serving time for violating probation related to a 2008 case against him. He is to check in with a Texas parole officer on his arrival as he is required to serve two years of parole.

As you might remember , Kilpatrick pleaded guilty in September 2008 to two felony counts of obstruction of justice stemming from his efforts to cover up an extramarital affair.  Following his plea, he spent more than three months in jail before being released in February 2009 on five years of probation.  However, in May 25, 2010, Wayne County Judge David Groner sentenced Kilpatrick to five years in prison for failing to report assets that could be used to pay the restitution, a violation of his probation.

Kilpatrick will be subject to usual restrictions for parolees, plus an order to pay back what his lawyer called $860,000 in restitution.

YOUR COMMENTS ARE WELCOME


Buusiness Ethics and Fraud Prevention Speaker Chuck Gallagher addresses FBI Conference

July 11, 2011

CHOICES: Negative Consequences – Positive Results

Chuck Gallagher Shares the Impact of Choices

at a Time when Ethical Choices seem to be missing from Business Culture

 CHARLOTTE, NC.  July 7, 2011.  From Prison to Promise, Chuck Gallagher’s presentation:  CHOICES: Negative Consequences – Positive Results –  exposes the power of choice and the negative consequences or positive results that can follow.   Selected to present to the 2011 FBI CPA Conference in Denver, Colorado, this annual FBI conference generally focuses on economic and other white-collar crimes.  Recognizing the importance of ethics and their practical application, Gallagher, as a speaker, is a natural fit for this national conference as he shares from experience how a life can change and the course of history can be altered by one unethical choice. In today’s environment, with so many lives turned “topsy turvy,” CHOICES  – provides a meaningful and practical framework for understanding how an otherwise ethical person can make unethical and potentially illegal choices.  CHOICES –  exposes the impact of unethical choices and the power that ethical choices can have.  As a business ethics and fraud prevention speaker, Gallagher’s presentations provides a foundation for business ethics training that goes beyond case studies and focuses on real life issues.

Chuck Gallagher, author of the new book Second Chances, has lived through it and he has come out a better man, husband, and father.  As a nationally recognized CPA, Gallagher lost it all when he made unethical choices by creating a Ponzi scheme and defrauding his clients and it all began with one bad decision.  He chronicles his fall from a wonderful life of success into the inside of a prison cell and how he managed to take the steps to rebuild his life to one full of meaning, purpose, and promise.

Shortly before his sixth month in prison, Gallagher asked himself, “Where from here?” This ultimately becomes his personal call to action upon which this book is premised. Gallagher states, “You may make a mistake, but YOU ARE NOT A MISTAKE.” So what’s next? What do you do next? How will you put one foot in front of the other to manifest the power over the choices you make now and in the future?

Gallagher’s presentations offer nuts and bolts information relevant to anyone from Main St. to Wall St. It packs hard-hitting, no-nonsense tools that the audience member can actually manifest into the power of ‘choice intelligence’. Through his transparent heart felt presentations, Gallagher says to the his audience, “Take what I’ve learned and apply it in your life and you will transform your destiny.  Explore every God-given opportunity and, in the process, you’ll develop a higher level of consciousness through better choices and a higher purpose. Honor your life, make wise choices, you will make a difference in your own life, the lives of others, and in society.”

Today, Gallagher is COO of a national company and speaks internationally on business ethics – choices and consequences. Chuck openly and candidly shares the lessons his roller coaster ride in life has taught him.  Described as “creative..,” “insightful…,” “captivating…,” and a person that “connects the dots” between behavior, choices, and success, Chuck Gallagher provides his clients, readers, and audiences with what they need to turn concepts into actions and actions into results

Chuck’s presentations drive home the very real issues involved in businesses today.  One unethical errant choice and the media fallout can have an immediate impact on business results.  For information about Gallagher’s ethics presentation contact Chuck at chuck@chuckgallagher.com ,call him at 828.244.1400 or visit his website:  http://chuckgallagher.com.


John Wiley Price – Innocent till proven Guilty or a Crook whose been nabbed by the FBI? Is there a Sprint to Judgment by the Media?

July 4, 2011

So far no one has been accused of any crimes!  You couldn’t tell it however from the media hype which most certainly will have racial overtones in this Dallas story.  So…some may ask why deal with it here – is this an ethics issue?  Good question and yes, but not perhaps for the reasons you might think.  The question I have relate to the ethics of sensationalism when no one has been accused of anything…at least not yet.

Not one to shy away from controversy…John Wiley Price will take on a fight and tell it like he sees it.  Example…in the following video Price says, “All of you are white; go to hell.”  Guess there’s a bit of a discriminatory feeling on his part.

But Mr. Price’s ethnic inclinations and hateful words are not what is driving the media today.  According to a report by Brett Shipp, “…at least six federal agents made their way inside the Millenium 2000 Gallery, where they stayed most of the day searching for records, taking photographs and looking for evidence of a crime.”  Shipp’s entire report can be seen here.

His report goes on to say:

Over the past four years, Price has used his campaign funds to purchase $46,000 in gifts and services from Manning.

Among the gifts was a $2,150 Kwanzaa gift for indicted former Constable Jaime Cortes, a $1,200 gift for mega-church pastor Ricky Rush and $2,525 in gifts for an unnamed constituents.

Among the services were campaign vehicle repairs, one of which was for $300 and another for $700 and $1,800 for vehicle wrap art.

The FBI won’t say exactly what they are looking for in Manning’s store and there is no indication that such gifts were improper.

WHAT’S ALL THE FUSS ABOUT?

With all that said and no charges filed…what’s all the fuss about?  I mean from my vantage point it seems much ado about nothing.  But, the buzz of FBI officers looking is enough to create attention…just ask Patrick Williams the author of another story on Mr. Price.

Entitled: John Wiley Price: Give the Devil His Due – Williams states:

Expect a lot of quote-trolling, thumbsucking and rumor-mongering in the weeks ahead, as hungry reporters scramble for crumbs of hard information. Nature abhors vacuums, and the 24-hour blogosphere hates them too. And since FBI agents aren’t the chattiest bunch—the local field office has a Tumblr called “We’re Not Saying Shit”—it’s going to be speculation city for a while. Did Price’s collection of questionably attained vintage cars stir the feds? Was it KwanzaaFest, Price’s charity event? What about the inland port, that transport hub Price attempted to jack? WFAA reported that Price has bought a lot of real estate lately. Ah-ha! What sort of person buys cheap real estate in a down market?

QUESTION:  Is there a Sprint to Judgment by the media in this case much like the in the Strauss-Kahn case or is there truly a smoking gun behind the actions of the FBI?

YOUR COMMENTS ARE WELCOME!


National Prearranged Services Officials bring Black Eye to Funeral Industry – Looks like Sutton, Cassity and others have dug themselves a Grave!

November 24, 2010

Looks like Randall K. Sutton, Sharon Nekol Province, Doug Cassity, Brent Douglas Cassity, Howard A. Wittner, and David R. Wulf, may have two graves in this lifetime – one that will naturally occur at the end of life and the other that they dug for themselves now.  Facing up to 30 years in prison – it’s likely that many named above (if convicted) will spend their last days in federal prison just like Bernie Madoff.

Not that this is any great surprise if you work in the Funeral Profession, but this week the United States Attorney’s Office announced the indictments of six controlling officials of National Prearranged Services, Inc., in a 50-count indictment charging wire, bank, mail, and insurance fraud; money laundering; and multiple conspiracy charges involving the sale of pre-paid funeral services.

Sadly, this brings a “black eye” and causes serious distrust in an industry that provides services to individuals and their families at times when trust is needed the most.  Having worked in this profession for the greater part of my adult life, I know the value that prearranging brings – not only emotionally, but financially as well…and for folks to abuse that trust is – well in a word – criminal.

So how big is this disaster?  According to the indictment, after taking into account insurance and trust assets expected to be available to pay for future funeral services, and merchandise under prearranged funeral contracts sold by National Prearranged Services, Inc., (NPS), the loss to purchasers, funeral homes, and state insurance guarantee associations will range from $450,000,000 to $600,000,000.

As a business ethics speaker and industry professional, I have interviewed several of the firms affected.  This financial fraud and scam will have significant, if not devastating consequences related to the ability of many smaller firms to survive or continue to provide the type of service that they wish to provide.

In an FBI news release the following is stated:  According to the indictment, individuals who purchased a prearranged funeral contract from NPS, signed contracts which set forth the terms of that contract. The total price for the funeral services and merchandise was agreed upon, and would remain constant regardless of when the funeral services and merchandise would be needed. The purchaser could pay the agreed upon price either in full, or by periodic installments. NPS agreed to arrange for the funeral with the funeral home designated in the agreement upon the death of the person for whom the contract was purchased. In order to secure the performance of the prearranged funeral contract, a third party received the deposited funds. In Missouri, the purchaser and NPS agreed that the payments made under the contract after the initial 20 percent were to be deposited into a trust with a financial institution, such as a bank, as trustee. The seller of a contract was permitted to retain for its own use, the initial 20 percent deposited by the purchaser. In other states, such as Ohio, Illinois, and Tennessee, the purchaser and NPS agreed that the purchaser would apply for a life insurance policy which would fund the prearranged funeral contract when the funeral services were needed. Beginning in 1983, NPS entered into agreements with several financial institution to act as trustees of the various trusts which were established to hold the funds paid by the purchasers located in Missouri.

The indictment alleges that instead of making the required deposits into trust or forwarding the insurance premiums as paid, NPS obtained insurance in a manner that allowed it to retain money received from purchasers that should have been deposited into trust or paid as a premium to an insurance company. Since NPS and the insurance companies from whom policies were obtained were controlled by the defendants, NPS was able to pay substantially less than the amounts which should have either been deposited into the trusts or to the insurance companies.

The NPS fraud may have started with good intentions, but quickly became nothing more than an intentional fraud according to a former NPS representative whose identity will remain confidential.

According the indictment, NPS borrowed large amounts of the cash surrender values of the insurance policies. NPS had no right to borrow the cash surrender values of these policies. These loans reduced the death benefits which would be available to pay for funeral services after the deaths of the purchasers. Additionally, the indictment alleges that the defendants concealed this practice from insurance regulators. In some instances, the defendants used money obtained from new purchasers to pay premiums of insurance policies on the lives of previous purchasers and also to reimburse funeral homes for the cost of funeral services for the earlier purchasers.

While the indictment states that the defendant removed large amounts of money from prearranged funeral trusts established by NPS, my source tells me that Brent Cassity along with his father Doug Cassity enjoyed the benefits of ill gotten money from NPS.  I was told that NPS maintained several limos with a driver available 24/7.  The limo was used (according to my source) to transport NPS officials (insiders) to pick up clients and/or provide transportation for personal vacation type trips, etc.  This money was allegedly used to enable Doug Cassity to purchase residential real estate, to finance business projects for affiliated companies, to purchase a New York insurance company, Professional Liability Insurance Company of America (PLICA), and to pay personal expenses of Doug Cassity and his family.

Finally, count 49 charges Doug Cassity with insurance fraud for his participation in the insurance business, after being previously convicted of a felony, which prohibits him from engaging in the insurance business. Count 50 charges Randall Sutton, Brent Cassity, and Howard Wittner with permitting Doug Cassity to engage in the insurance business.

Sources say that NPS used very aggressive tactics to sell their services and fund their need for cash.  By hiring attractive young women, (insiders called them “Barbies”), NPS would play on funeral directors emotions and financial needs by promising aggressive growth rates, generous trips and other incentives.

The quickest way to spot a fraud is to recognize that if it falls outside of industry norm and sounds too good to be true – it likely is – an many times is a clear indication that a scam or fraud is in play.

Examples of how the fraud took place are featured in an article in the “White Collar Crime News Blog” shown in full here with excerpts to follow:

For example, at the time they purchased prearranged funeral services, many customers completed applications for life insurance policies indicating they were making payment in full for insurance policies that would fund their funerals. Employees at National Prearranged Services, with the knowledge and under the direction of Sutton, simply whited-out the indications that payments had been made in full and altered the documents to make it appear as though the customers had made partial payments. The altered documents were forwarded to life insurance companies such as Lincoln Memorial Life, who adopted the policies and assumed the obligation to pay a lump sum at the time of the customer’s death. National Prearranged Services, meanwhile, diverted the difference between the true full payments and the falsified partial payments from the customer’s insurance policy, thus retaining the vast majority of the customer’s lump-sum payment while transferring the obligation of future pay.

As another example, National Prearranged Services’ employees used white-out or cross-outs to change the names of beneficiaries on insurance applications in order to extract money. Customers completed applications for life insurance policies naming themselves or their funeral homes as a beneficiary. With Sutton’s knowledge, employees at National Prearranged Services simply whited-out or crossed-out other beneficiaries named in the applications and made National Prearranged Services the sole beneficiary. Once National Prearranged Services was listed as the sole beneficiary on policies, it was able to extract money from customers’ policies in at least two separate ways:

First, customers’ insurance policies were pledged as collateral for loans to National Prearranged Services without the customers’ knowledge. Typically, the loans were made by insurance companies within the same family of corporate entities, such as Lincoln Memorial Life, allowing Sutton and others to extract funds from these insurance entities under false premises. In total, as alleged in the indictment, National Prearranged Services received in excess of $65 million from such policy loans. Often, the proceeds of these policy loans were immediately turned around and used to pay outstanding premiums due from other customers.

Second, once it had altered applications to name itself as sole beneficiary, National Prearranged Services then converted customers’ whole life insurance policies to monthly renewable term polices, extracting from the insurance company the difference between the cash surrender value of the whole life policy and the first monthly premium of the renewable term policy. By doing so, National Prearranged Services extracted more than $40 million from the customers’ policies at Lincoln Memorial Life without their knowledge.

In addition to the fraud charges, upon a finding of guilt, the defendants will be subject to a forfeiture allegation, which will require them to forfeit to the government all money derived from their illegal activity.

Indicted:

Randall K. Sutton, 65, Chesterfield, MO;
Sharon Nekol Province, 66, Ballwin, MO;
Doug Cassity, 64, Clayton, MO;
Brent Douglas Cassity, 43, Clayton, MO;
Howard A. Wittner, 73, Chesterfield, MO; and
David R. Wulf, 58, St. Louis County.

If convicted, the maximum penalty ranges for each of these charges range from five to 30 years in prison and/or from $250,000 to $1,000,000.

As is always the case, charges set forth in an indictment are merely accusations and do not constitute proof of guilt. Every defendant is presumed to be innocent unless and until proven guilty.

Today NPS policies are in the hands of a Receiver and subject to limited payout of the face amount of the policy.

IF YOU HAVE DIRECT KNOWLEDGE OF THE NPS SCAM – YOUR COMMENTS ARE WELCOME.


Fair Finance – Seems that beneath the surface it was anything but FAIR!

May 18, 2010

Fair Finance.  When I first heard that name I was confused.  I thought it might be a non-profit organization – left leaning perhaps – that fought for or advocated “fair finance” for the underprivileged.  Man…isn’t if funny what’s in a name.  Was I sure wrong!

Below is an article written by By Jim Mackinnon – Beacon Journal business writer.  Turns out Fair Finance was nothing more than massive Ponzi scheme. Read the great article by Mr. Mackinnon and you’ll get a clearer picture of what “Fair Finance” really was all about.

The court-appointed trustee for Fair Finance Co. has his eyes on lots of fancy cars and artwork that he believes were purchased with money from the under-investigation Akron finance and loan business.

There are three Bentleys, an antique Duesenberg, Mercedes and Jaguar cars, even a Lamborghini. The possible value is in the millions — same thing for the art, primarily paintings purchased by Fair Finance co-owner Timothy Durham, said the trustee, Cleveland attorney Brian Bash.

Bash on Tuesday said he is looking into the sale of more than $1 million in antique and exotic cars by an affiliated company in Indiana, Diamond Investments LLC, as he works to preserve assets for the bankrupt Akron business.

Bash said he is placing liens on perhaps as many as 100 vehicles listed under Diamond, which does business as Diamond Auto Sales. The business is owned by Durham.

”These are pretty fancy cars,” Bash said. Most of the vehicles are in storage, while the Duesenberg and three Bentleys were among vehicles sold recently in Indiana, he said. The vehicles were not ”on the books” of Fair Finance, he said.

Bash talked about the cars and artwork during a monthly status report in federal bankruptcy court in downtown Akron.

”Those are unique assets,” said Marilyn Shea-Stonum, chief judge of U.S. Bankruptcy Court for the Northern District of Ohio, who is overseeing the Chapter 7 liquidation process.

Of the more than $1 million from the car sale proceeds, ”it looks like a number of law firms were paid over $908,000,” Bash said. ”We’re going to be investigating that.”

Bash gave his report over a telephone conference call in open court; just six Fair Finance certificate holders attended. Bash’s monthly update took place less than a week before he will hold a creditors meeting at 1 p.m. Monday at Akron City Centre Hotel, 20 W. Mill St. in downtown Akron. Bash booked the hotel’s Salon A ballroom because he said he anticipates a large turnout.

More than 5,300 people and organizations that include churches bought investment certificates totaling about $200 million from Fair Finance, a small investment and loan company founded decades ago in Akron. The Fair family sold it to Durham and Jim Cochran, two Indiana-based businessmen, in 2002. Most of the certificate holders are in the greater Akron area.

The FBI in late November raided Fair Finance and a related business in Indiana, with court records showing investigators suspected the business was being operated as a Ponzi scheme. Then some investors earlier this year forced Fair Finance into bankruptcy as means to recover assets. The investment certificates, which promised to pay high interest rates, were not government insured.

Bash said he and the team he has assembled continue to look for Fair Finance assets.

Besides the cars, Bash told Shea-Stonum that he is in discussions to have ”a number of pieces of artwork” turned over to him.

Afterward, Bash said Durham had estimated the value of his art collection in the millions of dollars.

The pieces that he does have are ”secured, stored and insured” but he wants the entire collection, Bash said.

”I don’t even have half of it,” he said. ”I’m hopeful they will start cooperating more.”

There also might be as much as $5 million in Fair Finance equity in accounts overseen by two firms, Fortress Investment Group LLC and Duvera Financial, that did business with Fair Finance, Bash said. He said he has asked for an accounting of the money and that the two firms said the information is in more than 80,000 pages of documents.

And in what would be a significant move in the bankruptcy proceeding, Bash said he also expects to shortly have all the assets of Fair Holdings, which is Fair Finance’s Ohio corporate parent, and those of DC Investments — the Indiana corporate parent — assigned over.

”My view right now is, I’ve heard them [Fair Holdings and DCI’s representatives] wanting to cooperate but I haven’t seen the actions follow the words,” Bash said.

The FBI is continuing to scan Fair Finance documents, Bash said. ”My accountant goes out to Indianapolis to review those records,” he said.

It does not look as if any former Fair Finance employees will testify or answer questions at Monday’s creditors’ meeting, Bash said.

”It’s my understanding none of the individuals are willing to testify because of the ongoing investigation by the FBI,” he said.

In addition, the Indianapolis law firm representing Fair Finance, Taft Stettinus & Hollister, told Bash in writing and the judge during the conference call that it intends to withdraw as Fair Finance’s counsel. The firm did not give a reason.

Shea-Stonum said investment certificate holders and other creditors who have questions about the case need to go online and review court documents. She said the bankruptcy court clerk’s office is not in a position to respond to questions about the case.

The judge also said certificate holders need to guard themselves from scam artists who claim that they can recover their money from Fair Finance. Scam artists have taken advantage of people in other cases, she said.

”It appears to me the certificate holders in this case have been the victims of what appears to be, well, I’m not going to characterize it. People have been parted from their money,” she said. ”I do not want to see this case become a hotbed for scam artists.”

Shea-Stonum asked Bash to use the trustee’s Fair Finance Web site to post information on how creditors can legitimately find ways to recover assets.

The trustee status report is available online at http://www.kccllc.net/fairfinance.

Here’s another link to Fair Finance articles.

One more time it seems that we see the reality behind the Ponzi scheme…fancy living, fast cars, a lifestyle that cannot be supported by a real business enterprise.  Sadly, what started out as a legitimate business enterprise that helped many, became a vehicle for fraud.  And while I have not been following this active investigation it appears that I sure should be…so look for more information to come.

OF COURSE, YOUR COMMENTS ARE WELCOME!


Another Ponzi Scheme – Nevin Shapiro – from the FBI website no less!

May 11, 2010

To make the FBI’s web site takes a lot.  But what is listed below in BLUE is directly from their site.  Once you finish reading…check out the comments.  It’s amazing how simple the fraud takes place and how easy it is for folks to get sucked into the PIT.

He was living the high life—taking up residence in a Miami Beach mansion worth more than $5 million, cruising around in a million-dollar yacht and his leased Mercedes-Benz, shelling out more than $400,000 for floor seats at Miami Heat basketball games, and donating thousands of dollars to the athletic program of a local university (the school was so appreciative it named a student athlete lounge after him).

But it all came crashing down on Florida businessman Nevin Shapiro last month, when he was charged with orchestrating a multi-million-dollar Ponzi scheme involving about 60 victims throughout the United States.


From January 2005 through November 2009, according to the criminal complaint filed in federal court in New Jersey (where one of his victims resides), Shapiro raised more than $880 million from his investors. These individuals thought they were investing in his wholesale grocery distribution business—Capitol Investments, a Florida corporation with offices in Miami Beach that Shapiro owned and ran as CEO.

In reality, there was no grocery distribution business. Shapiro allegedly used new investor money to fund principal and interest payments to existing investors—a textbook Ponzi scheme—while at the same time, taking tens of millions of dollars for his own use.

How did Shapiro convince his investors to give him their hard-earned money? According to the charges, he and others working for him showed potential investors fake documents that touted the profitability of his business, including:

  • Financial statements claiming that the business generated millions of dollars in annual sales;
  • Shapiro’s personal and business tax returns (also fraudulent);
  • Phony invoices revealing transactions that Shapiro’s business had supposedly entered into with other businesses; and
  • Promissory notes reflecting the amount of the victims’ investment, along with a schedule for a payment of interest (at anywhere from 10 to 26 percent on an annual basis) and the return of their principal.

The scheme eventually went the way of most Ponzi schemes—collapsing in on itself when it got too big to maintain financially. The criminal complaint alleges that Shapiro defrauded investors out of at least $80 million.

This particular case was brought in connection with the recently-established Financial Fraud Task Force, led by the Department of Justice, which investigates and prosecutes major financial crimes. And the case was definitely a multi-agency effort—in addition to the FBI, it was worked by the IRS Criminal Investigative Division and the Securities and Exchange Commission.

So how can you avoid being victimized by a Ponzi scheme? A few tips:

  • Be careful of any investment opportunity that makes exaggerated earnings claims.
  • Exercise due diligence in selecting investments and the people with whom you invest—in other words, do your homework!
  • Consult an unbiased third party, like an unconnected broker or licensed financial advisor, before investing.

If you think you have already been conned in a Ponzi scheme—or are suspicious about a pending investment—contact your local FBI field office or local authorities.

COMMENTS:

There are three components of most frauds from the perspective of the VICTIMS:  (1) Promise; (2) Illusion and (3) Trust.

Let’s look at what the FBI reported and see if we can find those components.  ILLUSION – according to the FBI, Shapiro created fake financial statements, fake personal and business tax returns and phony invoices.  He went to a lot of trouble to solidify the illusion that what he represented was real.  Some might question what might have happened if he had invested half that much time and effort into a real business instead of his phony scam?

Ah, but the hook that gets VICTIMS in – in the first place – is the PROMISE.  Here the promise was a return (plus principle) of anywhere between 10 to 26 percent.  I can’t speak to why…but in every case it seems clear that “investors” seem to gravitate to something that “others can’t have” – some call it greed.  I think, rather than greed, we have a psychological desire to be above average and if someone offers something that seems real that is “off limits” to the average guy…then we are more apt to bite.  Guess it’s DNA to want what we can’t or shouldn’t have…just think of the apple.  (Some readers will get that!)

Now, let’s be honest.  A PROMISE of a 26% return is not reasonable and ANY PROMISE of a guaranteed return should give us a moment to pause and investigate further!

The funny part about a Ponzi Scheme is that the ILLUSION that supports the PROMISE actually creates the TRUST needed to perpetuate the scheme.  More times than not, the “investors” VICTIMS actually are the ones that turn others on to the “scam” without having any knowledge that they are luring others into the trap!

The Ponzi scheme only collapses when the source of funding dries up.  Most of the time, the scheme gets so large and top heavy (the need for additional funding becomes so great) that it collapses on itself.

So…the FBI suggests the following which is worth repeating:

So how can you avoid being victimized by a Ponzi scheme? A few tips:

  • Be careful of any investment opportunity that makes exaggerated earnings claims.
  • Exercise due diligence in selecting investments and the people with whom you invest—in other words, do your homework!
  • Consult an unbiased third party, like an unconnected broker or licensed financial advisor, before investing.

BREAKING NEWS FOR NEVIN SHAPIROhttps://chuckgallagher.wordpress.com/2011/08/17/convicted-ponzi-fraudster-nevin-shapiro-provides-a-tsunami-of-evidence-against-the-university-of-miami-football-program/

YOUR COMMENTS ARE WELCOME!


Brion Gary Randall facing prison for Financial Crimes… Choices and Consequences: Comments by Business Ethics and Fraud Prevention Speaker Chuck Gallagher

May 10, 2010

A Plano, Texas, man, who has admitted running a fraudulent investment scheme from 2004 through July 2009, will enter his guilty plea before U.S. Magistrate Judge Paul D. Stickney on May 18, 2010, to felony offenses related to that crime, announced U.S. Attorney James T. Jacks of the Northern District of Texas. Brion Gary Randall, 48, has signed documents, filed with the Court, pleading guilty to an Information charging one count of mail fraud and one count of bank fraud. Each count carries a maximum statutory sentence of 30 years in prison and a $1 million fine.

According to filed plea documents, Randall worked as an investment advisor from 2004 through July 2009. During part of that time, he operated, and owned in part, 2Randall Consulting Group, LLP and also owned part of Titan Home Theater, LLC, which designed and installed commercial and residential audio/visual systems. According to a complaint filed by the U.S. Securities and Exchange Commission against Randall and 2Randall in August 2009, the Financial Industry Regulatory Authority (FINRA) suspended and fined Randall for improperly exercising discretion in customer accounts without prior written permission. That case is currently pending.

From 2004 through July 2009, Randall raised more than $6 million from 30 investors through a scheme in which he caused persons to invest in a number of short-term loan participation programs, which in fact, did not exist. He used investors’ funds for his own benefit and not for purposes he represented.

For example, Randall represented that he was pooling money in accounts at Chase Bank and AllianceBernstein for investment in a variety of short-term loan participation programs. Randall represented that an investor’s money in 2Randall Consulting’s account at Alliance and Chase was held in a non-taxable escrow account and fully liquid, with the investor able to withdraw his money at any time. He represented that the 2Randall consulting account at AllianceBernstein had a balance ranging from $25 million to $29 million, and that he had also invested millions of dollars of his own money into the accounts.

In reality, however, the Chase Bank and AllianceBernstein accounts were nonexistent. To further the scheme, Randall created and distributed fraudulent documents to investors, including bogus Chase Bank and AllianceBernstein account statements. He also created bogus 2Randall Consulting accounting statements and portfolio summaries. In meetings with some investors, he would display a false and fictitious computer screen shot of either the Chase Bank or AllianceBernstein account which would show the investor’s money on deposit.

Randall also represented to investors that they could invest in short-term loan participations, usually lasting 45 to 90 days and returning a high rate of interest. He sold loan participation programs in 1) Small Business Administration (SBA) loans; 2) Titan Home Theater project completion loans; and 3) loans to acquire real estate in Galveston, Texas.

For the SBA loans, Randall falsely represented to investors that they could participate with 2Randall Consulting in a short-term loan to a local company seeking an SBA loan. Randall represented that the short-term loan would provide sufficient capital to enable the company to obtain the loan at a discounted rate, and once the SBA loan closed, the company would return to 2Randall Consulting and the participating investors the principal plus 10 percent. He represented that the companies receiving the loans were reputable local businesses, including 84 Lumber, General Packaging Corporation, PerotSystems Vent-A-Hood and Richardson Bike Mart, businesses where Randall’s father had an established relationship. Randall represented that participating in an SBA loan participation program was low risk and that an investor could only lose his money if the company declared bankruptcy during the 45-90 day term of the loan. Randall knew that no such SBA loan participation agreements existed.

With regard to the Titan Home Theater project completion loans, Randall represented that investors could participate in short-term loans to Titan enabling it to complete a number of commercial projects, and that upon completion of the projects, Titan would return the principal plus up to a 22% return. Randall falsely represented that Titan was a subcontractor on several commercial projects including projects at Southern Methodist University, the Bush Library and the Dallas Cowboys stadium.

Randall also represented to investors that they could participate in short-term loans enabling him to finalize the acquisition and sale of real estate in Galveston. Randall promised that on closing, he would return the investor’s principal plus a sizeable rate of interest.

As a further part of his fraud, Randall obtained loans from financial institutions by submitting forged signatures and false and fraudulent documents. The plea documents note that Randall obtained five loans, from Bank of America, Texas Capital Bank and Wells Fargo, that all defaulted, causing a total loss to these financial institutions of nearly $875,000.

COMMENTS:

The question that I often get asked in seminars I conduct is: How can someone with reasonable intelligence get caught up in such a scam?  Answer: They get caught up in the PIT.

“P” – PROMISE – The first step to falling into a scam (especially a financial scam) is the “promise”!

“I” – The second part of falling into the scam is the – ILLUSION!

“T” – In the PIT the third and last component is TRUST.

Combine the three components and you find victim investors falling into the “PIT” as I call it.  When some one promises a 22% return – that PROMISE in and of itself is a warning sign that something is amiss!  It almost makes no difference what else might take place, the unreasonable promise of a return is a clear indication that you might be a fraud victim.  Funny, however, it seems the more focused someone is on getting something that most people can’t have the greater likelihood they will fall prey to a scam artist.

Every choice has a consequence and in this case Randall will have a long time to think about his fraud and the impact it has and will have on his life and the lives of countless others.

If you’re a victim of Randall’s fraud, I’d appreciate your comments on what took place that got you hooked.  Perhaps your comments will help others avoid the consequences of the PIT!

YOUR COMMENTS ARE WELCOME!


50 Years for a Ponzi Scheme – Thomas “Tom” J. Petters has a lot of time to think ahead! My this sounds like the BizRadio scam…

April 13, 2010

Every choice has a consequence.  That is my opening sentence as I address groups all around the country on choices and consequences or business ethics.  As a speaker and fraud prevention consultant I seem to get the question asked often, “Are there more bad guys doing this type of thing these days?”

No…believe it or not there aren’t.  Rather, the access to money has dried up and the “bad guys” are starting to surface.

Take the example of Tom Petters of Wayzata, Minnesota, who was sentenced to 50 years in prison for running a $3.65 billion Ponzi-type investment fraud scheme, one of the largest ever. Convicted last December on all 20 criminal counts that he faced, including wire fraud, mail fraud and money laundering, Petters now faces a long time in prison for his choices.

Petters and his co-conspirators bilked investors who thought their investment money was being using to buy consumer electronics for resale to retailers such as BJ’s Wholesale Club and Costco. Several other executives of the company, including Deanna Coleman, Robert White, Michael Catain and Larry Reynolds, who have all previously pleaded guilty in the case.

Petters solicited billions of dollars in financing for PCI, telling investors he’d use their funds to buy and re-sell consumer electronics and other goods for a profit. Those transactions never occurred, and Petters used investor money to prop up his other, often legitimate, businesses and for his own personal use.

Now…for those who follow my blog this sounds painfully like, what I am referring to as the BizRadio scam.  Put in perspective, didn’t BizRadio investors put money into various investments thinking that they were either high yield bonds or real estate investments, when in fact, the money was diverted into BizRadio which had no practical purpose other than to grow Dan Frishberg’s investment portfolio.  And, now – stopped by the filing of an involuntary bankruptcy – BizRadio would have been sold back to Salem Communications and Dan Frishberg gained personally in that he got airtime out of the deal.  Let me repeat he got air time.  Not, the investors got the benefit of airtime which is an asset that could be sold, but Dan Frishberg got the airtime.

Something smells Frishy!

But back to Tom Petters…

U.S. Attorney B. Todd Jones said the sentence – the longest ever in Minnesota for financial fraud – demonstrated that authorities would not shirk from vigorously investigating and prosecuting financial crime.

Petters’ crimes first came to light last year, but prosecutors presented evidence that he was bilking investors as early as the mid-1990s. He defrauded a Twin Cities investment firm in 1996, lying to Data Sales Co. Inc. officials about his plans to use their funds to buy electronics from 3M Co. and re-sell the goods to retailers.

In 2000, he attempted to defraud GE Capital, which had extended him a line of credit. Petters submitted false purchase orders, fraudulent checks and other documents in an effort to convince the company he was using its capital to buy and sell goods.

To lure investors, Petters often talked of his “special” relationships with Costco and other discount retailers, witnesses testified in the case. When investors asked to talk to the retailers he did business with, or inspect the goods he claimed to be selling, Petters deflected them, saying prying would scare off buyers.

As investor money flowed into PCI’s accounts throughout the early- to mid-2000s, Petters funneled it elsewhere. He used hundreds of millions of dollars to support his other business ventures, such as Polaroid and Sun Country, which operated under the umbrella of his Petters Group Worldwide entity. He used millions more for personal gain.

Early investors in PCI reeled in significant profits, and PCI was at one time receiving more offers from investors than it needed to accept. But the scheme began to unravel amid the credit crisis of late 2007 and early 2008. At that time, it became increasingly difficult for PCI to lure new investors to cover high-interest payments owed to earlier investors, many of which were hedge funds.

Petters, his employees and associates grew increasingly desperate in early fall of 2008. It was then that PCI executive Deanna Coleman went to federal law enforcement officials, presenting them with evidence of the fraud. She agreed to secretly record conversations with Petters, gathering further evidence that was later presented at trial. Petters was arrested in fall of last year and jailed until his trial.

According to the Wall Street Journal: “The U.S. attorney’s office in Minnesota said Mr. Petters continued “to lull investors” even after agents executed search warrants on Sept. 24, 2008, for his home and office, also in suburban Minneapolis. On Oct. 3 of that year, he was arrested. The investigation was conducted by the Federal Bureau of Investigation, the Internal Revenue Service and the U.S. Postal Inspection Service.”

Apply this to the BizRadio – Dan Frishberg case and see the similarities.  The only dramatic difference is that Petters crimes have come to trial and sentencing and the other is still under investigation.  But…EVERY CHOICE HAS A CONSEQUENCE.

YOUR COMMENTS ARE WELCOME…


Gordon Grigg – How a massive Ponzi scheme fraud was exposed – Part Two

March 31, 2010

Having been there, I completely understand the impact that choices have – not only on the individual that makes them – but also on the lives of others who are connected.  Whether a spouse, a child, a mother or father – whether a brother or sister – or whether a defrauded investor – everyone connected with the individual who perpetrated the fraud is a victim and, for most, the pain can run deep.

I was told that my earlier blog about Gordon Grigg was filled with lies…that it was slanderous and/or libelous.  I take those claims seriously.  To be clear, my objective is to open a dialogue regarding how a Ponzi scheme is perpetrated and how victims are lured in.  But for a moment let’s look at the allegation of slander and/or libel.

According to Wikipedia – slander refers to a malicious, false and defamatory spoken statement or report, while libel refers to any other form of communication such as written words or images. Most jurisdictions allow legal actions, civil and/or criminal, to deter various kinds of defamation and retaliate against groundless criticism. Related to defamation is public disclosure of private facts, which arises where one person reveals information that is not of public concern, and the release of which would offend a reasonable person.

Hum…well my words are written and the facts that I reveal are provided either from the public domain or are provided by people who have been directly affected by the crime committed by Gordon Grigg.  Further, as best I can tell, none of the comments made or disclosed are private facts that are not of public concern or should offend a reasonable person.  Rather, it would seem that what is disclosed has great public benefit.  If facts related to the commission of a crime can, upon public exposure, potentially protect otherwise unsuspecting individuals from being victimized – then their disclosure is for the public good.

Does it mean that victim perceptions and comments made at trial are not painful when retold.  NO!  No doubt they are to anyone affected.  And while it is not my intent to cause pain, I also know that complete transparency is one of the only ways that true healing can take place.  To say that Gordon Grigg has received his punishment and now the discussion should cease is more an attempt to quietly sweep under the rug the crime he committed rather than expose the true nature of the actions he took and seek to understand them for what they are.

AUGUST 6, 2009 – SENTENCING

According to the FBI the following took place at sentencing:

United States Attorney Edward M. Yarbrough announced that Gordon B. Grigg (“Grigg”), Franklin, Tennessee financial advisor and owner of ProTrust Management, Inc. (“ProTrust”), was sentenced today in federal court to ten (10) years in prison for perpetrating a Ponzi scheme that resulted in a loss of more than $6 million to more than sixty (60) investor – victims.

United States District Court Judge Aleta Trauger, in sentencing Grigg, stated “This case has a more vicious twist than the Madoff case.” Judge Trauger described Grigg’s crimes as “ . . . preying on vulnerable victims in crisis,” noting that Grigg’s scheme “ . . . destroyed families, relationships, marriages, and wreaked incredible havoc.” Prior to imposing sentence, Judge Trauger heard from seven (7) victims who testified as to the devastation Grigg’s fraud had caused to their lives and the lives of their families.

Notes taken at the sentencing hearing reflected the following:

The judge started by saying there were several factors she took into consideration when sentencing Grigg. They were the nature of the crime and the circumstances. This was not a violent crime, but violence was done in many ways. It was similar to the Madoff case but with a vicious twist. It was done in an aggravating way. Two factors keep arising in the pattern that Mr. Grigg worked. The first was that he preyed on vulnerable people and the second was the way he brought religion into the scheme.

People who commit a fraud (most of you who read my blog regularily know I committed a fraud back in the mid ’80’s – not proud of that fact, but it is a fact), typically have a pattern of behavior – a mode of operation if you will – that becomes successful and natural as they seek out victims and attempt to sell them on their scam.  More than one victim has said that Gordon Grigg used his faith as an effective lure.  Clearly stated, I wasn’t there, but it seems to be born out in testimony at sentencing that this is true.

The FBI new brief goes further to say:

Grigg pleaded guilty on April 29, 2009, to mail fraud and wire fraud. Grigg admitted during the plea hearing that, between 1996 and 2009, he operated an elaborate Ponzi Scheme designed to defraud investors who deposited more than $11,000,000 in funds with his company, ProTrust Management. Grigg promised clients that he would invest their money in pooled-client purchases of fixed-term certificates of deposit, private placements, corporate notes and debentures, with the accounts being titled collectively in the Protrust company name. Grigg further promised to personally manage client funds, and promised investors that he would generate and sustain high rates of annualized returns on investment. However, Grigg admitted that it was never his intention to invest the client funds he solicited. Instead, Grigg stated that he used the money placed with ProTrust for his personal benefit and expenses, to operate ProTrust, and to maintain the Ponzi scheme by disbursing “fictitious” earnings and return of deposits to clients who cashed out or closed their ProTrust investment accounts.

The pattern is so common!  NOTE: If an investment adviser promises sustained high rates of returns (something special that you can’t get anywhere else) – RUN!  There is a better chance than not that a fraud is somehow – somewhere – in the works.  And, more times than not, the illusion created is so great that people close to the fraudster have no clue.  Spouses, children and relatives often experience some of the most severe pain when the find that their trust has been broken – no shattered.

Notes from the trial showed the following:

Investors not only lost money themselves, but they got their friends, families and bosses to also invest with Grigg. He caused financial ruin to these investors. They lost college funds for their children and grandchildren, retirement funds were lost or diminished. He destroyed families and marriages. He wreaked havoc with investors. The investors are not only sad, angry and guilt ridden, but are probably in need of counseling. They have suffered great mental anguish because of the nature of this crime and the circumstances.

From a personal perspective I know I will receive criticism for what I am about to say, but Gordon did not destroy families and marriages.  Rather, the choice to blindly invest money with Gordon and the repercussions that followed from his fraud had that effect.  I have a problem with being a “victim”.  Although I use that term (it’s one that people can understand and connect with) – the reality is – EVERY CHOICE HAS A CONSEQUENCE.  Gordon made choices that had direct and far reaching consequences.  Investors also made choices that had a consequence.  In my earlier article Steve Wieland stated that he did not do his due diligence.  That failure had a consequence.  Every choice does have a consequence!

To conceal and sustain the Ponzi scheme, Grigg admitted that he fabricated documents, including invoices, forged correspondence, and fraudulent account statements purporting to reflect client ownership of non-existent securities. To deceive investors into believing that their investments were safe, Grigg admitted that he falsely claimed to have negotiated partnerships and special business relationships with several of the nation’s most successful investment firms, including Berkshire Hathaway, Inc., Goldman, Sachs & Co., Morgan Stanley & Co., Incorporated, and Kohlberg Kravis Roberts & Co. However, as Grigg admitted to the Court, no such business relationships ever existed, and Grigg used counterfeit corporate letterhead and the forged signatures of national investment firm executives to create fictitious documents and correspondence that appeared to confirm unique pooled investment opportunities between ProTrust and national investment firms.

Grigg further admitted that, between November 4, 2008 and January 28, 2009, he repeatedly solicited funds from investors by falsely representing that he had access to “government-guaranteed commercial paper and bank debt” available as part of the newly-created Troubled Assets Relief Program (“TARP”). Grigg told investors that he had committed more than $5,000,000 in ProTrust pooled client funds towards purchase of TARP guaranteed debt as part of a private placement partnership between ProTrust and the investment firms Berkshire Hathaway, Inc. and Kohlberg Kravis Roberts & Co. However, no such private placement partnership had ever existed between ProTrust, Berkshire Hathaway, Inc., and Kohlberg Kravis Roberts & Co., and no such TARP-guaranteed investment opportunity had ever been offered or made available to individual investors or national investment firms.

The finding of fact reflected in the FBI’s news release is quite interesting.  FOR THE RECORD, rarely does the Federal Government (or an Agency thereof) catch a criminal.  The crime is typically exposed by either an unsuspecting investor or a dramatic change of circumstance that forces what is done in the dark to be brought to the light.

Almost as this was happening (or at least soon thereafter) I received a call from Steve Wieland who shared with me a profound revelation that he uncovered related to his investment with Gordon and the investment of friends he recommended.  His comments follow:

I had advised a third friend, another medically retired airline pilot, of what a good job Gordon had done for us. He was selling his house, moving from Pennsylvania and had some extra money. This was the end of 2008.

The end of 2008 was the beginning of the massive financial meltdown.  I have been asked over and over why the proliferation of Ponzi schemes.  My response was – there are no more than usual.  The Ponzi schemer (and I speak from personal experience) is a bit like a bottom feeder fish.  You can’t see them till there is a major drought.  When the water is low the bottom feeder seems to come to the surface.  So as Steve said –  it was the end of 2008…that makes perfect sense…especially since it takes new money to prop up a Ponzi scheme.

Looking back now I can see how it all fell apart for Grigg. Money was so tight he was scrambling to get new Ponzi victims to placate the ones he already had. He became pushy. My friend in Pennsylvania called me very upset because Gordon wanted the money immediately.  My friend was uncomfortable. That night, December 16, 2008, I called Grigg and ask him to kindly verify my investments with him.  I asked him to provide the phone number for the investments or anything that would make my Pennsylvania friend want to invest with him. I knew that would not be a problem, until Grigg questioned as to why I would want that information. The discussion then started heating up to the point where I knew down in my stomach something was very wrong.

Only a few days before, the California friend and myself had received notice that Grigg could place us in an investment with the company by the name of KK and R. This investment would yield 12.5% guaranteed by the national T. A. R. P. Guaranteed by the federal government paying 12.5% interest. The only catch was that we had to roll over our existing investments for yet another three years. He sent us documents to this effect.

That’s another tell tail sign…if asked to extend your investments you might begin to question – why.  In order to a Ponzi scheme not to collapse you either need new funds or at a minimum keep existing funds longer so as not the erode the ability to maintain the illusion.

The following day I called my friend in California to tell him of my concerns. Like most victims of Ponzi schemes, they don’t want to believe it. So I set about doing the work myself. I contacted KK and R. They had never heard of Grigg or Pro-Trust management. However if I would kindly fax a statement showing that I had previous investments with them, as well as the new potential federally backed investment they would be sure to investigate and get back to me right away. I then contacted Goldman Sachs and told them of the potential investment with KK and R.  Goldman Sachs was supposed to be the administrator of this investment. The gentleman at Goldman Sachs immediately told me it was bogus and to contact an attorney.

It only takes one slip – one request – one inquiry – to cause the house of cards to collapse.  Most of the time the fraudster is the one who slips up stating something or producing something to maintain the illusion – only to find that he/she (in this case “he”) is not the smartest man in the room.  Once the card is pulled – the house of cards is destined to collapse because the foundation of illusion is pierced.

“Mr. Grigg’s crimes were not merely irresponsible manipulations of the financial system without consequences, they were acts of extraordinary destruction to his victims,” United States Attorney Edward M. Yarbrough said. “Grigg defrauded investors by repeatedly and falsely promising them ‘safe’ growth based on ‘unique’ pooled-investment opportunities, including promises of access to TARP guaranteed funds. Instead, the investors lost their ‘nest eggs’ and retirement savings as part of an elaborate Ponzi scheme. The effect of Mr. Grigg’s crimes was devastating to his victims. The United States Attorney’s Office will continue to diligently and aggressively prosecute the perpetrators of such schemes.”

Steve Wieland continued…”Two days later, the federal S.E.C. contacted me about the information I had sent regarding K. K. and R. They wanted to talk to me. I hired an attorney, who told me this was an outright Ponzi scheme. She could sue on my behalf and win every judgment. She also told me there would probably be no money for me. This would be throwing good money after bad. After a week my friend in California knew I was telling the truth.”

Was this the origination of the downfall of Gordon Grigg’s scheme?  I don’t know.  Many media reports share essentially the same story, so I have to believe that (short of being reputed) the call made by Mr. Wieland to the investment firms was the incident that represented the removal of the card from the house of cards that Grigg built.

Once pulled…the consequences began and continue to this day.  Is there more to this story?  Certainly, but for now…perhaps…readers can begin to understand how easy it is to be drawn into the illusion of a fraud and how simple it is to find that one day the card is pulled that begins the collapse.

More to come…but for now…YOUR COMMENTS ARE WELCOME…


Dan Frishberg – David Wallace: Anatomy of an investment scam? LAFFER FRISHBERG WALLACE ECONOMIC OPPORTUNITY FUND

March 16, 2010

Diversify!  That’s what one of the investors thought he was doing when he invested hundreds of thousands of dollars in an investment solicited by David Wallace and Daniel Frishberg.  Frishberg “The Money Man” – preached diversification on his show on BizRadio.  Little did this investor as well as scores of others know that the fund they were being lured into was nothing more than a primary source to fund the money losing venture of Daniel Frishberg – BizRadio.

Before we get into the scam…let’s look at what generally it takes for something that might have started out legitimately to become rank and foul – nothing more than a fraud.  The three components are: NEED, OPPORTUNITY and RATIONALIZATION.  As we look at how this scam unfolded – think about these three parts and perhaps it will become clear just how simple it was for Frishberg et al to move from the intelligence of the light into the dark shadows of scams and, what I believe to be, fraud.

THE OFFERING: The investor (who called me and agreed to an interview) was introduced to an investment called the LAFFER FRISHBERG WALLACE ECONOMIC OPPORTUNITY FUND apparently promoted by David Wallace, Daniel Frishberg and Art Laffer.

Art Laffer was interviewed in an article in Equities Magazine which can be read here.  In the article Mr. Laffer references BizRadio.  I have to wonder now with SEC investigations swirling if Mr. Laffer is still pleased with his affiliation with Frishberg?  But that is another topic for another day…

Initially contacted by Al Kaleta (since busted by the SEC), it was David Wallace who impressed the investor with the returns shown on other prior real estate funds.

“It was a very impressive real estate holding.   And so based upon that and based upon the offering memorandum they provided to me, I went ahead and invested $XXX hundred thousand dollars.”

Starting from the year 2008 they had reported, per the investor, a pretty significant loss from the operations of BizRadio because a portion of the money that had been collected from the investors had been invested in BizRadio.

“I started to look into to it and I read the offering documents and/or partnership documents and I notice that the partnership document strictly stated that they cannot and will not invest any more than 20% of the funds or capital into any investment account.”

It was June 2009 when they released the interim financials.

“As of June 30th I noticed the amount of money they had invested in BizRadio was like 66% of the total contributed capital.  As an example, the total funds collected from the investors was something like $6.8 million dollars and they have invested something like $4.8 million in BizRadio.”

NEED and OPPORTUNITY:  Perhaps it is speculation or perhaps it is circumstance, but what is fact is that monies collected for the LFW Economic Opportunity Fund were substantially siphoned off and funneled into the operations of money losing BizRadio.  When you address the two major components of a FRAUD you see NEED and OPPORTUNITY.

NEED seems to be clear in this case.  BizRadio could not financially survive without an influx of cash – cash raised from apparent unsuspecting investors.  Trading on the good name of David Wallace (who in my opinion now has an SEC target on his back) and the charm of Al Kaleta (now busted by the SEC), investors felt they were getting in on a good deal only to find out that not only was their investment unsafe, but that the terms of their investment agreement were apparently violated.  But back to the interview:

“I asked David Wallace…David why have you done this?”  The investor interviewee stated that about that time was when it became clear that the SEC had an interest in Kaleta and BizRadio/Frishberg.  “He tried to give me a round about answer saying really you’re comparing apples to oranges.  The BizRadio investment – the 20% – has to be compared to the market value of the real estate in all the funds.”

STOP…it appears again, if the investor interviewee is accurate in his recollection of his conversation, that at this point David Wallace is trying to cover up an inequity and perhaps therefore makes him complicit in a fraud coverup – something that has criminal implications.

“But I said that this Wallace fund is a very separate entity, you cannot combine all of the other entities fund market values to do that.  But moreover if the losses are incurred it would be reported into this fund account, not into every fund account.  Then I wrote him a very detailed letter asking for an explanation which remained unanswered.”

SURPRISE, SURPRISE, SURPRISE: The request for information or an explanation went unanswered.  What legitimate answer could be given.  An investment agreement was violated, an investor asks why, and no answer.  At this time it seems clear that the legitimate investment (?) turned scam or fraud was beginning to come unraveled.  At least Wallace was smart enough not to put his answer in writing as that might be construed as mail or wire fraud – punishable by prison.

“Then I called Dan Frishberg, as he was one of the BizRadio persons and he asked me to come over for a meeting.  Dan Frishberg now came up with the same theory as David Wallace that it was based on market value and I was just not understanding.  So I showed them my partnership agreement and I don’t know what you are saying, but here is what the partnership agreement is saying.  After that we retired to talk to David Wallace.  David Wallace then came into the room and basically told me that he really does not have to say anything.  This is how it happened and I could offer to file a lawsuit and they would respond to my lawsuit.”

WOW: Seek an investors money – fail to answer legitimate questions when called on the carpet – then suggest a lawsuit.  To the readers of this blog – what does that tell you?  When I heard these comments from the gentlemen who so kindly contacted me I was amazed!  Not only was Kaleta busted by the SEC, but David Wallace seems to be kneed deep in it with Dan Frishberg which by my calculations is unfortunate for both men.

“Why have you exposed us to something like this?”  He said back, “Well this is how it has happened.  You will obviously tell your attorney and they will ask some questions and we will answer.” Dan Frishberg said as we were leaving, “Well there is nothing much we can do.”

WHERE FROM HERE? The investor interviewee said, “I don’t know what to do.  Where do we go from here?”  In his voice I heard anguish and concern.  He, along with many others, are figuring out that the bulk of their investments have vanished.  Vanished not from a seriously declining real estate market, but vanished from a mismanaged fund that appears to have violated the terms of the agreement.  So where from here?  My guess…and please note it is only a guess…  The SEC will investigate.  Investment fund organizers will find a fate similar to that of Al Kaleta.  And, I predict that eventually the FBI or US Attorney’s office will get involved.

Was this a legitimate investment gone bad or a scam from the outset?  Perhaps that question is best left to federal investigators…but as I’ve said before – something smells “frishy”!

YOUR COMMENTS ARE WELCOME!