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

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…

Cuomo sues Lewis of Bank of America… Did Lewis act unethically or is Cuomo grandstanding?

Reported on in Bloomberg…(see the full article here).

The former Chief Executive Officer of Bank of America, Kenneth Lewis was sued by New York Attorney General Andrew Cuomo for supposedly defrauding investors and the government when buying Merrill Lynch & Co.  Recently, the bank agreed to pay $150 million to settle a related lawsuit by U.S. regulators which is being considered by U.S. District Court Judge Jed Rakoff.  Last year, Rakoff called the SEC’s initial settlement neither fair nor reasonable and questioned why the bank’s executives and lawyers weren’t sued. The agency said it lacked evidence to bring claims against specific individuals.

Cuomo also sued the bank’s former chief financial officer Joe Price and the bank itself for not disclosing about $16 billion in losses Merrill had incurred before it was bought by Bank of America in an effort to get the merger approved.  Afterward, Lewis demanded government bailout funds, Cuomo said.

“We believe the bank management understated the Merrill Lynch losses to shareholders, then they overstated their ability to terminate their agreement to secure $20 billion of TARP money, and that is just a fraud,” Cuomo said yesterday during a telephone press conference. “Bank of America and its officials defrauded the government and the taxpayers at a very difficult time.”

Interestingly enough, Cuomo is pursuing individuals at the bank while the SEC has declined to do so. The suit is being filed under the Martin Act, a New York securities law that permits both civil and criminal penalties.

Cuomo said he coordinated efforts with the SEC. “Our case will bring individuals to justice and will make a point to people that this is a very serious matter,” he said yesterday. “When you settle a case the way the SEC is settling today, the upside is you implement immediate regulatory reforms.”

Last month, the SEC expanded its claims against the bank, accusing it of failing to disclose Merrill Lynch’s mounting losses before holding a shareholder vote on the acquisition.

The proposed fine would be distributed back to harmed shareholders, the SEC said yesterday.

The SEC settlement “addresses the judge’s concerns of penalizing shareholders so it’s likely to pass muster,” said Peter Henning, a law professor at Wayne State University in Detroit. “At the same time, it’s hard to show any monetary damage to shareholders at this point because the Merrill deal has turned out to be a good acquisition for the bank.”

The conduct of Brian Moynihan, the bank’s current chief executive, is not under investigation, said David Markowitz, Cuomo’s special deputy attorney general for investor protection. Moynihan, who became general counsel in the middle of events, was candid with Cuomo’s office in the probe, Markowitz said.

According to the complaint, Lewis and his lieutenants Moynihan and Price calculated that if they threatened “to get out of the deal, the federal government would counter with more taxpayer funds out of a concern for the greater economy.”

The U.S. injected $45 billion into Bank of America through the purchase of preferred shares, including $20 billion approved after the acquisition in January 2009 to keep the deal from collapsing. The bank redeemed the shares in December.

“We find it regrettable and are disappointed that the NYAG has chosen to file these charges, which we believe are totally without merit,” the bank said in a statement. “In fact, the SEC had access to the same evidence as the NYAG and concluded that there was no basis to enter either a charge of fraud or to charge individuals. The company and these executives will vigorously defend ourselves.”

Lawyers for Lewis and Price denied wrongdoing. “The allegation that Mr. Price deliberately caused Bank of America to withhold from shareholders information they were entitled to know is utterly false,” said William H. Jeffress Jr. and Julia E. Guttman of Baker Botts LLP in Washington, in a statement.

SOME QUESTIONS TO CONSIDER:

Is the decision to sue Mr. Lewis and other Bank of America Executives by Mr. Cuomo a political move that has more to do with advancing political aspirations than bringing justice?  Or, is Mr. Cuomo the only person to have the fortitude to bring justice to an unethical action by BofA executives?

“The decision by Mr. Cuomo to sue Bank of America, Mr. Lewis and other executives in connection with BofA’s acquisition of Merrill Lynch is a badly misguided decision without support in the facts or the law,” said Mary Jo White of Debevoise & Plimpton LLP in New York, who represents Lewis. “There is not a shred of objective evidence to support the allegations by the Attorney General.”

Bank of America agreed to buy Merrill on Sept. 15, 2008, after just 25 hours of due diligence, according to the suit. When the board of directors met that day to approve the transaction, they thought they were going to buy Lehman Brothers Holdings Inc., the suit says.

WOW…is that true?  If so, and it is proven, then one would have to wonder about not only Mr. Lewis actions, but the actions of the Board of Directors. Who makes a decision like this with only 25 hours of due diligence?

Cuomo said Bank of America scheduled a shareholder vote to approve its plan to buy Merrill on Dec. 5, 2008. By that date, Merrill incurred losses of more than $16 billion, Cuomo said. Bank of America’s management, including Lewis and Price, knew of the losses and knew that more were coming, Cuomo said.

After the merger was approved, Lewis told federal regulators the bank couldn’t complete the deal without a taxpayer bailout because of accelerated losses from Merrill, Cuomo said. However, between the time the shareholders approved the deal and the time Lewis sought the bailout, Merrill’s losses only increased by $1.4 billion, Cuomo said.

Greed, Hubris

“The conduct of Bank of America, through its top management, was motivated by self-interest, greed, hubris, and a palpable sense that the normal rules of fair play did not apply to them,” Cuomo said in the lawsuit. “Bank of America’s management thought of itself as too big to play by the rules and, just as disturbingly, too big to tell the truth.”

But wait…is Bank of America the only culprit in this grand scheme?  We (the taxpayers) lost substantially more with AIG, so where is Mr. Cuomo when it comes to that grand deception?  I respect the grandstanding claiming “greed and hubris” but I’m not sure why the BofA – Merrill merger is being focused on when there seems to be much bigger fish to fry.  Any help here?

The suit claims Bank of America received more than $20 billion in taxpayer aid as a result of their misleading efforts. Cuomo’s statement said the bank can’t explain why they didn’t disclose the losses to shareholders though the merger “would have threatened the bank’s very existence if there had been no taxpayer bailout.”

Cuomo also claims management failed to disclose to shareholders it was allowing Merrill to pay $3.57 billion in bonuses. Nor did the bank’s management tell the bank’s lawyers about the extent of Merrill’s losses before the shareholder vote.

Here’s what appears to be the sad truth…  Lewis will be defended by attorney’s for Bank of America.  BofA received bailout money.  Merrill is now part of BofA.  And, even if found guilty, more than likely any fines assessed will be paid from BofA’s insurance.  Perhaps…this is all posturing for something else.  Bank of America likely was wrong, but I’m not sure that Attorney General Cuomo is truly motivated by bringing justice…

But then again…I could be wrong.  YOUR THOUGHTS?

And the Fraud Begins – Gordon Grigg and his firm, ProTrust Management Inc. Charged with Securities Fraud – I Shall Call Him “Mini Madoff”

In tough economic times fraud will rise!  And with government funds flooding the markets to stimulate the economy, there is no doubt that some will see this as an opportunity to – well take advantage of an unregulated environment.  That seems to the be case with Gordon Grigg of Nashville and his firm, ProTrust Management Inc.

According to the Associated Press – “Federal regulators on Wednesday charged an investment adviser with securities fraud, saying he bilked clients of at least $6.5 million in the first scheme using the government’s $700 billion financial bailout program as a front to lure investments.”

Need, opportunity and rationalization – these are the three components of fraud – white collar crime.  And while a person is considered innocent until proven innocent, it would seem that there is enough evidence to cause the Securities and Exchange Commission to obtain a court order freezing the assets of Gordon Grigg of Nashville and his firm, ProTrust Management Inc.

It would seem that based on the information thus far that Grigg could be called “Mini Madoff.”  No he might not have yet created a Ponzi scheme, but it does seem it was headed in that direction.

The Associated Press reports:

Grigg represents himself as a financial planner and investment adviser, but neither he nor his firm is registered with the SEC or a state regulator, the agency said in its civil lawsuit filed in federal court in Nashville. The SEC said that Grigg, who obtained control over funds of at least 27 clients, falsely claimed to have invested their money in securities described as “private placements,” creating phony account statements.

BE AWARE:

One of the first indications of fraud is when the investment advisor says – he/she has something that is “private” something that no one else has – something that is special.  Madoff had something special – and now it seems so did Grigg.  Only in both cases it appears that neither was true.

According to the SEC, Grigg began falsely claiming that his firm could invest client funds in government-guaranteed commercial paper and bank debt as part of the federal TARP program. His claims also included that he had partnerships and other business relationships with several leading U.S. investment firms.

Grigg and his firm “preyed upon investors’ desire for safety by claiming associations with reputable investment firms and the government’s TARP program,” Katherine Addleman, regional director of the SEC’s Atlanta office, said in a statement. “Investors should carefully check any purported affiliations. In this case, not only were such claims false, but there is in fact no program in which investors can buy debt guaranteed by the TARP program.”

THE VICTIMS:

As reported in the Charolotte Observer – “Davidson resident Steve Wieland has prayed with Gordon Grigg, invited the former Charlotte resident into his home and trusted him enough to let Grigg’s company invest his life savings.  Wieland, 59, a disabled former pilot who flew for US Airways for 25 years, said he lost $252,000, the bulk of his life savings.

“You read about this happening in the newspaper. But when it happens to you, you go, ‘Oh my God, how do I recover,’” Wieland said. “I can’t. I’m done.”

Grigg’s alleged fraud started in 2003 and according to reports – ProTrust also was subject to a cease and desist order in North Dakota in 2006 for allegedly selling nonexistent securities, records show.

THE PIT – THAT HOLE THAT INVESTORS FALL INTO (AND DON’T RECOVER FROM):

As a fraud prevention expert and business ethics speaker, I am often asked how is it that people get suckered into investments like this?  I wish I could say it was difficult.  But from experience that cost me time in prison – I have to admit it is easy.   More times that not the scammed investors fall into what I have referred to as the PIT.

But here is what Mr. Wieland had to say, “I gave my money to a ‘friend’ instead of doing my research,” Wieland said. “Never do that. I don’t want anybody else to lose any more money.”

P – first there is the “promise” that the investor can get something that is special – something that the average person can’t get.  That “something special” is the allure of a better return – or something that gives one a chance at the gold at the end of the rainbow.  The fraudster plays on that emotional need.

I – second there is the “illusion.” In Grigg’s case – he claimed to have “private placements.”  That was supported by false and fraudulent account statements reflecting client ownership of the non-existent securities.  The false information is part of the illusion.  When you see it on paper or on the web in a fake account, you are lulled into believing it’s truth.

T – the final part is the all important aspect of “trust.” As stated in the Charlotte Observer article – “Steve Wieland has prayed with Gordon Grigg, invited the former Charlotte resident into his home and trusted him enough to let Grigg’s company invest his life savings.”  Ah…there’s that word – TRUST. Bernie Madoff had it, Gordon Grigg had it and so did I.  And in each case the abuse of trust was a key factor in a fraud taking place.

THIS STORY ISN’T OVER:

There is more to this story and likely many more victims.  I feel for them and hope that this writing might alert others to the importance of due diligence when investing.  Grigg, if convicted, will spend time in Federal Prison where he’ll have ample opportunity to think about this choices and the consequences that follow.  As I speak nationwide on ethics and fraud prevention – the first words out of my mouth are – “Every choice has a consequence.”

YOUR COMMENTS ARE WELCOME!