BizRadio – Dan Frishberg: The Great RIA Hoax… yet, another nail in the coffin…

April 19, 2010

BizRadio was a “loss leader” – so said Dan Frishberg according to many sources who heard the comments.  Look at the model and there was no way it could ever make money.  Unless…?  Unless the RIA that Frishberg was responsible for was an asset of BizRadio and, therefore, the money it created on a quarterly basis become a resource for paying the overhead.

Makes sense, except that Frishberg, from everything that I have seen, transferred the RIA to another investment firm to protect it and none of the monies it kicked off have been directed back to investors who are stinging from losses.  IF THAT IS NOT TRUE, PLEASE FEEL FREE TO CORRECT ME WITH YOUR COMMENTS BELOW.  I think, however, it is true.

So, what was Dan’s intent?  Next that follows is material prepared by BizRadio for investors.  Read it and let’s look at the content.

Let’s continue to Page 2

Yes…there’s more…Page three

More importantly, we start pulling in assets in the RIA and that’s the most profitable part!  Dan Frishberg told the truth here.  The question is – if that is the most profitable part then why is that conspicuously missing from the apparent assets of BizRadio today?

This document was written in December 09 and was part of a promotion presentation for bringing on line Seattle, Salt Lake City, Charlotte, Indianapolis and St. Louis.  Notice two very obvious things:  (1) the date is confirmed as it mentions Ron Crider and that is the time he was there (ostensibly as CEO) and (2) it touts Al Kaleta (even though by that time he was busted by the SEC and shouldn’t have had any activity with BizRadio).

I may not be the sharpest knife in the drawer, but I can cut butter…and this seems to be a clear statement of Frishberg’s intent to include his prize RIA as part of the BizRadio assets.  Further, this material seems to show his intent to defraud as many of the statements made are just not true, but rather stated in order to increase investments in BizRadio which was headed down the slippery slope of decline in December of 2009.  It’s one thing to make a mistake on an investment – sometimes things just don’t turn out as planned – and quite another to keep up an illusory front in order to gain more money when any other reasonable person could see that most of this is just a sham.

What’s the outcome…?  Who knows today?  But, one thing is for sure.  The cards are falling and the outcome is looking less and less promising.

YOUR COMMENTS 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 and David Wallace – Another investor stung! An internal look at a scam run wild…

March 18, 2010

Who got scammed by whom?  The plethora of players and their individual motivations may never completely be revealed, but one thing is for sure…there is a long list of people who trusted a number of folks who are now finding there trust was misspent.  THERE MONEY IS GONE – gone down the black hole called BizRadio.  Once a dream of Daniel Frishberg is now nothing more than a sinking ship barely floating above water – just waiting for the last plug to be pulled and desperately clinging to life.

Who will pull the plug?  The SEC?  The FBI?  The US Attorney’s office? or perhaps Salem Communications (once they wake up and find that being in bed with BizRadio or any remnant thereof is bad news)?  I don’t know, but most everyone I talk to has the clear feeling that this can’t last much longer.

A SCAMMED INVESTORS STORY:

The phone rang.  On the other end was yet another investor willing to share their story.  There was anguish and shame in his voice.  Over two-thirds of he and his wife’s savings – VANISHED.  But as I listened to his story an all to familiar pattern emerged.  He and his wife fell into the PIT.

Now if there is any value to these blog entries, it should be the lessons learned from those willing to share their story.  It truly is less about Frishberg and his clan and more about how people can avoid these messes in the future.  So first lets look at the PIT.

PROMISE – The first step to falling into a scam (especially a financial scam) is the “promise”!  The investor caller stated (an I paraphrase) – our investments had begun to take a turn for the worse as the recession (then yet not defined as a ‘recession’) took hold.  Not wanting to see it slide any further, we decided to take matters into our own hands and signed up for an extensive learning session with the On-Line Trading Academy.  “That was a real learning experience,” he stated – and his words rang true with a sincere feeling that this experience was worthwhile.  But…

We asked people we could trust – “who could we talk to about professional money management?”  His email to me stated, “In June 2009, Frishberg-Jordan-Kaleta was recommended to us by someone who we thought we could trust and an individual who was involved in a business deal with Frishberg to sell his stock trading franchise to them which we later found out was to be a part of Frishberg’s grand plan to build an empire they could sell to CNBC, FOX or some other group.”

STOP – IMPORTANT POINT:  Before we continue with the “P” of PROMISE, it is important to note what was said above.  It is my personal belief that Frishberg did not intend to defraud.  However, like so many fraudsters (this will be discussed in detail in another blog), Frishberg got so caught up in his own illusion (by the way, I think he’s still there) that he crossed the boundary of reality and his efforts to build an empire (which seem to be crashing down around him) blinded him to the reality that he was scamming people out of their savings and investments in order to fund his dream.  Unfortunately, likely a dream that will never be realized.  He is now tarnished as is BizRadio and most would say (and have said to me privately) – BizRadio and Daniel Frishberg’s advice is now worthless.  His credibility has washed away just like the losses others have suffered at his hand.

Our contract was with Frishber-Jordan-Kaleta for management of two accounts (one qualified and non qualified) and were initially  contacted through there “business director” to speak with Kaleta. Kaleta told us they would put us into bonds and that some of the none qualified account cash would be used for loans that would provide us with 10% income (12% total with 2% for them) until the bonds began to produce cash flow as well. There was absolutely no mention of Biz Radio and we had NEVER heard of it until the SEC filing.

NOW GET THIS… The PROMISE was to pay a consistent return that was far better than what most folks were getting on their investment in the market at the time.  When people are scammed they fall for a false PROMISE. Folks – if it sounds to good to be true…RUN LIKE A SCALDED DOG! (Sorry I know the animal rights people will make comments about that statement – but I am from the south…)

The PROMISE is the first component of a scam!  The second – ILLUSION!

Monies were transferred into, at first what seemed to be, a safe high yielding investment.  Then they were called and the money swapping and trading began.  What I heard him describe to me was (what seemed to be) a shell game.  Money put here, should be moved there and instead of bonds perhaps it should be some sort of note…I mean I’ve heard it all from many investors – not just this anguished gentleman.

He stated to me, “It is very clear to us that Frishberg and his wife were driving this whole process. Frishberg-Jordan-Kaleta managed our investments and “invested” us in two other funds ( Wallace-Bajjali Development Partners and the Laffer, Frishberg, Wallace Economic Opportunity Fund LP) that we later found that funneled funds to Biz Radio. At the moment that we found out that the SEC had shut down Kaleta (Kaleta Captial Management) we removed everyone from our managed accounts at Fidelity. SUPRISE – we found that there were seven people on each of the accounts to include Frishberg and his wife.”

Now I suspect that anyone reading these blogs know what a Ponzi scheme is – I invest $10,000 with a guaranteed 10% return.  When you put your $10,000 in – I am paid my $1,000 interest from your funds and so on.  The key behind the collapse of a Ponzi scheme is NO MORE MONEY!  I feel like Gomer Pyle when I say this, but Surprise…Surprise…Surprise – when the SEC shut Kaleta down – the card that pulled caused the house of cards to collapse.  Up till that point, Frishberg, Wallace, Kaleta and the clan kept the ILLUSION going that something great was about to happen.  Sorry, but that was BS (you know what I mean).

The defrauded investor continues:

THERE is no doubt in our minds with all of the facts and evidence that we have that:

  • this was a PONZI scheme that imploded when the SEC investigated and filed against Kaleta
  • that Frishberg AND his wife were just as complicit in defrauding us as Kaleta
  • that Kaleta was just the front man (buffoon that he is)
  • that we were never consulted or informed that our money would be “invested” with Wallace-Bajjali Development Partners or Laffer, Frishberg, Wallace Economic Opportunity Fund LP
  • that in speaking with David Wallace that he is of the impression that we were aware that a large portion of our money was to be invested in the Wallace-Bajjali Development Partners which is NOT TRUE
  • that we contracted Frishberg-Jordan-Kaleta and not with Kaleta Capital Management to manage our money
  • that KCM was a just another way to fund Biz Radio

In the PIT the last component is TRUST.  Sadly, this defrauded investor TRUSTED someone who, too, was sucked into the aura of Daniel Frishberg and his associates.  TRUST by itself can be dangerous.  As I write this I must admit it saddens me to think that some may learn to never trust folks, but when it comes to your money…NEVER TRUST THE OPINION OF JUST ONE PERSON.  Due you due diligence.  Now, fairly, at the time, if you had Googled Daniel Frishberg you would have felt that he was someone that was worthy of trust.  After all, Dan was a master of illusion.  His radio show and guest spots made him the perfect person.  But ILLUSION is tricky, it has a way of eventually becoming the truth.  Now, google Daniel and the story is a bit different.  At least today people should have better sense than to blindly TRUST Dan or any of his cronies.

AS WE ENDED THE CONVERSATION…the defrauded investor said, “Chuck, thanks for listening to me.  It helps to talk about it and get it off my chest.”  I felt for him…and I knew that he was one of many who needed an outlet.  He was kicking himself, grieving his loss, and concerned about the future financially.

He fell into the PIT.  Learn from him and avoid that for yourself.

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!


The Ponzi scheme’s alive and well…Peter Jerald Frommer faces up to 233 years in prison if convicted!

February 9, 2010

A man who allegedly defrauded investors out of $12 million dollars from his onetime base of Malibu was taken into custody by federal authorities the U.S. Attorney’s Office announced.

Peter Jerald Frommer, 34, surrendered to FBI agents Friday morning after a federal grand jury on Thursday indicted him on 17 counts, including mail fraud, wire fraud, money laundering and failing to file federal income tax returns for three years.

Frommer is suspected of convincing investors that he would take their money, buy and flip-for-profit distressed property from companies going out of business, and quickly return the cash plus unusually high interest (as much as 15 percent).

But alas, federal authorities say, the suspect would just pocket the money and use new investments to pay off those who wanted their cash back. Frommer called his company Cap Exchange or Cap X, and he ran the operation from 2004 to 2006, feds say.

“Frommer allegedly misappropriated this money to maintain his lavish personal lifestyle and to make Ponzi payments to victims, while falsifying Cap X account statements to lull victims into believing that their money was safe and earning high returns,” stated U.S. Attorney’s Office spokesman Thom Mrozek.

More than 50 victims were stung, according to the U.S. Attorney’s Office. He faces as many as 233 years behind bars if convicted.

COMMENTS ARE WELCOME


Milton Retana Conman to Spanish Speaking Investors Guilty of $62 Ponzi scheme

January 25, 2010

Facing a potential 125 years in prison, jurors deliberated for less than an hour convicting Retana of preying on Spanish-speaking investors with promises of hefty returns in the real estate bubble bilking more than 2,000 victims out of more than $62 million.

Retana began soliciting investors in 2006 through his company, Best Diamond Funding, by telling them that their money would be used to buy and sell real estate.  Best Diamond Funding solicited money through advertisements in Spanish-language magazines, on the Internet, and during weekly investment seminars at locations across Los Angeles. The investment seminars often had as many as 300 potential investors and incorporated religious messages. Retana guaranteed returns as high as 84 percent each year, claiming that he would purchase properties in bulk at below-market prices and immediately sell them for a profit. However, records obtained by federal investigators showed that Retana used only a tiny fraction of the victims’ money to purchase real estate and that his company was actually losing money.

During the trial, several victims testified that they mortgaged their homes and drained their retirement accounts because they believed Retana’s promises that their investments would be safe. The victims who testified at trial were largely from working-class families in East Los Angeles, and they included a stone mason, a long-haul truck driver, and a roofer who was also a pastor at his local church.

Retana’s scheme was almost uncovered in the summer of 2008, when the California Department of Real Estate audited his company. But Retana stymied that investigation by ordering his employees to hide all of the investor files at the back of his wife’s religious bookstore, La Libreria Del Exito Mundial. His scheme was disrupted in October 2008, when federal agents from the United States Postal Inspection Service and the Federal Bureau of Investigation executed search warrants on the offices of Best Diamond Funding and the bookstore. During those searches, agents found $800,000 in cash stashed in Retana’s desk, as well as another $3.2 million in cash hidden in the back of the bookstore. The FBI also seized another $8 million from Retana’s bank accounts.

Soon after the execution of the federal search warrants, agents interviewed Retana, who lied about how much money he had received from the investors and claimed that he could pay all of them back. Retana was later secretly recorded telling a Best Diamond employee not to tell the government how much money Best Diamond had received from the investors.

DO PONZI SCHEME FRAUDSTERS TARGET ONLY THE WHITE OR RICH?

No…not a chance.  The Ponzi scheme fraudster looks for an opportunity.  Anyone who is lured by an UNREALISTIC PROMISE – dazzled by an ELABORATE ILLUSION and sucked in by TRUST is a target.  Bernie Madoff evidenced that through his focus on primarily Jewish clients – not because of race or money, but because of trust.  When a person is lured by the PIT (Promise, Illusion and Trust) they are susceptible to a Ponzi scheme fraud.

If you were a victim of Milton Retana’s fraud – feel free to comment on how you became a victim.

YOUR COMMENTS ARE WELCOME.

Oh, and Milton Retana is to be sentenced on April 26, 2010.  What do you think his sentence should be…