February 20, 2014
In today's BrokeAndBroker Blog we have a pastor fleecing his flock and, for good measure, the sheep of some other flocks. Quite the challenge that runs in the face of the biblical warning that such a challenge is doomed:
No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon.
On Wall Street, that warning is tested day in and day out. Sometimes the bad guys get away with doing whatever it takes to make a buck. Sometimes they don't. Whether the con artists ultimately wind up hating, loving, holding, or despising is anyone's guess.
In any event, let us begin.
No . . . Not Star Wars
CFO-5 LLC and Trinity International Enterprises Inc. were two companies controlled by Stanley Wayne Anderson, Arvada, CO, and Edwin Alexander Smith, Denver, CO. Anderson was the chairman and chief executive officer of CFO-5 and Trinity. Smith was the secretary of CFO-5 and president of Trinity.
Keys To Life
Now enters one Charles Lawrence Kennedy, Jr., Tampa, FL, where he served as a pastor. Ahh, but not merely a man of God or of the cloth; to the contrary, Kennedy conducted business through a company identified as Keys to Life Corporation.
Ain't No MTN
So . . . we got the CFO-5 and Trinity companies, we got Messrs. Anderson and Smith, we got the Keys to Life, and we got ourselves a pastor. Buckle your seatbelts! Turns out that starting sometime around October 2005 through December 2008, pastor Kennedy entered into a formal partnership with Trinity and in cahoots with Anderson and Smith, the three men solicited investment funds for an investment program promising significant profits and immediate returns of from 200 to 1,000% through trading European medium term notes ("MTN program").
Passin' The Plate
Seems that a lot of folks - shall we call them a flock of pigeons? - bought into the sales pitch because about 100 investors coughed up $5 million to trade in the MTN program. More pointedly, in December 2005, Kennedy began soliciting pastors and members of their congregations through Keys to Life Corporation. The good pastor Kennedy apparently promised that a $1,000 investment would reap a $1,000,000 return within 90 days. Praise the Lord! Armed with the power of his words, Kennedy collected $460,000 from nine investors - but Trinity only saw about $145,000 of that take. The other $315,000 seems to have been diverted by this man of the cloth for his own personal benefit. I guess that this Keys to Life company was more like the keys to your bank account -- a heavenly front, as it were.
Notwithstanding all the holy high rollers, the investors' funds were not used to trade in financial instruments but diverted by Anderson, Smith, and Kennedy, who generally commingled and deposited investors' funds into bank accounts controlled by Anderson and Smith. A few investors did get some Ponzi payments but, otherwise, the funds were lost. In reality, CFO-5 and Trinity had no business operations apart from soliciting investment funds related to an investment program. And that impressive sounding MTN? Yeah, garbage too. Never even existed.
Got A SEC
On July 28, 2008, the Securities and Exchange Commission ("SEC") filed a Complaint in the District of Colorado alleging that the defendants sold unregistered securities in a prime bank fraud scheme. On May 4, 2010, the SEC obtained an injunction on consent against Anderson, Kennedy, and one of their co-conspirators (Edwin A. Smith). Securities and Exchange Commission v. CFO-5, LLC, Trinity International Enterprises, Inc., Stanley W. Anderson, Edwin A. Smith, Charles L. Kennedy, Michael D. Norton, individually and d/b/a Global Asset Services, and Nicholas R. Fair, (U.S. District Court for the District of Colorado, Civil Action No. 08-cv-1594-PAB-MEH). Anderson, Smith, Kennedy, Norton, and Fair settled the charges without admitting or denying the allegations in the Complaint.
The defendents were permanently enjoined from violations of federal securities laws; and Anderson and Smith were held jointly and severally liable for a $3,197,222 disgorgement of profits and prejudgment interest. Anderson and Kennedy were also ordered to pay $130,000 civil penalties; and Kennedy was liable for $434,704.93 in disgorgement interest, and a $130,000 civil penalty. Default judgments were entered against CFO-5, LLC and Trinity International, LLC, and the companies were held jointly and severally liable with Anderson and Smith for payment of $3,197,222.
Counting to 17
On March 22, 2012, Kennedy, Anderson, and Smith were indicted by a federal grand jury in Denver, USA v. Anderson, Smith, and Kennedy (DCO, 12-CR-00139, March 22, 2012), for 15 counts of wire fraud, one count of conspiracy to commit wire and mail fraud, and one count of engaging in monetary transaction in property derived from specified unlawful activity. As alleged in Paragraph 14 of the Indictment:
14. As part of the scheme, ANDERSON, SMITH, and KENNEDY, repeatedly lulled investors with false assurances, promises and statements as to the status and progress of the MTN program. Ultimately, through such falsities, the Defendants misled investors into believing that the MTN program actually existed and was nearing successful completion, and that disbursements of profits were imminent. Such lulling communications continued to occur even after all investor funds had been misappropriated by the Defendants and dispensed for unauthorized uses.
Federal prosecutors deemed Anderson the lead person for the investment program and the defendant who managed the daily operations of the program, made key decisions as it related to the use of investor funds, handled investor communications, and oversaw the relationship with various promoters responsible for soliciting investors. Similarly, Anderson was characterized as the defendant who typically authored and distributed fraudulent e-mails
On August 27, 2013, Smith pled guilty to one count of wire fraud. Smith was scheduled to be sentenced on February 4, 2014, and, subsequently, was sentenced to 30 months in federal prison.
On October 30, 2013, Kennedy, Jr., age 71, pled guilty to one count of wire fraud. In January 2014, Kennedy was sentenced to one year and a day in federal prison, three years supervised release; and ordered to pay restitution of some $315,000.
Anderson, 69, Arvada, Co, had a change of plea hearing scheduled for February 6, 2014, and, subsequently, he pled guilty to one count of wire fraud and one count of money laundering. Sentencing is set for May 6, 2014.
Bill Singer's Comment
Nice turn of a phrase by the federal prosecutors: "repeatedly lulled investors with false assurances, promises and statements . . ." So much for folks doing their due diligence. Why do any detective work and confirm where your money is supposedly going when you can be so nicely lulled into complacency? Of course, giving credit where credit is grudgingly due, the hallmark of any successful con game is that very ability to lull your marks.
Moreover, the Indictment informs us of this frustrating state of affairs:
19. On October 21, 2005, R.T.'s agent e-mailed SMITH and expressed concerns about the legality of the MTN program being proposed, stating that they wanted "to make sure what we are involved with is legit." Attached to the e-mail was a link to a U.S. Department of Treasury website which warned individuals against becoming involved in trading programs like the one ANDERSON, SMITH and KENNEDY were offering.
20. The website link referenced in the e-mail from R.T.'s agent was a public warning about certain fraud schemes involving various types of private placement trading programs and was found at "www.publicdebt.treas.gov/cc/ccphony9.htm". The link specifically advised in part that: "trading programs that offer secret, private investment markets, which purport to offer above average market returns with below market risk through the trading of bank instruments are fraudulent." The public warning further advised that there were certain "buzzwords or redflags" commonly associated with such "fraudulent investment schemes".
21. As part of the scheme, ANDERSON responded to the e-mail from R.T.'s agent on the same day (October 21, 2005), asserting that he and SMITH had reviewed with "great interest" the U.S. Department of Treasury web link which provided warnings against scam trading programs. ANDERSON stated that although he and SMITH were aware that "there are a great deal of phony offers, people and securities, of many types" he assured R.T.'s agent that their MTN program would be legitimate.
Even when a potential victim hasn't fully bit down on the bait, we still see that a con artists has many arrows in the quiver with which to hit at the very heart of reasonable doubt and still any further troubling thoughts. In the face of alarms, in the presence of billowing smoke, the scam still move forward as the glib fast-talkers sped their roll. All of which reminds me of one of my favorite biblical quotes, Ecclesiastes 9:11 :
I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favor to men of skill; but time and chance happeneth to them all.