Thursday, December 31, 2015

Cheating the elderly

By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

About 20% of Seniors are victims of financial fraud, and yet only 5% of the victims report the abuse.  The reasons for the low reporting include humiliation, feeling ashamed and being afraid. 

According to Federal Trade Commission, the number of complaints by people age 60 and over more than doubled between 2010 and 2014.  In the face of these alarming statistics, regulators have suggested rules to help stem the epidemic. 

In 2008, new rules prohibited the use a senior-specific professional designation that indicates or implies that the insurance or stockbroker had special certification or training in advising or servicing seniors.  Excluded from the regulations were Certified Financial Planners and six other designations[i], in part, because of their training and professional organization oversight.

Unfortunately, this rule has not seen enforcement, and I am unaware that anyone in violation of the rule has seen his license suspended, revoked, or has been issued a “cease & desist” order.   I’ve asked both the Indiana insurance and securities regulators.

Along comes the latest attempt this past September.  This latest proposed Model Rule has been designed to help protect vulnerable adults by requiring supervisors of stockbrokers and investment advisors to report when they have a “reasonable belief that financial exploitation of an eligible adult (age 60 or older) has been attempted or has occurred.” 

Good luck.  Caveat emptor


[i] Certified Investment Management Analyst - CIMA
Accredited Retirement Plan Consultant - ARPC
Certified Medicaid Planner - CMP
Certified Retirement Counselor - CRC
Certified Retirement Financial Advisor - CRFA
Certified Senior Advisor – CSA



Sunday, December 20, 2015

Amish on Amish fraud.

By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

Amish turned securities promoter bilks Amish investors. 

Earl Miller

On Nov. 5, 2015, a Federal Complaint accused, Earl D. Miller, a northern Indiana man, of securities fraud accusing him of cheating 70 mostly Amish investors of $3.9 million.  Miller promised to invest their money in rehabilitating residential property, “green” technology and gave them a promissory note with a fixed-rate annual return of between 8 to 12 percent. 

Many of the investors – largely novice investors -- belonged to a local Amish community where Miller and his wife were former members. He advertised his investment services in Amish newspapers and at community meetings with Amish families, according to the Federal complaint.

The Federal lawsuit accuses Miller, age 36, of committing a fraudulent scheme through two investment vehicles — 5 Star Commercial LLC and 5 Star Capital LLC. In the suit, the government said, “Miller repeatedly lied to prospective investors” about how their money was being used.”

Miller, who has been in the real estate business since 2006 with real estate agent and “life-long friend,” Matt Gingerich, started rehabilitating depressed real estate properties.  Together they formed 5 Star Commercial LLC and, in April 2014 they filed an SEC Form D notice of the intent of selling “exempt’ securities.  Then, according to court documents, Miller bought out his business partner in exchange for $651,265 cash.

A former business partner, life-long friend and apparently former Amish community member, Matt Gingerich, was not named in either the Nov. 5, 2015, SEC Complaint or the April 2015 Indiana Securities Division Order of Consent.  Mr. Gingerich has not returned my telephone calls attempting to hear his part of the story.  Was he a whistleblower?  Will the regulators attempt to “claw back” the $651,265 cash taken from 5 Star to buy out his interests? 

In exchange for their investments, investors were given a promissory note with a fixed-rate of return of between 8 percent to 12 percent per year, which is much higher than prevailing rates for bank deposits and other fixed-return investments, according to the complaint.

Miller and his wife, according to local business client sources, left the Amish community on good terms and maintained ties with them.  Since the Amish do not enter profession employment, they use outside accountants, attorneys and real estate agents to conduct business.  


Miller touted his Amish upbringing, advertised in Amish newspapers and held seminars at Amish meeting houses. In 2012, Miller started raising money from 5 Star Commercial, gaining sole control of the entity two years later. In 2015, he created 5 Star Capital, which was supposed to invest in “green energy saving product (sic) that save the average American consumer hundreds of dollars each year,” according to the complaint.
Miller's Goshen, IN Home

Miller was highly successful in encouraging his investors, but, in doing so, the complaint states that he lied to them, saying he would not get paid anything for managing the fund.  

He apparently had also told 5 Star Commercial investors that their money would be invested exclusively in real estate when, in reality, he transferred more than $390,000 of 5 Star Commercial’s funds into “highly speculative, fledgling companies” that allegedly made green products.

The company did invest in several companies controlled by two men who were supposedly developing products such as a pedal-operated wheelchair and energy-efficient washing machines. In reality, 5 Star Capital owned no “green product” patents and Miller performed virtually no due diligence into the purported “green” companies before handing them the bulk of 5 Star Capital’s assets, and – contrary to his oral representations to certain investors – the overwhelming majority of 5 Star Capital’s assets were not invested in real estate.

According to local sources, Miller was born and raised in an Amish community and, following the traditional Amish “rumspringa” period, he chose not to be baptized and join the church.  Amish that later abandon the community after they have joined the church are banished or shunned.  Since neither Miller nor his wife was banished, he was given broad access to the normally closed and suspicious community.  It is believed that Miller’s business partner, Matt Gingeritch, had a similar background. 

Affinity frauds are common; but, it is uncommon to find one in the Amish community.  They are generally successful farmers and business owners.  While about half of all business fail within five years, only about five percent of Amish business fail within the same period.  



UPDATE


The People's Exchange newspaper is published every two weeks targeting the Amish community in northern Indiana.  It is published by LaGwana Printing, Inc. and has a circulation of 16,500.  The following email was received Dec 21, 2015:

 Mr. Wright,

   We published no articles regarding either 5 Star Commercial or 5 Star Capital Fund. I do not know either of these two gentlemen personally.

   They did run advertisements in our publication from October of 2009 through July of this year. They were always very prompt in paying for their advertising and are completely paid up.

Dan Byler
President/General Manager

LaGwana Printing
PO Box 70, Shipshewana, IN 46565
(260) 463-4901


MAY 24, 2016 UPDATE
AMISH READERS:

Is Earl Miller, Mrs. Miller, Matt Gingerich, Mrs, Gingerich, Scott LaFazer, Karen LaFazre all pastors of Z Ministries?  Can you name any other Z Ministries pastors?


According to sources, except for Gingerich, they all now live in Buena Vista, Colorado.  Is this correct?  Does the Gingerich family still live in Indiana?

July 23, 2017 Update - I have not followed the link; therefore, do so at your own risk.

Author
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about: Lafavre fraud
A bunch of information on Adam Lafavre you may fined interesting unless you already know it: Property records for the homes Adam Lefavre owns in Buena Vista: http://qpublic6.qpublic.net/co_cdisplay.php?county=co_chaffee&KEY=342312100007&ACCOUNT=R342312100007 http://qpublic6.qpublic.net/co_cdisplay.php?county=co_chaffee&KEY=342312100073&ACCOUNT=R342312100073 The house at 16310 is the "Sanctuary" - it is listed on Airbnd for lease: https://www.airbnb.com/rooms/17320135?eal_exp=1502682984&eal_sig=e853787f323edb1bbebbbb414a0039ff860daffdc2c8a1c1c592e480b7680be2&eal_uid=122678999&eluid=0&euid=f815f409-4991-d056-e543-afb825c47f86 Joseph Zupetz actually lives at the second house on 16500 County Road 327 according to voting records - key in Zupetz in the search bar right above the listed names and you will find according to voting records Joseph and his wife Heather live at 16500 County Road 327 in Buena Vista: https://coloradoresidentdb.com/find/address/81211/buena_vista/county_road

Tuesday, December 1, 2015

Veros Partners Redux

By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

It was reported here last week that Veros Partners’ accounting business was quietly sold behind closed doors to insiders by the Court Receiver, William E. Wendling, Jr.  The business was not offered for sale to other potential purchasers and a written valuation report was not provided to the Federal Judge assigned to this SEC Ponzi fraud case. 

The attorney representing the accused has denied that it was a “Ponzi scheme.”  The case is complicated and will probably not be heard in court for another year.  Veros had hundreds of dental practice clients in Indiana and Ohio.  Perhaps Veros Partners had a market value of over $3 million before SEC case was filed. 

It is difficult to familiarize yourself with this case and not see hints of parallels with another Midwestern accounting firm that was crippled by its association with fraud – Arthur Andersen.  

You may recall that in 2002, Andersen was convicted of obstruction of justice for shredding documents related to its audit of Enron. Since the Securities and Exchange Commission cannot accept audits from convicted felons, the firm surrender its CPA licenses that year — effectively putting it out of business.   Even though the conviction was later reversed by the Supreme Court, it was too late.  The impact of the scandal combined with findings of criminal conduct ultimately destroyed the firm. 

A detailed account was published in 2002 by Andersen’s home-town newspaper, the Chicago Tribune.

Several key employees at Veros Partners were previously employed by Arthur Anderson.  It does not appear that any of these individuals were involved in the Enron scandal or have any prior blemishes on their professional record.  SED lawsuit defendant Matthew Haas is an Arthur Andersen alumni, 

Other Arthur Anderson alumni include some of the founders of the Veros Partners successor firms -- Trueblaze, LLC and MW Banks Consulting.  According to their LinkedIn pages and Veros Partners biographies, Adam Decker and Mylene Egenolf were employed at Andersen. 

Trueblaze was created on May 27, 2015, by Adam Decker and includes former Veros employees Sarah Robinson and David Osowski.  

MW Banks Consulting, LLC was formed on June 5, 2015 and appears to be operated by former Veros employees Amber Banks, Mylene Egenolf, and Wendy Day York.  Both organizations appear to have offices on the South side of Indianapolis near Greenwood. 

According to court records, before its purchase of assets from Veros Partners, MW Banks had already started providing services to former Veros clients and had received payments for those client services.  Further, court records indicate that Banks, Egenolf, and York has signed non-compete agreements while Veros employees. 

The bookkeeping, tax and audit business may not be as lucrative as you might first think.
 
According to the Chicago Tribune, Arthur Andersen embarked on a path that valued hefty consulting fees ahead of “bluntly honest bookkeeping,” and promoted a “slicker breed” of accountants who could turn modestly profitable auditing assignments into consulting gold.  Thus, the article concludes, eroding Andersen's prior good name.

Veros Partners’ defendants have not been convicted of wrongdoing.  I am certain that we will hear more from the defendants as the court date rolls around.

Veros Partners, not unlike other CPA firms, had moved beyond providing clients with “incidental” advice on investments and become Registered Investment Advisors.  Some CPAs offer personal financial planning and earn commissions by selling stocks, mutual funds, annuities and private placement investments. 

In 1988, after more than 80 years, the American Institute of Certified Public Accountants reversed a longstanding position by allowing accountants to sell stock, mutual funds, annuities, insurance products, limited partnerships and loan brokerage services in competition with other financial services professionals. 

For many of us, CPA firms are supposed to be guardians of the public trust, functioning like the police of the financial world. They know the rules, define the right and wrong way to keep the books. If a CPA firm puts its name on a financial statement, it certifies to the public that the company is playing by the rules and that the numbers conform to a high standard.

When a CPA – any CPA -- following a review of your taxes, suggests that you invest in his “homemade” private placement or a mutual fund, you might pause and ask yourself.  Is he making a higher commission on the investment than he makes for doing my taxes?  Do I need to find a CPA to review the investment suggested by my CPA?

By the way, court-appointed Receiver, William E. Wendling, Jr. has received fees of $390,375.26.  More than the court was paid for the Veros Partners accounting business.  You may read his justification for its sale at the end of last weeks article.  

Please comment.