Investors try to get their money back

Ken Locklin's stomach dropped when he read about some Ohio residents who were having trouble getting their money out of a Twin Cities-based foreign currency investment. When he learned that talk radio host Pat Kiley may be involved in the dispute, Locklin jumped in his car for the 1,200-mile trip to the Twin Cities from his home in Fredericksburg, Texas.

Along the way, Locklin, 60, picked up 65-year-old Heiko Reske in Denton, Texas, and the pair set out to redeem the money that they and three friends and relatives had sunk into the "currency arbitrage" program at Universal Brokerage FX, which Kiley had pitched on his "Truth Seekers" radio program.

Investors from California, Tennessee, Ohio, Idaho, Florida, Michigan, New York, Massachusetts, Minnesota and Canada said last week that they've been trying to get their money out of the currency investment since they read about a federal lawsuit filed recently in Minneapolis by nine Ohio investors.

Locklin said his mother invested $886,000 with Kiley. He said her statement shows about $993,000 -- supposedly in a segregated, liquid account -- but she hasn't been able to withdraw it.

"It's a sad story," Reske said. "It's all she had -- period."

Locklin said a retired preacher friend put nearly $300,000 into the program, counting on it to produce income. Locklin's aunt and uncle invested, too. Altogether, the five Texans have about $2.3 million they invested with Kiley, they said.

"Every one of us is going to be pretty much dead broke if we don't get this out of here," Reske said.

He and Locklin left for home Friday morning without their money.

Who really runs operation?

Reske and Locklin, who are both retired, said they met with Kiley at his Burnsville business last week and asked for their money back. Although Kiley claims to be a "senior partner in an international investment banking firm" and the chief economist and analyst for the firm where they had their money, they said he told them to see Trevor Cook, the 37-year-old chief investment officer at Oxford Global Partners, which operates out of the Van Dusen mansion in Minneapolis.

"Kiley said any time funds are withdrawn he has to get approval from Trevor," Reske said, incredulous.

Kiley declined to comment. However, he called Reske Thursday morning while a reporter was present and apologized. Reske and Locklin took turns on the phone demanding their money back. Kiley told them his hands were tied; they had to talk with Cook and his attorney.

"If you are an honorable man, you will convince them to wire the money to us," Reske said.

Locklin snapped. "You're under orders from who? Trevor's attorneys? Well then, who runs the company?" Locklin demanded. "You don't run the company, do you, Pat?"

Kiley didn't respond, Locklin said.

Cook, through an attorney, declined comment.

"We've been fed such a line of bull," Locklin said. "I haven't found anything that's true yet."

An unusual strategy

The confusion about who has run the currency investment program was underscored in the lawsuit filed by the Ohio investors. The defendants named in the suit are Cook, a former colleague named Gerald Durand who has a radio talk show called "Wealth Survival," and a dozen business entities with the names Oxford, Universal Brokerage, or UBS Diversified in their titles. Several of Kiley's business entities are among the defendants. None of those companies is affiliated with UBS AG, the Swiss banking giant.

Durand says he'll be cleared of wrongdoing.

The currency arbitrage strategy attracted investors nationwide and internationally with promises of segregated accounts, quick liquidity, low volatility and annual returns of 10.5 percent or more. It relied on the use of banks compliant with Islamic law, called Sharia, to essentially provide interest-free loans that could be used to make bets that certain currencies would fall in value.

Ed Baker, a former CEO of Piper Jaffray Trust with 28 years of investment management experience, said he recently started a company called Mesa Holdings in Minneapolis that markets the currency strategy using Oxford Global Partners as the investment manager. "I like Trevor a lot," Baker said. "I find him to be very intelligent, extremely intelligent."

Baker's 38-page private placement memorandum says Cook manages "over $4 billion of G5 international currency positions." He says he got the information from Oxford Global and "validated" the assets claim with sources he wouldn't describe.

"All I can tell you is it works," Baker said of the currency strategy.

Unfortunately, Baker said, he had to pull his fund's money out in June because Swiss regulators had forced Crown Forex, which held the money, into bankruptcy. Reske and Locklin said they were told by Kiley's attorney that the bankruptcy had slowed the redemption process, even for investors who don't have accounts at Crown Forex.

In their July 7 lawsuit, two extended families in Ohio and their pastor accuse Cook and Durand of fraud, misrepresentation, conversion and breach of contract in the handling of nearly $5 million invested in the strategy. The Ohio plaintiffs said they've been unable to get their money out.

Regulatory records, court documents and interviews with some of Cook's former associates and customers paint a picture of a brash but convincing salesman who's moved in and around Minnesota's precious metals and investment advisory businesses over the years, leaving some angry investors.

His troubles with regulators began in 2001, when he went to work at a Maple Grove investment advisory firm called Private Financial Group (PFG). The National Futures Association (NFA) got a complaint about Cook of dishonesty. He did not dispute the allegations, but persuaded regulators to grant him a conditional license in February 2002, arguing that he wasn't a risk to the public.

In January 2003, Midas Resources Inc., a Burnsville precious metals company, sued Cook in Hennepin County alleging that he and two former Midas employees had cheated Midas customers on some coin transactions. Chris Pettengill, PFG's president and Cook's employer at the time, sued him that same month to stop him from using a company Cook called PFG Coin and Bullion. Pettengill said in an affidavit that he fired Cook six months later after learning that he had "become the center of an FBI investigation, with allegations of defrauding clients and stealing client funds."

There is no record of Cook being charged with any such crime, however.

In a sworn statement, Cook said he was writing a book critical of gold coin investments and suggested that might be what prompted Midas to sue him.

Midas won a $55,160 verdict against Cook in 2004, which he paid.

Cook moved on from PFG and joined Kiley at Universal Brokerage Service, or UBS, in Burnsville. Kiley told regulators that he had worked under Cook at PFG.

More complaints about Cook

As time passed, some of Cook's former clients at PFG filed new complaints. In March 2005, a 79-year-old woman in Blue Bell, Pa., who was caring for her 88-year-old sister accused Cook of making "misleading and exaggerated" claims and failing to disclose risks of certain investments. Her NFA complaint says Cook's actions cost the women $70,000.

Cook denied the allegations, and Kiley testified on his behalf.

A panel at the NFA concluded in 2006 that Cook had falsified information on the women's account documents, exaggerating income and net worth. The panel found Cook to be "evasive, cagey and in many instances simply not credible," and fined him $25,000 for what it called a "very serious violation."

Meanwhile, a 76-year-old widower in Wilmington, N.C., filed a lawsuit against Cook in June 2005. It also named Pettengill, PFG, PFG Coin and Bullion, and some associates as defendants. John B. Hill Jr. alleged that Cook visited his home several times in 2002 and persuaded him to enter "a risky investment scheme under the guise of 'estate planning.'"

From 2002 to 2004, the suit says, Cook and the firms he worked through collected hundreds of thousands of dollars in fees as Hill's accounts lost nearly $2 million in value. The lawsuit says Hill bought $50,000 in gold coins that appreciated in value, but could never get Cook and another defendant to deliver them.

The case was settled for an undisclosed amount in November 2005. Hill, citing a confidentiality agreement, declined to comment.

Bank files trademark suit

Pettengill hooked up with Cook, Kiley and Durand at Universal Brokerage. He said Cook told him the FBI investigation had been resolved. But more troubles would lie ahead.

UBS AG, the Swiss bank, filed a trademark infringement lawsuit against Universal Brokerage and its related entities in September 2007. Cook, Kiley, Pettengill and Durand were among the defendants. According to the lawsuit, Universal Brokerage began doing business in 2004 under the name UBS Diversified.

Since 2004, Kiley has created at least six entities with similar names, according to state business records. In June 2007, Pettengill and Durand created a company called UBS Global Advisors, listing the Van Dusen mansion as its address.

UBS AG -- the bank -- says in its lawsuit that Pettengill also registered at least 22 Internet domain names that included the UBS trademark in the title. The lawsuit also includes exhibits about the foreign currency arbitrage strategy that Kiley was promoting on the radio.

Universal Brokerage investors said they heard Kiley pitch the strategy on shortwave radio broadcasts or on his weekly talk radio program, "Follow the Money." In promoting the currency arbitrage, Kiley addresses his audience as "Truth Seekers" and mixes prophecy with fear mongering about a new world order that will impose a global government.

"I'm the senior partner of an international investment banking firm," Kiley said in an April 9 program. "And for 22 years we have worked with various countries and their currencies and their bank interest rates. And we are not, and I repeat not connected in any way to stocks, bonds and all of the rest. And really, we don't care if they go up or down, because we're totally detached and unaffected by their performance -- or lack of, better yet."

Universal Brokerage documents, filed in the UBS trademark lawsuit, say the arbitrage hedge eliminates "all currency risks" and pays up to 12 percent annually. The firm listed some of the world's largest banks as its "liquidity providers," including UBS, J.P. Morgan, Bank of America, Royal Bank of Scotland and Deutsche Bank. Durand said Kiley thought the list added credibility.

Among its references, Universal Brokerage listed Bo Beckman, founder of a Twin Cities investment advisory firm called the Oxford Private Client Group, as well as the principals of two Swiss firms, JDFX Technologies AG and Capricorn Asset Management. Beckman's attorneys declined to comment, citing the pending investor lawsuit, which names his company as a defendant.

UBS AG settled its lawsuit with Universal Brokerage after just three months.

Man loses savings, files suit

Duke Thietje, a Florida electrician, filed a federal lawsuit against Universal Brokerage, Kiley and Cook in June 2008, alleging that the defendants persuaded him to invest his life savings in "speculative foreign currency trading through Refco, Inc.," a company that declared bankruptcy within days of his investment.

Thietje's suit says he's an unsophisticated investor who learned of the currency strategy through Kiley's radio show in September 2005. Kiley and Cook recommended that he cash out his stocks and put his money in currency investments, which would be segregated and "safer than if they were in a bank," the suit says. Thietje (pronounced "TJ") claimed losses exceeding $367,000.

Kiley and Cook denied the allegations and said the complaint named the wrong Universal Brokerage entity as a defendant.

Jim Langdon, an attorney with Dorsey & Whitney who represented Thietje, said his client had to drop the suit for lack of funds. Langdon said he notified the Commodities Futures Trading Commission (CFTC) about the case, adding that it has an open investigation, something the CFTC would not confirm.

New group, familiar pitch

Before the Universal Brokerage lawsuits were filed, Pettengill, Durand and Cook left the firm to work with Beckman in a cluster of business enterprises they came to call the Oxford Group. The businesses operate out of the stately Van Dusen mansion, a 117-year-old building resembling a castle that Cook paid $2.6 million for in April 2008.

Several people who attended investment seminars at the mansion said Beckman pitched his equities expertise, while Cook offered a currency arbitrage program strikingly similar to the one promoted by Universal Brokerage. Investors said Cook told them the strategy relied on banks compliant with Islamic law, which doesn't allow for the charging of interest.

Beckman said in a brief conversation before the Ohio investors' lawsuit that he has no ownership of Oxford Global, though he does get "rebates" when his clients invest in the foreign currency program.

The website for Oxford Global Partners touted the currency program as safe and reliable. It directs prospects to TheArbitrageRoom.com for information about the methodology, which promises annual returns targeted at 10.5 percent and claims 72 months of positive gains.

Oxford Global Partners appears to have an arrangement with a Canadian fund called Tanren Global Income Strategy. Tanren Corp.'s chairman and CEO, Grant Brown, declined to comment last week.

A "due diligence" memo about the strategy says clients open a brokerage account through Crown Forex SA in Switzerland and sign management agreements with Tanren. The accounts are segregated at Crown Forex, it says. In the "unlikely event of Crown Forex bankruptcy," the memo says, clients would be considered secured creditors.

Several of Oxford Global's investors said last week that they hope that's true.

Swiss regulators forced Crown Forex into bankruptcy May 19. "The bankruptcy of Crown Forex SA has been declared immediately enforceable," said agency spokesman Tobias Lux.

Reske and Locklin said they learned late Wednesday from Kiley's attorney that Crown Forex was "the source of the problem" keeping them from cashing out their accounts. But their money wasn't supposed to be in Crown Forex, they told Kiley on the phone Thursday.

"We thought you were a Christian man," Locklin said, exasperated. "We trusted you. We liked you. We considered you a friend."

Dan Browning • 612-673-4493