Feds had early clues in currency case

Investors scattered across the United States, Canada, Europe and Latin America were shocked to learn in July that a supposedly safe currency investment program promoted by some Twin Cities money managers had gone awry.

There may have been less surprise within some federal watchdog agencies.

Since at least last November, complaints have flowed into federal authorities about the suspect currency investment program and the people pushing it, according to investors, their attorneys and court documents. However, no public steps were taken to intervene on behalf of investors, many of whom thought they'd found a safe harbor from Wall Street's turmoil.

The situation became public only when nine Ohioans filed suit in a Minneapolis federal court in July, demanding repayment of the nearly $5 million they'd invested.

It remains unclear whether authorities were still trying to determine the scope of the program before the Ohio investors filed suit or if they simply failed to foresee the investment program was headed for collapse.

Since this summer, however, authorities have been moving quickly on the case. The Securities and Exchange Commission has issued subpoenas, lawsuits have ensued and a federal grand jury has begun a criminal investigation. Meanwhile, many investors are trying to pursue their own leads, chasing tips that their money may have wound up in Panama, Switzerland, Great Britain, the United Arab Emirates, Jordan, Cyprus and Belize.

Christopher Bebel, a former SEC attorney and federal prosecutor whose Houston law practice specializes in securities cases, said the Department of Justice simply lacks enough experienced staff members to pursue such complex cases before they come to a head.

"There's tons of gun and drug experience, and there's precious little experience in this area that's so time intensive, and as a result the system fails," he said.

Sen. Amy Klobuchar, D-Minn., agrees. After the terrorist attacks on Sept. 11, 2001, Klobuchar said, the FBI shifted 1,800 of its agents to counterterrorism and intelligence issues, which hampered the bureau's ability to go after white-collar crimes.

"This is a perfect example of why we passed the recent Fraud Enforcement and Recovery Act," which was signed into law this summer, Klobuchar said.

The law provides $165 million a year for the Justice Department to hire 190 additional FBI agents and 200 forensic analysts and staff for white-collar investigations, she said.

The Commodities and Futures Trading Commission appears to have been the first federal agency to look into the currency investment program. It was promoted by Minneapolis money manager Trevor Cook, Burnsville radio talk show host Pat Kiley and their associates at a number of Twin Cities business entities that have Oxford, Universal Brokerage or the initials UB in their names.

CFTC requests documents

According to Minneapolis attorney Jim Langdon, a CFTC staff attorney called him Oct. 17, 2008, and asked for documents related to a client of Langdon's who alleged that he had lost nearly $400,000 in an investment promoted by Cook and Kiley through a company called Universal Brokerage Services.

It's unclear when the CFTC opened an investigation, or how it proceeded. But one agency source referred a reporter to an enforcement agent in Washington, D.C., said to be overseeing the "Universal Brokerage" case. The reporter's call was referred to an agency spokesman who said the CFTC neither confirms nor denies the existence of investigations.

The U.S. Postal Inspection Service and the Federal Bureau of Investigation got involved late last fall.

That's when Mike Thompson said he came close to making a substantial investment in the currency program, which he had learned about through the Worldwide Christian Radio shortwave network. A friend did a quick Internet search and found that Jerry Watkins, the Forest Lake man who had pitched the investment on his "Your Money Matters" program, was awaiting sentencing in Minneapolis at the time in connection with an unrelated scheme that had bilked $20 million from investors.

Thompson, of Delaware, Ohio, also found complaints on the Internet from currency traders who reported difficulty in withdrawing money from the investment program.

"Watkins was in court at the time that I was talking to him and he was still scamming while he was being prosecuted," Thompson said in a recent interview. "I don't know, for some reason my hackles got up."

He called U.S. Postal Inspector Mary Agnew in St. Paul, who sent him a note dated Dec. 8 asking him to send any documents that Watkins had provided him. Within two weeks, Thompson said, the FBI was at his door.

An investor from Hamburg, Pa., said Watkins handled his first deposit into the currency investment in October 2006 -- just two months before a federal grand jury indicted Watkins on fraud charges in an investment scheme run by Forest Lake preacher Neulan Midkiff. (The investor, who asked not to be identified, said he didn't know about those charges until a reporter mentioned them.)

Watkins gave the investor a business card that listed his radio program and identified him as a chief financial strategist, technical analyst and an independent agent for Oxford Global Advisors, a firm that Cook and some associates operated from the Van Dusen mansion in Minneapolis. The investor said Watkins handled his account until September 2008, when Cook took it over because Watkins couldn't answer all of his questions. All told, the investor said he sunk $955,000 into the program.

Thompson said when FBI agents showed up at his motorcycle and key shop in Ohio last December they gave him a list of questions to ask Watkins during a tape-recorded phone call. The agents wanted Thompson to ask Watkins about his relationship to Cook. And they also wanted him to ask about Kyle Garman, who's listed on a social networking site as an Oxford Global Partners senior adviser and manager.

"Unfortunately, when Jerry Watkins went away, I kind of got forced on all of his clients," Garman said in a brief interview recently. "Now, since everything went to hell, I'm still kind of stuck servicing all of his clients." Garman referred other questions to his attorney, John Brink, who declined to comment.

The FBI also wanted to know who owns and operates Universal Brokerage, a company associated with Kiley, whose radio program, "Follow the Money," also was carried on WWCR as well as on stations nationwide.

FBI spokesman E.K. Wilson declined to comment. But the bureau's initial inquiries about Watkins apparently found nothing troubling. After a vague discussion of the matter at a pre-sentencing hearing, Chief U.S. District Judge Michael Davis allowed Watkins to remain free pending his sentencing Feb. 24. Davis declined to comment, citing the pending litigation.

Watkins began serving a two-year sentence in a federal prison camp in Duluth this year. Through prison officials, he declined to discuss the currency investment program.

SEC tipped in March

The SEC got a complaint about the currency investment program in March from a Washington money manager.

"I alerted the SEC's office in Chicago on March 19th of 2009 there might be a Ponzi scam being run in Minnesota," Yolanda Holtzee, a well-known investment fraud watchdog, wrote in an e-mail to staff members of Sen. Kay Bailey Hutchinson, R-Texas. Hutchinson took part in a recent Senate Banking, Housing and Urban Affairs committee hearing into why the SEC failed to detect the mammoth Ponzi scheme orchestrated by New York investment manager Bernard Madoff.

Holtzee said she grew suspicious of the currency investment program after a reporter she knew raised questions on TheArbitrageRoom.com website. The site was linked to an associate of Cook's named Marc Trimble of St. Paul.

Trimble said Thursday that he's a Web developer and he had created the site to try to market the currency investment, but it wasn't very successful. He said he also had done marketing through UBFX.

The CFTC subpoenaed his records several months ago, Trimble said. "I gave them everything. I said here's every domain name, here's every site, here's every registration, here's all the articles written for marketing purposes. I haven't heard anything from those guys to date."

The SEC's investigation of Cook and what it calls the "Universal Brokerage FX" formally began May 27 -- just over a month before the Ohio investors filed suit. It focuses on Universal Brokerage FX Inc. of Eagan and Oxford Private Client Group and Oxford Global Partners in Minneapolis. An agency spokesman declined to comment but an SEC attorney said in a court hearing Thursday that its investigation is moving expeditiously.

That will come as welcome news to investors in the currency strategy, many of whom said they had no money to pursue a lawsuit and were depending on the government to help recover their money.

Nearly 200 investors or their representatives have contacted the Star Tribune since Oxford Global and Universal Brokerage notified them in mid-July that they could neither make deposits nor withdrawals from their accounts, due in part to the liquidation of Crown Forex SA by Swiss regulators on May 19. Many complained that their state's attorney general would refer them to the SEC, but when they called, they were told the commission doesn't handle complaints involving foreign currencies.

"Steering investors away, that's unconscionable," said Bebel, the former SEC attorney. "I'd have to say that this case is especially appalling because it's an affinity fraud in the sense that it focuses on investors who have their guard down because of the trusting environment ... the Christian radio network that was utilized."

Bebel said many people who hear about such cases give up on investing.

"That hurts the economy as a whole -- that's the bottom line," he said.

Dan Browning • 612-673-4493