U.S. regulators bring down the hammer on money managers pitching a suspect currency investment.
Federal regulators announced Tuesday that they have charged a Minneapolis money manager and a Burnsville radio personality with running a Ponzi scheme that defrauded at least 1,000 people out of more than $190 million in a bogus currency investment scheme.
The U.S. Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) issued statements about separate lawsuits the agencies filed Monday in Minneapolis that were made public Tuesday.
The agencies said they had obtained emergency orders freezing the assets held by "self-proclaimed" money manager Trevor Cook, 37, of Apple Valley, and conservative radio talk show host Patrick Kiley, 71, of Burnsville, as well as four of their business entities and 13 "relief defendants" related to the alleged scheme, including two of Cook's in-laws.
Chief U.S. District Judge Michael Davis in Minneapolis issued the order freezing the assets of the defendants and appointing a receiver to oversee them. He scheduled a hearing on a motion for a preliminary injunction in the matter for Dec. 4. According to the complaints, Cook and Kiley sold unregistered investments through shell companies and misled investors into thinking their money would be held in separate accounts and used to trade in foreign currencies. They promised returns of 10 to 12 percent and said there was no risk to their capital, which could be withdrawn anytime.
Kiley pitched the investment on his radio show, "Follow the Money," which was broadcast in more than 200 markets and on Christian shortwave radio. Cook, operating out of the Van Dusen mansion in Minneapolis, promoted the currency program through investment seminars and financial advisors around the country and in Canada.
"Cook and Kiley told investors that their money would be invested safely and profitably," Merri Jo Gillette, director of the SEC's Chicago regional office, said in a prepared statement. "Instead, they went on a $40 million-plus spending spree with investors' money and lost another $40 million in risky foreign currency trading."
Peter Wold, a criminal defense attorney representing Kiley, said the actions came as no surprise. Regulators have been investigating for several months, and the investment program has been the subject of numerous stories in the Star Tribune.
As for the allegations, Wold said, "Pat always believed these funds were invested appropriately and still does today, and hopefully we'll find out that was true." Cook's attorney, John Thompson, said he also expected the regulators' lawsuits. "However, this isn't going to cause Mr. Cook to embark upon a public relations campaign or try his case in the press," he said.
In addition to charging Cook and Kiley, regulators charged their companies -- UBS Diversified Growth, Universal Brokerage FX Management, Oxford Global Advisors and Oxford Global Partners -- in the scheme. None was registered to sell securities.
The SEC says Cook and Kiley pooled their investors' money in bank and trading accounts in the names of businesses they controlled, including the defendant shell companies and relief defendants Basel Group, Crown Forex LLC, Market Shot, PFG Coin and Bullion, Oxford FX Growth, Oxford Global FX, Oxford Global Managed Futures Fund, UBS Diversified FX Advisors, UBS Diversified FX Growth and UBS Diversified Management.
Cook also gave investor funds to his wife's parents, Clifford and Ellen Berg of Apple Valley, to hide the assets, the SEC's complaint says. The Bergs could not be reached Tuesday, but Clifford Berg, contacted in September, said Cook was embarrassed by the turn of events. "It's a real bad deal for the kid," Berg said, declining to say more.
But the SEC's lawsuit indicates it was a much worse deal for the investors.
"Cook and Kiley, in effect operating a Ponzi scheme, diverted approximately $51 million of the investors' funds to pay ostensible returns and principal to other investors," the SEC's suit says.
A federal grand jury is investigating whether criminal charges should be brought in the case.
Triggered by Ohio investors
According to the SEC, Cook and Kiley misappropriated $42.8 million of the investor funds, including $18 million that Cook used to buy into two trading firms; $12.8 million that Cook and Kiley transferred to accounts in Panama, purportedly to finance construction of a casino; and at least $12 million for personal expenses. Cook gambled away $4.8 million and spent $2.8 million to buy the Van Dusen mansion just south of downtown Minneapolis, the SEC says.
Cook and Kiley converted another $108 million of the investors' money to fund banking and trading accounts that they held, the suit adds: "At the present, Cook and Kiley's victims face losses of at least $139 million."
The alleged fraud took place from July 2006 through July 2009, when nine Ohio investors filed a federal lawsuit in Minneapolis because they were unable to withdraw nearly $5 million from the currency strategy.
Jack Harper, an attorney with Messerli and Kramer who represents those investors and 98 others who joined them in the suit, said Tuesday "we are delighted that the SEC has initiated this action. We will continue to provide whatever assistance we can to the agencies for the benefit of our 109 clients as well as all the other investors who have lost their life savings."
"We will aggressively pursue the claims in our lawsuit and hopefully between our case and the SEC's action we will be able to secure the return of most of the monies, which were invested and bring all the responsible parties to justice," Harper said.
The CFTC's complaint is similar to the SEC's, but it also identifies Swiss Forex SA as "a related entity." That firm is a foreign exchange trading entity formed in 2005 that had offices in Bassecourt, Switzerland. According to the CFTC, "Cook has owned 51 percent of Crown Forex, SA since at least December 208."
Swiss regulators have been investigating Crown Forex SA since last December. On May 19, they forced it into liquidation for banking law violations, "including failure to properly account for customer funds." Swiss regulators say the company, now defunct, has no assets.
The CFTC said Cook also used customer funds for personal expenses including frequent gambling, the purchase of at least seven luxury cars, a house boat and a submarine.
Investors sought stability
Shadi Swais, former CEO of Crown Forex SA, claimed to have a master's degree in international business administration from the American Graduate School of Business, a private Swiss entity. The school said in an e-mail Tuesday that it had no record of Swais attending classes there. Swais, who reportedly is of Jordanian descent and grew up in Chicago, could not be reached for comment.
Cook also paid $15 million for a 35 percent share in JDFX Holdings, Inc., a British Virgin Islands company headquartered in Switzerland, the SEC suit says. It says Cook, using investor funds, engaged in high-risk trades through JDFX.
"Many of the victims are senior citizens who are unsophisticated and inexperienced in financial matters," the SEC noted in its lawsuit. "Some victims liquidated their retirement accounts to invest in Cook's and Kiley's venture."
More than 200 investors with nearly $100 million invested in the currency program have called the Star Tribune since it first began reporting on the alleged scheme in early July. Many said they had invested everything they had in the currency program, fearing instability in the stock markets. They said they trusted their investment advisors, who spent hours with them on the phone. Some mortgaged their homes, at the advice of their advisers, to get money for additional investments.
Minneapolis financial adviser Bo Beckman, who both promoted the currency investment and invested in it along with his in-laws, obtained a court order recently in Panama City freezing the land that Cook and his associates were buying for a hotel-casino project. Beckman, owner of the Oxford Private Client Group, also is disputing Cook's ownership claims to the Van Dusen mansion.
"We are very pleased with the action the SEC has taken to assist all investors in the recovery of our funds," Beckman and his wife, Hollie, said in a statement Tuesday. "We expect that our efforts, along with the legal actions we have taken regarding the Van Dusen mansion, the Panamanian real estate and other actions, will be of assistance to the government in its endeavors."
Dan Browning • 612-673-4493