Nearly 60 investors from 21 states have filed a lawsuit against Entrust Midwest, a Plymouth-based firm that administers individual retirement accounts, alleging that the firm mishandled more than $8.5 million of their money by routing it into an alleged Ponzi scheme.
And this may just be the opening volley.
Other apparent victims of the alleged fraud who aren't involved in the lawsuit have contacted the Star Tribune and federal authorities in the past two weeks with similar complaints.
The investors say they're in a panic because Entrust is trying to charge service fees on their missing money and threatening that if they don't pay up, the firm will stop administering the accounts, triggering big tax bills on money already lost to fraud. The lawsuit says that Entrust has refused the investors' requests to roll over the accounts to another firm.
Investor Shirley Dorr of Warren, Ore., who is not a party to the suit, said investors are afraid the IRS might send them a tax bill on retirement money that was stolen from them.
What's more, Entrust has levied a $150 surcharge on each account for having to respond to subpoenas as regulators investigate the alleged fraud that victimized the investors in the first place.
"It's absolutely ridiculous," said Juve Ann Lindberg, 52, of Sioux Falls, S.D. "I don't know what to do about it."
Lindberg, who says she can't afford an attorney, worked as a receptionist at a medical clinic and scrimped for 16 years to build up her 401(k) account. She and her husband, Jim, 65, sent Entrust a check for $49,917 last April with directions to deposit it into Crown Forex SA, a Swiss foreign exchange bank. But the money never got there, she said.
Entrust sent the money instead to Green Bay, Wis.-based Associated Bank into an account held by a different entity with a similar name. It turned out to be a nonexistent company with a bogus Minneapolis street address that has been linked to the Ponzi scheme.
The U.S. Securities and Exchange Commission and Commodities Futures Trading Commission last November sued to shut down the investment operation spearheaded by Twin Cities money managers Trevor Cook and Pat Kiley. The Crown Forex investment was promoted by numerous business entities, many with Oxford Global or Universal Brokerage in their titles. About 1,200 investors lost at least $130 million, regulators said.
Chief U.S. District Judge Michael Davis appointed a receiver to recover assets, and on Monday ordered Cook jailed for refusing his order to cooperate. Investors have recently deluged the staff of the receiver, attorney R.J. Zayed, with complaints about Entrust and another firm that administered similar accounts, Millennium Trust Co. of Oak Brook, Ill.
Entrust Midwest CEO Todd Grill previously defended his company's actions, but company officials didn't respond to messages seeking comment this week. Millennium Trust has declined to comment. Grill said his company keeps records for investors who are responsible for managing their own money. He said he sent investors' money to an account specified by the money managers, and that investors had the responsibility to verify that the money went to the Swiss bank.
An investor from Greenwood, Minn., who did not wish to be identified, wrote to Entrust Jan. 12 complaining about the fees on his nearly worthless account.
"Feel free to take your fees out of our accounts," the investor wrote. "You will be receiving no payment from us since we have no funds with which to make them."
'We feel bad ... '
In an e-mail to the investor, Melissa Twaddle, president of Entrust Midwest, expressed sympathy, saying "we feel bad about having to do this," but that it complies with IRS rules.
One industry expert said it would be irresponsible for a firm like Entrust to close the investors' accounts and treat them as if the money hadn't been lost.
"That's not consistent with industry practice," said Tom Anderson, CEO, president and founder of PENSCO Trust Co., a major IRA custodian in San Francisco.
The standard practice is to write down the accounts' value, he said. In similar situations PENSCO generally would not charge investors service fees, Anderson said.
Jack Harper, the attorney at Messerli and Kramer who filed the lawsuit against Entrust, said he's been getting similar complaints about Millennium but he didn't have a basis to sue that company because of how the investors' paperwork was handled.
One of the plaintiffs is Mike Patterson of Walford, Iowa. He said Grill of Entrust told him that "if we didn't pay he was going to make a disbursement of all the funds and we would be taxed on the money. I said, 'Well, you send me the money and I'll be glad to pay you.' "
Patterson said Grill told him the contract allows him to bill for services whether Entrust returns the investors' money or not, "and you have to pay us, and if you don't, we're going to distribute the money as if you did get it and the government will charge you taxes on all that money."
The lawsuit charges Entrust with breach of contract, negligence, breach of fiduciary duty, consumer fraud, deceptive trade practices and negligent misrepresentation. It seeks a full accounting and damages exceeding $8.5 million.
Dan Browning • 612-673-4493