Judge cuts crook a break in fraud term

Wayzata businessman Michael McShane knows something about frauds and the harm they cause.

McShane, 62, was bitten in a $213 million fraud scheme that resulted in lengthy federal prison terms last week for Gary and Toni Jo Wilder, the former owners of Wildwood Industries in Bloomington, Ill. McShane is the former president and CEO of Carlton Financial Corp., among a number of Minnesota victims defrauded by the Wilders.

Carlton also got hit at home. The firm sued bankrupt auto mogul Denny Hecker for allegedly defrauding it out of about $2 million on a fleet leasing deal, McShane said. He plans to make a statement about it at Hecker's sentencing hearing early next year.

As a warm-up, McShane read a scathing statement Thursday at the sentencing of Wayzata businessman David Hugh McCaffrey, 66, who admitted to tax evasion and a fraud scheme that put Carlton out of business.

McCaffrey received a sentence of 30 months in prison, followed by three years of supervised release, and was ordered to pay restitution of $8 million. The federal sentencing guidelines recommended a range of 46 to 57 months.

U.S. District Judge Patrick Schiltz said he knocked a third off the bottom of the range to reflect McCaffrey's cooperation, age and other factors.

McShane listened closely as McCaffrey's attorney spoke about how his client had an unblemished record until he became CEO of ConServe Corp., an equipment leasing firm. The attorney, Assistant Federal Defender Doug Olson, said fraud was already underway at the firm for several years when McCaffrey arrived and tried to dig the company out.

McCaffrey is the father-in-law of Ty Schlobohm, a Long Lake trader who worked undercover with the FBI last year on the investigation of convicted Ponzi schemer Trevor Cook. Schlobohm, his wife, and other friends and family looked on as McCaffrey stood to address Schiltz.

"I felt terrible about what I was involved in," McCaffrey said. The only upside, he said, was learning how much love and support he had from his family and friends as he tried to make up for his crimes.

Then it was McShane's turn.

"I was president and CEO of Carlton Financial Corp. and chief manager of Casco Funding. We provided equipment financing to ConServe Corp.," he told Schiltz. "Mr. McCaffrey, 44 months ago you gave me, my company and our investors a life sentence with a $10 million fraud that you perpetrated on us. During that 44-month period, you have enjoyed the freedom to play golf at Woodhill and Rio Verde, Ariz., while we paid down over $6 million of that bad debt that your fraud produced at ConServe Corp.

"We shut down a 27-year-old company. Thirteen people lost their jobs; 33 family members were affected. Three have filed bankruptcy," McShane said. "You are a confidence man, a Ponzi schemer, a swindler. You always thought you were the smartest one in the room, and you wanted people to know that. You don't look so smart today, Mr. McCaffrey!"

Assistant U.S. Attorney David Genrich said McCaffrey deserves credit for helping the government, but added that his crimes warrant a prison term.

Schiltz agreed. "I do not believe I have ever sentenced a defendant who enjoyed more privileges than Mr. McCaffrey," the judge said, citing McCaffrey's degrees from Yale and Stanford universities, family support and a once-lucrative business career. But he said McCaffrey also "lied through his teeth to investors" and at times seemed to make excuses for his own conduct.

He noted that McCaffrey evaded taxes by declaring taxable income of just under $35,000 when he actually made much more, causing a tax loss of about $107,000. That's a serious crime that he can't blame on others, Schiltz said.