The Star-Tribune reports…
“The promises of 50 percent to 300 percent fast returns on investments were ridiculous enough.
Even more bizarre were the promises of huge profits from fees generated by the imminent closure on a deal to move 20,000 metric tons of gold — twice all U.S. gold reserves — from Israel to the United Arab Emirates.
But Kim Flanigan decided to fight the $50 million California-based Ponzi scheme when her mother began recruiting potential investors, she said.
“What spurred me to action was she was approaching people in church, such as a woman with nine children whose husband had died,” Flanigan said.
“I was on a mission to bring this thing down,” she said.
Armed with little more than a passion for justice and a tape recorder, she helped stop the scam of primarily three men and companies they controlled: Arthur Simburg, a former Puma shoe marketer; Robert Jennings, associate pastor of New Life Fellowship Church in Perris, Calif.; and Henry Uliomereyon Jones, mastermind of the gold deal.
Simburg pleaded guilty in federal court to one count of wire fraud in April 2008 and later was sentenced to nine years’ imprisonment.
Jennings and Jones were convicted in federal court after a jury trial in July 2008, and later were sentenced to 12 years and 20 years’ imprisonment, respectively.
In April 2009, the U.S. Securities and Exchange Commission obtained a $51 million final judgment against them and their companies.
Kim and David Flanigan, owners of Flanigan’s Furniture Outlet in the Sunrise Mall in Casper, unwittingly started their mission earlier in the decade when they moved from Casper to Kalispell, Mont. Her mother moved in with them after her husband’s death and as she was recovering from surgery.
Her mother had received some life insurance money and went to Washington to visit her sister who had attended “Millionaire Minds” seminars conducted by Peak Potentials Training Inc., she said.
Through the networking portion of those seminars — Peak Potentials Training was not an object of the federal investigation — her mother and aunt became involved with investing in Tri Energy Inc., which represented itself as the owner for four coal mines in Kentucky. (Only two of those mines existed, and they were never profitable.)
The scam’s leaders would intensify the interest through nightly conference calls, often with more than 100 participants.
“Mom was on the phone every night for an hour,” Kim Flanigan said.
Her mother couldn’t clearly explain the investment program, but she wanted Kim and David to participate, she said. “‘It’s a really exciting thing; I can’t explain it to you, but you can listen in to these three guys.’”
The three guys were Simburg, Jennings and Jones.
“Mom said she’d already invested about $50,000,” Kim said.
Her mother expected fantastic returns, according to a letter in August 2004 from her mother: “I just wanted you to know that you will be receiving a gift far greater than anything you could of imagined. The gift is that you will receive 50% of what you put in to the original transaction, on going monthly! The 50% will eventually become much greater as we continue to do more and your share will become greater and greater.”
Kim and David saw through it.
“We knew about a week later it was a joke, a scam,” she said.
“It was a financial soap opera,” Kim said. “They always needed another $100,000, $200,000.”
The conference calls blended pep talks; daily updates on Tri Energy; the progress of the gold transaction that was just around the corner; reasons closures didn’t occur; incessant pleading for more money to store the gold, pay attorneys, and facilitate transfers; the huge profits to come.
The calls often ended with prayer.
The Flanigans are Mormons, but the scheme’s ringleaders appealed to a variety of devout people with claims that the gold transaction was “divinely inspired,” Kim said.
Which meant that questioning the defendants and their companies was tantamount to apostasy.
“If you turn against the group, you’re a nonbeliever,” she said.
The guilt became more intense as those who recruited investors had to push aside doubts about the scheme’s legitimacy because they felt responsible for others’ money, Kim said.
These kinds of schemes are known as “affinity frauds” because the leaders enable people to bond based on their religion, like Bernard Madoff who solicited fellow Jews, their families, their ethnic backgrounds, their charity work, and other common interests.
The strong bond of family members who were investors ran into Kim’s bond with her brother, Sean Pearson, a certified public accountant in Seattle who told her to talk to Montana securities authorities.
So she started an Excel spreadsheet with investors’ names, phone numbers and e-mails.
And she began recording the conference calls.
One of the transcripts of a November 2004 conversation recorded David Flanigan’s and Pearson’s discussion with Simburg and Jennings about the validity of the companies.
Pearson and David Flanigan asked Simburg if those involved with the companies soliciting investments were registered securities dealers, if any of the companies had filed for bankruptcy, if any of the companies’ board members had been accused of or convicted of securities fraud, and where they could find the paperwork on the companies.
Simburg couldn’t answer the questions to their satisfaction, so Pearson and Flanigan asked him to return their money.
Meanwhile, the Montana commissioner of securities in October 2004 issued a cease-and-desist order against Flanigan and her mother about recruiting investors, Kim said. “The strategy was to scare Mom.”
In February 2005, the U.S. Securities and Exchange Commission and the Washington State Department of Financial Institutions made similar requests.
The Washington cease-and-desist order singled out Kim’s aunt for soliciting investor funds even after learning of the state’s investigation.
In May 2005, the SEC’s Los Angeles office filed a formal complaint against the defendants.
All of which got a big chuckle from Simburg, Jennings and Jones during one conference call, Kim said.
“They laughed at the law,” she said.
David Flanigan added, “Simburg said, ‘The most they can do is slap us on the wrist and we’ll move on.’”
Instead, federal authorities in September 2007 slapped cuffs on Simburg and the other defendants, who were convicted and sentenced the next year in part because of the Flanigans’ tape recordings and Kim’s testimony at trial.
Other people recorded the telephone conferences, too, she said.
The investigation and trial revealed most of the money was gone: $3.4 million to the Kentucky coal mines, $18 million to Jones for his music and video business, and personal expenses including high-dollar cars and homes, and unknown amounts to unknown places.
Some of the early investors did receive payments from funds deposited by later investors, according to federal court records.
Many lost it all, such as an investor identified as Anna-Lena G. who tapped $519,000 from her home line of credit after Jones urged her to invest to complete the gold transaction, according to federal court records.
One Utah investor killed himself after he realized his six-figure investment had vaporized.
Kim’s aunt drained her retirement savings and now struggles with breast cancer, and her mother barely talks to her now, she said. “It caused huge family turmoil.”
Yet some investors continue to believe the coal mines will be profitable and they will reap millions from the gold transaction despite the cease-and-desist orders, the successful criminal prosecutions, and their own and others’ personal and financial wreckage, Kim said.
They’ve learned some powerful and personal lessons.
“David and I are average people,” she said.
“My mom is an average person, as was the guy who committed suicide,” Kim said. “They’re normal people who didn’t ask the right questions.”
People who are approached to invest their money should be skeptical, she said, and ask those right questions — especially if the bonds of family and faith are strong.
Kim and David learned to ask the questions about incredible returns on investment, paperwork, securities and other licensing, business backgrounds, the pressure to wire their money somewhere, and the need for secrecy.
They also learned the power of taking the right action regardless of difficult personal consequences.
“People still believe it’s real,” Kim said. “If it hadn’t been for us, it would still go on.”
From http://www.trib.com/news/local/article_02ce7592-ab02-57ed-8f41-b99681209f2b.html
Time for a Hallelujah!
