Saturday, July 25, 2015

Former Teen Millionaire Sentenced in $16 Million Ponzi

By Greg Wright, 
Certified Fraud Examiner
Certified Financial Planner™

Ephren Taylor II
Whoever thought the walls of a church were a safeguard against fraud should think again.  Fraud examiners know that houses of worship — churches, synagogues, temples, mosques etc. — are among the most vulnerable.  

When we are in a group that we perceived to be very similar to ourselves, we tend to let our guard down.   In many religious communities there is a na├»ve confidence in leadership.  If the pastor introduces someone that says you can get 20 percent more if you make an investment with them, many people will believe it.  A church leader is often trusted without people being critical and questioning. 

In March of this year, Ephren Taylor II was sentenced to nearly 20 years in prison for defrauding $16 million from more than 400 people, mostly churchgoers. 

Taylor, a self-proclaimed “Social Capitalist” went around the country on a "Building Wealth Tour," where he gave seminars to church congregations claiming his socially conscious investment opportunities would make believers both godly and rich.  He said that 20 percent of his profits were donated to charity.

He appeared on and had been featured on TV shows including FOX News, ABC’s “20/20,” PBS, CNN, Black Enterprise, Montel Williams,and in a CNBC segment titled Secrets of a Teen Millionaire.” His speaking promotion may be seen here.  

He was marketed as the youngest black CEO of a publicly traded company,” Taylor claimed to have founded two tech companies—and made his first million—before graduating from high school. He promised “low-risk, high reward” investment opportunities that would show you how to get wealth.  In sermons, infomercials, books, and webinars, he would quote scripture, exalting Jesus, and make promises of “economic empowerment” and “attainable housing.”

His credentials were mostly bogus and few had checked him out.

Taylor made negative comments about traditional investments including stocks and mutual funds. The audience, he claimed, would be better off “firing their brokers” and buying into one of Taylor’s company, City Capital Corporation, which would then invest in inner-city businesses.

Taylor appears to have homed in on churches preaching prosperity theology, or prosperity gospel—a growing part of Christianity, popularized by preachers like Osteen, T. D. Jakes, and Eddie Long, that sees material wealth as physical manifestations of God’s blessings and the absence of wealth as a possible opposite sign.

So when Taylor displayed the trappings of wealth, many of his prosperity theology supporters and investors saw them not as red flags but rather as proof of his righteousness.

According to a Duke University expert, the prosperity gospel “offers a language of ambition and economic hunger for those on the way up. In tough times, it tells people God is on your side, there is always a solution. It allows people to feel they are still in control.” 

“It does seem that for people who are ripe for financial miracles—who are already expecting that God will supernaturally return money to them—that they are likely more invested, excited, and eager to hear a visiting preacher as an answer to their prayer.”

One of the mega churches on the 'Building Wealth Tour' was Eddie Long’s 25,000 member New Birth Missionary Baptist Church in Georgia.  “Your life is about to change,” according to sources, said pastor Eddie Long, introducing “my friend, my brother, the great Ephren Taylor” to his congregation. God, said Long, wants “to finance you well to do His will.” 

Joel Osteen’s behemoth Lakewood Church in Houston with 40,000 weekly visitors and T. D. Jakes megachurch were a target of Taylor along with COGOC Pentecostal churches.  It is also believed that Taylor targeted African-American members of the Church of Christ because his father, Ephren Taylor Sr. has served as a minister in several Churches of Christ in Missouri and Kansas for many years.

Taylor’s inner-city businesses failed to delivered the 12 to 20 percent returns he had promised investors.  In classic Ponzi fashion, most of the money was used to cover up losses and pay for other investments, or spent by Taylor himself to pay for self-promotional branding and PR campaigns, personal credit cards, and apartments and to bankroll his wife’s aspirant career as a pop star.

According to prosecutors Taylor promoted two fraudulent offerings. First, he sold promissory notes issued by City Capital and various affiliates, bearing annual interest rates of 12% to 20%, telling investors their funds would be used to purchase and support various small businesses – such as a laundry, juice bar or gas station – that City Capital had identified as good opportunities for the investors. For the second offering, Taylor sought the assistance of City Capital’s Chief Operating Officer, deefendant Wendy Jean Connor, in selling “sweepstakes machines,” basically computers loaded with various casino type games.

Taylor claimed the sweepstakes machines would generate investor returns of as much as 300% the first year. But, to tap into the investors’ largest source of available funds, their retirement assets, Taylor encouraged investors to roll-over retirement portfolios to self-directed IRA custodial accounts.  This technique is increasingly used by affinity fraudsters.

Many victims transferred their retirement savings to trust companies that act as custodians for self-directed IRAs, expecting these funds to be used to fund the investments pushed by Taylor.  After victims funded their self-directed IRAs, Taylor and his accomplices directed the use of those funds. The money was not invested as promised, but rather was used to pay ongoing business expenses of City Capital, pay personal expenses for Taylor and his staff.

Prosecutor Calls Taylor simply a ringleader at City Capital, saying it was never a legitimate  company

City Capital Corporation, a Nevada corporation with its last-known headquarters in Cypress, California. It was an Over-The-Counter quoted company and did have a class of registered securities. The company’s last-filed periodic report was its delinquent 2009 Form 10-K, filed June 15, 2010. The stock is no longer traded.

State and federal lawsuits and accuse Taylor of being involved in questionable dealings as far back as 2001 -- when he was just 18 years old.

After an extensive search, US Secret Service officials arrested Taylor at his low-rent apartment in the Kansas City suburb where his wife was working in a massage parlor under a pseudonym.

Following his arrest, responding to the acquisitions, Taylor’s attorney said he was awaiting his fate with the backing of his family. “The couple has two children, ages ten and nine, and the (family) currently resides in his parent’s basement apartment,” the filing stated. “Mr. Taylor is a devoted father and husband. Despite his current situation, (his) family remains supportive.”

On March 17, 2015, the US Attorney’s office in Atlanta released the following statement in part:

“ATLANTA - Ephren Taylor II, and Wendy Connor have been sentenced in connection with the fraud scheme they perpetrated while officers at City Capital Corporation. The scheme victimized over 400 people who invested over $16 million.”

With non-traditional churches growing especially rapidly and include everything from home churches to megachurches.  These organizations generally have less control and poorer financial practices.

Affinity fraud, in which predators exploit trust among members of a religious, cultural, social or interest group, is the most troublesome forms of financial crime.  Faith-based fraud accounts for half of all affinity fraud.  Few of these churches have adequate financial oversight, controls or audits.  

Friday, July 17, 2015

Hindu Affinity Fraudster Sentenced to Six Years

By Greg Wright, 
Certified Fraud Examiner
Certified Financial Planner™

Neal Goyal
A member of a prominent Hindu family apologized to his victims, sobbing as he addressed community members he had scammed, before he was sentenced earlier this month to six years in prison for stealing more than $9 million from 40 investors.  The Neal Goyal Ponzi scheme had reached from his Chicago home to the Indianapolis community to Knoxville, TN and elsewhere.

Affinity financial frauds are perhaps the most common financial fraud.  Affinity frauds refer to investment scams that take advantage of specific social groups, religious affiliations, races, or ethnicities.  Many affinity groups are close-knit and very trusting of those who share a common identity.

 For example, a Jehovah’s Witnesses pastor, Charles Russell, in 1913, was accused of bilking his followers by charging church members exorbitant rates for a “Miracle Wheat” that was found to be the same as regular wheat. The scandal, according to a newspaper editorial at the time, accused Russell as using his religion as “nothing more than a money-making scheme.”   Many Jehovah’s Witnesses still maintain his innocence.

Utah is the epicenter of affinity fraud and the Church of Latter Day Saints (Mormon) has the highest per-capita rate of affinity fraud in U.S.  The SEC’s Salt Lake office even handles many out of state affinity fraud cases involving multiple states because of their expertise as well as the fact that affinity frauds can impact investors that live all over the country.

Convicted Hindu fraudster, Neal Goyal's Caldera Investment Group was so brazen that he did not even bother to trade or invest and kept the funds in cash, treating his Hedge Fund like his personal checking account.  According to prosecutors,  the limited trading that Goyal did perform was unsuccessful and resulted in significant losses.  However, his fake investor statements for 2011 to 2013 showed returns of 17% to 38.7%.

A Hedge Fund generally avoids direct regulatory oversight, bypass licensing requirements applicable to investment companies and operate with greater flexibility than mutual funds and other investment funds.  Goyla’s Hedge Funds do not appear to have been audited or have had any outside oversight. 
Every morning, he left his five-bedroom Lakeview home overlooking a park, and drove a black Mercedes-Benz to his swank massive corner office on Michigan Avenue with floor-to-ceiling views of the Chicago River.  There, with ten computer monitors and eight employees, he pretended to be an investment manager.  It was all a show.

Instead of investing the money, Goyal reportedly funded his business; bought two homes; leased luxury cars; purchased expensive artwork, jewelry and vacations travel to Hawaii and Tahiti; and made investments in a tavern and Urba Baby, a clothing boutique operated by his wife.

Goyal started raising money for his Blue Horizon funds in 2006, taking money from his circle of friends and family while he attended law school. He launched the Caldera fund in 2009 and, stopped any trading activity that same year.  The following year he opened his plush Michigan Avenue Chicago office. 

According to the SEC, Goyal told investors that the funds he managed would invest in securities following a "long-short" trading strategy. He was reported to have charges one percent of assets under management and 20 percent of investment profits. 

However, since it appears that Goyal did little trading and simply operated a Ponzi using new investor funds to pay redemptions to existing investors and fund his lavish lifestyle. He concealed the poor results of the few investments he did make by sending investors phony account statements that grossly overstated the performance of the funds.

According to the Chicago Tribune, a Knoxville victim, Dr. Manisha Thakur, told the judge that when her husband raised doubts about investing their savings with Goyal, she reassured him that they both knew Goyal's physician aunts.  "I said, 'He's an attorney by profession. I don't think someone like that would lie.'  And equally important is the family he came from," she said.  "But cold and calculating and essentially a con man is all that it appears Neal was." 

"He made a fool of us, including his parents," said Dr. Sanjay Thakur, who told the judge Goyal came to his Knoxville, Tenn., home as his father was dying and assured them their money was safe and they could access it to pay for his medical bills. "He (Goyal) said, 'I have a (law) degree. ... Bernie Madoff was not a lawyer.”

Neal Goyal  
Just months before his Ponzi scheme collapsed, he took his entire staff on an all-expenses-paid week-long trip to the Dominican Republic, their reward for their 50% investment return.  Goyal, his wife, four of his employees and their dependents went on that trip, renting a yacht, and enjoying a the amenities of a five-star resort. 

Affinity frauds are especially dangerous.  The fraudster often will cause you to believe, “You can trust me, because I am just like you. You and I share the same background and interests.”  These fraudsters may be members of your church, your cultural community, or recommended by your family and friends.  It is the nature of most of us to want to trust especially those that share our identity.  

Don’t be an investment victim.  

Thursday, July 9, 2015

Veros Partners trial not expected until Dec. 2016

By Greg Wright, 
Certified Fraud Examiner
Certified Financial Planner™

A letter was issued today to Veros Partners Investors by the Receiver.  Previously reported by Fraud Stupid was the SEC charge that three local individuals were running a Ponzi scheme. Charged were Veros Partners' Matthew Haab and Tobin J. Senefeld, and Jeffrey B. Risinger, a Carmel attorney.

According to the SEC, these three men raised $15 million for the purpose of making short-term loans to farmers. In actuality, the investment proceeds were allegedly used to cover unpaid debts already owed by farmers who had been previously loaned money. At the same time, the three men are accused of paying themselves $800,000.

 The law firm of Campbell Kyle Proffitt, LLP (CKP) was appointed Receiver and is to be aided by accountants Blue & Co. LLC.  Under review are 27 private offerings, numerous loans and approximately 175 investors. 

A letter was issued today by CKP updating investors on the Receiver’s progress.  CKP has requested detailed information from each investor to determine the amount of each investment made and payment received from that investment, going back to at least January 1, 2012. 

The Receiver stated in its letter that Veros Partners, Inc. itself is not fully under receivership; however, CKP is supervising the investment advisory services conducted by Mr. Haab in addition to all the Private Offerings, including Veros Farm Loan Holding LLC, FarmGrowCap LLC, and PinCap LLC. 

 CKP is pursuing outstanding farm loans in Indiana, Illinois and Oregon, physically inspecting assets, and, in some cases, traveling to the farms to review the crop and collateral.  The Case management plan estimates a December 2016 trial date.   

Tuesday, July 7, 2015

Self-directed IRA Fraudster

By Greg Wright, 
Certified Fraud Examiner
Certified Financial Planner™

Marcum Mug Shot
John Kenneth Marcum was recently charged with $6 million securities fraud.  He promised 37 investors returns as high as 20%, their retirement money was guaranteed, and would never be at risk.  Instead, he used client’s money to maintain a lavish personal lifestyle, a Mercedes and a five bedroom home near Geist. 

Marcum used a strategy currently popular with fraudsters.  He would arrange for investors to move retirement money into self-directed IRAs that allowed him to control the funds.  In effect, he moved their retirement nest egg into his personal checking account. 

The SEC recent reported an increase in complaints of fraudulent investment schemes that utilized a self-directed IRA as a key feature.  State securities regulators have investigated numerous cases where a self-directed IRA was used in an attempt to lend credibility to a fraudulent scheme.  The prospect of an IRA early withdrawal penalty often encourages investors to become passive with lesser oversight than another investment account might receive.

Even if a self-directed IRA is held by a legitimate custodian, it is responsible only for holding and administering the assets. The custodians generally do not evaluate the quality or legitimacy of any investment in the self-directed IRA or its promoters. Furthermore, most custodial agreements between a self-directed IRA custodian and an investor explicitly state that the self-directed IRA custodian has no responsibility for investment performance.  Investors are responsible for their own due diligence research.

In my “Don’t be a fraud victim” presentation to consumer groups, the first Red Flag listed is a “Self-directed IRA.”   

According to SEC records, Marcum is a former stockbroker with Merrill Lynch
Marcum 2010 Geist Home 
from 1996 until 2003 and then a co-owner of ProActiv Advisors, an investment advisor.  Records show that Marcum filed for personal bankruptcy in 2001.  Marcum Companies LLC was established in 2005 and Guaranty Reserves Trust, LLC was established in 2007.  John Marcum was the principal of both LLCs.  Neither firm appears to be a registered investment advisor or a regulated trust company. 

According to SEC filings, Marcum told investors that he could get annual returns between 10% to 20% and that their principal was “guaranteed” and would never be at risk.  He then placed notes issued by Guaranty Reserves Trust into IRA accounts.  These notes stated that they were “asset-backed,” “secured” and “guaranteed” with a “collateralized asset.”  Marcum also provided account statements to some investors that showed investment returns and asset allocations. 

In reality, Marcum lost money through stock trading activities, funding several start-up businesses including a bridal store, a bounty hunter television show and Carmel soul food restaurant.  None of those businesses appeared to have been profitable. 

Investors did not do their homework, ignored Marcum’s background, and lost control of their retirement assets. 

Some investors submitted redemption requests in 2013 and Marcum made excuses about why he could not make redemptions.  In one case he provided an investor with his personal net worth statement of $275 million; however, at that time, Marcum had virtually no assets or income.  All of the customer and personal bank and brokerage accounts were virtually empty.

In a recorded conference call with investors, Marcum admitted that his account statements did not accurately reflect the current value of their investments and he asked for additional time to recover their money. 

He made a bizarre promise telling those investors that he had a life insurance policy and, if he was unsuccessful in returning their money, he will kill himself.  In fact, according to the SEC, Marcum designated several investors as beneficiaries on his insurance policies and also increased the face amount of the policies. 

Equally bizarre, Marcum appeared in a September 2013 YouTube video:   “I am John Marcum....I refuse to be found until I make things right!  

WISH-TV Screenshot
Like many things Marcum has said, he was found before he made it right.  WISH TV investigative reporters found him in December 2014 where he acknowledged his bizarre 2013 YouTube video.  You can watch the WISH report here.  

Today, John Marcum appears to be very much alive.   He has not made it right and may be living with relatives until he joins other well-known Indiana financial fraudsters at McCreary federal prison at Pine Knot, Kentucky.  

Monday, July 6, 2015


By Greg Wright, 
Certified Fraud Examiner
Certified Financial Planner™

Criminals are telephoning citizens representing themselves as Sheriff’s Office officials, and using the names of actual Superior Court Judges. These lawbreakers threaten victims that they have missed jury duty and must now pay a fine; otherwise they will be arrested and jailed.

According to the Marion County Sheriff Department, one recent victim lost $750 after providing his credit card information to the imposters.

“This scheme in the guise of protecting the sacred right of a jury trial is shameful,” remarked Sheriff John Layton.  He said “The Marion County Sheriff’s Office will never contact citizens seeking telephone fines for failed jury service.”

If you receive such a call telephone call, immediately report it to your local sheriff department.  If you live in Marion County, you should contact the Marion County Sheriff’s Office Criminal Division at 317-327-1400.

Brought to you as a public service at the request of the Marion County Sheriff Department.