- NASCAR race cars were among the purchases the alleged con artists made.
"Pony up some cash -- something hefty, like a retirement fund or the kids' college savings -- and get in on the sweetest deal around. Your investment is fully insured, and annual, quarterly, perhaps even monthly returns in double and triple digits are guaranteed! How, you ask? Through the wonders of high-yield financial instruments, purchased at deep discounts outside normal banking channels and resold at enormous profits! And if you act before midnight tonight, you'll also get . . ."
This, say federal investigators, was essentially the pitch used to swindle more than 1,000 people on four continents. The downside for investors, of course, was that no such market exists. Now George Beros of Shaker Heights and six others have been indicted in a Denver federal court for allegedly stealing $56 million.
If you believe prosecutors, the group was nothing if not ambitious. The defendants are accused of creating legitimate-looking front companies, one of which had an office in Independence. Over a four-year period, they found investors through "a vast promotional network of financial and estate planners and insurance agents" who were in on the scam, according to the Securities and Exchange Commission. They fashioned official-looking documents and contracts that were posted online. Investors were encouraged to bring friends and family into the deal. By the time the indictments came down, prosecutors believe, people had been ripped off in 31 states, not to mention Canada, Great Britain, New Zealand, and St. Vincent.
The organizers also relied on good old-fashioned salesmanship. Charles Lewis, a Colorado man among the indicted, allegedly lured in a fellow church member who trusted Lewis "because he portrayed himself as a Christian," according to the Denver Post. That man lost most of the $40,000 -- obtained through cash advances on credit cards -- he invested. Or thought he invested. In fact, not a dime the group collected was invested anywhere, prosecutors say. Those who complained were placated with money collected from others. But none got more than a portion of their investment back. Most lost it all.
Most investors put up $10,000 or more -- in some cases, a lot more. A Missouri man invested $200,000. An Illinois woman was soaked for a cool million. Jeff Dorshner, spokesman for the U.S. Attorney's office in Denver, could not confirm whether any Ohioans were scammed. But it's likely, he added.
Though prosecutors contend that the scheme began in 1999, Beros seems to have been a late addition to the team. Court documents link him to transactions in 2002 and 2003. He served as chief financial officer and director of Monarch Capital Holdings, one of the many entities created to run the scam, according to the SEC. Investors allegedly were told Beros was a "trader."
"Beginning in about August 2002, a substantial portion of investor funds [were] funneled to Monarch, purportedly to turn these funds over to a 'trader,'" SEC investigators wrote in a complaint. "No investor funds were used in a trading program of any kind, legitimate or otherwise."
By May of last year, Beros and another defendant had deposited at least $10 million into Monarch accounts. His name was on at least four of the group's dozens of banks accounts, two of which were at KeyBank in Cleveland.
But for supposed con men, they made strangely high-profile purchases. Investigators contend that some of the money went to buy Redstone Castle, a 102-year-old, 42-room mansion not far from Aspen (for $6.5 million), and eight NASCAR cars. All have been seized.
Like the other defendants arraigned thus far (a British suspect remains at large), Beros has pleaded not guilty. He was released on $100,000 bond.
The 36-year-old Euclid native had come under scrutiny before. Beros, Lewis, and another of the indicted, Norman Schmidt, worked together in the '90s on legitimate ventures, says Beros's attorney, Paul Daiker of Cleveland. Utah investigators suspected them of running a similar scam, though no one was charged. Lewis, however, went on to earn three years' probation in 1998 for his part in a scheme involving bogus World War II-era German bonds. He ensnared his victims through a church -- with the help of a partner who posed as a priest.
Daiker confirms that Beros left a job as a mortgage broker to join Monarch in 2002, but says everything was aboveboard. If others were up to no good, Beros didn't know about it. In fact, he opened the Independence office just days before investigators arrived with a search warrant last March, says Daiker. He adds that the $10 million Monarch held was seized, so he doesn't see how anyone lost money.
Monarch was dealing in "medium-term notes," which are very real, Daiker argues. "So far, I haven't seen indication of anything illegal done by anyone, let alone my client."
But the Federal Reserve, the FBI, the SEC, and others assert that this is mere semantics. Con men have simply begun referring to medium-term notes to lend their operation an air of credibility, they say. Such schemes have "long been labeled as bogus by countless domestic and foreign banking authorities," notes a warning from the Treasury Department.
Mark Pitcavage, an Ohio historian specializing in scams, says this particular scheme works better on the relatively affluent, because the pitch invariably "uses a lot of banking terminology." Hence, it sounds plausible to someone with enough financial sophistication to recognize the words, but not enough to realize the absurdity of the claims.