Massive fraud scheme heads to trial
Publicado el Apr 16, 2012
The second-largest Ponzi scheme in Minnesota history goes to trial in federal court this week, featuring three defendants who can barely stand one another, about 150 government witnesses and some 500 exhibits extracted from more than 10 terabytes of computer data seized by the government.
Though he's not a defendant, the case revolves around Trevor Cook and the $194 million international fraud scheme that he ran from the Twin Cities from 2005 until it imploded in July 2009. The scheme is second only to the $3.65 billion fraud perpetrated by the now-imprisoned Tom Petters. But in some ways, it's more interesting.
Cook, 39, of Apple Valley, avoided trial by pleading guilty two years ago to fraud and tax charges. He's serving 25 years in federal prison and isn't due for release until January 2032.
The trial scheduled to begin on Thursday in Minneapolis targets three men alleged to have been among his top lieutenants. They are:
• Jason "Bo" Beckman, 42, a former high school hockey standout from Plymouth who claimed to be one of the top money managers in the United States.
• Gerald Durand, 61, a former pro wrestler, coin dealer and entrepreneur from Faribault with a reputation for consorting with strippers.
• Patrick Kiley, 73, a longtime Minneapolis huckster who once bought airtime on 200 radio stations and a Christian radio network to predict economic Armageddon and promise a haven to "truth seekers" who called in after the show.
Each defendant faces various counts of wire and mail fraud, money laundering and conspiracy. Beckman and Durand also face several tax charges. Durand faces an additional count of concealing cash transactions.
'The victims must be heard'
Operating from the historic Van Dusen mansion in Minneapolis and a large home in Burnsville, Cook's foreign currency scheme attracted more than 700 investors nationwide -- mostly retirees -- and had tentacles stretching to Canada, Panama, Europe and the Middle East.
Testimony will range from Beckman's efforts to buy into the Minnesota Wild with allegedly bogus financial records, to the convulsions of a Swiss foreign exchange firm that was run into bankruptcy by two Jordanians who had worked in the United States as a taxi driver and a grocery clerk.
Jurors will hear from a parade of distraught investors whose faith in the defendants led to life-changing losses, including home foreclosures and grandchildren's college funds.
"The victims must be heard," Assistant U.S. Attorneys Tracy Perzel and David MacLaughlin wrote in their 53-page trial brief.
What evidence gets in?
It remains to be seen whether Chief U.S. District Judge Michael Davis will allow testimony about wild office parties.
In pretrial filings, prosecutors said that evidence contradicts any notion that the defendants believed they were working for a bona fide investment program.
"Legitimate financial services businesses generally do not feature strippers, prostitutes, and alcohol and drug abuse in the office. Witnesses have reported that, when they went to work at the mansion, people would sometimes be passed out as a result of the previous night's debauch," the prosecutors wrote.
Durand's attorney, Brian Toder, said in court papers that he fears the government will mount a "stripper-centric" case against his client and asked that such evidence be barred.
Davis thought it over. "I suspect when you're the master of the universe in New York City or Hong Kong, a lot of things go on ... that may not have anything to do with whether or not they can trade," he told the prosecutors.
He told the prosecutors to focus more on what the defendants said and did than on their character.
In arguing for the evidence, MacLaughlin said it demonstrates that the defendants recruited people who had no relevant experience or training despite boasts to the contrary. One former broker, now deceased, was recruited while he awaited sentencing in a separate Ponzi scheme, and Durand knew it, prosecutors said.
Another had been a bathroom valet at Rick's Cabaret, a downtown Minneapolis strip club.
"There were people recruited from Radio Shack, strip clubs, the street," MacLaughlin said.
Davis said such evidence will be allowed only if prosecutors can demonstrate its relevance.
"You're not going to disparage people just because of their background," he warned.
Davis indicated in recent rulings that he'll keep a tight leash on the lawyers so the trial won't spin out of control. He ordered prosecutors to steer clear of allegations that Beckman forged his mother's signature on two student loan applications, was kicked out of the U.S. Air Force Academy for lying, got an F in international economics and finance and ranked 801st out of 804 students in his graduating class at the University of Vermont. He also barred evidence that Beckman allegedly submitted a forged document and had a business associate lie in a child-support dispute.
Davis ruled that prosecutors could introduce evidence about a lawsuit Beckman's mother filed against him, in which she alleged that he defrauded her and his aunts in his handling of their late father's estate. That case was settled.
Davis expressed concern that some of the government's evidence could prompt a series of mini-trials within what is expected to be a six-week trial. When MacLaughlin pressed the point at a recent hearing, Davis cut him off.
"If you don't have a case against Mr. Beckman, tell me," he said.
"We have a good case against Mr. Beckman," MacLaughlin replied.
"Bring me your Sherman tanks," Davis said. "Let's bring forth the Big Bertha and blow him out of the water with it."
Anatomy of a fraud
Cook, a former sports bookie, coin dealer and futures trader, claimed to have an investment opportunity that took advantage of disparities in value between foreign currencies. Investors say they were told that it relied on high-speed trading platforms and Islamic-compliant banks that did not charge interest. The program promised 10.5 to 12 percent annual returns, liquidity and zero risk to principal.
It was all bunk.
Initially, Cook and his associates operated through Burnsville entities using Universal Brokerage Services or UBS in their names, but they had no connection to the Swiss bank UBS SA. In 2007, Cook, Durand, Beckman and a Plymouth money manager named Christopher Pettengill moved their offices to the Van Dusen mansion and set up entities they referred to as the Oxford Group. Kiley remained in Burnsville.
Pettengill, a 55-year-old heir to the Kroger stores family fortune, pleaded guilty in June to securities fraud and conspiracy to commit wire fraud. He's expected to testify for the government.
There's no love lost among the defendants.
Durand told federal regulators that Kiley "should not be walking upright." Kiley refers to Durand, Beckman and Pettengill in court papers as "the three stooges." And Beckman said in an interview that he dislikes Kiley and distrusted Durand. He bristled as he recounted writing a personal check to settle a sexual harassment complaint against Durand by a former employee.
An easy target
The defendants are expected to blame Cook. Beckman says he was duped and wants to show that he tried to recover the investors' money. Durand broke away from Cook in the summer of 2008 after raising concerns about the Jordanians' trading firm. And Kiley says he believed that Cook's strategy was paying off.
But prosecutors say each of them ignored clear signals that the operation was a scam, and did nothing meaningful to warn investors.
They plan to use the defendants' own words against them: Beckman's allegedly fraud-ridden application to buy into the Wild, Kiley's broadcasts, Durand's testimony to regulators and countless e-mails.
Witnesses will include former brokers who helped pitch the currency program, ex-wives, former business partners and other "insiders."