Was alleged Ponzi schemer an unsavory character invited in by Uncle Sam?
Kenneth Wayne McLeod allegedly cheated hundreds of federal employees out of millions of dollars before killing himself when his deceit was discovered.
The Securities and Exchange Commission says McLeod specialized in swindling federal law enforcement officers, not a group crooks generally want to personally upset. Along with that audacity, McLeod had something else that made his con work -- an unwitting accomplice known as Uncle Sam.
The SEC says McLeod took $34 million from 260 investors for a nonexistent bond fund in a Ponzi scheme he had run since 1988. As with any Ponzi con, some investors did get their money, as the scam artist takes money from later dupes to pay earlier ones. When the SEC closed in, 139 people were still invested.
One week after SEC officials first interviewed McLeod, he fatally shot himself, on June 22, in a Jacksonville, Fla., park, according to the local sheriff's office. Three days later, the SEC charged his estate; his consulting firm, Federal Employee Benefits Group; and another company he owned, F&S Asset Management, with fraud. His wife's lawyer did not return calls seeking comment.
According to the SEC complaint, McLeod, who was 48, promised many investors guaranteed annual rates of return of 8 to 10 percent through a tax-free "FEBG Bond Fund" invested in long-term government securities. The fund claimed it was "dedicated to the complex issues surrounding special group employees, including Law Enforcement Officers, Firefighters and Air Traffic Controllers."
In reality, "there was no FEBG Bond Fund, McLeod never invested his clients' money in government securities, and the money was never generating tax-free returns of eight to ten percent annually," says the SEC complaint.
But people like Kurt Coront believed his pitch.
"I retired from DEA based on his recommendations," said Coront, who figures he lost more than $450,000 to McLeod's con. He had planned to live on his retirement fund's interest. Now, "it's all gone," he said. "This has had a very devastating effect on myself and my wife." Both have taken new jobs because their retirement plans have evaporated.
The SEC said some of the money McLeod raked in between 2005 and 2010 paid for $1 million in promotional activities, including box seats for annual Super Bowl trips with 40 friends.
Coront, a 58-year-old Bradenton, Fla., resident, began thinking something was hinky about McLeod late last year after he wouldn't provide specific answers to Coront's questions and refused to talk with Coront's CPA sister.
When he decided to cut McLeod loose, the alleged scam artist turned indignant.
"WOW after 10 years of being a client," McLeod said in an e-mail included in the SEC case file, "you are now questioning my integrity? First and foremost, there is no amount of money that would EVER cause me to waiver from my Fiduciary duties, ruin my reputation or divert from my ethics." Unfortunately, the information the SEC gathered about McLeod indicates he had no ethics when it came to his dealing with federal employees. They had reason, however, to believe he was as solid as Uncle Sam.
Government agencies paid McLeod up to $15,000 to conduct retirement seminars, but the credibility and legitimacy the association with Sam provided was worth much more than speaking fees. Coront became McLeod's client after he spoke during a 1998 Drug Enforcement Administration in-service training program Coront attended at Lake Tahoe, Nev.
Does that make Sam an unindicted co-conspirator?
Probably not. Certainly McLeod seemed to have Sam's stamp of approval, but the officials who approved McLeod's appearances were duped like everyone else. "It's very challenging for an employer who isn't in the financial services industry to verify individuals or presentations," said John Gannon, a senior vice president for the Financial Industry Regulatory Authority, an independent regulator of securities firms.
Office of Personnel Management Director John Berry said he was "very concerned over unsavory predators" who prey on federal employees. He added that federal agencies "should use extreme care and caution when sponsoring individuals or organizations to conduct federal retirement seminars. . . . Just recently, OPM alerted benefits officers to exercise caution when entering into contracts for seminars."
The court-appointed receiver for McLeod's companies said he is trying to determine if the government has any legal responsibility in this case. But even if not, "I do believe they have a moral responsibility for having introduced the wolf to the sheep and endorsing him," said Michael I. Goldberg, the Fort Lauderdale-based receiver.
" . . . Can you blame them for investing with the person their employer was paying to teach them about retirement saving?"