You Can't Cheat an Honest Man - James Walsh [60]
Few perps go to the length that Michael Rosen or Saul Foos did to exploit investors’ trust. But, of course, the ones who do are the most dangerous criminals in this field.
A perp like Foos is probably the hardest to detect. He builds trust legitimately for a long time and then decides, long after a relationship has been established, to exploit it. The same red flags apply in this scenario that work in all Ponzi schemes. But they are harder to see. There’s no doubt Foos’ clients already trusted the man and were—as the one lawyer pointed out—“slow to suspect.”
To discourage people from following the tracks of these perps, investors have to rely on aggressive enforcement by prosecutors and judges. If fear of the lowest rung in Hell won’t stop another Saul Foos, maybe fear of the darkest cell in San Quentin or Marion will.
Case Study: Joseph Taylor
People trusted Joseph Taylor. To everyone who knew him, the Knoxville, Tennessee, financial planner embodied integrity and perseverance. He was a dedicated husband, father and friend. In business, he quoted inspirational speakers like Zig Ziglar. If he gave you his word, he kept it. “He always espoused doing the right thing,” said one investor. “In his dealings with his kids he was like that. He required them to be respectful and the old-culture thing of ‘Yes, sir,’ and ‘No, sir.’”
Taylor was a Tennessee native. Born in 1949, he grew up on a farm in rural Jefferson County. In the late 1960s, he attended the University of Tennessee; he graduated in 1971 with a degree in agricultural science. But Taylor was too ambitious to spend his life plowing fields. He went into insurance, selling policies, investments and financial planning services.
During the 1970s, Taylor built a business based in the Knoxville area, but growing out over most of eastern Tennessee. He concentrated on small towns and suburban communities. Methodically working through the ranks of professionals and successful business people, he always based his deals on a foundation of trust.
“He would sit down with [investors] and talk about his family. They loved him,” says one person familiar with Taylor’s operation. “He was a likable guy. But—and I don’t want to be unkind—he was not a handsome guy.”
The homeliness only seemed to add to Taylor’s credibility. Besides securities, he was authorized to sell insurance for 25 companies. He was a top performer in a down-home state. And he was clean. Tennessee’s Department of Commerce and Insurance recorded no complaints against him.
By the time the roaring 1980s were under way, Taylor was selling mutual funds, life insurance policies and even real estate limited partnerships. His client list continued to swell in size and significance.
Taylor began attracting a wide circle of friends and acquaintances. He was making a six-figure income. He and his wife started to socialize with Knoxville’s elite. “You couldn’t have a better bunch [than this group] to vouch for you if you were selling something,” said one investor.
Flush with success, Taylor began to describe his work in more “visionary” terms. He talked in New Age jargon about using financial planning as a means to achieve less specific life goals.
Then things took a darker turn. Taylor’s clients had typically received official paperwork confirming their accounts through a wholesale brokerage. In the early 1990s, Taylor started pitching his own securities deals, like private debt offerings and limited partnerships. These deals didn’t produce a detailed paper trail. This change should have tipped investors off that something was wrong. But the returns were so high— as much as 10 percent in few weeks—that they went along with his slightly eccentric ways.
“I think he was a charming gentleman, obviously,