A broker-dealer in the middle of selling its assets, namely access to its representatives, has yet to pony up a penny toward the millions of dollars that it agreed to pay to settle with fraud victims who are mostly federal law enforcement personnel and their beneficiaries, according to the lawyer representing the plaintiffs.
Capital Analysts Inc. reached a settlement with John Chapman, attorney for 140 victims of a Ponzi scheme operated by Kenneth Wayne McLeod, who committed suicide in June 2010 after admitting to SEC investigators that he had orchestrated the $34 million scam.
Most of Mr. McLeod's victims are current or retired federal agency employees, and many are stationed abroad, including in Afghanistan, Mr. Chapman said.
Other former investors with Mr. McLeod include the widows of former federal agents who invested death benefits that they received after their husbands died, Mr. Chapman said.
Capital Analysts said last month that Lincoln Investment Planning Inc. would acquire the firm's assets in a sale.
Capital Analysts is “obviously looking for an exit and [is] apparently attempting to walk away scot-free” from the settlement, Mr. Chapman said.
The settlement was reached Dec. 1 in private mediation, but most clients still have arbitration claims against the firm with the Financial Industry Regulatory Authority Inc., he said.
SETTLEMENTS "ON ICE'
“We've pushed off the arbitrations, and the settlements have been on ice for three months,” Mr. Chapman said.
He said that his concern for the fraud victims stems from Capital Analysts' exiting the securities industry.
“The firm is disappearing” at the end of June, he said.
“What's the point of having an arbitration claim if they don't have any assets to satisfy the awards?” Mr. Chapman asked.
He declined to state the exact amount of the settlement, only noting that it is for millions of dollars.
Mr. McLeod, who was a broker at Capital Analysts from 2004 to 2007, victimized about 150 investors, who lost about $34 million, according to published reports.
During his career, Mr. McLeod was a broker with several other firms, but Mr. Chapman declined to comment about settlement negotiations with any of those.
Mr. McLeod's clients included employees of Customs and Border Protection, the Drug Enforcement Administration, the FBI and Immigration and Customs Enforcement, according to a 2010 article in Businessweek.
“What sets McLeod apart from the other mini-Madoffs is his client list. It's the first time, authorities say, that anyone has dared to rip off an entire group of law enforcement officers,” Businessweek reported.
Matt Lynch, chief executive of Capital Analysts, didn't return calls seeking comment.
Capital Analysts is owned by insurance carrier Western & Southern Financial Group. Jose Marques, a spokesman for the carrier, said that the sale of Capital Analysts assets “has no bearing whatsoever on any funding needed to address the claims of Mr. Chapman's clients.”
“Capital Analysts has been engaged in good-faith discussions with John Chapman regarding his clients' claims and intends to continue to work toward the resolution of those claims,” Mr. Marques said.
“In a sale of assets, the entity typically retains most pre-closing obligations, which is the case in this transaction,” Mr. Marques said. “Any claims against Capital Analysts are being actively resolved and, in other cases, defended, in the ordinary course.”
"BINDING OFFER'
A typical settlement such as this would have had money back in the clients' hands a month and a half ago, Mr. Chapman said.
“Capital Analysts made a binding offer of settlement on Dec. 1. We're not struggling to resolve claims,” Mr. Chapman said.
“They said they had settled them and made the offer. Since then, nothing has happened in three months,” Mr. Chapman said.
“With a settlement of this magnitude, why would they conceal the fact that they were selling all the assets? That's material information,” Mr. Chapman said.
“I've never encountered anything like this before,” he said.
Capital Analysts has about 280 affiliated reps, and the firm produced close to $61 million in gross revenue last year.
Lincoln Investment Planning, which has about 700 reps, produced $106 million in gross revenue last year.
bkelly@investmentnews.com
