U.S. federal agents nationwide bilked by brazen Ponzi scheme

Law enforcement agencies actually paid crook to sponsor “seminars” used to hook his marks

 

Investment broker Kenneth Wayne McLeod was found dead, Vince Foster-style, inside his SUV in a park in southeast Jacksonville, Fla., on June 22.

The Jacksonville Sheriff’s Department said he died of a self-inflicted gunshot wound, according to media reports. A rumor now popular among some federal law enforcement agents casts a bit of bitter irony over McLeod’s fate, indicating that he killed himself with a pistol given to him by the DEA to commemorate his years of service to the agency.

Whether that rumor has any basis in reality is not clear, but it speaks volumes about how some law enforcers feel about what McLeod did to a number of DEA agents, as well as dozens of other former and retired federal agents.

McLeod’s death came only some five days after he confessed to Securities and Exchange Commission investigators that he had been operating a 22-year-long Ponzi scheme that had victimized hundreds of government employees, primarily federal law enforcement agents.

In a Ponzi scheme, individuals are lured into investing money in a fund or other vehicle in exchange for the promise of high returns. However, the investment incentive is, in fact, an elaborate ruse that plays on greed. The money put in by new investors is used to make some payments to earlier investors in order to maintain the pretense of legitimacy, but the bulk of the money is almost always misappropriated to the desired ends of the operators of the Ponzi scheme.

And though many of the facts of McLeod’s Ponzi scheme are now known, what is not known is whether other parties enabled his confidence scheme, either through negligence or complicity. But it is clear that McLeod did not operate in a vacuum, and that a number of individuals, including former federal law enforcement agents, were part of his business circle and arguably, wittingly or unwittingly, enhanced McLeod’s credibility, and thereby ability, to gain the trust of his marks.

By the time the SEC, based on an anonymous tip, intervened in mid-June, McLeod, a registered investment broker, had scammed as much as $34 million from 139 individuals who were still invested in his phony retirement fund, which he called the FEBG Bond Fund. Most of the investors in the bond fund, which court records show numbered as high as 260 at one point, were current and retired law enforcers with agencies such as DEA, FBI and ICE (Immigration and Customs Enforcement, part of the Department of Homeland Security.)

McLeod’s exploits have been well-reported by the mainstream press in Florida, such as the Times-Union in Jacksonville, as well as by trade publications that cover government, like the Federal Times — which concedes in its coverage that it has previously printed a couple of retirement advice columns penned by McLeod.

One of McLeod’s tricks in advancing his confidence scheme, it seems, was to spend copiously on self-promotion and to ingratiate himself with connected people in the law enforcement community. In fact, McLeod, between 2005 and June 2010, spent more than $1 million on promotional items to bolster his brand name – including paying thousands of dollars for luxury suites at the local pro football stadium and sponsoring an annual junket for 40 of his “friends” to the Super Bowl, according to pleadings filed against his estate in a pending federal lawsuit in Miami.

McLeod also managed to get his foot in the door of major federal law enforcement agencies, such as DEA, FBI, the Secret Service, ICE and even the IRS, via retirement-planning seminars he provided to employees of those agencies. He was so connected that he not only regularly presented these seminars at various law enforcement field offices around the country, but he was also invited to pitch his retirement advice at seminars held at ICE headquarters in Washington, D.C.; the FBI Laboratory in Quantico, Va.; and the El Paso Intelligence Center in Texas, a secretive multi-agency operation located along the border.

McLeod, since 2006, put on nearly 260 such seminars, according to information still available on his company Web site. And, according to federal court pleadings, he was paid up to $15,000 per seminar by the sponsoring law enforcement agencies.

The SEC, in a press release issued in late June, describes McLeod’s scheme as follows:

The SEC alleges that McLeod lured many of his investors through retirement benefits seminars he gave at government agencies nationwide [through his company called Federal Employee Benefits Group Inc., or FEBG]. … The security of the government bonds [in his purported FEBG Bond Fund] was a key element of McLeod's deception but he never purchased any bonds. Instead, he used the investors' retirement savings to conduct a Ponzi scheme, to pay himself, and to pay for lavish entertainment, including annual trips to the Super Bowl for himself and 40 friends.

According to the SEC's complaint, filed on June 24, 2010, in the U.S. District Court for the Southern District of Florida, McLeod traveled to various state and federal government agencies to conduct FEBG employee benefits counseling and planning seminars. FEBG also provided individuals with personalized benefits analyses specific to their retirement plans and financial portfolios. Individuals could also choose to have F&S Asset Management [another McLeod company] manage their money.

The SEC alleges that in addition to the traditional investments McLeod offered through F&S Asset Management, he offered many investors guaranteed annual returns of eight to ten percent through a purported tax-free "FEBG Bond Fund" or "FEBG Special Fund." He falsely told investors that their principal would be 100 percent invested in and secured by government bonds.

Even though SEC investigators make clear how McLeod worked his scheme, it is not yet clear, as mentioned, whether anyone else besides McLeod was complicit, or criminally negligent, in advancing the Ponzi scheme.

Calls made to federal law enforcement agencies, such as ICE and DEA, seeking comment on McLeod’s scam, and whether he was properly vetted by the federal agencies paying him for his seminars, were referred to the FBI, which is still investigating the case.

Jeff Westcott, spokesman for the FBI office in Jacksonville, makes clear that no determination has been made yet that McLeod acted alone.

As far as the FBI is concerned, the investigation is “still open-ended.” Westcott adds: “We are considering all possibilities.”

McLeod’s Track Record

A little digging into McLeod’s business background raises some serious questions about why no one involved with his various ventures seemed to ask some hard questions about his veracity.

Records filed with the Financial Industry Regulatory Authority (FINRA), an independent regulatory authority overseeing securities firms in the U.S., indicate that McLeod, 48 at the time of his death, was the target of two client-investor complaints early on in his career, one in 1995 and one in 1996. Those cases involved the sale of investment products valued at $11,914 and $17,815.92, respectively.

In both cases, according to the FINRA disclosure report, the customers alleged that they were misled by McLeod. The company through which McLeod sold the products, Prudential Insurance, each time agreed to refund the money to the clients with no admission of wrongdoing by the company or agent (McLeod). McLeod somehow even managed, in one of the cases, to get the wronged investor to write a letter to Prudential praising his work and reportedly got the other investor to put money into a new investment.

Still, those black spots on McLeod’s record, it would seem, should have led some individuals in the law enforcement community to keep a closer eye on McLeod, particularly as he began making promises to hundreds of potential investors about a bond fund offering an extraordinary guaranteed return of 10 percent per year. But apparently, that was not the case.

McLeod’s business operations also should have raised a few eyebrows had anyone at the various federal agencies paying him $15,000 per seminar taken a look in that direction.

McLeod operated his seminar business through FEBG Inc. and also ran a separate company, called F&S Management Group Inc., or FSAMG, that appears to have been a legitimate investment firm through which he managed retirement accounts for investors

But beyond that, McLeod operated at least five other business enterprises, four of which were dissolved between 2007 and 2008, according to Florida corporation records.

Following is the list of McLeod's known companies, according to Florida state records:

F&S Asset Management Group Inc. (FSAMG): Incorporated May 10, 2007; still listed as active. This company, based on available evidence, appeared to operate above-board, and according to court records, had $43 million in assets under management for 1,147 clients at the time the SEC intervened in McLeod’s operations. The court has since issued an order freezing the assets of FSAMG and sister company FEBG.

Federal Employee Benefits Group Inc. (FEBG Inc.): Incorporated Aug. 2, 1993, name changed officially in November 20004 from National Association of Federal/Postal Employees Inc.; still listed as active.

State Employee Benefits Group, a division of FEBG Inc. [no record of incorporation with Florida; listed as part of the FEBG family of services on the FEBG Web site].

Federal Employee Investment Services Inc. (FEIS Inc.): Incorporated Feb. 11, 1998; inactive as of Nov. 16, 2007, voluntary dissolution.

McLeod Capital Realty Group Inc.: Incorporated April 16, 2008; voluntary dissolution Sept. 15, 2008

The McLeod Consulting Group Inc.: Incorporated Nov. 4, 2004; administrative dissolution for failure to file an annual report, Sept. 14, 2007.

McLeod Capital Mortgage Group Inc.: Incorporated July 8, 2005; voluntary dissolution Sept. 15, 2008.

Did anyone in the government making decisions to sponsor or otherwise associate with McLeod’s activities ask about these various companies and how they related to the investment companies targeting federal law enforcement agents? Why did McLeod decide to allow four of them to go out of business within about a year of each other?

At this point, there are no answers to those questions. However, according to a report in the Times-Union, besides a large home in the Jacksonville area, McLeod “owned homes in Ameila Island and Saint Johns, and a 38-foot yacht named ‘Top Dawg.’” Another report published by the Huffington Post claims that, according to Michael Goldberg, an attorney appointed by the court to serve as the receiver for FSAMG and FEBG, “less than $10,000 remains in the coffers of Federal Employee Benefit Group [the company McLeod used to operate the Bond Fund scam] and there may be only “$4 million in assets” that can be seized from McLeod’s estate to pay investors.

Attempts were made to contact Goldberg to confirm the figures reported by the Huffington Post story, but he was not available for comment.

Assuming the figures in the Huffington Post article are accurate — and regardless, a Ponzi scheme, by design, assures investors are not made whole — it seems logical to ask where did all the money, at least $34 million, go? Might any of McLeod’s various now-shuttered companies have played any role in disappearing that money?

It is likely FBI and SEC investigators are asking similar questions.

McLeod’s Web

Among the keys to McLeod’s successful 22-year scam was his ability to cozy up to higher-level law enforcers, bring them into his business fold, and then trade on their names and use that access to later bilk lower-level agents out of their retirement savings. And in the latter endeavor, McLeod showed no mercy, taking investments for his phony bond fund that represented the money made from the sale of homes, family inheritances, and even college-tuition savings for the agents’ children, according to court records.

One document in particular, a Web page that is part of McLeod’s SEBG online marketing materials, demonstrates the extent of his artifice. That Web site lists the purported members of the board of directors for SEBG — a division of McLeod’s FEBG, which, again, was the business entity through which retirement seminars were offered to law enforcers and which harbored the phony bond fund.

SEBG, or State Employee Benefits Group, according to McLeod’s Web site, “focuses on the [retirement] education and planning needs of those serving State, County and Municipal positions, including judicial, legislative and public safety personnel.”

The following former law enforcers, including their titles [in bold] with McLeod’s enterprise, show up on the Web site for the SEBG board of directors — all of whom also are listed as having e-mail address ending with @febg.com:

• Douglas Fabel, special assistant to the president [McLeod]; Treasurer of the Association of Former Agents of the U.S. Secret Service, according to the group’s most recent annual report.

• Gilbert Bruce, regional field coordinator; former special agent in charge of DEA’s San Francisco field office.

• Robert Michelotti, executive vice president; former special agent in charge DEA’s Tampa field office.

• John Albano, regional field coordinator; former assistant special agent in charge in DEA’s Phoenix field office.

(Albano served in Phoenix under Special Agent in Charge Thomas Raffanello, who later went on to serve as Allen Stanford's chief of security. Stanford is now pending trial, accused of operating an $8 billion Ponzi scheme. Earlier this year, Raffanello was acquitted of charges that he helped Stanford conceal evidence.)

Wilfred Garrett, regional field coordinator; former supervisory special agent with DEA.

• John Eichelberger, director of strategic planning; former Chief Financial Officer of Customs and Border Protection [retired in 2004], according to CBP’s fiscal year 2003 annual report.

• Fred Haiduk, director of field operations; Treasurer of the Association of Former Customs Special Agents, according to the group’s most recent annual report.

• Gary Hillberry, director of marketing; former special agent in charge of the U.S. Customs Service's Denver field office; chairman of the 2011 Association of Former Customs Special Agents Convention slated to be held in Denver.

• Kenneth McCabe, director of market development; retired special agent in charge of FBI’s Pittsburg division; now serves as a commissioner on the Pennsylvania Gaming Control Board.

Narco News attempted to contact, where phone numbers could be found or via the retired-agent association groups, each of the individuals listed on the SEBG board for comment and to assure they, in fact, served in the positions indicated on McLeod’s Web site. [Note, the page featuring the SEBG board has since been removed form the Web and had to be retrieved by Narco News via a cache link.]

Only Gilbert shows up in the pending lawsuit against McLeod’s estate, in an e-mail exhibit attached to pleadings referencing how one of the scammed investors, a former DEA agent, was introduced to McLeod.

“I met you both [the victimized DEA agent and his wife] through Bert Bruce and offered you the opportunity to participate in the FEBG Fund in 1999,” the e-mail written by McLeod states.

Narco News did manage to reach Wilfred Garrett, who now runs a private investigative agency in Florida.

“I cannot talk on the advice of my lawyer,” Garrett said. “So I have no comment regarding … why my name is on the [SEBG] board.”

Lloyd Nilsen, treasurer of the Association of Former Federal Narcotics Agents, confirms that Garrett and another agent that shows up on the SEBG board listing, Robert Michelotti, are members of AFFNA.

“I know a couple of our members worked for McLeod at one time, but I do not know in what capacity,” Nilsen adds. “… He [McLeod] traded on people’s names, and he was tacitly approved by the agency. If he was paid [by DEA and other agencies], you would have to assume someone checked him out.”

Narco News was not successful in reaching any of the other former law enforcers on the SEBG board list.

The fact that names appear on a board of directors list associated with one of McLeod’s companies, or that some former law enforcers may have worked for one or more of his companies, does not indicate (nor is there any evidence at this point) that they were in anyway complicit in his Ponzi scheme. But it does seem clear that McLeod, at a minimum, took advantage of their reputations to snake his way into law enforcement circles in order to bait his victims.

However, in terms of his business operations, McLeod did not operate alone. SEC records reveal that he had several business associates as well as offices in West Palm Beach, Fla., and Lubbock, Texas, that did business for FSAMG.

His business associates, according to SEC and FINRA records, included Charles W. Waddell Jr. and Jerry D. Killion. Narco News attempted to contact both of them.

Waddell identifies himself by name on a voice mail linked to the telephone number listed in SEC filings for FSAMG’s West Palm Beach office. Narco News left a message for him at that number, but he has not returned the call.

FINRA and SEC filings show Waddell served not only as an investment advisor for McLeod's FSAMG, but that he also was a "consultant" for FEBG (the seminar company retained by various law enforcement agencies). Waddell, according to FINRA documents, also worked as a mortgage broker for McLeod Capital Mortgage Group — one of the McLeod companies dissolved between 2007 and 2008.

Killion was reached at the phone number listed in SEC filings for FSAMG’s Lubbock office. He, like Waddell, served as an investment adviser for FSAMG, SEC filings show. Killion also acted as a benefits consultant for FEBG, according to FINRA records.

Killion said McLeod would provide him with client leads and they would split any revenue gained from those leads. However, he stressed that he only sold legitimate products through FSAMG or directly through registered brokerage firms.

Killion stressed that the McLeod-referred clients — primarily in Texas, Oklahoma and New Mexico — represented a “small part of my business.” Killion confirmed that he did attend some FEBG retirement seminars for DEA and ICE agents, but “probably in eight years, I went to six seminars, and sat I in the back and listened.”

“I was totally shocked by it [McLeod’s Ponzi scheme],” Killion added. “All I know is what I’ve read in the papers.”

Killion did say he knew of some former law enforcers who worked for McLeod as employees, mentioning he has spoken on the phone in the past with former U.S. Customs agent Haiduk in that capacity.

“I’d be shocked if any of them [McLeod’s employees or former law enforcers] knew anything about the Ponzi scheme,” Killion said. “Wayne [McLeod] couldn’t afford to let anyone know; otherwise, people would begin to ask questions and everything would fall apart.”

Well, it seems clear that things did fall apart, and that many people now know about McLeod’s scam, and that plenty of questions are being asked.

The answers to those questions, though, at this point, seem to be as difficult to find as the millions of dollars stolen from the victims of McLeod’s long-running Ponzi scheme.

Stay tuned ….

 

User login

Navigation

About Bill Conroy

Biography

Narcosphere@aol.com