Dozens of Tucson military members and churchgoers swindled in a "Christian" investment scam won a moral victory in a California courtroom this week, but it may not help them get their money back.
A federal judge ordered a trio of con men to repay $29 million they bilked from victims in Tucson and elsewhere between 2004 and 2007. But most of the ill-gotten gains may already be gone, squandered on luxury cars, lavish living and gambling sprees in Las Vegas, authorities said.
"Unfortunately, it is often difficult to collect from people who commit fraud," said John Bulgozdy, a trial lawyer for the U.S. Securities and Exchange Commission, which brought the court action against Pacific Wealth Management and a string of related companies run by three defendants from Murrieta, Calif.
The scam's mastermind, James B. Duncan, his partner, Hendrix M. Montecastro, and the frontman, Maurice E. McLeod, each was ordered to repay portions of the $29 million, plus interest. They also were fined $130,000 apiece in civil penalties.
People are also reading…
The trio duped dozens of Tucsonans — estimates have ranged from 48 to more than 120 in various court cases — and scores more in California and other states, persuading them to invest in nonexistent securities.
Some local victims lost their homes. Others say they're out as much as $500,000 after they took out home-equity loans and ran up lines of credit to buy the bogus offerings that promised high returns.
Victims thought their money was being invested in real estate or foreign currency, when instead it went into the pockets of perpetrators and their relatives.
Duncan, for example, posed as a millionaire while blowing investors' money on luxury vehicles, gambling and trips, including an $18,000 Mediterranean vacation. At one point, his credit-card bills and vehicle costs averaged about $40,000 a month, court records indicate.
McLeod, the president of Pacific Wealth, painted the firm as "a Christian organization" that investors could trust with their money, while hiding the fact that he was an ex-convict, said a Monday ruling from U.S. District Court Judge Virginia A. Phillips in Riverside, Calif. The SEC's complaint said McLeod was convicted of fraud and burglary in California in 1998.
The defendants also "used a church pastor to recruit investors, and referred to 'God's will' during presentations at investment seminars," the judge's ruling said.
The SEC described the scam as an example of "affinity fraud," in which con artists use trusted figures — such as members of the military or church groups or family members — to lure others into the fold. People tend to have confidence in those they know through such channels, which makes fraud easier to perpetrate, experts say.
The California-based swindle took root in Tucson through Ken Fraleigh, then a technical sergeant at Davis-Monthan Air Force Base whose daughter was married to McLeod.
Fraleigh, while on active duty, worked after-hours as a paid pitchman for his son-in-law's firm and brought in dozens of local investors, including fellow D-M airmen and members of the Christian Faith Center, 4108 E. North St., in Midtown, the church he attended.
Fraleigh retired honorably from the military and moved to California shortly after the fraud became public. Some church members have said they don't think he realized the investments were fake when he peddled them.
Fraleigh wasn't part of the SEC action, but last year, he and his wife were fined by the Arizona Corporation Commission for peddling unregistered securities and were ordered to pay $12,000 in restitution to victims — the profits made from commissions — plus a $15,000 penalty. The couple has paid the state $700 and is making $100 monthly payments, said Matt Neubert, director of the commission's securities division.
As the pool of money grows, he said, it will be distributed to Arizona victims, though they won't receive anywhere near what they lost.
The SEC's Bulgozdy said in an interview that once a judgment is issued, the federal agency "will take whatever steps it can to try to locate the defendants' assets, if any, and collect on the judgment."
However, he said, "evidence shows that the defendants appear to have spent the bulk of the money."
Maria Hynum, a Tucson grandmother of six who said she lost more than $400,000, said justice will not be served unless victims are repaid.
"These guys robbed millions and they are free. I don't understand that," said Hynum, who was brought into the scam through the Christian Faith Center, a church she no longer attends.
"I think they should be made to work for the rest of their lives to pay that money back."
DID YOU KNOW
The Pacific Wealth entity charged by the U.S. Securities and Exchange Commission is unrelated to a San Diego investment firm of the same name.
