RECEIVER: Cook/Kiley Ponzi ‘Incredible Tragedy’; Some Investors ‘Destitute’; Management So Screwed Up That Historic Van Dusen Mansion Was Not Insured; Assets ‘Sent All Over The World’

EDITOR’S NOTE: As is the case with other Ponzi schemes, the alleged Trevor Cook/Pat Kiley scheme in Minnesota is proving to be an incredible paper chase that is consuming hundreds of hours of manpower as attorneys, investigators and support staff work to reverse-engineer what authorities say was an epic, international fraud.

Want to be a Ponzi receiver? Expect to be criticized — and also expect to put in long hours, perhaps for months or even years. It simply is not an easy job, especially if a scheme has fleeced investors by the hundreds or thousands. Simply put, there is no way to make all parties happy. Perhaps all one can hope for is to contain the devastation of a Ponzi scheme.

This is part of the story of R.J. Zayed, as told through court filings and a statement before Chief U.S. District Judge Michael J. Davis March 29. Zayed is the receiver in the Cook/Kiley case . . .

Investor losses will be huge in the alleged Trevor Cook/Pat Kiley Ponzi scheme in Minnesota, the court-appointed receiver in the case said.

Painting a picture that deception was the rule and not the exception in the alleged $190 million fraud, receiver R.J. Zayed said that money was moved “all over the world” and that $139 million of investor funds was “spent or hid.”

Management of the scheme was so screwed up that Trevor Cook, whom Zayed described as the “architect,” reportedly paid $2.6 million from investors’ resources in 2008 for the historic Van Dusen mansion in Minneapolis — but then did not bother to maintain property insurance or even to maintain the property.

Zayed’s early findings are alarming, and his statement and reports to Chief U.S. District Judge Michael J. Davis  cannot be ignored. Indeed, Zayed suggested, Cook used investors’ money to buy the mansion, but put the entire purchase price at risk and potentially invited catastrophic downstream liabilities by not insuring the property and letting it fall into a state of disrepair.

Welcome to the bitter world of the Ponzi. Easy come, easy go.

Although Cook purchased an island property in Canada for $250,000, a contractor who performed work for Cook has filed a “lien for unpaid work.” The filing of the lien added another layer of complexity to an already-complex case that involves multiple international jurisdictions.

“We are working to get that issue resolved and clear title to the land,” Zayed said, noting that he has hired lawyers in Canada to help navigate the jurisdictional issues. The receivership estate also is working to convert assets in Panama to cash.

Cook, 37, was charged criminally with mail fraud and tax evasion March 30. It is believed he may enter a guilty plea during a court appearance April 13.

The Van Dusen mansion, which was used as a headquarters for the alleged $190 million scheme, quickly became a white elephant to the receivership estate, Zayed said.

“Ongoing expenses, such as utilities and property maintenance, cost approximately $12,000 per month,” Zayed said. “In addition, we had to obtain property insurance (there was none under Mr. Cook’s management).”

Moreover, Zayed said, the mansion’s furnace was not working and its security system had been “dismembered.”

“Numerous individuals had ‘worked,’ lived, and socialized throughout the house,” Zayed said. “The property was littered with trash and paraphernalia from these activities. Evidence had to be preserved and the remainder had to be cleaned out — this was a tremendous task.”

Spectacular Sums Collected, But No Books Kept

Cook and Kiley both were charged civilly by the SEC and the CFTC in November. Kiley, 71, is a former host on Christian radio. Cook was a purported money manager.

“The damage that Trevor Cook and Pat Kiley have done is nothing short of devastating to each of over 1000 investors who trusted and invested their life savings with these individuals,” Zayed said.

In many cases, individual investors lost their life savings, Zayed said. Some of them had borrowed against the value of their homes.

“Many of these investors are so destitute that they cannot afford to hire private counsel to represent their interests,” Zayed said.

He described the scheme as an “incredible tragedy” that has been “nothing short of devastating” to investors, saying he is aware that some people believe the receivership estate has billed “extensive fees and costs.”

Zayed, though, said he had arranged for discounted billings with key personnel such as attorneys and professional investigators and, in some cases, was relying on recent law-school graduates and criminal-law students to perform work for the estate to contain costs.

WayPoint Inc., a professional investigations firm whose staff consists of former FBI and IRS agents and a former postal inspector, has performed some work at no charge because it recognizes the grave circumstances confronting Cook/Kiley investors, Zayed said.

“It is the right thing to do,” Zayed said, quoting Rick Ostrom, one of WayPoint’s principals. Ostrom is well-known in Greater Minneapolis. He spent 26 years with the FBI.

“WayPoint has been instrumental in cost containment,” Zayed said. “For example, to effectuate a proper distribution plan, the Receiver has to have as complete a list as possible of all investors who have lost money in this scam. Approximately 580 investors have registered claims with the Receiver — this is about half of the individuals who are believed to have invested with the Defendants.

“In an effort to identify the remaining individuals in the most cost-effective manner possible, WayPoint interviewed and engaged local criminal-law students to review Defendants’ investor files to create a list that is complete and as accurate as possible,” Zayed continued. “These students reviewed 75 boxes of investor files and are in the process of updating the investor database with the information they reviewed. This work was performed at no cost to the Receivership, except that we paid for these students to park downtown while they worked at the U.S. Attorney’s Office.”

Moreover, Zayed said his own firm, Carlson, Caspers, Vandenburgh & Lindquist (CCVL), cut its billing rate by 15 percent. The firm’s CFO has been working as a “de facto CFO” for the estate “without a single of her many hours billed.”

Meanwhile, Zayed said, the “entire administrative staff of CCVL has also worked on behalf of the Receivership, often with late hours at the expense to their family and home lives, without billing a single hour.”

At the same time, the firm’s technical staff also contributed to the Receivership, constructing a separate part of the firm computer infrastructure to handle the tremendous volume of electronic documentation that the Receivership has collected and created.”

‘Complicated Web’ Of Deceit

Management of the Cook/Kiley entities was an unqualified disaster, Zayed said.

“[T]he scope and depth of this fraud are so severe . . .  that the recovery in this case will be nowhere near the loss,” Zayed said. “The Defendants’ construction of this Ponzi scheme and their maintenance of the fraud lured investors into a scheme that produced a complicated web through which assets were sent all over the world.”

Although investors filed lawsuits last summer and the SEC and the CFTC launched probes that resulted in the filing of the civil charges, the scheme continued to consume investors’ money even after the allegations were filed, Zayed said.

“Trevor Cook was spending tens of thousands of dollars to buy gift cards around the city for his own personal gain,” Zayed said. He added that the receivership estate, the SEC, the CFTC and federal prosecutors in Minnesota worked to preserve assets and that the consequence to Cook was that he was jailed in January for not cooperating.

“Suffice it to say that there was no legitimate book keeping of the Defendants and Relief Defendants,” Zayed said. “There were no accounting systems in place, or even a general ledger.”

Read Zayed’s full statement.