Tuesday, April 23, 2024

Money for nothing

Money for nothing

Keith Simmons stacked the deck against his investors in a Ponzi scheme that took in more than $40 million.
By Edward Martin

""Standing at the door of the chartered Cessna Citation II, a beaming Keith Simmons greets his guests. “This is the way we roll!” After bounding up the steps, Scott Mabe, who mows lawns and does repairs for Simmons, sinks into a soft leather seat. Ninety minutes after clearing nearly deserted Wilkes County Airport, the jet touches down in Florida. Mabe, with the others, checks into his $188-a-night hotel room, changes into shorts and relaxes. That evening, he’ll watch wide-eyed as Cage Dolls cheerleaders dance while opponents pummel each other in contests staged by Tampa-based Xtreme Fighting Championships Inc., one of Simmons’ investments.

“Short and sweet, this was probably the best time I’ll ever have in my life,” Mabe says. “Each of us had our own room, all the food we could eat at Don Shula’s restaurant and all the drinks we could drink. Girls from the office went. He wanted to show them off and show off his money.” In 2008, Simmons was rolling in it. But all that’s left now are melancholy reminders, such as one in northwest Ashe County where the North Fork of the New River meanders through a deep, green valley near the Virginia and Tennessee state lines. Crows caw in the yard of an empty, stained-wood A-frame house, the dust of disuse clouding its windows.

Places like this on Hidden Mountain Lane suited Simmons. Not only did he invest in ventures such as Xtreme Fighting and burn through $166,000 in a year and a half on chartered jets, gift cards, limousines, parties and junkets like the one Mabe went on, but he sank $4.9 million into real estate. They were good times, and he promised they’d get even better.

Between 2007 and late 2009, Keith Franklin Simmons committed what investigators call the biggest financial fraud in Tar Heel history. Victims included a Mount Olive Pickle Co. executive who lost at least a million dollars. Others were shorn of smaller sums. “Let’s just say, less than $100,000,” David Eastman, 66, confides, some of it from insurance the Pawleys Island, S.C., resident collected after his first wife died of cancer. Albert Yale, a 79-year-old Apopka, Fla., retiree and wife Marilyn, 76, were out $36,000 they had saved toward a slot in a Christian retirement home. “We saw an ad in an investment magazine promising investors a ‘good night’s sleep,’” he says. “I don’t take that magazine anymore.”

Authorities say the Ponzi scheme sucked in more than $40 million. As it unraveled, Simmons told antsy investors his Black Diamond Capital Solutions hedge fund was worth $378 million. Though the government seized the house on Hidden Mountain and other assets, some suspect he hid millions in offshore banks. Legally, he’s indigent, sitting in a cell in Atlanta Federal Penitentiary awaiting a permanent prison home. Sentenced to 50 years, no chance of parole, for securities fraud, wire fraud and money laundering, he’ll be 97 if he ever gets out. His court-appointed lawyer denies there was any criminal intent. “It was,” he says, “a bad business plan.”

Beneath the obfuscating language of lawyers and prosecutors lies a tale tangled in audacity and deceit. Tight-lipped federal investigators reveal only that more arrests might follow, silencing Simmons’ associates and victims alike. Some speak only under condition they not be identified. But reconstructed from dozens of sources — neighbors who thought they knew him, lawmen who suspected him, employees who trusted him and public records that shed light on him — his is a story steeped in shadows, like those cast by Mount Jefferson, the 4,665-foot green giant that towers over the twin towns where the man one victim calls “a narcissistic psychopath” lived a double life.

West Jefferson had 1,299 residents when last counted, and Jefferson, the conjoined county seat, 1,611. At 7:05 a.m. that Friday, a week before Christmas 2009, after helping buckle their two children into his wife’s Lexus, he kissed brown-eyed Suzanne goodbye in Candlelight Park, a West Jefferson development where homes typically range from $300,000 to $400,000. Outwardly, the marriage seemed steady. Inwardly, she was suspicious of his inexplicable absences and behavior.

A few miles away, on South Main Street in Jefferson, his businesses had outgrown the large, 1950s brick house he had converted into offices. With lavish landscaping, backyard gazebo and paved yard with employees’ cars often filling all 21 parking spaces, it was conspicuous. But few townsfolk had seen inside the 25,000-square-foot office condo in Jefferson Station, the former chair factory a block off Main Street less than two miles away in West Jefferson.

Still being upfitted, it was becoming his new center of operations. A door off the office suite opened into a 4,350-square-foot apartment. “It looked like something you’d see in a magazine or New York, not Ashe County,” one of his former executives, who had been given a tour by his boss, recalls. In the bedroom, round armchairs with brown cushions and black-and-white checked upholstery sat at the foot of a dark-wood sleigh bed, surrounded by large, scented candles. “He had a control panel, you could mash a button and the lights would dim, the TV would come on and the blinds would close. It was pretty impressive.” Simmons had told his contractor it was to entertain clients. “Whales,” he called them, perhaps a private joke about their flensing. His “love condo” is how a government prosecutor would describe it.

While his wife taught second-graders at Westwood Elementary, Simmons would giggle as young women, some on his payroll for more than their business skills, oohed at figures on the spreadsheets he flashed on a computer screen. He took one to the top of Buck Mountain, the towns’ northern backdrop, showed her 30 acres he had bought and told her that now he could always look down on Ashe County. He would not, however, be there for the holidays.

That Friday afternoon, as Christmas shoppers stopped to watch, authorities arrested him in the parking lot of Roses, next to the Family Dollar, in Jefferson. By then he had fleeced more than 400 investors across the country. Many were retirees, most seeking safe, modest returns as bank rates shrank to nearly nothing. One in four was 75 or older. His downfall came at the hands of two men, both once-retired themselves, who wondered how someone in a struggling mountain community could live so good when times were so bad. The why was simpler, says Anne Tompkins, U.S. attorney for the Western District of North Carolina: He was feeding “his appetites for money, sex and glory.”

Born and raised in Pickens, S.C., he graduated from high school there in 1983, then, four years later, from North Greenville University, at the time a two-year school. He earned a bachelor’s in psychology at University of South Carolina Upstate in 1989. His tracks blur after that, but records and family sources indicate, at one point, Simmons was a production manager for Gastonia-based yarn maker Parkdale Mills Inc.

He met Suzanne Collins in 2000. She was 24; he was 35. A West Jefferson native and graduate of Appalachian State University, she taught kindergarten and first grade in Greensboro and longed to move home to the high mountains. He proposed on Christmas Day and, on June 30, 2001, they wed. In a note penciled on lined, yellow paper in his jail cell, he recalled the panic he felt at the altar. “When her father gave me her hand and we faced each other, I could see straight into her eyes. It all went away.” Two years later, they had a son, and three years after that, a daughter.

In 2003 and 2004, Simmons worked at a branch of Elkin-based Yadkin Valley Bank & Trust Co. and, on the side, photographed and videographed properties for real-estate brokers. He started businesses, incorporating Black Diamond Capital Solutions LLC in July 2005. By April 2007, it was purportedly trading in foreign currencies, though there’s no indication Simmons knew a rupee from a ruble or bothered with securities licensing or registration. He had other companies, including High South Realty, acquired in 2007, which former employees say operated as a legitimate real-estate business; Red Brick Group, ostensibly a sports marketer; The Gallery Group, handling public relations for his other ventures; and Eco-Green, selling greenhouse windows, skylights and other environmentally friendly building products.

“He hired me because I’d lived here all my life,” says the head of one of the companies who also acted as his business manager. “He figured people would stay off his back if he had a local contact.” He was “not real outgoing and kept to himself.” Another man, who ran a small business Simmons took over after it fell on hard times in 2007, adds, “He just didn’t have that outgoing, bubbly personality you see most of the time in sales.” However, Mabe describes him as happy-go-lucky. In a place where tourists in Docksiders mingle with mountain folk in Dickies bib overalls, he didn’t stick out, clad in khaki pants and polo shirts and driving a Ford Explorer Sport Trac. “He was a normal-looking guy, nice looking, tall, slim,” says Eastman, who saw him for the first time at his sentencing. “Matter of fact, he looks kind of geeky.”

His activities, not his appearance, attracted attention. As 2008 unfolded, the local economy, heavily dependent on second-home sales and tourism, was sagging, with real-estate signs sprouting, then fading as seasons came and went without sales. But at the Register of Deeds Office in the county courthouse, Simmons signature regularly showed up on fresh deeds. Across the parking lot at the sheriff’s office, curiosity gnawed at a detective.

William Sands had grown up over in Surry County, then moved to Ashe from Charlotte after taking a buyout from Duke Power Co. Offering to volunteer at the Sheriff’s Department, he was told he would have to undergo the state’s rigorous basic law-enforcement training. He did, in his 50s, paying his own way. He has an office and badge — but still no salary. “Getting paid would take all the fun out of it,” Sands, 74, says. He’s also a county commissioner.

He had listened intently when two businessmen who had dealt with Simmons brought their suspicions to him early in 2008. “They mentioned the Mafia and all sorts of things. They told me about local people who’d barely gotten out of high school who were vice presidents of Simmons’ mortgage company and things like that.” He never has divulged their names, sharing the information with only two others. One was the chief deputy. The other was his boss. Sheriff James Williams had joined the West Jefferson Police Department in 1972, working his way up to chief, a job he held eight years before retiring. He’s now in his second four-year term as sheriff. “We couldn’t explain the change in Keith Simmons’ financial position,” Williams, 62, recalls. Find answers, he told the detective.

Sands began digging. “They were running ads all over, in Our State, in Florida, everywhere, and they had these slick brochures, but sales just weren’t there.” In just over two years, Simmons would spend $2.3 million on advertising. “I looked at all these plane trips, all the women on them, and wondered which one was his wife. When I finally met her, I realized none of them was.” But Sands could only dig so deep: No Ashe County resident had signed a complaint alleging a crime.

Three hundred miles away on Pawleys Island, David Eastman walked the beach with his dog while his wife rode her horses. He had retired there from Baltimore after 30 years as a mounted policeman and another 13 working in the federal courts. He trusted his financial adviser, who put him in the hedge fund in 2007, and he understood what he was investing in — a platform trading in foreign-currency exchange rates. Forex, they call it.

“It’s similar to the commodities market, except instead of pork bellies you deal with currency,” Eastman says. ”It’s pretty safe.” Buy a British pound sterling or Swiss franc low, sell it when it rises against the dollar. “It fluctuates, but they were only supposed to deal with major currencies — no Chinese yuan or things like that — so not that much. Your loss is fairly limited if you take a hit.” Periodically, he would meet with his adviser. “I’d sit right there next to him, and he’d call Black Diamond and get a report.” Some potential investors were told the hedge fund had returns of 123% in 2006 and 137.4% in 2007, says Kurt Meyers, an assistant U.S. attorney who helped prosecute Simmons. But Black Diamond toned down claims so as not to spook the wary like Eastman. “My monthly statements were showing good returns but not outrageously good” — gaining perhaps a percentage point or two a month, adding up, after fees, to 12% or 15% a year.

Simmons had a convincing sales pitch: Deal with your local, trusted financial adviser. Starting in 2007, he had recruited a dozen or more “hedge-fund managers” nationwide, wedding his Ponzi scheme to pyramid sales tactics. Early investors-turned-managers signed up neighbors, church and family members and others who would get half the net profit from commissions and other fees if they, in turn, signed up new investors. To string them along, Simmons parceled out distributions from funds he got from new investors. Some managers might have been duped. Others, not. Deanna Salazar, a Yucca Valley, Calif., insurance broker, “deliberately closed her eyes to the truth about Black Diamond,” Tompkins, the federal prosecutor, says. She took in $7.5 million. It’s unclear how much she kept. None of the money went for foreign currency, but a lot went for foreign cars, along with jewelry and lavish living. “She used some of the money to fund porn movies,” Eastman adds.

Sands grew more suspicious. Atop Buck Mountain, dotted with expensive second homes, building had virtually ceased, but Eco-Green, catering to such customers, routinely deposited large sums at the small branch of Asheboro-based CommunityOne Bank on the U.S. 221 bypass. Employees failed to inform federal regulators of tens of thousands of dollars streaming through the bank. Currency Transaction Reports are required for movements of more than $10,000. If bankers suspect something, they also must file Suspicious Activity Reports, regardless of amount.

Sands’ and Williams’ snooping began to pay off. By 2009, Simmons had spent $2.2 million, ostensibly as operating expenses for his other companies, though they had few, if any, sales. He didn’t seem concerned. “When he first started High South Realty, he might come through once a week, stay 30 minutes and be gone,” a former broker says. “Gradually, we didn’t see him at all.” He was spending more time at the West Jefferson office condo. “He’d hired a whole different group of people to work over there.” Simmons was laundering the money from Black Diamond investors, depositing it in CommunityOne in the names of his other businesses. In an 18-month period, he withdrew more than $900,000 for office expenses and interior design work on his condos and nearly $800,000 in cash and transfers to his personal accounts.

He grew bolder, perhaps tapping his degree in psychology. The pickle executive from eastern North Carolina would confide to Sands in 2009 that he already had put $1 million into Black Diamond. “He told me, on the statements they’d sent him, they said he was worth about $30 million. He said, ‘The last time I talked to Keith, I told him I had two married daughters that would like to get a little chunk of this.’ Keith said, ‘I’m sorry, but the only thing I’ll deal with now is $100,000 and up.’” Sheriff Williams fielded other calls. “I had an old lady and her daughter from California who’d get on the phone together to me and talk back and forth: ‘Mama, do you remember so and so?’ They had about $1 million they’d worked a lifetime for and put it all in one basket. One day, they had a million in the bank. The next day, they couldn’t buy a Happy Meal.”

The grim reality gradually began to emerge. Simmons had used less than half of the more than $40 million he had taken from victims to pay early investors’ returns. An increasing number wanted their money back. It wasn’t there. Simmons, Sands says, had never invested a cent in foreign-currency trading.

Mark Vannoy looked him in the eyes across the desk. In the summer of 2009, Simmons sat in his office at James R. Vannoy & Sons Construction Co., which was working its way through a $511,000 contract to upfit the 25,000-square-foot office complex. “We’d gotten about halfway finished, and the money stopped. He’d made the first payment, but then we foolishly let him get ahead on invoices.” Simmons told Vannoy he would pay him in 30 days. Vannoy shook his head. “He told me he had 27 unencumbered properties. I said, ‘Well, if that’s true, why don’t you just go over there to the bank, borrow on them and pay what you owe me?’” Simmons squirmed. “He said, ‘Ah, no, they won’t do that.’ I said, ‘Sure they will. Just pick up the phone right there, and we’ll call them right now.’ He wouldn’t have anything to do with that.” It was Vannoy’s only meeting with Simmons. “I didn’t trust him.”

Black Diamond was crumbling. To stall investors, Simmons invented a white knight — a German financier named Klaus Bruner, who would provide $125 million in “liquidity” to meet payout demands. He manufactured other excuses, telling investors that various government agencies were holding up their money. When financial advisers demanded answers, he falsified a JP Morgan Chase document to show he had $77 million. The real figure was $77,000. Simmons scrambled. He stiffed his employees. “He kept saying, ‘It’s going to come back,’” Mabe says. “And we trusted him and kept on working. He took me for $3,400 I’ll never see.”

By this time, stymied by no complaints from any local victims, Sheriff Williams had called FBI agents in Charlotte and turned the case over to them, but Sands continued to probe for information from disgruntled employees. In early December 2009, “I found out he’d moved stuff around, relocated stuff.” Simmons had hinted to insiders that he had money in the Cayman Islands and had chartered jets there. “They were shutting places down.”

About 8 a.m. Dec. 9, a dozen FBI agents surrounded the house on South Main in Jefferson. In seized files they found, among other things, photocopies of drivers’ licenses of elderly people with wrinkled smiles, Simmons’ victims. In a file drawer in the basement, the sheriff discovered a book: How to Disappear Completely and Never be Found, including chapters titled “Leaving the Country” and “On the Lam.” One was about how to fake your own death. But Simmons made no effort to flee. “After that house of cards started to crumble,” Williams says, “I’d have been on one of those private jets in the middle of the night and out of the country in a heartbeat.” Some who worked for Simmons are equally puzzled.

After the raid, he told them that, given another 30 days, he could work out Black Diamond’s crisis. Did he believe that? Did he — as his Charlotte attorney, Kevin Tate, says — deceive himself into believing he was a victim of his own bad business plan, not a criminal? Or did he realize he was under surveillance, that flight was futile? His only concession, in a note written from his jail cell, has been: “I’m no different from anyone — I admit to faults of my own,” acknowledging “with everything that has happened, she has been hurt,” a token apology to his spouse. As the clock ticked down, he approached Williams. He had been having chest pains, he said. “If anything happens to me, take care of my wife and kids.” Before the month was out, Suzanne Simmons would file separation papers.

The FBI called the sheriff early Dec. 18. We have enough evidence now, an agent told him, let’s arrest him today. As morning wound down, Sands and Williams waited. Uneasiness spoiled their lunch. “We should have just gone over there at daylight and gotten him,” Williams says. “Now we couldn’t find him, and we were thinking, ‘Oh lord, what have we done?’” That afternoon, he was spotted in the Roses parking lot.

As Williams and the agents approached, “he was pretty relaxed,” Williams says. “He knew it was coming.” An agent handed him a cellphone. Call your wife, he ordered, and tell her to bring the car over here. Don’t tell her any more. Ten minutes later, she arrived in the 2008 Lexus SUV that Simmons had paid $50,245 for only a year earlier. “But it’s my car,” she protested as an agent ordered her to remove the child seat and her personal belongings. “He told her it had been bought with illegal money,” Williams says. Ten minutes later, her husband was handcuffed, placed in an FBI car and driven to Charlotte, where, nearly a year later, a jury would find him guilty.

Slowly, the debris of destroyed dreams and broken promises accumulated. Many of his victims were devastated. One, who had begun working at an orphanage as a teen and accumulated about $1 million in life savings, lost it all. But not all had invested money with him. His wife, who investigators, friends and family say was, willfully or not, unaware of his criminal activities, divorced him and remarried last year. Vannoy, the contractor, wound up owning the condos for the money he was owed. They’re for sale. “I doubt,” he says, “I’ll ever see 50 cents on the dollar.”

Others would be prosecuted. Ten of Simmons’ so-called hedge-fund managers — including Jeffrey M. Muyres of Matthews, Roy E. Scarboro of Archdale and Bryan Keith Coats of Clayton — would be convicted of various charges. Salazar was sentenced to five years in prison and ordered to pay $5.5 million in restitutions. Eastman’s Pawleys Island financial adviser, Stephen D. Lacy, received a six-month sentence after pleading guilty to conspiracy to commit securities fraud. The Justice Department charged CommunityOne with money laundering but deferred prosecution after it agreed to reimburse $400,000 to victims. Prosecution likely would have been fatal to the already undercapitalized, struggling bank — the payment represented 16% of its total value.

Three months ago, on a sunny day in May, David Eastman put the top down on his Infiniti convertible and drove four hours from Pawleys Island to Charlotte to attend the sentencing. He listened as U.S. Chief District Judge Robert Conrad told Simmons that, barring a successful appeal, he’d likely spend the rest of his life in prison. “We’ll be all right,” Eastman says. “We won’t be living on crackers and cat food.” But the man behind the biggest financial crime in state history tested the former cop’s convictions. “I’ve run into many bad, evil people. I’m a man of faith, and I can’t bear a lot of hate toward him. But I have much more respect for a guy who would walk into a bank and rob it face-to-face than I do for Keith Simmons.”

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