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Reagan adviser Arthur Laffer sued over alleged Ponzi scheme

Investors say ‘curve' economist's association with LP cost them

Jan 16, 2012 @ 3:17 pm

By IN Staff

Arthur Laffer, the economist who gained notoriety during the Reagan administration for his Laffer Curve, a theory that says reducing taxes can increase government revenue, has been implicated in a Ponzi scheme, according to Courthouse News Service.

Fifty-two investors claim that Laffer was paid a fee to be associated with David Wallace, Costa Bajjali and their entities Wallace Bajjali Development Partners LP, Wallace Bajjali Investment Fund II LP and Laffer Frishberg Wallace Economic Opportunity Fund LP, according to a lawsuit filed in Harris County (Texas) Court.

“Mr. Laffer lent his name to Wallace and Bajjali for a fee to increase the credibility of their offerings and effectively vouched for the credibility of the limited partnerships,” the complaint states.

According to the complaint, the limited partnerships made their first investment in Business Radio Network in September 2006 in the form of advancing convertible promissory notes. At the time, BizRadio was looking to buy radio stations in the Houston and Dallas/Forth Worth markets.

The investments in BizRadio arose from the close relationship between defendants Wallace and Bajjali, and the principals in BizRadio, Daniel Frishberg and Albert Kaleta, the plaintiffs claim.

Frishberg and Kaleta were investment counselors, and Frishberg was an on-air personality in the business talk radio circuit.

“The BizRadio business was a Ponzi scheme constructed with the support of defendants,” according to the complaint. “BizRadio never generated sufficient revenue through the sale of airtime to keep itself a viable entity. BizRadio was able to exist through the continuous influx of additional capital until it eventually collapsed in upon itself.”

Laffer, who advised President Ronald Reagan on his Economic Policy Advisory Board during the 1980s, is chairman of Laffer Associates in Nashville, Tenn., an economic research and consulting firm.

A Laffer Associates employee told Courthouse News that Laffer has severed ties with the Laffer Frishberg Wallace Economic Opportunity Fund.

“He was affiliated with them at one time, but he's not anymore,” the employee said.

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