A broker-dealer in the middle of selling its assets, namely access to its reps, has yet to pony up a penny toward the millions of dollars it agreed to pay to settle with fraud victims who are mostly federal law enforcement personnel and their beneficiaries, according to the lawyer representing the plaintiffs.
Capital Analysts Inc. and the attorney, John Chapman, reached a settlement at the beginning of December with 140 victims of the Ponzi scheme operated by Kenneth Wayne McLeod, who committed suicide in June 2010 after his $34 million scam was discovered.
Most of Mr. McLeod's victims are current or retired federal agency employees, and many are stationed abroad, including in Afghanistan, Mr. Chapman said. Other former investors with Mr. McLeod include the widows of former federal agents who invested death benefits they received after their husbands died, Mr. Chapman said.
Capital Analysts said in February that Lincoln Investment Planning Inc. would acquire the firm's assets in a sale. Capital Analysts is “obviously looking for an exit, and are apparently attempting to walk away scot-free” from the settlement, Mr. Chapman said.
The settlement was reached in December in private mediation, but most clients still have arbitration claims against the firm with the Financial Industry Regulatory Authority Inc., Mr. Chapman said. “We've pushed off the arbitrations, and the settlements been on ice for three months.”
Mr. Chapman said his concern for the fraud victims stems from Capital Analysts' exiting the securities industry. ”The firm is disappearing” at the end of June, he said. “What's the point of having an arbitration claim if they don't have any assets to satisfy the awards?”
Mr. Chapman declined to state the exact amount of the settlement, only noting it is for millions of dollars. Mr. McLeod, who was a broker at Capital Analysts from 2004 to 2007, ran a Ponzi scheme that totaled about $34 million in missing funds with about 150 victims, according to published reports.
During his career Mr. McLeod was a broker with several other firms, but Mr. Chapman declined to comment about settlement negotiations with any of those.
Mr. McLeod's clients included employees of the FBI, the Drug Enforcement Administration, Immigration and Customs Enforcement, and Customs and Border Protection, according to a 2010 article in Businessweek. “What sets McLeod apart from the other mini-Madoffs is his client list: It's the first time, authorities say, that anyone has dared to rip off an entire group of law enforcement officers,” Businessweek reported.
Matt Lynch, CEO of Capital Analysts, did not return calls seeking comment. Capital Analysts is owned by insurance carrier Western & Southern Financial Group, and a spokesman for the company said that the sale of Capital Analysts assets “has no bearing whatsoever on any funding needed to address the claims of Mr. Chapman's clients.”
“Capital Analysts has been engaged in good-faith discussions with John Chapman regarding his clients' claims and intends to continue to work toward the resolution of those claims,” said the spokesman, Jose Marques.
“In a sale of assets, the entity typically retains most pre-closing obligations, which is the case in this transaction,” Mr. Marques said. “Any claims against Capital Analysts are being actively resolved and, in other cases, defended, in the ordinary course.”
Mr. Chapman said that a typical settlement such as this would have had money back in the clients' hands a month and a half ago. “Capital Analysts made a binding offer of settlement on Dec. 1,” he said. “We're not struggling to resolve claims. They said they had settled them and made the offer. Since then, nothing has happened in three months. With a settlement of this magnitude, why would they conceal the fact that they were selling all the assets? That's material information.”
“I've never encountered anything like this before,” Mr. Chapman said.
Capital Analysts of Cincinnati has about 280 affiliated reps, and the firm produced close to $61 million in gross revenue last year. Lincoln Investment Planning, which has about 700 reps and is based in Wyncote, Pa., produced $106 million in gross revenue in 2011.