A group of nine investors recently filed a lawsuit accusing a Missouri mortgage broker of operating a $3.1 million Ponzi scheme.
Nathan P. Reuter is accused of violating the Racketeer Influenced and Corrupt Organizations Act and the Securities Act of 1933 in a lawsuit filed in a federal court in Jefferson City, Mo.
The complaint also names Vertical Group LLC, a company in which Reuter served as chief executive and held a substantial ownership interest in. Reuter formed Vertical on Aug. 28, 2003, declaring one of its purposes was securities, and on the same day formed a series of subsidiaries, including Vertical Mortgage Banc LLC.
As of Tuesday, verticalgroupllc.com stated, “Vertical Group, LLC is a wholly owned company with subsidiaries offering products in the mortgage banking business, insurance products such as life, auto, property & casualty, and health. As a financial company we are a worldwide lender to corporations and corporate owners of significant stock portfolios or vested stock options seeking to refinance existing debt to better rate and terms, or expand their businesses through internal growth or acquisition.”
The complaint states that Vertical “did not have an asset base from which to make any loans, and rather than lend money to corporations and corporate owners around the world, Vertical Group defrauded and stole money from corporations, individuals, and trusts using a ‘Ponzi’ scheme.”
The scheme to defraud offered “abnormally high short-term returns with no risk to their principal,” the complaint read.
But “Little or no return was ever paid to any investor. There was no underlying investment, and to the extent that any return was paid, it was paid from principal investment funds. Because the persons operating the scheme invaded and depleted these funds, an ever-increasing flow of money was required to make payments to dissatisfied investors who demanded the return of their principal.”
The toll-free and main numbers listed on the site for Vertical’s corporate office in Columbia, Mo., were not in service as of Tuesday.
“It was an object of the scheme to defraud that defendants would obtain money from investors by making, directly and indirectly, false representations related to material facts, and omitting and concealing from investors information related to material facts about the true nature of their investments and the intended use of their invested funds, as well as the facts surrounding the investments.”
Among the false representations Reuters made to one of the investors, Michael S. Trom, was that he was financing a Golf Course and Vineyard in California, negotiating a deal in Germany to trade bonds, and that Russian government members millions invested in the trading program he offered, the complaint said.
Trom wired $175,000 into a Bank of America account in Carrollton, Texas, as Reuters had indicated it was an escrow account and that Trom would receive, within 14 days, his principal investment back and afterward begin receiving monthly payments of $500,000 for a period of 10 months.
Of the nine plaintiff investors, LaDonna S. Henderson invested the most — $300,000 — in the scheme. She wired the money in February 2005 to a Florida account after Reuter informed that her the investment carried “zero risk,” would not bring any monetary losses, would be controlled by Vertical and held in Vertical’s account at all times, and that the investment would be returned in 30 days with an additional pay out of $700,000.
Investors inquired Vertical upon delays with the return of principal investments.
On March 31, 2005, the FBI executed search warrants at the home office of Vertical and conducted searches on two residences owned or used by Reuter.
After the FBI served search warrants, Reuter and knew “that they were being federally investigated for mortgage fraud,” but Vertical advised investors to not talk to the FBI, the complaint said.
In May 2005, the Missouri attorney general announced he obtained a temporary restraining order against Vertical, naming Reuter, Daryl Brown, Rickey Williams and Bud Woffordm, and asked the Boone County Circuit Court to order full restitution to all investors.
“The partnership between Reuter and Brown provided cash necessary to keep the scheme to defraud from collapsing at certain times when the scheme was not generating necessary cash flow,” the lawsuit said.
Brown, an owner and employee of Vertical who was not qualified to sell investments, was arrested on Sept. 26, 2005, by the FBI in connection with the scheme to defraud, according to the complaint.
The investors seek relief of their investments plus interest at the rate of 8 percent per year from the date of the purchase. Henderson seeks relief on $292,728 and Trom on $175,000; Tana S. Cutcliff had a net loss of $50,000; James D. Fields’ investment was $47,500; James A. Fields seeks relief on the $100,000 he wired believing he’d receive that back with an additional $400,000; Joshua P. Haeflinger invested $50,000; James Teegarden II invested $50,000; Patricia A. Reitz seeks relief on $50,000; and Terry J. Schippers $50,000.
In conference calls with investors, according to the complaint, Reuter “guaranteed” that if something should happen to prevent investments form paying off, he would see that everyone would receive their funds back, adding at one point, “I’ve got more money than all of your families put together; I will guarantee you will get your money back. You don’t have to worry.”
