About The Law
While financial leaders wring their hands over the alleged $50 billion fraud of Bernard Madoff, New Hampshire and Massachusetts saw an investment scam on a smaller scale in terms of dollars, but just as blatant in its abuse of investors.
The case of Simply Media Inc. "had all the earmarks of an old-fashioned investment scam" is how Chief Judge Steven McAuliffe of the U.S. District Court for the District of New Hampshire opened his decision in the matter.
Christina and Deaver Brown, of Lincoln, Mass., started a company they called Simply Media Inc. Then they cooked up what the court called bogus profit and loss statements to bilk unwitting investors out of $1.6 million.
The Browns went to wealthy friends and acquaintances, offering an "opportunity" to get in on the ground floor of the phony company. Deaver Brown apparently used his "personal charm" in pushing the investment. He also claimed "enormous" sales through the big-box retailers we all recognize.
After pocketing $1.6 million from investors, the Browns, the court found, paid "all manner of personal expenses, including, for example, personal dry cleaning bills, individual memberships at an athletic club, and payments on the mortgage loan on their home." (Notinger v. Brown, et. al., U.S. District Court, District of NH, Oct. 6, 2008.)
Either there was one huge pile of dry cleaning or the mortgage on the Lincoln, Mass., home was exorbitant. As the New Hampshire judge put it, not surprisingly, the money was soon spent and the supply of gullible investors dried up.
In bankruptcy, it was found that the Browns "deliberately and systematically" destroyed financial documents. Bank statements, lists of investors, product inventories and retail sale records all vanished. The case goes into the law books on the issue of spoliation of evidence.
The Browns' undoing was the discovery of a trail of bank checks on the corporation's accounts. Corporate accounts, filled with investor money, were treated like personal funds. One of several cases in the federal courts was to recover investor money that Christina Brown was found to have used for personal expenses.
Brown was found to have engaged in a civil conspiracy, siphoning money away from the company in order to hinder, delay or defraud creditors.
In the end, evidence showed that Simply Media was little more than a sham corporation with few if any real customers, virtually no inventory of products or operational expenses, and laughably fictitious "obviously fabricated" accounting records. Little investor money was actually used to fund legitimate business operations.
Financial experts tell us to check out any investment to make sure it is solid. Bernard Madoff apparently pulled it off, because who would question a former head of NASDAQ? In the Simply Media case, the Browns are said to have used their personal charm and social skills. But if investors had gone to the big box stores to see if any Simply Media products were actually being sold, they could have saved themselves some consternation.
Andrew Myers of Derry has law offices in Derry and North Andover, Mass. He is a member of the American Association for Justice and the New Hampshire Trial Lawyers Association. Send questions to email@example.com.