On June 25, 2010, the U.S. Securities and Exchange Commission (SEC) announced that sued a Jacksonville, Florida-based government benefits consultant and obtained an asset freeze and other emergency relief against the retirement benefits consulting company that defrauded active and retired government employees and law enforcement agents nationwide. The securities fraud is believed to have been a Ponzi scheme.
The SEC charged the estate of the recently deceased Kenneth Wayne McLeod, his benefits consulting firm, Federal Employee Benefits Group, Inc. (FEBG), and his registered investment adviser, F&S Asset Management Group, Inc. with fraudulently soliciting government employees to invest in a government bond fund that didn’t exist. McLeod, FEBG and F&S Asset Management promised safe government bonds, but actually was operating as a Ponzi scheme.
The SEC has alleged that McLeod lured many of his investors through retirement benefits seminars he gave at government agencies throughout the United States. An estimated 260 government employees entrusted at least $34 million to McLeod and his companies since 1988. While McLeod promised that he would invest the employees’ money in government bonds, he never actually purchased any bonds. Rather, he used investors’ retirement savings to pay himself, and to pay for lavish entertainment, including annual trips to the Super Bowl for himself and 40 friends. This is one of the most heinous types of securities frauds.
“McLeod victimized law enforcement agents and other government employees who dedicated their lives to the service of this country,” said Eric I. Bustillo, Director of the SEC Miami Regional Office. “The victims gave years of public service and McLeod stole their futures.”
According to the SEC’s complaint, McLeod traveled to various state and federal government agencies to conduct FEBG employee benefits counseling and planning seminars, and investors could choose to have F&S Asset Management manage their money. The SEC alleges that McLeod offered many investors guaranteed annual returns of eight to ten percent through a purported tax-free “FEBG Bond Fund” or “FEBG Special Fund.” He falsely told investors that their principal would be 100 percent invested in and secured by government bonds. McLeod explained to several investors that the fund invested in government securities that provided a 13 percent return. McLeod misrepresented that he used the three to five percent spread to expand FEBG and his other businesses, but the investors’ principal would remain untouched.
To perpetuate the scheme, McLeod told investors that their principal would be locked up for various periods of up to eight years, supposedly due to the long term nature of the fund’s underlying bonds. He also gave fake account statements to some investors, which showed fake interest earnings.