by Rabon, Don
Q. Did you ever meet with clients in these private consultations by yourself?
A. The initial consultations?
Q. Right.
A. No, I did not.
Q. Why not?
A. It was necessary to have somebody that could put together the full estate plan. Basically, what I knew about their estate plan would be the taxation aspect as well as the trading aspect.
Q. In 2004, even in late 2004, are you conducting private client consultations for potential investors in CEP?
A. There were some contacts that I had with clients, but at that point it would typically involve the sales staff making presentations to them.
Q. In 2005, are you doing private consultations with potential CEP clients?
A. In 2005, there were one or two clients that were referrals from existing clients that I did have initial contact with, but I did not have contact with new clients that were coming in without any familiarity with the business.
WELLS
In past times, water wells served a multitude of societal purposes and were of significant importance. As an example, after over two hundred years, the old well at the University of North Carolina at Chapel Hill holds a place of prominence and esteem for faculty, students and alumni. Pictures dating from over a hundred years old to today show people standing, socializing and interacting with one another at the old well site.
Aside from the obvious functioning of a well—a source of water—it also operated as the information-exchange device of the day. People of the time could meet face to face, barter, buy, sell, exchange news and information, and interact as members of a society. In the Bible, John 4, there is a classic example of the multi-functionality of a well through which we can examine the actions of Alex and his partner to obtain investors:
John 4: “So He came to a city of Samaria called Sychar, near the parcel of ground that Jacob gave to his son Joseph; 6and Jacob’s well was there. So Jesus, being wearied from His journey, was sitting thus by the well. It was about the sixth hour.
7There came a woman of Samaria to draw water. Jesus said to her, “Give Me a drink.” 8For His disciples had gone away into the city to buy food. 9Therefore the Samaritan woman said to Him, “How is it that You, being a Jew, ask me for a drink since I am a Samaritan woman?” (For Jews have no dealings with Samaritans.) 10Jesus answered and said to her, “If you knew the gift of God, and who it is who says to you, ‘Give Me a drink,’ you would have asked Him, and He would have given you living water.” 11She said to Him, “Sir, You have nothing to draw with and the well is deep; where then do You get that living water? 12You are not greater than our father Jacob, are You, who gave us the well, and drank of it himself and his sons and his cattle?” 13Jesus answered and said to her, “Everyone who drinks of this water will thirst again; 14but whoever drinks of the water that I will give him shall never thirst; but the water that I will give him will become in him a well of water springing up to eternal life.”
15The woman said to Him, “Sir, give me this water, so I will not be thirsty nor come all the way here to draw.” 16He said to her, “Go, call your husband and come here.” 17The woman answered and said, “I have no husband.” Jesus said to her, “You have correctly said, ‘I have no husband’; 18for you have had five husbands, and the one whom you now have is not your husband; this you have said truly.” 19The woman said to Him, “Sir, I perceive that You are a prophet.”
28So the woman left her waterpot, and went into the city and said to the men, 29”Come, see a man who told me all the things that I have done; this is not the Christ, is it?” 30They went out of the city, and were coming to Him.
39From that city many of the Samaritans believed in Him because of the word of the woman who testified, “He told me all the things that I have done.” 41Many more believed because of His word.”
Jesus used his encounter with the woman to offer her the opportunity to make a decision that would change her life. How does the narrative of the meeting at the well relate to the fraudulent actions of Alex and his partner, Bryan Noel? They too needed a gathering place where they could interact and endeavor to convince people to invest in Certified Estate Planners.
Rather than a well, as Alex testified, CEP’s sales presentations would “typically occur at restaurants in the Hendersonville area, such as Hubert’s or Blackwater Grill or McGuffy’s.” Additionally, their presentations at the restaurants were such that “[a] free meal was offered.” They utilized a myriad of methodologies for drawing attention to their investment proposition—“flyers, conferences and via their website” (“Complaint For Permanent Injunction And For Other Relief,” #20). The sales presentation tactics of Jesus with the woman at the well and CEP’s presentations with the potential investors were tactically similar with a comparable goal—have the individual to “make a decision.” CEP’s “seminars basically consisted of a sales presentation that involved the four-corners’ approach.” Tactical similarities aside, the purposes of their encounters were polar opposites—one sales presentation was designed to give, and the other sales presentation was ultimately destined to take.
TALES
CEP’s goal was also to get people to believe and to act on that belief. Just as importantly, CEP hoped that current investors would in turn “bring in” other investors by sharing the good news. But CEP also had a gap that they had to overcome—a gap between people having money and those same people deciding to entrust their money to CEP.
CEP was actively involved in marketing. The targets were “primarily wealthy, elderly customers.” The marketing “advertisements falsely claimed that the customers would be able to avoid their income taxes by placing their assets in trust while still continuing to ‘manag[e] everything‘ but ‘own nothing‘” (20). So, the complexity of CEP’s sales presentations’ deception increased exponentially. Not only are the sales presentation claims regarding the avoidance of taxes false, but the report of the financial health of CEP itself is a fabrication.
Jesus was handling his marketing directly. CEP had a multi-faceted approach. The goals, however, were the same: to draw people in, conduct the presentation and cause a positive response on the part of the individual. Jesus wanted to offer something to the person freely, that would flow continually. CEP wanted the person to initially entrust them with his or her money. They declared that they would, in turn, multiply that investment into an endless stream of revenue. Jesus turned water into wine. Conversely, CEP turned their client’s liquidity into dust. Jesus fed the multitude with just a few loaves of bread and a couple of fish. The few in CEP devoured that which had belonged to the multitude.
As reported in the Henderson Time News, August 11, 2006, in an article titled “Nervous Investors Consider Restitution Plots,” one investor reported that “. . . he invested a ‘substantial‘ amount of money with the business over the last two years. He said he dealt primarily with Alex Klosek, who acted as a trustee in taking his money and placing it into investments.” Another “. . . invested $200,000 of her retirement savings” with CEP. Also, in the Henderson Times-News, February 20, 2010, in an article titled “Noel’s Victims Focus of Testimony,” still another investor testified at the trial that “. . . she and her husband not only invested with CEP, but also put $50,000 into Noel’s startups International Mineral Exchange and later Titan Composites.” Two other investors who collectively lost $194,000 testified at the trial with regard to their losses.
“AND THEN THEY COULD MAKE A DECISION”
People make decisions throughout the day. They have to decide when to get out of bed, what to wear, what to eat, where to go, and what to do. Influencing another person’s cognition toward a predetermined outcome—persuasion—is an art. A criterion for success is the ability to affect the nervous system of others on a continuing basis. While that statement may sound a bit Machiavellian, if a car salesperson cannot persuade people on a regular basis to purchase a ca
r, then the dealership will soon replace him with someone who can. If a supervisor cannot motivate the division personnel to more excellent productivity, then she will most likely find herself out on the street.
People make decisions continually, and they make those decisions on the self-interest principle. We select what we believe is the best watermelon in the bin, the best spouse with whom to share a life, the best home for our family and the best investment vehicle for our money.
All of CEP’s sales presentation endeavors were designed to convince others that entrusting them with their money was the best investment they could make with their money.
CEP had also endeavored to get people to “believe.” Those people believed to the point that they collectively turned over more than seven million dollars of their money to those who had made a presentation. However, just as with Jesus’ proposal, not everyone believed. In the previously referenced Henderson Times-News article of August 11, 2006, a certified financial planner noted, “I recommended several of my clients not to go there, because I questioned the return on the yields that were being promised. People get fliers to go to these seminars and if it sounds too good to be true, it probably is.”
Ultimately, to paraphrase the writings of the poet William Cowper, found in this chapter heading, over one hundred trusting investors would find themselves dropping their buckets into the empty CEP well. A well that had been drained dry by those who had undertaken to first gain trust and then betray that trust in the extreme. Gaining trust is a process that, in and of itself, makes no distinction as to the wisdom of placing trust in those who would seek to have it. Rather, it is the motive of the heart (good versus evil, give versus take) within those who would win the minds and hearts of others that is the distinguishing factor.
During the trial, when Alex was questioned as to the terminology regarding taking other investors’ money and making payment to still other investors, the following transpired:
Q. What’s that called?
A. That’s called a Ponzi scheme.
NOTE: What is a Ponzi scheme? “A Ponzi scheme is a fraudulent, investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors” ( http://en.wikipedia.org/wiki/Ponzi_scheme).
THOUGHTS, COMMENTS AND ANALYSIS
What are your impressions, to this point, with regard to this circumstance?
Exactly what do you know?
What is it that you know that you don’t know?
What questions would you ask in order to know?
What steps would you take in order to know?
POINTS TO PONDER
In other portions of his testimony, Alex described meetings of another sort. The initial meetings, addressed in this chapter, were designed to obtain clients. In the following, Alex explains the meetings that we designed to retain clients as the evaporation of funds become more dramatic.
Q. Let me show you Government Exhibit 8HH, which I believe is already in evidence, and ask you if you recognize that.
A. Yes, I do.
Q. What is 8HH?
A. That is a letter that was sent to the clients of
Certified Estate Planners by me.
Q. What’s the date of the letter?
A. The date is February 9th, 2006.
Q. Why did you send this letter?
A. Because of large withdrawals that were made by the
Fishers and other clients, as we had previously mentioned with the Fishers. There was an effort made to try to hold on to some of those funds longer so that maybe something could be salvaged and the client would not take their funds elsewhere.
Q. Whose idea was that?
A. That was an idea that was discussed between Bryan and me.
Q. Is Mr. Noel referenced on this letter’s attachment?
A. Yes, he is.
Q. And what does it say?
A. It says that “Should you wish to close an account, an additional procedure will apply. In addition to having the Request for Trustee Minutes signed by you, Bryan Noel will meet with you personally for a final meeting.”
Q. What was the purpose of that?
A. The purpose of that meeting was to try to salvage that client and hopefully retain the funds within Pinnacle.
Q. Who was going to meet with the clients to try to keep their funds at Pinnacle?
A. That would be Bryan. I would probably be in that meeting as well.
Q. Well, why does it say Bryan? What’s the purpose of having Bryan at that meeting?
A. Bryan was much better at being persuasive in his sales abilities than I was.
Q. Why did you need to keep the funds of clients at Pinnacle? What was the concern?
A. The concern was that if they withdrew those that it would further hinder any efforts to try to trade those funds or try to get something back from Titan.
Q. As of February 2006, if clients started withdrawing their funds, were there sufficient funds to give back to clients?
A. There were not.
Q. Who knew that?
A. Bryan Noel and I knew that.
What differences, if any, do you see as to the mindsets of those responsible for conducting the meeting between the obtain-purposed meeting and the retain-purposed meetings?
What differences, if any, do you see as to the mindsets of the clients between the obtain-purposed meeting and the retain-purposed meeting?
Would these two meetings require different sales presentations dynamics?
What questions would you pose to Alex at this point?
CONTENT – CONTEXT APPLICATION
A former lieutenant for a sheriff’s department was indicted on sixty counts of fraudulent billing for work while he was off duty. The indictment indicated that he was being paid for being at work in two places at the same time on sixty occasions during a two year period.
What were the “trust issues” that had to be formulated by this lieutenant within the sheriff’s department?
What were the “trust issues” that had to be formulated by this lieutenant within the organizations that were the source of his secondary employment?
What are the ramifications when those placed in positions of trust, such as law enforcement, educators, medical professionals, etc., violate that trust?
What question would you pose to this individual?
CHAPTER FIVE
THE RIVER TURNS AND TURNS ONCE AGAIN
ALEX LEAKS TO THE FBI ALEX’S DOUBLE KNAVERY
Let me see now:
To get his place and to plume up my will
In double knavery — How, how? Let’s see
OTHELLO, ACT I, SCENE III
NAVIGATION POINT AND HEADING Matters have deteriorated to the point it has become necessary to have meetings in order to retain clients and, more especially, their monies. Alex has previously been submitting false financial statements, keeping both the clients and his partner in the dark. Desperate times call for desperate measures. Decisions have to be made. Actions have to be taken. For Alex, navigation is becoming increasingly difficult.
SOMETHING MUST BE DONE
In June of 2006, Alex made the decision to speak with agents from the Federal Bureau of Investigation. It was shortly after that meeting with the federal representatives that Alex made his initial request to meet with me for lunch. He had charted his course most carefully, as he said in his testimony at Noel’s trial:
Q. Directing your attention to June of 2006, specifically June 30th, did something significant happen that day?
A. Yes, it did.
Q. And what’s that?
A. I had my first meeting with the FBI.
Q. What do you mean by that?
A. I had — in about May of 2006, it
was getting to the point where the funds had dwindled, there were so many lies that were going on with CEP and Pinnacle and Titan and everything else, and I could not keep up the show game, so I realized that something had to be done. And then my wife also told me at that time if we don’t do —
Q. Don’t tell us what your wife said. Just talk about what you did.
A. That we would need to do something because the ultimate result would be that everything would fall upon me. So I searched out attorneys and, ultimately, in June of 2006 had my first meeting with the FBI on June 30th.
Q. I don’t want you to talk about anything you talked about with your attorneys. How was it that you ended up at the FBI offices?
A. There was one that — one particular attorney that knew somebody that had contact, and that’s how I ended up getting in there.
Q. So you didn’t just, like, wander in one day.
A. No, I did not just wander in.
Q. Did you have an appointment?
A. Yes, I did.
Q. Who did you meet with?
A. I met with Drew Grafton.
Q. What was the date of that meeting?
A. The date of that meeting was June 30, 2006.
Q. What did you do during that meeting?
A. During that meeting I started to outline some of what had happened with him and give him the story about CEP.
Q. And when you say “him,” who are you referring to?
A. To Drew Grafton.
Why had Alex reached a point wherein he decided the verbs “searched,” “knew,” and “had contact” were necessary? Had he had a change of heart? Was there, for him, a crisis of conscience, a realization that his past acts—falsifying reports, deceiving and taking what did not belong to him—were wrong? In the dead of the night, did some still, small voice whisper convincingly to him? Did he ever indicate he was motivated by a feeling of remorse to finally do the right thing? Certainly, that mindset does not appear to be the case.
Remember, Alex testified:
A. That we would need to do something because the ultimate result would be that everything would fall upon me.