Minnesota, God and the $190 million fraud

By Poppy Harlow


NEW YORK (CNNMoney.com) -- 1,200 investors, and more than $190 million lost in just 3 years. It all began as market turmoil gained momentum in the run-up to the Great Recession, and investors were searching for a safe haven for their savings.

Minnesota money manager Trevor Cook and radio show host Pat Kiley said they had the answer, with the promise of solid returns and a no-loss guarantee. The Securities and Exchange Commission, however, calls it a "scheme to defraud perpetrated by Cook and Kiley."

Cook, 38, was head of Oxford Global Advisors and Oxford Global Partners, and touted risk-free returns of 10% to 12% through a foreign currency investment program that government regulators say he started in 2006.

"There's no risk. So we do not lose our client's money," Cook told investors in a promotional DVD obtained by CNNMoney.

Kiley, 72, used the airwaves to get the word out on his weekly Christian radio program, "Follow the Money." Kiley called his listeners "truth seekers" and appealed to their distrust of Wall Street and the government.

Cook said that he could trade currencies with little risk by exploiting small price differences among currencies, and rapid trading. "Our technology can move billions and billions of dollars [in a millisecond]," Cook bragged to potential investors.

Cook and Kiley told investors that they could withdraw their money at any time. Now almost all the money is gone, and investors are out of luck.

According to a complaint filed by the SEC in November 2009, Cook lost about $48 million of the $190 million collected when his currency bets went bad.

Cook, according to the SEC, used $51 million collected from investors in later years to pay off early investors -- a classic Ponzi scheme structure similar to the one orchestrated by Bernie Madoff. As with Madoff, Cook's investors were given phony account statements that "falsely reported substantial, continuing gains," according to the SEC.

In its complaint, the SEC says that Cook and Kiley diverted nearly $43 million, "of their victims' money to their own personal purposes ... and for other illegal purposes."

A Minneapolis-based receivership is now searching for the rest of the money (http://www.cookkileyreceiver.com/). At best, investors are expected to get back pennies on the dollar.

In a lawsuit filed by Kiley on July 19, 2010, Kiley claims he didn't participate in any criminal wrongdoing, and says he believed investor accounts were liquid at all times. Kiley also denies squandering money or mismanaging investors' funds.

"Pat Kiley never expected there was anything wrong with these investments. He continued to believe he was doing good for all his clients," Kiley's attorney told CNNMoney.

The fraud case that the SEC filed last November is still pending.

Meanwhile, as for criminal charges, in April, Cook pleaded guilty to one count of mail fraud and one count of tax evasion brought by the U.S. Department of Justice. He is currently an inmate in the Sherburne County Jail in Elk River, Minn., and is expected to be sentenced in August. Cook's plea deal holds a maximum 25 year prison sentence.

"I lied to investors about many things," Cook told a federal judge at his plea hearing.

Kiley's attorney told CNNMoney that Kiley is the subject of a current criminal investigation.

The victims: "He [Kiley] went after a targeted group of people...Their faith in the lord is what they're all about," said Mike Patterson, a chaplain from Iowa who lost $450,000 to Cook and Kiley.

Minnesota natives Mary Dingman, 62, and her sister Vicki Krisko lost nearly everything. Dingman worked as Cook's office manager, and then invested with him. "I did it because I thought it was safe," Dingman said. "I've lost everything ... He got my 401(k), savings account, my house, my life insurance account."

Ken Locklin, a 61-year old investor from Texas, lost nearly $400,000. "It's a potentially life wrecking thing," said Locklin, "a person's worst nightmare."

"People did not invest in this out of greed. They invested in it because they thought it was safe," said Kyle Garman who used to work for Cook as a salesman, and whose family lost nearly $4 million in the fraud.

Some investors were drawn in through Kiley's radio show. In fact, in the lawsuit filed by Kiley earlier this month, Kiley claims his radio program brought in 75% of the funds raised in the foreign currency program.

Others investors, though, were wowed by Cook's "office" -- a century-old mansion in Minneapolis that became known as "The Castle." Cook transformed it to look like a high-tech trading operation, and hosted seminars there for potential investors.

It was also home to wild parties that included prostitutes and strippers. "They would call up ladies of the evening, prostitutes ... and have them come in," said Dingman, who often had to clean up after the parties.

The SEC says Cook invested $12.8 million in a casino project in Panama and lost $4.8 million to online gambling. Cook also bought luxury cars including a souped up Audi S8, a BMW, two Lexus automobiles and a Rolls Royce.

At Rick's Cabaret and Sheiks in Minneapolis, Cook was well known. He "threw around money" and drank heavily, some of the dancers and management told CNNMoney.

There were warning signs. In March 1999, Cook was arrested for assaulting an escort at the Embassy Suites in Bloomington, Minn. He pleaded guilty to disorderly conduct.

In 2006, following complaints from an elderly client of Cook's, the National Futures Association fined Cook $25,000 and issued a report saying, "Cook's conduct is inconsistent with just and equitable principals of trade," calling him, "simply not credible."

Merri Jo Gillette, who heads the SEC's Midwest division in Chicago, says even with an enforcement staff of 100 overseeing a 9-state region, the agency is understaffed and is "light-years behind the industry" technologically due to lack of funding. "Nobody's gonna protect you from these folks except yourself," Gillette told CNNMoney. To top of page

Just the hot list include
Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.74%4.77%
15 yr fixed4.05%4.07%
5/1 ARM4.39%4.47%
30 yr refi4.75%4.78%
15 yr refi4.06%4.07%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 25,434.47 -272.21 -1.06%
Nasdaq 7,525.55 -117.16 -1.53%
S&P 500 2,779.87 -29.34 -1.04%
Treasuries 3.18 0.00 0.00%
Data as of 12:55pm ET
Company Price Change % Change
Advanced Micro Devic... 26.93 -0.37 -1.36%
General Electric Co 12.40 0.21 1.68%
Bank of America Corp... 28.46 -0.44 -1.52%
Micron Technology In... 41.74 -0.61 -1.43%
Apple Inc 217.99 -3.20 -1.45%
Data as of 12:40pm ET
Sponsors

Sections

Bankrupt toy retailer tells bankruptcy court it is looking at possibly reviving the Toys 'R' Us and Babies 'R' Us brands. More

Land O'Lakes CEO Beth Ford charts her career path, from her first job to becoming the first openly gay CEO at a Fortune 500 company in an interview with CNN's Boss Files. More