Dave Hester says he isn’t the type to fall for get-rich-quick schemes. But he admits with some embarrassment that in 2002, he did just that.
He put $10,000 into Capital Holdings, a now-defunct Denver company whose principals are being tried in Denver federal court on charges of fraud, conspiracy and money laundering.
Prosecutors say the four men and others collected $56 million from more than 1,000 investors between 1999 and 2003, promising monthly returns of up to 400 percent. They operated under a variety of business names including Capital Holdings, Smitty’s Investments and Reserve Foundation Trust.
Instead of investing the money in an international market of bank debt as promised, they spent much of it on themselves and to make “Ponzi payments” to other investors, the government alleges.
Among other purchases, they bought the Redstone Castle, a private mansion near Carbondale, for $6.3 million and spent at least $6.1 million for eight NASCAR race cars that raced under the name “Smitty’s Motorsports.” They sank $500,000 into a New York restaurant and $6 million into a Florida company that traded in “Euro dollars.”
Most investors received nothing in return for their investments until the government recently began distributing seized assets.
“It all looked legitimate. The presentation was so good you could not not believe it,” said Hester, 62, a retired municipal official from Dallas who now lives in Littleton.
“They said these big boys are making millions out there on the global market, and you, the little guy, can get in on it too,” he said.
Hester has sat through many of the 23 days of trial. The defendants rested their cases Wednesday. Closing arguments are scheduled for Monday. On trial are:
The men have pleaded not guilty, and their attorneys have said they were unaware of any fraudulent activity in the investment program. They claim they were entitled to withdrawals as commissions for bringing in more investors.
George Beros, 40, of Cleveland pleaded guilty in March to one count of securities fraud, and he testified during the trial. He faces three to five years in prison and financial penalties of up to $380,000. His background was in mortgages, but he was portrayed to investors as a trader.
Schmidt’s wife, Jannice McLain Schmidt, 69, pleaded guilty to securities fraud and was sentenced last year to nine years in prison.
Another defendant in the case, Peter A.W. Moss of England, has never been caught. Moss was portrayed to investors as a trader who had access to international debt markets.
A final alleged conspirator, Leon Harte of Greeley, died in June 2003 at age 48 of a heart attack. Harte is described by the government as the mastermind, with Norman Schmidt, of the alleged fraud.
Pitch grew more sophisticated
Prosecutors say Harte and Schmidt began attracting investors in early 1999, promising 25 percent to 100 percent monthly returns, according to court documents. Investors who recruited others would receive monthly commissions of 20 percent.
Over the next few years, the pitch grew more sophisticated. Schmidt and a growing network of salespeople recruited investors from around the country, flying out for meetings and handing out slick marketing materials.
They told potential investors that their money would be pooled in massive “nondepleting” bank accounts. It would be used as collateral to trade foreign bank debt at enormous profits on a clandestine global market. Monthly returns were guaranteed at 10 percent to an astounding 400 percent, depending on the amount invested.
Investors were told that the market was authorized by the U.S. Federal Reserve and that investors’ money was protected by both a private insurer and the federal government.
The defendants told investors that family members of President Bush and Vice President Dick Cheney, and other well-known people, had invested in the program.
They also enlisted the services of Gary N. Herbert, a former Colorado assistant attorney general, who wrote a letter stating that Capital Holdings’ investments were federally insured. Herbert, who died in May 2006, wasn’t charged, but he was a defendant in a related government civil case.
Less than half of $56 million recovered
The beginning of the end for Schmidt and his partners came during a meeting in Chicago in February 2003 with a man who said he wanted to invest $10 million. He was an undercover FBI agent, and the meeting was videotaped.
The government has recovered assets worth about $24 million of the $56 million it says the defendants collected. In addition to the race cars, agents seized trucks, trailers and tools from Commerce City-based Smitty’s Motorsports. Norman Schmidt’s son Scott had been one of the team’s drivers.
Some of the money has been returned. The Redstone Castle was auctioned off last year for $4 million to a buyer who planned to open it as a bed-and-breakfast.
Ronald Meyer of Fort Collins said the government has returned roughly half of the $50,000 he and his wife, Juanita, invested in the program.
Meyer says he doesn’t believe the government’s case and that he thinks the investment program was a good one.
“It was very risky, but it had tremendous potential. Can you imagine investing $24,000 and ending up with $24 million in a year?” he said. “I told myself and my wife when we did it, ‘If you have any thoughts about not being able to lose that kind of money, then don’t do it.”‘
Staff writer Greg Griffin can be reached at 303-954-1241 or ggriffin@denverpost.com.
