PRINTWhite picket fences and white collar crime
A different kind of crime in Columbia
April 3, 2008 | 12:00 a.m. CST
Over a span of six years, Columbia resident Mike Trom built a friendship with his neighbor, Nate Reuter. Neighborhood dinner parties brought the two together, and when Trom found out Reuter was a hunter, a bond instantly formed. The two took hunting trips, helped each other with fix-it projects and watched as their children played together. All they needed were white-picket fences and the scent of freshly baked apple pie to complete their American-dream lifestyle.
It was in these seemingly ordinary neighborly endeavors that Trom would listen as Reuter let tidbits of information slip about business deals he was working on. Reuter once told Trom he was making $400,000 a week — a figure that instantly caught Trom’s attention. It was then that Trom remembers thinking his neighbor was doing extremely well financially. But Reuter was modest, soft-spoken and secretly sly in his ways, according to Trom. One day Reuter told Trom that he, too, could be rich. All Trom needed to do was invest $175,000, and he’d become a millionaire in a matter of months.
“I had known he had done well and was doing extremely well,” Trom says. “He wasn’t a bragger. I just thought he was doing his buddy a big favor.”
The deal was simple: Choose an amount in the hundreds of thousands range, wire the funds, receive the investment back in 14 days, relax and prepare for the riches. Trom was promised $500,000 every month for 10 months after the return of his original $175,000.
At the end of the transaction, Trom was to acquire $5 million.
It wasn’t an easy decision, but Reuter had earned Trom’s trust over the years and was personally guaranteeing the validity of the endeavor. Even with his neighbor’s promises, Trom grappled with the idea. It wasn’t a quick sell. There was simply too much money on the line.
The one pressing question Trom posed to Reuter was, “Have you done it?” Reuter said “no,” but he’d done it for others. It wasn’t the answer Trom was looking for. After more contemplation and discussion with his wife, Trom took out a home-equity loan and wired $175,000 to a bank account in Texas. It was Nov. 4, 2004. Trom’s excitement was climbing. He made arrangements to set up trusts for family members and prepared for the incoming funds. More than three years later, Trom hasn’t collected a dime from the investment.
The Trade
Trom didn’t become a millionaire from the deal. Instead, he became a victim of white-collar crime, which is non-violent, wide-ranging and involves anything from a small telephone banking scam to a high-yield investment scheme with skilled and cunning salespeople at the forefront. Some white-collar cases are referred to as phishing scams, such as the Nigeria frauds that involve e-mails from princes with millions apparently up for grabs. The most sophisticated spam filter can’t prevent the occasional message from slipping through, and most can empathize with those who’ve had their interest piqued by these offerings. Even the most delete-happy e-mail users have read one of these cleverly worded scam attempts. And some get duped.
But just how many victims white-collar crime affects each year is difficult to discern. Department of Justice statistics focus on violent crimes and property crimes; white-collar is its own breed. It often goes unreported because of shame, embarrassment and the cost of prosecution in terms of both time and money. Even with that advantage on the side of the con artists, Columbia has been home to a recent increase in these types of investigations.
“There’s been a little epidemic of them in the last year or two,” says David Brown, Trom’s attorney in the investment case. “This typically doesn’t happen in Columbia.”
But it does. Cody Abram, the FBI’s interim supervisor of special agents in Jefferson City, says there’s been a rise in FBI agents in Columbia, which allows for more investigation into these kinds of cases. With more resources, there are more investigations and more cases for local attorneys to prosecute. “We are definitely busy here in mid-Missouri,” Abram says.
The stories of white-collar crimes and their victims are rarely short due to the high dollar amounts involved, the time it takes to investigate and ultimately the time it takes to prosecute. In that span, victims often move, change phone numbers and start to rebuild their lives while investigators pry into the paperwork and minds of the scam artists. Abram says it can take years for the FBI to investigate these cases. And that’s just the beginning. Trom’s case has been parked in the justice system for nearly three years.
The Trap
In a remote area off Grindstone Parkway sits a stark white building with tinted black windows. This was the headquarters for Vertical Group, which was formed in 2003. It was here that Trom, along with at least eight others who live in Missouri, Kansas and Tennessee, were defrauded out of hundreds of thousands of dollars, as stated in the civil suit complaint. Advertised as a full-services financial company, the Vertical Group launched a modern-day Ponzi scheme run by a small group of smooth-talking men.
In the 1920s, Charles Ponzi duped New Englanders into investing in his phony Securities Exchange Company and postage-stamp scheme. He sold international mail coupons and capitalized on currency differences. Early investors saw returns and spread the good word; later investors lost all of their money, and Ponzi was credited with one of the nation’s first documented pyramid — or Ponzi — schemes. It was this type of swindling, the plaintiffs argue, that took place right here in Columbia in the Vertical Group offices on the south side of town. What might have begun as one man’s grand plan grew to its high-yield status with the help of others who face fraud charges in their own separate cases. The most notable business partner was Reuter’s hire, Daryl Brown, who was arrested at gunpoint by the FBI outside his Columbia home. The FBI also closed the confines of Vertical Group after raiding it March 31, 2005. Three years later, occupancy in the white building has changed to a law group, but the ramifications of the actions committed by the previous tenants continue even today.
Another drive down Grindstone and onto Nifong Boulevard steers toward The Pines, the well-to-do subdivision where the Trom family lives. In the cul-de-sac at the end of Woodberry Court sits the former home of the business’s leading man. Reuter lived in this brick-faced home when he formed the company, brought in business partner Daryl Brown in January 2004 and began searching for investors.
Trom was a natural target, and arguably a good one at that. After Trom agreed, Reuter and his business partners sought out other potential investors. They often kept it personal, with a false sense of trust at the forefront of the decision-making process. Monte Childers worked with Reuter at Liberty Financial on the legitimate mortgage side of the company before it morphed into Vertical Group. Childers continued to work with mortgages and had no affiliation with the investment transactions of Reuter, Brown and their cohorts. But he was accustomed to hearing about the huge deals they were making with the other side of the company. “He taught me the business; he was my mentor,” Childers says. “I looked up to him.”
At the time, Reuter could do no wrong in Childers’ eyes. He was seemingly successful, and Childers respected him. “He’s got the Midas touch,” Childers says with a heavy dose of sarcasm. “Everything he touched turned to gold.”
When Childers saw the opportunity to get involved, he told his then-fiancee, now-wife, LaDonna Henderson. Going on trust, Henderson, of Sparta, Mo., wired $300,000 to an account in Florida on Feb. 1, 2005. She was promised $700,000 and the return of her $300,000 investment. Instead, time passed, and with pressure, she received a measly $7,272. To this day, that’s all she’s seen.
“I’ve risked my children’s future,” Henderson says. “I’ve risked their college funds. I’ve risked the ability to take care of them and provide them a home. I risked it. I put that trust in Nate, and I lost.”
The Loss
The consequences of white-collar crimes are severe for the victims. Both Trom and Henderson admit that greed was a factor in their decisions to invest, but trust was a much stronger one. Both were relying on trust that had been built and seemingly solidified over several years. Obviously, the bonds weren’t as tight as they thought.
“I know it makes me look stupid because I’ve gotten screwed basically, and I’m ashamed of it to a point,” Trom says. “But I did nothing wrong other than trust somebody. Should I feel dumb for doing that? Yeah, I should feel dumb. But I sure as hell shouldn’t be embarrassed.”
Emotional issues aside, Trom, who works as a district salesman for a trucking company, has recovered financially from the hit he took, but other white-collar crime victims often aren’t as fortunate.
“Generally speaking, we have victims who lose their jobs, lose their credit, lose their retirement,” Abram says. “They’re embarrassed. In white-collar crimes, it’s very typical for a victim to be a very distinguished person within the community.”
Humiliation can keep victims quiet, which results in fewer investigations and allows scams to continue and ensnare other unsuspecting individuals. Even in the Vertical Group case, David Brown believes there are victims who still haven’t admitted they were bilked. “I think it takes a lot of courage to come forward and admit that you were the victim,” he says.
Most of the plaintiffs in the Vertical Group suit were seeking some kind of business loan, according to David Brown. They weren’t out to win the lottery or make millions initially but rather were looking for ways to finance business endeavors. Many of the victims were pulled into the scheme through people they knew, which is standard for Ponzi schemes. Word of mouth can be the biggest advantage at the beginning and the biggest setback when it fails.
If the potential investor didn’t know someone personally, they were often pulled in through Vertical Group’s Web site. The name Vertical Group resembled that of a legitimate financial institution in St. Louis, Vertical Access, and to advance its credibility, Vertical Group’s Web site purportedly advertised an association with the St. Louis business.
When potential investors showed interest, they’d receive the same selling technique used to trap Trom: Reuter sat in his living room and personally guaranteed the deal when suspicions ran high. And Daryl Brown would advance any combination of his fake qualifications — a business degree from MU, access to a multi-million dollar trust or legitimacy earned by playing pro-football for the Kansas City Chiefs. The odds that the salesmen of the scheme would maneuver their way into investors’ bank accounts were high.
The Jail Cell
About 70 miles southwest of Columbia, Daryl Brown now sits in a holding cell and waits for his May trial date. Sylvester Mitchell, another man charged in the scheme, accepted a plea bargain and is prepared to testify against Brown. Brown’s attempts to be released on bail have been denied. He’s been regarded as a flight risk and likely doesn’t have bail money that isn’t tainted by his alleged wrongdoings.
Reuter has since moved from Trom’s block but still resides in Columbia. He coaches basketball to 12-year-old boys, according to the Rising Stars Sports Association Web site. Reuter has never been indicted or criminally charged in connection with the investment scheme. His attorney, Jim Daniels, says Reuter lost $170,000 in the scam as well.
“From his perspective, he’s no more blameworthy than any other plaintiff,” Daniels says, adding later, “He didn’t know this was going on, or why would he have put his money in it?”
Trom, Henderson and David Brown remain unconvinced. Reuter told Trom he hadn’t invested in the deal, and Reuter was the CEO of Vertical Group. The civil complaint reads that Reuter was not only involved in the scheme but also was the mastermind of the whole ordeal.
“I wouldn’t call him a white-collar criminal, that’s for sure, because he hasn’t been indicted, prosecuted or convicted,” Daniels says.
With the multi-million dollar civil suit pending, Reuter declared bankruptcy — a move David Brown calls strategic — and has shifted the high-yield investment case into bankruptcy court. Brown hopes to see the years of legal dealings resolved within the next six months.
Daniels says Reuter is willing to settle the matter in bankruptcy court to avoid more time spent in court and more money spent on attorneys’ fees. This type of settlement, however, likely wouldn’t pay off the investments of the nine plaintiffs.
The victims of the case have passed the fury stage but still hope to see their original investments returned, ideally with interest. In the meantime, Trom will bite his lip and stare every time he runs into Reuter on the basketball court, as he did just a couple of weeks ago.
“You just get past it,” Trom says. “What are you going to do? Club him over the head with a baseball bat? I’d be the one in jail, and he’d walk away and probably sue us and get money in return. That’s the way the deal works, unfortunately.” V
