Missouri’s mini Madoff may have struck again
Prisons serve an important function. They keep the bad guys from messing with the rest of us.
The notion that prison bars act as barricades seems obvious enough. On occasion, though, prosecutors miss an opportunity to quarantine a real scoundrel.
Last month, U.S. marshals rounded up Ron Shepard. He was taken into custody on suspicion that he had violated the terms of his probation. Shepard is on probation after pleading guilty to two federal fraud charges in 2008.
Shepard’s scam involved Pell grants, of all things. Working out of Raytown and, later, Lee’s Summit, Shepard ran a fee-based, college financial-planning service. He got into trouble because his method of making college affordable involved the preparation of false tax returns.
The plea agreement allowed Shepard to avoid prison time. He received five years’ probation.
But it appears that Shepard required a more intensive form of rehabilitation than supervised release.
The Missouri secretary of state’s office now alleges that Shepard was pulling a Madoff at the time that he was being prosecuted by the U.S. attorney.
On May 24, Secretary of State Robin Carnahan accused Shepard of running a Ponzi scheme. The state says Shepard took more than $3.5 million from at least 40 investors, most of whom live in the Kansas City area.
Carnahan issued a
cease-and-desist order, which caught the attention of the U.S. government. On June 9, a warrant for his arrest was issued. Shepard, who is in his early 70s, is now being held at a county jail as his probation is reconsidered.
The Ponzi-scheme allegation calls into question the way Shepard was handled when his Pell-grant scam first came to light. Federal authorities had a con man in their grasp. They let him off when he promised to stay out of trouble.
The record suggests that Shepard was already a serial troublemaker. His insurance license was revoked in 1994 for fraud and deception.
In 2004, Carnahan’s predecessor, Matt Blunt, went after Shepard and Jerry McGuire, his brother-in-law, for selling unregulated securities. The men raised $1.4 million from investors, promising low risk and high returns. Yet state officials, when they looked closely, found no indication that the investors’ money was being put to use in a way that might yield a profit.
Shepard was running the financial-aid scam at the same time that he and McGuire were sharing investment opportunities with, as they put it, “a few select clients.” Doing business as a company he called National College Funding, Shepard prepared hundreds of applications for federal student aid. He found clients by holding free seminars at various locations throughout the city, including schools and churches.
His clients received $447,458 in Pell grants from 1999 through 2003. His methods, however, were illegal.
Shepard’s strategies for maximizing financial-aid packages included misstating income. The federal indictment charged him with 12 counts of tax-preparer fraud and five counts of Pell-grant fraud.
In his plea agreement, Shepard admitted to ginning up business losses that reduced an Independence couple’s income from $56,356 to $42,545. Central Missouri State University (now the University of Central Missouri) awarded the couple’s daughter a $3,050 Pell grant based on the bogus adjusted gross income.
Shepard signed the plea agreement on October 3, 2008. A few months later, U.S. District Judge Nanette Laughrey imposed the sentence. In addition to the probationary period, Shepard was ordered to pay a $200 fine and $6,500 in restitution to the U.S. Department of Education.
The sentence suggests that prosecutors and the judge thought that Shepard did not pose a threat, that he was simply a man whose affairs had gotten a bit off the track. (A spokesman from the U.S. Attorney’s Office in Kansas City said, “[W]e don’t have any comment.”) The secretary of state’s recent allegations tell a darker story.
In its cease-and-desist order, the state describes four unnamed Missouri residents whom Shepard approached between 2004 and 2006. Shepard convinced them to invest in companies that he controlled. One business purportedly bought and sold real estate. Another, Tow-Safe, marketed a trailer-hitch safety device that Wal-Mart, Bass Pro Shops and Cabela’s supposedly wanted to carry.
Once again, Shepard was promising 15 percent returns. In some instances, investors liquidated IRAs, incurring withdrawal penalties, in order to be part of Shepard’s low-risk, high-reward enterprise.
In 2008, a partnership of Shepard, his wife and another individual applied for a patent for the trailer-hitch safety device. The state, however, denies that major retailers were lining up to stock the item. The state also alleges that Shepard lied to investors when he described the nature of his real-estate activity.
Instead, Shepard appears to have used his investors’ money to provide himself and his relatives with a comfortable existence. The state identified $938,633 that Shepard kept and allegedly distributed to family and spent on cars, jewelry and furs.
Not all white-collar crime is created equal. Many defendants do not set out to break the law. Instead, as Peter J. Henning, a law professor at Wayne State University and a white-collar-crime expert, explains, fraud becomes a means of avoiding the consequences of bad decision making. “What can start out as a small lie can burgeon into a huge Ponzi scheme, as Mr. Madoff demonstrated,” Henning wrote on his blog, White Collar Watch, in April.
One does not get the sense that Shepard acted out of panic or desperation, however. The indictment in the Pell-grant case describes a business model based on fraud. His clients were wrong to go along with the charade, of course. The small size of their phony tax shelters, however, indicate that he was not dealing with the most sophisticated of consumers. Moreover, Shepard made efforts to create the patina of legitimacy, incorporating National College Foundation as a nonprofit.
A federal indictment would scare the pants off most conscionable people. But a civil suit alleges that Shepard continued to work his Ponzi scheme while facing charges in connection with the Pell-grant scam.
Kevin Vande Kamp and his wife, Valerie, invested $634,000 in Shepard’s companies in 2008, after selling the assets of a Lee’s Summit disposal business. The Vande Kamps expected to get back their money (plus interest) in 2009. But when it was time to collect, Shepard said the funds were tied up in a bank dispute, according to a lawsuit that the Vande Kamps filed last year. A judge ordered Shepard to pay up.
Shepard appeared in U.S. District Court on June 16 for a preliminary hearing on the revocation of his probation. Slump-shouldered and balding, he wore orange prison togs with a “St. Clair County Jail” stencil on the back of his top. He put on a pair of eyeglasses as he sat beside his attorney, Robert Calbi, and waited for the magistrate to enter the courtroom.
Shepard had company. Three men in their 40s or early 50s sat together on a bench reserved for the public. Shepard nodded in their direction at one point in the proceeding. One of the men acknowledged the glance by waving two fingers.
Shepard used earphones to better hear the magistrate judge, John Maughmer, read him his rights. Maughmer asked Shepard if he could read, write and understand English.
“I sure can,” Shepard said.
“I figured you could,” Maughmer said.
Calbi wanted to argue that Shepard should be allowed to post bond. Maughmer told Calbi to bring that up with Judge Laughrey, who ordered Shepard’s arrest.
The three men who sat in the back of the courtoom huddled with Calbi after the hearing adjourned. As they prepared to leave the courthouse, I asked if any of them wanted to make a comment. I got a grunt out of one of them, but that was it.