Churchgoers Invested Faith, Cash in Defunct Firm
The Rev. Jess Moody, pastor of the First Baptist Church of Van Nuys, said he invested in a company now under attack by federal authorities because a seemingly trustworthy man promised a 24% annual return.
The deal, he said, was proposed to him one day over lunch by Roy L. Comstock, a member of his church who sometimes taught Sunday school and once lectured on “The Bible and Business” on a television program of which Moody is host. Moody took his advice and invested $40,000, or about 40% of his net worth, through Comstock Financial Services, a now defunct Universal City-based investment firm that Comstock headed.
Now Moody and at least 600 other investors in 13 states are wondering if they will ever see any of the more than $9 million they invested through Comstock Financial and Preferred Financial Consultants, an Irving, Tex., company that federal authorities contend had close ties to Comstock.
2 Firms Sued in Texas
U.S. Securities and Exchange Commission officials in Texas this week sued the two firms, alleging fraud and the illegal sale of unregistered securities. The SEC said it can locate only $2.1 million of the investors’ money.
Investors and their attorneys over the past month have been told repeatedly that Comstock is about to return from Europe with the money needed to pay creditors. At a creditors’ meeting on Dec. 4 they were told that he had $5 million coming to him as a fee for arranging a loan in Italy.
“He was the kind of man you would trust with anything,” Moody said. “If he comes back with the money from Europe and pays everybody off, I’ll still believe in him. And, if he doesn’t, we’ll know he was a wolf in sheep’s clothing.”
Steve Webster, an attorney with the SEC in Texas, said Friday that there is evidence that Comstock Financial and Preferred Financial operated a “Ponzi” scheme. In such operations, money from new investors is used to pay old investors to make it appear that their money is earning a profit.
The California Department of Corporations and the Alaska Division of Banking and Securities had previously obtained court orders preventing Comstock from selling securities. On Oct. 30, the day after California obtained its order, Comstock Financial filed in Los Angeles for protection from creditors under Chapter 11 of the federal bankruptcy code. The company is now closed.
David Woo, who represents Comstock Financial, said the company’s problems were attributable to bad business judgments.
“If the SEC alleges a Ponzi scheme, then they will have to allege an intent to defraud,” Woo said. “I don’t think any of the individuals had any intent to defraud. They had some basic good intentions, perhaps misguided, and they made some awfully bad decisions.”
Woo said Comstock’s return from Europe has been delayed again and is expected next week. He said Comstock is there trying to collect debts owed the company.
“Mr. Comstock is in London working his buns off trying to generate funds to pay back investors and creditors of Comstock,” Woo said. “To me, that doesn’t sound like something that signifies a pyramid scheme or whatever the SEC is alleging.”
The SEC says that Comstock and Preferred told investors that money collected would be put into a bank in the Marshall Islands owned by Abraham Boldt, a Walnut businessman who, the SEC contends, was primarily responsible for devising the scheme. Boldt operated through a company called Blenheim Holdings Ltd., based on the isle of Jersey off Great Britain.
The company then told investors it would use the money to purchase certificates of deposit, which in turn were to be used to buy U.S. Treasury bills. Those Treasury bills would be placed with large banks, which would issue letters of credit backed by the bills. Those letters of credit were supposed to be sold for a profit or swapped in international markets, the SEC said.
In fact, the SEC says, Treasury bills were not purchased. Woo confirmed that a “substantial amount” of money was not used to buy Treasury bills.
Unknown to investors, the SEC said, at least $2.5 million was funneled into a Van Nuys oil service company owned by one of Comstock’s officers, David L. Wiksell, and another $1.7 million was given for investments to Boldt. Woo said that $500,000 of that $1.7 million has been returned and is in a trust account set up by a Los Angeles law firm.
Federal authorities say many investors were recruited by Comstock Financial and Preferred Financial through church functions. Advertisements were placed in the Christian Journal, a 26,000-circulation newspaper in Texas. In one instance, the SEC says, Boldt raised $1.1 million after preaching about his plan at the New Covenant Community Church in Little Rock, Ark.
Gary Wiessner, administrator for Faith Evangelical Church in Chatsworth, where Comstock was once a member, said a “substantial” number of the church’s members invested in Comstock Financial.
“In the church, many times you let down your guard because you think you are dealing with Christians,” Wiessner said. “Then something like this happens and people blame it on the church or on God. It’s too bad that the church suffers.”
Several investors said the representation that the money was to be invested in Treasury bills persuaded them to invest.
“All I knew is that it was a secure deal because of the government bonds,” said Lowell Maguire, a retired oil-field worker in Anchorage, Alaska. “I figured, shoot, if they were anywhere near honest at all, it was a foolproof thing.”
On Friend’s Advice
Maguire said he invested $58,500 on the advice of a friend’s relative with the promise that he would get a 26.25% annual return.
James Russell, a retired teacher of delinquent youths in Los Angeles, said he was persuaded by his son-in-law, who worked for Comstock Financial, to invest $44,000, or about 75% of his retirement savings.
“It would just wipe out my retirement and part of my life,” he said.
In some cases, investors were paid dividends, but only briefly. Woodland Hills executive C. L. Keedy III and his wife invested $50,000 in three Individual Retirement Accounts with Comstock and its so-called Management Investment Account, which was supposed to pay him 24% annually. They received two quarterly checks on time. When one didn’t arrive in October as scheduled, Keedy said, he knew something was wrong.
“I guess I remain optimistic, but how else can you look at something like this? I don’t want to write it off yet,” Keedy said.
