Religious Investors: A $9-Million Loss? : SEC Sues Universal City and Texas Firms Over Missing Funds

Jess Moody, pastor of the First Baptist Church of Van Nuys, said he invested in a company now accused of fraud 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 church member who sometimes taught Sunday school and once lectured on “The Bible and Business” on a TV program that Moody hosts. Moody took his advice and invested $40,000, or about 40% of his net worth, through Comstock Financial Services, a defunct Universal City-based investment firm that Comstock headed.

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 an Irving, Tex., company called Preferred Financial Consultants, which federal authorities contend had close ties to Comstock Financial.

U.S. Securities and Exchange Commission officials in Texas last week filed a civil suit against the two firms, alleging fraud and the illegal sale of unregistered securities. They said they can locate only $2.1 million.

Investors, many of them solicited through their churches or other religious groups, have been repeatedly told over the last month that Comstock is about to return from Europe with the money needed to pay creditors. At a creditors’ meeting 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 SEC attorney in Texas, said Friday that there is evidence that Comstock Financial and Preferred Financial operated a so-called Ponzi scheme. In those operations, money from new investors is used to pay old investors to make them believe their money is earning a profit.

The California Department of Corporations and the Alaska Division of Banking and Securities had obtained court orders preventing Comstock Financial and its officers 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 shut down.

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 he 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.”

Blenheim Holdings Named

The SEC said Comstock Financial and Preferred Financial told investors that money collected would be put into a bank in the Marshall Islands owned by Abraham Boldt, a Walnut, Calif., businessman who the SEC contends was primarily responsible for designing the scheme. Boldt operated through a company called Blenheim Holdings Ltd., based on the island of Jersey off Great Britain. The companies then told investors the money would be used to buy certificates of deposit, which in turn were to be used to buy U.S. Treasury bills.

In fact, the SEC said, 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 a Comstock officer, David L. Wiksell, while another $1.7 million was given to Boldt for investment. Woo said $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 religious newspaper in Texas. In one instance, the SEC said, 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 also once a member, said a “substantial” number of the church’s members invested in Comstock Financial.

‘Dealing With Christians’

“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 being told 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.”

Maguire said he invested $58,500 on the advice of a friend’s relative on the promise that he would get a 26.25% annual return on his money.

Convinced by Son-in-Law

James Russell, a retired teacher of delinquent youths in Los Angeles, said he was convinced 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.