Southland Financiers Quoted Bible, Engaged in Scams, SEC Claims
In the 41st chapter of Genesis, the Pharaoh tells Joseph of a dream in which he sees seven sleek, fat cows devoured by seven thin, gaunt ones. The dream, Joseph tells the Pharaoh, is God’s warning to Egypt that it will suffer seven years of famine after enjoying seven years of plenty.
The story of Joseph and the Pharaoh is one that Abraham Boldt told one fall weekend in 1984 from the pulpit of the New Covenant Community Church in Little Rock, Ark. But instead of warning of famine, he talked of difficult financial times ahead. And instead of preaching of the need to store grain, he spoke of the need to save money.
A few weeks later, Boldt offered to some church members an investment plan that promised a 36% annual return on their money. At least 20 members and their friends--including the county sheriff in Little Rock--gave him more than $1.7 million of their personal savings, according to Securities and Exchange Commission lawyers and federal court records.
Accused of Scam
The SEC maintains that Boldt isn’t the investment wizard the Arkansas people took him to be but rather a mastermind behind international investment scams that raised at least $10 million from more than 600 investors in 20 or more states, including at least 500 people in California.
In a civil suit filed in a Dallas federal court, the SEC charges that Boldt also had partners in the alleged fraud: Roy L. Comstock, the chairman of Universal City-based Comstock Financial Services; David L. Wiksell, a Comstock Financial vice president, and three Texas businessmen.
Many of the investors, the SEC maintains, were fundamentalist Christians who said they believed that they were dealing with men blessed by God with extraordinary business savvy. Besides the members of the Arkansas church, they included members of two San Fernando Valley churches, the First Baptist Church of Van Nuys and Faith Evangelical Church in Chatsworth.
One of the investors was the Rev. Jess Moody, pastor of the Van Nuys church and the host of a local religious television program. Moody said he invested $40,000 of his personal savings after being persuaded by Comstock, a Sunday school teacher and member of his church.
“I’ve run into a lot of little con artists who come in and try to give us the double shuffle. I’ve been in the ministry for 43 years and have been taken before, but not like this. It was stunning,” Moody said.
One Arkansas man told investigators he invested $800,000 with Boldt, partly to help raise money to build a new church for the New Covenant congregation. Court records also show that at least eight people in California and Texas invested $100,000 with Comstock Financial.
Government investigators and lawyers representing Boldt, Comstock and Wiksell say they do not know where the three are. The lawyers deny the SEC charges against the three, however, and the attorneys for Comstock and his firm maintain that their clients were misled by Boldt.
Within the last few months, state and federal authorities have traced a trail of money that runs through at least half a dozen states, a tiny South Pacific island and two European countries. The money, the SEC charges in court papers, was invested through Boldt, Comstock Financial and Preferred Financial Consultants, a firm based in the Dallas area that is allegedly tied to Comstock Financial.
Company documents, interviews with former employees and investigators and information contained in more than 1,000 pages of court transcripts in Dallas depict an operation that funneled millions of dollars of investors’ money into a phony “suitcase bank” in the Marshall Islands as part of a classic Ponzi scheme--in which the initial investors were paid off with money raised from new investors. The records indicate that other money was used to finance a small oil firm run out of the Van Nuys home of a man whose financial records consisted of nothing more than a few notes.
Luxurious Living
What also emerges is a portrait of a group of avowedly religious men with ordinary business careers who sought to lead the fast-paced lives of international financiers.
Some executives with Comstock Financial, based in a $16,000-a-month penthouse suite overlooking the eastern San Fernando Valley, used company-leased limousines to shop in Beverly Hills, pick up visitors at airports and, once, to chauffeur party guests to the front door of a home from the nearby street where their cars were parked.
Comstock, who later acknowledged to investigators that Comstock Financial was unprofitable, wore a diamond-laden Rolex watch worth more than $20,000, collected Spanish porcelain sculptures and traveled regularly on business to Europe and Asia. One company document sent to stockholders listed Comstock’s salary at $150,000 a year, although a Comstock Financial attorney insists that Comstock never received that much as chairman of the firm.
Although Comstock Financial touted the expertise of its five top executives, a couple had run into legal or financial trouble.
The firm’s president filed for personal bankruptcy a year before he joined the company in 1983 after his landlord got a court order to evict him for failure to pay rent. Comstock Financial’s vice president of investments, described in the firm’s brochures as having 20 years of investment experience, once pleaded guilty to violating state corporation laws after authorities accused him of selling unregistered stock.
In addition, a consultant hired by the firm to recover money for investors had previously been convicted by a federal jury of conspiracy to violate federal securities laws.
Plan Was Confusing
Investors were told their money would be used to buy government securities that would be deposited with one of the nation’s largest banks in New York and earn huge rates of return. The plan, however, was so confusing that even those most familiar with the case say they are baffled over how it was supposed to work.
“It was like a chameleon. It kept changing,” said Dallas attorney Jay Johnson, a former SEC lawyer who represents the three Texas defendants.
SEC investigators said less than $3 million of the $10 million raised in the investment scheme has been recovered. Comstock Financial--which, federal authorities said, took in about $5.5 million--is scheduled to be liquidated under Chapter 7 of the U.S. Bankruptcy Code. Only about $650,000 of that $5.5 million can be accounted for, according to attorneys representing investors, meaning that Comstock Financial investors can expect to receive less than 12 cents on the dollar.
The defendants in the SEC suit have their supporters. For example, the Rev. W. A. Young, a pastor at the New Convenant church in Little Rock who invested money with Boldt, said he believes that Boldt is under “spiritual attack” by the SEC. Young would not disclose his potential loss.
Young, maintaining that Boldt will communicate religious principles through his financial dealings, said that “God has blessed him in the area of finance to be able to understand the intricacies of those principles.”
Little is known of Boldt’s personal history, although he has told people that he is a native of Vancouver, Canada, and a former missionary in Japan. He spoke frequently to chapters of the Full Gospel Business Men’s Fellowship International, an organization for Christian businessmen.
Comstock, also described by friends and former employees as a religious man active in Christian business groups, founded Comstock Financial as an insurance business in 1983. One of his former secretaries said he sometimes led Bible study sessions during sales meetings in the early days of the company.
Book Told Life Story
Comstock’s life story was the subject of a 1979 book called “The Down-Way Up--The Roy Comstock Story,” published by Tyndale House Publishers, a Wheaton, Ill.-based Christian publishing firm. The book describes Comstock as a former teen-age car thief who found God and became a successful executive who was once urged to run for Congress.
Impressing people was important to Comstock, according to acquaintances and several former employees of the company. They cited a party he threw one Sunday afternoon last spring for which he invited nearly 200 employees and friends to the Granada Hills home he leased--a $685,000 house on an acre of land with seven bathrooms, a spa, pool, indoor racquetball court and five bedrooms.
Guests were chauffeured in limousines from the street to the front door, champagne flowed from a fountain and Comstock showed off his collection of Llardo porcelains from Spain, one of which, he told guests, cost $26,000.
According to a sworn statement that Comstock gave investigators, Boldt proposed to him a risk-free investment that would return 18% to 48% a year. Comstock, in a statement on file in a Dallas federal court, said the plan involved buying certificates of deposit from Boldt’s Gibralter International Bank, chartered in Majuro in the Republic of the Marshall Islands.
Then, Comstock said in federal court filings, Boldt was to use the money to buy Treasury bonds that would be pledged to a large bank whose name Boldt refused to divulge. Comstock told investigators that Boldt said what happened after that was “proprietary information.”
John W. Shockey, a special assistant to the U.S. Comptroller of the Currency, has investigated Boldt’s Gibralter International bank. He described it as “nothing more than a piece of paper” with no capitalization or assets to back it up.
“There isn’t even a front door,” Shockey said. “It’s just a post office box.”
Shockey said Gibralter International’s banking license was suspended one year ago by the Marshall Islands government--along with the licenses of about 100 other banks chartered there--as part of a crackdown following complaints by U.S. authorities that the banks were being used to support investment schemes.
Boldt also is linked in court papers to Elmas Trading, a Nevada investment firm that was forced into receivership last May by a federal judge after the SEC accused it of bilking investors out of more than $70 million over three years.
Elmas’ court-appointed receiver, Richard Shaffer, who described Boldt in an interview as one of Elmas’ top salesman, is suing him for fraud, negligence and breach of fiduciary duty. Shaffer states in his suit that Boldt violated the federal Racketeer Influenced and Corrupt Organizations Act, an allegation sometimes used in civil fraud suits because it enables plaintiffs to sue for triple the amount of their actual damages.
$2 Million in Oil Firm
Stephen Webster, an SEC attorney in Fort Worth, said the Elmas scheme is similar to the one the agency alleges that Boldt conducted with Comstock Financial and Preferred Financial. Among the similarities are the use of a Marshall Islands bank, promises of 36% annual returns and solicitation of fundamentalist Christians.
In addition to investing clients’ money through Boldt, the SEC alleges, Comstock Financial placed at least $2 million of investors’ funds in an oil firm run by Wiksell, its vice president of finance, out of his Van Nuys home.
Comstock told investigators that Wiksell promised him the same kind of lucrative returns that Boldt did. Wiksell returned about $1 million to the Comstock Financial investors, SEC attorneys said, although it was money that had been raised from other investors in Texas.
Wiksell said in a deposition that his company had 50 wells in California but added that the firm had not shown a profit or filed income tax returns since it was formed in 1982. Oil operators are required to register their active wells with the state, but California Division of Oil and Gas officials in Sacramento say their records show a much smaller operation of only eight wells that produce about 30 barrels a day in an old, declining field in Kern County.
One Comstock Financial brochure given to investors described Wiksell as a man who has been “in the investment field for over 20 years,” someone who enjoys close banking contacts and who is skilled at putting together successful investments. A deposition taken from Wiksell by the SEC portrays a less-glamorous past that included selling encyclopedias, vacuum cleaners and water softeners door-to-door for five years in the 1960s before becoming a stockbroker and later a real estate agent.
Wiksell told SEC investigators in a deposition that he pleaded no contest in the early 1970s to misdemeanor charges of violating California corporate law for his alleged part in distributing unregistered shares in the Bubble Up soft-drink company.
Wiksell, who contended that he was innocent of the charges but pleaded no contest anyway, told investigators he was fined $1,200 and spent two weeks “raking leaves” in a work detail program.
For more than three months, Comstock Financial lawyers have told investors that efforts are being made to raise money to pay them back. David Woo, one of the lawyers, said those efforts are continuing.
Boldt, in fact, returned $500,000 last fall to Comstock Financial, court records show. Company attorneys say he has told them for nearly six months that he is on the verge of returning another $1.2 million that he received.
“I call it the international ‘check is in the mail’ excuse,” said Denis White, another Comstock Financial attorney.
Comstock Financial’s lawyers say the SEC won’t be able to prove any intent to defraud on the part of the firm’s executives. They said that Roy Comstock made a number of bad business judgments but insist that he never participated in a Ponzi scheme. The problem, they said, was that Comstock was naive and may have been in over his head when evaluating Boldt’s investment plans.
“I would say Roy really knows the insurance business and that he’s an excellent salesman,” White said. “But I don’t think he understands enough of (the) intricacies Boldt was talking about to judge if it would work.”
‘Very, Very Persuasive’
But U.S. District Judge A. Joe Fish in Dallas, in granting the SEC a preliminary injunction last month, disagreed.
In a court order, he said that the evidence “clearly indicates the roles of defendants Comstock and Boldt in the scheme alleged in the SEC’s complaint.”
Moody, Comstock’s pastor for about a year, described Comstock as “very, very persuasive and very, very charming.”
Despite having lost money, Moody said, he and other members of the church regularly pray for Comstock.
“The only one in real trouble is Roy, not the people who lost their money,” Moody said. “He’s done serious damage to his own soul, and I pray for him every day that he’ll come back, walk down the aisle and repent.”
