Many Churchgoers Put Savings in O.C. Funds
More than 5,200 clients across the country trusted James Paul Lewis Jr. with their life savings, pouring hundreds of millions of dollars into his Orange County investment funds on the word of a few friends.
Many heard about Financial Advisory Consultants through fellow churchgoers. Lewis told clients that investors included professional athletes and at least one movie actor.
They marveled at Lewis’ consistent reports, over two decades, of annual returns nearing 40% from one fund and 20% from another. Periodically they saw fellow investors cash in as much as $250,000.
It all came crashing down last week when a federal judge froze the company’s assets and the FBI carted away documents and computers from Lewis’ three-room office suite in Lake Forest.
No charges have been filed, but the FBI alleges that Lewis was operating a Ponzi scheme, in which early investors are paid with money from later investors. The Securities and Exchange Commission says his accounts totaled $813 million.
“It’s a house of cards,” said Barry Minkow, himself once imprisoned for seven years for defrauding investors through his ZZZZ Best carpet-cleaning company. “It will go down as the longest-running Ponzi scheme in history, and the mutual fund that didn’t exist.”
Minkow now works as an investigator for the Fraud Discovery Institute in San Diego. He provided state and federal regulators with documents questioning Lewis’ legitimacy.
The FBI’s search warrant and the SEC’s civil complaint listed the warning signs: Lewis, 57, was investing tens of millions of dollars for clients and claiming extraordinary financial returns despite being neither licensed nor regulated, as required by law.
Moreover, his firm never supplied clients with details on how their money was being invested. Since June, Lewis has been delaying withdrawal requests with the excuse that millions of dollars in investments were frozen by the Department of Homeland Security. There was no such freeze, investigators say.
Investors said that, guided by trust, they missed the warning signs.
“He’s a family man, he’s a religious man, he goes to church every Sunday. He sent us pictures of his grandchildren,” said Tom Parsa of Irvine. “This is devastating, devastating news.”
Parsa was vacationing in Mexico when he learned that the more than $3 million invested by his family was in jeopardy.
Kevin Haugh, 47, of Woodbridge, Va., said investors thought of Lewis as “a poor man’s Warren Buffett.”
He sent Lewis $30,000 three weeks ago to add to the roughly $2 million three generations of his family thought they had squirreled away. “I was planning on retiring in a few years. That obviously isn’t going to happen.”
Lewis has not responded to telephone messages left by Associated Press over a period of three weeks, nor to letters sent to him by registered mail and overnight delivery. His attorney, Douglas J. Pettibone, said Lewis wouldn’t comment but intended to fight the allegations.
At the same time he began delaying withdrawals last summer, Lewis raised the minimum investment to $100,000 from $25,000 for his growth fund and to $25,000 from $10,000 for his income fund.
Though Lewis blocked most withdrawals from his funds beginning in June, he took $3 million out of his own account on July 1, SEC court filings show.
He “continues to live well,” his administrative assistant, Mary Lopez, told federal investigators last week.
Lopez, who has worked for Lewis since 1997, told investigators that Lewis had a home in Laguna Niguel, a vacation home in Palm Desert and a membership in the Ridge Country Club, where the initiation fee goes for $95,000. He owns at least one Mercedes-Benz and is awaiting delivery of another, Lopez said in a sworn statement to the SEC.
The firm operated with no more than three employees, and Lewis himself rarely came to the office after the first year she worked there, Lopez said. When Lewis did show up, he spent his time trading on his computer. Lopez said Lewis told her he was trading Swiss francs on his own time and account.
The only funds that flowed into the firm were from investors, Lopez said. In six years, she saw no business activity or any indication of the lucrative projects Lewis wrote about in his monthly newsletters. Clients accepted the newsletters and Lewis’ monthly statements as the only evidence they needed that investments were soaring in good times and bad.
When one client demanded more information, Lewis told him to take his business elsewhere, authorities said.
Clients say Lewis is a member of the Church of Jesus Christ of Latter-day Saints, or Mormons, and his first clients came from that community. But over the years, his investors came from churches of many other denominations as well.
Most investors said they accepted the word of their fellow churchgoers, and were reassured when Lewis periodically paid out as much as $250,000 to mostly wealthy investors who rarely withdrew the bulk of their contributions.
One San Diego investor, who asked to remain anonymous, said he had invested about $500,000 -- most of his net worth -- but had been slowly withdrawing several hundred thousand dollars to care for his 4-year-old autistic son.
The investor thought he had built up a big nest egg. With the firm’s collapse, “I’ll have to pretty much sell my house, sell everything,” he said. “My life’s pretty much devastated.”
