Big Spending Led to Suspicion of Scheme Targeting Ministries

The $2.3-million, 103-foot powerboat Gregory Setser bought in June was just a starter. The self-styled Christian investor told his yacht broker that he was prepared to drop $12 million for a 140-footer with a helipad and $30 million to restore a 300-foot yacht once owned by the shah of Iran.

So when the broker, Lee Racicot, visited Setser’s office near Ontario International Airport on Nov. 19, he expected to walk out with two solid offers.

But as he stepped out of the elevator on the eighth floor, Racicot saw that IPIC International Inc.’s front door, normally bolted, was propped ajar with a book. Beyond it, the usually immaculate offices were strewn with papers, and a swarm of strangers fell silent as Racicot asked, “Who are you?”

“We control the company now,” said a man in a black suit. “We’re FBI.”

The feds were bringing down the curtain on what prosecutors and the Securities and Exchange Commission allege was an elaborate three-year scheme that fleeced evangelical Christians out of $160 million.

Using endorsements from Ralph E. Wilkerson, the former pastor of Melodyland Christian Center in Anaheim, and other prominent evangelists to lure victims, Setser touted can’t-miss investments to ministries across the nation, according to authorities who arrested him and three members of his family Nov. 18.

“It appeared that Ralph Wilkerson was the lineman who opened up the hole that Greg Setser ran through,” said David Middlebrook, an attorney with many evangelist clients who signed a statement, attached to an SEC lawsuit, describing his dealings with Setser. “I can’t speak to what he knew or thought. I certainly would hope to believe he wouldn’t have done it knowingly.”

Wilkerson, 76, didn’t return repeated calls.

IPIC is an abbreviation for International Product Investment Corp. In criminal charges and a civil lawsuit, federal prosecutors and regulators say Setser told his “partners” that God had blessed him with the ability to purchase or manufacture various goods -- paint, metal garden decor, toys, bottled water, real estate, condoms -- at low prices around the world.

The authorities say he claimed to have guaranteed buyers, often retailers like Costco Wholesale Inc., Mikasa Inc. and Pier 1 Imports Inc., already lined up, and wanted to share his good fortune with other Christians. The burly 6-footer told investors to expect returns of 25% to 50% in three to six months and bragged that only one deal in 10,000 failed, according to an indictment handed up by a federal grand jury in Dallas.

In reality, it was all a scam, the government says.

Allegations of Deceit

Setser, who claimed to be a former minister, had pleaded no contest to theft by check in Texas state court in 1993 and filed for bankruptcy protection later that year. The court dismissed his Chapter 13 petition four years later after he failed to make payments as agreed, according to the SEC. When he arrived in California touting IPIC three years ago, the agency says, he failed to mention those details about his past to investors.

Setser and his wife, Cynthia, both 47-year-old Rancho Cucamonga residents, are in jail pending a bail hearing set for Friday in federal court in Riverside. Their daughter-in-law, Charnelle Setser, 21, and Gregory Setser’s sister, Deborah Setser, 38, both also from Rancho Cucamonga, were arrested on the same securities fraud and money laundering charges; they have been released on bail. A fifth defendant, T. Thomas Henschke, was arrested in Florida.

Setser’s attorney, Philip K. Cohen of Los Angeles, declined to comment on details of the case beyond saying he was in discussions with federal prosecutors and SEC attorneys. Lawyers for the others didn’t return phone calls.

Setser cut a noticeable swath as he promoted his investments, federal authorities said, calling them “joint ventures” to avoid having to register them as securities.

Employees of the building where IPIC rented space said Setser hired burly guards to protect himself and conducted “bug sweeps” of the offices for fear he was being secretly recorded. The building’s manager, Michael Bates, said Setser sometimes arrived at work in a limousine followed by a “chase car” carrying his guards. IPIC officials were so worried about security that “we had to re-key the door to their suite,” said Bates, who opened the door of the offices for federal investigators when they arrived.

IPIC supposedly had $700 million in annual sales, but a local operating division called Iron Garden Inc. appears unremarkable except for its location in a 100-year-old winery complex just north of the Ontario airport. Visible through the rusting metal windows of the small brick building recently were bowls of dusty-looking plastic fruit, a few painted walking sticks and several model sailing ships.

Across a lane, a small yard is filled with rusty metal gates, trellises, shelves and benches, apparently part of the garden decorations IPIC said it imported from North Africa.

A few miles away at a mobile home park in Montclair, Gregory Setser’s mother, Eva Setser Smith, lay flat on her back recently, looking ill. Smith, who the SEC contends received at least $300,000 in fraudulent gains from IPIC, said her son’s arrest “has to have been a mistake,” adding that “his life was finally starting to come together.”

“None of what they’re saying is true,” she said, declining further comment.

Until the morning when federal agents arrived with guns drawn, the Setsers had appeared friendly and unremarkable to neighbors -- except for the new vehicles that appeared in their driveway every few months.

“We thought, ‘Wow! They must be pretty successful,’ ” said Patrick Lopez, a 23-year-old college student who lives across the cul-de-sac from the couple’s home in Rancho Cucamonga.

The two-story, dull pink tract house has newly installed granite kitchen countertops and a small pool and spa that were filled with debris one recent afternoon. Paint was peeling on a fence, an old tire sat in a concrete side yard and boxes of cereal and Christmas decorations had been left on tables at the back of the home.

If the Setsers led a quiet suburban home life, they apparently made up for it at work and play.

The SEC says Setser spent $1 million on a helicopter and $2.3 million on the yacht Shana. He arrived by chopper for one meeting with Racicot, the San Diego-based “mega-yacht” specialist for Fraser Yachts recalled.

With a three-member crew still aboard, the Shana is docked in Mexico, where the Setsers took delivery of it so they wouldn’t have to pay California sales taxes, Racicot said. He added that Setser once asked him to recruit a crew of bodyguards from the ranks of former Navy Seal commandos.

Setser at one point offered to pay $4 million to buy an interest in a Gulfstream G3 private jet from televangelist Benny Hinn’s church and touted investments in an African diamond mine he said was owned by President Bush’s family, according to evidence filed by the SEC.

“He’s a Burl Ives-type character, very disarming, jolly, overweight, with a kind of chuckle in his voice as he talks,” said Middlebrook, an Irving, Texas, attorney whose clients include Hinn, a Texas-based faith healer; Marilyn Hickey Ministries in Denver; and Reinhard Bonnke’s Christ for All Nations in Orlando, Fla., all of which had dealings with Setser.

“This is not a slick New Jersey Mafioso type, all bada-bing, bada-boom,” Middlebrook said in a telephone interview. “He kept saying, ‘I don’t know exactly how it works -- I just sell before I buy. That eliminates all the risk.’ ”

Church Connections

In his statement to the SEC, Middlebrook said he met Setser at a pastor’s conference in Carrollton, Texas, where “Ralph Wilkerson, a well-known charismatic Christian minister, introduced Setser as a man who would change my life and the lives of my clients forever by making everyone rich.”

Wilkerson and some other well-known ministers came out far ahead on their investments. According to an SEC analysis of IPIC’s main accounts at Bank of America and Citizens Business Bank, Wilkerson turned a profit of nearly $150,000 on his dealings with Setser, while Millennium Missions, an enterprise headed by Wilkerson, came out ahead by more than $74,000.

Setser also had won the confidence of Bonnke, an evangelist who has crusaded extensively in Africa. Bonnke made $999,134 personally on his IPIC investments, while his Christ for All Nations recorded a gain of $984,315, according to the SEC analysis.

In a statement, Christ for All Nations said it learned of Setser from a former employee of its own: Henschke, the man arrested in Florida. Christ for All Nations said that for more than a year it checked and double-checked Setser’s reputation, gradually increasing its investments after an initial deal proved profitable. Ultimately, it put Setser on its board.

He took part in just two board meetings “and gave a substantial gift to the ministry” before his arrest, according to the statement, which described the group as a victim.

“We want to do our part to help others who have suffered because of Mr. Setser’s illegal actions,” the organization said.

Many suffered considerably. According to the SEC, the Assemblies of God district for Northern California and Nevada lost more than $3 million, while a fund called Amber Enterprises, which pooled investments in IPIC on behalf of hundreds of small investors, lost more than $11 million.

The alleged scam began to crumble when Reece Bowling, a son-in-law of Marilyn Hickey who had invested with Setser, began to press him for details about his business and asked to see his audited financial statements.

Bowling told the SEC that Setser refused, saying he couldn’t disclose things that might help competitors and adding that most of his business was conducted from Panama.

Bowling insisted on visiting Panama and recruited Middlebrook to help investigate. The men said they saw a small paint operation that appeared insufficient to make the large quantities Setser claimed to be selling, a large warehouse containing a single brick-making machine and a warehouse with a machine designed to produce plastic bottles, still in its factory wrapping.

“He was going to start something called the Living Water Bottling Co., so I asked him what his source was,” Middlebrook recalled. “He said, ‘That’s the great thing. Don’t tell anyone, but the quality of the water here is unbelievable. We’re going to take it out of the tap and sell it as Panama spring water.’ ”

Middlebrook said he warned Setser that he could go to prison if he was deceiving investors, and late last summer traveled to Ontario to further check on his operation. Middlebrook said that at a restaurant during that visit, Cynthia Setser poured what appeared to be small diamonds from a velvet bag and said IPIC was able to buy gems wholesale in Africa, ship them to Israel for polishing and then sell them in the United States at a substantial profit.

According to the SEC suit, Cynthia Setser claimed the program involved “extraction of diamonds from mines purportedly owned by President George W. Bush’s family in the Republic of the Congo.” A White House official said, “There is no indication that the president knows this person.”

Middleton said he advised his clients to demand their investments back immediately and has told them to segregate any “profits” pending the opportunity to return them to the court-appointed receiver for IPIC.

One of those clients was Hinn, who said Bonnke introduced him to Setser at a dinner in December 2002. Soon after, Hinn again met Setser, this time at Wilkerson’s home in a gated community in Dana Point, where Hinn frequently visited during the Christmas holidays.

Setser subsequently attended a series of Benny Hinn Ministries events, and Hinn invested $300,000 in IPIC on Jan. 7, receiving $465,798.51 in return May 3. He reinvested $400,000 on June 9, he said in a statement, but withdrew those funds Aug. 22 without earning any profit because he was “uncomfortable with Mr. Setser and IPIC when he learned that a yacht and other luxury items had been purchased by them.”

Since learning later about the federal investigation, Hinn “has been proactive” in cooperating with the authorities, he said in the statement.

“When I learned that Gregory Setser had misused the trust of ministers of the gospel, my heart was profoundly saddened by the potential damage this might bring to God’s precious people and to many ministries,” Hinn said.

“I am outraged that Gregory Setser would use the church for his own benefit.”