Kathy Bazoian Phelps
Senior Counsel in Ponzi Scheme Litigation
and Bankruptcy Matters
Kathy is a senior business trial attorney with more than 25 years experience prosecuting and defending claims for clients involved in Ponzi scheme matters and in bankruptcy proceedings. Kathy’s practice includes recovering assets for clients in complex fraud cases on under standard fee and alternative fee arrangements. Kathy also serves as a mediator in bankruptcy matters, in complex business disputes, and in matters requiring an expert on fraud or Ponzi schemes.
Kathy’s Clients in Ponzi Scheme Cases and Bankruptcy Matters
High Net Worth Investors
Debtors in Bankruptcy
Secured and Unsecured Creditors
Sunday, March 10, 2013
Adding Insult to Injury: Ponzi Schemer Defrauds Government Employees, Then Victims Sue Government
When the Ponzi schemer defrauds employees of government agencies such as the FBI, you would expect a powerful government response of outrage, retribution, punishment and compensation. The Ponzi scheme of Kenneth Wayne McLeod, however, has seen a very different outcome. The government is now the subject of a $120 million lawsuit brought against it by McLeod’s victims.
McLeod’s victims were largely the employees of law enforcement agencies, including the FBI, DEA ICE, NSA, NCIS, and ATF.
In their lawsuit, the government employees claim that their own agencies were negligent in failing to protect them from McLeod and his scheme. The claim arises because the government agencies actually hired McLeod to give their employees investment and retirement savings advice. McLeod took full advantage of these opportunities to promote his fraud. His particular vehicle was the FEBG Bond fund, which allegedly offered 8%-10% tax-free returns. There are over one hundred plaintiffs in the suit, several of whom claim that they invested over $1 million dollars with McLeod.
McLeod took in $34 million, none of which was actually invested in anything. The scheme unraveled in June of 2010, when he committed suicide and the SEC filed a civil enforcement action.
In their suit, the plaintiffs claim that their agencies and their senior officials violated procurement regulations by failing to investigate McLeod before hiring him to do training seminars; violated ethics rules by accepting favors from McLeod; and violated applicable Office of Management and Budget regulations by allowing McLeod to give employees specific retirement advice.
The specific legal claims are negligence, breach of fiduciary duties, aiding and abetting McLeod’s breach of fiduciary duties, negligent retention and supervision, and negligent infliction of emotional distress. The plaintiffs seek damages of $120 million, consisting of principal investment losses of over $19 million; lost earnings of over $10 million; and non-economic damages of over $90 million.
The suit was filed on February 19, 2013, in the Middle District of Florida. It is available here.
The website of the receiver appointed in the SEC enforcement action is febginfo.com.
As previously reported in my blog, the several attempts of Ponzi scheme victims’ to hold the SEC responsible for negligence have generally proven unsuccessful. See my blogs of September 11, 2012 and February 22, 2013. We’ll see if this case turns out any differently.
Detailed information about the wide range of claims that the victims of a Ponzi scheme can pursue and the potential defenses to those claims is available in The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes (LexisNexis® 2012). www.ThePonziBook.com.