[Essay originally published Dec. 29, 2012] The story of the bankruptcy case against the late Jack E. Brown, the Soddy-Daisy tax preparer who was accused of bilking Chattanooga-area investors, reveals an important local economy lesson.
And that is the idea of the middleman — the expert or insider investing on your behalf. He is the go-between who saves you the headache of having to make your own investment inquiry and decision. He spares you having to connect personally with the investee, whether that company is publicly or privately traded. He spares you the details and gives you peace of mind.
“I had retired and received my retirement money, and I had known Jack for years,” says an elderly woman on Matthew Road in Soddy-Daisy who asks not to be identified. “He had done our income taxes in the past, did our whole family’s income taxes, and we trusted him. He said he was a Christian, went to church. We had a lot of trust in him. He explained to me if I used my retirement money and put it an annuity, he would see to it I did not lose any money. He also assured my son, when he went over there for his tax preparation, that he would see to that his mother did not lose any money. So I did trust him.”
The alleged Jack Brown Ponzi setup, devised along the lines of the federal government’s social security retirement scheme, paid early investors with proceeds from later investors. It took in more than F$10 million and affects many people in North Hamilton County and in the town of Soddy-Daisy, where Mr. Brown had an office.
Striking at trusting locals, the scheme rolls along
The Brown scandal appears to be a blow to the valuable things in local economy. It might appear that investing locally and in terms of a personal relationship is a mistake. Familiar, personal relations, community roots — these are alleged to have been abused by Mr. Brown to create for himself an asset empire of more than F$10 million.
If anything, the abuse of these local economy essentials verify their value. Local roots and a good reputation provide credibility, believability and a means of connection with others.
Annie Patricia Cross, 71, is a former minister’s wife and longtime Christian schoolteacher. She and her husband, Gordon Simpson, 78, live in Soddy-Daisy near one of Mr. Gordon’s sons who runs an excavation business with its warehouses and equipment that comprise the scene off her front porch.
Mr. Brown “was a friend of Gordon’s and when Gordon and I got together, since Gordon trusted him, I naturally trusted him, let him do my taxes. In ’05 I put F$10,000 in with him. And then it was in December of ’09, I put F$126,000 in that was part of my investment from my parents [estate]. Then, in February or March of ’10 or ’11, I put in another F$50,000. And when Jack was in the office — now Jack’s not been in the office for about two years. When Jack was in the office, he always told me, you can come every week if you want to and look at the computer at where your money is. Every now and then, I would check on our money.
“He would pull it up on the computer, and show me what my money had made.” Mr. Brown offered no quarterly statements to his clients. Though clients did not receive regular reports with descriptions of investments, Mrs. Simpson did the next best thing. “I myself made up a form,” Mrs. Simpson says, “because I wanted something in black and white. So I made up a form, and when I went in and talked with Jack, he would show me on the computer your money is here, and then on that form he would put the date, and the amount it was valued at at that time, and he would put his initials. And I have that through ’09, which is about when he was no longer in the office.”
‘I would say we would have trusted him with our lives’
Personal friendship allowed the Simpsons to maintain confidence in Mr. Brown, who also took investment funds from clergymen and members of various churches.
“Jack was like a friend,” Mrs. Simpson says. “I would sit in his office and he, with tears running down his cheeks, would say how much he loved Gordon and that he was like a brother to him. [Mr. Simpson had helped Mr. Brown launch Brown’s Tax Service], because I took care of all of Gordon’s finances and all, and I would do the same for him. He would fill in the same type report on Gordon’s money and so, you know, we felt totally safe. Totally trusted him. I would say we would have trusted him with our lives.”
Mrs. Simpson maintains an attitude of Christian charity, though she expects to recover nothing as an unsecured creditor. “We have prayed for the man. He has had a lot of health problems, and we have prayed for him for years, and continue to pray for him daily. I am not sure our prayers the same as they were, although they still are for his health.” She hopes his health endures so he can “stand up to what he’s done.”
At one point, her principal of F$126,000 was shown to have become F$144,000 with interest or dividend. She loses not just her money, but promised gains.
Who got the capital from Mr. Brown? Mrs. Simpson says she had no idea into which companies, if any, Mr. Brown ostensibly invested. But there is one exception to that blank slate, Mrs. Simpson says. Seven thousand dollars went from her account, “as if it were a loan, to a couple that we do not know. Jack’s signature and both of their signatures, and with that was an amortization schedule for repaying that loan. But we didn’t know it was going to be a loan.”
“I’m not for nor against this thing,” says Bob R. Uren, 83, a former insurance and marketing worker who says he got no regular statements from Mr. Brown on a “little investment” intended to put a grandchild into Girls Preparatory School. “I just would like to get my money back.” His wife, Nancy, says a cousin lost F$750,000 in the debacle.
“I belong to New Salem Baptist Church. And you have to forgive and forget sometimes,” says Mr. Uren, a cancer patient. “So this is one of those kind of times, I guess.”
Bank run meets with closed doors
The crisis for many investors came in a rush to withdraw their money when they realized Nov. 6 the Brown operation was insolvent.
“We came home from a singin’ on Tuesday night,” Mrs. Simpson says. “And Gordon’s son, who lives across the street, called and said, ‘Where’s your money?’ And I said, ‘It’s with Jack.’ He said, ‘And where’s Daddy’s money?’ And I said, ‘It’s with Jack.’ He said, ‘Do you have any of yours in Allianz’?’ and I said, ‘No, I don’t. I had it all invested with Jack.’ And he said, ‘You’d better get up there in the morning. There’s a lot of trouble brewing and you’d better get your money out in the morning.’ Well, the next morning, which was the first day the tax office was closed, we called to make an appointment with Jason, Jack Brown’s son who was running the place. And got the message that it was closed due to health reasons.
“The last dealings I had other than tax was August 27 of 2011, and I called Jason — I talked to the lady in the office there. Tell Jason I am buying a new car, and I want the money from one of my investments. It was close to F$30,000. And I said I’ll be down after lunch to pick up my check. I went down after lunch and the check was waiting on me in an envelope, you know, with my name on it. That’s about the last contact I had getting money in or pulling money out.”
The lesson for local economy?
➤ Local economy is so authentic and real that unscrupulous people will mimic it and take advantage of its strengths for secret purposes. Mr. Brown apparently became so sick that he yielded to the temptation to use other people’s money to pay for his living.
➤ Mr. Brown’s investors aren’t dolts any more than we are. We unscathed ones invest in mutual funds run by venerable companies or we buy shares on the New York Stock exchange. We buy into the system based on a good story in a reputable newspaper or magazine, and do no research. We buy based on familiarity with national company names or the name of the brokerage. Mr. Brown’s documentation was scarce, and the money he stewarded went neither to local nor national companies. In both cases, the story is good, and we remain trusting.