November 25, 2011; Source: Washington Post | “There’s a sucker born every minute,” P. T. Barnum apocryphally said. That’s what allows investment hucksters like Bernie Madoff to promise next-to-impossible returns to investors, who take the dive. The latest example is the Securities and Exchange Commission complaint against a firm called Gibraltar Asset Management Group (run by one Garfield Taylor), which targeted Washington, DC–area investors—including the Hillcrest Children’s Center. The Ponzi scheme, which lasted from 2005 to 2010, took in $27 million from 130 investors. Taylor skimmed as much as $5 million for his personal use, including $73,000 for his children’s private school tuitions.
Were there warning signs? How about the firm’s statement that “The beautiful thing about our equity option trading strategy is that we totally control our downside risk.” Or how about, “Gibraltar managers make money trading equity options in UP, DOWN or SIDEWAYS markets.” Among the investors caught in Taylor’s scam were individuals (whom he got to refinance their homes and devote their personal savings and retirement funds as investments in Gibraltar), a Baptist church (for whom Taylor allegedly manufactured a fake letter of recommendation from Charles Schwab to convince the church), and the venerable Hillcrest children’s charity, two centuries old, originally serving orphans and now providing mental health and other services to at-risk children.
Hillcrest invested and lost half of its endowment—some $8 million—with Taylor, and found itself with only $200 left by the time the Ponzi scheme had collapsed. No one at Hillcrest really had the skill or experience to manage institutional investments, and they relied on advisors referred to them by personal acquaintances. Taylor, for his part, used his prior short-term experience at Fannie Mae to establish some investment bona fides, and listed the dean of the Howard University business school, Barron Harvey, on Gibraltar’s advisory board—though Dean Harvey said he had gone to a Gibraltar dinner but had never signed on as an advisor, and that his name had been used without his permission. Hillcrest filed suit against Taylor earlier this year, but Taylor was a no-show, and the court issued a default judgment against him. Phone calls to Taylor from the Washington Post went unanswered, and mail sent to the firm was returned as undeliverable.
The lawsuit alleges that Hillcrest board members asked, “How could Gibraltar produce such favorable returns in the weak financial markets of mid-2008, and if Gibraltar’s strategy was so good, why weren’t other investment advisers using it?” Why do people think that there’s a no-risk way of making 20 percent returns in the market? In this case, these are not people looking at P. T. Barnum sideshow fakes, but decent, charitably minded people at a nonprofit service provider who fell prey to yet another Ponzi schemer willing to purloin charitable funds.—Rick Cohen