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Malpractice/Ronald Cohen [Return to PRESS]
By Tim Wyatt
“… {Defendant Attorney}, who as an assistant district attorney took Mr. Cohen’s 1984 guilty plea, deferred comment to her own lawyer, Tom M. McCrory III, who said that many of Mr. Cohen’s customers knew of his criminal past and still willingly gave him their money. Mr. McCrory, who also defends the law firm, called the lawsuit an attempt by ‘very sophisticated, wealthy and usually shrewd people to make others pay for their gamble.’ ‘ An attorney is no more responsible for the actions of a client than he is for the actions of the people giving their money to that client,’ Mr. McCrory said.”
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7/13/97 THE DALLAS MORNING NEWS PAGE 1A Investors fault system for failing to stop swindler Schemes spanned two decades by Tim Wyatt Staff Writer of The Dallas Morning News When convicted stock swindler Ronald A. Cohen was sentenced to federal prison two years ago, it marked the fourth time in 17 years authorities had maneuvered the con man into a guilty plea. But instead of closing the book on a simple case of fraud, Mr. Cohen’s guilty plea has fueled bitter and lingering accusations of regulatory incompetence, ambivalent prosecution, attorney misconduct and runaway greed. What angered Mr. Cohen’s investors most, they said, was their belief that the justice system has accommodated a resilient con man more than his victims. “This has made me lose faith in the system entirely,” said Rita Rogers, one Dallas investor. “It [the Cohen investigation] was a sham.” Mr. Cohen’s Dallas-based schemes during the last 20 years have spawned scores of civil lawsuits from Kentucky to California in attempts to recoup some of the $28 million poured into his fraudulent ventures.
At least 10 regulatory and law enforcement agencies have investigated or supervised Mr. Cohen, 51, over the last two decades, but none has kept him from relaunching his con games. And some of those schemes, according to investors, were started – and possibly carried out – while he was in federal prison. Court records show that he began his last fraud while on state and federal parole. “It makes a fool of the government,” said Lillian Wolfe, who lost her children’s college fund and her life savings in a 1983 Cohen scheme. “Not to mention what it makes . . . [investors] look like.”
Stephen Webster, a Securities and Exchange Commission attorney who sued Mr. Cohen in 1993 and prosecuted him on state theft charges in 1984, said: “He was barred from trading, on parole, what more . . . would there be to deter him?” Mr. Cohen, serving a 55-month sentence at a federal prison camp in Texarkana, declined requests for an interview. Mr. Cohen’s knowledge of the stock market has rarely been questioned, and many prospective investors said they watched his picks soar before sending him money. It was his accounting procedures, according to authorities, that were questionable.
Ultimately, they said, his stock ventures became Ponzi schemes – pyramid-style ventures in which early investors are paid phony profits with money from new clients. Though his crimes in 1983 and 1993 varied in detail, investors said the market guru used their money as his own, promising as much as a 30-percent monthly return. Their descriptions of Mr. Cohen – a short, balding man who avoided flashy clothes and fancy cars – belie the braggadocio of the wheeler-dealer with the Midas touch.
Mr. Cohen’s reputation for turning huge short-term profits was so widespread that he attracted a clientele ranging from prominent Dallas business people and elderly widows to drug smugglers he met in prison. In the aftermath of his most recent conviction, some lawyers who represented him also have come under fire. The attorney who prosecuted Mr. Cohen in 1984, for example, defended him nine years later.
Now, she is named in a civil lawsuit filed by investors who say that she helped perpetuate her client’s fraud. Another of Mr. Cohen’s former prosecutors became a client and vouched for the ex-convict’s honesty while serving as U.S. attorney. Mr. Cohen, a second-generation stockbroker from Portland, Ore., sold stock in Seattle and Los Angeles before showing up in Dallas in 1974. Despite dealing securities over the last two decades, Mr. Cohen last worked as a registered stockbroker when Gerald Ford was president. Caught trading on customers’ accounts without their knowledge, Mr. Cohen was banned from trading in 1975 by the National Association of Securities Dealers.
Court documents from that year show he also ran a pyramid scheme that fleeced 18 investors out of $176,000. Mr. Cohen avoided federal criminal charges by repaying his victims, documents show. In 1979, he pleaded guilty and was sentenced to two years in federal prison for writing a worthless check for $875. He was released after a year. Six months out of prison, Mr. Cohen chartered a company that became the vehicle for what was later described as the largest stock fraud in Dallas history. Over three years, hundreds of investors placed at least $20 million with him in another Ponzi-style operation. In the interim, a courier was murdered shortly after making a delivery of $50,000 cash to Mr. Cohen’s office; he traded lawsuits with disgruntled associates who had shunted investor funds to him from Houston; and, he filed for bankruptcy.
By fall 1984, four federal and two state agencies had filed charges of money laundering, theft and securities violations against Mr. Cohen. He pleaded guilty to all counts. The state took Mr. Cohen’s plea and sentenced him to 15 years in prison. In federal court, he got an 11-year sentence for two counts of money laundering and agreed to cooperate in a continuing investigation.
The federal prosecutor chose not to pursue restitution or a $500,000 fine. Because of his cooperation, his federal sentence was reduced. He served 41/2 years. He was paroled by the state in fall 1987, but he remained in federal custody until November 1988. Court records show that Mr. Cohen, still under state and federal parole, went back to selling investment advice. In 1989, he returned to federal prison after his parole was revoked for laundering $15,000 for a convicted drug dealer. Within weeks of his release, according to records, Mr. Cohen persuaded some of the same investors who lost money with him only months earlier to invest again.
To assure them that he would not have access to their money, he formed a trust account with a local accounting firm. Between April 1991 and August 1993, about 50 Dallas clients, “mesmerized” by his promise of profits, poured at least $8 million into Mr. Cohen’s trust account, court records show. The next month his clients said they learned that their financial adviser had checked into an out-of-state substance abuse clinic.
Authorities learned that Mr. Cohen had lost tens of thousands of dollars that summer gambling in Las Vegas. Ronald Cohen was no stranger to SEC investigator Sammy L. Hughes when Mr. Hughes was assigned in August 1993 to look into Mr. Cohen’s dealings. Mr. Hughes had investigated Mr. Cohen 10 years earlier. Within 10 days, he seized the records from Mr. Cohen’s Oak Lawn office and shut down the investment business.
But according to an affidavit filed in support of a search warrant, the SEC’s Fort Worth staff had known for six months that Mr. Cohen – though banned as a broker-dealer – was purchasing “millions of dollars in stock” with large sums of money raised from Dallas investors. The affidavit shows the SEC also knew that “large sums” of investor money were being transferred to Mr. Cohen from the investor trust account.
Despite knowing all that, frustrated investors said, it took the SEC four months to freeze Mr. Cohen’s assets, allowing the convicted con man to distribute millions as he saw fit. State authorities, said investors, weren’t any more aggressive. One month after the SEC opened its investigation of Mr. Cohen, state parole officials acting in “the interest of society” reduced their supervision to one visit per year. “We were advised by Cohen’s counsel that he would be liquidating and paying back investments,” said Harold Degenhardt, administrator of the SEC’s Fort Worth regional offices. “We were told this would be done in a week, that [investors] would be made whole.”
Mr. Webster acknowledged that Mr. Cohen’s attorneys requested that a special master be appointed to oversee liquidation of the funds, but the framework would have allowed Mr. Cohen joint authority over the money. The SEC rejected the offer that allowed Mr. Cohen, in effect, to continue in complete control. In September, court records show, investors learned that Mr. Cohen repaid $7.5 million to selected clients. SEC officials said their mission was to assist in the criminal prosecution of Mr. Cohen. Stepping in beforehand, they said, would amount to seizing assets without evidence. “We represent the public – future investors,” said Mr. Webster, “and try to prohibit them from giving money to people like Cohen.”
But investors who had tried to investigate Mr. Cohen before they gave him their money said they received, at best, a mixed response from regulatory authorities. A group from Chicago wrote the security dealers association and the SEC in 1993 before investing part of their family trust. Both agencies replied that there was no record on Mr. Cohen. The group invested more than $2 million. Kentucky investors in 1982 checked with the SEC, which turned up Mr. Cohen’s 1975 NASD license revocation, but no criminal history.
Calls to the U.S. attorney’s office in Dallas revealed his convictions, but also a curious character reference from U.S. Attorney James Rolfe, who had prosecuted Mr. Cohen. Robert Reed, a private investigator retained by the Kentucky group, said Mr. Rolfe told him that Mr. Cohen “was a good citizen who made a mistake and had paid his dues.” Records show that after prosecuting him, Mr. Rolfe invested with Mr. Cohen. Their names appeared together on four brokerage accounts. According to records, Mr. Cohen transferred $30,000 to Mr. Rolfe less than 90 days before filing for bankruptcy.
Mr. Rolfe later repaid two-thirds of the money when the payment was declared a “preferential transfer.” Mr. Rolfe said he didn’t “front” for Mr. Cohen or contest the preferential transfer filed against him. “I told them exactly that he had been to prison for fraud,” he said, adding that he didn’t hide his investment with Mr. Cohen. “And I was among probably the last people in the world who would have thought Ron would have embarked on another episode of violating the law,” he said. “I like Ron. I respect his abilities, [but] he’s got what seems like a recurring problem with alcohol.”
Mr. Cohen apparently went undeterred, even behind bars. In 1985, the SEC sued three partners in Houston who had funneled $8 million to Mr. Cohen, claiming that the transactions began when one of them met Mr. Cohen while visiting a friend in prison. Jack Strickland, a marijuana smuggler from El Paso, introduced Mr. Cohen to investors after meeting him in prison. Mr. Cohen’s parole was revoked in 1990 when he was caught laundering money for Mr. Strickland. Mr. Strickland, now serving another sentence, still has a $30,000 claim against Mr. Cohen’s estate.
And Joel Mitchell, the murdered courier, had served time with Mr. Cohen in 1980 at Seagoville. Even Mr. Cohen’s relationship with the accountants, to whom he would later entrust investor funds, apparently began in prison. According to prison letters obtained by investors, Mr. Cohen regularly wrote his accountants with directions on handling his accounts. “I have a lot of future business to give you, along with a good client referral,” Mr. Cohen wrote in February 1991.
“All I need now is to get out.” Investors said they were embarrassed and angry when their assets evaporated in fall 1993, but they were disillusioned and frightened by the investigation that followed. Some complain that prosecutors effectively conducted no investigation of Mr. Cohen, leaving a system-wise felon to deal his way through the judicial process while using their money to finance his defense.
Some investors said they were particularly embittered during bankruptcy proceedings that Mr. Cohen continued to live in a $2,300-per-month Turtle Creek condo and received more than $10,000 a month that was beyond the grasp of creditors. The court ruled that the money, a series of $100 money orders ostensibly from his mother in Seattle, was intended to help support his third wife and small son.
Former clients also said Mr. Cohen offered up his investors to prosecutors in an attempt to mitigate his crimes. The News has obtained letters that investors said were sent to federal authorities in 1995 as Mr. Cohen faced sentencing for mail fraud. In those letters, one investor said that “the system cares more for Mr. Cohen’s rights than the rights of those he had defrauded.” Another investor accused the government of acting “as though we were as dirty as Mr. Cohen.” After complaining to the federal prosecutor, Matthew Orwig, about the listlessness of the federal investigation, the investor said she was threatened.
“He told me that he planned to investigate the investors,” the former client wrote. “This was especially amusing considering that all the tips we’d given him on Cohen’s present activities, he always countered with . . . [he] had no manpower to follow Cohen.” Mr. Orwig, temporarily assigned to Washington, D.C., denied investors were treated as suspects. “I’m certainly not aware of anything like that happening,” he said. “We prosecuted him, we sent him to jail, he got three years. And I don’t know what more there is to say about that.”
Investor Rita Rogers said she tried to show a federal agent records that would show Mr. Cohen had taken at least double the $500,000 that the government said he had received illegally. “Unfortunately, the guy never wanted to even look at the documents,” Ms. Rogers said. “All he wanted to do was question me about my personal finances.” Ms. Rogers’ attorney, Bill Roberts, said the government tried to intimidate his client with veiled accusations that she was laundering money through Mr. Cohen.
“As soon as Cohen figured out that they’ve got him, he goes into this, ‘Well, let me tell you’ mode, and the government just laps it up,” Mr. Roberts said. Ms. Wolfe, still on the hunt for hidden assets in Mr. Cohen’s 1983 bankruptcy, said investors weren’t just victimized by a veteran con man, but by an “inept, incompetent and irresponsible follow-through by our legal representatives and judicial system.” By her account, Ms. Wolfe, a single mother and Houston real estate agent, has made a nuisance of herself with federal authorities and Mr. Cohen’s bankruptcy trustee since losing more than $200,000 in the 1983 fraud.
“Every penny I made, every penny I lost was my own work,” she said. Ms. Wolfe and 450 other investors fought for three years to file a class-action lawsuit against Mr. Cohen. In 1990, they won a $16 million judgment. After attorney fees, Ms. Wolfe said, her group got $1.6 million. Other lawsuits against Mr. Cohen’s associates have upped investor recovery to 45 percent of their investment, Ms. Wolfe said. But years spent in courtroom skirmishes made her skeptical about the bankruptcy process. “The [bankruptcy] court and attorneys have received payment of their fees – more than $1 million since 1983 – yet the investors received only 11 cents on their invested dollar,” she said.
Ms. Wolfe said that there are still millions in Cohen assets unaccounted for. She has found an NASD-generated listing of Cohen brokerage accounts that totaled $2.5 million in easily negotiated “street” stock certificates. Ms. Wolfe said she asked the SEC for help in tracking the stock certificates, but the agency referred her “back to the very office that ignored it in the first place.”
“All I want to know is, who got the money? Where is it now?” In Mr. Cohen’s second bankruptcy, the investors had to fight a $6.9 million IRS claim against Mr. Cohen. “They wanted to pay his taxes with our money,” said Ms. Rogers. The fight continued for almost three years until the IRS settled last June for about 2 percent, or $150,000, of its original claim. “It cost us dearly,” Ms. Rogers said. “We spent practically all of the money left in the estate [bankruptcy account] to fight them.” Obern Rainey, a Department of Justice spokeswoman, said that her agency was “satisfied that the settlement adequately resolved the competing claims of the parties.”
Because of the nature of the 1993 bankruptcy settlement, it is nearly impossible to calculate on the average what each investor was repaid. Ms. Rogers, however, said she has received “a little better” than half her original investment. As Mr. Cohen’s criminal proceedings wound down in June 1995, federal Judge Barefoot Sanders waived fines and restitution because civil lawsuits had already been filed.
In August 1995, 35 investors sued Mr. Cohen’s defense attorney, his main brokerage firm and the accountants who set up the investor trust. Robert N. Goldstein, the investors’ attorney, said his clients were concerned with “the irresponsible conduct of the defendants.” The suit claims that Cheryl Jerome Moore and her former law firm, Mankoff, Hill Held & Goldberg, led investors to believe that the lawyers had control of the trust account, and, “if people were patient and did not file a lawsuit, certain amounts of the money would be returned.” The lawsuit also alleges that in early fall 1993, Ms. Moore told them that $4.5 million remained in various accounts but that only $600,000 was left by the time the SEC froze Mr. Cohen’s assets. Ms. Moore, who as an assistant district attorney took Mr. Cohen’s 1984 guilty plea, deferred comment to her own lawyer, Tom M. McCrory III, who said that many of Mr. Cohen’s customers knew of his criminal past and still willingly gave him their money. Mr. McCrory, who also defends the law firm, called the lawsuit an attempt by “very sophisticated, wealthy and usually shrewd people to make others pay for their gamble.” “An attorney is no more responsible for the actions of a client than he is for the actions of the people giving their money to that client,” Mr. McCrory said.
Attorneys for Ward & Asel, the accounting firm, and RAS Securities, citing their preparation for the upcoming civil trial, declined to comment. Ms. Wolfe, urging authorities last summer to take a closer look at Mr. Cohen’s cases, said, “There are laws to protect people from lemon cars, drunk drivers, unfair housing, but there are no laws to protect victims of white-collar crimes. “If Ronald Cohen can do this four times in the same city, same state, same type of crimes, can continue to commit these crimes while serving a prison sentence, what is to become of our society?” July 13, 1997-
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