Sunday, November 24, 2013

The Black Bernie Madoff - Ebony's "Top 30 Under 30" Fredrick Douglas Scott Arrested for Investment Scheme **UPDATE NOV 24 2013**

Fredrick D. Scott, arrested by the FBI for investment fraud
There's an old saying that goes something like this: "if it sounds too good to be true, it probably is."  Nowhere is this saying more applicable than in the financial investment market.

In February 2010, the St. Louis American reported on an attempted investment scheme between the then-25 year-old Fredrick Douglas Scott and the Mayor of East St. Louis, Illinois, Mr. Alvin Parks, Jr.  Mr. Scott, the self-appointed CEO of his own hedge fund (ACI Capital Group), told Mayor Parks that if the City of East St. Louis paid him $300,000 a year for three (3) years that he would help turn things around for the financially struggling City by bringing in $30 million dollars in outside capital.  As the Riverfront Times also reported back in 2010: 
Seems to be just a couple problems with that proposal:
  1. The city is flat broke and may not be able to pay any of its employees this month.
  2. Scott was already supposed to bring capital infusion to the city. That's why they gave him the exclusive negotiations rights to develop [city] property. 
To recap, Scott promised to provide the City with millions in the future if only they would pay him a couple hundred thousand bucks today.  This is also known in the more sophisticated hustler circles as the "Wimpy Doctrine" named after the character Wimpy from the cartoon Popeye who famously said "I will gladly pay you Tuesday for a hamburger today."  We'll come back to this doctrine later.  For now, it should be noted that the City of East St. Louis is and has historically been a predominantly Black town with a predominantly Black city government.

A few months after Mr. Scott tried to swindle East St. Louis out of hundreds of thousands of dollars, Ebony Magazine, in its May 2010 issue, named him among their "Top 30 under 30".  An error that the good folks over at Ebony surely could have avoided had they done their due diligence into Mr. Scott's background.  According to Mr. Scott's own Linked-In page, the highest education he ever received was a high school degree and he has only briefly held down one real job (for less than a year, mind you) before naming himself as President/CEO of several of his own self-promoting companies.  Not exactly "Top 30 Under 30" material.

But this is just the tip of the iceberg, ladies and gentlemen.

According to the federal Criminal Complaint which you can read HERE, Fredrick Scott, who is Black, used the notoriety that he received from the Ebony article to defraud hundreds of thousands if not millions of dollars out of Black investors:

Around March 2012, Fredrick Scott told one of his victims (identified in the complaint as "victim 1") that his
hedge fund needed to raise $400,000 in collateral in order to secure several million dollars in financing for a particular project.  He further told this victim that he had already raised $300,000 of the $400,000 from other investors and that this victim could still get in on this great opportunity if they could just come up with the remaining $100,000.  Scott promised Victim #1 that if they invested their $100,000 then they would receive a 25% return on their investment within 60 days.  So victim #1, believing this rap, gave Scott $100,000.  60 days came and went and Scott never sent Victim#1 a check for anything.  When Victim #1 threatened to report Scott to the SEC, Scott replied by saying that Victim #1 would be wasting their time because Scott has friends in the SEC.

Around December 2011, Fredrick Scott was introduced to a business owner who needed a $5 million loan for business operating capital.  Scott told Victim #2 that his hedge fund could secure the loan from a bank in Guyana.  In order to secure the loan, Scott would need some collateral up front from Victim #2 for the low low price of $250,000.  So Victim #2 gave Scott the $250k.  A few days later, Scott came back and told Victim #2 that the bank in Guyana was trippin' but, not to worry, because Scott's hedge fund had recently acquired a bank and could provide Victim #2 with the $5 million loan...for an additional $250k in collateral of course.  Victim #2 said they could only come up with an additional $125k, which Scott quickly agreed to take in lieu of the $250k.  When the agreed upon date came and went without Victim #2 receiving the loan, Scott told Victim #2 that he needed more collateral.  When Victim #2 couldn't come up with any extra money, Scott kept the $375,000 and told Victim #2 that if they said anything bad about this deal to anyone that Scott's team of lawyers would sue for slander.

Around December 2012, Fredrick Scott was introduced to an investor who had already lost $850,000 investing in a mining company.  Scott told Victim #3 that he could get the $850,000 back from the mining company if Victim #3 gave Scott's hedge fund $350,000 which would be used as collateral to fund a $7 million dollar loan to the mining company.  Victim #3, perhaps the wisest investor out of this bunch, refused to send Scott any money and instead dropped a dime on him to the FBI.

In another close call, Fredrick Scott told Victim #4 that a mining company in Chile was looking for a $6
million loan but that the loan required $350,000 in collateral.  Scott further told Victim #4 that if he deposited the $350,000 in a bank account with Scott's hedge fund that in 10 days (the amount of time needed for the loan to go through) Victim #4 would get his $350,000 back plus an additional $100,000.  When you do the math, this works out to be a 28.5% return on investment in 10 days, or, as experts in the financial industry call it, virtually impossible! Fortunately for him, Victim #4 did not deposit any money with Scott's hedge fund and instead called the FBI.

Fredrick Scott flew from New York to Dallas, Texas to meet with Victim #5 about a loan.  Scott promised Victim #5 that he would gladly give her an $11 million dollar loan from his hedge fund on Tuesday for a few hundred thousand dollars today.  Sound familiar?  (see Wimpy above)  Fortunately, the Texan declined to give Scott any money.

Just when we were on a roll of people avoiding the scam, here comes Victim #6.  Long story short, Victim #6 gave Fredrick Scott $250,000 in collateral for the promise of a $5 million dollar business loan.  The loan never came.

In each of the stories where people wired money to Scott's hedge fund's bank account in the Cayman Islands, a few days later Scott would wire the same amount of money from the Cayman Island account into his personal bank account at TD Bank.  Bank records show that Scott then used the money to make personal purchases at Louis Vuitton, the Apple store, Starbucks, True Religion jeans, Tao restaurant, the Hampton Inn SoHo and Dizzy’s Coca Cola Club at Lincoln Center, just to name a few.

And the worst part about Fredrick Scott is that most if not all of his victims are affluent Black people.  Per CNBC:
By all appearances, Scott was allegedly running what's known as an "affinity fraud," where people are conned out of their money by someone who appears to be one of their people. Bernie Madoff is the most famous example of this, with many of his victims coming from Florida's elderly Jewish community.
As is the case with most con men, Scott seemed to be a habitual liar who frequently told stories to make himself seem more important than he actually was.  Per NY Daily News:
Scott was represented by a court-appointed lawyer in Brooklyn Federal Court and couldn’t get his story straight about how much he’s worth.
He filled out a financial affidavit claiming his salary is $96,000. Scott then told pretrial services he makes $200,000 but takes home only $50,000 a year, prosecutors said.
Scott’s personal account at TD Bank showed over $700,000 “flowing in and out,” but as of April 30 his ACI Capital Group account was overdrawn by $91.24.
Scott also claimed he went from being homeless to being a millionaire. A source said the reverse appears to be true — he has been crashing at a friend’s pad in South Orange, N.J., after being evicted from his Manhattan townhouse.
He complained to the judge that he couldn’t understand why his lawyers from the white-shoe firm Wilkie Farr and Gallagher weren’t present on Tuesday. The prosecutor said he received a call from the firm saying they did not intend to represent Scott.
So you claim to be personally represented by New York mega-firm Wilkie Farr -- a firm that represented Sprint in its $35 billion dollar merger with Nextell?  Yeah.  Right.  Just be happy that you got the court-appointed Public Defender and give it a rest already.  You're not that important.  Reminds me of the following scene from one of my favorite movies of all time:
Billy Ray Valentine: I wish my b#@ches would get here. I ain't got time to be sittin' in this cell with you.
Inmate 1: Where are your b*#ches, Mr. Big-Time Pimp?  
Inmate 2: Yeah!
Billy Ray Valentine: [turns to Inmate 3] Didn't I tell you that the phone in my limousine is busted, and I can't get in contact with my b#*ches?
Inmate 3: [turns to Inmates 1 & 2] Yeah! The phone in the limo is busted. What is ya, ignorant? 
- Eddie Murphy, Trading Places
If convicted, Fredrick Scott could get up to 20 years in federal prison.  Let's see if he can talk his way out of that.

**UPDATES AUGUST 14, 2013**:
Long story short, Mr. Scott, by way of his attorney appointed by the federal public defender's office -- not to be confused with mega-firm Wilkie Farr -- is negotiating a plea bargain whereby Scott will plead guilty to what he's done in exchange for less than the 20 years that he is facing. They have until September 13th to reach an agreement.

**UPDATES NOVEMBER 24, 2013**:
Criminal Information dated Sept. 13, 2013

Guilty Plea and Sentencing Schedule dated Sept. 13, 2013

We decided to check back in on the Black Bernie Madoff and find out what updates have occurred.  It appears that on September 13, 2013, the federal prosecutor's office for the Eastern District of New York filed a criminal information charging Mr. Scott with one count of conspiracy to commit wire fraud and one count of making false statements to the Securities Exchange Commission ("SEC").  Mr. Scott pled guilty to both counts and will be sentenced on December 18, 2013 at 4:00pm (ET).  It should be noted that Mr. Scott continues to be represented by the public defender's office and not the New York BigLaw firm Willkie Farr & Gallagher LLP as he tried to claim when he was first indicted.

SEC Complaint dated Sept. 13, 2013 
Whenever an individual like Mr. Scott decides to mess around with people's investments, not only are they prosecuted by the federal prosecutor's office but they also have to answer to the SEC.  Accordingly, the SEC filed its own complaint against Mr. Scott on September 13, 2013 alleging four separate violations of federal securities laws.  As of the date of this posting (Nov. 24, 2013), Mr. Scott has not yet responded to the SEC's complaint.
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