More than a hundred current and former federal employees and their families have joined in a $120 million lawsuit against the United States of America.
They are seeking monetary damages to compensate for financial and non-economic losses related to a Ponzi scheme masterminded by a government-contracted financial adviser.
The lawsuit, filed February 19, refers to the manner in which that adviser, Kenneth Wayne McLeod, was hired and endorsed by various federal agencies as "negligent" and "reckless."
McLeod eventually killed himself after swindling at least $34 million from current and former federal employees throughout the country including a handful of employees in Arizona.
KENNETH WAYNE MCLEOD
For more than twenty years, McLeod, who lived in Jacksonville, FL, would travel to government agencies around the country and conduct retirement benefits training seminars through his Florida-based consulting firm, the Federal Employees Benefits Group.
"These government agencies paid FEBG up to $15,000 each for these seminars," according to SEC records.
In exchange, FEBG provided personalized benefits analyses and advised clients on their retirement account funds.
Eventually, some retired DEA, FBI, Customs & Border Protection, and other former federal employees started working for McLeod's consulting company as well.
According to the federal complaint, McLeod would supply federal agents with advice on their retirement portfolios, but he was also soliciting government employees to invest in a separate, special tax-free bond fund that never legitimately existed.
"McLeod promised investors in the FEBG bond Fund guaranteed returns of eight to ten percent and told investors that their principal would be invested in and secured by government bonds," according to the federal complaint.
"A quick review of McLeod's history would have revealed his bankruptcy and tax deficiencies, and a momentary check into the FEBG Bond Fund…would have immediately revealed that the Fund did not even exist," the complaint alleges.
However, McLeod was able to carry on his scheme for several years.
THE ARIZONA CONNECTION
"I felt that he was really looking out for me, really looking out for my money" Scott Snyder, a former Phoenix DEA agent, told the ABC15 Investigators during a May 2011 interview.
Snyder said he learned about the special fund after attending a DEA-sponsored retirement benefits seminar run by McLeod.
"(Kenneth) Wayne McLeod was introduced to us as a financial planner that works with DEA to help people with their retirement," Snyder said, explaining that he believed attendance at the seminar was required.
"The (Special Agent in Charge) was really pumping (McLeod)," said Snyder, explaining that McLeod had been working with the agency for nearly two decades.
"It was almost like you're an idiot if you don't talk to him because he does this for a living," Snyder said. "He helps people with retirement."
Snyder said McLeod approached him to invest in the fund, so he invested $90,000.
"The fact that he's being represented by the DEA, I felt okay, he's got to be trustworthy," Snyder added. "I was excited, and I was like, ‘this will be great in five years,'" he said, explaining how he thought his money would grow.
But unbeknownst to Snyder, the special bond fund never really existed.
THE STRANGE EMAIL
Snyder kept his money in the fund for nearly four years with no concerns, especially since McLeod would send Snyder interest payments on his investment.
On June 18, 2010, he received an unusual mass email from McLeod:
I hope this email finds you all doing well.
After more than 20 years I have deemed it necessary to terminate the FEBG Fund effective immediately. This process will take time so I ask for your patience during the process.
While this decision may cause some of you a temporary hardship, it is not my intention and I'm truly sorry from the bottom of my heart.
I also want to sincerely apologize in advance for any inconvenience this may cause. I Pray that at some point in time you can and will forgive me.
For those who are receiving current income via interest payments from the month of June and beyond, those payments have been suspended and nothing further will be sent.
You should expect to be contacted in the coming days or weeks by the regulators charged with this termination/task.
I have spent the vast majority of my adult life helping tens of thousand federal employee's become better prepared for their financial future and I am proud of that legacy.
"So, I see the email, and I'm like, ‘Oh cool. I'm going to get my money back,'" Snyder remembered. "So, I had a great weekend not knowing that he was being investigated by the SEC."
Just a few days after sending that email, McLeod drove to a Florida park and shot himself in the head.
THE SEC INVESTIGATION
On the day McLeod killed himself, he had been scheduled to speak with SEC investigators regarding the fund he had created, but he never showed up for the meeting.
"…He sent an email saying he was not going to be coming (to the meeting with SEC investigators) and that death is a better option," an investigator told a 911 operator on the day McLeod killed himself.
McLeod also sent an email to his friend and co-worker before he died. "I'm truly sorry for causing this much trouble," he wrote.
"I'm already gone…this is just better then me in jail for the rest of my life," he wrote.
According to SEC court documents, McLeod's entire investment plan was a Ponzi scheme.
"McLeod raised at least $34 million since 1988 from an estimated 260 investors around the country," SEC documents indicated. "He used the investors' retirement savings to conduct a Ponzi scheme, to pay himself, and to pay for lavish entertainment, including annual trips to the Super Bowl for himself and 40 friends."
A court-appointed receiver has been working to obtain and distribute what's left of McLeod's assets.
Before the lawsuit could be filed, current and former employees had to file administrative claims with their respective agencies. Onces those claims were denied or ignored by the agencies after a period of six months, the plaintiffs were able to pursue legal action.
Snyder is now seeking damages for his initial $90,000 investment, $22,848 in potential earnings, and damages for what his attorney called "non-economic losses" totalling $338,544.
The Department of Justice declined to comment on the 2013 lawsuit. The federal government will have sixty days from the lawsuit filing date to respond to the complaint.
The DEA offered a response when we initially reported this story in 2011:
DEA'S 2011 RESPONSE
Kenneth Wayne McLeod's company, the Federal Employee Benefits Group (FEBG), is under investigation by the FBI and Securities Exchange Commission for various criminal and regulatory offenses, including fraud.
While it is true that Kenneth Wayne McLeod was one of a number of private individuals hired to teach segments of retirement seminars to DEA employees, these seminars were limited to explaining the federal retirement system and providing general information about investments.
He was not authorized to solicit business from DEA employees while conducting these seminars. Accordingly, DEA did not undertake to investigate Mr. McLeod's private business, nor did DEA recommend that employees do business with him or his company.
Nevertheless, DEA is concerned about its employees, former employees and their families who may have been victims of an illegal scheme. Upon learning of the allegations against Mr. McLeod, DEA provided all employees with contact information for the FBI office in Jacksonville, Florida, that is conducting the investigation.
DEA also established a special e-mail box in DEA's Victim-Witness Assistance Program Office for employees who are possible victims and, because the FBI is investigating the matter, coordinated with the FBI's Victim-Witness Specialist to provide them with information.
Further, DEA alerted its Employee Assistance Program and trauma teams of the allegations and reminded employees of the availability of the counseling services for those who wish to seek such assistance.
- Dawn Dearden, DEA Public Affairs
3 THINGS TO PROTECT YOUR MONEY
According to the Arizona Corporation Commission, there are at least three things you can do to protect your money:
1 – Deal with a reputable company or agent
2 – Invest in well-known types of assets that have proven returns
3 – Be very careful of anyone who is a friend, relative, or anyone who would advise you that you don't need to check out the investment more thoroughly
ARIZONA CORPORATION COMMISSION CONTACTS:
Another resource: http://brokercheck.finra.org/Search/Search.aspx