More than 20 victims, mostly senior citizens, were in federal court Thursday for Jack Arnold Brown's initial court appearance and plea hearing. The defendant is currently licensed to sell life and health insurance and was licensed as a securities broker until 2000.
The 66-year-old pleaded guilty to conspiracy to commit mail and securities fraud. Brown faces up to five years in prison and will have to pay his victims restitution.
"Obviously, I made some bad mistakes," Brown told the judge. "I misrepresented how these documents were put together and what it was supposed to do and it cost people a lot of money."
Prosecutors said several hundred people from throughout the country fell victim to the scheme, which apparently began in 2001.
Brown waived his right to a grand jury indictment and instead pleaded guilty to an information, a formal charge.
The defendant, who has since moved from Emerald Bay to Marshall, admitted that he and co-defendant Jules B. Fleder participated in the fraudulent scheme together.
Soon after Brown testified before the Texas State Securities Board, Fleder fled to Bali, Indonesia. The Federal Bureau of Investigation revoked Fleder's passport, and he was arrested by Bali police and deported to Guam, where he was arrested by FBI agents and brought back to Tyler, assistant U.S. attorneys Wes Rivers and Arnold Spencer said.
Fleder was in court on April 5 for an initial appearance and waived his right to a detention hearing. He pleaded not guilty and remains jailed.
Brown was released on bond by U.S. District Judge William Schneider, who ordered him to remain within the Eastern District of Texas pending his sentencing hearing. He is represented by F.R. "Buck" Files Jr. and Bryan Forman.
Brown formed Prairie Lake Estates LLP in January 2003 and participated in the marketing and sales of "qualified membership units," worth $60,000 each, to investors for joint partnership in the purchase, development and sale of Lindale property. Brown obtained nearly $2 million from investors, he stated in his factual resume.
SCHEME MAY HAVE LED TO DEATH
A relative found the bodies of George Freeman, 61, and his wife, Jo Freeman, 73, inside their home off Farm-to-Market Road 346 on Sept. 13. Authorities found no signs of forced entry and the couple's belongings were undisturbed.
Smith County Sheriff's Maj. Mike Lusk said earlier that a note found at the location indicated the couple was distraught over losing an undisclosed amount of money to a scam and mounting medical expenses.
Rivers said there was ambiguity in the case because the note they left was unclear. But, he added, family members believe their financial loss in the fraud scheme caused them to take their lives and have reported it to the sheriff.
Smith County authorities said Freeman shot his wife in the head in their bedroom and then orchestrated his own death. His body was found in a detached garage, sitting in a Cadillac filled with carbon monoxide.
Authorities recovered a handgun from the scene and a farewell note explaining the day's actions.
In court on Thursday, Rivers said Brown must pay back victims for all financial losses they suffered as a result of his criminal misconduct. He said Brown pleaded guilty to a scheme concerning a Lindale property and an entity called Prairie Lake Estates, in which he made written and oral misrepresentations to the victims about investments.
There could be an increase in the federal sentencing guideline range if the loss was more than $7 million, if there were more than 50 victims, if there was a prior administrative order concerning the criminal conduct, if a sophisticated means applies, if the defendant was a manager or supervisor of the activity involving at least five participants, and if he abused a position of trust.
There will be a reduction in the sentencing range because he accepted responsibility by pleading guilty. The calculations add up to a sentencing guideline range of 14 to nearly 20 years but, Rivers said, the mandatory sentence Brown can receive in the case is five years, adding that he's not agreeing the sentence is appropriate.
Brown and his wife Pamela agreed to complete a financial statement for the collection of any fines and restitution that will be ordered and agreed to provide testimony when required by the government. Because of the plea agreement, the prosecutors agreed not to charge Mrs. Brown, Rivers said.
He said Brown provided federal authorities and prosecutors information early on in the case, which led them to capture Fleder. Prosecutors intend to request a lesser sentence if Brown continues to provide substantial and truthful assistance.
SUED BY SEC
The plea deal doesn't release Brown from any civil liability surrounding the matters in the case, he said.
Brown, Fleder, Bernard Ware and Roger Sherman have been named in a lawsuit recently filed by the Securities and Exchange Commission (SEC).
Brown, in his factual resume, stated that he was involved with the group on several fraudulent business ventures, including Prairie Lake Estates, Tyler Real Estate and Smith Mountain Lake. Ware and Sherman have not been charged.
Rivers and Spencer said the investigation is ongoing and would not disclose whether they would be indicted.
Schneider told Brown that he might have to forfeit his personal property to help pay back the victims.
Brown admitted that when he first met Fleder he didn't initially realize that Fleder was involved in criminal activity. But, he continued participating in the scheme even after he found out it was fraudulent.
Brown indicated that all of the funds went to Fleder, who "spent all of the money." But when asked by Rivers to clarify for the court's record, Brown said he did make money in the deal - about $140,000 from Prairie Lake Estates.
Jack Convoy, one of the victims in the case, told the judge that Brown has "scammed a number of other investors besides Prairie Lake Estates."
Fleder, 64, allegedly headed the "Ponzi" scheme. He is charged, in a separate indictment, with purchasing land in Lindale and claiming he intended to establish a modular home manufacturing plant and a residential subdivision. He obtained $1,996,800 from investors who believed their money was to be used to develop the land.
Fleder was under a cease-and-desist order from the Texas State Securities Board for his involvement in "substantially identical transactions." But people allegedly working for Fleder, including Brown, mailed "lulling letters," soliciting funds from potential investors. The majority of the proceeds were forwarded to Fleder, according to the indictment.
He faces up to 20 years in prison if he is convicted of the mail fraud charges. Fleder, who is represented by U.S. Public Defender Gregg Waldron, pleaded not guilty earlier this month.
His trial is set for May 9 in Schneider's court but Waldron filed a motion for continuance Thursday, requesting an extra 60 days to prepare.
Spencer said the case was moving quickly through the system, compared to most securities fraud cases. The frauds continued until as late as November 2004. The federal complaint was filed by authorities in December and Fleder was indicted in February. Brown's case was sealed until his plea Thursday, when the details of the scheme became public.
Casey Knaupp covers county, state and federal courts. She can be reached at 903.596.6289. e-mail: news@tylerpaper.com"> news@tylerpaper.com
