An Endless Stream of Lies (7 page)

As reported in the
Henderson Time News
, August 11, 2006, in an article titled “Nervous Investors Consider Restitution Plots,” one investor reported that “. . . he invested a ‘substantial‘ amount of money with the business over the last two years. He said he dealt primarily with Alex Klosek, who acted as a trustee in taking his money and placing it into investments.” Another “. . . invested $200,000 of her retirement savings” with CEP. Also, in the
Henderson Times-News
, February 20, 2010, in an article titled “Noel’s Victims Focus of Testimony,” still another investor testified at the trial that “. . . she and her husband not only invested with CEP, but also put $50,000 into Noel’s startups International Mineral Exchange and later Titan Composites.” Two other investors who collectively lost $194,000 testified at the trial with regard to their losses.

“AND THEN THEY COULD MAKE A DECISION”

People make decisions throughout the day. They have to decide when to get out of bed, what to wear, what to eat, where to go, and what to do. Influencing another person’s cognition toward a predetermined outcome—persuasion—is an art. A criterion for success is the ability to affect the nervous system of others on a continuing basis. While that statement may sound a bit Machiavellian, if a car salesperson cannot persuade people on a regular basis to purchase a car, then the dealership will soon replace him with someone who can. If a supervisor cannot motivate the division personnel to more excellent productivity, then she will most likely find herself out on the street.

People make decisions continually, and they make those decisions on the self-interest principle. We select what we believe is the best watermelon in the bin, the best spouse with whom to share a life, the best home for our family and the best investment vehicle for our money.

All of CEP’s sales presentation endeavors were designed to convince others that entrusting them with their money was the best investment they could make with their money.

CEP had also endeavored to get people to “believe.” Those people believed to the point that they collectively turned over more than seven million dollars of their money to those who had made a presentation. However, just as with Jesus’ proposal, not everyone believed. In the previously referenced
Henderson Times-News
article of August 11, 2006, a certified financial planner noted, “I recommended several of my clients not to go there, because I questioned the return on the yields that were being promised. People get fliers to go to these seminars and if it sounds too good to be true, it probably is.”

Ultimately, to paraphrase the writings of the poet William Cowper, found in this chapter heading, over one hundred trusting investors would find themselves dropping their buckets into the empty CEP well. A well that had been drained dry by those who had undertaken to first gain trust and then betray that trust in the extreme. Gaining trust is a process that, in and of itself, makes no distinction as to the wisdom of placing trust in those who would seek to have it. Rather, it is the motive of the heart (good versus evil, give versus take) within those who would win the minds and hearts of others that is the distinguishing factor.

During the trial, when Alex was questioned as to the terminology regarding taking other investors’ money and making payment to still other investors, the following transpired:

Q. What’s that called?

A. That’s called a Ponzi scheme.

NOTE
: What is a Ponzi scheme?
“A Ponzi scheme is a fraudulent, investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors” ( http://en.wikipedia.org/wiki/Ponzi_scheme).

THOUGHTS, COMMENTS AND ANALYSIS

What are your impressions, to this point, with regard to this circumstance?

Exactly what do you know?

What is it that you
know
that you don’t know?

What questions would you ask in order to know?

What steps would you take in order to know?

POINTS TO PONDER

In other portions of his testimony, Alex described meetings of another sort. The initial meetings, addressed in this chapter, were designed to
obtain
clients. In the following, Alex explains the meetings that we designed to
retain
clients as the evaporation of funds become more dramatic.

Q. Let me show you Government Exhibit 8HH, which I believe is already in evidence, and ask you if you recognize that.

A. Yes, I do.

Q. What is 8HH?

A. That is a letter that was sent to the clients of

Certified Estate Planners by me.

Q. What’s the date of the letter?

A. The date is February 9th, 2006.

Q. Why did you send this letter?

A. Because of large withdrawals that were made by the

Fishers and other clients, as we had previously mentioned with the Fishers. There was an effort made to try to hold on to some of those funds longer so that maybe something could be salvaged and the client would not take their funds elsewhere.

Q. Whose idea was that?

A. That was an idea that was discussed between Bryan and me.

Q. Is Mr. Noel referenced on this letter’s attachment?

A. Yes, he is.

Q. And what does it say?

A. It says that “Should you wish to close an account, an additional procedure will apply. In addition to having the Request for Trustee Minutes signed by you, Bryan Noel will meet with you personally for a final meeting.”

Q. What was the purpose of that?

A. The purpose of that meeting was to try to salvage that client and hopefully retain the funds within Pinnacle.

Q. Who was going to meet with the clients to try to keep their funds at Pinnacle?

A. That would be Bryan. I would probably be in that meeting as well.

Q. Well, why does it say Bryan? What’s the purpose of having Bryan at that meeting?

A. Bryan was much better at being persuasive in his sales abilities than I was.

Q. Why did you need to keep the funds of clients at Pinnacle? What was the concern?

A. The concern was that if they withdrew those that it would further hinder any efforts to try to trade those funds or try to get something back from Titan.

Q. As of February 2006, if clients started withdrawing their funds, were there sufficient funds to give back to clients?

A. There were not.

Q. Who knew that?

A. Bryan Noel and I knew that.

1. What differences, if any, do you see as to the mindsets of those responsible for conducting the meeting between the
   obtain-purposed
   meeting and the
   retain-purposed
   meetings?
   
2. What differences, if any, do you see as to the mindsets of the clients between the
   obtain-purposed
   meeting and the
   retain-purposed meeting
   ?
   
3. Would these two meetings require different sales presentations dynamics?
   
4. What questions would you pose to Alex at this point?
   

CONTENT – CONTEXT APPLICATION

A former lieutenant for a sheriff’s department was indicted on sixty counts of fraudulent billing for work while he was off duty. The indictment indicated that he was being paid for being at work in two places at the same time on sixty occasions during a two year period.

1. What were the “trust issues” that had to be formulated by this lieutenant within the sheriff’s department?
   
2. What were the “trust issues” that had to be formulated by this lieutenant within the organizations that were the source of his secondary employment?
   
3. What are the ramifications when those placed in positions of trust, such as law enforcement, educators, medical professionals, etc., violate that trust?
   
4. What question would you pose to this individual?
   

CHAPTER FIVE

THE RIVER TURNS AND TURNS ONCE AGAIN

ALEX LEAKS TO THE FBI ALEX’S DOUBLE KNAVERY

Let me see now:
To get his place and to plume up my will
In double knavery
—
How, how? Let’s see

OTHELLO,
ACT I, SCENE III

NAVIGATION POINT AND HEADING
Matters have deteriorated to the point it has become necessary to have meetings in order to retain clients and, more especially, their monies. Alex has previously been submitting false financial statements, keeping both the clients and his partner in the dark. Desperate times call for desperate measures. Decisions have to be made. Actions have to be taken. For Alex, navigation is becoming increasingly difficult.

SOMETHING MUST BE DONE

In June of 2006, Alex made the decision to speak with agents from the Federal Bureau of Investigation. It was shortly after that meeting with the federal representatives that Alex made his initial request to meet with me for lunch. He had charted his course most carefully, as he said in his testimony at Noel’s trial:

Q. Directing your attention to June of 2006, specifically June 30th, did something significant happen that day?

A. Yes, it did.

Q. And what’s that?

A. I had my first meeting with the FBI.

Q. What do you mean by that?

A. I had — in about May of 2006, it was getting to the point where the funds had dwindled, there were so many lies that were going on with CEP and Pinnacle and Titan and everything else, and I could not keep up the show game, so I realized that something had to be done. And then my wife also told me at that time if we don’t do —

Q. Don’t tell us what your wife said. Just talk about what you did.

A. That we would need to do something because the ultimate result would be that everything would fall upon me. So I searched out attorneys and, ultimately, in June of 2006 had my first meeting with the FBI on June 30th.

Q. I don’t want you to talk about anything you talked about with your attorneys. How was it that you ended up at the FBI offices?

A. There was one that — one particular attorney that knew somebody that had contact, and that’s how I ended up getting in there.

Q. So you didn’t just, like, wander in one day.

A. No, I did not just wander in.

Q. Did you have an appointment?

A. Yes, I did.

Q. Who did you meet with?

A. I met with Drew Grafton.

Q. What was the date of that meeting?

A. The date of that meeting was June 30, 2006.

Q. What did you do during that meeting?

A. During that meeting I started to outline some of what had happened with him and give him the story about CEP.

Q. And when you say “him,” who are you referring to?

A. To Drew Grafton.

Why had Alex reached a point wherein he decided the verbs “searched,” “knew,” and “had contact” were necessary? Had he had a change of heart? Was there, for him, a crisis of conscience, a realization that his past acts—falsifying reports, deceiving and taking what did not belong to him—were wrong? In the dead of the night, did some still, small voice whisper convincingly to him? Did he ever indicate he was motivated by a feeling of remorse to finally do the right thing? Certainly, that mindset does not appear to be the case.

Remember, Alex testified:

A. That we would need to do something because the ultimate result would be that everything would fall upon me.

A close examination of Alex’s choice of words proves most revealing. Each of Alex’s words is a subjective choice. Subjective word choice is a form of behavior, and that behavior is a function of the premeditated goal of the speaker (or writer in the case of a written narrative or account). By our examination of Alex’s word choice, we gain insight into Alex’s cognitions and consequently, his ultimate goal:

A. I had — in about May of 2006, it was getting to the point where the funds had dwindled, there were so many lies that were going on with CEP and Pinnacle and Titan and everything else, and I could not keep up the show game, so I realized that something had to be done.

First, what was it about the “dwindled” funds specifically at this point? As far back as June of 2002, Alex’s stock trading endeavors were resulting in a loss (dwindling) of funds. By his own admission, Alex testified that he deceived Noel and the CEP clients, and was falsifying quarterly reports. He had continued to deceive Noel, up to a point, and send out falsified quarterly reports.

So, according to Alex, his motivation for going to the FBI was that he could not “keep up the show game.” We always pay attention to the terms that someone uses to frame a circumstance or a situation. What might Alex’s utilization of the term “show game” imply?

There were additional pressure/motives acting upon Alex to take action as shown by his testimony:

Q. Okay. We’re using two — “loan” twice here. Who is getting the bridge loan?

A. IME would be getting the bridge loan.

Q. And what was IME supposed to do with the funds that it got from the bridge loan?

A. The funds would be used to repay the loan from Pinnacle to IME.

Q. The $2 million?

A. The $2 million.

Q. At this point, in February of 2004, is there any documentation for this $2 million loan to IME?

A. There was not.

Q. Was that $2 million transfer of funds to IME from Pinnacle investor funds the last time that Pinnacle Investor funds were transferred to IME?

A. No, it was not.

Q. Were the other transfers supported by and authorized By debentures?

A. No, not all of them were.

Q. Approximately how much additional money was Transferred to IME that was not authorized by specific debentures?

A. Approximately another $2 million.

Q. Another $2 million in addition to the 2 million in December of 2003?

A. Yes.

As noted above, Alex testified that Noel had borrowed at least four million dollars from Certified Estate Planners. The funds were for Noel’s startup companies. In addition to the stock losses and the borrowed money—as cited in the September 2007 “Complaint For Permanent Injunction And For Other Relief”—Alex and Noel were both withdrawing unmerited, large, account management fees. How much were those fees? Alex provided the amount in his testimony:

Q. During your time at CEP and Pinnacle, were you getting paid?

A. Yes, I was.

Q. How much were you being paid?

A. I don’t remember the exact figure, but I would approximate about 75,000 per year.

Q. 75,000 a year?

A. Yes.

In short, the liquidity was drying up.

Once the fund level sank to this level, in Alex’s mind, matters had to be taken in hand. According to Alex’s testimony:

Q. Now, in this month of October of 2005, did you have a conversation with Mr. Noel?

A. Yes, I did.

Q. And what was that conversation about in October of 2005?

A. That conversation was about revealing to him some of the extent of the trading losses that were suffered.

Q. Up to this point in October of 2005, had Pinnacle been having trading gains or trading losses on a quarterly basis?

A. For most quarters, it would have been trading losses.

Q. Had you been telling Mr. Noel about the trading losses up through October of 2005?

A. I had not been.

Q. You had not been?

A. I had not been.

Q. Had you been telling clients about the trading losses up to October of 2005?

A. No, I had not.

Q. Did something change in October of 2005?

A. Yes, it did.

Q. What’s that?

A. There were some serious losses that were generated during the course of that summer, and I felt that I needed to let Bryan know the extent of the situation.

Q. Was this a problem?

A. Yes.

Q. Why was it a problem?

A. Because of the losses that had been generated because the Titan funds were no longer — the funds that had been lent to Titan were no longer there. This represented a substantial portion of the assets that remained.

Q. So by this point, about how much money had been sent off to IME and Titan?

A. Well, I don’t recall the exact figures. It would have been at least 2 and a half to $3 million.

Q. Now, when you — you told Mr. Noel at that point what had occurred?

A. I had told him that there had been significant losses that occurred.

Q. Did you tell him the full story about the losses?

A. I did not.

Q. What do you mean by that?

A. I made it sound like more recent market events that caused this as opposed to something that was ongoing back to 2002.

Q. So you didn’t tell him you’d been losing money since 2002?

A. No, I did not.

Q. But you told him you’d lost money.

A. Yes.

Q. Did you tell him how much you had lost?

A. I do not recall if I told him the exact figures.

MOTIVATIONS PROMOTE ACTIONS

To Alex, there were two activating criteria in play at this point in time:

First, Alex testified, “I felt that I needed to let Bryan know . . .” Alex did not say, “Bryan needed to know,” but rather, “. . .
I needed
to let Bryan know . . .” Informing Bryan was an action designed to fulfill a need within Alex, not to resolve a need that was within Bryan. Letting Bryan know that the funds were dwindling met an “Alex need.” What was that need?

Secondly, some of the clients wanted to withdraw their money. Alex knew for a certainty that Certified Estate Planners did not have sufficient funds to cover a significant “run” on the funds, and that he had been falsifying quarterly reports and submitting them time and time again.

Bryan’s borrowing funds notwithstanding, Alex was the one who had been sending out the falsified reports. Alex was the one losing money over a period of years. At this point, with regard to the continual losses and the falsified quarterly reports, Noel had plausible deniability. Alex obviously knew three things that his partner did not:

• He had been losing money for years
  
• The quarterly reports were false
  
• The clients were, literally and figuratively, “at the door”
  

In October of 2005, Alex made the first move he needed to make. He made Bryan (partially) aware of the fact there were losses. Now, there was a shared, dark knowledge between him and Bryan. In May, of the following year, he would make another move.

For Alex, the realization that informing Bryan was in and of itself not enough became the tipping point at which an additional move must be undertaken. Alex’s term, “something,” indicates a range of actions for consideration. Whatever that range or action constituted in his mind, the most viable option was to seek out an attorney. However, not just any attorney would suffice. It would need to be an attorney that “had contacts.”

To Alex, this was something that “had to be done.” Herein, the operative word is “had.” With this word, we see the criticality of the need for more action in Alex’s mind. Inaction now was not an option—“
Something
had to be done.”

Alex acted in the self-interest principle. His resulting actions—going to the FBI—were the result of his deliberations on the range of “something” and his motivation, brought on by the multiplying effect of “had.”

Acting on the self-interest principle is not in and of itself a negative action. Only if the consequences of those actions are detrimental to others do we see self-interest in a disapproving light. As noted previously, people buy the car they believe is best for them; we do not seek out someone who will make us miserable for the rest of our lives as a marriage partner; when grocery shopping we pick out the best fruit or vegetable in the bin. In like manner, we invest our money in a method and with those we believe will provide us the safest, as well as the greatest, return on our investment.

His words continue with, “I would need to do something . . .” In his mind there was no choice. His use of the word “need” makes clear that the circumstances required action on his part and his best choice was to obtain an attorney with contacts. So now our examination is not of the “what” to do, but rather the “why.” Alex addresses the “why” most succinctly, “. . . or everything was going to fall on me.” Obviously neither of the options—going to the FBI with the revelations or having everything fall on him—would result in a positive outcome. But having everything fall on him was, in his mind, the most negative outcome of the two.