Two Chattanooga investment dealers who swindled hundreds of local investors out of more than $4.9 million are headed for federal prison on Dec. 1.
Doug Dyer, a 58-year-old partner in Broad Street Ventures and a former president of the Chattanooga Quarterback Club, was sentenced Friday to five years in federal prison for committing financial fraud and tax evasion over the past decade through his investment business. James Brennan, his 68-year-old partner in the firm, was sentenced to four years in prison on similar charges.
United States District Court Judge Travis McDonough imposed the penalty Friday, four months after Dyer and Brennan pleaded guilty to four counts of financial fraud and tax evasion by taking money from more than 200 high-income investors and spending it for their own personal use.
McDonough ordered each of the brokers to pay back the $4.9 million the judge said they "stole" from investors and ordered Dyer to pay the Internal Revenue Service another $354,251 and Brennan to pay the IRS $184,022 for taxes they failed to pay on their ill gotten gains.
McDonough noted the pair had been cited and fined for improper financial transactions by California regulators more than a decade ago, but they continued to defraud investors in Chattanooga, even offering worthless stock certificates after their Broad Street Ventures was slapped with a "cease and desist" order last year.
"You made a calm, calculated decision to keep up this deceit for years," McDonough told Dyer during a sentencing hearing in federal court. "In many ways, these crimes are more evil than many of the other crimes that come before this court."
Mark Smith, one of the defrauded investors who said Dyer called him after the death of his father to invest part of his life insurance payments, denounced Dyer as "arrogant" and "a monster" who "took advantage of people at the lowest point in their life."
"These men are no different from the drug dealers selling drugs on the street," Smith said.
But McDonough, who often hears federal drug cases, said white-collar criminals are not subject to the same sentencing guidelines as those involved with financial fraud. Drug offenders involved with similar amounts of money would go to jail for at least 10 years under federal sentencing guidelines, he said.
Reed Bacon, president of Bacon Products Corp., who lives next door to Dyer and goes to church with the former financial broker, urged the judge not to send Dyer to prison.
"I know this is very serious, but he is a good person," Bacon said, even though he lost money by investing with Broad Street Ventures.
In January, Bacon hired Dyer to work as a laborer at Bacon Products, where Dyer earned only a fraction of what he made through his career as a banker at Commerce Union Bank, an investment broker with Raymond James Financial and co-owner of Broad Street Ventures LLC. Dyer said he was glad to have the job and said he has learned a lot this year.
Dyer offered a tearful apology during Friday's hearing, admitting "I messed up and was greedy" and said "there is no one else to blame" for what he did.
"I violated the trust of my friends and family and I am ashamed of my actions," he said.
Dyer apologized to each of his family members, including his older brother, Kenny Dyer, who is the Chattanooga market president of Pinnacle Bank. "I know this has put tremendous stress on you and I am sorry to embarrass you," he said.
Dyer's attorney, Lee Davis, asked the court for leniency in the sentencing, noting Dyer had been a long-time supporter of his alma mater at the University of Tennessee at Chattanooga, the Classic 150 Club, his church and his family, including helping to drive his disabled brother to work. Davis said Dyer has heart problems and expressed concern that X-ray equipment used in prison could cause problems for Dyer's pacemaker, especially after his own father died of heart problems at age 57.
"Nobody is interested in sentencing this person to a death sentence for these financial crimes," Davis said.
But federal prosecutor James Brooks said Dyer's health problems were not that unusual and said the federal Bureau of Prisons is capable of providing health care to its prisoners. Although the victims in the scam were largely high-income individuals who voluntarily made their investments and were not financially devastated by their losses, Brooks said "being robbed by a handshake is as unsettling as being robbed by any other weapon."
Brennan also apologized for his actions, and said "I want to find a way to give back to our community." Brennan, a veteran financial advisor who earned an MBA from the prestigious Darden business school at the University of Virginia, said he has lost his marriage, his house and his car and is now working at a car wash for $8 an hour.
McDonough said Dyer had been the primary salesman and, while remorseful now, had continued to lie to investors for years before the U.S. Securities and Exchange Commission began investigating Broad Street Ventures. Dyer and Brennan got investors to put money into eight investment funds they created under different versions of the "Scenic City F-10" name. But U.S. Attorney James Brooks said they were not licensed to do so and illegally diverted the money to their personal accounts.
According to documents on file with the U.S. District Court, between 2008 and 2016, Brennan and Dyer promised investors they would use their money to capitalize limited liability corporations that would merge with companies seeking to transition to public ownership.
Although the general practice is to report stolen funds as income, Brennan and Dyer mischaracterized the funds they stole as capital gains and paid taxes at the lower capital gains rate, effectively evading paying taxes at the correct rate.
The case was investigated by the Federal Bureau of Investigation and Internal Revenue Service Criminal Investigation and was encouraged by a number of the victims of the fraud, including retired Navy Capt. Mickey McCamish and businessman and former Hamilton County Democratic Party Chairman Paul Smith.
"We all thought that Doug would never hurt us because we saw him every day and trusted him," McCamish said. "But he never showed any remorse to us about what he did and he never said he was sorry."