Investors may be out millions in Soddy-Daisy investment case

Investors may be out millions in Soddy-Daisy investment case

November 16th, 2012 by Ellis Smith in Local Regional News

Soddy-Daisy tax preparer Jack E. Brown

Photo by John Rawlston/Times Free Press.

A neighborhood tax adviser may have fleeced millions of dollars from close to 40 Chattanooga-area clients in what police officials say could be the largest such case in Soddy-Daisy history.

Jack E. Brown, of Soddy-Daisy-based Brown's Tax Service, promised big returns and financial stability. He was a trusted family man who owned two day-care businesses and several pieces of property throughout the area.

Brown sometimes stood up to preach at the Sale Creek Church of God, where he served on a church council, congregants say. He even convinced the church's pastor emeritus, Kenneth Bolton, to invest his entire retirement with Brown's Tax Service.

But that all evaporated on Thursday when the U.S. Bankruptcy Court in Chattanooga appointed attorney Jerry Farinash as interim trustee in Brown's involuntary bankruptcy.

"We trusted the man with all of our heart and we missed the mark with him," Bolton said. "I was a friend of the man. He fooled us."

Local police say Brown has not been charged with any crime as yet. Brown's attorney, Tom Ray, declined to comment on behalf of his client.

Ex-bookkeeper Yvonne DeMary, who worked for Brown on the tax side of his business for almost eight years, said there were warning signs that he was living far too lavishly for his income.

"He lived big," she said in an interview. "He didn't care about taking people's money, it was nothing to him, he and his wife [Janet Brown] both."

Big houses, nice cars, expensive parties and trips overseas were par for the course, DeMary said. She estimates Brown lost between $4 million and $7 million of investors' money.

"I just think he's greedy and it got out of control," said DeMary, who lost her job as a result of Brown's business closing. "It's just horrible."

Signs of Trouble

A message on the answering machine said the business had been closed since Nov. 6. A sign on the door claims Brown's business was closed due to health reasons.

One group of eight investors has lost a combined $1.3 million, according to an involuntary petition for bankruptcy filed by Dayton, Tenn., attorney Rebecca Hicks.

Other investors filtered into a Chattanooga courtroom on Thursday, unsure what would become of their life savings. But the hearing was short, and there were no answers.

"A lot of them went off his word and some of them don't have a contract," said Burt Johnson, finance director and city recorder in Soddy-Daisy.

None of Brown's clients reached Thursday by the Times Free Press said they had been contacted by law enforcement. Most heard about the case from friends, or discovered Brown's office was closed when they called to check on their accounts.

Ed Grandfield invested $250,000 with Brown -- money he had earned from a subdivision he helped develop. It was his retirement fund and he hoped to use some of the money to pay for a timeshare in Pigeon Forge.

"I thought he was the only day trader who was making money," Grandfield said. "He assured us that he was bonded and said the most we could lose was $50."

By noon Thursday, the Soddy-Daisy Police Department had taken "well over 30" statements from Brown's former clients and passed them onto the Internal Revenue Service, said Lt. Mike Sneed, head of investigations for the department. Though he couldn't confirm a crime had been committed, he said it's the biggest reported financial case of its type he's seen in 22 years of police work.

A spokesman for the IRS would neither confirm nor deny that any investigation was ongoing.

U.S. District Attorney Bill Killian did not respond to requests for comment.

Living large

Jim Winsett, CEO of the Chattanooga Better Business Bureau, said there are always red flags in cases like this.

Brown routinely claimed returns of 15 percent on investments, according to former employees and clients, but provided little documentation to back up his claims.

"Anytime somebody offers an investment return of more than 5 percent, that needs to give you some hesitation and something to think about," Winsett said. "When you say 15 percent, that should raise every red flag possible."

Brown also struggled with debilitating health issues, associates say, and his son, Jason Brown, took over parts of the business.

"He kind of had to take over, but even then his dad wouldn't let him take over completely," DeMary said. "Do I think [Jack Brown] was incompetent? I do now."

One of Brown's legs has been amputated and another is broken as a result of an accident, she said, and Brown receives dialysis treatment three days per week.

"He's been sick and in the hospital going on a year now, and been several times almost at the point of death," said Sam Phillips, former pastor at the Daisy Church of God.

Brown pitched his investment idea to Phillips, who ultimately decided not to give his money to Brown, he said.