Client list of Soddy-Daisy tax preparer accused of running Ponzi scheme sold

Client list of Soddy-Daisy tax preparer accused of running Ponzi scheme sold

January 30th, 2013 by Ellis Smith in Local Regional News


This story was written based on interviews with nearly a dozen victims and attorneys involved in the case, hundreds of pages of case documents and firsthand reporting on location.


• Check the credentials of anyone who asks you to make an investment. Do they have the proper certifications? Check out their background and references. A lack of proper credentials is a warning sign.

• Question where your investment is going. What types of stocks, bonds or businesses will receive your investment? Ask for documentation. A lack of such documentation is a warning sign.

• Consider any claims of inflated rates of return. Returns of 3 percent to 4 percent are reasonable. Rates of return such as 15 percent should raise a red flag.

• Take time to examine the quarterly reports of how your money is performing. A lack of such reports is a warning sign.

Source: Better Business Bureau

Jack Brown is co-owner of Brown's Tax Service and ABC Day Care in Soddy-Daisy.

Jack Brown is co-owner of Brown's Tax Service...

An active rail line serves as a modern moat at the 22-acre estate of Jack E. Brown, who has been accused of running a Ponzi scheme.

"You can't miss it," Soddy-Daisy locals say of the compound.

It's true. A golden horse-shaped ornament on the iron gate shines from afar, proclaiming prosperity to all who approach. The white fence beyond the rail trestle outlines the play area for a trio of horses trotting through the shadow of Brown's $1.1 million home.

His son and partner, Jason Brown, occupies the adjacent $400,000 house on the hillside compound, a landmark for tens of thousands of vehicles passing below on U.S. 27. Brand-new outbuildings contain a $320,000 gymnasium with a basketball court, arcade and bar. There's plenty of storage for a collection of motorcycles, ATVs and other toys for the grandchildren.

It's a place to call home for the family accused of running a Ponzi scheme that has cost banks, businesses and individual investors about $15 million and counting.

"He built that with my money," said Gordon Simpson, who invested $1 million in what he now believes was a Ponzi scheme. "When this is over, maybe I'll get a piece of that gate."

The instrument of Brown's alleged deception is a former restaurant a few miles south on Dayton Pike.

Brown's Tax Service, the crown jewel of his scattered business holdings, doesn't look like much from the outside. Built in 1930, its humble facade is built from cheap siding, made to feel cheaper by the presence of a shuttered cash advance store and nearby self-storage facility.

In its heyday, clients had to wait in line for up to 30 minutes, even if they had an appointment. Today, the small office is locked and the shutters are drawn. Heaps of tax files on more than 6,000 ex-clients are crowded inside the U-shaped building.

On Tuesday, bankruptcy trustee Jerry Farinash sold the client list to Chattanooga tax preparer Eric Pelton in open court. The building itself was not part of the sale. The computers won't be sold either, Farinash said, because investigators need to sift through the accounts of thousands of current and former clients to fully understand Brown's activities.

Brown has claimed in court filings that his assets total less than $1.5 million. That's barely enough to pay back his bank loans, much less the growing list of jilted investors.

Yellow fliers taped to the window say that the tax service was closed because of health issues. On the bottom of one flier, someone has scrawled the word "embezzlement."

No criminal charges have been filed in the case, which has been ongoing since November. It's not clear when, or if, such charges will be filed. While some victims said they have been contacted by law enforcement officials, U.S. Attorney Bill Killian said in a statement that he could "neither comment on the existence or status of any pending investigation," as per policy.

That leaves U.S. Bankruptcy Court as the only place for victims to seek answers. So far, there aren't any.

The closure of Brown's Tax Service couldn't have come at a worse time for Brown's ex-clients. Tax season is here, but their documents are locked behind closed doors, and their tax preparer is on the verge of death.

It's not clear whether Brown won't talk or can't talk. Attorney Tom Ray says that Brown, his client, will invoke his Fifth Amendment right to avoid self-incrimination in response to any question. Brown's physician says doctors are nearly out of options for keeping him alive. Two creditors meetings were canceled at the last minute because of his deteriorating health.

Calls to Brown's family remain unanswered. They've hired criminal defense counsel and have refused to cooperate in the bankruptcy trustee's search for assets, according to court documents.

Victims and attorneys say Brown's wife and son were complicit in what some creditors are now calling a "family Ponzi scheme." Some promissory notes were signed by Jason Brown. Janet Brown, Jack's wife, was part owner of the business. Recently, she sold one of the family's motorcycles to hire her own attorney, according to a complaint by attorney Rebecca Hicks.

The rapid-fire court filings mark a confusing turn of events for Brown's former clients, who believed him when he told them they were part of his family, when he told them he loved them.

Jack E. Brown was a popular tax preparer, in part, because he had a gift for people. He was more than just an accountant. He told clients that he would do anything for them. He offered to let their kids swim in his pool. He said he loved them. They believed him.

"He was like your next-door neighbor, someone you could just sit down and talk to," said Melissa Parker. "You wouldn't meet a nicer person."

Except it was all a lie, attorneys say.

Simpson had complete confidence in Brown at first, as he worked his way toward investing $1 million with the man he believed to be a skilled day-trader. Simpson even entrusted Brown with a life insurance policy and other personal documents for safekeeping.

He, along with the other investors, ignored the warning signs -- impossibly high rates of return, questionable record-keeping and Jack Brown's own lack of qualifications as a broker. No one questioned the displays of wealth, the rings, the cars or the houses.

Though the apparent Ponzi scheme came as a surprise, the Browns' lavish lifestyle was no secret. As the bankrupt former tax preparer's creditors now attest, Jack E. Brown's good fortune was the talk of the town. Everyone wanted to be close to the part-time preacher who grew up poor, then built a small tax service into a successful enterprise through hard work and customer service.

But attorneys believe that his income actually came from a scheme in which he used information gathered through his tax service to find the perfect victims -- typically older retirees with plenty of cash. He then induced them to exchange their existing retirement plans for a private investment through him, according to court documents. In exchange for their life savings, most received a typed piece of paper -- a promissory note -- drawn up like a loan. Some received no documentation at all.

They wanted to trust him, ignoring what the Better Business Bureau has said was a clear warning sign: It was too good to be true. Returns of up to 24 percent promised by Brown are unheard of in legitimate business ventures.

Before Brown's health began to fail, Melissa Parker visited him to ask about her investment. Her tax preparer turned to the nearby TV which was tuned to CNN, she said. Scrolling stock quotes raced across the bottom of the screen. With his eye on the television, Brown pulled out a calculator with a roll of paper on top.

His fingers danced over the calculator, as he apparently added up individual stocks as they scrolled across the television. After just a few seconds, his calculations apparently complete, he looked up and informed her that her investment had doubled, she said.

Victim Patricia Cross said Brown showed her some charts and graphs on his computer that supposedly tracked her investment. He didn't give out receipts, so she jotted down her own notes based on their conversations. After just five months, her $126,000 investment had grown to $144,000. Now it's all gone.

Brown worked his way through churches like the Sale Creek Church of God. Some days, he would get up and preach, said Alvarana Thomas. He eventually convinced the then-pastor, Kenneth Bolton, to invest his retirement in the scheme. Bolton lost it all, but said in November he would not press charges.

Creditors have two theories on where the money is located. Either it's buried in the ground or stored in a Swiss bank, most agree. Either way, they doubt it will ever be found.

"I believe they hid it, maybe overseas," Cross said.

Brown's attorney claims the ailing ex-tax preparer has no money left. The funds were spent on payouts to "other investors," Ray said. Brown is aware that there's speculation that he has assets hidden away, but it simply isn't true, Ray said.

"I know people think that I have money but I have none," Ray said Brown told him during a recent hospital visit. "If I had, I would have paid it back to people."