by John Darer CLU ChFC MSSC CeFT RSP CLTC
Last week I reviewed a news report about how a Colorado couple notified authorities in 2014 about hundreds of thousands missing from their daughter's trust account with the Center for Special Needs Trust Administration, Inc. and they felt that federal law enforcement completely failed. That really bothered me to the core. If only...maybe the deeds alleged against Defendants might've been stopped well shy of their eventual end.
According to court documents, filed 10 years later, the Center's founder, Leo J. Govoni, issued himself loans totaling $100 million between 2009 and 2020 that he never paid back. The filing indicates an internal investigation found no record that any loan was ever officially approved.
"I think the missing funds came out of the blue," said Beth Leytham, a spokesperson for the Center.
According to the filing, Govoni transferred the money to one of his other companies, Boston Finance Group. He's accused of keeping the loans secret by contracting out control of the Center's finances, accounting and IT work to companies he also controlled. Source: Fox News 13 Special needs trust fund company files for bankruptcy, founder accused of taking $100M (fox13news.com)
Whether or not the allegations against Leo J. Govoni et al. are proven (Govoni disputes the allegations), it seems that there are a few missing pages from history that may inform newer industry participants, refresh seasoned participants and/or remind of the importance of due diligence and the need for greater transparency and regulation of unregulated product providers.
The History Lesson begins...
I. Secret Loans from Trust| Assets Used As Collateral| Failure to Repay Loans
"In November 2000, scores of injury victims faced financial disaster from the alleged looting of compensation funds, when scheduled checks failed to arrive, leading to the discovery that the company entrusted with Treasury bonds had secretly used them as collateral and then lost them by failing to repay loans". Sound familiar?
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SIDE BAR
"According to recent court documents, the Center's founder, Leo Govoni, issued himself loans totaling $100 million between 2009 and 2020 that he never paid back. The filing indicates an internal investigation found no record that any loan was ever officially approved". Source: Fox News 13
Something that seems odd to me is that the discrepancy was purportedly only discovered 2 years ago, but no notification appears to have been made to the poeple it mattered to until the Center's bankruptcy filing.
Thanks to a pejorative opinion by the late Richard Halpern of The Halpern Group, rhyming with Govoni's surname, I refrained from engaging in any business with Mr. Govoni or the Centers. Halpern died in December 2009, the year Govoni's alleged loans began.
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The bonds had generated the interest that paid living expenses for about 200 victims of auto wrecks, workplace accidents and botched medical procedures. They had resolved their claims through Treasury bond funded structured settlements that guaranteed them income for periods of 20 to 30 years. Victims of the alleged fraud were owed more than $100 million in total payouts.
In April 2001, the Los Angeles Times' Myron Levin announced that victims would have have their payments restored at least through 2001 under a $16.9-million settlement with Wall Street giant Merrill Lynch & Co, citing plaintiff's lawyers.
The agreement with Merrill left a string of blue-chip defendants in class-action suits stemming from the loss of a fortune in Treasury bonds. Another $23 million came from another wire house. Source: Foley Bezek (see link below)
Merrill Lynch to Pay $16.9 Million in Bond Case - Los Angeles Times (latimes.com) April 28, 2001
Resolved Cases | Foley Bezek
II. SBU | James R. Gibson, 79, Self-Serving Slime Who Purloined From The Needy
Gibson was owner and president of SBU, Inc. and several other companies around St. Louis, MO. United States v. Gibson, 490 F.3d 604, 606 (7th Cir. 2007). Under the guise of a legitimate business operation, Gibson stopped buying Treasury obligations with his clients’ settlement funds and instead spent over $16 million of his clients’money on unauthorized business transactions, high-risk investments, and real estate and luxury items for his own use. Id.
The total loss of Gibson's clients was $156,194,810.92 and many of them needed the money to support themselves and fund necessary medical treatment. Id.
James R. Gibson, now 79, is living out his 40 year sentence, incarcerated at a Federal prison in Miami Florida, according to the Federal Bureau of Prisons website. He denial for compassionate release last year was upheld on Appeal.
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