Finance safety

DEA agents fooled for 20 years by Ponzi schemer paid with taxpayer funds

BY LUKE ROSIAK | DECEMBER 4, 2014 | 4:31 PM 

A con artist fooled more than 100 Drug Enforcement Administration employees into investing in a...

A con artist fooled more than 100 Drug Enforcement Administration employees into investing in a Ponzi scheme for almost two decades.

Kenneth "Wayne" McLeod ran a company called Federal Employees Benefit Group, and the DEA hired him to give at least 130 "seminars" for members of its workforce. He marketed an investment opportunity for 8 to 10 percent returns in tax-free income.

"DEA officials permitted McLeod to promote himself and his businesses in DEA facilities, and using DEA official channels," according to the Department of Justice inspector general.

At least some DEA agents at the seminars questioned McLeod's financial advice and stopped using him for a time, but the seminars soon returned after McLeod donated hundreds of thousands of dollars to the DEA Survivors Benefit Fund. At one DEA conference, he presented an over-sized $20,000 check to the charity.

"We believe that this enhanced McLeod's ability to gain and maintain access to the DEA," investigators wrote.

He also provided all-expenses-paid Super Bowl trips to seven DEA agents, who accepted the gifts even though doing so violated government ethics policies.

The FBI received a complaint that federal officials had provided a "captive audience" for him to market his schemes in exchange for the Super Bowl trips.

McLeod committed suicide in 2010 after the Securities and Exchange Commission began an investigation into his FEBG scheme. At that time, it had 139 investors, who had contributed at least $34 million, and two-thirds of them were affiliated with the DEA.

The Federal Employees' Retirement System Act of 1986 provided for taxpayer-funded "retirement counselors" to give employees education and advice about their personal financial situations. But they are not supposed to promote any "particular products." The FERS program replaced the Civil Service Retirement System that was saddled with deep unfunded liabilities because it guaranteed generous pensions for millions of civil servants.

The IG report compared McLeod's scheme to that run by Bernie Madoff and said the biggest red flag that should have tipped DEA agents off was that the financial terms were "too good to be true."

An FEBG sister company owed $500,000 in back taxes by 2004, yet McLeod continued to receive federal contracts and access, not only at DEA but also at the FBI. His retirement planning courses were two to eight hours in length and he was paid $1,500 to $3,000 for each.

But the seminars were a "marketing tool" to promote his real businesses. At the time, according to the IG, employees complained, asking "was this an informercial? Did the government pay for this?"

McLeod didn't actually invest the money participants contributed to their accounts, instead using money from new investors to pay off old ones while keeping large amounts for himself. In May 2010, he had no funds when a retired DEA agent tried to redeem his investment, and the agent complained to the SEC.

The next month, SEC attorneys were scheduled to take his deposition, but he emailed them that morning: "I will not make it this morning. I have decided that death was a better option. I am truly sorry for all the harm I caused." Then he shot himself.

Last year, his investors sued the federal government for $120 million, saying they failed to vet McLeod's credentials before allowing him to provide DEA training.

Source:  http://www.washingtonexaminer.com/article/2556979