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Lawsuit Alleges Church of Scientology in Utah Involved in Ponzi Scheme

CoSSLCIn Salt Lake City, a retired schoolteacher and her son are suing a group of people they accuse of running a Ponzi scheme involving — and designed to benefit — the Church of Scientology in Utah.

Carol Bee and Brian Bagley are suing a group of investors in a state court action, but also have filed a complaint in the bankruptcy of Barry and Kimberly Hunter, two Scientologists who became insolvent when the financial services company they were trying to get off the ground, Portfolio Manager International, failed in 2011.

The Hunters have responded in detailed court filings denying that PMI was a Ponzi scheme, and they say that Bee and Bagley were harmed not by PMI but by a man named Christopher Hales, who is currently serving 7.5 years in federal prison for bank fraud. The Hunters say that they actually tried to help Bee and Bagley once they realized Hales was acting strangely about the investments that Bee and Bagley had given him.

But since the Hunters made those responses, Bee and Bagley have now filed a beefed-up amended complaint asserting that Barry Hunter and his other partners formed PMI in 2005 as a fraudulent scheme that would in part raise money for a Scientology foundation.

“PMI was never operated as a legitimate business,” says David Scofield, attorney for Bee and Bagley.

Scofield’s court filings include lengthy descriptions of Scientology as an explanation for how its unique ethics make it a cauldron for fraud.

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On April 15, Kimberly Hunter filed a passionate letter written to the bankruptcy judge, pleading that the complaint filed by Bee and Bagley was just a shakedown attempt…

Although I have spent my career in photography production, I have spent a lifetime in the volunteer service of others. I was volunteer Ski Patrol for the Olympics at Soldier Hollow…I went to Banda Aceh, Indonesia for the tsunami relief there (twice)…Does that sound like the same “conspirator” listed in this wildly frivolous lawsuit?

…We did not take one penny from this woman, Carol Bee or her son Brian Bagley. I never even met her. I have lost everything in this bankruptcy. I have lost my home to the bank. If we had hidden assets, don’t you think we would have used them to save the home that our children grew up in? The home that I remodeled every square inch of myself?

…for the bankruptcy to be blocked by this insanely frivolous lawsuit naming me and my husband as conspirators, when I know for sure they never received one cent from her…This suit is what is evil, not us. We are as much a victim to Chris Hales as she is. Mr. Scofield is throwing mud on the wall trying to get something to stick. Trying to get someone to cry uncle and write a check.

Barry Hunter explained in his own letter to the bankruptcy court that he and his PMI partner Michael Wright, another Scientologist, actually tried to help Bee and Bagley when they realized that Hales was a scammer…

In December of 2009 after Mike Wright and I met with Carol and had proof that Carol had been defrauded by Chris Hales we acted immediately and decisively. Mike and I immediately sent a cease and desist letter to Chris Hales and Markus Williams. I also wrote a letter to Michael Hines, the Director of Enforcement for the State of Utah Dept. of Securities informing him of Chris Hales and their wrongdoings. I made every attempt to assist Carol Bee and Brian Bagley that was possible and a few days after our meeting Carol Bee and Brian discontinued taking or returning our phone calls. Later in 2010 after Chris Hales had been arrested we invited the FBI into our offices to assist them in any way we could. We were told by the FBI that they found no evidence involving criminal misconduct on the part of PMI or Oneiros. None of Carol Bee’s Funds were ever transferred to PMI. I was completely shocked some nine months later to be named as co-conspirators with Chris Hales and Markus Williams, the very individuals we blew the whistle on.

In a September, 2010 motion asking a federal court in Utah to keep Hales in custody while awaiting trial, US Attorney Carlie Christensen also described the harm done to Bee and Bagley as something done at the hands of Hales, not PMI…

An August ’08-January ’10 investment fraud scheme whereby Hales and cohorts Richardson and Markus Williams scammed victims Carol Bee and Brian Bagley out of $244K that was purportedly to be invested in specialized computer servers (at $50K each) with a company not under their control called PMI that could purportedly predict stock market fluctuations, with the remaining funds to be invested in the market using the server programs. None of the funds were invested with PMI, and the investors have received nothing in return for their investment, and no accounting of the invested funds.

But in the amended complaint filed on April 26, Scofield points out that the Hunters filed for bankruptcy nearly two years after Bee and Bagley had initially sued them in the state court action. Scofield says that even the attorney for the Hunters in that lawsuit was unaware that they had sought bankruptcy protection.

Scofield’s amended complaint includes a lengthy description of Scientology and its basic ideas: He aims to show that its underpinning concepts are all about bringing in money in ever-greater quantities through the use of levels of involvement…

Even upon achieving a state of “Clear,” followers are warned that grave spiritual dangers are eminent [sic] unless they continue on to the higher and more expensive levels…[Scientology founder L. Ron] Hubbard’s goal for the church was to “Make money. Make more money. Make others produce so as to make money…However you get them in or why, just do it.” Hubbard’s proclamation has been taken most literally, resulting in the Church’s effort to gain influence and affluence by resorting to financial scams which act as a front for recruitment and/or income for the Church.

Scofield then points out that the church operates hundreds of front organizations which often downplay or hide their connections to the church, and that Scientology retaliates against critics in its “Fair Game” policy. (He also, in a footnote, references the Ponzi scheme of Scientologist Reed Slatkin, one of the largest such schemes in history, which took in hundreds of millions from investors — many of them fellow church members — before it was shut down in 2001. Slatkin was sentenced to 14 years in prison in 2003.)

The complaint asserts that the scheme’s principals were not only attracting people to their business operation, but also trying to bring Utah Mormons into Scientology. Both Barry Hunter and Chris Hales, the complaint says, were Mormons who had been brought into Scientology. Hales, however, was unable to finish his experience in Scientology’s sauna-and-vitamins regimen, the “Purification Rundown,” and quit two days before the finish.

It was important to have Scientologists in the scheme, Scofield argues, because church rules prevent Scientologists from suing each other…

Defendants Michael Wright and Barry Don Hunter, relying on Defendant Wright’s position as President of the Church of Scientology of Salt Lake, solicited Defendants Burton, D’Arezzo, Farr, Kingdon, Petersen, Stowe and Szaniszlo (“Scientologist Defendants”), each being a member and subscriber to the tenets of Scientology, to invest in PMI by making loans to the company.

Scofield writes that he intends to show at trial that these investors were attracted to the project because they believed PMI would not only make them money but it would also raise funds for the church, and that PMI would accomplish this as a “fraudulent high yield investment program” — a Ponzi scheme.

Christopher Hales

Christopher Hales

The hook for unsuspecting investors — such as Bee and Bagley — Scofield claims, was that PMI would be sold as a set of servers running advanced software that could predict fluctuations in foreign currencies. Money was raised even though PMI had never actually bought or sold a thing — it had shown high yields only in practice runs operating on hypothetical trades.

One of the groups that became interested in PMI was named Bentley Holdings, which was run by Christopher Hales, Markus Williams, and a man named Eric Richardson, who was mayor of Cedar Hills, Utah. Like Hales, Richardson is now doing time in federal prison for bank fraud. Hales, Williams, and Richardson convinced Bee and Bagley to get involved with PMI. They brought the two investors to meet Hunter and Wright, the complaint says…

On or about January 12, 2009, Bee and Bagley met with Wright, Hunter, Hales and Williams at the PMI office. Wright gave a 45 minute presentation with several color bar graphs illustrating returns on investment. Wright represented that PMI, through paper trading test runs, had made up to 72 percent in a 3 month period. Wright represented that the potential was there for investors to make an excellent profit with relatively no risk involved.

Scofield writes in the complaint that Bee and Bagley were told that PMI was just waiting for some approvals from the Securities and Exchange Commission before it could begin trading for real. Investors were told that only a limited number of server positions could be bought, and those who were too late would be shut out. With promises of high yields, Bee and Bagley turned over about $130,000 to Hales and Bentley Holdings, which they were assured would be put into PMI. They were also convinced to help Hales purchase an RV, and to invest some money in an oil business. Later, at a meeting with Hunter, they realized that PMI had received only a small portion of their investments. At that point, Hunter told them that he would help them report Hales to law enforcement.

In the complaint, Scofield is clearly skeptical about Hunter’s claims about helping them snare Hales. He reasserts several times in the complaint that from the beginning, PMI was meant to fleece investors on behalf of Scientologists and Scientology.

To bolster that point, Scofield reveals that since an earlier complaint, he has obtained numerous intriguing e-mails between the principals of PMI, and some of them are shot through with Scientology jargon.

Hunter in one e-mail says that he will “continue to push the comm lines out on this end so we can get the funds we need.” And a letter from several principals, including Hunter, says “the majority of the profits will be earmarked to profit sharing plans with the bulk of the capital being used to fund a philanthropic foundation…the system will ultimately be used to fund the foundation.” Under examination, Scofield says, Hunter indicated that this “foundation” would be a Scientology entity.

On January 9, 2009, Hunter sounded excited in an e-mail about the prospect of bringing in two “fat cat” clients: “We have two fat cat clients who could easily bring in over $500 Million each so we’re not really wanting more small clients. The 50K fee is actually a partially refundable Earnest Money Agreement. They have been fairly easy to come by with clients who have large amounts of liquid cash.”

On March 9, 2009, Hunter and Wright received an e-mail from Michael Baybak, a longtime Scientologist and investor who was noted for his unusual trades in TIME magazine’s landmark 1991 special issue on Scientology (“The Thriving Cult of Greed and Power”) by writer Richard Behar. (Baybak is not a party to the lawsuit. In 2009 he was awarded the status “Patron Excalibur” by Scientology leader David Miscavige for donating an estimated $15 million to the church.)

Bayback thanked the PMI principals “for forwarding your write-up on the strategic vision you folks have for your group’s grand goals as well as the interdependent structure of the four entities you have in mind to carry forth successful accomplishment of your (emerging favorite word here) audacious and, dare I say, exteriorizing mission. I can certainly buy into the grand vision and the enlightened purposes of your intended activity, and I do rather like your conception of the structural elements, including the ‘hub and spoke’ concept of the various funds that would [be] structured to operate under, if I get this rightly, PMI operations. Seems to me that you are really maximizing the structure to milk the global market’s cow maximally — and for the greater good.”

Other e-mails indicated that Baybak made a $2 million investment in PMI, but we want to stress again that he is not a party to the lawsuit.

A note from Wright to one of the other principals: “I personally want you to know that it’s not just about your helping provide the financing which is of course a great help. But I feel the greater value comes in having a group of thetans with some horsepower on board pushing together with us as a single determined entity. Money can’t make a postulate…I know, you all know our church needs our help and I do not know about but I personally see no other group of individuals other than ourselves that have an actual workable plan underway.”

And perhaps the strangest message, from Hunter, about a Mormon friend: “My good friend Kevin Calderwood is coming to see the system next Tuesday. He has a personal net worth of over $100 Million and is based in Salt Lake City. He is also a Stake President in Washington D.C., a very theta guy and could be an excellent ally for ridding the LDS church of Psychiatry and Psychology.”

Scientology traditionally considers psychiatry to be an abomination that it seeks to destroy. It’s not clear, however, how PMI would have been able to help rid the Mormon church of psychiatry.

According to the complaint, Bee and Bagley are asking at least $1.3 million in damages, and in bankruptcy court damages are trebled.

The defendants have, in their responses to the bankruptcy court, either asserted that they had no knowledge of what Bee and Bagley allege, or, as in the case of the Hunters, submitted passionate defenses, which we’ve excerpted above. But we’ll let you see those defenses yourself and put them here in their entirety, along with the amended complaint. The Hunters say they made an honest attempt to get a financial business off the ground, and were unfortunate that a convicted scammer like Hales got involved. Bee and Bagley allege that Hunter and his partners were out to scam investors from the start, and that their involvement in the Church of Scientology gave them the ethical compass to do so. The amended complaint includes as defendants Scientology’s Salt Lake City mission, its Utah church, and the Church of Scientology International.

Scofield tells us that there has been no local news coverage of this lawsuit in Utah. We tried calling the Hunters at their current business, Hunter-Champlin, Inc., but the number listed online has been disconnected. Their court responses, however, speak rather voluminously for them. Here’s Kimberly Hunter’s evocative letter to the court…

 

Kimberly Hunter Response

 
 
Her husband Barry Hunter’s response to the bankruptcy court has much more detail about the background of PMI…

 

Barry Hunter Response

 
 
And here is the lengthy and complex amended complaint filed April 26 on behalf of Carol Bee and Brian Bagley by their attorney, David Scofield…

 

Bee Bagley Amended Complaint

 
It’s a very complex case, and one that we’ll keep an eye on as it progresses. Scofield tells us the case is going into a discovery phase, and he expects to depose many people, which could yield more fascinating material.

“Carol Bee was a secondary school teacher her whole life until her retirement in the state of Tennessee,” he tells us. “She was divorced before moving to Utah, and the money she lost here comprises most of her life savings.” Her son, Brian Bagley, is in his 40s, and Scofield says Bagley had to file bankruptcy after he helped Chris Hales purchase an RV, and payments were not made on it as were promised. Neither of them, Scofield points out, has money for attorneys. But Scofield made it clear that he believes Bee and Bagley are up against scammers who still haven’t explained themselves.

“I’m willing to go to the mat against these people,” he says.

 
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Posted by Tony Ortega on May 6, 2013 at 07:00

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