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Not So Neighborly: Mike Trom and Nate Reuter used to be friends and neighbors. But when Trom lost $175,000 in Reuter's Vertical Group investments, the relationship soured.(Columbia Daily Tribune (Columbia, MO) (KRT) Via Thomson Dialog NewsEdge) Jul. 25--Mike Trom doesn't remember the first time he met Nate Reuter. It might have been at the annual neighborhood barbecue soon after the Trom family moved into the upscale The Pines neighborhood in southwest Columbia. He's not sure. But soon after he found out Reuter liked to hunt, Trom is sure he sought him out. Duck, deer, turkey, whatever -- it doesn't matter to Trom, the North Dakota native will hunt it. And he likes to hunt with friends. Trom thought Reuter was his friend. For about seven years, the two hunted together. Their children played in the neighborhood, and the families spent out-of-town weekends together. The Troms even decorated the neighborhood with balloons to welcome young Logan Reuter home after his heart surgery at the Mayo Clinic. Looking back, Trom doesn't recall exactly when he decided to trust his friend with a big chunk of his family's savings. But the 43-year-old truck-trailer salesman does remember one sunrise early in the fall of 2004, duck hunting with Reuter in his boat on the Missouri River near Eagle Bluffs. "It was just two guys chatting," Trom said. "We started to talk about business. We talked about business all the time. He started telling me about these deals. I knew he was making money because I knew he owned this and he owned that." Reuter told Trom it was "silly stupid" how much money his mortgage brokerage business was bringing in -- profits of up to $400,000 a month. It was a staggering sum, but Trom believed it. In North Dakota, Trom said, you believe your friends. Trom had sized up Reuter, 47, as someone who had a knack for making -- and holding onto -- his money. Not long after the hunting trip, Trom said, Reuter approached him with a deal to buy a heating and air conditioning company in Jefferson City with Reuter's brother, Mark. Trom was interested and said he could come up with $175,000 as a down payment for a loan to buy the business. But Reuter told Trom he had a better idea -- an investment in a trading program that would generate enough profit to buy the business outright. Trom was told the program combined money from several investors and used it as leverage to borrow large amounts that would then be used to trade bonds, euros or other financial securities several times each day. Reuter promised Trom that his $175,000 investment would be returned within 14 days and that he would then get $500,000 a month for 10 months, for a total return of $5 million. What's more, Reuter told Trom that his partner who ran the trading program, Daryl Brown, was "highly thought of" at Citigroup, where he controlled a trust fund worth $720 million, with a total of $2.2 billion in "papers." Fewer than a dozen traders in the world were authorized to participate in the trading program, Reuter told Trom, and "members of the Russian government" planned to invest millions. Brown later boasted to Trom about meeting in Florida with Spud Webb and that other NBA players, including Cleveland Cavalier star LeBron James, were getting into the trading program. Trom thought it over. He contemplated the possibility of financial security and his dream to buy his own airplane. "First of all, he was my buddy, my neighbor," Trom said. "He didn't seem like somebody who would screw me." Reuter pressed Trom and gave him a deadline to invest or the opportunity would be lost. Trom decided to jump in. He got a second mortgage on his house for $45,000 and combined that with $130,000 in savings. On Nov. 4, 2004, he wired the funds to a Bank of America account in Carrollton, Texas, and waited for his promised returns. He's still waiting. In May 2005, some six months after the fateful duck hunting trip, Missouri Attorney General Jay Nixon sued Reuter, Brown, affiliate companies and two other officers for allegedly selling bogus securities and scamming five investors, including Trom, out of $575,000. Nixon's lawsuit was triggered by an FBI investigation that suggests the alleged scam runs deeper -- dozens of investors and more than $3 million in losses. Defendants listed in the lawsuit include Vertical Group LLC and an affiliate, Cerberus Inc.; Reuter, CEO of Vertical; Brown, chairman of Vertical and a principal of Cerberus; Rickey Dean Williams, national sales director for Vertical; and Bud Allen Wofford, compliance director for Vertical. The lawsuit accuses the companies and its officers of a "bait and switch" scheme in which Vertical would promote mortgage loans at low rates, then steer would-be borrowers into a promised risk-free, high-return trading program run primarily through Cerberus. The investment vehicle was billed as a "standby letter of credit." Valid standby letters of credit show financial backing for transactions and are typically used to guarantee payment for goods or repayment of loans. Nixon's lawsuit claims that in Vertical's case, it was an unregistered, high-yield investment promising exorbitant monthly returns of 20 percent or more. Days after he wired his money, Trom began to fret that it had vanished. He pressed Reuter for answers but got none. "The more I questioned him, the more he'd back away," Trom said. Trom made daily phone calls to Reuter and Williams. Often, he would go to the Vertical office at 3210 Bluff Creek Drive and sit there for hours waiting for news about his money. He was told that delays were caused by European holidays, issues at the Bank of Switzerland or that the U.S. government had shut down the flow of euros into the United States. Trom said Reuter was convinced that his money would be returned with a lot more to boot. Not the $5 million originally promised, Trom said, perhaps only $1.2 million. Trom later was told that his money was frozen by a Securities and Exchange Commission audit. Once the audit was complete, his money would be released with the promised returns. Trom said he asked for the name and phone number of the federal auditor to verify the story. The information was never provided, he said. In April 2005, Trom was at the Vertical office when Williams placed a purported telephone call to the Jedburgh Group, a Florida-based asset recovery and investigation service. After the phone call, Williams told Trom it appeared he had been scammed. Reuter apologized to Trom for getting him into the deal and claimed that he, too, had lost the same amount of money in the trading program. After months of hearing excuses and pressing to get his money back, Trom said, he finally lost patience and contacted the FBI. "I told them the whole story," he said. Trom told the FBI that he believed his money was going to an individual named "Dr. Bichai." He told agents he couldn't believe his friend and neighbor, Nate Reuter, would scam him. "Nate was Mike's best friend in Columbia," said Trom's wife, Jenny. "I'm not a risk taker. But this was Nate. I believed Nate would do what he said he would do." A separate FBI affidavit makes reference to Samuel Bichai, who was indicted by the federal government in 2000 on wire fraud and money laundering charges for allegedly participating in an investment scheme that involved "letters of credit." Looking back, Trom shakes his head in disbelief and says he never saw it coming. "I didn't have any question in my mind that it wasn't legitimate," he said. Last June, Trom said Reuter gave him another ray of hope. Reuter said the only thing preventing the return of Trom's money was a signature expected on a specific day. When that day arrived, Trom was told the person who needed to sign the document had been involved in a car accident. He was hospitalized and under strong medications, and he couldn't sign legal documents. "That was the last straw," Jenny Trom said. "I said, You've got to be kidding me.' " But it wasn't the last straw. Last July, Brown met with Trom at a local restaurant and told him there was yet more hope. The Jedburgh Group, Brown said, had detained Bichai, and he had a "chalice" that was worth much more than the lost investment money. Trom laughed. "Are you telling me you have The Holy Grail?" he asked Brown. "Do you expect me to believe this?" The attorney general's lawsuit alleges Brown lied to investors on numerous occasions. Among his whoppers, the lawsuit alleges, were that Brown hobnobbed with elite society, played football for the Kansas City Chiefs, owned one of the 12 largest broker-dealers in the country and helped engineer the merger between Travelers Group and Citicorp. The 29-year-old was arrested at gunpoint at his south Columbia home in September. He remains jailed in Warren County on federal charges of securities fraud and money laundering. Reached this week by phone, Reuter declined to comment, but in a deposition with state attorney Stewart Freilich, he claims to be just another victim. Reuter said Brown was in charge of the investment program while he and Williams found investors. He claims he invested funds with Cerberus and wired $175,000 to an escrow account at Bank of America in Texas. In January, Reuter sued Brown in Boone County Circuit Court seeking damages of $1 million and punitive damages of $20 million. In the lawsuit, Reuter said he relied on false misrepresentations that Brown had securities licenses and was a trustee of a "unit investment trust vertical market" worth $600 million. Reuter said in his deposition that Brown told him he was negotiating deals with representatives of Michael Jordan and Donald Trump. In the same deposition, he called Trom "a very good friend of mine." "I would like to think we may be one day again," he told Freilich. "I don't know right now." Last month, Boone County Judge Ellen Roper gave Reuter a default judgment and awarded him $522,315. Of that amount, $175,000 was for a wire transfer into the so-called unit investment trust, and $169,000 was for payments to Brown business associate Ralph Sweitzer and WBN & Associates, a Brown front company. The balance was for damages and costs. One former employee said it's hard to believe that Brown would do anything without Reuter's approval. "Daryl wouldn't break wind without Nate's permission," said Bill Neal, who worked one year for Vertical and left with a notion that he had been "hoodwinked" by the company. Neal said he was employed to find land developers and others with plans to borrow large amounts of money and steer them toward banks and other lenders willing to pay a fee for bringing them customers. He said he brought several deals to the table but was paid "draws" of only $7,500. Neal said he suffered a heart attack from the pressure and stress and went to Reuter for an advance to pay medical bills. He got $2,500. "I never got another dime out of them," he said. Last month, Trom joined eight other investors in a $3.7 million federal lawsuit against Vertical Group and Reuter. The lawsuit accuses Reuter of defrauding and stealing money using a "Ponzi" scheme in violation of securities laws and the federal Racketeer Influenced and Corrupt Organizations Act, or RICO. The lawsuit seeks $915,228 of invested funds, $2.7 million in damages, punitive damages and costs. In all, investor lawsuits filed in Missouri and Georgia seek some $8 million from Vertical and its affiliates and officers. David Brown, Trom's attorney and neighbor, said he's bewildered that the U.S. Attorney has indicted Brown and others associated with Vertical but not Reuter. "I would like to know how people who worked for the company have been indicted, but the founder, owner and CEO of the company appears not to be a target of the investigation," Brown said. Don Ledford, a spokesman for the U.S. Attorney's office in Kansas City, said he can't comment on details of an ongoing investigation. Soon after the state attorney general's lawsuit was filed last year, Trom said Reuter called and asked a favor. He wanted Trom to call the newspaper and vouch for his character. If he didn't, Trom was told, Reuter's wife, Kathy, might leave him. "You've got to help me first," Trom recalls telling Reuter. Trom said he asked Reuter to show him a copy of Reuter's $175,000 wire transfer into the trading program. He wanted proof that Reuter, too, had been scammed. Reuter said he would be over that night to show Trom the document. "Guess who never showed up?" Trom said. Several weeks later, Reuter remembered that Trom had one of his hunting shotguns. Through another neighbor, he asked Trom to return it. "Tell him to come and get it," Trom told the neighbor intermediary. Reuter never did. "It's the most expensive gun I've ever bought in my life," Trom said. |