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Sunday
Dec302012

Questions Mount As Tax Preparer Accused of $10 Million Ponzi Scheme Refuses to Cooperate

A Tennessee tax preparer suspected of masterminding a $10 million Ponzi scheme is now being accused of failing to cooperate with a court-appointed bankruptcy trustee tasked with recovering millions of dollars in missing investor funds.  Jack Brown, owner of Soddy-Daisy-based Brown's Tax Service and frequent preacher/Sunday school teacher at the Sale Creek Church of God, saw the business forced into involuntary bankruptcy in early November as scores of clients began asking questions about their investments.  According to the court-appointed trustee, Brown has "refused to answer questions which would not be protected under the Fifth Amendment" while also claiming that his health has deteriorated to the point where he is movable only by ambulance.  

While details thus far are sparse, it appears that Brown began his scheme as early as 2005 by telling potential investors that he could promise annual returns of 15% through his daytrading talents.  Soliciting not only existing tax preparation clients, Brown also used his position as a regular Sunday School teacher at a local Baptist church to attract investors.  While investors were not provided with any regular account statements, Brown offered them the opportunity to stop by his office at any time to check the status of their investment on his computer.  In total, Brown managed to raise approximately $10 million from over 40 investors.

However, many investors were horrified to learn in early November that Brown's operation was insolvent. Soon after this revelation, a local attorney filed a petition to have Brown's Tax Service placed in bankruptcy, alleging that Brown had been operating a Ponzi scheme that had just collapsed.  Rather than using investor funds to daytrade as promised, Brown was accused of misappropriating millions of dollars to purchase lakefront property that was lavishly outfitted with an indoor gymnasium, a golf simulator, a full bar, various games, several vintage automobiles, and the authentic floor from the Boston Garden sports arena.  In bankruptcy filings, Brown claimed only $1.4 million in assets while representing a yearly income of less than $30,000.  

According to the court-appointed bankruptcy trustee, Brown and his wife have resisted efforts to cooperate, instead cancelling scheduled meetings due to Brown's allegedly failing health.  A scheduled meeting with creditors, known as a 341 Meeting in bankruptcy parlance, is scheduled for January 8, 2013. 

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