Fort Worth investment adviser’s clients see savings vanish as firm is shut down

Mike Larose remembers when he and his wife first heard Jim Poe’s pitch.

Advising Larose and his wife, Mariann, about how to handle $120,000 from an IRA, Poe told them it was a sure thing to invest in the insurance policies of the old and ill. The couple could double their money within 10 years, he told them, making it easier to retire early.

Mariann was skeptical, and thought it sounded too good to be true.

But Poe pushed.

“He looked her in the eye, and put his hand over hers, and said, ‘Everyone dies,’ ” said Mike Larose, a 63-year-old marketing consultant in Woodhaven.

He now says they should have followed her gut instinct.

Not long after the couple handed the money over to Retirement Value, the company Poe recommended, state authorities swooped in and shut the company down in 2010. Officials in court documents called it a securities scam, alleging it cheated 1,100 people out of more than $77 million. Last year, five of Retirement Value’s main players were charged with securities fraud and money laundering.

Six years later, the Laroses and others who hoped the investment would allow them to enjoy their retirement years are still waiting to get the bulk of their money back. A state receiver who took over Retirement Value’s seized assets said that may take 20 years.

And despite efforts by the state to recover money, until late last week Poe had refused to return about $500,000 in commissions for selling Retirement Value, what the state referred to in court as “ill-gotten gains.” On Friday, officials said Poe settled with the state receiver and dropped a court fight.

“Poe had to know it was fraudulent,” said Eduardo “Eddy” Espinosa, an attorney appointed as the receiver over Retirement Value who sued Poe to reclaim the commissions. “This was a sizable fraud that was executed very quickly and affected a large number of people for a lot of money.”

Poe was not the only financial adviser selling or promoting the company in North Texas. According to Espinosa, there were at least eight others, two of whom received more commissions than Poe. But he was the last one to fight in court to try and keep the commissions.

Over several weeks, Poe declined requests from the Star-Telegram to be interviewed about Retirement Value or the Texas State Securities Board’s recent revocation of his investment adviser registration. He was sanctioned for selling unregistered securities through another company.

Eventually Poe defended himself and his work in regard to Retirement Value in a statement released by a public relations firm.

“I was not an owner or officer of the company. At the time we represented their product, I saw no problems with the company,” Poe’s statement said. He added that he fought in court with Espinosa over the commissions because he was “innocent of all charges.”

Larose thinks Poe simply got greedy.

“You go to a financial adviser and you don’t expect to get this kind of help,” Larose said. “But all he could see was the commission dollars.”

Too good to be true

James Emory Poe’s pitch often involved the radio, his family, steak and cookies.

Poe may be best known for the Found Money Radio show, which runs on weekends on 1080 KRLD and 820 WBAP. On the show started five years ago, Poe took to the airwaves to offer advice on how to make retirement years better through wise investments.

“Retirement is more and more a do-it-yourself kind of a business,” Poe, in a folksy manner, told his listeners last month. “Pensions are going away. Social Security is being challenged. Anybody looking at retirement in the near future, 10 years out, is probably nervous about it, wondering at least, what is going to happen to me and my money?”

“We’re not necessarily better predictors of the future,” Poe said. “But we have some probably safer, more conservative ideas about how to manage money.”

When he was not on the radio, Poe made sure his financial advising was a family affair.

He worked alongside his wife, Dauphinais, and other family members at Texas Retirement Specialists. The company has offices on Camp Bowie Boulevard in Fort Worth and on Dallas Parkway in Dallas, according to its website. Clients said they often dealt with the entire clan, who would help host events like an annual Christmas party.

“He has a great gift of gab and his wife is involved and it’s a family-run business,” said Steve Gunn, a 70-year-old retired American Airlines employee who invested $75,000 in Retirement Value because of Poe. “He had his wife and kids there and grandkids making cookies. It was the American Dream.”

Potential clients were wined and dined at seminars at upscale steakhouses like Ruth’s Chris.

Sharon Brady, a 71-year-old retired Tarrant County deputy, said his presentations sometimes took on religious overtones with “all this prayer and religious stuff.”

So in 2009 and 2010, when Poe started pitching Retirement Value, a New Braunfels-based company that sold life settlement investments, his clients were willing to listen.

Life settlements, also known as viaticals, are made up of universal life insurance policies sold by people who no longer want, need or can afford them. The policyholders sell them to private equity firms and pension funds for less than their death benefit value, but more than their cash value.

They are packaged as securities, similar to bonds, and investors pay a fixed sum for policies carrying a calculated life expectancy and a promised rate of return. As the U.S. population has aged, this has become a big business, with about $35 billion invested in 2014, up from $2 billion in 2012, according to Money magazine.

But life settlement contracts are considered complicated and risky investments. The individuals selling the policies could live longer than expected, delaying investors’ returns. And sometimes the companies putting together the policies are making a killing, and not in a good way.

Life Partners Holdings out of Waco is a notorious example. Life Partners, which also sold shares in life insurance policies on the elderly and terminally ill, was accused of fraud. The publicly-traded company filed for bankruptcy last year after being hit with a $46 million court judgment on Securities and Exchange Commission charges that it filed false and misleading statements.

Retirement Value, which was open for business for about 10 months, acted in much the same way.

“This is Life Partners on training wheels,” Espinosa said. “Imitation being the most sincere form of flattery. I think Retirement Value flattered Life Partners.”

‘I thought it was a slam dunk’

Still, Poe was able to calm his clients’ fears.

Brady, Gunn and others said they were shown notebooks of the policies Retirement Value had purchased and the people behind them, who they were led to believe were about to die. The notebooks included doctor’s reports and details of medical conditions.

James O’Neill, 82, a retired executive who says he put $500,000 into Retirement Value at Poe’s urging, said he knew there was a risk but he thought it was minimal. O’Neill said he was not unaware of problems with life settlement companies, but was told by Poe that Retirement Value was sound.

“I knew they were going to die and the sooner the better. I know that sounds bad, but that’s making money,” O’Neill said. He was told that “ninety-three percent of the people would start paying back in five years. ... I thought it was a slam dunk.”

While Gunn and O’Neill got wooed at Ruth’s Chris or Del Frisco’s, Brady said Poe convinced her to get into Retirement Value when she went to his office with a $50,000 check in hand to buy a bond. But when she was told it was no longer available, Poe told her about an investment that he was only letting 30 of his clients in on: Retirement Value.

Brady said she was shown the notebook of the original policyholders. “This one is going to die within a year and this one within 18 months,” Brady said she was told. Brady said she was promised a 16 percent annual return. Since she already had one successful investment with Poe, she did it.

“It was just a pressure point because they knew I had my money there,” Brady said. “I should have turned around and walked out of the room.”

The securities sold by Retirement Value, which were not registered with the state as required, basically promised to pay a fixed sum at an undetermined date in the future. The amount was tied to the calculated life expectancy of the insured. Poe and others argued that Retirement Value was actually selling insurance, but the courts determined the company was peddling a security.

“There is no insurance product here,” Espinosa said. “What was being conveyed was a financial instrument and a security at that.”

In all instances, Retirement Value promised to pay a return of 16.5 percent per year for the insured’s calculated life expectancy, court records state. For example, Retirement Value would pay $18,800 on a $10,000 investment on someone expected to live about 5 years.

The company also promised to reserve sufficient premiums to pay on policies for two years if the person lived longer than expected. But that wouldn’t be a problem since 95 percent of the people would die within a year of the life expectancy, Retirement Value said.

But that projection was only a best guess, not a medical certainty. According to interviews with state officials and court records, it reflected the time at which 50 percent of the people who are statistically similar to the insured were expected to be deceased.

Another problem was that Retirement Value got its life expectancy calculations from Midwest Medical Review, a company owned by a convicted felon who had been indicted on 21 counts of fraud and conspiracy and falsely portrayed himself as a doctor, records show. A state official said it just took an Internet search to discover the criminal background of the Midwest Medical Review owner, calling that a “red flag.”

“Jim as the professional should have been looking at this,” Larose said. “The problem is that these people are in such great health they will probably outlive me.”

The promise of such stellar paydays quickly caught the attention of the Texas State Securities Board, which sent an investigator undercover to check out the claims. Based on that inquiry, a Travis County judge shut down Retirement Value in May 2010 and put the company into receivership in hopes of returning some, if not all, of the money to investors.

“This sounded a little too good to be true,” said Joe Rotunda, director of enforcement for the Texas State Securities Board. “This was such an extraordinary scheme that we felt it was appropriate to pursue immediate relief, and the court agreed.”

“A lot of blue-collar, regular Texas investors were lured into this scheme,” Rotunda said. “Not the Warren Buffetts of the world.”

In a 2013 deposition, Poe said he was unaware of Retirement Value’s problems and relied on others in the industry who said everything was okay. The day after the company was shut down, Poe sent his clients a letter saying their money was safe, but that they could expect calls from state investigators.

“We describe these calls as a witch hunt to try to get evidence against the targeted companies,” Poe said in the letter. “If the TSSB can collect a series of complaints of misrepresentation” it can be used against the company to extract fines and concessions in an effort “to put the company out of business.”

Gunn believes Poe should have known better.

“Retirement Value has been a huge debacle,” Gunn said. “As far as I’m concerned, he didn’t thoroughly investigate Retirement Value to make sure what they were doing was exactly legal.”

Prying money out of his hands

Espinosa is working to get investors their money back.

Instead of liquidating everything, which would pay the investors about 44 cents of every dollar invested, Espinosa collapsed Retirement Value accounts into a single fund that is expected to pay out 100 percent of every dollar invested. The fund earns enough money to pay insurance premiums, reload the premium reserves and distribute some money as the insured actually die.

In December, Espinosa reported that the fund had received $11.5 million in death benefits in 2015 and, as a result of the portfolios’ performance over the last several years, asked the court to allow a distribution of $2.5 million to investors. Over the six years the fund has existed, it has paid out about $11 million, or about 13.7 percent of the investors’ approved claims.

It is predicted that it will take at least 20 years for the portfolio to fully mature. Espinosa said his goal is to pay investors back every dollar they put in, and maybe a little bit more.

“I issue a dollar and everyone gets their proportional interest in that dollar,” he said.

Adding Poe’s commission money would help, Espinosa said. The receiver sued or sent demand letters to more than 100 agents who sold Retirement Value to clients and settled with most of them, pumping $9.37 million into the fund. In fact, before his recent settlement, Poe was the only one fighting in court to keep the money, arguing that an earlier $5.5 million settlement with Retirement Value’s principals erased that debt, an attorney said.

Last month, the 3rd Court of Appeals in Austin disagreed. The court ruled that Poe should refund $485,564 he received in commissions. With interest, attorney fees and damages, as of March 7 Poe owed $808,000.

On Friday, Espinosa said that Poe had agreed to pay $660,000 — $400,000 immediately and $260,000 over the next two years, subject to early payment discounts. “The proceeds from Mr. Poe’s settlement will accrue to the benefit of the Retirement Value victims.”

John Thomas, the attorney representing Espinosa, said he can’t believe Poe put up such a fight.

“I can’t understand why an investment adviser would not happily return the commissions he received from what the court called a ‘fraudulent scheme’ that he advised his clients to invest in — especially when those commissions would be used to help pay back the victims,” Thomas said. “Instead, Poe has made us pry them out of his hands.”

In his statement issued before the settlement, Poe said that while other agents settled with the receiver, his firm chose to “defend ourselves” because “we believed we were innocent of all charges.” Up until this week Poe was considering an appeal to the Texas Supreme Court.

“I’m proud of what our family has built in North Texas,” Poe’s statement said. “People vote with their feet and, at last count, we have several hundred families that believe in us and have been satisfied clients for years. We look forward to continuing to serve them.”

Jim Poe & Associates deals in pooled investments, managing $75.6 million in assets with up to 250 clients, according to a 2016 Securities and Exchange Commission filing. Poe or a related person owns 5 percent of a $7.9 million hedge fund and 1 percent interest in another worth $4.3 million.

A sense of betrayal

It’s not as if Poe hasn’t been warned about this kind of behavior before.

Two years ago, he was fined $775,000 by the Financial Industry Regulatory Authority for improperly charging commissions stemming from the sale of $2.25 million in life settlements. The not-for-profit organization was authorized by Congress to protect America’s investors.

The same year the Securities and Exchange Commission suspended Poe for two years — from October 2014 to this October — for failing to disclose in advance outside business activities and for improperly charging performance fees from 2009 to 2011. He was fined $35,000.

Poe’s last few weeks have also brought setbacks. After he lost his fight over the commissions, the Texas State Securities Board revoked his registration as an investment adviser after he was found to have sold life settlement investments in which he promised investors a 75 percent return. Poe’s firm was also sanctioned for failing to disclose excessive fees.

As a result, Poe can’t act as an investment adviser, dealer or agent. This led to him giving up his role as host of the Found Money Radio show; his daughter Britni Levensailor now appears on the broadcast.

Don’t expect Larose, Brady or several of Poe’s other former clients to feel too sorry for him, though.

Brady said the money she put into Retirement Value was a “central part” of her retirement nest egg. Brady said she was devastated at times, then just hurt, by what happened to her.

“It is sickening that a businessperson would pull that on so many good citizens,” Brady said. “It was a betrayal because you trust your financial adviser.”

Larose and his wife are more philosophical about their experience. While Mariann Larose, 57, had planned to retire as an American Airlines flight attendant by now, it looks like she’ll have to keep flying for a few more years.

Mike Larose continues to work, too, although he looks forward to the day when he just plays golf.

“The investment is not going to pay off as we expected or in the time we expected,” Larose said. “We’re going to have to live with this decision for a while.”

Max B. Baker: 817-390-7714, @MaxbakerBB

Statement from Jim Poe

Jim Poe released this statement Thursday, before he agreed to settle the lawsuit over his Retirement Value commissions with the court-appointed receiver Eduardo “Eddy” Espinosa.

Retirement Values (RV) was one of several companies offering Life Settlements, which was then an insurance product, to consumers. I, along with several hundred other agents, sold their policies. I was not an owner or officer of the company. At the time we represented their product, I saw no problems with the company. The Texas State Securities Board closed the firm, claiming that the firm was insolvent, was selling a security without a license, and several additional charges. The state appointed a receiver for the firm and the receiver pursued everyone connected with Retirement Values including the agents who sold the policies.

Many of the agents settled with the receiver. Because we believed we were innocent of all charges, we chose to defend ourselves. After a multi-year legal process, all of the accusations but one were dismissed by the court. The receiver was awarded a judgment on one count. We appealed the decision and have been denied by the appeals court. At this time, we are considering an appeal of our case to the Texas Supreme Court, settling or other options.

I’m proud of what our family has built in North Texas. People vote with their feet and, at last count, we have several hundred area families that believe in us and have been satisfied clients for years. We look forward to continuing to serve them.