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Thursday, Nov. 4, 2010 12:55 am

Ponzi on the prairie

Victims explain the con job that rippled through their network of friends

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James U. Dodge pleaded guilty to fraud in September.
Pointing at two of three computers, James U. Dodge one day early this year explained to three guests in his west side Springfield home how the financial world he claimed to master could work in his favor every time. His guests were friends, curious about his guaranteed return investment strategy.

With his small audience watching with wonder, Dodge would point to the screens, bright with graphs and charts, and explain what the stock markets were about to do. Dodge then would dial the phone and hold a conversation of numbers with an investment broker on the other end of the line. When he was done, assuming it was a good day on the market and Dodge had made money, he’d get a big smile and say, “By golly, boys, we did it.” That’s how John Scarbrough, a psychology professor at Lincoln Land Community College, remembers the lesson, one of three he watched after giving Dodge $10,000 to invest for him in late 2009.

“It was amazing,” Scarbrough says. “It was absolutely amazing trying to watch what was going on – classic sleight of hand and bullshit and smoke and mirrors.”

In September, Dodge pleaded guilty to mail fraud and money laundering, two of 13 original charges that followed an investigation into Dodge’s Ponzi scheme in which more than 50 people, many of whom were Springfield-area residents, collectively lost about $2 million. From at least June of 2004 until his April 2010 arrest, Dodge told his victims – many of them friends, or friends of friends – that he was a successful day trader and that his special “algorithm” allowed him to guarantee a 3 percent monthly, or a 36 percent annual, return on their investments with him.

Investors gave Dodge money and were told they could choose to either cash out their monthly returns or roll them over indefinitely. To further comfort his investors, Dodge wrote them checks equal to the amount they gave him and told them they could cash out at any time. He also presented many investors with copies of life insurance policies he had taken out on himself. On the policies he wrote that in the event of his death his son would use the policies to return the money to the investors.

In reality, Dodge only invested about 22 percent of the funds he collected, spending the remainder to pay back earlier investors and on personal expenses, including his 4804 Johanne Court home, new cars and annual month-long vacations to Naples, Fla. About $160,000 of the funds Dodge collected benefited his son and his son’s family. [See “Ponzi scheme benefited Senate Dems’ lawyer,” Oct. 14.] The investments he actually did make often resulted in a loss, but he continued to tell new investors that gains were guaranteed.

“One of the reasons I believed him was because he was teaching me the system of how to invest money in this manner. … I don’t know who he was talking to [on the phone], or pretending he was talking to, but he was deserving of an Oscar,” says Scarbrough of Dodge. “Have you heard the story where the king has no clothes and nobody wants to tell him? The three of us, we’d all sit there and I’ll bet you none of us really understood it and were too embarrassed to tell the others what was going on. As it turns out, there’s good reason – because he was bullshitting us.”

Scarbrough first met Dodge in early 2008 when he was invited to “the infamous Saturday morning coffee group” that seemed to revolve around Dodge. “He was just a charming, fun guy who bought bagels and spread out food for everybody for free,” he explained. Dodge, 72 years old, was so well liked that the staff at the coffee shop would change the music at Dodge’s request.

Despite his initial view of Dodge as an “active, bright, fun grandpa” type, Scarbrough’s immediate instincts upon learning of Dodge’s financial endeavors were less favorable but entirely on target. At a party attended by many of those in the coffee group, Scarbrough told another of Dodge’s friends that the too-good-to-be-true scheme sounded like another version of Bernie Madoff’s $65 billion Ponzi scheme, which came crashing down in late 2008. Madoff, credited with having run the world’s largest, most devastating Ponzi scheme in history, is now serving a 150-year prison sentence.

“Early on I did have questions and then I got more and more pulled into this social web, where a lot of people were getting their money back,” Scarbrough says. Indeed, some of Dodge’s victims invested and later had their principal returned, with interest. Many, having known Dodge for decades, also considered him a great friend. Their praises of Dodge made it difficult to suspect the charmer of any ill will, Scarbrough says.

Investigators issued a search warrant for Dodge’s home on Feb. 17 this year, but even after that Dodge continued to seek out and accept funds from new investors. Brian Moore, a young Springfield doctor and professor of neurology and pathology, handed Dodge a $22,000 check in March. He says that the tight social network Dodge had created meant that the few who knew about the investigation thought it was little more than the result of someone angry with Dodge having reported false information to authorities. “Nobody informed me,” Moore says of the friends he’d made over the last four years as a member of the fluid Saturday morning coffee group organized by Dodge. “He was such a good con man that by the time I invested there were several people who knew he had been investigated by the FBI, but they still defended him.”

Paul Sullivan, who lives down the street from Dodge, first suspected that his $40,000 investment might be in the wrong hands when the Illinois Secretary of State’s office, which regulates securities, contacted him with questions as part of its investigation of Dodge. “At first … I wasn’t ready to believe it because of having known Jim. And what he appeared to be was a friendly guy who was just trying to help other people make some money. He seemed to have a reliable system,” Sullivan says.

It wasn’t until Dodge was actually indicted by a grand jury in May, and all of his doings exposed in court, that Sullivan fully believed Dodge was capable of taking money from his friends. Sullivan and Moore say Dodge would go out of his way to perform favors for his victims, such as raking leaves or delivering coffee. “I think his whole core was to develop these friendships so he could take advantage of people,” Sullivan says.

But Dodge’s scheme extended beyond his own personal friends. According to the affidavit filed in April by IRS investigator Ellen Lacy, one man who described Dodge as “open and honest” told about 100 more people how to get in touch with him.

“There’s no need for the Ponzi artist to enlist the trust of all his victims,” Moore says. “He just needs to get people who can get other people who will trust those people.”

Such was the case for a friend of Sullivan’s, Dave Herst of Springfield. “That’s probably the worst part of my whole thing,” Sullivan says. “I lost a bit of money but Dave lost a bit more and I feel like I got him into it.”

A Vietnam veteran who about two decades ago lost the use of his legs in an automobile accident, Herst made his first investment after Dodge came to his home in February of this year. Soon after, while he was recovering from eye surgery in a Chicago Veterans Affairs hospital, Herst sent two more checks to Dodge for a total investment of $95,000 – money earmarked for his granddaughter’s education and for his dream trips to Hollywood and a shooting tournament in Ohio. In the end, Herst lost it all.
While numerous Springfield area residents were hit hard by Dodge’s scheme, Dodge’s reach extended well beyond Illinois – to Texas, Colorado and Wisconsin.

A retired Wisconsin couple who lost about $152,000 learned about Dodge through retired Springfield residents Ed and Linda Brown. Ed Brown first met Dodge 44 years ago when, as pharmaceutical representatives for different companies, the two regularly lunched together while working the same territory, Ed Brown says. In the last four years, the two became even closer, and when Brown experienced congestive heart failure while vacationing in Florida during the 2006-2007 winter season, Dodge volunteered to fly down and drive Brown’s vehicle back to Illinois if the Browns needed to fly back home, Ed Brown says. “That’s the relationship that I had with Jim all this time, all these years, until such time that I found out that he was a Jekyll and Hyde with a smile on his face. I would never have guessed in a million years that he was doing or saying what he wasn’t,” Ed Brown says.

When Ed and Linda Brown married in 2006, Ed Brown had already invested with Dodge. By April 2010, the couple had emptied their bank-held savings account into Dodge’s hands. When it came time to pay their taxes this year, they requested that Dodge return some of their investment and Dodge promised to wire them the appropriate amount by tax day, Linda Brown says. Though Dodge told the Browns to go ahead and send their own check to the Internal Revenue Service – the money would be in the account by the time it was cashed – the money never appeared.

“I had never written a bad check in my life, but we did that time,” she says. “My husband went to the bank and borrowed enough to cover that check. We were in a world of hurt. We’d written a bad check to the IRS, for crying out loud. You don’t do that.” In total, the Browns lost about $53,000 to Dodge.

By the time Linda Brown discovered that Dodge was having problems, she’d already told her friends living in Wisconsin about him. That couple, a retired dentist and his wife, invested a total of $152,000. Now, with all of it gone, they’re having trouble paying their taxes, can only speak on the phone when the minutes are free and had to let their adult children buy groceries for them earlier this summer. “It has just been a horrendous summer for us. You know how you kind of don’t live for awhile? That’s how it’s been for us all summer,” says one of the Wisconsin investors, who requested anonymity. She says that leading up to Dodge’s arrest, she called him regularly asking for her returns so she too could pay her taxes, but he never sent any money. “It was dreadful,” she says, adding that the only relief now is knowing she won’t have to beg Dodge anymore.

Among the victims, regrets abound, as does anger, but some have at least made peace with themselves.

“I was really angry, of course at myself for being stupid enough to be taken in, but also angry with him,” Sullivan says. “I’m not the one who was the criminal.”

Sullivan says he has no advice for others. “You can’t stop making friends and you can’t stop trusting people, but there’s some really hideous people out there and they will get you from time to time.”

Just before Dodge’s arrest, Scarbrough asked Dodge for the entirety of his $10,000 investment back so he could use the money for another business transaction. Though Dodge asked Scarbrough to wait a few days before cashing the check, Scarbrough eventually got all of his money back. Scarbrough agrees that not trusting people isn’t an option for avoiding schemes like Dodge’s. “That wouldn’t be a life worth living.”

The Illinois Secretary of State securities department says the best way to avoid financial scams such as Dodge’s is to first call the division’s hotline at 1-800-628-7937. “There really is no magic bullet,” says David Finnigan, an attorney for the state’s securities department. “The only way to defend yourself is to, one, find out if they’re registered. … More importantly, ask a lot of questions. Check up on the answers, and if you don’t get straight answers you really should invest in something else.”

Dodge, who told his investors he was dealing in the S & P 500, was not registered with the Secretary of State when acting as a dealer of such investments – a violation of state law.

“I think the two things that probably led them [investors] astray was that most of them seemed to have known Mr. Dodge for some time, and people tend to be less cautious when they think they’re dealing with someone they’ve known for a long time. … It tends to lower the barrier of suspicion,” Finnigan says. The second factor was that Dodge was talking about investments many people know little about. “They didn’t completely understand it, but they decided to trust him.” But Dodge’s friendly demeanor and age were poor determining factors for potential investors, he says.

“There is no way to really look at a person and know that they’re going to be a scam artist. It’s anybody – senior citizens, young people, blue collar, sophisticated educated people,” Finnigan says. “The best way to protect yourself is to contact our department.” More information about financial schemes is available at the department’s website, avoidthescam.net.

Scarbrough says a few of Dodge’s friends who lost money still believe that Dodge thought his scheme could work without hurting anybody.  But Scarbrough, a LLCC psychology professor and a former juvenile offender probation officer, doesn’t subscribe to that mentality.

Referring to recent neurological studies that suggest social conscience may be in part determined by individual brain structure, Scarbrough says he suspects Dodge is a white-collar sociopath, lacking any social conscience. But biology isn’t an excuse, he adds. “I think all of us have a little bit of a liar, thief and whore in us, for men and women, and society constrains those deviant behaviors. If you don’t have those constraints, biologically or socially, you’re more likely to do these deviant things. … But I really believe in free will and what it says to me is that some people have more challenges in life in containing themselves, but I don’t think we can take that personal responsibility away.”

Moore, a medical doctor and professor of pathology and neurology who lost $22,000 with Dodge, shares Scarbrough’s opinion. He explains that Dodge suggested that Moore’s wife, who had taken out a loan to start a new business, give him her start-up funds to invest. “Thankfully my wife hadn’t gotten around to giving him the money, although we thought about it. She would have had to declare bankruptcy,” Moore says. “He knew she had two young kids, that she was starting a business, but he didn’t care. … It’s one thing if you want to screw some guy because he’s an ass, but he was going after old people, infirm people, handicapped people, friends with whom he’d dine on a weekly basis.”

Moore’s initial anger has subsided, but he remains one of the most vocal victims and continues to gather information concerning Dodge and other schemers. “The big reason I keep this file is that I want to in 15 years tell my children about it,” he says.

The Browns, and other victims, give similar reasons for why they’re willing to tell their tales of financial failure. “If we can save one person from falling into a scheme like this, then it’s so worth it to us,” Linda Brown says.

“It’s just a very sad situation. We can survive. It’s the heartbreak of losing somebody you trusted. My husband, after talking to Dodge on the phone, you’d hear, ‘Love you, brother.’ It’s like a death. I cannot believe that somebody could do that to somebody they care about, but they can. If it can happen to us, it can happen to anybody.”

For many of those involved, Scarbrough adds, the initial victim mentality is starting to fade. “Certainly people were victims, but on the other hand we played a part in it. We knew it was too good to be true,” he says. “But I think the victim mentality is just psychologically painful after awhile. You have to move on. … People want to stop feeling sorry for themselves and not feel as passive victims and that they can do something about it.”

Citing lawyers’ advice, Dodge declined Illinois Times’ request for an interview. His sentencing is scheduled for Jan. 13, 2011. Before that time, victims will have the opportunity to prepare statements about how Dodge’s crimes affected them.

Contact Rachel Wells at rwells@illinoistimes.com.

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