Accountants Blamed in $250M Ponzi Scheme

ANN ARBOR, Mich. (CN) – Doeren Mayhew & Co., a “major regional firm of certified public accountants … use(d) its name to promote a $250 million Ponzi scheme that it controlled through two of its directors and their wives,” dozens of plaintiffs claim in Federal Court. Some of the 81 plaintiffs say their “life savings were all but eradicated.”

     The plaintiffs seek restitution and $20 million in damages. They say that Doeren Mayhew directors Todd Fox and James O’Rilley, along with their wives, Joann Fox and Nancy O’Rilley, used “dog and pony shows” to target investors who they “perceived to be the most vulnerable to the lure of the guaranteed high-return investments being offered.”
     Solicitations included dinners and barbecues in the Detroit area at which Todd Fox spoke about the wisdom of “taking a new portion or maintaining an existing position” in the schemes. Eventually, Fox and O’Rilley delegated to their wives the task of soliciting investors to the bogus funds, according complaint.
     The lawsuit comes on the heels of another alleged Ponzi scheme in the Detroit area, perpetrated by Edward May and his company E-M Management Investments LLC. In November 2008, the SEC charged May with running a scheme that took in as many as 1,200 investors. Doeren Mayhew was prominently mentioned on prospectuses of many of the phony companies sold by May, according to the latest complaint, which accuses Doeren Mayhew of helping to promote May’s alleged frauds.
     “Whereas most CPA firms provide the ostensibly independent function of auditing or reviewing financial data prepared by the client in the first instance, in this highly unusual case, two of the directors of Doeren Mayhew, Todd Fox and James O’Rilley, directly or indirectly (through their wives), went far beyond the ‘review’ role of ‘tax preparer’ for the more than 200 ‘Ed May LLCs’ through which the Ponzi-scheme cash
Flowed,” the complaint against Doeren Mayhew states.
     “They co-authored the offering documents, developed the ‘cash flow plan’ followed by the Ponzi-scheme enterprise, wrote the checks that disbursed the Ponzi-scheme cash, solicited sales of interests in the Ponzi-scheme LLCs, prepared or reviewed monthly summaries that they mailed to investors reporting on each LLC’s “expenses” and distributed ‘income,’ and maintained, in the first instance, the same books of account that they were called upon to review in preparing Form 1065/K-1 tax returns for each of these Ed May LLCs.”
     The complaint adds: “In a contrived attempt to avoid the imputation to Doeren Mayhew of the knowledge gained by James O’Rilley and Todd Fox in their role as ‘company bookkeeper’ for each subject LLC, O’Rilley and Fox formed a corporation, ‘SamJack Investments, Inc.’ (‘SamJack’), to conduct the internal bookkeeping of each subject LLC. However, the officers of SamJack were James O’Rilley and Todd Fox, and the ’employees’ of SamJack acting under their direction were none other than their own wives, Nancy O’Rilley and JoAnn Fox.”
The “bookkeepers” this account, which the defendants called EMBookkeepers, “were paid approximately $20,000 a month for the ‘bookkeeping,’ the complaint states.
     “Tellingly, neither the offering documents nor the monthly summaries prepared and mailed to plaintiffs revealed that SamJack even existed, much less that it had been hired to do the bookkeeping of ‘the company,’ much less that it had been hired at the rate of $20,000 per month, much less that it was managed by the same persons who managed Doeren Mayhew.”
     Representatives of Doeren Mayhew could not be reached for comment on Wednesday evening. However, Mark Crawford, the company’s managing director, told “Investment News” that the suit was “just ridiculous stuff.” Crawford told the newsletter that Doeren Mayhew never was paid for anything other than “tax returns.”
     The plaintiffs demand damages for securities fraud, sale of unregistered securities, negligent misrepresentation, conversion, civil RICO conspiracy, unjust enrichment, breach of contracts and other charges. They are represented by Norah Milnar with Patton Boggs in Washington, D.C.

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