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Wednesday, January 15, 2014

HAPPY HAPPY HAPPY: BUCK DYNASTY-The Day Robert Buckhannon Wired Nearly $900,000 To A Ponzi Schemer


In 2004, a 25-year-old named Anthony Vassallo started a hedge fund in Folsom, California. He was devoutly Mormon and obsessed with the stock market. He had studied investing since high school and had developed trading software that he said could deliver average returns of 3.5 percent per month. Vassallo named his firm Equity Investment Management and Trading, Inc. (EIMT).

Vassallo claimed to investors that his software program would identify the slightest movement in the Russell 2000 Index fund. The implementation of the program would generate profits on microscopic movements whether the market went up in value or down. Vassallo represented to his investors that open positions were closed each day and money was never left in his trading account overnight. Vassallo reported fictitious monthly profits from this program reportedly in the range of 3 percent to 5 percent per month.

Of course, there’s no reason why stocks can’t decline significantly in a single trading day or over a succession of days. But to more than 400 people, it sounded great, and they invested nearly $45 million.
Vassallo drew his investors largely from fellow members of the Church of Jesus Christ of Latter-Day Saints, according to federal investigators.

According to court filings, Vassallo had a series of computer monitors displayed in his office in Folsom which he led investors to believe was the real-time trading activity for EIMT.  By mid-2007, Vassallo was barred from trading at TradeStation Securities. In an attempt to continue trading at brokerage houses, Vassallo deposited large sums of investor funds at Ameritrade, Deutsche Bank and Options Express for a short period of time, later claiming to his investors that his software was not compatible with trading houses other than TradeStation.

Vassallo had essentially stopped all trading for EIMT by mid to late 2007, although he continued to do a small amount of trading with EIMT investor funds at Options Express into 2008 under the name of the Vassallo Group.

Vassallo continued to represent to investors that he was trading as late as November 2008, fully a year after all significant trading had stopped.

Vassallo had lost $9,378,296, not including $2,886,507 of trading losses at the Vassallo Group.

With his losses rising faster than a expertly baked soufflĂ©, Vassallo began to use EIMT investor funds for property acquisitions and “loans”, most of which were not repaid.

And he began looking for a “big payout” to cover his colossal trading losses.
And that’s when Vassallo began investing in Robert Buckhannon’s hedge funds.

Vassallo sent the Vestium Fund two $2 million wires in June and July 2008. An additional $1,330,000 investment was made by Vassollo in Buckhannon’s three Arcanum funds in June.

And here’s where the story gets really interesting—when Battle Creek’s own “crooked chiropractor” meets an amateur “money recovery team”, headed by a former fiber optics exec, in a Las Vegas hotel room.

Dave Sanders, a fiber optics industry executive and former bodyguard, was driving home from work one evening in early December 2008 when his insurance agent, Will Sassman, called. It sounded like people were yelling in the background.

“Can you come to my office?” Sassman asked, sounding nervous. “I need some help.”

Sassman had handled Cathy Sanders’ life insurance policy at the time of her death two and a half years earlier. He was also a financial adviser and explained that he was trying to help a group of people who were having trouble withdrawing money from a local investment fund. He’d invited them to his office, and the meeting had turned ugly. Some investors were accused of receiving preferential treatment from the fund; tempers were flaring. Sassman was worried that the situation might get violent, but he didn’t want to call the police. He remembered that Sanders had once been a bodyguard. Would he mind stopping by to help calm things down?

When he arrived at Sassman’s office, the conference room was packed with about 30 very upset people. Some were shouting, others were crying. Sassman pulled him into another room and explained the situation: the conference room was filled with Anthony Vassallo investors.

Investors knew something was wrong in December 2008, when Vassallo stopped answering his phone and wouldn’t immediately honor withdrawal requests, according to court records.

A few days later, Sanders says, Russ Putnam called and asked if he was free for dinner. Putnam was one of the investors at the meeting, and he said he was out approximately $10 million. He said he had spoken with the FBI and little appeared to be happening. He was getting desperate, and if Sanders was willing to help him track down his money, Putnam would be willing to donate to a charity in Sanders’ wife’s name.

During a meeting at Putnam’s home, Sanders was introduced to Anthony Vasallo.

For the past several months, Vassallo had claimed he was “killing it”. In reality, he’d suffered heavy losses and essentially stopped trading stocks in mid- to late 2007, according to court documents. In the hope of making the money back, he’d started investing in other, more speculative ventures.

“There’s another $20 million still out there, and I know where it is,” Vassallo claimed.

Vassallo admitted that he had $872,306 on deposit with an investment firm in Las Vegas.

The money was managed by a man named Robert Buckhannon. Yes, the one and only former owner of Battle Creek's On Deck Sports Bar and Grill...who said he only deals in small change?

It was time for Sanders to gear up again and go get it.

In early February 2009, just a few short months before Buckhannon rekindled his romance with classmate Kelly Buksar Demoss at their Michigan Center Junior-Senior High 30th reunion, Vassallo called him to say he was in Vegas with a prospective investor, IRS and FBI documents say. Vassallo said that his friend was interested in investing with Buckhannon and wanted to talk to him. Buckhannon was busy Saturday—his teenage son was in a wrestling tournament—but he was free on Sunday, February 8.

At 11 am, just as expected, Buckhannon arrived. Vassallo met him at the door and led him back to a conference room, where Tim Homan, who was playing the part of Vassallo’s investor friend, was waiting. Everybody shook hands and then Vassallo said, “Would you like something to drink?”

This was the cue. Sanders and his team burst into the room with their hands on holstered pistols, ready to draw.

“I’m with the federal government,” team member Craig Anderson declared. Technically, he wasn’t lying, since he worked for the post office. “You are Robert L. Buckhannon?”

Buckhannon managed to say yes, and Anderson explained that he was there unofficially to recover money for the victims of certain financial crimes. He said that Vassallo wasn’t supposed to be outside of California and ordered Sanders to handcuff him. Sanders pulled the cuffs off his belt and tried to slap them onto Vassallo in one smooth movement like he’d learned in bodyguard school.

It didn’t work. The cuffs bounced off. Everybody was watching. He tried again, hitting Vassallo’s wrists harder this time. No luck. As tension mounted in the room, Sanders tried a third time, but it wasn’t working.

“You’ve got to be kidding me,” Smartt thought.

Finally, Sanders unlatched each cuff and placed them on Vassallo the slow way. One of the team members then marched Vassallo out of the room.

“What the hell is going on here?” Homan shouted with well-rehearsed indignation as he was also led away.

Anderson turned his attention back to Buckhannon.

“I need to inform you that you can leave anytime you want,” Anderson said, hoping that the phrase was enough to shield them from charges of kidnapping.

Sanders then complimented Buckhannon on his son’s performance at a wrestling match the group had secretly attended and cautioned him to go easy on the kid.

Buckhannon was terrified. Not only were these people heavily armed, but they appeared to be surveilling his family.

Sanders told him he had to immediately initiate a wire transfer of $872,305, the amount Buckhannon allegedly owed Vassallo’s investors. If Buckhannon cooperated, he’d have no further problems. If he refused, court documents show, Anderson told him that federal agents would harass him and that his business would be ruined.

“You won’t even be able to convince your own mother to invest $10 with you on a corner Kool-Aid stand,” Anderson said, playing the role of lead agent with gusto.

Sanders handed Buckhannon wiring instructions for SJB’s purported account in the UK, and Buckhannon hastily pulled a laptop out of his satchel. He used an open Wi-Fi connection to log in to his bank account and ordered the transfer. When it was done, he showed them the confirmation screen, Sanders recalls.

SEC filings show that Vassallo directed Buckhannon to wire the money to Sir Joseph Birch, a principal in Phlorian Racing.

Anderson and Sanders looked at each other. They didn’t think it would be this easy.

“You’re free to go, then,” Anderson said.

Buckhannon stood up unsteadily and started walking toward the door. Then he paused and said something surprising.

“Can I hire you guys?” he asked.

In March 2009, the federal government filed civil and criminal complaints against Vassallo, charging him with multiple counts of fraud, conspiracy, money laundering, and securities violations. 
The court appointed Stephen Anderson, a retired banker, to act as a receiver to recover funds for investors, and he soon went after Buckhannon’s firm. 

And Vassallo was indicted on April 15, 2009 by a federal grand jury in Sacramento in for running his massive Ponzi scheme from 2006 to 2009.

After repeated demands for payment, Buckhannon’s Vestium and Arcanum Funds refused to disgorge any funds to Anderson, EIMT’s court-appointed receiver.

On Friday, April 9, 2010, just days before an evidentiary hearing scheduled before a federal magistrate, Buckhannon’s hedge funds hastily filed for bankruptcy, which automatically stayed the EIMT receiver’s evidentiary hearing.

In preparing for the hearing, Anderson and his team reviewed mountains of Vestium and Arcanum documents and concluded that the entities were not legitimate investment funds and were in fact “themselves operated as Ponzi schemes”.

And Anthony Vassallo? On February 1, 2013, he plead guilty to a single fraud charge in connection with his defunct investment firm, Equity Investment Management and Trading Inc.

He’s scheduled to be released from FCI Beaumont, a low security federal facility in Texas...on April 14, 2026.

And what about Robert Buckhannon, the former owner of Battle Creek's On Deck Sports Bar and Grill?

That story is still being written.

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