Grigg could face eight years for Ponzi scheme

Investment adviser from Franklin admits to $4.9 million fraud that included claims of TARP involvement

Email | Print By E. Thomas Wood and Ken Whitehouse

U.S. Attorney Ed Yarbrough and Neil Barofsky, special inspector general of the Trouble Assets Relief Program, announced that Gordon Grigg agreed to plead guilty to mail and wire fraud charges. / Jude Ferrara photo

Federal authorities this morning announced that Gordon B. Grigg of Franklin has agreed to plead guilty to four counts of mail fraud and four counts of wire fraud, after operating a Ponzi scheme that dated back to 1996.

Joining U.S. Attorney Ed Yarbrough to make the announcement was Neil Barofsky, special inspector general of the Troubled Assets Relief Program, which runs the financial bailout enacted by Congress last year. Barofsky came down from Washington to highlight the fact that part of Grigg's fraud involved claims that he could get investors into high-yielding notes issued by the government as part of the TARP.

"He was trying to sell something that didn't exist." Barofsky said at a press conference, adding that TARP's leaders are determined to go after fraudsters "who criminally profit off a national crisis."

Also present were officials of the Securities and Exchange Commission, the Federal Bureau of Investigation, the U.S. Postal Service and the Tennessee Department of Commerce and Insurance and the Franklin Police Department, all of which took part in the investigation of Grigg's activities. Assistant U.S. Attorney John Webb is the lead prosecutor on the case.

The SEC sued Grigg in late January, claiming that his financial advisory and "life coaching" company, ProTrust Management Inc., defrauded at least 27 clients out of millions of dollars. Grigg consented to enforcement actions in that case and has cooperated fully with prosecutors, according to his attorney, Mark Pickrell of Waller Lansden Dortch & Davis in Nashville.

"Mr. Grigg is remorseful for his actions, and he faces up to eight years' imprisonment for this fraud under the federal sentencing guidelines," Pickrell said in a prepared statement. The plea agreement indicates a likely sentencing range between six and a half and eight years, along with a potential fine of $2 million and restitution requirements.

According to the agreement, Grigg went out on his own as a financial adviser after being fired from an unnamed securities firm in 2002. He had no license to sell securities or to act as an investment adviser. He promised clients he would place their money in "safe" investments that would generate a high rate of return "by investing in pooled client purchases of fixed-term certificates of deposit, private placements, corporate notes and debentures."

In reality, however, Grigg "never intended to invest the money," the plea agreement says. Instead, he diverted it "for his personal benefit and expenses, to operate ProTrust, and to disburse 'fictitious' earnings and return of deposits to clients who cashed out or closed their ProTrust investment accounts."

Much like fellow Ponzi schemer Michael J. Park, whom the feds took down a few months ago, Grigg sent out fake account statements that showed clients owning non-existent stocks and bonds, the agreement states. These and other forgeries, it says, "were intended to deceive investors into believing that defendant Grigg was actively managing their money in pooled ProTrust investment accounts."

Grigg admits in the agreement that he solicited money from potential investors with the promise that it would be invested in government-backed commercial paper and bank debt as part of the TARP, although no such investment program exists under TARP.

He "falsely represented to investors that he had already committed more than $5 million in ProTrust pooled client funds towards the purchase of TARP-guaranteed debt as part of a private placement partnership between ProTrust and the investment firms Berkshire Hathaway Inc. and Kohlberg Kravis Roberts & Co.," the document says. It does not specify how much money, if any, Grigg actually took in under the pretense of TARP investments.

Prosecutors have calculated that overall, Grigg received some $10.9 million from about 60 investors, paying out more than half of it in supposed investment returns. The loss to investors is placed at $4.9 million.

TARP official Barofsky was formerly an assistant U.S. Attorney in the Southern District of New York. In that capacity, he obtained a conviction last year of Tone N. Grant, a former general counsel of Nashville's Commerce Union Bank who was president of commodities broker Refco when it collapsed amid financial irregularities in 2005. Grant is now serving a 10-year prison sentence.