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Con
Artist? or Good Guy in Trouble?
Either
way, the money’s gone
When
I had my CPA practice, I used
to tell people, 'you never get ripped off by someone
you don't trust.' What I mean is, usually after
a high profile fraud case, the victim often says
something like, "I
can't believe this happened," or "He
seemed like such a nice guy." You never hear
the victim say, "I'm not surprised. I knew
he was going to rip me off..."
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by Gary Gorman
and James Schuler,
1031 Exchange Experts, LLC |
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Likability is a good reason to do business
with someone, but it's not a good reason to trust them.
In a high profile case that has made national news,
the secret fiscal life of Colorado Qualified Intermediary
(or "QI"), Royal "Scoop" Daniel,
III, is becoming more provocative as the details of
his financial dealings are revealed.
His public notoriety started on April
27 when the popular and amicable attorney disappeared.
It was suspected immediately that he was the victim
of foul play as the first details of his disappearance
came to light: an empty cereal bowl on his desk, his
office unlocked and unoccupied, broken sunglasses on
the floor, his keys, car and dog left behind, and a
silent, nine-second 911 call from his mobile phone.
A massive search for him and for clues by friends has
made national news. But it didn't take much digging
for authorities to learn that the friendly mountain-town
attorney had mounting financial problems.
According to Denver's Rocky Mountain
News, friends, coworkers, business associates, and
even an ex-girlfriend have sprung to his defense, claiming
he couldn't have possibly done anything illegal or
immoral. It simply isn't in him, they said. Authorities
aren't as sure. Though friends and associates continue
to plead with the public for any information regarding
his whereabouts, police have issued a warrant for his
arrest.
Last year when 1031 investor Gene Gregory
of Franktown was ready to complete the second part
of his exchange sooner than expected, he was told by
Daniel that his money was tied up in a 90-day certificate
of deposit. When he called the bank, they didn't know
what he was talking about. Confronted, Daniel then
told him it was at another bank. Ditto. When Scoop
realized Gregory was simply going to call every bank
he named, he finally came clean and lamented that the
money was simply gone. He admitted that he needed Gregory's
exchange funds to cover former 1031 clients' exchanges,
and he would not have Gregory's funds until he received
exchange funds from a future client.
As a testament to Scoop's amicability,
Gregory did not tell authorities about the mismanagement
until this year, when police started investigating
the QI's disappearance.
Unfortunately, the Scoop Daniel saga
is just one story in what is quickly becoming an ugly
year for QI thefts. The amount missing in this case
is actually somewhat insignificant when compared to
a couple of developing QI problems.
So the question is: if you can't trust
the people you don't trust, and you can't trust the
people you do trust, who can you trust to watch your
money? The answer is YOU! For years I have preached
that you must make sure your 1031 intermediary places
your money in a segregated account (and "segregated" means
only your money is in that account). You should also
insist on a method to check on the account yourself
to see that your funds stay put.
Imagine if Mr. Gregory's money had
been in a separate account where he could see it at
any time. Would that have prevented the misuse? The
threat of discovery is often enough to keep most people
honest, or to slow dishonest people down. Mr. Gregory
should have gone to the authorities immediately when
he realized that his account was being messed with.
Greed takes many forms, and it is regrettable
that the 1031 industry is not regulated. Because of
that fact, it attracts some greedy people. Make sure
your intermediary puts your money in a separate account.
And watch it like a hawk.
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