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El Cajon's Plus Money was to pay 2.5 percent a month

300 people convinced

Matthew “Beau” La Madrid, no longer a registered investment adviser with the Securities and Exchange Commission (SEC), nonetheless convinced 300 people that he had a surefire way of beating the stock market. He said he would pay the folks — many from East County — a whopping 2.5 percent a month if they would put money into his so-called hedge fund. Beginning in 2004, he took in $30.6 million, but in early 2008, the music stopped. So did the checks. In April of last year, the securities commission charged La Madrid and his company, El Cajon’s Plus Money, with dissipating the loot without telling the investors what he was doing with it.

He did tell the investors a whopper. In February of last year, he emailed them, saying the checks had stopped because of a “pending SEC inquiry.” But the agency says it did not contact La Madrid until April 9 of that year.

It’s not yet known exactly how La Madrid dissipated the money. Frustrated investors may find out within a few weeks, when the court-appointed receiver issues a report based on information from his forensic accountants. The securities agency should then order La Madrid to cough up money.

In March of this year, La Madrid entered into a consent decree with the securities commission. Without admitting guilt, he agreed to be permanently enjoined from committing future securities fraud. The procedure is laughingly characterized, “I didn’t do it, but I won’t do it again.”

In the fall of 2007, La Madrid transferred $7.6 million of the funds to Vision Quest Investments, a company he controlled, without telling investors, who thought he was still pursuing his purportedly exotic strategy for beating the stock market. Then in November of 2007, La Madrid sent $10 million to Palladium Holding Company, run by a Denver chap named Donald Lopez. Lopez sent some of the money back to La Madrid and launched still another foolish investment strategy that turned out to be a loser. Then La Madrid dissipated the $7.6 million in ways that had nothing to do with his investment strategy, says the securities commission.

La Madrid and a small coterie operated from a 600-square-foot office on Lexington Avenue in El Cajon. In the front section, the lads were taking money from investors in the so-called hedge fund. In the backroom, La Madrid ran a real estate company. Tragically, some of his hedge fund investors loaned him money, at a lower interest rate, for real estate purposes. They may wind up being two-time losers.

Lopez promised federal court in San Diego that he would pay back $7.5 million of the $10 million that La Madrid had sent him. He didn’t. In December of last year, Lopez was charged with criminal contempt of court by Judge Michael Anello of U.S. district court. Lopez’s lawyer bowed out because of “irreconcilable differences.” Last week, the U.S. Attorney’s Office charged Lopez with seven counts of obstruction of justice, along with two counts of contempt. In addition to reneging on his promise to pay back the money, he submitted a falsified bank statement to the court-appointed receiver and had his attorney fallaciously tell the court that his client was in Albuquerque trying to wire the money, according to the government. After several delays, Lopez’s trial will be in late July.

But what of La Madrid? Will he get off by merely promising he will never do something again that he wouldn’t admit doing in the first place? Several sources tell me that they have been interviewed by the Federal Bureau of Investigation, which is looking into a criminal suit against La Madrid. That has been confirmed by a lawyer involved in the matter. The bureau won’t confirm or deny the existence of any investigation — a typical response. Nor will Stephen J. Donell, the Los Angeles–based receiver.

Donell has collected preliminary information from his forensic accountants. “As his losses mounted, [La Madrid] resorted to using investor funds to pay back other investors’ returns,” says Donell to me. That would make it a Ponzi scheme — paying off early investors with funds from later investors. That is a crime. Thus far, Donell has only officially said that La Madrid’s strategies “appear to exhibit certain characteristics of a Ponzi-like scheme.”

La Madrid’s so-called secret investing strategy suggests that the scheme was a Ponzi. His Plus Money had some kind of system for buying stock and selling “covered call options,” according to the securities commission. An option is a contract that gives the holder the right to buy a certain number of shares in a company at a specified price up to a specified date. In the typical “covered call” strategy, the speculator sells an option on a stock that he or she owns. Generally speaking, if the price stays flat or goes down, selling covered calls can be a moneymaker. But if the price goes up, it can be a loser. For the most part, stock prices went up between 2004 and October 2007, when they started to fall apart. That may be one reason why La Madrid was losing, says Donell. “It is unclear how much profit, if any, Plus Money and La Madrid actually generated from this strategy,” waffles the Securities and Exchange Commission.

So how could he pay 2.5 percent a month while actually investing little and losing when he did? Donell should have that answer before long. Ironically, if La Madrid had been selling covered calls beginning in September 2007, when he surreptitiously abandoned the business and dissipated the money elsewhere, the strategy might have worked as the market went south.

After getting his bundle in late 2007, Lopez took half of it and began betting that the price of Treasury bonds would go down. But during that late-2007 to 2008 period, stocks were in a slump and Treasury paper was going up, up, up. By April of last year, half of that $5 million was gone. And in addition to sending $500,000 back to La Madrid, Lopez sent $1.8 million to several real estate title companies, transferred $90,000 to a Denver car dealer, and used $95,000 to buy two cars, according to the securities commission.

Now investors are complaining that the securities agency, the court, and the receiver are moving too slowly and not getting money back to investors. Through March 31, receiver Donell had taken in $2.6 million, spent $409,000 for lawyers, forensic accountants, and the like, leaving $2.2 million. That’s not much out of a total of $30 million, but tracing and recovering scam money is a tedious process. And there is always the big question: can either La Madrid or Lopez actually pay? Has the money vanished because of putrid investing — or is it reposing elsewhere? Donell may not have recovered much money because it is gone.

“I don’t know what these legal people do,” says San Diegan Ron Nieraeth. “The receiver has $2.2 million. Why can’t he start distributing it, even if it’s only 20 cents on the dollar?” Donell says much depends on funds due from Lopez. Claims processing will have to wait until the Lopez criminal trial is over. “There will be no initial distribution [of money to investors] before six months at the very earliest,” says Donell.

“I can’t believe the courts have taken so long to do something about it,” says Diana O’Grady of Menifee in southwest Riverside County. “They are as bad as Beau is.” When she got in, “It sounded too good to be true. My husband [now deceased] said to be careful, but I needed the monthly income.”

That’s an old and sad San Diego story.

Listen to Don Bauder discuss this further on Reader Radio.

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Comments

Response to post #19: The worry is that he has no money to pay a lawyer. On the other hand, there are a lot of hungry lawyers out there. Best, Don Bauder

Response to post #21: Who said he would be able to hire a SMART lawyer? Best, Don Bauder

Do you suppose he found a lawyer as a result of that solicitation?

No way. He has no case.

“I don’t know what these legal people do,” says San Diegan Ron Nieraeth. “The receiver has $2.2 million. Why can’t he start distributing it, even if it’s only 20 cents on the dollar?”

Unless my math is wrong, $2.2 million is not .20 cents on the dollar, it is about .07 cents on the dollar.

Donell says much depends on funds due from Lopez. Claims processing will have to wait until the Lopez criminal trial is over.

I hate to break the bad news-Lopez doesn't have any money-it is gone and that is why he is going to prison.

He made a very big, very stupid mistake-he lied to a federal judge. That is not a wise thing to do. If he didn't have any of the money left he should have been up front with the judge, now he is going to pay the price. And it cold be a big price, as is will La Madrid.

Article doesnt say how old these bums are, but they might see 10-15 years in this scam. They should ask Brent Wilkes for some prison advice.

Response to post #1: A. Nieraeth was saying that off the top of his head. I'm sure he didn't do his arithmetic. I don't fault him on that remark. B. I believe both La Madrid and Lopez lost a bundle by investing poorly. Why Lopez lied to the judge, claiming he would pay, is beyond me. Thus far, officials know that he lost half the $5 million with which he was shorting T paper at just the wrong time. He may have some that he hasn't dissipated. C. La Madrid still has to account for a lot of money -- beyond what he sent to Lopez. Best, Don Bauder

Response to post #2: I am hardly surprised that La Madrid's real estate license has expired. Best, Don Bauder

so why don't the post pictures of this guy ( and other scammers) so we will know them on sight, and give them some harassment when we see them out in public?

Response to post #5: The reason is I couldn't locate a picture of him. Best, Don Bauder

so why don't the post pictures of this guy ( and other scammers) so we will know them on sight, and give them some harassment when we see them out in public?

By MURPHYJUNK

Response to post #5: The reason is I couldn't locate a picture of him.

Best, Don Bauder

http://www.10news.com/2008/0704/16787632_240X180.jpg

Response to post #7: Yes, in the process of researching this column, I saw that photo. Would you run a photo of that quality in a print publication? Please. Maybe I should have said "suitable" picture. Best, Don Bauder

Response to post #9: It wouldn't have worked for us. Best, Don Bauder

Check of county NOD's shows that he had at least 4 Notices of Default on real estate last year with his residence almost foreclosed in October. So much for the real estate guru, I bet a lot of the investor money went into his home mortgage payments ($1.6MM mortgage debt as of October 2008).

Response to post #11: He lived in a posh home in Jamul. He is no longer there. He bragged he had a secret surefire formula for achieving real estate profits, just as he had for beating the stock market. Best, Don Bauder

Response to post #12: Hopefully, the receiver's report will show whether he commingled his real estate and stock market investors' funds, and whether he dissipated those funds on his personal assets, such as his luxurious home. Best, Don Bauder

Response to post #13: Agreed: it's hilarious. Best, Don Bauder

Response to post #17: It's classic. Do you suppose he found a lawyer as a result of that solicitation? And who was the lawyer? Best, Don Bauder

The worry is that he has no money to pay a lawyer. On the other hand, there are a lot of hungry lawyers out there. Best, Don Bauder

By dbauder

Smart lawyers do not work for free, which is what they would be doing with this clown.

So being hungry is one thing, working for free is another.

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