Friday, September 29, 2006
Somewhere among our disorganized family photographs from twenty years ago lurks a picture of C. Wesley Rhodes, Jr., the man who was our financial adviser from the day it was taken until last week. In it, he sits surrounded by the paper mountain of bank statements, share certificates dead and alive, unopened envelopes and other monetary records accumulated by my recently acquired, hardworking but fiscally impractical husband over the previous quarter century of a dedicated cardiologist’s life. I’d had him pose for the picture, with his then colleague, as a kind of playful joke, knees at his chin, back up against the wall of our attic, where we kept our filing cabinet with its overstuffed drawers. He is smiling up at me wryly, with a grin that says that, while physically uncomfortable, he can accept both the humor of the situation and the challenge it represents. “Don’t worry, I’ll sort this out for both of us,” he seems to say.
He left that day with our financial history bundled into a couple of garbage bags. By the end of the week, he had provided me with records of every last cent, the when where and how of each tiny transaction, painstakingly recorded in clear, handwritten columns. Not only that, he had, at my request, provided me, a recent English import, with at least a layman’s explanation of how American tax and other financial systems work. By the end of the month he had apparently placed all our investments into funds run by reputable houses (Phoenix, Advest, American). By the end of the year, he had, by dint of hard work and difficult negotiation, extricated my husband from a shaky enterprise he had been conned into funding by a couple of plausible shysters who’d posed as ‘friends’ (an enterprise that subsequently went belly up, taking other doctor investors with it). Small wonder that, despite interviewing a slew of infinitely more formal people from larger financial establishments, we chose this person to guide our financial passage through the twists and turns of market vagaries, into what we were sure should be the easier years of reasonably youthful retirement in our sixties.
Not that we relied only on his willingness to sort papers. He had an impressive resume, with several degrees from the local university as well as others from further afield. He was a registered investment adviser with a big name company (Phoenix). He had years of experience. In addition, he had had a life outside of finances that made him seem interesting, human, attractive. He had been a flyweight boxing champion, had played football (American) in college, had been trained and had performed as an opera singer (he could in fact break into song in loud, tuneful baritone upon request). The fact that his given names were Charles Wesley (he went by Wes) was merely a reassuring, atavistic nod to the principles of our Methodist grandmothers. But mostly, we were so impressed with his attention to detail, his personal touch and above all, his dedication, we placed all our assets into his care; we appointed him trustee of our children’s education funds; we gave him management of my husband’s retirement portfolio. We went back to our full and busy lives, and watched our nest egg grow, never spectacularly, but steadily and reliably, which was all we had ever wanted.
Of course we had regular contact. Especially in the early years, Wes would call us before making any large transactions, or to reassure us when the market tanked, or celebrate when stocks proved winners. We were consulted, and signed papers, whenever he changed brokerage houses, to get, he explained a better deal. Especially in the early days he delivered our quarterly statements personally, and took pains to explain why he felt it important to move to convertible debentures, or back to stocks, or place some of our holdings in a centrally managed ‘mutual fund’ where trades were cheaper and bonds could be bought in bulk. His advice seemed right for the bigger picture; we were happy to let him sweat the small stuff.
But there was far more to the relationship than that of adviser/client. Wes became, not our best friend (our life styles were too different), but infinitely more than a passing acquaintance; though never a marriage, our bond was certainly a civil union. He knew our net worth down to the last dollar, which is a kind of intimacy. We’d have dinner sometimes, or brunch, when he delivered our quarterly reports and statements. On a more personal level, we occasionally helped each other out. I advised him and his wife on the choice of a bilingual school for their daughter. My husband wrote letters of recommendation when one of his sons applied for medical training. When his first marriage turned sour, we nurtured him through a harsh divorce and subsequent near nervous breakdown; we gave him hospitality, sympathy, comfort and briefly a place to stay. In turn, he gave our children financial advice and described himself as their surrogate father. A couple of our boys did brief summer internships in his office. Two years ago he was a guest at our youngest son’s wedding; one month ago we attended his youngest daughter’s. While our children were in college, he kept us appraised each time any one of them seemed likely to overdraw on their tightly held bank accounts, so we could help keep them on the straight and narrow. He even opened a joint account with one of our boys so as to provide the lad with a reliable guarantor for his necessary debit card. He provided references for their first real jobs. His zeal and devotion to our selves and our family was at times overwhelming. As our portfolio slowly accumulated, so, even more quickly, did our trust.
Four nights ago, he called us, some where between 10.30 pm and 11. He wanted, he said, to fax us forty pages of explanatory documents. Baffled, and frankly sleepy, we told him our poor telephone answering machine no longer worked for incoming faxes; we weren’t even sure we had 40 sheets of paper at the ready. We asked for details. He embarked on a long, confusing account of some venture he had set up with a few investors (not us), one of whom had had a disagreement with him and had complained to the SEC, with the effect that there was now some kind of lawsuit against him.
We had no idea what he was talking about, or even what we should ask. Among our few questions, however, was one that made us feel ashamed to be so selfish, and namely how this lawsuit affected our own positions. He assured us that we were perfectly safe; that he was the victim of a vicious and untruthful attack. He alluded to our long friendship, and, as he always did, his fiduciary trust. We expressed our sympathy and asked him please to mail this apparently exculpatory material, whatever it was. We told him to get a good lawyer, take care of himself, try to rest, and give our best wishes to his wife.
We were, however, sufficiently alarmed, to turn on the computer and Google his name. Our local newspaper, The Oregonian, carried a short story in its online business section, published on Saturday, September 23, 2006, under the headline:
SEC says West Linn man bilked investors. In it, we read that our “friend” was indeed subject of a complaint filed against him by the Securities and Exchange Commission which alleged that, since 2004, he had spent “more than $13 million of investors’ cash to buy luxury cars, jewelry and furs, among other things,” by raising money through three companies he controlled and then spending it on himself. “He spent more than $1.6 million on his hobby of restoring classic cars, the government says. The agency also accuses him of using another $1.6 million on credit cards. The agency says he ran a fraudulent scheme, giving more than $6.3 to investors, telling them the cash was profit from their investments.” It pointed out that ‘he has been licensed with the state as an investment adviser, though six years ago the state issued a cease-and-desist order against (him) for providing investment advice without being registered with the state.” It claimed that ‘since 2004, (he) has raised more than $16.2 million from about 50 investors.’ His attorney, it added, had no comment. Two other online newspapers, The Seattle Times and the Portland Tribune, carried similar stories. In addition, we learned that his assets were frozen and his companies (including The Rhodes Company, and Rhodes Econometrics ) at least temporarily shut down. We were both stunned. This was the first we had heard of any six year old cease and desist order, or of any other action. We skated over words such as ‘fraud,’ ‘misappropriation, ‘misuse of funds,’ ‘alleged schemes,’ almost without comprehension.
We sent him a quick e mail, asking for more detailed explanation. His response, another phone call at around 11.30 pm, was more verbal assurance that our funds were safe. We ask him why he hadn’t told us of this business if it had been going on since 2004. He clicked his tongue in irritation and replied that it hadn’t. He seemed angry that the story had shown up in three places. As some of the assets he managed for us, and for which we personally received monthly statements, were still directly invested through Charles Schwab, I asked specifically if those holdings were affected. He assured us (rightly, as it turns out) that they were not, but stressed again and again that neither were the far larger funds which he had personally taken care of in his ‘Investment Administration Account,’ which he had given us to believe resembled a mutual fund (also brokered, as we thought, through Schwab, or, conceivably, its ilk). He said something like, “Your money is not even IN the company they’re investigating.” We asked where it was. He said “It’s in ..er…not…er …no…it’s…it’s…I really need to sit down with you and show you exactly where it is.” We suggested that he should do so, soon. He complained, as he had before, that the ‘personal’ Schwab funds were hard to manage (a last ditch attempt, we now wonder to have us offer to cash them in and hand them over to him directly?). He said, “They say I have spent 13 million dollars. I would have to have been a really busy boy, with everything else I have to do.” In speaking, he sighed a ‘much put-upon sigh,’ as was his wont. I asked him whether, should this lawsuit NOT be in process, we would be able to access the larger, ‘mutual funds’ immediately. He mumbled something about staying under the radar. When pressed again with the same enquiry…if he were not in this position, could we have our funds tomorrow? he finally answered, unequivocally, no.
We attempted to muster up what by now felt like mere politeness. We asked him to mail us the documents he wanted us to see; we expressed our understanding that he was in some terrible position; we told him we were here and could meet with him anytime; we asked again that he remember us to his wife. As his cell phone began to crackle and fade, we suggested he call when he reached a landline. We have not heard from him since.
During the last few days, we have jointly and severally attended investors’ meetings set up by the Receiver. At least five such get-togethers have apparently each been attended by ten to twenty people. We are a diverse group. There are couples even older than us who seem too stunned to ask any questions. There is the youngish (by our standards) single mother of three who has entrusted Wes with a million dollars and now has nothing. There is the weeping daughter who has just placed her ninety year old mother in a nursing home and given the proceeds of the family house sale into Wes’s safe keeping. There is my youngest son, who has attended the meeting with me and who, when the residue of his education fund became his own aged 21, and with college over, invested again with our family friend, and has lost over $20,000.00 he can ill afford. There is the man who heard one of Wes’ radio shows, mortgaged his house and invested everything. There are business people, and company directors, and at least one Chartered Accountant (CPA) who, as the rest of us kick ourselves for our self-perceived stupidity is clearly reeling from the blows of his own self torture, there is even another Financial Planner who had entrusted his family’s holdings to Wes, so as to avoid any conflict of interest. We all share a sense of bewilderment and betrayal, just as some of us persist at first in nourishing a flicker of hope.
We might all be tempted still to be “true believers,’ were it not for the two five-inch thick three-ring binders that sit on the table in front of us, and list in sickening detail the reasons behind the SEC’s accusations, and that gave last week’s judge his grounds for declaring ‘probable cause.’
The Receiver tells us what they have discovered among the frozen assets. There are about forty classic cars in a collection that could be worth a few million. There are some investment accounts that perhaps amount to a further three. Jewelry is mentioned, and the occasional fur. None of this begins to account for the sums of money deposited. To my horror, I see in the list of frozen holdings the old current account Wes had opened with our son and panic that his name has been dragged into this apparent dirt (this account, which held the princely sum of $50, our son’s total assets, has since been closed).
Everything the Receiver has been able to lay hands on has been assessed and analyzed, first outside Wes’s home and then in. Nowhere has there been discovered anything resembling securities for what must, at a conservative estimate, amount to well over thirty million dollars of invested principal (and thus probably over 100 million of our supposed ‘growth’). Besides bonds, securities, debentures, share certificates, at least one computer is missing. The Receiver, despite his neutrality, cannot help but imply he sees clear evidence of wrong-doing. When I ask him, point blank, whether he is of the opinion that the bonds we think we own simply do not exist, he shakes his head and answers, gravely, “I have found none.”
Our reactions are as diverse as our personalities. More people weep. The silent withdraw even further into themselves. Besides the universal sense of disbelief and betrayal, some already feel anger, and voice their need for vengeance. The daughter who has sold the family home first expresses the hope that Wes will rot in jail, if not in hell, then tempers her outburst with concern for his thus far deemed innocent wife. Some ask about the need for lawyers, and the fear of throwing yet more money after bad (though the restraining order protects Wes from immediate suits). Many, like me, are simply too numb to know how we feel.
At the meeting I attend, the Receiver asks us to introduce ourselves and mention something of our history. I am dismayed to find we have been with Wes the longest. Most people have joined him over the previous five years or, at most ten. I feel envy towards anyone who might have started out when we did but who was wise enough to part company from him while they could. As I listen to the others I realize that, despite our differences, we have at least two things in common, apart from the fact that we all feel wronged. First, we are not a bunch of candy-robbed babies, or a team of village idiots; we all appear intelligent. My husband, a graduate of Harvard, Yale and Oxford, would not stand out in this crowd; we are mostly college educated, with degrees and diplomas between us at least as numerous as the millions we have together lost. Secondly, and in this we are shaped from the same cookie cutter, we have all been convinced that Wes was our personal friend, whether or not we felt we were his. As the stories emerge, my tale of paper mountains in the attic loses its unique gloss, just as do the reminiscences of weddings attended, dinners eaten, favors given and sought. He had every last one of us persuaded that we were special; one of us is even his old high school chum.
We go home to embark on the slow process of reconstituting our financial history to present to the Receiver and to the SEC itself. This is no simple matter; as we told our stories, I realized also we were not the only ones who have moved house several times since our relationship with Wes began. On our last move, one year ago, we shredded documents more than six years old. One investor transferred funds to Wes from a Dean Witter account, records of which went up in flames on September 11, 2001. My husband’s accounts from 20 years ago were held with a finance house that is now defunct and were managed by a gentleman who was elderly then. The process is difficult and painful in more ways than one; as I look through canceled checks for the last several years I find gifts I sent to my late mother, or an old friend who died of cancer. And all the while I realize that this search is probably fruitless; if Wes has squirreled the funds into offshore accounts, spent them in day-trading, or simply squandered them on fast cars and fur coats, we are unlikely to see even pennies on the dollar (particularly on principal invested so long ago). Meanwhile, each passing day brings new reports of his deception; it seems, perhaps, there were no degrees from the local university, no flyweight boxing championships, no college football, and, despite the singing voice, probably no opera.
Despite knowing intellectually that none of this is our fault, we damn ourselves for our apparently stupidity, or inertia, or even our pride. My husband and I never particularly liked Wes. He had a way with him that was Uriah Heepish…he was unctuous and over-assiduous, and he lived more ostentatiously than we thought nice. Frankly, we looked down our snobby noses at him for his oily manner and glitzy style; he was more than once the butt of some in-family, dinner table joke. More than that, we felt moments of disquiet over recent years as his quarterly statements changed from one type-written sheet to a three-tree packet of shiny pages showing, in full Technicolor, what his company was doing. At the same time, the statements of our actual holdings had grown increasingly vague. What was once listed under the names of reputable companies were now simply headed ‘Stocks,’ ‘Bonds,’ ‘Securities,’ ‘Convertible Debentures,’ and so forth. But we had company statements (1099s) for that “Investment Administration Account” sent annually to our accountant that showed the dividends we had earned on these centralized holdings; we had seen pieces of paper in his office that appeared to list exactly what they were. More, he had provided my husband’s medical group with year-end statements of the growing amount in his Pension Plan, a sum that was annually passed on to us, and for which we assumed there was detailed accounting And after all, we had paid Wes (sizeable) fees over the last many years to know more about these things than we did.
Besides, he had good standing in the community. He was, or had been, a board member of several prominent institutions, including the Portland Ballet, the French School, the Oregon Museum of Science and Industry. He was a member of several prestigious businessmen’s groups and investment forums, where he had held a variety of offices. He published a newsletter entitled Art and Aim (the title extracted from a quote from Nietzche…should that have been a warning that he considered himself a ‘superman’ beyond mere mortal accountability?) giving his ‘spin’ on the state of the economy. He had a regular spot on local radio. The very month (October 2006) his business was collapsing around his investors’ ears like a house of cards, he was running an ad in a local, glossy, coffee table magazine that read: “You’ve financed mortgages, orthodontia, 18 family vacations, 12 seasons of school sports, (and 3 broken bones), 2 college educations, a wedding (plus shower) and one slightly regrettable sports car. Retirement will be a piece of cake.” He seemed prominent, and successful. So, each time we discussed finding somebody different, we came to the conclusion that we would be unlikely to do any better, that his work for us in the early years had been incomparable, and that his loyalty to us deserved our maintaining faith with him. Frankly, we also simply didn’t want to hurt his feelings.
That our feelings are hurt is an understatement. But we know we are among the lucky ones. We own our home; we still have maybe a quarter of the funds we thought we had. Although we are retired, we may still possess marketable skills that can carry us forward. My husband is in the process of trying to reactivate his medical license in hopes of picking up at least some part time work. . We are determined to make lemonade out of this harvest of lemons. More, we feel the true impact of well worn clichés; friends and family are worth more than all the money in the world. We are far better off than the people of Enron who lost everything. We are not yet eating out of garbage dumpsters. Compared to the people of Darfur and their like around the world, we are billionaires.
One month after this all has happened, however, we are still trying to fathom, not only what we still have, or when we had it, but also what we can learn from this experience. We have already convinced ourselves that, unless Wes, who still of course enjoys the presumption of innocence, suddenly marches into a court room brandishing a sheaf of accounts that match what we think we own, the chance of financial restitution is slim to none, and as my son would say, Slim’s out of town. We feel that at least there should be some immediate lesson. But at the moment even that eludes us. We cannot believe “Trust no-one!” is a way to live. “Watch every penny!” might be appropriate. But we thought we had. Or we thought that, whenever our eyes were turned elsewhere, we had paid someone else to watch every penny for us.
And so, at 3 am on a cool Friday morning, I start to write our story. I do it for therapy, and as a natural reflex. But also I hope that someone somewhere sometime will read what I write and glean the moral that still escapes me but that will keep them safe from similar misdealing. If Wes is found guilty and serves a little jail time, he could start again to practice. Maybe I can warn someone to know better than to trust him, or even someone like him. That would be something. So we start pulling again on our old, worn bootstraps. And as I sit here, I continue to think of that young picture of our sometime friend and wonder who he really was, and what was truly the message his wry smile held.
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