February 25, 1998: Cherokee Quaker Church Money Used for “Ponzi” Fraud Scheme–Kansas Investigator

Update by Chuck Fager

Wichita, Kansas — Part of the more than $400,000 collected by the Cherokee Friends Church, intended for investment in a profitable business, was instead used to pay back a Quaker College in Kansas as part of a “Ponzi” fraud scheme, a Kansas jury was told today.

In the second day of the Priscilla Deters Productions Plus trial, a Kansas Securities Commission investigator described in detail the paper trail of numerous church investments in the scheme. The testimony, by Investigator Gary Fulton of Wichita, is a key element in the federal case against the owner of Productions Plus, Priscilla Deters.

Deters is being tried on thirteen counts of wire and mail fraud. Fulton and six other investigators seized six boxes of business and financial records during a search of Deters’ home in December, 1994. The boxes were piled three-high in the courtroom, and stacks of folders containing original checks were piled high on the prosecution’s table.

Fulton testified that he sought the search warrant in December of 1994, after waiting nine months for Deters to voluntarily submit her business records for examination.

Fulton told of finding the documents in a bedroom of Deters’ home, in “total disarray.” They were “in sacks, stuck into drawers, in piles, and stuffed in boxes. “It took six people seven hours” to finish the search of this one room, Fulton said.

Fulton later sorted all the documents, and subpoenaed Deters’ other bank records. Using the records and the checks, he developed elaborate spreadsheets, on which he traced where money came from in the business and where it went.

Prosecutors cited numerous documents in which they say Deters assured investors their deposits would be kept safe and secure in separate certificates of deposit (CDs). They also asserted that Deters told her investors that their investments would be doubled by “matching gifts” from the profits of several other business enterprises.

But according to Fulton, Deters in fact commingled funds freely, spent large amounts on her family and personal expenses, and had no record of any income from other businesses.

When investors did receive payments, Fulton asserted, these payments came from the funds of later investors. Paying off early investors with money from later investors is the definition of a “Ponzi” scheme, he said, and “This was definitely a ‘Ponzi’ scheme.”

Pressed for evidence, Fulton gave details of several such transactions, including one involving funds from the Cherokee Friends Church, as follows:

      Bank records showed that Barclay College, an evangelical Quaker school in Haviland, Kansas, invested $90,000 with Deters in November of 1991. Fulton said the school expected to receive $180,000 after one year. In November of 1992, the school requested $90,000 from Deters, planning to leave the other $90,000 with her program to be doubled again in another year.

Deters sent the $90,000 on November 12, 1992, with an explanation that this was the “matched gift” doubling their original deposit.

According to Fulton, however, Buy endep online the source of this $90,000 was not the profitable outside businesses Deters claimed to be operating, but rather a $93,000 investment from Cherokee Friends Church, which she had received that same month.

Barclay College never received its original $90,000 deposit back, or any other funds from Deters or Productions Plus.

Fulton detailed several other similar transactions, in which investors, principally Quaker and Nazarene church groups, were paid with the funds of other investors.

Steve Gradert, Deters’ defense attorney, attempted to undermine Fulton’s credibility by pointing out that the investigator received some financial aid for his investigation. Fulton replied that the aid came from North American Securities Administators Association, a cooperative program of securities administrators in all fifty states and the federal government, which makes grants to investigations it deems to have national implications. Deters had clients in twenty-one states.

Gradert also repeatedly asked Fulton if he had had difficulty understanding Deters when he talked with her on the telephone, asking if she often interrupted or shifted rapidly from subject to subject. Fulton agreed, but insisted that he understood well enough to know she was failing to comply with the request for records, despite repeated pledges to do so.

Gradert proposed to play a tape of Fulton’s first telephone coversation with Deters, in April of 1994. Fulton made the tape, without Deters’ knowledge. Judge Monti Belot ruled, however, that the tape was not admissible.

Gradert also insinuated that there was a link between Gary Fulton and Maurice Roberts, the former head of Mid-America Yearly Meeting of Friends Church. Roberts recruited numerous groups to invest with Deters, and was forced to resign in October, 1994 after the scheme fell apart. Deters has alleged that Roberts misused her program for his own benefit. Roberts is expected to testify in the trial, perhaps on Thursday.

Gradert disclosed that in the early 1990s, Gary Fulton’s wife Pam Fulton worked in an office at Friends University where faxes from Maurice Roberts were sent to Priscilla Deters. Gradert implied that this showed some collusion between Gary Fulton and Roberts, in pursuit of Deters.

Fulton denied this suggestion, asserting instead that Roberts was on the board of Friends University at the time, and his wife worked in the President’s office where there was a fax machine, and numerous faxes went in and out. Fulton insisted he was not acquainted with Roberts until he began his investigation in early 1994.

Fulton examined records of Deters’ operation from the beginning of 1990 through March of 1995. In this period, he stated, she took in a total of $6,457,325. Of this total $5, 470,638 came from deposits by investors; the balance, $986,685, was from sources Fulton was unable to identify.

Defense attorney Gradert did not challenge Fulton’s account of the funds transactions. He stated, however, that the heart of this case was the issue of whether Deters had any “intent to defraud” her investors.

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