An Update by Chuck Fager

Seattle, Washington -- Phil Harmon was sentenced in a Seattle federal court on May 4, 1998. As expected, he received eight years in prison. In addition, the court ordered him to pay $16 million in restitution to the 230 victims of his investment fraud. Prosecutors said they would ask later for an additional restitution order for the 300-plus victims of Harmon's failed National Friends Insurance Trust.

Harmon was released on bail after the sentencing hearing, to await word from the federal Bureau of Prisons as to when to begin his sentence. Justice Department sources told A Friendly Letter that Harmon has been ordered to report to prison on July 2.

Some of Harmon's victims have been outspoken in their reactions to their losses.

"I knew him through church," said Tex Kazda, who lost his $119,000 IRA. "He seemed honest and smart, and had lots of assets and a happy family."

"He was a pillar in the church and the community," Joy Getty agreed. "He was a success." Getty and her husband lost $133,000.

"I thought he was a good Christian man," said another woman victim.

Two years ago, Harmon was an honored evangelical Quaker businessman with a seemingly thriving investment and insurance business empire centered in Camano, Washington, north of Seattle.

Today, Harmon is counting down the days until July 2, when he will enter a federal prison, to begin serving an eight-year sentence for conspiracy and tax fraud. His businesses have crumbled, and in their place Harmon faces, besides jail, a court order to repay $16 million dollars to his investors, a debt he will likely never be able to repay.

Behind this utter reversal lies what Seattle federal prosecutor Steve Schroeder called one of the biggest Ponzi schemes he had seen in two decades as a white-collar crime fighter.

The fraud was big in terms of dollars -- final figures are not yet available, but investigators told the court that the total was between twenty and forty million dollars, and closer to forty.

It was also large in terms of the number of victims: 230 mostly elderly investors, many of them widows, lost their retirement nest eggs; and three hundred-plus more were abruptly left without health insurance and stuck with the tab for hundreds of thousands of dollars in unpaid doctor bills.

Harmon's fraud is further distinguished by the fact that almost all of it involved members of two churches Harmon belonged to. One group was the Evangelical Quaker or Friends churches. The other was an independent congregation, the Camano Chapel, which Harmon and his family attended because there was not a Quaker congregation nearby. The chapel's pastor and its school building fund were among the local victims.

Prosecutors explained that Harmon's Ponzi scheme was atypical. "It's a tragic case," says Schroeder. "In most Ponzi schemes, the victims have some larceny in their hearts too, because they're promised unreasonably high returns. But Harmon didn't promise his investors outlandish returns, just a few points higher than more conventional stocks or funds. So his investors thought they were being reasonable and prudent."

But they weren't, really. Harmon's "investments" may have sounded reasonable, but there was nothing behind them. Instead of providing solid information, Harmon exploited the personal contacts among the evangelical Quakers he had grown up with. This playing on trust in one of their own is the hallmark of what investigators call "affinity group crime." Among Harmon's victims were his own brother Howard, formerly Superintendent of Northwest Yearly Meeting, his sister, and his son-in-law's widowed mother, Norma Beebe.

"The hardest thing," says Norma Beebe of Eugene, Oregon, "has been to recognize that such a trust could have been broken in Christian circles." Beebe's late husband Richard was the Presiding Clerk of Northwest Yearly Meeting for sixteen years. After his death in 1989, George Fox College named a building after him. Then Phil Harmon moved in and took her widow's legacy; she lost $135,000.

When an investor wanted a payment, Harmon used funds from later investors, in classic Ponzi fashion. The same was true of his insurance program, the National Friends Insurance Trust: medical claims were paid late, falsely, or not at all, as Harmon ripped off insurance companies as well as subscribers.

In the meantime, Harmon and his family were living high: He bought a mansion overlooking Puget Sound, acquired beachfront condos in Maui, dozens of other properties, a 53-foot yacht, and scores of antique autos.

Contributions to church groups earned Harmon seats on the board of George Fox University and other institutions where he could keep potential critics at bay. When Quaker superintendents asked questions, he stalled some, charmed others with opulent dinners, yacht cruises and bald-faced lies, and even put a couple on his payroll.

Investigators charged that Harmon had been defrauding investors and health plan subscribers since the mid-1980s, taking in millions and shuffling the money among an ever-expanding network of shell companies. When state investigators began looking into his business practices, they quickly realized there was more involved than they could handle and went to the feds. Ultimately a multi-agency task force was set up, involving the FBI, the Justice and Labor Departments and the IRS, along with state insurance and investment investigators. The probe was also given its own code name: Operation Island Scam.

Harmon was arrested in March of 1997, and pled guilty to conspiracy and tax fraud last October 31.

At the sentencing hearing May 4, victims denounced Harmon and the damage his thefts had done to their retirement hopes. Other victims had already said their piece. Esther Hardinger is one of them.

A retired schoolteacher and a widow from Coldwater, Kansas, Esther Hardinger invested with Harmon after her husband's death. She put in her entire savings, $40,663.48. "Because of him," she said, "I lost my financial security."

Hardinger spoke last November in Washington DC. She was part of a press conference staged by the North American Securities Administrators Association, dealing with "affinity group fraud".

Beside Hardinger at the conference stood another widow, her sister, Lois Hutson, of Wichita. Hutson said:

"My husband, who was a minister for 46 years, passed away suddenly in 1992 and left me $100,000 to live on for the rest of my life. I invested my monies with a man who was part of my church organization and he is now being prosecuted for fraud. And I can only hope to get back a tiny percentage of my original $95,000."

Prosecutor Schroeder said that the case is not over with Harmon's impending departure for prison. Harmon's son Steve, and son-in-law Terrill Beebe both worked closely with Phil Harmon in the business, and both were named as co-conspirators. Schroeder has said they will likely be indicted as well, along with several others he declined to identify.

Much speculation has centered on who else would be charged. During the sentencing hearing, Harmon's federal defender, Paula Deutch, stated that one of those to be indicted would be Maurice Roberts, the former Superintendent of Mid-America Yearly Meeting, who was hired by Harmon in 1995 after being fired by Mid-America in the wake of the Productions Plus fruad.

In an interview after the hearing with A Friendly Letter, Schroeder, who is in charge of the ongoing criminal investigation, confirmed that that defender Deutch had made that statement about Roberts, but declined to confirm that such an indictment was coming.

Other U.S. Attorneys have pledged to file negligence suits against insurance companies that did business with Harmon, in an effort to recoup some of the victims' losses. A group of Harmon victims has already filed a class- action suit with the same end in view.

[This post is part of a detailed report on the activities of Productions Plus, particularly among Quaker groups. Watch for additional excerpts on this site. The full report is available now, by snailmail. To order the complete report, send $10.00 (postpaid) to: A Friendly Letter, P.O. Box 82, Bellefonte PA 16823.]

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Copyright © 1998 by Chuck Fager. All rights reserved.