Ponzi schemes conjure images of multi-million dollar fraudsters living an opulent lifestyle of beautiful homes, vacations and lavish jewelry on the proceeds of a slick salesman’s ill-gotten gains.
Well, if you believe an amended complaint filed Monday by the S.C. Attorney General’s Office and a prominent Columbia attorney’s assessment, Jay and Tracy Brooks are the Madoffs of South Carolina.
Jay Brooks, his wife Tracy, and their companies, J. Brooks Financial and Brooks Real Estate Holdings, are accused of illegally selling illegal securities to fund the establishment of a new school, Compass Academy, but instead used the funds for everything from vacations to paying money owed to the IRS.
The new complaint adds Tracy Brooks and alleges she was a willing party to fraud, lies and the misappropriation of investor funds for personal use.
Claims include the Brookses paid $50,000 from Compass Academy investor funds to repay a promissory note from a builder when closing on their home.
Claims also report that Tracy Brooks bought a $21,079 “gold and platinum split-shank diamond ring” from Tiffany and Co.
And there are further claims that, on more than one occasion, when a new investor was found, thousands of dollars would be spent within days on personal purchases by Tracy and Jay Brooks.
“I’ve read this book 20 times in my career, your honor,” attorney Pete Strom of the Strom Law Firm told Circuit Court Judge Clifton Newman. “This is a Ponzi scheme. And, unfortunately, most of these people are going to lose their money.”
A Ponzi scheme is an operation that pays returns to investors from their own money or that of other subsequent investors, rather than from profits earned.
More than just misuse of money once willingly invested in Compass Academy, the investors are broken down, in the complaint, into three classes: Class I – Those who invested willingly in Compass Academy and the construction of the school.
Class II – Those who willingly invested with Jay Brooks in investments unrelated to Compass. Some Class II investors had previously refused to invest in Compass.
Class III – Those who were not consulted or refused investing in Compass. These investors were told their money was going into bonds, trusts or other investment contracts.
For each class, an anonymous investor and the alleged misappropriation of their funds is detailed, the complaint states.
Investor A, from Class I, invested $80,000, according to the complaint. In the week after the investment, nearly $12,000 was spent at PetsMart, Great Clips, Direct TV and Hobby Lobby, and this money is also alleged to have been wired to pay for the Tiffany ring, the complaint alleges.
Investor B, from Class II, invested more than $50,000 and was told “he was investing in a trust fund that had real estate as its largest investment,” the complaint states. The money was not invested, the complaint says, but rather spent at Marriott Hotels, American Airlines, various restaurants and PetSmart.
Investor C, from Class III, gave $95,000 to be placed in a trust and was allegedly told by Jay Brooks that the principal would never be touched, and they could expect to earn five percent interest, the complaint says.
Instead the money went into an account with the Brookses as signatories which, prior to the investment, had a balance around $3,000, the complaint says.
“Over the next 11 days, defendants Jay Brooks and/or Tracy Brooks spent approximately $19,000 from the account” on credit card payments of $5,000, cash withdrawals, payments to investors, payment to their bank, payments to the IRS and trips to Target and Publix grocery store, the complaint says.
Both are charged with multiple counts of fraud, illegal sales of securities and other breaches of law.
From the beginning of the case, Tracy and Jay Brooks have denied any wrongdoing in the case. However, now “multiple admissions by Tracy Brooks of personal use of Compass Funds” is reported in the complaint.
Judge Newman will now select a receiver to take control of the frozen assets. Two experienced attorneys were suggested by the Attorney General’s office Monday. After that, the selected individual will begin their investigation into recoverable assets and if it will be possible to fund Compass Academy’s continued construction.
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