Wire Fraud Charges Filed Against Former J.C. Reed Vice President and Portfolio Manager Barron A. Mathis
|U.S. Attorney’s Office November 10, 2009|
NASHVILLE, TN—United States Attorney Edward M. Yarbrough; Martin P. Phanco, Inspector in Charge, United States Postal Inspection Service, and My Harrison, Special Agent in Charge, Memphis Division of the Federal Bureau of Investigation (FBI), announced today the filing of a federal felony criminal information against Barron A. Mathis, former Vice President and portfolio manager for J.C. Reed & Company, Inc. (“J.C. Reed & Company”), a failed financial services company previously based in Franklin, Tennessee. The felony Information, filed on November 3, 2009 in the United States District Court for the Middle District of Tennessee in Nashville, charged Mathis with four counts of wire fraud, in violation of Title 18, United States Code, Section 1343. The charges all were based on Mathis’ alleged role in a scheme to defraud investors who deposited funds in excess of $11,000,000 with J.C. Reed & Company.
According to the criminal Information, between January 2006 and October 2008, Barron Mathis and J.C. Reed & Company devised a scheme to defraud investors who deposited funds for investment with J.C. Reed & Company. The Information alleges that it was part of the scheme that Barron Mathis solicited and obtained money from clients, friends, and acquaintances by falsely promising to invest and manage the money in growth-oriented, traditional instruments, such as investments with fixed annual returns, or in established marketable securities. The Information further alleges that Mathis falsely encouraged investors to purchase J.C. Reed stock by representing that the stock was a safe investment when he knew that the purchase of J.C. Reed stock was actually a high-risk investment. J.C. Reed clients, who were mostly elderly and unsophisticated growth-oriented investors, would not have invested in the stock but for the false assurances by Mathis.
The Information further alleges that, in order to induce his clients, friends, and acquaintances to invest in J.C. Reed, Mathis falsely assured clients that J.C. Reed was profitable and making money, that a market existed for J.C. Reed stock, and that their investment in J.C. Reed stock would increase in value and be readily redeemable. However, Mathis knew at the time he made those assurances to investors that J.C. Reed was not profitable, that virtually all of its operating capital was received from shareholder investments, and that no market existed for J.C. Reed stock.
It was further alleged in the Information that, between January 2006 and October 2008, Mathis and J.C. Reed schemed to intentionally inflate the value of J.C. Reed stock by creating several wholly-owned subsidiaries from which they arbitrarily reported “future” earnings. Mathis provided documents to a third-party stock evaluator that materially exaggerated the value of J.C. Reed subsidiaries, with the intention that the third-party stock evaluator would rely upon the exaggerated projected earnings to re-calculate the value of J.C. Reed stock. In fact, as the Information alleges, the third-party stock evaluator reported the fictitious earnings information to a national brokerage house which resulted in the newly inflated stock price being reported on statements issued by the national brokerage house as if it was an accurate valuation of J.C. Reed stock. The Information further alleges that Mathis, despite knowing that the valuation of J.C. Reed stock was inflated and did not accurately reflect the company’s true financial position, deliberately promoted the stock to new and prospective investors and encouraged further investment from existing clients by falsely representing that the value of J.C. Reed’s shares was increasing.
The Information also alleged that, between June 2007 and October 2008, Mathis, without the knowledge or authorization of J.C. Reed clients, frequently used his discretionary authority to liquidate traditional investments from various client portfolios and used the funds to purchase shares of J.C. Reed stock. At various times between June 2007 and October 2008, Mathis, without the knowledge or authorization of J.C. Reed clients, sometimes withdrew or liquidated assets from individual client accounts and used the funds to make investment purchases for the accounts of other clients, or to open new client accounts. In order to disguise his unauthorized purchases and sales of client securities, Mathis created fraudulent invoices, forged client signatures on trading documents, and prepared fictitious account statements that falsely reported client investment holdings. Mathis caused these fraudulent documents to be mailed and wired to clients. Between January 2005 and approximately September 2008, Mathis and J.C. Reed offered and sold approximately $11,000,000 of J.C. Reed stock in unregistered transactions to approximately 100 investors located in multiple states. Between approximately January 2007 and October 2008, Mathis, on behalf of J.C. Reed, solicited, offered, sold, or purchased, approximately $1,543,000 of J.C. Reed stock in unregistered transactions to investors located in multiple states.
“Cases like these are egregious examples of predators who target vulnerable and innocent victims through false and fraudulent business practices,” United States Attorney Edward M. Yarbrough said. “According to the information, Mathis repeatedly encouraged people to invest by falsely promising security, growth and inflated returns on their money, but instead the investors lost their savings as part of an elaborate fraud scheme. The United States Attorney’s Office will diligently and aggressively prosecute the perpetrators of such schemes.”
“U.S. Postal Inspectors are responsible for protecting the sanctity of the nation's mail system,” said Martin D. Phanco, Inspector in Charge, Atlanta Division. “When allegations are made that the U.S. mail has been used to violate this trust, it’s our job as postal inspectors to restore America’s confidence in the integrity of its postal system and help bring the violators to justice.”
“This investigation highlights the FBI's commitment to working closely with our regulatory and law enforcement partners protecting investor confidence in the United States financial markets,” said FBI Memphis Division, Special Agent in Charge My Harrison.
The charges in the information were brought following a coordinated investigation conducted by agents from the Federal Bureau of Investigation, the United States Postal Inspection Service, and the Franklin Police Department. In addition, the case was investigated in cooperation with the Atlanta Regional Office of the Securities and Exchange Commission, which has a civil enforcement action pending against Mathis. Assistant United States Attorney John K. Webb is prosecuting the case for the United States. An Information constitutes only an allegation and is not evidence of guilt. A charged defendant is presumed innocent and is entitled to a jury trial at which the government would bear the burden of proof beyond a reasonable doubt as to each count of the information.