A suspected scam uncovered by a short seller ends in gunshots

Matthew Beasley wasn’t surprised when three FBI agents rang his doorbell.

Authorities questioned a risk-free, high-return investment plan that his law firm helped implement. You had already visited an employee.

They also had secret tapes of the sales pitch for a burglar sting operation involving a bitter impromptu comedian, a chartered private jet, and a well-known New York investment firm.

Mr. Beasley came to the front door of his Las Vegas home, standing sideways. As he turned to the agents, he held a gun to his head.

He then pointed the gun at the agents, a federal prosecutor said during a court hearing earlier this month. The agents shot him twice, the prosecutor said. Mr. Beasley retired to his house.

The Federal Bureau of Investigation has brought in a hostage negotiator. Mr Beasley said he wished the agents had killed him – he said he would rather die than go to jail, the prosecutor said.

Las Vegas attorney Matthew Beasley faces charges of assaulting a federal agent.

Bleeding from gunshot wounds to his chest and shoulder, he confessed: The investments were a Ponzi scheme, according to prosecutors. Check his bank records, said Mr Beasley, and it will all be clear.

After nearly four hours, an FBI SWAT team brought Mr. Beasley out alive.

He was charged with assaulting a federal officer. He was not accused of any financial irregularities. According to people familiar with the matter, the FBI continues to investigate the alleged pyramid scheme.

A lawyer representing Mr Beasley declined to comment. He told a judge on March 8 that Mr. Beasley’s actions indicated remorse and a “unique, extreme emotional crisis.”

According to secretly recorded conversations with marketers and the company’s president, Jeffrey Judd. The money was transferred to a bank account controlled by Mr Beasley’s law firm on behalf of the two companies, according to investment documents.

Neither J&J nor Mr. Judd have been charged with wrongdoing by prosecutors.

“The events surrounding Attorney Beasley are both baffling and shocking,” said Nick Oberheiden, an attorney representing Mr. Judd. His client will investigate what happened and expose those who sabotaged his operation, Oberheiden said.

J&J Consulting and the company’s investors were victims of Mr. Beasley, said Kevin Anderson, an attorney representing the company in civil matters.

In recent years, Messrs. Beasley and Judd and their affiliates and trusts have acquired a private jet, multi-million dollar real estate properties in Nevada and Utah, and premium automobiles including a Rolls-Royce Dawn, two Bentley Continental GTs, a Porsche Taycan, an Aston Martin Vantage, and a $500,000 RV. Mr. Judd’s attorney declined to comment on the acquisitions.

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Private plane Mark Holt said he met with marketers for J&J in February.


Photo:

Niki Chan Wylie for The Wall Street Journal

The strategy advocated by Mr. Judd was “the most obvious Ponzi scheme we’ve ever seen,” said Nate Anderson, founder of the investment firm that studied it. In a notice searching for victims of the alleged fraud, the FBI also called it a Ponzi scheme. Ponzi schemes are investment scams that pay early investors with funds from later investors. The money collected is usually not invested.

Mr. Anderson’s Hindenburg Research is a Wall Street firm that investigates potential scams among public companies and bets their stocks will fall.

The firm also raised questions about electric truck company Nikola corp

Among other things, it was revealed that in a video Nikola had rolled a truck downhill to make it appear as a working vehicle. Nikola paid a $125 million fine related to the allegations and has neither admitted nor denied wrongdoing.

Mr. Anderson got his start in fraud research investigating Ponzi schemes, including working with Harry Markopolos, who for years warned regulators about Bernard Madoff’s multi-billion dollar scam but was largely ignored.

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Nate Anderson, founder of Hindenburg Research, in 2020.


Photo:

Johnny Milano for the Wall Street Journal

Like Mr. Madoff’s scam, the results here seemed too good to be true. According to recorded conversations, documents, interviews with potential investors and a court hearing following Mr. Beasley’s arrest, J&J said it made short-term loans to people awaiting payouts on settled personal injury lawsuits.

The contracts are said to provide for a 12.5% ​​payout after a loan is repaid within 90 days. They were sold as risk free. “We’ve never had one — over 16,000 in more than six years — that went bad,” Mr. Judd said in a pitch secretly recorded by Hindenburg in February.

Investors, most of them Mormons living in the western United States, usually heard about J&J from family and friends. They were connected to marketers asking for investments in $80,000 and $100,000 increments into the J&J units. Show investors signed non-disclosure agreements, J&J documents and correspondence with marketers.

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Jeffrey Judd in his Rolls Royce Dawn.

Mr. Judd and some of the marketers also identified as Mormons. In a recorded conversation, a marketer said he was considering spreading the investment opportunity to build the community.

Neither Mr. Beasley nor Mr. Judd have a background in finance. Mr. Beasley practiced family law and civil litigation, according to a former colleague. Mr. Judd has done pharmaceutical sales.

Since 2017, more than $300 million has flowed into the bank account of Mr. Beasley’s law firm, which was affiliated with J&J, prosecutors said.

In January, Hindenburg received a tip from an accountant who said several clients had invested in J&J. One provided investment documents. Mr. Anderson decided to investigate.

J&J’s investments were private, so Hindenburg could not profit by betting against them. The company has filed a whistleblower complaint with the Securities and Exchange Commission seeking to get paid if the government imposes a significant fine.

The firm set up a secret operation to tape Mr Judd, who rarely met with investors, to further the investment strategy. A partner of Hindenburg knew a high school classmate of Mr. Judd’s. Classmate Mark Holt didn’t know Mr. Judd, but the two men had dozens of mutual friends on Facebook. They dated the same woman, Mr. Holt said.

For Mr. Holt, the fraud is very close. More than a decade ago, Mr. Holt gave money to a man who said his investment in Canadian oil wells would yield a 25% return as long as oil prices stayed above $30 a barrel.

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Mark Holt, who said he drew on his impromptu comedy experience to portray a potential investor in J&J.


Photo:

Niki Chan Wylie for The Wall Street Journal

After receiving his initial returns as promised, Mr. Holt recommended the investment to his mother. She pocketed a sizable chunk of her life savings. The man disappeared a few months later.

“There was guilt, shame and regret, all mixed with bitterness,” Mr. Holt said. “It’s victimization that never ends.”

Mr Holt, a former technology executive who now runs a private jet charter company, told J&J marketers he had a large sum to invest. He flew to Las Vegas in a chartered private jet, secretly wired with microphones and cameras by Hindenburg, to meet with marketing executives from J&J.

At the meeting, he said he drew on his business experience but also a decade of improv comedy.

“I created an improv scene with people who didn’t know they were in a scene,” he said. “I was a little worried I’d come off as too sophisticated, but it turns out it wasn’t that hard to play dumb.”

All the men exited the jet and stood on the tarmac. One of the marketers, speaking about the response they received to their offer, said, according to a recording of the conversation, “You know, we’ve had some people say it’s a Ponzi scheme.”

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Interior of the private jet where Mark Holt said his meeting with the J&J marketers took place.


Photo:

Niki Chan Wylie for The Wall Street Journal

After meeting on the plane, Mr. Judd agreed to speak to Mr. Holt. During the secretly recorded conversation, the two men discussed their mutual friends, Mr. Judd’s recent private jet purchase and the details of the J&J investment. Mr. Judd made several of the same representations as the marketers. He said on the call that he runs J&J himself while Mr. Beasley handles contracts and legal relations.

J&J’s proposed litigation funding investments were not uncommon. The risk was surprising. Hindenburg consulted with professors, who said the default rate for this type of contract was about 1%. For J&J, having zero losses on 16,000 contracts was near-statistically impossible, Hindenburg estimated.

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The size and consistency of J&J’s contracts also struck Hindenburg. Mr. Anderson read a study by three academics who examined thousands of settlements and found that the average post-conciliation funding for a major industry lender was $6,000 per case, far less than the $80,000 or $100,000 contracts , which J&J says it regularly financed.

Hindenburg said it shared its findings with federal authorities. A few days after the taped conversation with Mr. Judd, the FBI agents knocked on Mr. Beasley’s door.

The standoff spread quickly among investors. The FBI issued a notice on an agency website asking to speak to victims of an alleged Ponzi scheme. Although J&J was not named, the details provided match those described in the investment documents reviewed by the Wall Street Journal.

Last Thursday, five investors with a combined $1.8 million invested in the J&J companies filed for involuntary bankruptcy against the companies. Two other lawsuits related to J&J were also filed by investors.

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The FBI on the spot in Las Vegas when Matthew Beasley was arrested.


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Bizuayehu Tesfaye/Las Vegas Review Journal

write to Ben Foldy at ben.foldy@wsj.com

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