Small potatoes? Dowdell could be looking at life
Don Corleone, aka the Godfather, famously said, "A lawyer with his briefcase can steal more than a hundred men with guns."
He's no lawyer, and briefcases aren't allowed in jail, but federal prosecutors say that 56-year-old Terrence Lee Dowdell has stolen about a hundred million dollars. And he did it using one of the oldest financial swindles: a Ponzi scheme.
Dowdell's lawyers, meanwhile, claim that the incarcerated Albemarlean really thought he could find a way to pay back those millions– and provide hefty returns. More on that later.
It's the second floor of the Federal Courthouse on Vinegar Hill, and Terry Dowdell looks nothing like the financial hotshot of yore. Once a chief financial officer with the Templeton Fund, Dowdell is spending this recent hearing freed from handcuffs– but still dressed in the black and white horizontal stripes provided by the Albemarle-Charlottesville Regional Jail.
Federal prosecutors say Dowdell is a con man who raised up to $120 million from unwitting investors around the world. The feds say he funded a Pantops mountain car repair shop to launder some of that money and provide jobs for family members. They say he pumped plenty of his ill-gotten gains into a lavish Albemarle County lifestyle.
This day, however, the only regal things about Dowdell are his royal blue tennis shoes. Besides the laceless jail-issue footwear, the heavy-set Dowdell sports a salt-and-pepper goatee and receding gray hair cinched with a rubber band into a tiny ponytail. He won't comment on his situation, but a relative, Tim Pierce of Palm Harbor, Florida, speaks up.
"My brother-in-law is not this person the courts have made him out to be," says Pierce, whose sister is married to Dowdell. "There's no doubt in my mind of his innocence, despite statements he's made, and I'll take that to the grave."
Dowdell's most recent statements have included pleading guilty to 20 federal felony charges, including securities fraud, wire fraud, and money laundering.
Like Don Corleone, Dowdell didn't soil his hands with money or deal directly with his victims. Authorities say he used intermediaries to lure investors into his "Vavasseur Program." Named for his Bahamas-based company, the scheme would supposedly buy discounted overseas financial instruments and deliver no-risk returns of four percent per week for forty weeks– or an unheard-of 160 percent in less than a year.
Like all Ponzi schemes, early investors got paid with money from new investors. Dowdell, authorities allege, was telling his brokers to inform their wide-eyed prey that they were buying "medium term debenture instruments... issued by one or more of the major money center banks of either North America or Western Europe."
In his plea agreement, however, Dowdell admitted that there were no such magical financial instruments. Instead, he lavished money on himself, his associates, and his family.
Earlier this month, Dowdell's daughter and wife were slapped with civil orders that repossessed the family houses, jewelry, and more.
Daughter Rebecca Dowdell must repay about a million dollars in loans that originated from her father's victims. In a separate June 5 civil order, Dowdell's wife, Mary, was ordered to turn over her interest in five properties, give up jewels and home furnishings– and pay back $4.8 million. Rebecca, who recently gave birth to her second child, was also ordered to relinquish $145,000 in cash and her $300,000 home at 1464 Birchcrest Lane in Forest Lakes South. Neither woman was ever charged with a crime or with knowingly receiving stolen money.
"The bottom line," says their lawyer, R. Lee Livingston, "is that they are victims second only to the investors."
Stolen money had a bizarre habit, however, of finding its way into the family coffers.
In January 2002, a car repair shop– Authorized Auto Inc.– opened on Pantops. Shareholders in the company: Terry Dowdell, Adam Dowdell, Rebecca Dowdell, Wendetta Dowdell, Mary Dowdell, and Wayne Hensley. All well and good– except that the government says that Terry Dowdell set up the operation with a million dollars in Vavasseur investor funds after his assets had been ordered frozen. It didn't stop there.
In November 2002– two months after the receiver had taken over Authorized Auto– a plan was formulated to allow Dowdell's relatives to buy the shop for a quarter of a million dollars. However, the $25,000 down payment to the court-appointed receiver turned out to be more "tainted money" from Vavasseur investors. Again, Dowdell had moved funds from a secret stash. In this case, the money moved from Brussels to an associate in California and then to the receiver.
The receiver now believes that a total of about $1.25 million of investor cash was funneled into Authorized Auto, which was such a money-loser that he shut it down in January of this year.
Authorized's assets were slated for the auction block on Wednesday, June 25, the day this issue of the Hook is printed.
The money Dowdell and his associates took from investors– typically a minimum of $100,000 each– may never receive a full accounting. Can early investors expect to keep their amazing early returns? Can Dowdell's wife realistically be expected to cough up over $5 million?
An Australian investor who cut a $5 million check for Dowdell's scheme probably hopes so. Ditto for the Briton who invested $4 million. But they haven't come forward publicly.
"They're embarrassed," says Roy M. Terry Jr., the Richmond lawyer who is serving as the government's receiver. "They feel like they've done the stupidest thing in their lives."
While only $70 million of the $120 million raised from investors has been accounted for, and only $25 million of that is safely under his control, Terry describes overseas money as the "wild card" and notes, for example, that he soon plans to initiate litigation in Ireland to flush out more foreign accounts.
"There's a lot of money out there still that we're going to go after," says Terry. In the past week, he's communicated with individuals in England, Sweden, and Australia. Soon, he'll place ads in USA Today, the Wall Street Journal, the Financial Times to locate more duped investors. Doling it out, however, presents another conundrum: Whose money is it?
Then there's the $50 million that's still missing.
One person who might know something is Birgit G. "Gita" Mechlenburg. A Danish citizen who lived in America until recently, Mechlenburg was banned in 1996 from selling securities because of her participation in a Massachusetts "investment club" with similarities to Dowdell's scheme. With $20,000 of her own, and her mother the next in line, Mechlenburg became Dowdell's first investor, according to court papers.
Her due diligence, they say, was non-existent, and she soon became one of Dowdell's top brokers, with a client list that invested as much as $13 million. Authorities allege that in July 2002, after months of stymieing their investigation by professing the legitimacy of the Vavasseur Program, Mechlenburg suddenly loaded the contents of her Lenox, Massachusetts, home into a "large shipping container" and fled the country. She's been hit with $120,000 in civil penalties and ordered to pay back the $1.6 million in commissions she took from investors. But she hasn't paid, and she remains at large.
The Dowdell investigation first made headlines in November 2001 when a civil complaint was filed in the federal courthouse in downtown Charlottesville. Authorities thought Dowdell was cooperating. This is when they froze his accounts and believing his assurances that his financial shenanigans had stopped– granted him a monthly $4,000 living allowance. Count them among the duped.
In the spring of 2002, Dowdell allegedly recruited two friends– brothers Gregory and Mark Smyth of Laguna Niguel, California– to retrieve $850,000 in supposedly frozen overseas funds.
The latter Smyth is a lawyer who the California State Bar Association says had been suspended from the Bar in 1995 and resigned the following year with disciplinary charges pending. Calls to his office went unreturned.
Authorities were agog over the $850,000 audacity.
Terry Dowdell is an "unrepentant liar and manipulator," according to a January declaration filed by government attorney Steven J. Levine. "Just as this man was having his attorneys seek additional funds each month from his frozen assets," Levine wrote, "he was having his minions write checks to his pool maintenance company, so that Dowdell could continue to enjoy his daily swim in the pool that he purchased with stolen money."
That waterfall-enhanced gunnite-and-tile pool, along with four late-model vehicles, a few signed Thomas Kinkade prints, a 45-diamond tennis bracelet, and hundreds of other alleged spoils of scamming were auctioned off May 10.
A release from Motley's Auctions says the former Dowdell mansion, the auction's biggest booty, was purchased by "a doctor from Harvard." According to court records, that residence at 3313 Rosewood Lane near Ivy, was purchased by James A. and Susan S. Burns for $1.045 million, including 10 percent for the auctioneer. Dowdell's nearby empty lot in the same cushy Rosemont Estates subdivision went to Stuart L. Guskind for $203,500.
But Dowdell's days of wine in Rosemont had already ended. Ironically, for a man facing the prospect of life in prison for his felonies, it was a civil charge that imprisoned him. In March, he was jailed for contempt– for moving that $850,000 through the Smyth brothers.
"Dowdell has continuously played marbles on the coattails of this court," fumed federal judge J. Harry Michael in his March 5 incarceration order.
"He's pissed," says one financial expert, who is closely watching the criminal case, over which Judge Michael also presides. "This is a senior judge who can pick and choose his cases, and he picked this one."
At the recent hearing downtown, the elderly judge seemed unimpressed when a criminal defense lawyer from powerhouse D.C. law firm Patton Boggs tried to downplay Dowdell's deeds by putting them in the context of corporate mega-scandals such as Enron and Worldcom.
"What is your view," demanded Michael, "of what it would take to make this extraordinary? Would it be $500 million– or a billion? What would it take?"
The lawyer, Robert Luskin, took the bait.
"I'm sorry to say," answered Luskin, "but based on what I've read in the papers, fifty million dollars is small potatoes."
After the hearing, fellow defense counsel Fred Heblich said Dowdell, like many investment managers, was so obsessed with finding the "holy grail" of investments that he convinced himself the gigantic returns he was promising were possible.
"His intention wasn't to run a Ponzi scheme," says Heblich. "He'd tell you he could find [high-yield investments]. But before he found one," says Heblich, "he got prosecuted."
Such schemes are dubbed "Prime Bank Frauds" by the SEC. "The sellers frequently tell potential investors that they have special access to programs that otherwise would be reserved for top financiers on Wall Street, or in London, Geneva, or other world financial centers," according to the website the SEC maintains to warn away investors.
The Dowdell affair has grabbed some national attention– particularly a June 9 story in Forbes entitled "Thieves Don't Quit."
The massive civil suit from the Securities and Exchange Commission resulted, on June 5, in a court order that Dowdell pay a $1 million fine and return about $130 million in funds (including interest) from swindled investors.
Meanwhile, back at the criminal case, the issue now is whether Dowdell should spend about eight years in prison– or life.
Heblich says that in entering the guilty plea, the defense team figured that eight years was the appropriate sentence. But as it turned out, the feds made a crucial mistake while drafting the plea agreement. They used outdated sentencing guidelines which are much more lenient than the 2001 sentencing guidelines that should have applied– and would have put Dowdell away for the rest of his life.
"It's pretty political," claims Heblich of the 2001 guidelines. "What they've done is ratchet up the white-collar penalties because everyone's screaming."
Judge Michael must now decide whether to throw out the whole plea agreement, try to apply the new guidelines, or– as lawyer Luskin requested– devise a "hybrid" sentence, which would keep his client in jail for about ten years, still a "horrible prospect" for the middle-aged Dowdell, according to Luskin.
"The rule-makers have presented us with a dog's breakfast," said Luskin. "It's rarely the case that those who serve it eat it, your honor."
Judge Michael seemed to agree. At the close of the hearing, the judge stepped down from the bench and shook hands with Dowdell before the accused was handcuffed and led away to wonder about his sentence.
The ruling is expected any day now.