Long before Bernie Madoff was a household name, before the Ponzi schemes of Floridians Art Nadel and Lou Pearlman wiped out investor portfolios, there was the implosion of Keller Financial Services.
The high-flying auto finance company in Clearwater run by ubersalesman Brian R. Keller lured thousands of investors in the 1990s with the promise of high-yield returns — until monthly interest checks, which had arrived like clockwork, suddenly stopped.
Now comes the denouement.
Eleven years after Keller Financial tumbled into bankruptcy, more than 9,000 investors are receiving final reimbursement checks this summer from a bankruptcy court and a related civil suit. The final bankruptcy payout, put together with earlier disbursements, adds up to 51 cents on the dollar for investors. In the civil suit, preferred shareholders who bought Keller notes are winding up with far less: up to 20 cents on the dollar.
It's a lesson in how long it takes the wheels of justice to turn and how victims are never made whole again. And the perpetually elusive lesson that investments that sound too good to be true are often just that.
Lenora Miller, a retiree living in Holiday who had $71,000 tied up in Keller when it collapsed, remains bitter. Hundreds of elderly investors died waiting for a payout, including Miller's older sister, Beverly Thomas, who lost $143,000.
"As soon as my sister heard about (Keller's bankruptcy), her health went downhill, downhill," Miller said. "She died four years ago never realizing her kids were going to get any of her money, and I'm in a flea-bag mobile home in a park and working at Sam's Club at the age of 75."
Bankruptcy trustee Kevin O'Halloran was pleased with recovering more than $70 million for investors out of approximately $140 million owed. Rarely do participants in a fizzled investment get more than half their money back.
Separately, attorneys who led a class-action settlement are trying to locate all Keller preferred shareholders and ship checks to them by September. The size of the reimbursement, between 10 and 20 cents on the dollar, depends on how many shareholders are located to split the $3.9 million settlement. And how many are still alive.
Four of the original 11 lead plaintiffs died as the civil litigation was bogged down in court.
Michael Pucillo, an attorney in Palm Beach Gardens representing preferred shareholders, said dragging the case through additional litigation wouldn't be in the best interest of the many elderly investors. "Our sense was, let's close this up rather than go on for a few more years," he said.
A sinking feeling on April Fool's Day
Lenora Miller thought it had to be an April Fool's Day joke when the phone rang.
It was April 1, 1998. She had just come home from seeing Titanic on the big screen when her friend and investment adviser called to say that Keller Financial was going bankrupt. Miller and her sister couldn't get their money out.
"I said, 'Damn. I just watched the movie Titanic and now I'm on it,' " Miller recalled. "That's when I found out our ship was sinking."
Like others, Miller had been lured in years earlier by the promise of a 10.5 percent return. In May 1993, she was part of a gathering of would-be investors at a Holiday restaurant listening to a personal pitch from Brian Keller.
He used big charts showing how his company worked: Keller provided the money for used car dealers to finance auto loans to customers with shaky credit — at highly profitable interest rates. She recalled Keller holding up a penny, assuring the group that no one who invested in him had ever lost a cent.
Miller was sold after a woman she chatted with in the restroom told her that her mother had been with Brian for 14 years and she had never missed a check. Miller and her sister not only bought Keller notes promising a monthly interest payment, but also preferred shares in Keller stock.
Scott Boschetto, a physical therapist in Covington, Ga., was swept up in the euphoria, too. A broker in Chicago turned him on to Keller Financial. He wound up losing close to $1 million and, as the largest single investor left in the lurch, later headed the creditors' committee in bankruptcy court.
"A lot of us put money into it like it was an IRA, and that's where we got smoked," Boschetto said.
Steve Athanassie, a financial planner and president of Trademark Capital in Dunedin, recalls numerous investors approaching him in the mid 1990s touting Keller Financial, but unable to explain its financial setup.
"The mathematics didn't make sense," said Athanassie, who steered clear of the investment. "Based on what they were paying out and the commissions being paid to brokers, it just didn't work.
"It had a very similar tone to Madoff: Don't ask, don't tell. People had no idea what was happening with their money. But the check was never late."
O'Halloran, Keller Financial's bankruptcy trustee, said notes bought by investors were a bad deal from the company's inception in 1992. The company, he said, could never earn enough money making high-risk auto loans to overcome high default rates, big commissions to brokers, huge interest payments and big administrative costs — such as the $2.5 million paid to Brian Keller from 1994 to 1996.
Still, O'Halloran said comparisons to Madoff or similar Ponzi schemes fall short.
"I don't think this was a Ponzi scheme," O'Halloran said. "It started out as an investment and people just didn't put in the controls that they said they were going to put in and it got out of hand."
Toward the end, Keller Financial couldn't keep up with rising defaults. It spent millions trying unsuccessfully to shore up the finances of Bennett New Car Alternative Cos., a group of bay area car and motorcycle dealers that went bankrupt in February 1998.
All told, O'Halloran and his team recovered nearly $85 million. Between $12 million and $15 million went to legal fees and court costs and the rest to investors.
"If there's a lesson learned," O'Halloran said, "it's that this is an example in patience." He drew parallels to the Madoff trustee, who is under fire to recover funds. "If the people give him time, he may be able to recover a substantial amount. When we started out, we thought we'd recover 20 cents on the dollar."
In recent Ponzi cases, trustees have often turned to so-called clawback suits, trying to reimburse victims by suing those who took profits out of an investment before it tanked.
To recoup lost funds in this case, however, O'Halloran relied very little on clawbacks. A big chunk of the recovery, almost $40 million, came from auctioning Keller's operations to a bank in Texas.
Much of the rest came through malpractice claims filed against consultants, attorneys and auditors — those that advised and endorsed Keller's operations.
"The professionals associated with the firms, the auditors, should have gotten more active in recognizing the problems the company had instead of allowing the management to continue," O'Halloran said.
In the class-action suit filed by preferred shareholders, the target was KPMG, which had issued a favorable auditor's statement for Keller used in public offerings for the company in July 1995 and January 1996.
The National Association of Securities Dealers, meanwhile, went after brokers who had pushed the notes. It ruled that firms like Sunpoint Securities, First Associated Securities Group and Aragon Financial Services misrepresented Keller as a safe investment. However, many investors struggled to recover damages that were awarded as some brokers had gone out of business.
Another target of investor ire was Dominic Massari, former attorney for Keller, who was ordered by a bankruptcy judge to return most of $2.1 million in legal fees he received from Keller before it closed. Massari had a string of other legal troubles; he was subsequently disbarred in connection with a separate case involving forged documents and stealing money from a client. He also pled guilty to conspiracy in the unusual case of an Ohio businessman who orchestrated a legal scam to hide millions of dollars of his own money from a court judgment.
And Brian Keller?
After more than four years of legal battles over accusations of fraud, mismanagement and illegal transfers of funds, Keller walked away. His attorney viewed the end of litigation six years ago as vindication that Keller was caught up in a bad situation, but not guilty of defrauding anyone.
"We prevailed on all issues. (Brian Keller) came out with a clean sheet," Keller's longtime attorney, Tony Battaglia, said last week. "He walked out of there without any of his hair being singed in any way whatsoever."
Attempts to reach Keller for this story, either directly or through Battaglia, were unsuccessful.
Matt Wood, an 84-year-old New Port Richey resident and one of the many investors who knew Keller through church, remains convinced he intended no harm.
"Brian Keller was a good fellow. He just got in over his head. That was his whole trouble," he said.
Others aren't so dismissive of Keller's role.
Boschetto, the chairman of the creditors committee, recalls the day Keller sat facing investors in court and pleaded the Fifth Amendment. "I almost got up and knocked him out," he said.
Boschetto applauded the tenacity of O'Halloran and attorneys working for him in ferreting out sources of funds to reimburse investors.
"But we would have done much better provided the Fifth Amendment rule didn't get in the way. We would have found out where the rest of the stuff was hidden.
"I don't think the culprit paid the price," he said.
O'Halloran said he plans to file soon with the bankruptcy judge to close the case.
For some investors, like Matt Wood, that represents closure.
"It's done; it's completely done. What's lost is lost," he said. "I don't hold any grudges. I just continue on. . . . The Lord will take care of me."
Lenora Miller, though, can't relieve a nagging sense that the saga isn't over, that justice hasn't been served.
She thinks about Brian Keller waving that penny, saying no one would lose a cent. She misses her sister and reminisces about the many years they were inseparable. And she thinks again of Keller, who she says "should be in jail right now."
"As far as I'm concerned," she adds, "I'm laying her death at his doorstep."
Times researcher Shirl Kennedy contributed to this report, which used information from Times files. Jeff Harrington can be reached at firstname.lastname@example.org or (727) 893-8242.