Two brokerage firms fired Neal Smalbach. Dozens of customers complained that he'd sold them risky and unsuitable investments. Federal regulators fined him. The state still has him under investigation.
And yet, even after losing his securities license in 2008, Smalbach used a loophole in securities law to sell stock in a shaky Tampa startup, often to retirees in their 80s and 90s on Social Security.
Today that venture, Transfer Technology International Corp., is flailing, its stock selling for less than a penny a share. Smalbach, who lives in Palm Harbor, is no longer with TTI but won't say what he's doing. He still has an insurance license, which allows him to sell certain types of annuities.
At least a dozen elderly investors, meanwhile, are holding virtually worthless TTI stock for which they paid nearly $1 million. They're kicking themselves for trusting Smalbach, who ingratiated himself over their kitchen tables with talk of his family, his wealth and his concern for their well-being.
"He had the gift of gab," said Grace Bouma, an 87-year-old widow in Spring Hill who lost at least $130,000 in TTI. "Now I just have Social Security. My husband must be churning in his grave."
Asked for comment, Smalbach, 48, sent an e-mail saying: "Since I was only involved with Transfer Technology for a short time, I don't think my thoughts can help you in any way." He referred all questions to his lawyer, who declined to comment.
Smalbach had just been booted from two brokerage firms in two months when he landed the job in September 2008 as vice president of corporate finance at TTI. The company was supposed to turn patents into profitable products. In July 2008, Christoph Trina, the company's chief executive, said TTI had patents on a pesticide for citrus disease and a rust inhibitor for paint. "We've got two grand slams here," he told Gulf Coast Business Journal.
One of Smalbach's duties was to raise money. Though no longer a licensed securities broker, as a TTI employee he could legally sell the company's shares to individuals who met the U.S. Securities and Exchange Commission's definition of "accredited investors."
To qualify, such investors must have a net worth, excluding their homes, of more than $1 million or have steady income of more than $200,000 a year. The rule is intended to protect people with limited financial reserves from losses that could come with risky investments.
That did not stop Smalbach from selling TTI investments to his old customers, though few if any qualified as accredited investors, according to Bob Ferreira.
Ferreira, of New Port Richey, does taxes for nearly 60 of Smalbach's former clients and is familiar with their financial situations. He said the customers he knows who bought TTI shares were retirees on limited incomes. Among them: a 94-year-old man who put $300,000 into TTI, but is so strapped for cash, his stepdaughter, said he washes and reuses his disposable adult diapers.
"I've been to all their homes and they're nice, but nothing fancy," Ferreira said, adding that several live in mobile homes. "The one with the nicest home is Neal."
Smalbach's home in Palm Harbor is assessed at $348,000; he also owns a condo at Innisbrook valued at $120,000.
Bob Fox, a 78-year-old retiree in Sebring who put $100,000 into TTI, said he told Smalbach there was no way he was worth $1 million.
"He said, 'If you put everything together you probably would be,' " Fox recalled. "It was all quite hasty, (with Smalbach saying) 'put a check mark here, sign here.' But that $100,000 was about 40 percent of my net worth."
In late 2008, Clarence and Marjorie Passehl of Port Richey, both 86, agreed to sell two annuities at a loss and invest $152,000 in TTI. Among the documents they initialed for Smalbach during a flurry of paperwork was a form saying they were worth more than $1 million, even though they are not.
Marjorie Passehl, whose husband is a retired mason, remembered Smalbach spreading a bunch of papers in front of the couple and rushing them to initial certain pages.
"We're not that up on investing, and we trusted him as our financial adviser," Passehl said. "We did what he said."
To date, the Passehls have not received a dime on their TTI investment and efforts to cash it in have been fruitless.
According to TTI's attorney, Gary Henrie, Smalbach left the company in May 2009. Henrie said the company "went out of its way in making sure investors were comfortable with the investments," with Trina, the chief executive, calling about 90 percent of all investors before depositing their checks. (Passehl said she did not get such a call. Trina, who filed personal bankruptcy in December, declined to comment.)
"All sales have been properly documented and signed by investors," said TTI's lawyer.
Jack Kiefner, a former SEC lawyer in St. Petersburg who is not involved in any claims against Smalbach, said just having a signed document is not enough.
"It's not an absolute defense merely because a piece of paper has been signed by the client," he said. "If there are disputes as to the legitimacy of that financial representation, if the investor says it wasn't true or that he signed it in blank, that does not constitute an informed representation by the client of his or her net worth."
TTI moved last year to Wesley Chapel and has three full-time and three part-time employees. The company's last financial filing with the SEC paints a grim picture. For the nine months ending Sept. 30, TTI had a net loss of nearly $1 million and accumulated deficit of nearly $50 million, raising "substantial doubt about the company's ability to continue as a going concern," the filing said.
Meanwhile, investors are getting restless. The filing said 10 investors, including at least three of Smalbach's customers, are demanding return of more than $1 million.
One of them is Margaret Wisniewski, an 80-year-old widow from Summerfield in Central Florida who put about $100,000 into TTI through Smalbach.
In a lawsuit against Smalbach, Trina and TTI, Wisniewski's lawyer, Richard Mockler, says his client was an unsophisticated investor who had net worth of less than $1 million. He claims someone forged Wisniewski's accredited investor form, which is erroneously initialed "MGG." The investment, he says, constituted "exploitation of a vulnerable adult."
Trina and TTI said they didn't have money to fight the suit and Mockler has moved for a default judgment, which is pending. Smalbach, meanwhile, has denied any wrongdoing, including a denial that he signed Wisniewski's "accredited investor" form. He said in court filings that TTI was "appropriate for her investment objectives."
"I expressed my optimism of the potential performance of the corporation," Smalbach said.
Federal regulatory records show GunnAllen Financial fired Smalbach in June 2008 for phoning the investment company Charles Schwab and impersonating a Schwab customer on three occasions in order to liquidate and transfer an account. Schwab also alleged Smalbach signed a customer's name to a document. Smalbach denied signing the customer's name and said he was acting on the customer's instructions during the calls to Schwab.
After leaving GunnAllen, Smalbach worked briefly for Summit Brokerage Services. Summit fired him in July 2008 for soliciting $1.2 million in business before he was properly registered and submitting the transaction through an associate. Federal regulators fined Smalbach $10,000 and suspended his license for six months.
Smalbach consented to the sanctions, "without admitting or denying the findings," according to public records. "When I joined Summit Brokerage, their management suggested this action," Smalbach said. "I did and agreed to (the fine and suspension) as a quick and speedy chance to go back to work."
Smalbach has not yet been hired by another brokerage firm, a requirement for being licensed as a securities broker.
Ferreira, a certified tax preparer, met Smalbach and began keeping the broker's personal and business books a few years ago. But Ferreira said he ended that relationship at the end of 2008.
"I felt he was churning customers, and when I approached him about it, he got angry," Ferreira said.
Ferreira was also upset that his wife lost $50,000 in an oil and gas investment recommended by Smalbach.
Meanwhile, Ferreira continued doing taxes for many of Smalbach's clients and in spring 2009, he began to see money-losing TTI investments in their portfolios. Several of Smalbach's clients also incurred thousands of dollars in taxes when they sold annuities to buy TTI, the bookkeeper said and customers confirmed.
"I kept seeing this TTI crap over and over again and I thought, 'This is not good,' " said Ferreira, who contacted the state with his concerns two years ago. Investigators interviewed several of Smalbach's former clients soon after. A spokeswoman for Florida's Office of Financial Regulation said it has an open enforcement case on Smalbach but declined further comment.
Ferreira is frustrated that the state hasn't taken some action against the former broker. "Do regulators want the witnesses to die?" he asked. "Because that's what's happening."
Meanwhile, Smalbach has maintained a Florida license to sell health and life insurance, including some types of annuities. The agency that regulates insurance agents would not comment on whether it is investigating any complaints against him.
Times researcher Natalie Watson contributed to this report. Kris Hundley can be reached at firstname.lastname@example.org or (727) 892-2996.