After his son committed suicide in 2010, Ricky Johnson turned to a Phoenix finance manager for solace and advice.
The 55-year-old Minnesota man said Ray Thomas Brown taught him how to channel his grief and anger into obtaining financial independence for his relatives and closest friends.
For more than a year, Johnson said he watched his investments in oil contracts and a commodity-trading pool grow in detailed monthly reports — until there was nothing left.
Federal investigators say that Johnson was one of more than 60 people across the country whom Brown defrauded out of their savings in schemes that netted him at least $1.2million.
Brown, operator of Ray Brown & Associates, has been charged in a civil case with fraud and misappropriating client money. Last month, he was served with a federal court order freezing his accounts, seizing his computers and prohibiting him from engaging in any investment activity.
Reached by phone last month, Brown, 63, refused repeatedly to discuss the charges or allegations that he bilked his clients in what authorities called a Ponzi scheme.
But in an e-mail Friday, Brown apologized to Johnson.
“I am truly sorry for the effect on you. That was an unintended consequence of many poor decisions,” Brown said in the e-mail.
Investors said Brown told them he was a retired banker worth millions of dollars. According to interviews and court records, they said Brown often talked up his credentials and education in banking and finance.
Records show that Brown is an ex-con with at last two convictions for check fraud. In 1995, Brown was sentenced to two years in a North Carolina prison on multiple charges of writing bad checks.
He has a string of liens and civil-court judgments over the past 20 years totaling more than $30,000, court and property records show.
Johnson said it is still hard for him to believe he was duped.
“I never met a smoother operator,” Johnson said. “This man told me he loved me. Literally. He told me I was the nicest, kindest man he’d ever known. ... He took me for almost everything I had in savings; $70,500.”
Commodities trading
Brochures from Ray Brown & Associates show that Brown solicited investors to join his Equity-Plus Commodity Group Trading Program with guaranteed 100percent monthly returns.
Brown said his trading program specialized in $1,000 crude-oil contracts, euro contracts, and Standard & Poor’s future contracts, according to company brochures included in the court file. Each is legitimately traded in markets such as the New York and Chicago mercantile exchanges.
“Now, with a cash outlay as small as $1,000, an individual investor can participate in an arena previously reserved for the hedge funds and the investment banks,” the brochures stated.
Investigators with the U.S. Commodity Futures Trading Commission, which regulates commodity futures and option markets, said Brown represented himself as an experienced professional commodity trader. They say he promised to use “technical and fundamental analysis to forecast the movement of direction of market prices.”
In reality, Brown was never employed by any commodity-trading firm and never was registered with the federal government to make third-party trades, investigators said. They also said Brown failed to disclose to clients that he was acting as an unregistered commodities pool operator and commodity-trading adviser.
Commodities include a host of tangible goods such as oil, beef, wheat, pork bellies and foreign currencies that can be exchanged or traded. Commodity pools are funds made up of cash from multiple investors whose money is combined to leverage trades that individuals could not make on their own. Under federal law, operators are required to be licensed.
Neither Brown nor any of his companies are registered in Arizona, according to the Arizona Corporation Commission. He is not licensed in the state to act as a securities dealer, salesman or adviser. Ray Brown & Associates is not a registered corporation in Arizona.
Federal investigators said Brown enticed investors with detailed summaries showing he had made millions of dollars in previous investments. He also directed investors to Internet sites that purported to prove his performance as a trader, investigators alleged.
But investigators say the majority of investors’ money never made it into pool trading accounts. Instead, it went to Brown’s personal accounts, and he used their money to pay for his personal expenses.
“Brown actually traded only a small portion of the funds he received, and he lost virtually all of those funds in trading,” investigators said in the civil complaint filed against Brown.
Of nearly $1 million Brown received from investors, only $86,000 made it into a trading-pool account, investigators said.
Investors kept in dark
Investors had no way of knowing about their losses, court records show. According to investigators and victims, Brown supplied regular reports showing tremendous growth in investments.
Brown backed these statements with positive e-mails encouraging additional investments and personal conversations via Skype, court records show.
“If you open a group account, I will match you dollar-for-dollar in trading principal and will guarantee you a 50percent return on that combined balance,” Brown said in an e-mail to a Las Vegas couple who invested thousands of dollars. “I am pleased to do that because the commodities trade very well.”
Court documents and interviews show Brown’s clients lived in several states, including Arizona, California, Nevada, Texas, Arkansas, Alabama, Minnesota and Wisconsin. Word of Brown’s reputation spread mostly through word of mouth among family, friends and business acquaintances.
In a court affidavit, Minnesota investor Joseph West said he gave Brown about $17,500 in 2011. About 15 months later, statements showed his initial investment was worth $446,842.
West said Brown gave him eight E Trade statements documenting pool-account performance, including one in the name of Sun Ray Trading Group LLC, which showed it had grown rapidly to $3.7million.
West said problems occurred when he asked to withdraw money from his account. Despite Brown’s promises, money did not materialize, West said in the affidavit.
“Mr. Brown promised to send me $3,000 per week until I withdrew all of my funds, and (he) sent me three checks for $3,000. All three of those checks bounced,” West said.
West said in the affidavit that Brown ultimately gave him a small portion of his principal investment, but it came with a stipulation:
“Mr. Brown told me that if I provided information to the authorities, including the Commodity Futures Trading Commission, that I would relinquish all rights to my remaining investment.”
Partner surprised
Brown’s longtime domestic partner said last week that she was unaware of the allegations against Brown.
Donna Steadman, 63, who is principal of a Phoenix charter school, said she was aghast at the charges.
“Good gravy. Good gravy. I had no idea about any of that,” she said. “I feel very victimized.”
Steadman said she has known Brown for almost 20 years and has lived with him in Phoenix for more than seven. She said she was unaware of Brown’s prior convictions or that he was using their home address on his company’s letterhead.
Steadman acknowledged getting a subpoena last year for records related to Brown and said she was aware authorities were looking into his business. But she said she had no idea that it involved allegations of fraud.
She said Brown minimized the issue and advised her to ignore the subpoena because she did not possess any requested documents.
“I can tell you there is nothing coming into this house that would lead me to believe there was big money anywhere,” she said, adding that Brown does not regularly make large purchases, does not drive a new car and does not take lavish vacations. “(Money) is certainly not coming into this house.”
In his e-mail Friday, Brown said Steadman knew nothing about his activities.
“As for Donna, I have told the CFTC and everyone she was absolutely not aware nor involved in anything improper,” he wrote.
Bank records filed with the court show that Brown spent $86,000 on hundreds of mundane purchases at restaurants and retailers such as Fry’s Food Stores, Safeway and Walmart between April 2011 and July 2012.
Records show he also made dozens of cash withdrawals totaling $87,000 from ATMs near his home in north Phoenix and made multiple transfers totaling about $19,000 to Steadman, with notes indicating the money was for “household expenses.”
The records only document one account and contain no information about the remaining $1million investigators say Brown obtained from investors.
Crying, Steadman said she was “flummoxed.” She said Brown has a good reputation and that she believes he is a good man.
“He’s kind and compassionate,” she said. “People like him.”
Tapping grief
Johnson said he was drawn to Brown’s decency. He said Brown tapped into his grief and displayed tremendous empathy.
Johnson said he had trouble believing he was being victimized even as the evidence piled up.
“He treated me as if I was his best friend,” Johnson said, adding that he was introduced to Brown by another friend in 2011. “What’s amazing is that half of me still likes this guy.”
When his son, Walter, committed suicide, Johnson said his life spun out of control. Brown helped him recover by establishing financial goals that he could accomplish a step at a time.
Johnson, who makes about $100,000 a year recovering dead deer from Minnesota’s roads and highways, said his most important mission was making sure his wife would no longer have to work.
Brown assured him that they could make it happen, Johnson said.
And as positive financial reports rolled in, Johnson had a vision of helping others obtain financial freedom. So he used his own money to open accounts with Brown in the names of 16 friends and relatives.
“My weakness was that I needed my wife at home,” Johnson said. “That and I wanted to help people.”
Johnson said Brown encouraged him to keep giving more — to empty savings accounts and tap retirement accounts.
He said even as the scheme unraveled in 2012, Brown, in e-mails and conversations, expressed confidence that no case would ever be filed against him.
“He told me all he was going to get was a civil fine,” Johnson said. “He said, ‘All these guys are going to do is slap me on the wrist.’”
Robert Anglen and Veronica Sanchez lead the Call 12 for Action team, focused on issues important to Arizona consumers. Contact the reporter at robert.anglen@arizonarepublic.com. Follow him on Facebook and Twitter @robertanglen.
