An ailing Jack E. Brown Jr., giving his first interview from a hospital bed on Tuesday, admitted that he used some money invested with him by his tax clients to pay off others who had given him large sums of money earlier.
Authorities have charged that Brown, 59, carried out a Ponzi Scheme that left a host of investors out to a tune of some $12 million.
There had been several aborted attempts by bankruptcy trustee Jerry Farinash to interview Brown at a creditors meeting, but he answered questions for almost two hours on Tuesday morning. Brown's Attorney, Tom Ray, was at the hospital room and attorney Farinash was in the basement of the Bankruptcy Court on 11th Street. They talked via speaker phone.
Brown acknowledged that he took $200,000 from Margie Elliott in July 2012 and used the money "to pay up to date some of the accounts and to make sure it was paid in full."
He admitted that in December 2011 Evelyn Edmondson, who was renting a building from him, gave him $100,000, which was "used to pay somebody else who had asked for payment." He said the money went to his wife, Janet Brown, then was transferred to John Fuller, who was owed on his investment.
Brown said last year he took $41,000 from a man he had known for 25 years, Terry Truett. Attorney Rebecca Hicks said that money was suppose to have been moved from one annuity to a better-paying one. Brown said, "I cashed it. I never rolled it over. I paid it on debts that were owed."
He said he began taking money from clients and giving them promissory notes as early as 1988, but he began the process in earnest in 2003.
Brown said he invested the money in Etrade and did well on earnings there along with income from Brown's Tax Service, two day care centers, a money express and rental properties. He also wrote a number of annuities and got income from that. But he said he became seriously ill in 2009 and had to turn over much of his business to his son, Jason Brown. He said wife Janet Brown often came to the business, but mainly to pick up the mail and do duties assigned to her.
He said other office workers included his sister-in-law and his niece, along with two other women.
Brown said as his debts mounted "I owed so much money that I had gotten to the point that I wasn't able to stay caught up."
He said he then arranged to meet with attorney Ray to file bankruptcy. He said Jason drove him to the Ray office and took him inside in his wheelchair. He said Janet was also present. He said attorney Ray was paid $10,000.
Trustee Farinash initially said the creditors meeting was over, then, after attorney Ray declined to allow Brown to answer a question, he said it was only adjourned and that an additional date would be chosen. Attorney Ray indicated he would oppose continuing the session.
The last questioning was by one of the creditors, Soddy Daisy restaurant operator David Smith, who said Brown often promised him at the restaurant that he would get his money back. He said Brown would assure him he was making money. The restaurant operator said, "Jack, I'm sorry you're sick, but I've been sick myself with cancer. The money I gave you was saved for my wife. We're all suffering."
He also asked, "Are you saying I've lost my $80,000? Will I ever get my money?"
Brown said, "It's possible. We're here to make everything come together for the future."
Trustee Farinash asked if Brown had any cash set aside or any money that anyone was holding for him. He said there was no cash set aside.
Trustee Farinash then asked what plan he had for the future to pay people back. That is when attorney Ray said it was beyond the scope of the creditors meeting.
Brown said when filling out income tax returns he listed the money given him by clients as capital gains on their returns.
He said sometimes investors gave him cash and they wanted to be paid in cash. There would be envelopes of cash waiting for them in the office.
He said he had bought a new Mercedes for Janet in 2008. He said it was sold and the $13,000 was given to her attorney.
Brown said he kept the promissory notes in a box and would mark them off when paid. He said he did not keep computer records, though Trustee Farinash said a number of investors told him that Brown showed them figures on a computer.