|Jay L. Fialkow is a Beth Israel Deaconess trustee and raised funds for Combined Jewish Philanthropies. (Globe Staff File 1996)|
Fialkow, partner missed red flags in alleged scheme
For most of his career, Jay L. Fialkow was a prominent and politically connected Boston lawyer. He was an assistant attorney general, worked on privatization issues for Governor William Weld and efforts by the Wampanoag tribe to build a casino. A major fund-raiser for Jewish causes, he is known to friends far and wide as “Buddy.’’
Now 82 and semiretired, Fialkow is facing a legal ordeal of his own. For five years, he and his partner, Jeffrey P. Ross, 65, a successful businessman in his own right, were involved with a Framingham man whom federal authorities now accuse of running a massive Ponzi scheme. They lost $2 million of their own families’ money and referred others to Richard L. Elkinson, who allegedly solicited investments for a company that never existed.
Government lawsuits in the Elkinson case show that Fialkow and Ross failed to examine basic facts about the uniform peddler who would rob them and their acquaintances of millions of dollars.
Among the red flags: In 1992 Elkinson declared bankruptcy, and court filings reflected a man with virtually no assets, and just $600 in a bank account. When Fialkow and Ross visited Elkinson at his office, they found a sloppy desk in a bedroom of his Framingham home, with a computer and a few papers that looked like contracts. Elkinson would call Ross and Fialkow’s office daily, asking if they had raised new money for him.
The pair never received tax forms from Elkinson reporting their investment gains, as required by law, according to regulators. And a cursory check of public filings would have revealed that Elkinson never submitted incorporation papers for his company, Northeast Sales.
Michael F. Corrente, a managing director in the tax group at CBIZ Tofias, an accounting and consulting firm, said reviewing corporation filings is a “basic starting point. If you don’t do that, you didn’t properly do the due diligence,’’ Corrente said.
Massachusetts Secretary of State William F. Galvin has filed civil charges against them and their firm, alleging they should have registered with the state as brokers because they were effectively selling securities.
Ross and Fialkow’s lawyers declined to comment on the charges. But through a spokeswoman, Diana C. Pisciotta, the pair said they and their Newton advisory firm, Ross Fialkow Capital Partners, merely introduced people to Elkinson - and only 17 of them at that. Investors were responsible for their own due diligence, she said.
Elkinson, Pisciotta said, “had already been in business for a number of years and counted among his investors a number of prominent and well-respected local business and civic leaders, including people they knew personally.’’
Elkinson, 76, has been charged with criminal fraud for stealing more than $29 million from 130 investors. Authorities allege he hoodwinked people into investing in a uniform financing company in exchange for high interest payments. But the money instead went to finance his gambling trips to Las Vegas. Elkinson was arrested at a Mississippi casino early this month and is being transferred to Boston.
Ross and Fialkow earned $319,000 in commissions from Elkinson, according to government filings. That relatively small sum, their spokeswoman said, “pales in comparison to the concern they have for the individuals they introduced, however casually, to Elkinson.’’
How were two veteran businessmen taken in by an alleged swindler who didn’t bother to create the facade of a legitimate business? People who know Ross and Fialkow can only surmise that they, like others, got caught up in what seemed to be a good thing.
“Between the two of them, it’s very surprising. It’s so out of character,’’ said Stephen M. Richmond, a former law partner of Fialkow’s and longtime friend. He said Fialkow was an empathetic problem solver, who went out of his way for clients and friends. “If he ever had anything good, he wanted to share it.’’
Charlie Cocotas, the president of UFood Grill describes Ross as a “stand-up guy.’’ The two served on the board of Boston Chicken, where Cocotas was once president. “Jeff Ross would never ever do anything that is unethical or dishonest,’’ Cocotas said.
Fialkow and Ross are hardly alone. Witness the Bernard Madoff scandal that ensnared numerous savvy investors. Galvin is investigating other professionals who served as feeders to Elkinson.
The first agent to raise money for Elkinson was Richard N. Silverman. He met Elkinson some 20 years ago, he said in an interview, at the suggestion of an employee at his Revere gift wrap making company. At his house in Framingham, Elkinson showed him an embroidering machine in his garage, Silverman said.
“It was the first loan I ever made in my life,’’ Silverman said.
Silverman, now 86, said he introduced 25 to 30 investors to Elkinson. He quit in 2005, after suffering seizures that affected his memory. Last year, he sued Elkinson to get back $70,000 of his own money; the case was settled for an undisclosed sum. A lawyer Silverman has since hired, Peter Gelhaar, declined to comment.
Silverman was a member of the Belmont Country Club, as were Ross and Fialkow. In 1997, Silverman approached Ross to invest with Elkinson, and Fialkow soon followed, with a $25,000 loan. Elkinson was promising 9 percent to 13 percent interest in less than year.
These are men with ample business experience. Ross had run his family’s drugstore chain, Thayer Pharmacies, ultimately selling it to CVS in 1992. On his watch, the business quadrupled in size, to 29 stores and more than $50 million in revenue. Considered a thorough operator, he was known for his expression “retail is detail,’’ and later would become president of Pet Supply Depot.
Fialkow, a graduate of Harvard College and Boston University Law School, is a trustee of Beth Israel Deaconess Medical Center and raised funds for Combined Jewish Philanthropies. In 1996, he sold his law firm, Kaye, Fialkow, Richmond & Rothstein, to a large Wall Street firm. By 1999, he had gone into business with Ross.
Elkinson told them Northeast Sales provided financing for a Japanese family, who fulfilled contracts to make uniforms. He showed them what appeared to be contracts with Connecticut and Georgia for prison guard uniforms and other gear.
But as regulators said in a complaint against Elkinson after his scheme unraveled in December: “Unfortunately, it was all make-believe.’’
When Silverman dropped out in 2005, Elkinson agreed to pay Ross and Fialkow a 2 percent fee for referrals, and 1.5 percent on Silverman accounts they rolled over. They pitched the offering in a letter, saying, “Our client has been using this formula successfully for 17 years and has never defaulted in any payment due to investors.’’
The men and their wives socialized with Elkinson, and they brought in family members to invest - but, according to the family’s spokeswoman, not Fialkow’s son, well-known Boston venture capitalist David Fialkow. Fialkow and his family lost $1.4 million in the scheme; Ross and his family lost $850,000.
Last spring, Elkinson missed interest payments to investors. He blamed the problem on strapped state governments, and promised clients an extra 1 percent in interest, according to the government filings. Later, Elkinson claimed his wife was ill and he was taking her to Texas for treatment.
When Fialkow pressed Elkinson to come up with the money, Elkinson mailed investors a letter, littered with typos, asking them to list how much they were owed. In a Dec. 12 phone call to Fialkow, Elkinson claimed to be in San Francisco, and skipped a meeting with Ross and Fialkow two days later.
On Dec. 17, they drove to his house, where they found his wife, appearing shocked and upset. She told them she didn’t know where her husband was.
That’s when they went to the FBI. Elkinson was arrested on Jan. 5 in Biloxi, Miss., at a casino.
At his court appearance, he said he didn’t have enough money to pay for a lawyer.
Steven Syre of the Globe staff contributed to this report. Beth Healy can be reached at firstname.lastname@example.org.