On a hot midsummer evening in July 2006, windsurfers and powerboats streaked the surface of the Columbia River below. More than 200 guests gathered on the lawn of the Columbia Gorge Hotel, perched on a bluff high above the waters near Hood River, for the wedding of Deidre Rhodes and Ian Newton.
Deidre was a student at George Fox University. Ian was a Coast Guard officer. And while the young couple had their share of friends, many of the wedding guests had been invited by the bride's father, Charles Wesley Rhodes, an investment adviser from West Linn.
Wes Rhodes, 56, had amassed more than 250 clients in and around Portland during his three decades in the business. Many were wealthy professionals he met while serving on the boards of the Portland French School, the Oregon Ballet Theatre and the Tualatin Chamber of Commerce. Others had heard him on his daily investment show on KBNP radio.
The wedding was lavish, with the cliff-side ceremony followed by an outdoor reception and a steak-and-salmon dinner. Rhodes, dressed in a white jacket that offset his paunchy belly and graying hair, played the grand host—giving away bottles of wine and directing bartenders to take special care of his investors in the crowd.
"It was a really nice wedding, but like a lot of things Wes did, it was way over the top," recalls Dave Carney, an autoshop owner from Tualatin. Rhodes' best friend at the time, Tim Merrihew, is more blunt. "You've heard the term 'dick-waving'? Wes was head of the pack."
Like Carney and Merrihew, many of Rhodes' investors considered him a personal friend. They had no idea on that July wedding night that Rhodes had been fleecing them and other Portland investors for 15 years, according to Michael Grassmueck, the trustee a federal judge appointed last fall to recover assets for Rhodes' investors.
But the alleged scam was about to come crashing down, and with it their life savings, their retirement money, their children's inheritance—money they'd trusted Rhodes to invest.
According to the U.S. Securities and Exchange Commission, Rhodes was a con man with high connections who carefully chose his wealthy, conservative investors. Instead of putting their money in stock and bonds, he used it to build his own private collection of sports cars, baseball cards and pop-culture memorabilia, housed in a private museum next to his hillside home in the Tualatin Valley.
Grassmueck calculates Rhodes stole at least $24.6 million from about 60 investors in his last seven years in business. The real total may be far greater, investors say.
On June 5, the SEC and the state Department of Consumer and Business Services announced Rhodes was permanently barred from the financial-services industry in Oregon. He was also fined $105,000 by the state, with the money to go toward repaying the investors whom regulators say he bilked.
State officials had accused Rhodes years ago of lying to his investors, but they did little to stop him until the SEC began investigating Rhodes in 2005. Two months after the wedding, on Sept. 21, a federal court froze Rhodes' assets, seized his property and shut down a series of businesses he controlled.
"Rhodes misappropriated or misused the investor funds that were entrusted to him," according to the SEC's civil complaint against Rhodes, filed in U.S. District Court in Portland.
As yet, Rhodes faces no criminal charges. But a source close to the case tells WW that the U.S. Department of Justice is set to charge Rhodes with multiple counts of fraud and money laundering after he turned down a recent plea bargain.
Forensic accountants under Grassmueck's charge are combing through Rhodes' frozen assets in an attempt to pay back investors. WW, however, has learned Rhodes closed a deal this month to buy a $438,000 home in Oregon City in his wife's name. "We all believe he has a bunch of money stashed someplace," Carney says. "He hasn't been honest with anybody, so why should he start now?"
Rhodes declined to comment for this story, and his attorney, Jacob Wieselman, did not return phone calls.
In the annals of white-collar crime, Rhodes' alleged scam was not unique, though it was unusual in the sense that it lasted 15 years. But the amount of money Rhodes allegedly stole from investors—more than $24 million—dwarves that of Jim Mast, the basketball promoter who pleaded guilty April 12 to swiping $4 million from parents of young Portland hoops stars ("Hoop Schemes," WW, Nov. 8, 2006).
What's disturbing isn't that Rhodes managed to separate a few dozen rich people from their money. It's the very ordinary way in which authorities and investors say he did it. In a nation where many are forced to rely on private markets to safeguard their retirement, it's clear almost anyone could fall victim to an operator working along the same lines as Rhodes.
"We thought we were doing the smart thing, saving our money, putting it away, saving for our kids' future," says Doug Gribskov, a Hillsboro veterinary clinic owner who lost $1.3 million of his own money as well as his employees' pension fund.
"What we want to do is see him hang for this," Gribskov adds. "We don't expect to see much money come out. It's all disappeared."
Separating investors from their cash isn't hard. You persuade people to give you their money, and you send out monthly statements that show the steady growth of their nest egg. If the returns are handsome enough on paper, most people are unlikely to withdraw the funds. Where the money may really be going is never an issue if the statements seem credible and the investment adviser appears to be savvy, successful and personable.
Wes Rhodes had that part down pat.
Joe and Jo-Ann Bonawitz remembered when they first met Rhodes early in 1993. They had moved to Vancouver, Wash., from Honolulu to retire and were looking to invest $3 million Joe had made selling construction equipment.
Rhodes met with the couple at the headquarters of Massachusetts Mutual in downtown Portland's KOIN tower, where Rhodes sold stocks and insurance for the brokerage. Sitting around a polished wooden table in a conference room off the main lobby, Rhodes walked them through snappy promotional material showing how he'd invest their money for long-term, steady growth. They saw Rhodes' private office, filled with Civil War memorabilia.
"We were very impressed," Jo-Ann recalls. "Here we are in these lovely corporate offices. It certainly lent a certain amount of credence to what we were trying to do with him."
They gave him nearly all their savings over the next several years, and Rhodes became a semi-regular dinner guest at the Bonawitz home. Thirteen years later, they learned they'd lost most of what they still had invested. Their final meeting with Rhodes was at their kitchen table after the news broke. Rhodes was sweating profusely, wiping his brow with napkins. He asked them if they really didn't want him as their adviser anymore.
Summing up, Jo-Ann calls the swindle "reverse prostitution. We paid him to screw us."
Until Sept. 21 last year, Rhodes had managed to persuade a lot of people that he was someone other than who he actually was.
Born in Alameda, Calif., Rhodes graduated from Beaverton's Sunset High School and went on to Portland State University, where officials say he was enrolled from 1969 to 1972 but never graduated. Yet on his personal website and in letters to potential investors, Rhodes claimed to have earned anywhere from three to five undergrad and graduate degrees from PSU in finance, economics, political science, math and engineering.
At various times, Rhodes told friends he was a boxing champ, an opera singer and an author, depending on who was listening. There are no records to support any of this.
Rhodes also claimed in his fliers to have served on the board of the Oregon Museum of Science and Industry, which OMSI officials refute. He told friends he was a Marine Corps veteran, but the Marines can't find any record that he served.
"He liked to be seen as a pillar of the community. He was a shape shifter. He told people whatever they wanted to hear," says Cate Garrison, a 63-year-old part-time writer (and former WW theater critic) who lost part of her retirement fund to Rhodes.
Often sporting monogrammed French shirt cuffs, Rhodes wore leather driving gloves, sprinkled his conversation with poetry and macroeconomic jargon, and would break into operatic solos at random. He regularly brought guests over to show off his classic car collection, and he drove a Ferrari to work.
"Around town, he had this reputation for being a tremendous investment guy," says Merrihew, a former vice president of Philips Electronics. "We're not a bunch of stupid people. We were a pretty savvy group. Most of us were administrators or owned or own business."
Barry Epstein, a white-collar fraud expert in Chicago, says professionals are the easiest people to scam. "Because they're successful, they think they're smart," Epstein says, adding that Rhodes' community involvement gave him "instant credibility."
Rhodes' credibility was helped by the fact that he worked for Phoenix Equity Planning from 1987 to 1992, then sold stocks for Massachusetts Mutual, where he worked until 1998. Both are well-regarded brokerage houses, and there's no indication they were involved in Rhodes' alleged scam.
Instead, Rhodes was moonlighting as a private investment adviser, and that's where he first ran into trouble with state regulators. When an investor complained in 1998 about a fishy-looking 1099 tax form Rhodes had issued, the state investigated. They found that while he once had a license to sell securities on his own, he'd dropped that license in 1994.
In 1999 the state Department of Consumer and Business Services fined Rhodes $12,500 with $5,000 of that suspended, ordered him not to mislead investors again, and gave him a conditional license that allowed him to continue his practice.
Investors today are furious the state didn't close Rhodes down right then, or at least inform them of the investigation. Kevin Anselm, head of securities enforcement at DCBS's Division of Finance and Corporate Securities, says Rhodes was required to list the episode on his license application, a public document.
Epstein, the fraud expert, says he's surprised the state didn't shut Rhodes down. "Once a tiger shows his stripes," he asks, "do you really think he's going to change his behavior if you slap him on the wrists?"
Rhodes left Mass Mutual in 1998 after Oregon started its investigation. He opened his own company, Rhodes Econometrics, in Lake Oswego. He siphoned off his former customers from Mass Mutual and added others he'd met in social circles during the 1990s. Within a year he'd registered the company with the SEC, which is required when investing more than $25 million.
Rhodes found many of his clients while serving on the board of the Oregon Ballet Theatre from 1993 to 1996, on the Tualatin Chamber of Commerce board of directors from 1993 to 1994, and as a founding member of the board of the Portland French School.
Carney was one of the investors who met Rhodes through the Chamber of Commerce. Rhodes used Carney's autoshop to refurbish his cars. "He targeted me, thinking if he hung around me long enough, I would invest some money with him, which is exactly what happened," Carney says.
Rhodes' three-minute show on KBNP business radio, where he gave investment advice every business day at 9:21 am and 3:51 pm, was his biggest publicity vehicle. The program, which Rhodes paid for, began around 2000 and ended last year. Rhodes still owes the station around $10,000, says general manager Keith Lyons.
Lyons defends allowing Rhodes on the air. "This just totally caught us flat-footed when we heard," Lyons says. "We assumed he was a licensed, reputable character."
Rhodes also cultivated the expensive tastes of a successful money manager. He became a collector of classic cars, especially late-1960s Corvettes and Camaros.
Kibby Riedman, owner of The Chevy Store in Southeast Portland, recalls selling Rhodes his first muscle car, a '69 Camaro pace car. "He fell in love with it," Reidman recalls. "He didn't own a cool car until then. He's the kind of guy who wears a bowtie."
Rhodes built up a collection that gained national renown. A former member of the Rose City Corvettes club, he attended car shows around the country and, between his second marriage and his current wife, picked up a girlfriend who loved cars. According to investigators, since 1999 he spent at least $3.3 million on vehicle purchases and upgrades.
Rhodes also had an obsession with sports memorabilia, especially items related to Hall of Famer Stan Musial of the St. Louis Cardinals. By the time the SEC caught up with him, Rhodes had filled a two-story building next to his house with cars, baseball cards, and pop-culture mementos like Wurlitzer jukeboxes and Abe Lincoln busts. On a sign in front of the building, Rhodes called it the Crossed Flags Museum, though it was not open to the public.
In 2001, according to Grassmueck, Rhodes began accelerating a scheme he'd started as early as 1991—urging select clients to stash their money in so-called "side" or "private" accounts that Rhodes himself controlled.
Rhodes told customers these accounts were similar to mutual funds, but were more flexible and came with more tax breaks. He told others they were invested in "convertible" stocks. In 2004, he advertised returns of 9.9 percent to 13.7 percent on each of four "funds."
In actuality, according to the SEC, Rhodes didn't invest the money but placed it in a series of bank accounts he accessed for his own needs, paying from those same accounts when investors withdrew funds. The SEC says Rhodes sent clients fake quarterly reports as well as yearly 1099 forms, so they could pay taxes on dividends that didn't exist. For this he charged fees of 0.75 percent to 2 percent, typical for an investment adviser.
It was a classic Ponzi or pyramid scheme, the feds say, in which investors are paid back not with the profits from their investments, but with subsequent investors' money. Rhodes managed to keep his alleged scam going for 15 years because he targeted conservative investors who wanted to park their money long-term, says Peter Pfeffer, a veteran securities-fraud examiner from Mundelein, Ill.
Among Rhodes' victims was Susan Aust, a 55-year-old clinical research coordinator at OHSU who started investing with Rhodes in 1998. Rhodes began asking her to dinner, and the two became friends.
In May 2004, Aust's 17-year-old daughter, Lauren, was diagnosed with bone cancer. She told Rhodes she would need the money she'd invested when she quit work to care for her daughter. "He said, you just worry about your daughter, I'll worry about your funds," Aust recalls.
Last fall, she learned in a letter from the SEC that the money was gone. Her daughter died last month. "He did this with his eyes wide open, knowing we depended on those funds," Aust says. "I lost faith in anything."
Since 1999, Rhodes collected $38.9 million to invest in these so-called "private funds," according to Grassmueck. During that period he paid out $14.3 million. That means he skimmed off at least $24.6 million for himself, according to records. Those records were far from complete, forensic accountants figure, and investors believe the total is probably much higher.
And that's just the amount they handed over to Rhodes. Some had been invested for a decade or more, and they counted on their money growing during that time. In July 2006, Rhodes sent out quarterly statements to 60 private-fund investors saying their money was worth almost $40 million with dividends. Accountants found he actually had less than $2 million of clinets' money invested in stocks and bonds.
Rhodes' scheme unraveled after an investor complained about the dubious-looking paperwork he issued. This time, the state called in the SEC, who joined the investigation in early 2006. Anselm, the head of state securities enforcement, says they couldn't tip off investors until the court froze Rhodes' assets on Sept. 21 last year. "We didn't want to tip our hand to Mr. Rhodes," she says. "You never know when assets are going to disappear in a case like this."
Today, Rhodes' museum and classic cars are locked up and under video surveillance. The court froze his bank and investment accounts, worth $2.7 million, but gave Rhodes access to $200,000 to support his family and pay legal fees. On May 24, U.S. District Judge Michael Mosman ruled against the SEC and granted Rhodes access to an additional $99,000 to pay attorney fees.
Eight days later, Rhodes closed a deal, in his wife's name, on a new home in Oregon City with a $138,000 down payment. Investors suspect Rhodes has more funds squirreled away, but insiders say they'll probably recover only 10 to 15 percent of their original investment after Rhodes' property is liquidated. Meantime, investors hope for a long prison sentence for Rhodes if the Department of Justice presses charges, and if he is convicted.
In a May 2006 deposition, Rhodes told state investigators that investors rarely showed him gratitude. "They're all afraid that it's all going to go away tomorrow. It's a nightmare to deal with people like that," Rhodes said. "One day I'm a hero and the next day I'm a bum. I can't win."
knocked on the door of Rhodes' home outside West Linn, but Rhodes ordered us off his property. He's now moved into his newly bought house in Oregon City.
Currently in his third marriage, to Anne Rhodes—a former airline stewardess—Rhodes has five children and stepchildren.
Rhodes hired his current attorney, Wieselman, last month after Robert Weaver, a prominent defense lawyer who once represented Tonya Harding, resigned. Weaver declined to tell WW his reasons for leaving.
Accountants on the case have determined Rhodes' cars are worth between $4 million and $6.6 million at auction—probably less than Rhodes paid for them. They haven't yet estimated the value of the other memorabilia that rounded out Rhodes' collection.