published Friday, January 11th, 2013

Trustee goes after Brown family assets

Bankruptcy trustee Jerry Farinash has asked for a restraining order to stop the family of former tax preparer Jack E. Brown from hiding assets owed to victims of his alleged Ponzi scheme.

Farinash charged that Brown and his family acquired virtually all of their money, property and possessions as a result of a long-term Ponzi scheme that began more than 12 years ago. The Browns had little or no income outside of the Ponzi scheme and were forced to prop up the family's day care centers, billing company and other businesses using funds from continually attracting new investors, Farinash wrote in a complaint to the U.S. Bankruptcy Court of Chattanooga.

In total, the Browns could owe about $12 million, with about $2 million owed to banks and the rest claimed by Ponzi scheme victims, records show.

Even Brown's Tax Service itself, which was widely respected in Soddy-Daisy and used by many members of the community, was merely a tool in the toolbox for the family Ponzi scheme, Farinash wrote.

"Brown's Tax Service was operated for the purpose of allowing the debtor and others to gain access to the personal financial information of his clients," he wrote.

Once Brown had access to clients' personal information, the former tax preparer chose his victims from among those with high net worth, according to Farinash. Brown then offered them an "investment" with an impossibly high rate of return, documents show. The Browns used the unwitting victims' cash to buy cars, homes and jewelry, according to court records.

"The money that the victims of the Brown Ponzi scheme were investing with the debtor, and others, was misappropriated and used by the debtor and others to acquire real and personal property of significant value for the benefit of the debtor, his immediate family and others," Farinash wrote.

But after more than a decade of living large, it's time to give back what's left, Farinash said, even though he said "the precise nature, extent and whereabouts of all of the assets of the debtor is not yet fully known."

Brown's son, Jason Brown, and wife, Janet Brown, both participated in the scheme, he said. Janet Brown was a part owner of and signed checks for Brown's Tax Service, while Jason Brown executed some promissory notes for "investments" in the scheme, Farinash wrote. Since Janet Brown and Jason Brown participated in and benefited from the Ponzi scheme, their assets must be preserved to possibly divided among creditors and victims, reasoned Farinash.

"All of the property held by the defendants was acquired with funds from the Brown Ponzi Scheme," Farinash wrote. "Hence, that property constitutes property of the debtor's bankruptcy estate."

The defendants, which also include Brown's Tax Service, Soddy Daisy Money Express, ABC Daycare & Learning Center, ABC Nursery & Learning Center and Compumed Billing, have yet to respond to the complaint.

Farinash will sell all the assets of Brown's Tax Service on Jan. 29 at 10 a.m. to the highest bidder at U.S. Bankruptcy Court.

Jerry Summers, who represents Jason Brown, has said his client is fully cooperating with the bankruptcy trustee "and working diligently to uncover any assets he can."

about Ellis Smith...

Ellis Smith joined the Chattanooga Times Free Press in January 2010 as a business reporter. His beat includes the flooring industry, Chattem, Unum, Krystal, the automobile market, real estate and technology. Ellis is from Marietta, Ga., and has a bachelor’s degree in mass communication at the University of West Georgia. He previously worked at UTV-13 News, Carrollton, Ga., as a producer; at the The West Georgian, Carrollton, Ga., as editor; and at the Times-Georgian, Carrollton, ...

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