published Friday, February 21st, 2014

First charges filed in Brown Ponzi scheme

Victims have grown numb to the slow drip of justice in the Jack Brown Ponzi scheme case.

The apparent ringleader died without charges being filed, and an alleged accomplice -- Brown's wife -- only this week entered a plea agreement on a bankruptcy charge more than a year after it emerged that Brown had taken millions of dollars from widows and retirees.

Bankruptcy trustee Jerry Farinash has repeatedly alleged in court that Brown's Tax Service was a front for a wide-ranging Ponzi scheme, in which the Brown family used customers' tax information to target wealthy Soddy-Daisy residents. Those who agreed to make investments, in what victims have called a "family Ponzi scheme," were in reality helping to fund a lavish lifestyle for the Brown family on a hilltop compound in Sale Creek.

Thus far, no one has gone to jail for any part in the alleged crime, which has played out almost entirely in U.S. Bankruptcy Court.

In the only criminal charge filed since Brown's Soddy-Daisy tax service was pushed into bankruptcy in November 2012, U.S. Attorney Bill Killian accused Janet Brown this week of concealing $25,000 in jewelry from the bankruptcy trustee, then lying about it under oath at an April 16 bankruptcy creditors meeting.

All told, the Browns owed as much as $12 million to victims and lending institutions. Only a fraction has been recovered.

As with many Ponzi schemes, much of the money was paid out to other victims or squandered on big homes, an entertainment gym, a fleet of vehicles and tens of thousands of dollars in jewelry, officials say.

Under pressure at the April 16 hearing with Farinash, who held up photos of Brown wearing the missing diamond-encrusted jewelry, Brown three days later surrendered what court documents described as "a large bag" of jewelry to her attorney, who then handed it over to authorities.

Brown officially is charged with bankruptcy fraud, an offense that could incur up to five years' imprisonment, a fine of up to $250,000 and up to three years' supervised release, according to court filings.

"That's good news, but it's not good enough," said Jean Barnes, who lost $50,000 to the Browns. "I think everyone on that hillside ought to be in jail."

Barnes and her husband, a retired couple who planned to use the $50,000 to live off of, have both suffered medical setbacks since finding out that their money was lost. They have yet to receive any money from the Feb. 8 auction of the Browns' entire estate.

"We've got a poor household and no money," Barnes said.

The sole charge against Janet Brown still leaves questions unanswered in the case, and federal officials were unwilling to comment on the eight-month delay between Brown turning in the jewelry and the filing of charges this week.

Brown invoked her Fifth Amendment right not to incriminate herself 61 times during the April creditors meeting, and refused to answer questions about the whereabouts of tens of thousands of dollars in cash and checks. It remains unclear what happened to much of the money.

Her son, Jason Brown, received more than $542,000 in bonuses from his work at Brown's Tax Service that he failed to report to the IRS, in addition to a $52,000 salary and $26,400 housing allowance. He claims he was hoodwinked by his father, just like everyone else, and has publicly apologized to the victims of the scheme.

Tom Ray, the bankruptcy attorney for both Janet Brown and her son, pushed back against suggestions that the family acted together.

"I'm aware that there are wild accusations of a family scheme, and from what I've seen, there is no proof to show that it goes beyond Jack Brown, who is now deceased," Ray said.

Former Brown's Tax Service client Cathy Miller harbored no doubts on Thursday that the family acted together, but argued that with Janet Brown facing jail time and Jason Brown facing financial ruin, it's time to forgive.

Jack Brown had a large following and a large number of victims -- including the pastor and many congregants at the Sale Creek Church of God -- and many in the community still believe that he never meant to harm anyone, she said. Brown's funeral, though not held at the Sale Creek Church of God, was standing-room only.

"My sister would have given him her own kidney, and I would have too," Miller said. "She loved him until the day he died. She said, 'I forgive him.' And that is what God tells us to do is forgive."

No court date has been set for Janet Brown's sentencing in U.S. District Court. Jason Brown faces a Feb. 28 deadline for interested parties to challenge his ability to discharge his debts.

Janet Brown's plea agreement binds the U.S. attorney not to further prosecute her for other non-tax criminal offenses that are currently known to investigators.

"I think this brings an end to the issues involving Janet Brown," Ray said.

Contact staff writer Ellis Smith at esmith@timesfreepress.com or 423-757-6315.

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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