Despite his years of experience, a Palm Harbor money manager may have fallen victim to a Ponzi scheme - and lost millions of dollars of his clients' money.
By ED QUIOCO
Published June 8, 2003
PALM HARBOR - Even beginning investors are taught to avoid an offer that sounds too good to be true, such as one promising limited risk and monthly returns of 2 to 4 percent from exotic investments in foreign currencies.
Yet money manager Dean Tanella of Palm Harbor, who boasts a Harvard MBA and years of investment experience, poured $40-million of his clients' money into just such a venture. Now most of that money may be gone.
Tanella fell for the promises of high returns made by a California company run by a father and son, Moshe and Zvi Leichner. They are in jail in Los Angeles on federal charges of using a Ponzi scheme to swindle more than $77-million from investors nationwide, including Tanella.
It's a nightmare for clients of Tanella's wealth management company, Safe Harbor Capital Management. He has about 70 clients, but he won't say much about who they are. "CEO types," he says, some in Florida, most outside the state.
It's also a nightmare for Tanella, who has not been accused of any wrongdoing but struggles to explain how he took such a wrong turn in judgment.
Picking his words with painful deliberation in a recent interview, Tanella said he's always had a gift for knowing when other people were telling him the truth.
"And yet it's clear to me that despite that gift, I was not able to detect the untrustworthiness of that organization."
"They don't care where the money comes from'
Tanella used brains and hard work to build a career that had elements of a classic American success story.
In his youth Tanella won a scholarship to an exclusive boarding school in New Jersey. He graduated from Princeton University, worked on Wall Street and got his MBA.
In 1999, after five years in high-ranking jobs at Raymond James & Associates of St. Petersburg, including director of domestic institutional equity sales, he left to open his own wealth management firm.
Through it all, Tanella, 42, maintained the discipline that spurred him to deliver newspapers at 4 a.m. while at Princeton. A varsity baseball player in college, he still trains for minitriathlons and usually gets to his desk at Safe Harbor by 5 a.m.
Tanella managed $137-million for 67 clients, according to forms he filed two years ago with the Securities and Exchange Commission as a registered investment adviser. He indicated in the filing that all his clients gave him discretion to buy and sell investments without their specific approval.
Tanella's mistakes began when he invested $40-million of his clients' money in a North Florida company that, in turn, invested in the company run by Moshe and Zvi Leichner.
Tanella's company plays a central role in the federal case against the Leichners, who face two counts of wire fraud. Both charges involve transactions with Tanella, but officials say the number of victims is growing.
"Some people invested their life savings, and it's completely gone," said Stephen Kramer, special assistant U.S. attorney in the major frauds section for the central district of California. "The Leichners, they just take this money and they don't care where the money comes from."
The Leichners' attorneys declined to comment.
Since learning of the alleged scam, Tanella has spent hundreds of thousands of dollars trying to track down the Leichners' assets. He said he notified his clients of the problem at the end of last year and regularly gives them updates on his efforts.
Tanella and another investor, Donald Richetti, also have sued the Leichners and their company, Midland Euro Exchange. Tanella invested his clients' money through Richetti's investment company, Standing Stones LLC of Ponte Vedra Beach. That company, in turn, invested in Midland Euro.
Tanella met Richetti through a mutual friend in September 2001. Richetti had experience in foreign currency markets, a field that interested Tanella.
At one time, banks and large institutions made up the bulk of the trading in the foreign currency markets. But in 2000, a new federal law opened the market to the public.
That change has attracted con artists and led to problems, said Larry Dyekman, director of communications and education for the National Futures Association in Chicago. Regulating the foreign currency exchange market used to be a small part of the association's job.
"It's the most visible (part) now," he said, adding, "All these scammers are out there taking advantage of investors."
Explaining away a suspension
Investors with Midland Euro were told their money would earn guaranteed monthly profits of 2 to 4 percent. Not only that, from 40 to 85 percent of their initial investment supposedly was guaranteed against loss, according to the FBI.
Investigators say less than 20 percent of clients' money was invested in the foreign currency market. The FBI says the Leichners spent the rest on planes, cars, houses and other personal items.
By the time Tanella came along, Richetti had contracts with the Leichners worth millions. And Richetti spoke highly of Midland Euro.
Tanella said he depended on Richetti to research the Leichners and Midland Euro. Richetti said that at the time he did his research, Midland Euro was "reputed to be one of the best dealer-brokers in the country."
"I did as much due diligence as I knew how to do at the time," Richetti said. "I didn't do anything wrong. Dean didn't do anything wrong. The other investors didn't do anything wrong. We were wronged."
Now, he concedes, "I can see cracks where I should have been more or could have been more aware."
In October 2001, Tanella's Safe Harbor company wired $2-million to an overseas account at Lloyds Bank of London to invest in Midland Euro.
Of Richetti's four portfolios, "We elected the most conservative one with the most consistent record and the record with the least volatility," Tanella said.
In November 2001, Tanella met the Leichners in Sherman Oaks, Calif., where they had their offices. They told Tanella that their company was properly registered and assured him he could get his money back five to seven days after sending in a written request.
"If you deal with us, you will be a happy man because we do things right here," Moshe Leichner told Tanella.
But just before that, the National Futures Association had suspended the Leichners and fined them $150,000 for providing the agency with false information and failing to maintain current books and records. Notice of the suspension was posted on the association's Web site.
Richetti, who had already started dealing with Midland Euro, said the mistake was explained to him as an "administrative error." Considering Midland Euro's good reputation, he accepted that.
"You felt good about them," Richetti said. "You felt like you were in the right place. This is the last thing that I thought they would ever do."
Figuring out where the money went
For a while, things went well. Richetti made withdrawals on the accounts with no problems and received his commissions on time.
But that's how Ponzi schemes usually work, said Kramer, the federal prosecutor.
"The early investors are making some money," Kramer said. They, in turn, bring in more investors.
At first, Tanella received weekly e-mailed account statements showing a profit of 2 to 3 percent a month, according to court documents.
The statements were bogus.
A confidential informant told the FBI how Moshe Leichner prepared those statements using a list of clients on a legal pad: "Moshe Leichner would go down the list of names and make comments such as, "We need to get more money from this guy. Let's show a 5 percent gain.' "This guy wants his money back. Let's show a 6 percent loss.' "
Court pleadings quote Moshe Leichner saying, "The object is to take the money and not show the client where it goes."
Between January and November 2002, Tanella sent another $38-million through 23 separate wire transfers to Midland Euro's account in London. But he began to sense something was wrong. He asked repeatedly for an audit to confirm where the money went.
Instead, he got a vague and unsubstantiated letter from an accountant who, it turned out, wasn't registed as a CPA in the United States. When Tanella sent his own auditor to Midland Euro's offices, the computer server suddenly went down. The company promised the documents he wanted would be sent overnight.
They weren't.
"It became clear that we would not be able to get what we needed, which was a full audit," Tanella said. "So we asked for our money back."
In January, Zvi Leichner came to Tampa to meet with Richetti and Tanella. They set up a conference call to his father, who supposedly was in Vienna. But Moshe Leichner was evasive, and later Tanella checked with the conference call center. Instead of Vienna, the call went to Los Angeles.
Confronted with that information, the Leichners promised Tanella and Richetti they would get their money back. They offered reassuring letters. One was on the letterhead of a company that had gone out of business. Another was from a banker who later told the FBI he never heard of the Leichners.
A magistrate court judge has ruled that the Leichners are a flight risk and has denied them bail. The government has until June 12 to turn the charges against them into a formal indictment or get a guilty plea. Tanella said he keeps in close contact with prosecutors in California. He said the case is close to being resolved, with the Leichners helping the government find their assets to help pay off investors.
"The frightening thing is we don't know if it's 30 cents or 90 cents on the dollar," Tanella said. "But I think it's promising."
That, however, doesn't mean the Leichners have made Dean Tanella's life any easier. About a month ago, a private investigator working for the Leichners' attorney dropped by Tanella's office on U.S. 19. Holding out a business card, he told Tanella, "I'm in town to learn more about you."
Tanella said the gall of it made him sick. He sent the guy away.
- Times staff writer Helen Huntley and researchers Cathy Wos and Caryn Baird contributed to this report.
