Denver’s Wayde McKelvy raised tens of millions of dollars for a new, clean-energy company that the SEC says was nothing more than an old-school Ponzi scheme.
“I probably shouldn’t talk to you,” McKelvy told me, “but that’s just who I am.” It was last February when he called, and since I’d left several messages for him and heard nothing, the call was unexpected. He sounded as if he were resigned to being the subject of the SEC lawsuit. He sounded almost as if he understood the reasons for it. And he seemed to shrug it off: “It’s the game I love,” he said. “I could care less about the money. My love is the game.” There’s evidence in McKelvy’s past that he views business as a game, and, to hear it from some of his former clients, he doesn’t play fair.
While Donna built a career in insurance and her husband opened that string of businesses, between 1995 and 2005, they owed the federal government more than $420,000. They were also named in a number of lawsuits. One lawsuit against McKelvy involved Conifer residents Cathy Reynolds and her husband Pat. Beginning in 2000, Cathy says, McKelvy called her numerous times out of the blue, claiming the company holding her mortgage was going out of business; she should stop sending payments. Not to worry, though; he was seeking a solution. McKelvy, as Cathy recalls, was direct but comforting. He played up his family, talking about his wife and daughters. According to Cathy’s 2002 suit filed in Jefferson County District Court, McKelvy told Cathy she “was just a number to the bank, not to call because they didn’t care about [her] and that he could help resolve her situation.”
Cathy says that if her home wasn’t going to be foreclosed on before McKelvy persuaded her to stop making payments, it certainly was after. Through a series of convoluted maneuverings—and what the Reynoldses say was a forged document—the mortgage was transferred numerous times. (At one point, it filtered through Jaguar Group LLC, whose head was himself recently convicted of a $3.4 million Ponzi scheme.) In the end, the Reynoldses and McKelvy agreed to disagree and the case was dismissed. Along the way, the couple filed for bankruptcy to halt their home’s public auction and reclaimed it by signing a mortgage double the amount of their original.
In researching their case, Cathy says, they came across other people who had been stung the same way. The suit may have been the first record of McKelvy being at the center of a muddled transaction that he initiated and from which he likely profited. “If he was covered in gas in front of me,” Pat Reynolds says, “I’d provide the match.”
By the mid-2000s, McKelvy had moved on to form an investment club called Retirement TRACS. It was at one of its meetings that Louisville, Colorado, resident Mary Phillips met McKelvy. Phillips is a self-assured woman with a Ph.D. in American studies. When she picks up a call, she answers, “This is Dr. Mary Phillips.” At the workshops she attended, McKelvy was a man of “simple American humor” and a bit brash. (He once yelled at a seminar, “What’s wrong with you folks? You expect change but you don’t change!”) Nonetheless, he struck her as a guy giving middle-class Coloradans a chance at investments usually reserved for the rich. Phillips and her husband lost a total of $500,000 to McKelvy and Mantria.
It’s tempting, perhaps, to characterize Mantria’s investors as unsophisticated suckers, but research says otherwise. Most are like Phillips: college-educated, higher-income, and more financially literate. With some investment knowledge, people tend to overestimate their ability to smell a raw deal, which researchers believe makes them vulnerable to scams. They also happen to be more prone to emotional pitches. Besides, Phillips points out that her husband went to Tennessee to see the Mantria-owned property, he saw the machine that made biochar, and even received a bag of the stuff. (Real in that it existed, but was nothing more than a facade.) As Phillips says when asked why she believed in sky-high returns, “Wouldn’t we all just like to catch a break, get something really good? It’s the American dream.”
At TRACS investment club meetings Phillips attended, McKelvy tapped into that desire. To play with the big boys, he preached liquidating all traditional funds and buying a universal life insurance policy, which, of course, he would sell. This plan acted as a sort of self-lending system, from which people could borrow at a relatively lower rate and invest in higher-return opportunities. What opportunities, exactly? Well, McKelvy had the scoop on some deals. On his advice, the club would roll $11.4 million into corporate bad debt and real estate in Mexico, the Dominican Republic, and even Granby, Colorado. McKelvy would bring a deal to the club and say the returns were between 12 and 50 percent. Then he’d tilt his head back and crack a sly smile as if to say, Wait till you see what you really get. Running TRACS, McKelvy himself did well enough that Donna could leave her job in insurance. She came to work with him as his secretary. Meanwhile, to the club’s consternation, none of the investments panned out or paid out.
Of all McKelvy’s TRACS-proposed deals, none were as ludicrous as the $250,000 expenditure on a supposedly rare pink diamond. According to what McKelvy told his members, they could double their money over a year by purchasing the gem and flipping it to one of the potential buyers. He whetted the club’s appetite when he mentioned one particularly interested party: Jennifer Lopez. McKelvy told investors that TRACS purchased the diamond, but no members ever saw it, and it never sold. One investor refers to it as the “diamond boondoggle.” Nearly all of the $11 million invested under the auspices of McKelvy’s TRACS was never seen again.
In 2007, after he met Troy Wragg, McKelvy presented an incomparable invitation to his TRACS members: A chance to get in on the ground floor of a growing green company. This wasn’t just about wealth—it was about investing in the future of humanity. Incredibly, some of the club members followed McKelvy’s new advice. However, several other folks had seen enough, and filed complaints with the Colorado Division of Insurance. The SEC was brought in. (The SEC declined to comment on the record for this story.) McKelvy’s explanation comes by way of what he told his investors: “The SEC brought me forward in 2007 and dismissed it.”
A year later on May 30, 2008, the Colorado Division of Insurance notified the Colorado Division of Securities that a new complaint was filed against TRACS. At this point, McKelvy was devoted to raising money for Mantria. It wasn’t until January 30, 2009, that a state securities investigator, Jerry Lowe, asked the insurance division for the emails sent from McKelvy to the initial complainant.
In those emails, investigator Lowe read about green technology with the potential for gigantic returns. Five months after asking for the emails, the investigator attended two seminars. During one, Lowe listened as Wragg raised the prospect of “hundreds of percent rates of return.” That seminar occurred on May 21, 2009, almost a full year after the Division of Securities first received the complaint. The SEC, according to court testimony, wasn’t brought into the Mantria investigation until about five months later in “late September, early October of 2009.”
Miles Gersh, a local securities lawyer, says the SEC is efficient after charges have been filed. But “as far as [the SEC’s] ability to stop wrongdoing before the fact, though, they are a bit like traffic officers: many intersections, relatively few cops.” Regulators at all levels tend to be zealous guardians of their work product, Gersh says, which is a polite way of saying all of the state and federal investigative bodies are territorial and each wants to make the bust. Competency isn’t the problem, he says, it’s “unwarranted, counterproductive secrecy.”
“The primary reason” the SEC is tapped to help, says Colorado securities commissioner Fred Joseph, “is when multiple states are involved.” The Mantria case certainly fit the bill. The company was registered in Delaware, based in Philadelphia, selling projects in Tennessee, and raising funds out of Colorado. Yet it’s reasonable to conclude that if the state securities division had bothered to scratch the surface of Mantria, it would have brought in the SEC sooner.
When the SEC did initiate an investigation in fall 2009, it acted quickly. Within a month and a half, it filed its lawsuit and froze the assets of Mantria, Wragg, McKelvy, Speed of Wealth, Donna, and Wragg’s partner, an Amanda Knorr. For every Mantria investor, it was too late. By that time, investors had poured in more than $54 million.