Ponzimonium

“It’s not about revenge. It’s about making sure it doesn’t happen again to other people. It’s something that needs to be closed; there’s a lot of people who have been harmed on a lot of different levels—the least of which is Daren Palmer and his family.”

—David Taylor, President, Taylor Chevrolet, Trigon Investor1

He was the high school quarterback who married his college sweetheart. He fathered five children and became an active leader in his ward of the Church of Jesus Christ of Latter-day Saints. He coached junior high football, instilling confidence and a sense of duty to “be the best son/brother/student” you can be.2 However, in January 2009, he—Daren Palmer—disclosed to Idaho state authorities that he had been operating what amounted to a massive Ponzi scheme.3

Despite his admission to authorities, Palmer was adamant that the business he was running, the Trigon Group, Inc., was not an investment scheme. When asked by investigators about Trigon’s investors and the nature of the funds they provided, Palmer stated, “They were lenders to me. They lent me the money.”4 Throughout his sworn testimony, Palmer talked about individuals “giving” and “lending” him money to use in his own trading program.5 Rather than the typical customer advisory agreements, account opening documents, and disclosures, there were promisory notes for which Palmer posted no collateral.6 The notes held a promise and understanding that Palmer would trade the borrowed funds in commodity futures and essentially split profits with the lender, with at least some guaranteed rate of return.7 This distinction between “lenders” and “investors” is actually a key to understanding how Palmer was able to carry out his operation for so long. Palmer never was registered to trade futures in commodity pools or hedge funds or to run a securities business and was, therefore, completely off of the regulatory radar.8 He didn’t disclose this fact to his “lenders,” and when asked point-blank by investigators whether he was aware of the registration requirement attached to engaging in futures and securities trading, Palmer replied, “The people had lent me money and that [sic] I did with it as I—as what we had agreed to do in the promissory note, which is to provide a return.”9 Unfortunately, the way he provided a return was to pay “lenders” with other “lenders’” money.10

Throughout the Idaho community that held him in such high regard, Palmer promoted himself as a successful investor with a complex trading strategy that generated consistent annual returns through investments in, among other things, commodity futures, options, and S&P 500 Index Futures.11 Through neighbors and friends, his network of investors grew rapidly. By 2009, Palmer had collected more than $68 million from over fifty-five individuals and local entities.12 In promissory notes and verbal promises, Palmer guaranteed some investors 20 to 40 percent in annual returns (and others as much as 7 percent monthly returns).13 In exchange for these astonishing monthly returns, Palmer paid himself a salary ranging from $25,000 to $35,000 every month.14 Although it appeared to investors that Palmer kept his promise of paying his clients 7 percent monthly returns on their investment, he was merely passing funds from new investors to earlier investors like a quintessential Ponzi scam.15

Palmer raised at least $68 million from clients and has admitted that only a fraction of that money, about $6.8 million, actually made it into trading accounts where it was eaten up in commissions and transactional fees.16 Palmer sent more than $49 million in payments back to his investors.17 The remainder of the cash was spent on the construction of two houses—one in the Canterbury Park neighborhood of Idaho Falls and one on the lake in Coeur d’Alene, Idaho—a fleet of automobiles, pricey jewelry, credit cards, and top-of-the-line snowmobiles.18 Some of the Trigon money went to flimflam artist George Heffernan to “help trade” the funds.19 Heffernan received approximately $15,000 to $25,000 a month from the Trigon funds in fees alone.20 George Heffernan is a repeat offender whose latest misconduct—fraud involving, among other things, the sale and marketing of trading advice for S&P 500 and Nasdaq futures contracts, as well as two commodity futures trading methods—cost him $650,000 in sanctions.21 Even when Palmer was trying to do what he promised, he failed miserably.

Despite his claim that he was “borrowing” the money from his clients, Palmer made clear to his clients, in fairly unambiguous terms, that he would be pooling their money, trading it every day, and generating consistent returns because he could make money whether the market went up or down.

James Grey* lived on the same street as Palmer. After they became friends, Grey inquired about investing with Trigon. Palmer promised Grey that once his investment reached $1 million, Grey would earn a 25 percent annual return. Grey turned over the first of twenty-five investments with Palmer. Ultimately, Grey gave Palmer over $5 million and lost $3.5 of that to the Ponzi scheme. The payments he received steadily for years dried up by mid-2008, and when he demanded the return of funds to purchase a home, Palmer started making excuses about funds being flagged under the Patriot Act and being inaccessible in overseas accounts.22 Palmer was digging himself into a hole of debt and was left with few options.

In late 2008, like a gambler who needs to “get back,” Palmer made a hasty last ditch effort to, in his own words, “work my way out from underneath the incredible mess that I was in.”23 Palmer flew to London to meet with a group of complete strangers about a potential investment in Dubai.24 Over several months, Palmer sent at least $500,000 in “fees” to this group hoping to secure additional funds that would allow him to dig himself out of his problems.25 Not surprisingly, Palmer never heard from these alleged African and Middle Eastern investors again. At least some of the funds ended up in a Nigerian bank account, the kind you are always warned against sending money to when you get those suspicious emails from people in trouble.26 Palmer had been scammed himself and the money was gone. “It’s just humiliating,” Palmer admitted. “It’s embarrassing … just a nightmare.”27 In a reversal of fortunes, Daren Palmer was now the unwitting investor being swindled by con artists.

With few reasonable options left, Palmer turned himself into the authorities. Everything has been confiscated: the houses, land, jewelry, cars, horses, artwork, a grand piano, and the snow-mobiles.28 An auction held in September 2009 at a warehouse previously owned by Palmer netted approximately $22,000 through the sale of furniture, jewelry, and other household items.29 In the press, it was reported that even the children’s stuffed animals and Christmas ornaments were carried away as a local restaurant hawked $5 barbecue to feed the crowd.30 Palmer’s now ex-wife is surviving on $2,000 a month from the receiver in exchange for her assistance in recovering Palmer’s money.31 As of January 6, 2011, $3,293,031 had been collected by the receiver for disbursement to the victims.32

On October 4, 2010, the district court issued an order of summary judgment against Palmer requiring him to pay $20,619,981 in disgorgement to victims and a civil monetary penalty of $20,619,981.33 At least Palmer has some idea as to how it feels to be a victim of fraud. That is its own kind of punishment.

CLIENTS	GUARANTEED RETURNS	APPROX. AMOUNT COLLECTED
55	20–40% ANNUALLY	$68,000,000