It seemed so easy. All they had to do was give a little money, and then sit back and watch their dollars, their savings, their dreams, grow.
And so about 15 local soldiers and their families wrote checks. The young ones, the older ones, the ones on their way to Iraq, the ones teaching local classes to inner city kids from L.A. â€” they took out checkbooks and signed away millions of dollars.
In return, Chris Hashimoto and his company, Financial Solutions, gave each soldier a piece of paper â€” an official-looking promissory note covered with legal-sounding language and signed by Hashimoto himself. In it, he reiterated his promises: Financial Solutions was investing in companies with lucrative government contracts, and those contracts would earn the men and women of the National Guard a 10 percent per month return rate and an automatic return of their initial investment.
Money flowed to Hashimoto â€” $90,000 came from a single Los Osos family alone; one National Guard official who asked not to be identified estimated a total $1.7 million came from local soldiers. When an officer at the base, who was also a senior vice president at Financial Solutions, started driving around in a high-end Germany luxury car, it was simply further proof; proof that things were going very, very well for the company.
Then the Securities and Exchange Commission (SEC) stepped in. The morning of Nov. 3, the SEC asked a federal judge to freeze Hashimotoâ€™s businesses, assets, and bank accounts; prevent him from destroying documents; and to appoint a receiver to take over the businesses. By 3 oâ€™clock that afternoon, the judge had signed the court order and Hashimotoâ€™s house of cards began to tumble.
The next day investigators raided Financial Solutionâ€™s Riverside-area offices and discovered that much of Hashimotoâ€™s promises had been lies; in fact, they called his business ventures a â€œclassic Ponzi schemeâ€? (see infobox). Many of the companies he said Financial Solutions was investing in didnâ€™t exist. The ones that did exist didnâ€™t have those enormous government contracts. Over time, the receiver would discover just how far Hashimotoâ€™s deceptions extended.
When the story broke, Southern California newspapers jumped all over it. They reported how Hashimoto had lured many investors from black churches in L.A., and they reported on other Inland Empire businesses that been charged with similar accusations. But Hashimoto didnâ€™t start in Los Angeles. He didnâ€™t start in Riverside.
He started right here in SLO County, at Camp San Luis Obispo, under the watchful eye of Col. Fred Gage, the head of the National Guardâ€™s Angel Gate Academy.
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Chris Hashimoto was born in 1960, the son of a decorated Army officer who served in Europe, Hawaii, and Vietnam through the 1960s and â€™70s. Hashimoto himself joined the military and served in Germany in the 1980s. Thatâ€™s where he met Robby Robison. And over the years, he and Robison would keep in touch: When Robison was a military instructor at a high school in Perris, Calif., the two men played golf together, according to other instructors at the school.
In 2003, Robison was second in command at Camp San Luisâ€™ Angel Gate Academy (AGA) â€” a military school for problem students from the L.A. area. The head of the school, called the commandant, was a lieutenant colonel named Jonathan Kinsman, who was very proud of how he had grown the academy over the preceding years. He was also very protective of the 45 soldiers who worked for him.
In June 2003, Kinsman held what he called a â€œfinancial responsibilityâ€? seminar for his young soldiers. He brought in state employees to talk about retirement options; he brought in federal employees to talk about the Guardâ€™s pension plans. And when his underling, Robison, spoke highly of Hashimotoâ€™s investment smarts, Kinsman invited him, too.
But Kinsman says he became suspicious of Hashimoto when the veteran started hyping his new company, Financial Solutions, instead of teaching fiscal planning. Kinsman says that at that point, he asked Hashimoto to leave the base and not come back.
The AGA commandant who came after Kinsman, Col. Fred Gage, has a different version of that story. He says that when he came on board in 2003, no one, including Kinsman, told him that Hashimoto was barred from Camp San Luis.
Regardless of which man is right, one thing is certain: After Gage took over AGA in July 2003, Hashimoto returned to the base many times. In a recent interview, Gage said that at the time, he didnâ€™t see a problem with the visits. Since Hashimoto was retired military, he was allowed to stay on the base, as long as he paid for his stay. Which he did.
But Gage also let him hold meetings on the base during business hours.
In October and December of 2003, Gage admits he okayed two meetings Hashimoto held on base in AGA offices. Although he himself had invested money in Financial Solutions at that point, Gage denies that he went to the classes and claims he would have put a stop to them had he known what was happening.
All he did, he said, was introduce Hashimoto at the beginning of the class and then walk out.
â€œWhat I didnâ€™t know was after I left, Chris started talking about the stuff he was selling. I didnâ€™t know that. The soldiers who were in the class did not tell me this. If I did stay, I would have said, â€˜Chris, you cannot sell anything on government time,â€™â€? he said.
What Hashimoto was selling sounded deliciously intriguing. He claimed that Financial Solutions and its parent company Ohana International lent money to companies with giant military and government contracts. One of those companies was Chino-based Genteck, which, Hashimoto told investors, had recently received a $13 million contract with the Air Force to build maintenance platforms.
â€œEach project costs them about $500,000 to produce,â€? Hashimoto wrote in a letter to potential investors. â€œHowever, the government pays them $2 million after completion.â€?
According to court documents, Hashimoto eventually raised $23.5 million for Genteck with that story. What his investors didnâ€™t know was that Genteckâ€™s contract was only worth about $1.3 million and would soon be canceled. What his investors also didnâ€™t know was that Hashimoto only paid Genteck about $600,000 of their money.
But the investors at Hashimotoâ€™s meetings were, perhaps, blissfully unaware. Theyâ€™d been given slick-looking documents that made Ohana look like an SEC-registered company; theyâ€™d been given sales projections that showed the 11 companies Hashimoto said he owned or invested in grossing more than $13 billion by 2008; and they had their promissory notes that apparently promised them a 10 percent return on their investment every month.
Col. Gage said Hashimotoâ€™s pitch didnâ€™t sound â€œparticularly unreasonable.â€? But when New Times countered his description by reading lines from an actual promissory note â€” with its unrealistically high descriptions of returns â€” Gage said that he didnâ€™t have his own promissory note in front of him and he couldnâ€™t comment. He still maintained, however, that Hashimotoâ€™s promises didnâ€™t seem â€œoutlandishâ€? at the time.
By spring of 2004, Gage sat Robison and Hashimoto down and asked them to hold their meetings off the base. When pressured for a reason why he did that, Gage said that he still didnâ€™t think anything was amiss, he just wanted to make sure no one thought there was a conflict of interest.
â€œI thought maybe someone could take this the wrong way, and I thought maybe it would be better for this to occur off site,â€? he explained.
Hashimoto never held meetings at Camp San Luis again. Instead, he held them at the Madonna Inn.
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So where were other AGA military officials throughout all this?
By early 2004, Robison was handing out business cards that proclaimed him a senior regional vice president for Financial Solutions. Robison wasnâ€™t available for comment for this story, but witnesses say that this was about the time he started driving around the base in a new German luxury car. Interestingly, despite his business cards, court mandated investigators found no records of Financial Solutions paying Robison a paycheck.
If Robison was indeed collecting two paychecks at the same time, that in itself wasnâ€™t illegal. Both Gage and Lt. Col. Douglas Hart, a California National Guard spokesman in Sacramento, confirmed that state laws donâ€™t prohibit state employees, which is what AGA employees are, from â€œmoonlighting.â€?
As for whether Robison used the militaryâ€™s resources, money, or tools to promote Financial Solutions, both Gage and a military investigation have tentatively cleared him of any wrongdoing. Gage said that he himself didnâ€™t see anything â€œshady.â€?
â€œThat didnâ€™t happen at any time that I observed,â€? he reported.
Ex-AGA commandant Lt. Col. Kinsman had the opposite impression. He was convinced that based on Hashimotoâ€™s pitch, he was running a Ponzi scheme. Later in 2004, after finding that even more soldiers had invested, Kinsman and another lieutenant colonel drove to Sacramento to present information about Financial Solutions to one of the California National Guardâ€™s top officers, Brig. Gen. Louis Antonetti.
Kinsman says that Antonetti couldnâ€™t see them that day, but that they dropped off a packet of information for him. He says Antonetti called him back on Nov. 7 and referred him to the Guardâ€™s legal branch. Kinsman also says he faxed his information where he was told, but other than a quick call from an underling, no one ever followed up with him.
Lt. Col. Hart said a recent investigation by the National Guard into the scam did not reveal any correspondence between Antonettiâ€™s office and the Guardâ€™s legal officers. However, Hart did quote the report as saying â€œthe information on investors had been provided by Lt. Col. Jonathan Kinsman.â€?
By about this time, October 2004, things were moving smoothly for Hashimoto. On the 29th, according to the SECâ€™s court documents, a Financial Solutions agent held a sales presentation in Chicago and told â€œprospective investors that Financial Solutions financed â€¦ a government contract to build â€˜invisible wallsâ€™ for the Federal Bureau of Investigations.â€?
On the 22nd, Hashimoto himself hosted a lavish buffet dinner and sales presentation â€” with a lobster and prime rib dinner and open bar â€” at the Ritz-Carlton in Marina Del Rey. About 500 people showed up and hobnobbed with a Courvoisier-drinking Mike Tyson â€” who, federal officials say, had nothing do with the scam and was there only after receiving an â€œappearance fee.â€?
Hashimoto told attendees that their investments would be secured by a $100 million government bond and even offered what he called proof. The catch was, attendees were allowed to look at that proof all they wanted, but they were only allowed to leave with copies of the proof if they invested a minimum of $2,500 that night.
What Hashimoto didnâ€™t know was that a man named Barry Minkow was attending some of the presentations Financial Solutions was holding about this time. Minkow made international headlines in the late 1980s when he was convicted of securities fraud; he now works for a company called Fraud Discovery Institute. In 2004, he was one of several people who went undercover, attended Hashimotoâ€™s seminars, and quietly gathered the information that would eventually sink Financial Solutions.
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After a federal judge froze Hashimotoâ€™s assets and businesses on Nov. 3, 2004, things moved quickly.
The next day, court appointed investigators raided Financial Solutionâ€™s Riverside-area office. After interviewing the mostly cooperative staff, the investigators discovered that Hashimoto had another office in L.A. But they arrived there minutes too late. Investigators found clients waiting in the lobby and hot food uneaten on desks, but no employees. They did find a handgun and ammunition in a drawer. They also discovered that every e-mail, calendar entry, contact list, and document had been deleted from the officeâ€™s computers.
Over the next week, employees from Rob Evans, the receiver company the federal judge had ordered to take over Hashimotoâ€™s business ventures, found even more. First, Hashimoto actually did put money into some of the companies he said he was. But at far, far lower amounts than would have provided returns that he was promising local soldiers. And every one of those companies had no idea what Hashimoto was doing.
For instance, the owner of Genteck, the company with the small Air Force contract, said he was unaware of the promises Hashimoto was making, and his company could have never paid the returns that were promised. Other companies said similar things: They viewed Hashimoto as a shareholder; none of them provided him with the gargantuan income projections he was giving to his investors.
And those were just the companies that investigators at Rob Evans could find. Other companies that Hashimoto said he was investing in were not at the phone numbers or addresses he listed. In fact, the receiverâ€™s investigators could find no record of them ever existing.
In all, the receiver would report that Hashimoto had raised almost $26 million from more than 1,000 investors. Along with the companies that received some of that money, Hashimoto was also a major recipient: Investigators reported that he spent almost $100,000 on clothing, another $105,000 on a pool and home improvements, and about $80,000 on â€œcash withdrawalsâ€? and â€œmiscellaneous.â€? Thatâ€™s not counting what went to his family, what went to â€œentertainment,â€? and what went to loans.
In all, investigators estimate Hashimoto spent more than $11 million on himself.
Since those initial court proceedings and investigations, Hashimoto has repeatedly had to excuse his behavior in court. In November of 2004, he held a meeting with apparently extremely nervous investors at the Madonna Inn and told them that he would be able to repay them from monies the courts didnâ€™t know about and hadnâ€™t frozen.
Someone secretly recorded the meeting and gave the tape to the Securities Exchange Commission (SEC). After the SEC slammed him in court, Hashimoto recanted in court documents the promises heâ€™d made to those investors. In one filing, his lawyer explained that â€œHashimoto was merely attempting to save face in front of those he considered to be his military family.â€?
In a legal declaration, Hashimoto admitted the same: â€œQuite frankly, I was merely bragging about my abilities to make good on the investments.â€?
Despite the legal wrangling, it appears possible that some investors will get a little money back. How much? Nobody knows at this point. Nels Mitchell, co-director of enforcement for the Pacific Region at the SEC, said repayment amounts usually vary from case to case â€” sometimes investors get 25 cents on the dollar; sometimes they get close to a full return. Sometimes, they got nothing.
As for the California National Guard, Lt. Col. Hart said theyâ€™re done with their investigation but are unwilling to close it until the SEC is finished with their case.
Here in San Luis Obispo, Col. Gage has no plans to go after Hashimoto. He said heâ€™s content with the findings from the Guardâ€™s own investigation.
Why wonâ€™t he initiate his own investigation? Well, he said, â€œwhile it was very unfortunate, there was no crime was committed per se, in that no federal assets were used.â€?
What the heck is a Ponzi scheme?
Imagine a man named Bob, with three friends â€” Joe, John, and Jeff. Bob tells his friends that heâ€™s got a great company to invest in â€” one that will pay a guaranteed return of 20 percent. Joe invests and gets a great return. What he doesnâ€™t know is that there is no hot company and Bob simply paid Joe with money that John and Jeff invested.
Joe is so happy he tells everybody he knows to invest with Bob. Bob uses the money from those people to pay John and Jeff, who then get their families and friends to give Bob money. Unlike a pyramid scheme, no one is offered any money for bringing in more investors.
The scheme grows, with only a few people at the top getting returns, until the government steps in or Bob runs off with everyoneâ€™s money.
As David Margolick described it in the New York Times Book Review a few weeks ago, itâ€™s a swindle where â€œpeople are promised windfall profits from canâ€™t-miss investments â€” to be paid, when they are paid at all, only out of money collected from subsequent dopes and dupes.â€?
Charles Ponzi was, according to some historians, a surprisingly ethical man. He immigrated to Boston from Italy as a 21-year-old in 1903, and after a brief stint in jail for forgery and smuggling, hit on the idea that would attach his moniker to every con, hustle, and ripoff for decades to come.
In 1917, he discovered that by using a legal loophole, he could make a small sum by investing in foreign currencies. But after attracting hundreds of investors, he realized that he didnâ€™t even have to invest in that currency â€” all he had to do was pay off the few people who cashed out with money from other investors while collecting cash, hand over fist, from what would become tens of thousands of other people.
It was a fantastically successful plan: Over seven months between 1919 and 1920, he raked in a little less than $10 million.
The now-defunct Boston Post finally caught up with Ponzi, and by the time he went to jail he was $3 million in the hole from trying to responsibly pay back his investors. In the early â€™30s he was deported and spent the rest of his life penniless. He died a pauper in Brazil in 1949.
Staff Writer Abraham Hyatt can be reached at firstname.lastname@example.org.