Ex-pastor: Collapse wrecked my life - Blames another for hedge fund problems
By WAYNE HEILMAN
THE GAZETTE
January 9, 2008 - 11:16PM
gazette.com
A former Colorado Springs pastor accused of luring churchgoers into a hedge fund, then overcharging them more than $3 million in fees, told jurors Wednesday his life was “devastated” by his involvement in the fund’s collapse.
Douglas Alan Scott, 47, faces up to 12 years in prison on charges of securities fraud and theft if convicted during a trial that began Monday. He is the former pastor of the nowdefunct River of Life Church and allegedly helped recruit investors for XL Capital Partners Inc.
“Every single person I loved and respected was in that fund, and they were devastated” by the fund’s collapse, Scott testified, blaming XL’s collapse on Hamilton Alan Bird, who he said led the fund, directed its investments and gave sales presentations to potential investors.
Bird faces a March 31 trial on three counts of fraud and five counts of theft in connection with XL’s collapse. He is also charged as a “habitual criminal” as a result of two previous business-related felony convictions that could triple his sentence if he is convicted.
XL operated two funds that collected nearly $24 million from 450 investors, including several local churches and religious organizations. Colorado securities regulators won a court order in late 2004 placing the fund in receivership and freezing all its assets.
Hedge funds use sophisticated investment strategies such as selling borrowed stock to profit on price declines and buying subprime mortgages.
Scott testified he was not aware of problems with the fund until regulators went to court, but he also said in other testimony that he was aware regulators were investigating the fund and that a lawyer hired by the fund advised it to not take in new investors.
Scott had first met Bird in the mid-1990s, when both worked for a telecommunications company that sold longdistance service to church members and gave their churches a 10 percent rebate on their spending. He heard about the fund in 2002, when their wives worked together.
After telling a few family members and friends about the fund, which he said he considered a safe investment, Bird began paying him fees for recruiting investors. Scott said he was later hired to take investor calls and answer their questions or send them on to Bird.
Despite knowing about the state investigation and the lawyer’s advice against taking new investors, Scott said he didn’t share that with existing or potential investors because he believed such disclosures were Bird’s responsibility, not his.
Scott also admitted during cross-examination that he had signed loan documents to allow the fund to buy a $4.1 million corporate jet, but he said that Bird asked him to do so because he had a good credit rating and that the arrangement was only temporary.
He also testified that all of the fees XL paid to him were reinvested in the fund and that an $851,000 judgment against him resulting from a civil suit filed by the state pushed him into bankruptcy, cost him his home and left him unable to find a job as a pastor.
Testimony in Scott’s trial is expected to conclude Friday and go to the jury of eight women and four men.
CONTACT THE WRITER: 636-0234 or wayneh@gazette.com
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