The irrevocable trust

In 2023, Christopher Linscott, CFE, CPA, CIRA, arranged a donation of $250,000 to the ACFE Foundation — the single largest donation to the foundation ever. Here’s the story of how a Ponzi scheme that bilked thousands of military veterans and retirees became the impetus for that donation.

In 2021, Arizona firm, Shurwest, was facing 38 lawsuits in both state and federal courts and had 140 claims totaling more than $197 million against it. The company wouldn’t be able to meet the demands of its creditors, so it filed for Chapter 11 bankruptcy. Shurwest, an independent marketing firm that sells financial products to retirement planners, had found itself in this situation because one of its former employees was connected to a nationwide Ponzi scheme that had defrauded thousands of retirees and U.S. military veterans out of hundreds of millions of dollars. And now many of those victims were plaintiffs in multiple suits to recover money they’d lost. The employee, Melanie Jo Schulze-Miller, had used her company’s computers to sell unsecured securities that were part of the plot. Shurwest’s management insisted that Schulze-Miller had gone “rogue” to sell the products, even forming her own side business to participate in the scheme. [See “Some Creditors Miffed By Shurwest’s ‘Sham Bankruptcy’ Plan,” by John Hilton, InsuranceNewsNet, April 6, 2022 and “Shurwest, LLC v. Howard,” United States District Court Eastern District of Kentucky Central Division Lexington, No. 5:19-CV-180-REW (E.D. Ky. Mar. 19, 2021), Casetext.]

During a Chapter 11 bankruptcy, an organization stays in business while restructuring its debts, and the court might stay (stop) litigation against the debtor company. This allows the company to manage its assets, reduce costs, work on settlements with plaintiffs and pay claimants. In some cases, a third party will purchase the creditors’ claims, and the third party then acts as the creditors. Christopher Linscott, CFE, CPA, CIRA, founder and director of consulting for Tucson, Arizona-based accounting firm Keegan Linscott & Associates, had an idea that could compensate the victims and contribute to the field of anti-fraud education. So Linscott, with funding from a party friendly to Shurwest, formed a trust to buy the claims, pay the victims and name the ACFE Foundation the beneficiary of the trust. In 2023, that trust donated $250,000, making it the single largest contribution to the ACFE Foundation since its inception in 2005.

“What made sense to me in this case since it was derived out of a Ponzi scheme was to make the ACFE Foundation a beneficiary,” Linscott tells Fraud Magazine. “Maybe we can help prevent or limit these frauds in the future by using that money for education.”

Linscott sat down for an interview with Fraud Magazine shortly after the donation was made to discuss the formation of the Claims AF Irrevocable Trust (the “AF” stands for anti-fraud) and the massive fraud that inspired the trust’s impressive donation.

Future Income Payments

Once Linscott set about his work as trustee for Shurwest, he began to learn more about Scott Kohn, the mastermind behind the fraud that Schulze-Miller had participated in.

Kohn was largely preying on folks who didn’t have the sophistication to know what was happening. And I thought this [trust] money would be really well gifted. If we can do it for education, to get the word out [about investment schemes], then we might be able to prevent it from happening again. People could learn about the questions to ask that could determine if an investment makes sense.

Christopher Linscott

“I started reading about the thousands of people and their pensions,” Linscott tells Fraud Magazine. “Kohn was largely preying on folks who didn’t have the sophistication to know what was happening. And I thought this [trust]money would be really well gifted. If we can do it for education, to get the word out [about investment schemes], then we might be able to prevent it from happening again. People could learn about the questions to ask that could determine if an investment makes sense.”

Between 2011 and 2018, Kohn ran a business called Future Income Payments (FIP) largely out of a Nevada strip-mall mailbox. FIP’s business model was to sell “pension-advance” products to military veterans, many of whom were in dire financial straits. These products were cash-advance loans, and the veterans redirected a portion of their monthly military and disability benefits to FIP for loans with adjusted annual percentage rates that often exceeded 100%. Veterans received cash advances from less than $5,000 to $98,000 and agreed to pay back the money over a period of four to 10 years. What they might not have realized is that it’s illegal to buy and sell U.S. military benefits as FIP was doing. (See “Veterans suffered, investors lost millions in nationwide schemes,” by Kirk Brown and Carol Motsinger, The Greenville News, Nov. 18, 2019.)

The vets’ cash advances were coming from thousands of retirees across the U.S. who’d been solicited by Kohn and a network of financial advisors and insurance agents to purchase “structured cash flows” at a rate of return between 6.5% and 8%. Essentially, Kohn convinced people to invest their retirement savings with FIP with false assurances of significant rates of return on their investments. As The Wall Street Journal reported in a 2018 story, FIP would temporarily buy the rights to pensioners’ payments, lending the beneficiaries’ money against their future pension income in a “pension advance.” FIP then sold the rights to investors for a lump sum. Thousands of veterans and retirees living in 33 states across the U.S. were defrauded by this scheme.

(See “Alleged Ponzi scheme targeted military veterans and other pension holders, federal authorities say,” by Ralph Ellis and Rebekah Riess, CNN, Nov. 14, 2019; “Private Pension Product, Sold by Felon, Wipes Investors Out,” by Jean Eaglesham, The Wall Street Journal, July 23, 2018; and “California Man Receives 10 Year Sentence Following Guilty Plea in South Carolina to Fraud Conspiracy,” U.S. Department of Justice press release, Aug. 18, 2022.)

Eventually, the scheme was adapted to include indexed universal life (IUL) policies. Kohn and his co-conspirators urged investors to fund IUL policies with their FIP payments to replace the pensions as retirement plans. This is when Schulze-Miller, who knew Kohn, got involved. Schulze-Miller was the national sales director of life insurance for Shurwest and pitched the idea to sell the IUL policies to her company’s leadership. In an email to her bosses in 2016, Schulze-Miller wrote, “This vehicle allows me to yield an extra 5%-6% when I’m funding a life policy. Better for client, better for us, better for agent, and it actually creates a larger life policy because the premiums are even higher.”

Between 2011 and 2018, Kohn ran a business called Future Income Payments (FIP) largely out of a Nevada strip-mall mailbox. FIP’s business model was to sell ‘pension-advance’ products to military veterans, many of whom were in dire financial straits. These products were cash-advance loans, and the veterans redirected a portion of their monthly military and disability benefits to FIP for loans with adjusted annual percentage rates that often exceeded 100%.

But Schulze-Miller’s bosses were reportedly wary of the product and told her not to participate because the IULs were unsecured securities. She didn’t heed their warning and started her own business, MJSM Financial, which handled many of the fraudulent sales. (See “Some Creditors Miffed By Shurwest’s ‘Sham Bankruptcy’ Plan.”)

By 2018, FIP had grown into a $1 billion enterprise, but like all Ponzi schemes, the engine of funds sputtered, and the whole operation crashed. The vets were unable to keep paying, plus Kohn was diverting investors’ funds to live the good life. He purchased expensive art, luxury cars, and two homes — a $1.4 million abode in Las Vegas and a house in California with a panoramic view of the Pacific Ocean. (See “Scott Kohn, accused of running $1 billion Ponzi scheme, says he can’t afford an attorney,” by Kirk Brown, The Greenville News, Nov. 13, 2019.)

In total, Kohn and his co-conspirators caused more than $310 million in losses to more than 2,500 retirees and left more than 13,000 veterans with loans they’d never be able to pay off. For example, Stephen Schmelz, a Gulf War veteran, needed money to pay for spinal cord surgery and had received a $2,700 cash advance from FIP with an interest rate of 200%. Schmelz was left $27,000 in debt. (See “Mastermind of $300 million Ponzi scheme targeting veterans sentenced to 10 years,” by Tamia Boyd, Greenville News, Aug. 18, 2022 and “Veterans suffered, investors lost millions in nationwide schemes,” by Kirk Brown and Carol Motsinger, The Greenville News, Nov. 5, 2019.)

Kohn was eventually indicted on federal charges of conspiracy to commit wire fraud and mail fraud for buying and selling military benefits. U.S. marshals arrested him on a beach in San Diego, California. In 2022, he was sentenced to 10 years in prison. (See “Ringleader in national veteran benefit scheme arrested on fraud charges,” by Andrew Brown, The Post and Courier, Sept. 23, 2019.)

For her part, Schulze-Miller was charged with 20 counts of wire fraud and one count of conspiracy to commit wire fraud and mail fraud. She had earned more than $1.2 million in commissions from FIP. Schulze-Miller cooperated with investigators and pleaded guilty to felony conspiracy to defraud in 2020. (See “Arizona IMO Seeks Bankruptcy Protection from IUL Fraud Fight,” by John Hilton, InsuranceNewsNet, Oct. 6, 2021.)

The trust

Linscott explains to Fraud Magazine that the owner of Shurwest had another company that could provide the financing for the trust. “So, I was approached by Shurwest’s attorney who said, ‘We have an idea. We want to set up a trust and the affiliated company will loan money to the trust.’ And, the concept is, the trust will buy the claims from the claimants and the trust will then sit in the shoes of those claimants as the Chapter 11 progresses.”

And I said, what makes sense to me in this case, is that since it's derived from a Ponzi scheme, is why don't we make the beneficiary the ACFE Foundation?

Christopher Linscott

According to Linscott, this is common in the bankruptcy process — people and entities can buy the claims, and it’s a way for claimants to get paid faster. “In a fraud situation and in a bankruptcy, the goal is to get people paid quickly and to get them taken care of.”

Ultimately, the claimants in Shurwest’s case were paid significant settlements that were mutually agreed to. The claimants — the victims of the FIP scheme — didn’t get all their money back but they did get a decent portion, says Linscott.

An important aspect of forming a trust, Linscott explains, is that it must have some sort of beneficiary to be legitimate. So Linscott consulted with the parties involved in the trust about what they could do to give it that necessary purpose. “And I said, what makes sense to me in this case, is that since it’s derived from a Ponzi scheme, why don’t we make the beneficiary the ACFE Foundation?”

So, the Claims AF Irrevocable Trust became the ACFE Foundation’s benefactor with $250,000 set aside for fraud fighters so that they can better combat future Ponzi schemes.

The mission

The ACFE Foundation’s mission is to increase the body of anti-fraud knowledge and support future anti-fraud professionals worldwide who are on the frontlines helping victims of fraud and fighting fraudsters like Kohn. Working to achieve that goal are educators, students, budding and veteran CFEs, donors and volunteers who make that vital research possible and inspire the next generation of fraud fighters. This work is accomplished one grant or scholarship at a time, and it yields what has amounted to more than $1 million raised and 93 research studies conducted since 2006.

Each donated dollar supports two important initiatives of the Foundation. First, the Ritchie-Jennings Memorial Scholarship Program awards scholarships and endowments to students who are pursuing careers in fraud examination. Second, through funding research and other educational projects, the ACFE Research Institute enables and publishes the latest research on the detection and deterrence of fraud.

Ritchie-Jennings Memorial Scholarship Program

The scholarship program was established in 1992 to provide opportunities for students who had demonstrated achievement in fraud-related studies. In 1998, the program was renamed the Ritchie-Jennings Memorial Scholarship in honor of ACFE members Larry Jennings, CFE, and Tracy Ritchie, CFE. Both men were among five people fatally wounded during terrorist attacks in Karachi, Pakistan, on Nov. 14, 1997.

“Both men exemplified the true spirit of our organization with their devotion to detecting, investigating and deterring fraud and white-collar crime,” says Dr. Joseph T. Wells, CFE, CPA, Chairman and founder of the ACFE.

The Ritchie-Jennings Memorial Scholarship annually supports students internationally in their anti-fraud interests. Each nominated student is eligible to earn up to a full year of ACFE membership, and up to $10,000 individually paid to the recipient’s university or college.

One of those scholarship recipients is Hasmik Meloyan. Her journey is a testament to her relentless pursuit of academic and professional growth, all aimed at making a significant difference in the anti-fraud profession. From her early days as an audit intern at KPMG Armenia to her current role as a risk management specialist at the Central Bank of Armenia, she embodies the values and mission that the Ritchie-Jennings Memorial Scholarship seeks to promote.

“The scholarship is particularly appealing to me because its values and mission completely align with my personal values and interests,” says Meloyan. “My biggest goal is to fight against fraud as it impacts people, industries, entities, services and the environment. I am more than interested in fraud prevention and see my whole future in this field as I believe that with my profession I can help my country and community obtain and maintain property, while fulfilling my passion to work in the anti-fraud field.”

ACFE Research Institute

In 2019, the ACFE Foundation expanded its mission beyond college scholarships to anti-fraud research that’s accessible to all CFEs by formally merging with the Institute for Fraud Prevention (IFP). The birth of the ACFE Research Institute (ARI) included creating a multidisciplinary research center dedicated to research and education on the prevention of fraud, corruption and other white-collar crime.

Its mission is to award grants to researchers who’ll improve the ability of businesses and government to combat fraud, and to educate the public on effective methods for recognizing and deterring it. The ARI does this by providing funding and data access to support anti-fraud research studies, hosting a central repository of fraud-related knowledge, disseminating key anti-fraud research findings to its members and the public, and serving as a catalyst for the exchange of ideas about fraud prevention, deterrence and detection.

The ARI provides two types of grants to support anti-fraud research studies: one via monetary support (up to $15,000) and the other through data access to one of two ARI databases. Most recently, the ARI has funded and supported research on artificial intelligence (AI) and machine learning, attributions of fraudsters and whistleblowing. These studies are now part of a database for fellow researchers.

The foundation’s commitment to the future of the anti-fraud profession combines the two powerful forces necessary to combat fraud: the students who’ll lead the fight and the research that will light the way.

A heartfelt thank you

The fight against fraud is an ongoing battle that requires collective effort and unwavering commitment. The ACFE Foundation is at the forefront of this crucial mission supporting education and grants that help forge a path for more anti-fraud professionals to join our organization. The generous donation organized by Linscott will undoubtedly propel our efforts to new heights. We extend our deepest gratitude to him — his support is a beacon of hope in the fight against fraud.

The donation reflects a shared belief in the importance of combating fraud to protect individuals, businesses and communities worldwide. It’s a powerful endorsement of the ACFE Foundation’s mission, inspiring others to join the cause and contribute to the collective effort against fraud. With this donation, we’re building a community of like-minded individuals and organizations dedicated to creating a world free from the devastating effects of fraud like Kohn’s victims experienced.

The ACFE Foundation extends its heartfelt thanks to Christopher Linscott for this contribution. Support like this makes us better positioned to have a meaningful impact on the lives of the many people affected by fraud. Together, we’re forging a path towards a future where integrity triumphs over deceit, and the global community stands united against fraud.

Jala Attia, CFE, is president and founder of Integrity Advantage and chair of the ACFE Foundation. Contact her at jattia@integrityadvantage.com.

Mandy Moody, CFE, is vice president of communications for the ACFE. Contact her at mmoody@ACFE.com.

Jennifer Liebman, CFE, is editor-in-chief of Fraud Magazine. Contact her at jliebman@ACFE.com.

This article was updated from the original print version on May 3, 2024.