Bruce Friedman will never be as notorious as Bernard Madoff, but federal authorities discovered that for several years he held the same line of work: scamming people out of their life savings. Friedman was accused by the SEC of stealing millions of dollars from investors through his Sherman Oaks firm, Diversified Holdings. Many of Friedman's victims, like Madoff's, are elderly and will probably never recoup their retirement savings. The court-appointed receiver is still determining how much Friedman has made off with, but it's easily more than $40 million. Friedman is the subject of my June piece in Los Angeles magazine. A few snippets:
Hundreds of people got hit, mostly from Southern California, Michigan, Ohio, Florida, Texas, and Arkansas. What infuriates many of the investors is that Friedman will not go to trial on the charges. The SEC has settled with him--all that's left is calculating how much money he'll be able to return and negotiating a civil penalty. Criminal charges remain a possibility--the FBI and Justice Department have been conducting interviews--though a higher threshold of proof would be required than for the SEC's civil case.
Ponzi schemes are almost always about lies and omissions--one layered on top of another. For Friedman, who declined to be interviewed, it started with describing Diversified Lending in sales literature as a "boutique mortgage banking firm with more than 80 years' experience" (the firm opened in 2004). Promissory notes offering annual returns of 9 or 12 percent were guaranteed by Diversified (you can't guarantee something without providing adequate collateral, which Friedman didn't do). A network of insurance agents sold Diversified notes to investors (the agents weren't registered to sell securities). The firm's auditor was listed as the American Accounting Association (which is actually a research organization that doesn't audit companies).
He spent millions of dollars in other people's money on a Malibu home, a Bentley and hundreds of thousands of dollars worth of jewelry, de rigueur for any con man. But there was another less obvious side - that of a budding philanthropist.
A year or two into his run at Diversified he started his own charitable foundation, which, according to its Web site, "encourages youths to attain higher levels of education and use that increased knowledge to advance a greater understanding and desire to improve the society in which they live." His first big donation was the $1 million he and his wife, Wendy, gave to construct a park in Calabasas for special-needs children. The park had been the inspiration of his sister-in-law, the mother of a disabled youngster. "I said 'I need a million dollars' really flippantly, like it was 50 cents, and he said 'OK.' I was shocked," Dina Kaplan told The Jewish Journal in 2006. For their gift the Friedmans' names were engraved on the Wall of Honor at Calabasas City Hall.
By the way, Friedman had a criminal record. In 1981, he was convicted of grand theft and served 23 months in prison for stealing $300,000 from Avery International. None of which was hidden; it's just that no one had any reason to ask questions because up until the end, they were still making money.