Ex-Business Partner, Victims Testify In $9M Fraud Case
A co-founder of Cavalier Union Investments tried explaining to a federal jury in testimony this week how the company defrauded dozens of people out of $9 million and got away with it for years.
According to Sherman Carl Vaughn Jr., the firm he created with Merrill Robertson Jr., a former football player at the University of Virginia, operated on lies that often led to the emptied retirement accounts of investors - accounts that were targeted, says Vaughn, because that was where the money was.
Fleeced investors testified this week that they trusted Robertson, formerly with Merrill Lynch, a man who painted himself as devoutly religious and who used his connections at U.Va., Fork Union Military Academy, the NFL and elsewhere to win investments.
Alleged victims appearing Wednesday included Robertson's former basketball coach at L.C. Bird High School, a retired machine operator who knew Robertson through church, and a Chesterfield County man who lost his house after losing his savings - which evidence shows Robertson used, in part, to make his own mortgage payment.
Robertson, 37, of Chesterfield, and Vaughn, 46, of Blackstone, formed the company in early 2010, although they began working together earlier. Robertson is on trial for charges of conspiracy, mail fraud, wire fraud, bank fraud and money laundering. Vaughn pleaded guilty to related charges last year.
An agent with the Internal Revenue Service testified Wednesday that from 2008 to 2016, the two took in $10,490,000 from investors, paid $1,490,000 back to some of them and still owe $8,952,000.
"How much money is left?," Katherine Lee Martin, an assistant U.S. attorney, asked Vaughn.
"Zero," he said.
Aside from paying back some investors with funds from newer ones, the government alleges Vaughn and Robertson spent the money on things like living expenses, tuition, a country club, vacations, a massage parlor, department stores and checks to Vaughn's girlfriends.
Vaughn testified Tuesday and Wednesday as a key prosecution witness. He faces up to 20 years in prison when sentenced next month but could ultimately get a sentence reduction in exchange for his cooperation with the government.
He testified that he and Robertson conspired to mislead investors and lie about almost everything, from their résumés - which omitted bankruptcies - to assets - which were nonexistent. They also lied about being qualified to accept tax-deferred retirement savings accounts to the promised returns on investments, he said.
Lawyers for Robertson blame Vaughn for the fraud, arguing that he was the mastermind of the scam and manipulated the younger and less experienced Robertson.
Under a cross examination Wednesday by Patrick Hanes, one of Robertson's lawyers, Vaughn admitted lying, among other things, about being a former pro football player. Hanes asked him if he lied to the Security Exchange Commission last year while under oath, "just like the oath you took yesterday."
"Yes, sir," said Vaughn. Vaughn also said he lied to federal investigators - a crime - when he told them last year that, "Merrill is an honest and good guy." He also admitted that for the most part the investments the company pitched were not real.
Carolyn Banks, 70, who retired after 34 years as a machine operator with Philip Morris, testified Wednesday that she knew Robertson and his family through church. She turned over her $151,212 retirement account - of which $30,000 was immediately lost in a "surrender charge" to the former investment company that held it - after Robertson promised to double it in two years.
Del Mace, 69, of Chesterfield, a retired employee of Proctor and Gamble, met Robertson through his son who briefly worked for Cavalier Union. Mace invested his tax-deferred IRA account worth almost $200,000 which he was told would earn 8 to 12 percent, a higher return than it was earning.
However, Mace later needed to withdraw some of the money to meet expenses but kept getting put off. Finally Robertson promised him $20,000 in February 2016, but, testified Mace, "never heard from him since."
He testified that he paid his mortgage that February with a credit card and was able to quickly sell his house. He now rents his residence, he said.
Tommie Sides, a former teacher and coach who now owns his own small business, coached Robertson in basketball at L.C. Bird High School. They lost touch until around 2008 when Robertson was with Merrill Lynch and contacted Sides to see if he would be interested in transferring his and his employees' 401(k) accounts.
Sides said he declined but Robertson contacted him again after he and Vaughn formed Cavalier Union. This time Robertson asked only about Sides' retirement account and said he could offer a guaranteed 10 percent rate of return.
In October 2014 Sides turned over his and his wife's IRA accounts, worth roughly $460,000 to Robertson which Robertson said would earn $45,781 a year for three years. Sides said Robertson in November 2014 returned $140,000 of the money that Sides needed to open a new store.
Then in September 2015, Sides invested another $50,000 that Robertson said he would double in three months. Soon after that, Sides said he was called by the SEC asking about the investment. Sides said he grew concerned about all his money being held by Cavalier and started asking Robertson questions.
Finally, the two met at a Starbucks in Chester. "I just point-blank asked him if he had been lying to me."
"He answered, 'No.' He reassured me he was telling the truth, but I could tell he wasn't," said Sides.
His voice breaking, Sides testified, "I met Merrill when he was in the ninth grade. A nice kid and he's still a nice kid. ... To me, he's just a kid and that's what is so hard about this."
Sides said that he would never have guessed Robertson would do something like that to anyone. "He was an outstanding young man when he was trying out for basketball," he said.
"Mr. Sides, did you invest in Merrill?" asked Martin.
"Very much so," he said.
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