By Edward Snook
Investigative Reporter
Also Contributing:
R. S. Errol
Investigative Reporter
Editor’s note: This is the second in a series of articles about multi-million-dollar scams perpetrated by numerous individuals. This is the story of just one of hundreds of victims.
Sunnyvale, CA – Back in 1988, LeRoy E. Fritts, aka Roy Fritts, and Roderick A. Prescott, aka Rick Prescott, revived a business called National Trust Services — NTS. They invited business owners and wealthy individuals to a free, one-hour seminar, enticing them with, “We will show you how the elites like the Rockefellers and certain politicians use complex trusts (blind trusts) and charitable foundations to run their lives, gain wealth, and you can do the same. Sovereignty to the People!”
In Gary Allen’s landmark book, “Rockefeller File,” the author stated: “All trusts are not equal. Only a handful of attorneys in the country know how to establish the type of trusts the Rockefellers have. These specialized trusts are most emphatically not the sort your friendly local solicitor can create for you. They not only can eliminate probate, cut inheritance taxes, and reduce income taxes; unlike corporations, they can achieve almost total privacy…With a little effort, taxes disappear.” Think back to Nelson Rockefeller’s confirmation hearing in 1974, when he announced the fact that he did not pay any income tax. Why can’t we all be like Nelson? Maybe the elitists want to keep their methods private and maintain class superiority, or is it that ordinary citizens simply lack the necessary money, influence, and power to achieve this standard of living? The NTS information was intriguing to those who wanted to move up the economic ladder and seemed to provide a legal path to upward mobility.
Tuition, or “educational endowment,” for this program was $9,500 in cash for a two-and-a-half-day workshop under the tutelage of Fritts and Prescott. Newcomers were “educated” in the art of contracts related to the formation of Business Trusts in which to hold their businesses, as opposed to standard vehicles like corporations or sole proprietorships. Additionally, the seminars initially provided detailed instruction regarding how to complete the IRS tax return Form 1041, incorporating the Trust Indenture, minutes, and resolutions. As a result of this training, some clients felt confident enough to complete their own tax returns all the while living their lives in trust. Scores of successful and intelligent businesspeople were unknowingly duped by Leroy Fritts and Rick Prescott through their lies, deceptions, and Fritts’ near-hypnotic abilities.
One person who bought into the program was Samuel S. Fung, a well-educated ex-chemical engineer turned commercial real estate expert. Fung achieved the professional status of Certified Commercial Investment Member (CCIM), thereby being recognized as an expert in commercial real estate—a rarity in his profession—in 1989.
NTS, through its charismatic spokesperson Roy Fritts, purported that its complex trusts limited liabilities and reduced the risk of lawsuits. Fritts often told anecdotal stories to his audience not only to impress them but, more so, to underhandedly mislead them into a mental state of acceptance, so that he and Prescott could then easily empty the clients’ bank accounts. Fritts stated that the Kennedy family’s attorney told him that between the time that Mary Jo Kopechne died and before the Chappaquiddick accident was reported, valuable assets were drained from the Trust in which the car was held in an effort to avoid an attachment of assets. Fritts went on to claim that Dianne Feinstein consulted him about trusts while she was mayor of San Francisco, and that he discovered how Feinstein and her spouse, Richard Blum, used business trusts to obtain many lucrative construction jobs, with change orders signed by Mayor Feinstein. This alleged activity may have created an estimated net worth of at least $38 million, as reported in their 1992 and 1993 financial disclosure forms. Included in NTS’ extensive client base was the super-wealthy Bogdanovich family, holders of Star-Kist Foods and the Heinz Ketchup brand. Following a workshop attended by Bogdanovich, it is reported that he offered to buy out NTS so the program would no longer be available to the masses. It should be noted that the Bogdanovichs reportedly had their Washington, D.C. attorneys and CPA’s validate the Trust programs before they made their offer. Their offer was subsequently rejected. In a recent interview, Fung stated, “If I had any reservations about NTS, they disappeared when I witnessed the Bogdanovich offer. I was even more interested in the program knowing that high-powered attorney’s and CPA’s had validated NTS.”
In the early 90’s IRS Agent Dennis S. Brown was assigned to investigate NTS. In 1993, Brown led a raid on NTS headquarters, located at a Sunnyvale, CA house belonging to the parents of Rick Prescott. Fritts was living there at the time and used part of the home as an office for NTS. The IRS seized computers and other materials, which were reportedly later returned to NTS. This further validated NTS activities for Sam Fung, as any prudent person would believe that if the government returned “suspect evidence,” it must be condoning (legalizing) the activity.
Later, Fritts and Prescott contacted Sam Fung, who was then an established Bay Area commercial realtor, to find new office space for NTS. While performing this task, Fung realized that by networking with his new clients, he could solicit the NTS client base for commercial real estate leads. Fung attended as many workshops as his schedule allowed to build real estate contacts.
NTS’ cult-like culture
Fritts and Prescott instructed their members/clients to refer their friends to the program and bestowed upon them the title of “Trust Counselor.” Trust Counselors were compensated for their referrals with commissions or a “referral fee.” NTS also advocated that a Trust Counselor could or should become an agent—Trustee—of their referred clients’ trusts, performing duties and receiving further compensation from these trusts. According to many, Fritts had an almost hypnotic aura. One client stated, “We all felt unbelievably elevated when Roy was with us. In retrospect, I can certainly understand how people are lured into cults.
In 1995, NTS formed Fountainhead Global Trust (FGT), an investment trust exclusively for NTS clients that offered huge annual returns. Fung also invested in FGT with a minuscule amount of money he was able to accumulate. One of FGT’s phony investment vehicles was Cash for Title (C4T), a chain of car-title-loan pawn shops located in the southern United States. Fritts later claimed he was the silent owner of C4T and took credit for over 300 million dollars that were collected through the program. Investors were told their dollars were funding C4T, when in reality the vast majority of the money was being deposited into private offshore bank accounts. C4T was exposed and charged with operating a Ponzi scheme in 1999: SEC v. Homa Gause et al., case number 99CV06895. Much of the funds raised was eventually deposited with the Bank of Bermuda, and this bank reportedly settled related money laundering charges for about $80 million by returning a fraction of the money to investors, while the Securities and Exchange Commission (SEC) stated that the seizure was only a few hundred thousand dollars. What became of the remainder of the mega-millions? The missing money fueled the rumor mill regarding Fritts’ half-a-million-dollar Country Coach RV; Karla Prescott’s shopping sprees to Rodeo Drive in Beverly Hills, where she purchased clothing costing thousands of dollars, and the jewel of their empire, the Deer Creek Ranch in Selma, Oregon, purchased with the embezzled funds of their loyal followers. Charles Homa and Michael Gause lived extremely lavish lifestyles off of C4T funds. Ultimately, these two, along with several others, were charged, prosecuted, and sent to prison.
Fung, like most NTS clients, was invited to attend investment seminars held in the Cayman Islands. Here, Fung realized that the total FGT funds were beyond imagination, and this revelation led to his failed attempts to convince the FGT Board to allocate funds for commercial real estate investment through his business.
In an effort to find NTS’s money, IRS Agent Dennis Brown from N. Highland, CA, issued summons letters in 2000 to Fung demanding his bank records. Due to faulty “legal” advice, Fung sued Brown in U.S. District Court case number C-01-4947-MHP in San Francisco, attempting to stop the summons. Fung thought this was the correct course of action, since he had little to do with NTS operations and no NTS money, hidden or otherwise. Assistant United States Attorney (AUSA) Thomas Moore defended Brown and won a judgment in Brown’s favor. In accordance with Fung’s attested affidavit dated 9/26/05, “while walking out of the courtroom with a smiling Brown at his side, Moore screamed at me, “Fung, I am going to get you! I am going to get all you NTS people!” Fung was astonished at Moore’s overt and unprofessional display of contempt and vitriol. It is obvious from Brown’s actions that he bought into the false allegations that the Prescotts and/or others leveled at Fung. In other words, Agent Brown was sent on a “wild goose chase” by sophisticated criminals.
The Prescott’s and Fritts fight
at Deer Creek Ranch in 1999
After much infighting over control of embezzled funds in 1999, Rick Prescott, along with his spouse Karla and some of their cohorts, absconded with investors’ money and headed to sunny San Diego with the intent of starting a “new NTS”: Trust Educational Services (TES). In an effort to kick-start the new fraudulent endeavor, they charged clients $15,500 for their workshop. Roy Fritts, the odd man out, was left high and dry. Or was he…?
Karla and Rick Prescott with Pat Fritts
A friend of Fritts’ contacted Fung and stressed his opinion that Fung should move to the Deer Creek Ranch in Oregon to assist Fritts because he had visited the Selma location numerous times and was familiar with NTS structures. Fung rejected the request out of consideration for his wife and their infant triplets. Coincidentally, Jackie Edlefsen from Wasco, Oregon, contacted Fung to discuss Fritts’ supposed dire situation, but Fung successfully convinced Edlefsen that she should be the one to go to Selma and help Fritts. In 2000, Edlefsen and Fritts finally enticed Fung to leave San Jose and move to Oregon to work for them. Soon after Fung matriculates north, he discovers that Edlefsen and Fritts had formed Hope Life Foundation (HLF) as a mirror image of NTS, whereby they excluded Fung from all but the fringe operations.
Subsequently, Fung’s acquaintance Eric Aaron Lighter, a real estate developer from Hawaii, came to visit in June, intending to meet Fritts. Fritts invited them to his home office in Merced, CA, and during this meeting, Fritts allegedly bragged that Linda Gause (ex-spouse of Mike Gause, manager of C4T) had asked him to handle approximately $100 million. Apparently, the SEC, through negligence, inability, or international legal restrictions, failed to seize these funds. Fritts further stated that he could not spend the cache of money until a ten-year period had elapsed, in obvious awareness of the ten-year statute of limitations for this type of criminal activity. Fritts then reportedly and accidentally discovered that Edlefsen had attempted to relieve him of some of the funds by requesting wire transfers from an offshore source to her personal bank account. Honor among thieves?
Now living in Oregon, Fung frequently commuted to his San Jose, CA office in order to tend to his commercial real estate business. In 2002, he commenced an additional commercial real estate practice in southern Oregon. In December, the U.S. government sued Fung for a permanent injunction related to Fung’s assistance to people with their tax returns using his legally purchased software (case number: 1:03-CW-3123), while Fung was associated with an established commercial real estate firm in Medford, OR. Fung settled without admitting any wrongdoing. In March of 2005, the U.S. Attorney forwarded the final document to be completed by Fung, which required Fung to disclose his clients.
During this time one of NTS’ clients, prominent psychiatrist Irwin Gootnick, (author of “Why You Behave in Ways You Hate And What You Can Do About It” and a featured guest on the Oprah show) nominated Fung to be a trustee of Gootnick’s trusts. According to Fung, Gootnick frequently called him while he served in this capacity, stressing the possibility of IRS audits. As Fung grew suspicious and questioned Gootnick’s possible dishonesty, Gootnick reportedly informed Fung that he was retaining a high-powered law firm in San Francisco. According to Fung Gootnick, during one conversation he had, he underreported a large amount of income. At this juncture, Fung ended his relationship with Gootnick. Fung then blew the whistle on Gootnick in the aforementioned AUSA document request of Fung’s clients in accordance with Title 18 USC on or about April 27, which requires anyone with knowledge of a crime to report said crime to the proper authorities. However, many times when reporting crimes against protected individuals, the report gets lost in a three-card monte.
The U.S. government eventually sued Roderick Prescott and TES in case number 02-CV-0692-L. During this lawsuit, Prescott made false statements against Fung in an apparent attempt to deflect his personal liability by implicating an innocent individual. These statements proved damaging as Fung was arrested along with Fritts and Prescott on August 3. The grand jury indictment dated April 12, case number 5:05-cr-00215-JW, stated that Fung had knowledge of and aided and assisted in the preparation of false tax returns for a dozen NTS clients. However, Fung, like hundreds of other victims, was instructed by Fritts and Prescott in what he thought was the correct and legal procedure for preparing tax forms.
The question begging an answer is why Fung is being charged instead of at least two CPAs who actually did most of the NTS clients’ tax returns? Additionally, why aren’t the other NTS clients, specifically those whom Fung assisted, being charged criminally if they filed false tax returns with or without Fung’s assistance? Note that the clients provided Fung with their financial data, and he merely entered the figures into his computer tax program, which calculated the taxes owed. Selective and malicious prosecution comes to mind when pondering these questions. Perhaps the tax returns weren’t false, but it made Fung a convenient target for government retaliation.
Later, when Fung discovered that his defense attorney was not acting in his best interest, Fung filed documents alleging prosecutorial misconduct. His attorney resigned immediately. At that time, Fung learned that the new prosecuting attorney was none other than AUSA Thomas Moore, who had publicly threatened him years earlier, according to Fung’s sworn affidavit.
Finding himself in the crosshairs of a seemingly vindictive AUSA and IRS agent, Fung is searching for answers to more questions. Why did the government not take into consideration Prescott’s motives for implicating Fung? Was this indictment payback for Fung’s lawsuit against Brown in light of Moore’s expressed blatant unprofessional conduct? Then again, why did Agent Brown wait more than a decade to bring these charges, while doing nothing to shut down NTS as millions were swindled from investors? Remember, Brown initially raided NTS in 1993, eventually returning all the records to NTS without referring them to prosecutors. This act once again confirmed NTS’s legal status to Fung.
Emily J. Kingston resigned as an AUSA shortly after being named Fung’s original prosecutor and joined the private practice law firm of Sideman and Bancroft, LLP, located in San Francisco. The Observer discovered that this is the same so-called high-powered law firm that Irwin Gootnick retained after his relationship with Fung ended. Coincidence, or is this a blatant conflict of interest? Upon reflection, could this overwhelming conflict be the reason Gootnick hasn’t been indicted for alleged tax evasion and money laundering, or is it just another example of the three-card monte?
Note well that in the U.S. Bankruptcy Court, Hawaii, case number: 05-50023 and Adv. Pro. number 06-90001, Dr. Wing C. Ng, an attorney and CPA stated: “Gootnick continued to hide taxable income, by, among other things, failing to report same…The income generated and being ‘hidden’ or ‘laundered,’ and in spite of Mr. Prince’s legal advice, the Gootnicks continued with the NTS tax scam for more than two years, which may arguably demonstrate their criminal intent to evade taxes.” Dr. NG continued, “In my professional opinion as a tax practitioner for twenty-eight years, I have not seen such brazen behavior on the part of a taxpayer to cheat the United States and the States of Revenue. It is just ridiculous.” Ng seems to have discovered the very alleged conduct that caused Fung to become suspicious of the Gootnicks.
Shouldn’t a reasonable person think that Moore, purporting to be an ethical person, would recuse himself from this case due to his past threats against Fung? In addition, there may be a transparent protective barrier in the above-mentioned law firm, as Gootnick’s attorney, Richard Nelson, is a former AUSA in the Northern District of California. Could this also have some bearing on why Gootnick and his wife have never been charged with any crime to date?
Margie Paris, a criminal law professor at the University of Oregon, stated: “There’s this old saying that a grand jury would indict a ham sandwich if the prosecutor wanted them to. When the grand jury declines to indict, it’s really because the prosecutor doesn’t want them to.” How true!
Is wrongfully charging and harassing an innocent man like Sam Fung an outrageous act of malicious prosecution? It is general knowledge that during the years Fung has lived in Oregon, he has been an active, contributing citizen of his community, volunteering and serving as a director of a local non-profit organization, which has greatly benefited the community. He’s a dedicated husband and a responsible father to his young children. It is our firm belief and strong contention that Sam Fung is an honest and upright person who believed he was acting both ethically and legally in everything he did. The Observer has obtained letters from Fung to clients alleging dishonesty on their tax returns. If Fung had any intent to do wrong, he certainly would not have addressed suspected wrongdoing. Scam artists/crooks don’t confront wrongdoing; they go along to get along in an effort to make more money. And, let’s not forget Fung’s suspicions of Gootnick’s alleged dishonesty. Apparently, Fung’s suspicions and questions led Gootnick to seek protection from a law firm employing former AUSAs who undoubtedly still have close ties to the United States Attorney’s Office in San Francisco.
Fung’s story is convoluted, with dark tones and shady characters who frequently seem to shift from one side of ethical conduct to the other. Sam Fung was victimized first by people he trusted; now he’s being victimized by the “legal system” in which money and power figure prominently. In retrospect, the missing money seems to have been relegated to last place, while Fung gets framed to look like a mafia don. As they say down at the hall, “good enough for government work.”
Our runaway criminal justice system needs our full attention, and we desperately need to restore honesty and accountability to our “halls of justice”; however, it remains to be seen whether this can be accomplished in our lifetime. The U.S. Attorney’s Office in San Francisco seems to have forgotten that a person cannot be a victim and a perpetrator simultaneously. Sam Fung invested thousands of dollars over the years in NTS and FGT, and why would any prudent person with integrity invest his hard-earned money in a scam if he knows it to be a scam? Leroy Fritts and the Prescotts stole Fung’s money just as they stole millions from hundreds of other highly capable, yet deceived, individuals and businesses.
This story is not unlike the case we reported about in May, regarding Tedd Peck, a recipient of the Purple Heart in Viet Nam while serving as a Swift Boat officer. Peck, like Fung, was maliciously prosecuted by AUSA Thomas Moore. Peck was the victim of a fraudulent scam, but Moore attempted to prosecute him based on perjured testimony before a Grand Jury by Karyn Fazio, the investigating IRS-CID agent. In this convoluted case, Peck’s tax preparer was never indicted or questioned by the testifying IRS-CID agent. In addition, he was never audited or given a chance to rectify his returns. Our investigation into both cases is still ongoing, and the full truth will be revealed. It should be noted that while we publicly indict Thomas Moore for false prosecutions, it is not up to him but rather to his boss, United States Attorney Kevin Ryan, to decide who to prosecute. And many times, even Ryan is directed from up above (Washington, D.C.) on whom he should attack. The bottom line is: The United States Attorney dropped seven major felony tax charges (the result of public pressure from the US~Observer) against Captain Tedd Peck because he was a victim, not a perpetrator. They need to do likewise with Sam Fung, for the very same reason…
At the very least, the US~Observer promises that all those involved in the factually false prosecution of Sam Fung will find their names well known in hundreds of thousands of households across America and right at the top of Google’s and Yahoo’s search engines before this tragic story ends.
Editors’ Note: As our investigation widens, it is becoming vividly clear that the major criminals in the Deer Creek Ranch/NTS/FGT debacle are none other than Rick and Karla Prescott. Karla Prescott has escaped being charged to date, despite overwhelming evidence of her guilt. Karla Prescott greatly profited from embezzled funds over the years, and she continues to profit with the help of individuals in the legal community. We are committed to exposing and ultimately ending her crime spree. The US~Observer would prompt anyone with knowledge of the events and/or individuals involved in this article to contact Edward Snook at:
541-474-7885.
