INDIANAPOLIS — A Pendleton financial advisor who allegedly recommended and sold more than $13 million in risky securities may not have known that the recommended investments were part of a massive criminal scam, according to documents filed in the federal case.
The note comes amid a fraud case initiated by the U.S. Securities and Exchange Commission against Tamara Steele, a former middle school teacher who became a respected adviser, and Steele Financial Inc. in Pendleton.
In September 2018, the SEC alleged that Steele and her firm fraudulently recommended and sold the risky securities with Behavioral Recognition Systems (BRS) in Houston, Texas. The case is ongoing in federal court for the southern Indiana district.
But recent documents give a clearer picture of the investment troubles.
BRS was founded in 2005 by entrepreneur Ray Davis, based on an artificial intelligence technology designed to analyze video surveillance data and detect suspicious behavior.
At first, BRS was considered a promising startup, but began using shell companies to cover losses.
By December 2017, the SEC filed a complaint against BRS, Davis and others alleging they solicited more than $28 million from hundreds of investors while Davis diverted millions from the company for his own use.
The SEC said Davis used diverted funds for, among other things, purchases from an art gallery in Boca Raton, Florida, and personal purchases of ancient jewelry, gold and artifacts, including gold pendants, gold crosses and pearl bracelets.
Davis created a fake entity called "LS Farrow," and on at least three occasions submitted invoices to BRS that falsely claimed “LS Farrow" provided financial services from Victoria, Australia. But no such entity existed. The Victoria, Australia, address Davis used on the invoices was the address for a cemetery in that country where a person named LS Farrow is interred, the SEC said.
In Indiana, one of Steele's investors told her of the startup in 2010. The Steele family invested $4 million in BRS, and she introduced the firm to clients.
However, Steele allegedly failed to tell her clients that BRS had agreed to pay commissions ranging from 8% to 18%. The SEC alleges that approximately $15 million in BRS securities were sold to 165 clients including $13 million to 127 of Steele’s advisory clients.
Clients included other teachers and public school employees.
Documents recently filed in Indianapolis state read, “Unbeknownst to Ms. Steele, Mr. Davis and others were engaged in a massive criminal scheme, diverting millions of dollars from the company for their own personal interests. In December 2017, the SEC filed a complaint against BRS, Davis, and others in the Southern District of Texas alleging that the defendants solicited over $28 million from hundreds of investors through repeated lies."
Mark Maddox, an investment attorney representing multiple clients of Steele, said Wednesday that he didn't think she was aware of the shenanigans that Davis was involved in.
"At some point Tammy (Steele) had to be aware that some of what she was telling people wasn't true," he said.
Maddox said it was required that Steele tell her clients that she was paying a commission ranging from 10% to 20%.
"It was important for the clients to know that," he said.
Filed documents also state, "It is undisputed that Ms. Steele was never involved in or knew about the fraudulent criminal conduct. It is also undisputed that she and her family remain some of the biggest victims, suffering staggering losses that continue to mount. Ms. Steele denies that she knowingly or intentionally violated federal law. Despite the fact that the SEC filed this lawsuit, most of her clients have continued to trust and use Ms. Steele as their investment advisor."