January 30, 2024 • 27 mins
Welcome to the latest episode of Tax Crime Junkies, where we take a deep dive into the infamous South Lane Enterprise scandal. Join this exhilarating journey as hosts Dom and Tom chat with special guest, certified fraud examiner Richard Bailey about the ins and outs of famously exposing a staggering $350 million fraud.
A phone call in the summer of 2013 marked the beginning of the riveting tale woven with greed, fraud, and the spectacular downfall of South Lane Enterprise. Bailey narrates the thrilling saga of uncovering $1.2 million in mysterious funds, signing stock certificates under severe distress, punctuated by a chilling atmosphere of constant danger and threats.
Witness the collapse of a meticulously built empire when the company's insurance sellers start demanding their cut. When co-founder Alexander Chatfield Burns absconds, he leaves behind a chaotic frenzy of legal troubles and a shaken minority partner struggling to salvage what's left.
Despite Burns' attempt to start afresh in Charleston, South Carolina, the Wall Street Journal discovers his past. Striving to escape his past, Burns leaves Bailey grappling with significant personal financial liability and the race to prevent the winery from going under. The episode concludes with Bailey’s dramatic decision to reveal the truth to the authorities, setting in motion the final act of the South Lane odyssey.
In the heart of Pirate Cove, Bailey exposes the fascinating, yet horrifying tale of a 28-year-old’s incredible $350 million Securities Portfolio fraud. Discover the captivating chronicles of duplicity, audacious discoveries, and the severe repercussions in the high-stakes world of finance. Tune in to Tax Crime Junkies as Bailey guides you through the anatomy of this formidable white-collar crime: a plot that will keep you at the edge of your seat until the very end.
You can purchase Richard's exciting new book at amazon: https://www.amazon.com/Pirate-Cove-Insiders-Infamous-Southport/dp/1610886127
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to Tax Crime Junkies, the one-of-a-kind true crime podcast where the
fascination with taxes meets the world of crime.
Expert duo Dom and Tom combine their extensive tax knowledge with their love
for unraveling crime stories.
It's a deep dive into the most captivating tax-related crimes.
(00:20):
We'll explore shocking cases of embezzlement, fraud, money laundering,
and more. We'll speak to experts, lawyers, and yes, even to the criminals themselves.
But it's not just about the thrill of the crime. We're here to educate you on
the importance of tax compliance, helping you steer clear of the IRS's watchful eye.
(00:41):
Thanks for joining us on Tax Crime Junkies. Now, let the story begin.
Ever wonder what a major corporate fraud looks like from the inside?
Side, Pirate's Cove is a galloping crash course in how to spot one.
Brought in to salvage part of the notorious South Lane Enterprise,
(01:04):
Richard Bailey infuses a personal dimension into what otherwise might be an
all-too-familiar smartest boys-in-the-room tale.
Not everyone can expose a $350 million fraud, but certified fraud examiner Richard
Bailey not only did that,
(01:25):
but he tells us about how, yes, an accountant can go undercover because he did.
And he writes about it in a highly relatable, compelling, and enlightening way.
And we have him back on on today's show to wrap up the tale of the Southport Lane scandal.
(01:45):
We'll talk about red flags and oversight, Richard's personal experience with
uncovering and dealing with the ramifications of the scandal and the aftermath
and all its legal consequences.
Don't miss part two of our our continuing saga unraveling a financial prodigy's web of deceit.
(02:13):
In the summer of 2013.
I get a FedEx package and I get a call from Alexander Chatfield Burns,
Jimmy Neutron's assistant.
All right. And I am told that I need to sign the stock certificates and then
put them in the accompanying overnight mail so that you overnight them back today.
(02:37):
It's owning the winery, the winery business or which stock certificates were
these? Well, they created a preferred stock, which did not exist in the capital
structure of the winery companies.
All right. We're probably scamming
and doing another deal using the winery overinflated value. value.
Right. And I'm sitting there going, well, because I had gone through and I had
(03:01):
identified about in the short period of time that they owned it at that point
between February of 2013 and,
August of 2013, I had identified about $1.2 million worth of funds that Southport
had slushed through the winery.
And I'm keep going, what is this? What was this for? What was that for?
A quarter million came in one day, it goes out the side door the next day.
(03:24):
I mean, tell me what what this was about. And so with the preferred stock,
they told me that that was going to be the amount of money that they've put
in post-transaction, post-acquiring the company.
So that $1.2 million, and that it's a preferred stock in the name of Redwood
Insurance, which is one of their insurance companies, and sign it and send it
(03:48):
back. And I'm like, ah, you know.
So I called Jeff. I go, Jeff, what's this? He goes, yeah, that's just the way
they're going got to paper it because there's so much money,
there's no paper trail behind it.
And these guys were absolutely horrid at paper trails.
And that's one of the things that was one of the things that first got me,
just another thing that got me suspicious is they had two lawyers working there
(04:08):
and the paper trail was non-existent on so many transactions.
So I reluctantly set them because, okay, it's for 1.2 million.
I've identified the 1.2 million. They're going to the insurance company,
which is where the money purportedly came from, the $1.2 million.
Okay, so we'll do this. We're just going to have to paper it right the next time I go see these guys.
(04:33):
So I did. You were an officer of the company by this point. I'm the issuer of the securities.
Wow. Wow. Okay. So you are taking responsibility now. I am totally on the line.
The minute I signed that stock certificate.
So we sit there, we do that. I sent it back to him.
And as I say in the book, it was a Friday, took my wife down to some restaurant,
(04:56):
a restaurant that we love on the harbor here in the town we live in.
I'm sitting there, I've got a martini in front of me. I was saying to myself,
I just made a big mistake doing that.
There was just too many unanswered questions. I shouldn't have done it,
but, you know, I was pressured. And, you know, at that point,
I'm starting to get angry.
Right. So tell us a little bit about ultimately how the company fell.
(05:19):
How did it eventually get all of this exposed and lead to the death?
Because it's a house of cards. Right. It's a total house of cards.
It's a total house of cards. All of a sudden, people started wanting to start
making good on the securities that they had printed up a year earlier,
two years earlier. The whole periods were coming off.
That includes stock certificates in the company that you're now running and
(05:45):
trying to improve the value and make profitable.
Correct. All right. But that was in the name of an insurance company,
and they were the majority owners of the insurance company.
So I felt somehow that that was a little bit of a protection.
Protection, there was no litigation involved there.
But the sellers of the previous, of the other insurance companies were, where's our money?
(06:06):
And so the other insurance companies were starting to get, the sellers of the
insurance companies were starting to get hostile.
And I was literally sitting in the conference room at Southport Lane with Alex
Burns, and he's completely, I'm sitting
there giving him an update on the vineyard. This is January of 2014.
I'm giving him an update on in the vineyard and I'm sitting there going,
(06:26):
listen, you want to do this, this, this. This is going to require another quarter
million dollar investment.
It's got to be done by this time. We can parcel it out over these period of
months and I'll make the cashflow because winter in a vineyard in Wall Island,
New York, the business is pretty much gone.
There's no retail business. Right. What are you doing during that time?
Yeah. You're trying to survive. It's a seasonal business. And so,
(06:47):
you know, I'm sitting there and I can't get his attention. He's just staring into his phone.
And, you know, excuse the language, and he looks down, he's looking at his phone,
and he goes, oh, fuck, oh, fuck, oh, fuck.
You know, at that point, I kind of, I don't know, he was the age of one of my
kids, you know, he felt like he was the age of my kids.
And he sits there, and I go, you okay?
(07:08):
What's the matter? He goes, I hate my insurance companies.
And next thing you got up, walked out of the conference room,
went to the elevators, got in the elevators, went down, nobody saw him again.
Those were the last words he then gave? That's it.
He just disappeared after that. Checked himself into Bellevue Psychiatric Ward,
(07:29):
telling people he had a nervous breakdown.
House of Cards was falling. I would too. Yeah.
Well, it's falling right on him and he knows he can't finagle his way out of
it. He can't deal his way out of it. He can't BS his way out.
All right. Wow. I'm having a nervous breakdown just hearing the story and imagining
what do you even do when the game's up?
(07:49):
Well, he checked into Bellevue for a day. He told his girlfriend that he was
in there. He was having a nervous breakdown.
He apparently signed a separation agreement within the next couple of days from
Southport, the essence of which was, I'll give you all the stock in Southport,
my ownership position, which at that point was like 80%.
(08:11):
If you don't sue me. And he took responsibility for some of the oddball transactions
that were going on and left some sort of affidavit. I don't know. I've never seen it.
But in that separation document, it lists yours truly, Richard E.
Bailey, as the person who is going to collect all of Alex's personal possessions
(08:31):
out of the 8,000 square foot vineyard house.
Because he was kind of using the vineyard house as a weekend getaway. Oh, yeah.
You know, and so, you know, I did that and I had to clean everything out.
And his Porsche with the license plates reinsure, you know. Oh, wow.
Okay. For Porsche enthusiasts out there, it was an automatic Porsche. It wasn't a stick shift.
(08:55):
There's something fundamentally wrong about that. Was it an SUV? It was a 911.
But yeah, so he just left. He just disappeared.
So he resigns from the company, but he's the founder of the company. Right.
So all of a sudden, Andrew Scheer, his partner, a minority partner,
suddenly owns everything.
And including the troubles, the legal troubles. All of them.
(09:18):
His hands weren't exactly clean. And, you know, as we're recording this, he is still in prison.
But there was at that point, everything just came to an absolute fault. caused.
But right around that time, see, I had already started digging in because earlier
in another meeting, Burns told a friend of mine, not affiliated with the Southport
(09:41):
Lane, although Jeff Leach and I were in the meeting, we talk about this occasionally,
my friend who is a true private equity person, one of the smartest people and
most ethical people I've ever met, sits there and says, Alex,
how'd you get control of all these insurance companies?
And Alex turns around, and this is one of those never forget moments,
spins around on his heel,
(10:03):
Cheshire Cat grin, stares at us and says, Jesus with a telescope on Mars couldn't
figure out how I did this. Wow.
Arrogant a bit much? Yeah, seriously. Right. But for me, that's like waving
the red flag in front of the bull. I got to fight out.
I got to. Right. No, I've got the needle in my arm. I've got to figure this
(10:26):
out. You took it as a personal dare.
Oh, without question. Without question. Did I ever buy a BS9 like that? Without question.
Wow. So he resigned. His partners kind of left holding the bag.
What happened to Burns's personal and professional life? How is he affected
if he's completely separated from the company?
(10:47):
Did he just go off into the sunset? He went to a month of rehab at a very posh,
she-she place in Connecticut.
He is from Connecticut. He was raised in Westport, Connecticut.
And then the next we hear of him, he has moved to Charleston,
South Carolina, where he's starting it all over again.
(11:08):
And I talked to some of the people in Charleston, South Carolina that he knew.
I said, how did you meet him? So I met him in a card game.
I said, now at this point, Alex is probably 27, 28 years old.
And we asked him what he did. And he said he was a retired hedge fund manager.
(11:28):
Retired. That's it. You know, it's the wrong description. I think he meant trust fund.
Yeah. Well, he didn't have one of those either. I can tell you.
So he just started in all over again down there.
He opened up a distillery. He started getting involved in real estate transactions down there.
And he was at it for about a year and a half down there.
(11:51):
And then the Wall Street Journal articles came out in, let me see,
that would be 2015, February of 2015.
You know, you've been at the winery for a couple of years.
Are you just going to work every day doing your job? No. Well, A, yes.
B, in order to keep the place alive, because remember, Southport was foolish
(12:13):
enough to buy the entire place for cash.
There was no debt on the balance sheet. We still had about $5.5 million worth of AAA assets.
So I borrowed $2 million against them to keep the place alive and to kind of
do a little bit of a revamp of the company and personally guaranteed it,
which I never told my wife for quite some time. Oh, you personally guaranteed it?
(12:36):
Oh, yeah. Wow. But you must have had some faith that you would be able to improve
the performance of the company.
At that point, by that point, I knew where we had to go.
But there was still a risk that regulators could come in and seize the assets
of the insurance companies.
And wouldn't that include Lee Vineyards? It would, yes.
(12:57):
But that's when I went through a private detective by the name of Bo Deedle
in New York, who I was introduced to by a mutual friend.
And they're the ones who confirmed to me that a federal crime had occurred.
And they hooked me up with, interesting side note of those guys,
they called the US Attorney for the Southern District of New York,
(13:19):
who at the time was Preet Bharara. They called his office and said,
we have something we want to refer into you guys.
And Preet Bharara's office waved them off, said not interested.
All right. Oh, wow. Yeah. So then we went to, and we hooked up with a guy who
became one of my closest advisor and is still one of my close friend,
Michael Weinstein from a firm in New Jersey called Cold Shots.
(13:43):
And Michael was a former AUSA out of DC.
It was Michael that got us in front. We were trying to get to the FBI.
We didn't know. We were trying to get to some law enforcement.
One of the things I wanted to find out was, I had Bo Dietl's firm run background
checks on people, and I just said, if law enforcement's involved,
who is it and can we get to them?
(14:04):
Because now I've got first-party information and statements.
I can trace the flow of money. And you understand it, which I think is another key component.
Sometimes law enforcement, they don't have a financial background necessarily. necessarily.
No. So anyway, we were sitting there and you're right. And we were sitting there
and finally, after about, I don't know, Weinstein,
(14:27):
Michael was representing me for about two weeks and I'm sitting there about
to get on the ferry to come home.
So I was in Oreo Point, New York, and Michael was a very calm, measured person.
He talks to you, everything's thought out. I mean, I mean, he's just a solid
first-class criminal defense attorney.
(14:50):
And the phone rings, and Michael just starts, are you sitting down?
You know, oh, my God, I just spoke to the task force. There's a whole task force
I'm watching going over there. This is the SEC, the FBI, the CFTC.
They're all involved in this. I just spoke to the, I mean, he's just,
you know, motor mouth, which is really out of character.
He goes, I just spoke to the lead agent for the FBI, and they want to know if,
(15:13):
you know, and they want to meet you.
And I'm like, well, yeah, great. That's what we've been trying to get to.
And that's when he said, but they have one more question. I'm like, what's that?
You know, they want to know if you'll wear a wire. Well, that'll get your heart
pumping. Yeah, that's exciting, I guess. Never saw that question coming.
No. And so I asked for the weekend to think it over.
(15:35):
And came home, finally told my wife everything that was going on.
Your wife didn't know about this?
Not a lot of it, no. Whoa.
No need to. What's her reaction?
Typical, my wife's reaction. She looked at me and she says, she's a very,
very smart woman who knows me very, very well.
(15:56):
And she said, I can see you've already made up your mind.
She was right. I had. I was going to do it. And she said, I just asked that you be careful.
And I said, I will. And I had no idea what I was getting myself into.
So what was the ultimate result of this investigation?
Well, four indictments, four guilty pleas.
(16:19):
And pretty much they all pled guilty in plea deals, information pleads.
And so there were four plea deals.
One guy went to prison for the Caravaggio federal transaction.
There you go. Seems he got a million dollar commission and never declared it to account his taxes.
Oh. There's the tax crime right there. Oh, yeah.
(16:42):
And I got to tell you something. The IRS criminal investigative division guy
who was part of the task force and was a good guy. I just had a conversation
with him a couple of weeks ago.
He was sitting there and he was just sitting there going, I'm going to get these
guys. He goes, somebody didn't pay taxes. taxes. Of course.
You've got to pay taxes on the commission on a phony counterfeit artwork. Right.
(17:05):
Well, exactly. I mean, the funny thing is if he had paid the taxes,
what would he have done wrong?
He could have been in a representation issue, a fraudulent representation issue
on the validity of the provenance of the Caravaggio, but he didn't rep to that in any of the documents.
Right. At least the taxes that get you in the end. Yeah.
So he was sentenced to 18 months, but he was released after about six during COVID.
(17:30):
And Rob McGraw, who was a nice guy, a good kid, he's the one who made the representation
that the $50 million worth of fake securities were good.
Rob was a brilliant guy, went to NYU.
He had a master's degree in taxation, you know, and he just a brilliant kid
who just didn't know how to say no to these guys, you know?
(17:51):
Yeah. So he was sentenced to 18 months, did about 10.
And Andrew Scheer, who is the one who inherited the empire when Burns left,
was sentenced to 60 months.
And he'll get out in April 24 after about, that will be about two and a half years.
Wow. Of course, Alex Burns was a cooperating witness for several years.
(18:18):
Yes, with the FBI. And now I didn't know this at the time, I found out afterwards.
And when the FBI was basically done with that, as long as Burns had not been
indicted, he was actually indicted in 2019, I think, or 2016.
I forget the exact date, but he
(18:38):
was indicted, but it was under seal in the Southern District of New York.
So no one knew. So no one knew. All right.
And so he served as a corroborating witness throughout that entire time until 2021.
So basically five years, during which time he was pulling all sorts of crazy
stuff in Charleston, South Carolina.
(18:58):
So scamming, and I'm assuming he got an immunity deal.
He's already been charged, but nobody knows it because it's under seal.
I'm sure he did so based on immunity and he's scamming at the same time.
Yeah, I don't know if he got an immunity deal.
My theory is because he was scheduled to be sentenced in, I think it was December 19th of 2021.
(19:20):
He committed suicide at the end of October 2021.
My suspicion is, now, you know, Alex had, you know, Asperger's and a few other things.
And, you know, he was obviously not a stable person. My suspicion is that he
was given, according to the coroner's report, which I have, he committed suicide
after receiving significant negative legal news.
(19:42):
I suspect that negative legal news was he got the Justice Department's pre-sentencing memorandum. Oh.
So he was looking at significant prison time. Well, yeah. If you go to the sentencing
guidelines, you would have been in life.
Right. Because the amount, by this time, is $350 million.
(20:03):
Quite an accomplishment for a 28-year-old. Yeah. Yeah.
So, I mean, that's always been my suspicion of what caused him to commit suicide,
because the timing is just about right.
Right. Wow. What a sad ending to- Yeah, it is. It is.
I mean, even some of the guys, Jeff Leach and some of the other guys who worked
at Southport, we were all sad to hear that he did that. This sounds weird.
(20:28):
He was kind of likable in a certain way. I mean, there was nothing.
Yeah, he could be an obnoxious, arrogant little twerp, but there was nothing
mean or vindictive about him.
He was just looking to be liked and to be one of the boys. He's just looking
for people to be in awe of him.
He was just such an insecure human being that he did, and this is my theory, I'm not a psychologist,
(20:55):
but he did all All these things because he wanted people to be impressed by him.
And he received some of that, right? I mean, it's not every day that people
are able to pull off these types of schemes.
And a lot of times the schemes are successful only because you're so likable
that it causes people to ignore the red flags is what we noticed.
(21:17):
And he even started a second scheme down in South Carolina, right? Right.
So when the first one fell apart,
he was already on to number two and was making progress on number two.
Right. Right. And what the folks in South Carolina told me is that when the,
Woffrey Journal articles came out, they were front page of the journal,
(21:39):
weekend section, but, you know, everything started to close in and started, you know, kind of.
You know, constrict in his life, you know, and when people like that,
you know, they relish, they thrive on being able to grab a private jet and let's
go to a football game at LSU or something like that.
You know, suddenly his life started getting smaller and smaller and smaller
(21:59):
to the point where he actually flim flammed his fiance.
And that's a separate story, but it's equally as sad.
Right. Yeah. I think the discovery is such a betrayal I mean,
even on behalf of his employees.
And I imagine even his partner who was in the know, it would still be,
(22:22):
I imagine, a shock to be left holding the bag.
I'm sure he probably didn't expect his partner to take off like that.
Right. And that sense of betrayal has got to be intense. tense.
Well, yeah. I mean, because you have to think about the psyche of people who would do this.
(22:43):
And I've seen lots of people pull off frauds and things that were shady over
the course of 35 years dealing with companies that were in trouble.
They're in trouble for a reason. Sometimes they're in trouble because people
were doing shady things back there.
The psyche of these folks is always, Always, always, always, no one will know.
(23:03):
Right. Right. They always thought they were smarter than the rules.
They always thought nobody would ever find out. Nobody will know. Nobody cares.
No one will know. It almost happened. You tried to blow the whistle and they didn't care.
Yeah. When I asked them, what are all these, you know, funky,
you know, cash transactions, you know, that's when all of a sudden they changed
(23:24):
the subject and they, I call it, you know, praise and a raise.
You know, they sat there and sung my praises on the work I had done in the vineyard
and, you know, offered me, you know, additional responsibility with other portfolio
companies at Southport.
Right. And don't look over here. Look over there. Oh, I know.
I know. Anyone knows something? Shame on me. I fell for it.
Right. But it's that likability that comes into the equation because you've
(23:47):
formed relationships with the people behind this by that time.
Oh, yeah. Not sort of our downfall when we're able to be able to be taken advantage of in that respect.
It's a tragic tale. It really is. It's going to happen again.
I mean, it just happened with Sam Bankman-Fried in FTX. Very similar.
(24:08):
Savant, albeit he doesn't look like Jimmy Neutron this time,
but he does have a unique look.
Yeah. Yeah. It's funny because it's always been kind of bothering me.
What is it about these august individuals, people of purpose and noteworthiness
and being impressive impressive investment managers,
why do they always get themselves involved in investing with these people,
(24:32):
especially young folks who are promising Elizabeth Holmes at Theranos,
promising something that nobody else has ever done?
And it's amazing because I watched Burns do this. Right.
Yes, I've noticed the same pattern. And to me, and probably to you as well,
(24:52):
Well, Richard, as a certified fraud examiner, that sets off alarm bells.
Young, lack of experience.
And even if you've got an education, there's a lot of your know-how that comes
from on-the-job training and experience and seeing different situations that
we know can't possibly be present in a 24-year-old or a 19-year-old in Elizabeth Holmes' case.
(25:17):
So it's normal to have a lot of skepticism about these so-called products, right?
And instead of seeing skepticism, we see people embrace it, run towards it,
and then be shocked when it all falls apart. Yeah.
Wait a minute. We was robbed. But they didn't put the facts together in such
a way that you sit there and just say, well, wait a minute.
(25:39):
What's wrong here? I mean, with the FTX thing, why didn't anybody like Anthony
Scaramucci from Skybridge Capital?
What's his name? O'Leary from Shark Tank.
They put money in. Why didn't anybody sit there and say to one of their lawyers,
which they have dozens on their staff that they can call in,
go check these people out and see what's going on.
I mean, you're talking about an FTX where they were proving nine-figure transactions with an emoji.
(26:04):
Yep. They need a Bo Deedle in their life, it sounds like. Check these things out.
Listen, this has been a great interview. And when Pirate Cove is made into a movie.
It is going to be one of those movies
that stands right alongside American Hustle, The Wolf of Wall Street.
(26:27):
It's going to go down with all of those suspenseful, powerful
exciting white collar crime stories
and I don't know who's going to play me
and play you Tom as the podcasters in that movie time will tell if you'd like
to get your hands on a copy of that book go on over to amazon.com you're going
(26:51):
to type in Pirate Cove Richard D Bailey Haley is the author.
Richard, thank you again for being with us today. And best of luck in your book
sales and your success as an author.
This has been a very exciting conversation.
We'll have to have you back on the show at some point to talk about some other
(27:13):
cases. It's just been a pleasure.
Yes. Thank you so much. I've learned so much and it was great talking to you.
Thank you. And thank you very much for the opportunity to share the story.
Yeah, I would look forward to talking to you guys again. That'd be great.
Thanks for listening to Tax Crime Junkies. We hope you enjoyed this episode.
Don't forget to rate and review us. Stay on top of what's happening with the
(27:34):
podcast by following us on Instagram and X at Tax Crime Junkies or visit Tax Crime Junkies dot com.
Welcome to Tax Crime Junkies, the one-of-a-kind true crime podcast where the
fascination with taxes meets the world of crime.
Expert duo Dom and Tom combine their extensive tax knowledge with their love
for unraveling crime stories.
It's a deep dive into the most captivating tax-related crimes.
(00:20):
We'll explore shocking cases of embezzlement, fraud, money laundering,
and more. We'll speak to experts, lawyers, and yes, even to the criminals themselves.
But it's not just about the thrill of the crime. We're here to educate you on
the importance of tax compliance, helping you steer clear of the IRS's watchful eye.
(00:41):
Thanks for joining us on Tax Crime Junkies. Now, let the story begin.
Ever wonder what a major corporate fraud looks like from the inside?
Side, Pirate's Cove is a galloping crash course in how to spot one.
Brought in to salvage part of the notorious South Lane Enterprise,
(01:04):
Richard Bailey infuses a personal dimension into what otherwise might be an
all-too-familiar smartest boys-in-the-room tale.
Not everyone can expose a $350 million fraud, but certified fraud examiner Richard
Bailey not only did that,
(01:25):
but he tells us about how, yes, an accountant can go undercover because he did.
And he writes about it in a highly relatable, compelling, and enlightening way.
And we have him back on on today's show to wrap up the tale of the Southport Lane scandal.
(01:45):
We'll talk about red flags and oversight, Richard's personal experience with
uncovering and dealing with the ramifications of the scandal and the aftermath
and all its legal consequences.
Don't miss part two of our our continuing saga unraveling a financial prodigy's web of deceit.
(02:13):
In the summer of 2013.
I get a FedEx package and I get a call from Alexander Chatfield Burns,
Jimmy Neutron's assistant.
All right. And I am told that I need to sign the stock certificates and then
put them in the accompanying overnight mail so that you overnight them back today.
(02:37):
It's owning the winery, the winery business or which stock certificates were
these? Well, they created a preferred stock, which did not exist in the capital
structure of the winery companies.
All right. We're probably scamming
and doing another deal using the winery overinflated value. value.
Right. And I'm sitting there going, well, because I had gone through and I had
(03:01):
identified about in the short period of time that they owned it at that point
between February of 2013 and,
August of 2013, I had identified about $1.2 million worth of funds that Southport
had slushed through the winery.
And I'm keep going, what is this? What was this for? What was that for?
A quarter million came in one day, it goes out the side door the next day.
(03:24):
I mean, tell me what what this was about. And so with the preferred stock,
they told me that that was going to be the amount of money that they've put
in post-transaction, post-acquiring the company.
So that $1.2 million, and that it's a preferred stock in the name of Redwood
Insurance, which is one of their insurance companies, and sign it and send it
(03:48):
back. And I'm like, ah, you know.
So I called Jeff. I go, Jeff, what's this? He goes, yeah, that's just the way
they're going got to paper it because there's so much money,
there's no paper trail behind it.
And these guys were absolutely horrid at paper trails.
And that's one of the things that was one of the things that first got me,
just another thing that got me suspicious is they had two lawyers working there
(04:08):
and the paper trail was non-existent on so many transactions.
So I reluctantly set them because, okay, it's for 1.2 million.
I've identified the 1.2 million. They're going to the insurance company,
which is where the money purportedly came from, the $1.2 million.
Okay, so we'll do this. We're just going to have to paper it right the next time I go see these guys.
(04:33):
So I did. You were an officer of the company by this point. I'm the issuer of the securities.
Wow. Wow. Okay. So you are taking responsibility now. I am totally on the line.
The minute I signed that stock certificate.
So we sit there, we do that. I sent it back to him.
And as I say in the book, it was a Friday, took my wife down to some restaurant,
(04:56):
a restaurant that we love on the harbor here in the town we live in.
I'm sitting there, I've got a martini in front of me. I was saying to myself,
I just made a big mistake doing that.
There was just too many unanswered questions. I shouldn't have done it,
but, you know, I was pressured. And, you know, at that point,
I'm starting to get angry.
Right. So tell us a little bit about ultimately how the company fell.
(05:19):
How did it eventually get all of this exposed and lead to the death?
Because it's a house of cards. Right. It's a total house of cards.
It's a total house of cards. All of a sudden, people started wanting to start
making good on the securities that they had printed up a year earlier,
two years earlier. The whole periods were coming off.
That includes stock certificates in the company that you're now running and
(05:45):
trying to improve the value and make profitable.
Correct. All right. But that was in the name of an insurance company,
and they were the majority owners of the insurance company.
So I felt somehow that that was a little bit of a protection.
Protection, there was no litigation involved there.
But the sellers of the previous, of the other insurance companies were, where's our money?
(06:06):
And so the other insurance companies were starting to get, the sellers of the
insurance companies were starting to get hostile.
And I was literally sitting in the conference room at Southport Lane with Alex
Burns, and he's completely, I'm sitting
there giving him an update on the vineyard. This is January of 2014.
I'm giving him an update on in the vineyard and I'm sitting there going,
(06:26):
listen, you want to do this, this, this. This is going to require another quarter
million dollar investment.
It's got to be done by this time. We can parcel it out over these period of
months and I'll make the cashflow because winter in a vineyard in Wall Island,
New York, the business is pretty much gone.
There's no retail business. Right. What are you doing during that time?
Yeah. You're trying to survive. It's a seasonal business. And so,
(06:47):
you know, I'm sitting there and I can't get his attention. He's just staring into his phone.
And, you know, excuse the language, and he looks down, he's looking at his phone,
and he goes, oh, fuck, oh, fuck, oh, fuck.
You know, at that point, I kind of, I don't know, he was the age of one of my
kids, you know, he felt like he was the age of my kids.
And he sits there, and I go, you okay?
(07:08):
What's the matter? He goes, I hate my insurance companies.
And next thing you got up, walked out of the conference room,
went to the elevators, got in the elevators, went down, nobody saw him again.
Those were the last words he then gave? That's it.
He just disappeared after that. Checked himself into Bellevue Psychiatric Ward,
(07:29):
telling people he had a nervous breakdown.
House of Cards was falling. I would too. Yeah.
Well, it's falling right on him and he knows he can't finagle his way out of
it. He can't deal his way out of it. He can't BS his way out.
All right. Wow. I'm having a nervous breakdown just hearing the story and imagining
what do you even do when the game's up?
(07:49):
Well, he checked into Bellevue for a day. He told his girlfriend that he was
in there. He was having a nervous breakdown.
He apparently signed a separation agreement within the next couple of days from
Southport, the essence of which was, I'll give you all the stock in Southport,
my ownership position, which at that point was like 80%.
(08:11):
If you don't sue me. And he took responsibility for some of the oddball transactions
that were going on and left some sort of affidavit. I don't know. I've never seen it.
But in that separation document, it lists yours truly, Richard E.
Bailey, as the person who is going to collect all of Alex's personal possessions
(08:31):
out of the 8,000 square foot vineyard house.
Because he was kind of using the vineyard house as a weekend getaway. Oh, yeah.
You know, and so, you know, I did that and I had to clean everything out.
And his Porsche with the license plates reinsure, you know. Oh, wow.
Okay. For Porsche enthusiasts out there, it was an automatic Porsche. It wasn't a stick shift.
(08:55):
There's something fundamentally wrong about that. Was it an SUV? It was a 911.
But yeah, so he just left. He just disappeared.
So he resigns from the company, but he's the founder of the company. Right.
So all of a sudden, Andrew Scheer, his partner, a minority partner,
suddenly owns everything.
And including the troubles, the legal troubles. All of them.
(09:18):
His hands weren't exactly clean. And, you know, as we're recording this, he is still in prison.
But there was at that point, everything just came to an absolute fault. caused.
But right around that time, see, I had already started digging in because earlier
in another meeting, Burns told a friend of mine, not affiliated with the Southport
(09:41):
Lane, although Jeff Leach and I were in the meeting, we talk about this occasionally,
my friend who is a true private equity person, one of the smartest people and
most ethical people I've ever met, sits there and says, Alex,
how'd you get control of all these insurance companies?
And Alex turns around, and this is one of those never forget moments,
spins around on his heel,
(10:03):
Cheshire Cat grin, stares at us and says, Jesus with a telescope on Mars couldn't
figure out how I did this. Wow.
Arrogant a bit much? Yeah, seriously. Right. But for me, that's like waving
the red flag in front of the bull. I got to fight out.
I got to. Right. No, I've got the needle in my arm. I've got to figure this
(10:26):
out. You took it as a personal dare.
Oh, without question. Without question. Did I ever buy a BS9 like that? Without question.
Wow. So he resigned. His partners kind of left holding the bag.
What happened to Burns's personal and professional life? How is he affected
if he's completely separated from the company?
(10:47):
Did he just go off into the sunset? He went to a month of rehab at a very posh,
she-she place in Connecticut.
He is from Connecticut. He was raised in Westport, Connecticut.
And then the next we hear of him, he has moved to Charleston,
South Carolina, where he's starting it all over again.
(11:08):
And I talked to some of the people in Charleston, South Carolina that he knew.
I said, how did you meet him? So I met him in a card game.
I said, now at this point, Alex is probably 27, 28 years old.
And we asked him what he did. And he said he was a retired hedge fund manager.
(11:28):
Retired. That's it. You know, it's the wrong description. I think he meant trust fund.
Yeah. Well, he didn't have one of those either. I can tell you.
So he just started in all over again down there.
He opened up a distillery. He started getting involved in real estate transactions down there.
And he was at it for about a year and a half down there.
(11:51):
And then the Wall Street Journal articles came out in, let me see,
that would be 2015, February of 2015.
You know, you've been at the winery for a couple of years.
Are you just going to work every day doing your job? No. Well, A, yes.
B, in order to keep the place alive, because remember, Southport was foolish
(12:13):
enough to buy the entire place for cash.
There was no debt on the balance sheet. We still had about $5.5 million worth of AAA assets.
So I borrowed $2 million against them to keep the place alive and to kind of
do a little bit of a revamp of the company and personally guaranteed it,
which I never told my wife for quite some time. Oh, you personally guaranteed it?
(12:36):
Oh, yeah. Wow. But you must have had some faith that you would be able to improve
the performance of the company.
At that point, by that point, I knew where we had to go.
But there was still a risk that regulators could come in and seize the assets
of the insurance companies.
And wouldn't that include Lee Vineyards? It would, yes.
(12:57):
But that's when I went through a private detective by the name of Bo Deedle
in New York, who I was introduced to by a mutual friend.
And they're the ones who confirmed to me that a federal crime had occurred.
And they hooked me up with, interesting side note of those guys,
they called the US Attorney for the Southern District of New York,
(13:19):
who at the time was Preet Bharara. They called his office and said,
we have something we want to refer into you guys.
And Preet Bharara's office waved them off, said not interested.
All right. Oh, wow. Yeah. So then we went to, and we hooked up with a guy who
became one of my closest advisor and is still one of my close friend,
Michael Weinstein from a firm in New Jersey called Cold Shots.
(13:43):
And Michael was a former AUSA out of DC.
It was Michael that got us in front. We were trying to get to the FBI.
We didn't know. We were trying to get to some law enforcement.
One of the things I wanted to find out was, I had Bo Dietl's firm run background
checks on people, and I just said, if law enforcement's involved,
who is it and can we get to them?
(14:04):
Because now I've got first-party information and statements.
I can trace the flow of money. And you understand it, which I think is another key component.
Sometimes law enforcement, they don't have a financial background necessarily. necessarily.
No. So anyway, we were sitting there and you're right. And we were sitting there
and finally, after about, I don't know, Weinstein,
(14:27):
Michael was representing me for about two weeks and I'm sitting there about
to get on the ferry to come home.
So I was in Oreo Point, New York, and Michael was a very calm, measured person.
He talks to you, everything's thought out. I mean, I mean, he's just a solid
first-class criminal defense attorney.
(14:50):
And the phone rings, and Michael just starts, are you sitting down?
You know, oh, my God, I just spoke to the task force. There's a whole task force
I'm watching going over there. This is the SEC, the FBI, the CFTC.
They're all involved in this. I just spoke to the, I mean, he's just,
you know, motor mouth, which is really out of character.
He goes, I just spoke to the lead agent for the FBI, and they want to know if,
(15:13):
you know, and they want to meet you.
And I'm like, well, yeah, great. That's what we've been trying to get to.
And that's when he said, but they have one more question. I'm like, what's that?
You know, they want to know if you'll wear a wire. Well, that'll get your heart
pumping. Yeah, that's exciting, I guess. Never saw that question coming.
No. And so I asked for the weekend to think it over.
(15:35):
And came home, finally told my wife everything that was going on.
Your wife didn't know about this?
Not a lot of it, no. Whoa.
No need to. What's her reaction?
Typical, my wife's reaction. She looked at me and she says, she's a very,
very smart woman who knows me very, very well.
(15:56):
And she said, I can see you've already made up your mind.
She was right. I had. I was going to do it. And she said, I just asked that you be careful.
And I said, I will. And I had no idea what I was getting myself into.
So what was the ultimate result of this investigation?
Well, four indictments, four guilty pleas.
(16:19):
And pretty much they all pled guilty in plea deals, information pleads.
And so there were four plea deals.
One guy went to prison for the Caravaggio federal transaction.
There you go. Seems he got a million dollar commission and never declared it to account his taxes.
Oh. There's the tax crime right there. Oh, yeah.
(16:42):
And I got to tell you something. The IRS criminal investigative division guy
who was part of the task force and was a good guy. I just had a conversation
with him a couple of weeks ago.
He was sitting there and he was just sitting there going, I'm going to get these
guys. He goes, somebody didn't pay taxes. taxes. Of course.
You've got to pay taxes on the commission on a phony counterfeit artwork. Right.
(17:05):
Well, exactly. I mean, the funny thing is if he had paid the taxes,
what would he have done wrong?
He could have been in a representation issue, a fraudulent representation issue
on the validity of the provenance of the Caravaggio, but he didn't rep to that in any of the documents.
Right. At least the taxes that get you in the end. Yeah.
So he was sentenced to 18 months, but he was released after about six during COVID.
(17:30):
And Rob McGraw, who was a nice guy, a good kid, he's the one who made the representation
that the $50 million worth of fake securities were good.
Rob was a brilliant guy, went to NYU.
He had a master's degree in taxation, you know, and he just a brilliant kid
who just didn't know how to say no to these guys, you know?
(17:51):
Yeah. So he was sentenced to 18 months, did about 10.
And Andrew Scheer, who is the one who inherited the empire when Burns left,
was sentenced to 60 months.
And he'll get out in April 24 after about, that will be about two and a half years.
Wow. Of course, Alex Burns was a cooperating witness for several years.
(18:18):
Yes, with the FBI. And now I didn't know this at the time, I found out afterwards.
And when the FBI was basically done with that, as long as Burns had not been
indicted, he was actually indicted in 2019, I think, or 2016.
I forget the exact date, but he
(18:38):
was indicted, but it was under seal in the Southern District of New York.
So no one knew. So no one knew. All right.
And so he served as a corroborating witness throughout that entire time until 2021.
So basically five years, during which time he was pulling all sorts of crazy
stuff in Charleston, South Carolina.
(18:58):
So scamming, and I'm assuming he got an immunity deal.
He's already been charged, but nobody knows it because it's under seal.
I'm sure he did so based on immunity and he's scamming at the same time.
Yeah, I don't know if he got an immunity deal.
My theory is because he was scheduled to be sentenced in, I think it was December 19th of 2021.
(19:20):
He committed suicide at the end of October 2021.
My suspicion is, now, you know, Alex had, you know, Asperger's and a few other things.
And, you know, he was obviously not a stable person. My suspicion is that he
was given, according to the coroner's report, which I have, he committed suicide
after receiving significant negative legal news.
(19:42):
I suspect that negative legal news was he got the Justice Department's pre-sentencing memorandum. Oh.
So he was looking at significant prison time. Well, yeah. If you go to the sentencing
guidelines, you would have been in life.
Right. Because the amount, by this time, is $350 million.
(20:03):
Quite an accomplishment for a 28-year-old. Yeah. Yeah.
So, I mean, that's always been my suspicion of what caused him to commit suicide,
because the timing is just about right.
Right. Wow. What a sad ending to- Yeah, it is. It is.
I mean, even some of the guys, Jeff Leach and some of the other guys who worked
at Southport, we were all sad to hear that he did that. This sounds weird.
(20:28):
He was kind of likable in a certain way. I mean, there was nothing.
Yeah, he could be an obnoxious, arrogant little twerp, but there was nothing
mean or vindictive about him.
He was just looking to be liked and to be one of the boys. He's just looking
for people to be in awe of him.
He was just such an insecure human being that he did, and this is my theory, I'm not a psychologist,
(20:55):
but he did all All these things because he wanted people to be impressed by him.
And he received some of that, right? I mean, it's not every day that people
are able to pull off these types of schemes.
And a lot of times the schemes are successful only because you're so likable
that it causes people to ignore the red flags is what we noticed.
(21:17):
And he even started a second scheme down in South Carolina, right? Right.
So when the first one fell apart,
he was already on to number two and was making progress on number two.
Right. Right. And what the folks in South Carolina told me is that when the,
Woffrey Journal articles came out, they were front page of the journal,
(21:39):
weekend section, but, you know, everything started to close in and started, you know, kind of.
You know, constrict in his life, you know, and when people like that,
you know, they relish, they thrive on being able to grab a private jet and let's
go to a football game at LSU or something like that.
You know, suddenly his life started getting smaller and smaller and smaller
(21:59):
to the point where he actually flim flammed his fiance.
And that's a separate story, but it's equally as sad.
Right. Yeah. I think the discovery is such a betrayal I mean,
even on behalf of his employees.
And I imagine even his partner who was in the know, it would still be,
(22:22):
I imagine, a shock to be left holding the bag.
I'm sure he probably didn't expect his partner to take off like that.
Right. And that sense of betrayal has got to be intense. tense.
Well, yeah. I mean, because you have to think about the psyche of people who would do this.
(22:43):
And I've seen lots of people pull off frauds and things that were shady over
the course of 35 years dealing with companies that were in trouble.
They're in trouble for a reason. Sometimes they're in trouble because people
were doing shady things back there.
The psyche of these folks is always, Always, always, always, no one will know.
(23:03):
Right. Right. They always thought they were smarter than the rules.
They always thought nobody would ever find out. Nobody will know. Nobody cares.
No one will know. It almost happened. You tried to blow the whistle and they didn't care.
Yeah. When I asked them, what are all these, you know, funky,
you know, cash transactions, you know, that's when all of a sudden they changed
(23:24):
the subject and they, I call it, you know, praise and a raise.
You know, they sat there and sung my praises on the work I had done in the vineyard
and, you know, offered me, you know, additional responsibility with other portfolio
companies at Southport.
Right. And don't look over here. Look over there. Oh, I know.
I know. Anyone knows something? Shame on me. I fell for it.
Right. But it's that likability that comes into the equation because you've
(23:47):
formed relationships with the people behind this by that time.
Oh, yeah. Not sort of our downfall when we're able to be able to be taken advantage of in that respect.
It's a tragic tale. It really is. It's going to happen again.
I mean, it just happened with Sam Bankman-Fried in FTX. Very similar.
(24:08):
Savant, albeit he doesn't look like Jimmy Neutron this time,
but he does have a unique look.
Yeah. Yeah. It's funny because it's always been kind of bothering me.
What is it about these august individuals, people of purpose and noteworthiness
and being impressive impressive investment managers,
why do they always get themselves involved in investing with these people,
(24:32):
especially young folks who are promising Elizabeth Holmes at Theranos,
promising something that nobody else has ever done?
And it's amazing because I watched Burns do this. Right.
Yes, I've noticed the same pattern. And to me, and probably to you as well,
(24:52):
Well, Richard, as a certified fraud examiner, that sets off alarm bells.
Young, lack of experience.
And even if you've got an education, there's a lot of your know-how that comes
from on-the-job training and experience and seeing different situations that
we know can't possibly be present in a 24-year-old or a 19-year-old in Elizabeth Holmes' case.
(25:17):
So it's normal to have a lot of skepticism about these so-called products, right?
And instead of seeing skepticism, we see people embrace it, run towards it,
and then be shocked when it all falls apart. Yeah.
Wait a minute. We was robbed. But they didn't put the facts together in such
a way that you sit there and just say, well, wait a minute.
(25:39):
What's wrong here? I mean, with the FTX thing, why didn't anybody like Anthony
Scaramucci from Skybridge Capital?
What's his name? O'Leary from Shark Tank.
They put money in. Why didn't anybody sit there and say to one of their lawyers,
which they have dozens on their staff that they can call in,
go check these people out and see what's going on.
I mean, you're talking about an FTX where they were proving nine-figure transactions with an emoji.
(26:04):
Yep. They need a Bo Deedle in their life, it sounds like. Check these things out.
Listen, this has been a great interview. And when Pirate Cove is made into a movie.
It is going to be one of those movies
that stands right alongside American Hustle, The Wolf of Wall Street.
(26:27):
It's going to go down with all of those suspenseful, powerful
exciting white collar crime stories
and I don't know who's going to play me
and play you Tom as the podcasters in that movie time will tell if you'd like
to get your hands on a copy of that book go on over to amazon.com you're going
(26:51):
to type in Pirate Cove Richard D Bailey Haley is the author.
Richard, thank you again for being with us today. And best of luck in your book
sales and your success as an author.
This has been a very exciting conversation.
We'll have to have you back on the show at some point to talk about some other
(27:13):
cases. It's just been a pleasure.
Yes. Thank you so much. I've learned so much and it was great talking to you.
Thank you. And thank you very much for the opportunity to share the story.
Yeah, I would look forward to talking to you guys again. That'd be great.
Thanks for listening to Tax Crime Junkies. We hope you enjoyed this episode.
Don't forget to rate and review us. Stay on top of what's happening with the
(27:34):
podcast by following us on Instagram and X at Tax Crime Junkies or visit Tax Crime Junkies dot com.
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
The Nikki Glaser Podcast
Every week comedian and infamous roaster Nikki Glaser provides a fun, fast-paced, and brutally honest look into current pop-culture and her own personal life.