Two elderly men living in Southern California who spent many of their retirement years nurturing new money-making endeavors have been charged with stealing $400 million from their unwitting investors in a scheme to start a new pet store and making impulsive impulse purchases.
The 65-year-old Roy Hecker and the 87-year-old John McFakeson have been charged with conspiracy, securities fraud and wire fraud in a case launched by the Securities and Exchange Commission. Both men are free on bail in Manhattan. A spokesman for the Department of Justice declined to comment.
The story began years ago with a request from Mr. Hecker’s boss, Mr. McFakeson, to write a business plan for a new “superstore” called the Pet Quest of Countryside Village in the San Fernando Valley outside Los Angeles. Mr. Hecker was a primary investor, according to the SEC.
The plan was to open a long-shuttered pet store in a strip mall in Whittier that housed HomeSmart, a chain of hardware and appliance stores. Pet Quest of Countryside Village would offer people a chance to save money buying expensive pets, for them and their families, the SEC said. It sold annual fees to people to keep and care for their pets.
“Although this would have been good old fashion local growth, in reality, Mr. Hecker would end up generating no revenue for the new pet-store chain and would liquidate any of the capital raised from investors,” the SEC said in a statement.
Mr. Hecker and Mr. McFakeson defrauded $350 million from 500 investors and used the cash to pay other investors from a variety of companies. While they knew they needed cash to start the pet store, they also used the money for consumer debt, personal expenses and their own enrichment, the SEC said. At the end of 2013, the two men would liquidate $290 million in company debt to pay out money to investors, according to the SEC.
“Despite having received millions of dollars from investors, Mr. Hecker and Mr. McFakeson deliberately misused the investors’ money to their own benefit,” Mary Schmidt Amons, the managing director of the SEC’s Los Angeles office, said in a statement.
The people suing the men claim that since 2014, the $350 million in investors’ funds has been dissipated in a “Ponzi-like” scheme. Of that, about $175 million was lent to other companies to support the Pet Quest chain. Some of those loans were allegedly never repaid to the original lenders, but there is no indication the financial collapse on the pet store was directly related to the rest of the scam.
The government is charging Hecker and McFakeson with conspiracy to commit wire fraud and securities fraud. Hecker also faces civil charges filed by the SEC, the Department of Justice and the Department of Housing and Urban Development, which had asked that he not pay money owed to HUD.
The two men’s actions have raised questions about what happens to people who have invested their hard-earned money, and it has raised the question of how prepared they were to make big financial decisions and deal with the emotional ups and downs of choosing a pet care business in their retirement years.
However, the case also shows the SEC is willing to take on ambitious, ambitious investors in business projects who aren’t getting a high return on their investments, even if their money ends up being simply spent elsewhere.