By Lori L. Varnell
Assistant Criminal District Attorney in Tarrant County
We’ve all heard of Bernie Madoff, who famously bilked investors out of millions of dollars in a massive Ponzi scheme, but did you know he was an “affinity con”? Affinity con-artists use their affiliations and affinities with others—groups with religion, race, age, or marital status in common—to target and exploit them. These cons are very successful: The victims trust them because of their own shared interests with the con artist.
Religious con-artists are particularly good at marshaling the “will of God” to benefit themselves. What Madoff did to those of the Jewish faith, William Neil “Doc” Gallagher did to Christians in the Dallas-Fort Worth area. Gallagher spent hundreds of thousands of dollars to buy “bantering” spots with well-known and beloved Christian radio hosts to publicize his investment scheme, and they always ended with him saying, “See you in church on Sunday!” He appeared on the radio as many as three or four mornings a week, so many that the number of solicitation offenses would be impossible to calculate.
The stories of Gallagher’s desperation to keep his scheme going are heartbreaking. Some victims had to retire later than they planned because of his lies, and others recruited their children and friends to invest because of their good experience with Gallagher and his caring notes, cards, and gifts on birthdays. The victims referred friends to him saying, “He prayed with me over this decision.” The stories included descriptions of Gallagher placing a reassuring hand on his unsuspecting victim’s shoulder and saying glorious words. All the while, he was puffing up with the power he had in controlling of the futures of so many.
What is a Ponzi scheme?
Ponzi schemes have a long history in the United States. They tend to promise guaranteed returns on investment with little or no risk, unlike the vilified stock market, which is fraught with risk. The underlying investment scheme is varied: appreciation of stamps, currency, notes, bonds, oil interests, and specially selected stocks. The common hallmark is that the scheme must bring in new investors; the fraudster then uses the new investor’s money to pay existing investors so they don’t suspect that the scheme is a farce.
Gallagher’s scheme
The journey began at the Texas Department of Insurance (TDI) where an intrepid investigator, Sgt. Steve Richardson, was researching a forgery accusation against Gallagher. Gallagher was a licensed insurance agent (since his broker license had been previously revoked) and the forgery’s effect was to withdraw an annuity, which falls under TDI’s jurisdiction as insurance fraud. The victim was afflicted with dementia, which is a common complication in financial crimes against elderly people. The complaint was made by her grandson, who had power of attorney, and he had met with Gallagher to make him aware that the dementia was in effect and that his grandmother was not competent to make decisions about her own property. He further informed Gallagher that he had the power of attorney and would be making all the decisions. Shortly thereafter, the withdrawal form was forged.
Once Sgt. Richardson began looking into the bank records for the Gallagher Financial Group (abbreviated GFG), Mr. Gallagher’s investment advisor entity, he uncovered a huge Ponzi scheme that had been going for almost a decade.
The forgery TDI uncovered was the tip of a huge iceberg: 192 victims, $38 million in reported loss, and $29 million in verifiable loss. Sadly, because of the length of this scheme, bank records are no longer available to verify losses prior to 2013, so it was likely even larger. It was indicative of a Ponzi scheme spiraling into desperation, with its creator grubbing at every target to get more money to feed the beast.
Unrelated to the TDI investigation, which began with a forgery, Tarrant County’s prosecution of Doc Gallagher through its Elder Fraud Unit began with a text. I was driving into work on a Wednesday morning in April 2019 when I got a message from Detective Jim Hobbs of the Hurst Police Department (HPD). I was used to receiving abbreviated communications from him, but this one was a puzzle. It simply read, “What are we gonna do about Gallagher?” It sounded as if it were part of an ongoing text thread, but it was the beginning of a conversation that would last for years.
Hurst PD gets involved
In September 2018, a couple drove to the Hurst PD from Oklahoma. They met with Detective Hobbs and told him about hearing Gallagher on Christian radio. They contacted Gallagher to express interest in investing money with him, and Gallagher had traveled to their home in Oklahoma to meet with them personally, promising them a safe investment where they would never lose their principal. He said they could take out $5,000 per month because of the fabulous return and never dip into the principal. They ended up investing $752,000 with him.
In exchange for this substantial outlay, they received a statement showing that their money was put into five different types of investments: Treasuries, Investor Business Daily Formula, Fixed Index, Life Settlements (another fraud-laden Ponzi haven) and Value/Dividends. A sophisticated investor would have immediately scoffed at this list, but these were everyday people trusting Gallagher with their life savings.
However, they knew enough to demand statements from him. When they still had not gotten these statements after numerous requests, they decided to remove their money. They called Gallagher to find out what account the money was coming from for tax purposes, and they drove to Fort Worth to pick up a check. They received one in the amount of $100,000—far less than they had invested. And there was no explanation of the source of this check.
They demanded a meeting with Gallagher, at which they demanded that he return all of their money. Gallagher told them it would take five days, and he instructed them not to contact him or his office during those five days. The following week, they received a text that they were to meet him at the Vermillion Law Firm in Addison. They waited at the firm for three hours, at which time they were handed a letter saying Gallagher would not meet with them. They also received two checks, one for $85,000 and one for $45,000.
They had no idea that Gallagher was out recruiting other investors to get the money he eventually gave to them. Gallagher went so far as to have another attorney send the couple a letter ordering them to cease and desist defaming and harassing him. The couple, exasperated, went to the Hurst Police Department, the city where GFG’s office was located.
Detective Hobbs had uncovered victims of the large Ponzi scheme TDI was already investigating. The two investigations merged when Hobbs contacted Sgt. Richardson and shared his investigation into the Oklahoma couple’s money.
In October 2018, Detective Hobbs received another complaint about Gallagher, this time from a young man, an (adult) orphan from Bulgaria. He was brought to the United States by a missionary from a local church, who promised the orphan a family in the U.S., but this man ended up sexually assaulting the boy. When the orphan learned that the sexual abuse was not normal and was in fact a crime, he complained to his church’s elders. A lawsuit ensued. Not wanting to let any opportunity go to waste, Gallagher began jockeying to be the orphan’s advocate. After hiring a few lawyers, Gallagher settled the young man’s lawsuit and had the proceeds paid directly to himself. He used them to feed his Ponzi scheme.
Gallagher spent much of the scheme’s money to make Ponzi payments to early investors, to make payments to keep up his unrealistic promises, to buy advertising to get new investors, and to pay for an office staff who was kept entirely in the dark about the organization’s books. Gallagher would scrawl out his calculations by hand, then give them to a secretary to type up on GFG letterhead. Investors reported seeing mistakes in his calculations but overlooked them because of the onslaught of Christian bravado he would spin up for their consumption.
Indictments and prosecution
By early 2019, Gallagher’s scheme was unraveling. Dallas County arrested him in March, and Tarrant County followed suit with indictments in August. The Securities and Exchange Commission obtained a federal court order to appoint a receiver, TDI attorney Cort Thomas, to take over the operation of Gallagher Financial Group, marshal the assets, and return what money he could to the victims.
Prosecuting Doc Gallagher drew on the expertise of all the agencies and attorneys involved. The team included local officers talking to victims, forensic financial analysts assembling and reviewing spreadsheets, an expert receiver appointed by the Texas Department of Insurance, the United States Securities and Exchange Commission, the State Securities Board and its team of investigators, the Dallas County Criminal District Attorney’s Office (including ACDA Alexis Goldate), and the Tarrant County Criminal District Attorney’s Office. Both counties relied on their specially created Elder Fraud Units to spearhead the prosecutions.
After the COVID-19 shutdowns, in June 2020, Alexis Goldate in Dallas County contacted me about providing our office’s discovery on the Gallagher case, which I did. Alexis also provided me with Dallas County’s discovery. Shortly after that, Alexis called to say that Gallagher was pleading guilty in Dallas and would be incarcerated for 25 years. Tarrant County decided not to offer any plea in conjunction with Gallagher’s Dallas County plea and proceed with its own case. That’s because Tarrant County was Gallagher’s home base. It was from his Tarrant County office that he created false statements, conspired to hide money, and operated his Ponzi scheme with hand-scrawled notes. His secret office was also in Tarrant County; it had a huge safe where investigators found a handwritten inventory of gold and silver in Doc Gallagher’s scrawl. It was fitting that he would be forced to face his victims in open court in Tarrant County.
After a year of COVID delays, Gallagher was brought back to Tarrant County. Only four of us were present in court on the day he pleaded guilty to all the counts charged: one count of Theft Over $300,000, one count of Misapplication of Fiduciary Funds Over $300,000, two counts of Exploitation of the Elderly (for the Ponzi victims), and two counts of Forgery with elderly enhancements (TDI’s original case). He was looking at three possible life sentences.
Sentencing in Tarrant County
We spent the days before sentencing speaking with victims. Some were eager to face him down and tell the judge what they thought should happen to the man who stole their life savings. Some, however, were angry that this new proceeding would open a wound they had worked hard to close. Others were angry that the justice system could offer retribution only in the form of prison time rather than full restitution. There was approximately $600,000 in GFG’s accounts the day the receiver took possession and $2,000 in cash in a bank envelope in Gallagher’s coat pocket during his arrest. After the receiver worked diligently to reclaim the transfers made by Doc Gallagher to related parties, including his mistress, Debbie Carter (whose criminal case is still pending), and his wife, as well as vendors, such as Salem Media (for radio station advertising; that civil case is still pending), the victims have received approximately 14 cents on the dollar of their investments. All of the victims expressed shame for being taken by this con. Such shamed responses are typical in cases where the offender had such close relationships with the victims.
On the morning of November 1, 2021, Tarrant County investigators in the Elder Financial Fraud Unit and White-Collar/Public Integrity Units dispersed in county vehicles to retrieve elderly victims from their homes and bring them to the courthouse. Our business office coordinated with Tarrant County facilities and John Peter Smith Hospital to bring a brigade of wheelchairs for those victims who were unsteady on their feet. It was a mammoth effort.
TDI receiver Cort Thomas, Forensic Analyst Justin Driscoll from our office, and many victims testified. All unanimously asked for life in prison. Some moments that stick out in my mind include when one victim said through her tears, “It wasn’t enough that he took advantage of me—I am so dumb that I recommended him to my daughter.” Another victim, who was in law enforcement, said, “I had to sell off land because I made the decision to retire based upon his lies.” Still another victim held up the Law Enforcement Officer’s Bible, a special version of the Bible that Gallagher had given to her husband while he was stealing their retirement funds. She yelled, “Who are you to give a Bible to anyone?” Gallagher sat at counsel table, arms crossed and defiant. He showed no emotion but rolled his eyes.
Finally, I stood to close. I did not prepare an outline, but I spoke from the heart. I felt the support of all the partners in this prosecution. I heard victims saying “amen” from the gallery. It was a surreal moment. As I stood pointing my finger at this wolf in sheep’s clothing, I bellowed, “This man is to blame. He is to blame for the prison he has put these victims in. They got life sentences and so should he.”
After finishing, I sat down and picked up my pen to record the judge’s verdict, an old trick to keep my emotions in check. After Judge Elizabeth Beach read “life” three times, I pulled my phone out under the table and texted “life” to my Criminal District Attorney, Sharen Wilson, who created the Tarrant County Elder Fraud Unit. I then texted Alexis in Dallas County: “Life.”
After the verdicts, there were a flurry of calls and interviews as far flung as the BBC. I received emails from all over the country. It was a surreal time. But the most gratifying message came from one of the victims. This particular woman had yelled at me on the phone when I asked her to come testify. After the hearing, she wrote to me, “Thank you so much, Lori! You’re right—I do feel better for contributing to Doc’s sentence. God bless you!”
Conclusion
My one piece of advice for those prosecuting elder fraud is, “Always remember for whom you are fighting.” While one victim’s testimony may or may not have changed the sentence, I knew it would change her. The victims who came to the sentencing left feeling heard and justified. The shame they were holding in secret was brought into the light and left in the courtroom.