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Justices suspend Indy lawyer who ran $19M Ponzi scheme

June 23, 2015

An Indianapolis lawyer who pleaded guilty more than six months ago to four felony counts of securities fraud from a Hamilton County real estate Ponzi scheme has been suspended from the practice of law.

The Indiana Supreme Court on Thursday ordered an interim suspension for attorney Charles B. Blackwelder. He and his daughter Cara Grumme, of Yorktown, were accused of scamming more than 300 elderly Hoosiers of more than $19 million.

The securities were tied to 35 residential properties in Carmel, Fishers and elsewhere in Hamilton County, as well as some commercial property in Hamilton, Hancock and Marion counties. Some investors soon may receive a fraction of their money back.

According to the Indiana Secretary of State’s Office, Blackwelder sold securities through his company, CFS LLC, marketing investments in rental properties to seniors as a means to legally shield their assets from Medicaid spend-down requirements. The Secretary of State’s Office filed suit against CFS in February 2013.

Blackwelder was criminally charged a year ago in Hamilton Superior Court with 20 felony security fraud counts and two charges of theft of at least $100,000. Last December, he pleaded guilty to four Class B felony counts of securities fraud.

Blackwelder, 70, was sentenced in April to four years in the Indiana Department of Correction. He and Grumme also agreed as a condition of Blackwelder’s guilty plea to pay restitution to victims in the amount of $19,379,104.23.

CFS wound up in receivership in a Hamilton County court. Blackwelder remains listed as an attorney of record representing CFS in that matter, having continued to represent various interests in the receivership case after his felony convictions without withdrawing, according to the chronological case summary.

CFS offered investors opportunities to buy fractional shares of homes, say 10 percent stakes, that entitled them to a promised rate of return based on a proportional share of rent and other factors. But of 40 properties CFS owned, 35 were oversold to investors, co-receiver Mary Alice Slade said. In one case, CFS sold shares totaling 200 percent in a home.

When a receivership was established in February 2013, the court appointed Slade and William Kelley Jr., both attorneys at Drewry Simmons Vornehm LLP, as co-receivers. Slade said claims against CFS eventually ballooned to $23 million.

When Slade and Kelley began their work, they received more than 1,440 pounds of paper records and more than 35,000 electronic records to comb through in what she said is among the largest land fraud receivership cases in state history.

“We were able to locate from their records 11 bank accounts that only had a total balance of $11,147.85,” Slade said. Worse, 39 of the 40 parcels owned by CFS owed delinquent property taxes totaling more than $239,000. The properties were headed for a county tax sale.

“This thing was going to go off the railroad tracks fast,” she said. “We could have literally been sitting here only with $11,000 if we didn’t put our arms around this quickly.” She said an experienced team went to work to protect and preserve the assets they could.

Slade said the receivership with the court’s blessing negotiated with Hamilton County to abate the property taxes for a couple of years so the homes could be sold. Purchase offers were subject to court approval, and most have been sold to recoup not quite 25 percent of claims so far.

Of the 40 properties, only two are still under receivership management and should be sold soon. Thirty-five have been sold, raising the amount for distribution to $5,074,000, she said. Three properties were abandoned to foreclosure with the court’s consent.  

The receivership is in the process of wrapping up. “We’re getting lined up to get ready to do the distribution,” she said, and will be ready to release proceeds to claimants when the court orders.

As in all receiverships, the court will have to determine priority of claims and allocation of assets. But there’s unique tangle in the CFS mess. In reviewing 2,082 deeds for shares of properties, Slade said she and Kelley found 131 of them were unrecorded.

“I’ve been dealing with real estate issues for a while, and usually you don’t have someone hand you a box of unrecorded deeds,” Slade said.

“That’s a point the judge is going to have to look at with allocation,” she said. “Is there any difference between someone who has a recorded deed and someone who doesn’t have a recorded deed?”

In a statement after Blackwelder’s sentencing, Secretary of State Connie Lawson said, “Blackwelder’s scheme is particularly appalling because he took advantage of over 300 victims toward the end of their lives.”

“This case is particularly devastating because an attorney convinced clients to put money into unlawful investments,” said then-Indiana Securities Commissioner Carol Mihalik said in the statement. “Members of the legal profession are held to a higher standard. Blackwelder’s actions of deceiving the elderly are not tolerated. I’m pleased that he will be serving hard time for his actions.”

Blackwelder is projected to be released from the New Castle Correctional Facility in March 2017, according to the Department of Correction. He was admitted to practice in 1978.

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