Settlement reached in complex Stallings Ponzi case

A complex lawsuit over Ponzi-scheme allegations involving the late Stallings councilman Harry Stokes has ended in a mediated settlement.

Stokes, a veteran insurance broker, killed himself in August 2013 shortly after allegedly acknowledging running the scam for years. A lawsuit claimed he bilked retirees, friends and an employee out of up to $2.4 million by telling them he was investing their money in a mutual fund called Blackburg that did not exist.

The suit against his estate also named Stokes’ widow, Sharyn Stokes, as a defendant. In an unrelated case last fall, she won a judgment against a man she claimed misappropriated more than $921,000 of her money, starting about a month after her husband died.

The Ponzi settlement was finalized in June, attorneys involved in the lawsuit said.

Settlement terms are confidential, Matthews attorney David Bland said. He represented two couples who invested with Stokes.

“It was in everyone’s interest to settle,” Bland said. “It would have been very costly and complicated” to go to trial.

‘Can’t keep secret anymore’

For more than 20 years, Harry Stokes was a familiar presence at church and in his kids’ schools in suburban Union County. He launched his insurance company in 1998. During local festivals, he’d sell Italian ice out of a cart.

In 2009, the Republican ran a successful write-in campaign for Stallings town council.

Stokes was licensed to sell investment products. His insurance company, Contemporary Benefits Design, became a subsidiary of National Financial Partners in 2006. Based in New York, NFP runs insurance, benefits and wealth management businesses.

In its lawsuit, NFP asserted that three days before his suicide, Stokes admitted to operating a Ponzi scheme since before joining NFP.

NFP did not say what led to the confession. Stokes told a former client and two former colleagues he had invested clients’ money into the phony Blackburg accounts with the intent of paying them back with his own assets. But he “had run out of funds to do so,” the suit claimed.

Stokes owed more than $55,000 in business and personal debts, an Observer review of court records found.

Until Stokes died, clients had no reason to believe anything was amiss.

An old friend from Virginia invested his entire 401(k), part of more than $410,000 he and his wife entrusted to Stokes. Other investors included a retired Charlotte firefighter captain and his wife, and a Monroe man who was Stokes’ friend for 25 years.

In court papers, investors said they received regular statements from “Blackburg Financial” tracking growth of their investments.

“He seemed like he had the Midas touch,” one investor told the Observer last year. “That’s where the betrayal is quite profound.”

In Ponzi scams, early investors are paid returns with contributions from new investors. But a steady stream of money is required to sustain such schemes, which often collapse when it gets harder to land new investors or a large group of investors tries to cash out.

Stokes, 54, drowned himself in the family pool. In his suicide note, records show, he wrote: “Can’t carry the secret anymore. Sorry. Took out 2 one million-dollar life insurance policies that should take care of my family.”

Allegations grow

In December 2013, NFP sued Stokes’ estate, a firm tied to his insurance company, Sharyn Stokes and the family’s Italian ice company, Sunset Slush of Matthews LLC. NFP wanted to be reimbursed for any claims it might be forced to pay Blackburg investors.

Seven sets of investors joined the suit, and included claims against Sharyn Stokes and NFP, which investors alleged should have known about Stokes’ illegal activities. The claims wound up in N.C. Business Court, which handles complex litigation.

In Ponzi cases, people often lose all of their investments because there are no assets to be seized, said Tom Bartholomy, president of the Better Business Bureau of Southern Piedmont. If funds are recovered, Batholomy said, he’s seen them range from 5 to 35 cents on the dollar.

NFP, in court documents, said it appeared the Blackburg funds were used toward the Stokes’ home equity line and funneled into Sunset Slush, which was started in 2010 with Sharyn Stokes as its manager.

And NFP claimed Sharyn Stokes had received more than $1 million from a life insurance payout and was improperly spending the money that could go to NFP and investors.

Waxhaw attorney Chris Cox, who represents Sharyn Stokes, declined to comment. In court filings, Stokes, 50, denied knowing of any misconduct or that she was wrongfully draining the estate.

Sharyn Stokes’ case

Sharyn Stokes also dealt with another financial misconduct claim, this time as the accuser. The case involved a man named James Backey, 41.

It’s unclear what led to their financial dealings. But soon after Harry Stokes died, Backey added Sharyn Stokes as an authorized user to his bank account, Stokes claimed in Union County court papers.

Between September 2013 and May 2014, Backey used or transferred – without Stokes’ permission – $825,869 that Stokes had put into the account, Stokes claimed.

In December 2013, Stokes claimed, she wrote a $95,221 check to a company Backey said he owned. But the North Carolina Secretary of State had dissolved the company in April 2012, records show.

Backey declined to be interviewed.

In a March 2014 email that was part of Stokes’ court filing, Backey wrote to Stokes: “We had planned to jointly invest equal funds in a portfolio at the bank. After further talk we decided to wait, however I went ahead and made that investment.”

Last November, a Union County Superior Court clerk entered a $921,090 default judgment, plus interest, for Stokes against Backey. Such judgments can be entered in civil cases when defendants do not file responses to claims or file too late.

The estimated total now owed Stokes is nearly $980,000. There is no indication it has been paid.

Backey has other legal issues.

Union County authorities alleged that in July 2014, Backey intended to “defraud” a Monroe woman by falsely representing to be a licensed contractor and getting an advance for work on her house he never completed. Last month, a Superior Court judge ordered Backey to pay $16,000 restitution as a condition of 18 months probation in the case.

Observer researcher Maria David contributed.

This story was originally published September 4, 2015 at 1:23 PM with the headline "Settlement reached in complex Stallings Ponzi case."