Crime & Courts

The secret that Stallings councilman Harry Stokes couldn’t live with

“Can’t carry the secret anymore. Sorry.”

Harry Stokes wrote that note before tying a cinder block to his right ankle and drowning himself in his backyard pool on a Sunday morning last August.

The 54-year-old Stallings town councilman and insurance broker was a family man who loved vacationing at Disney World, who employed a couple dozen people in a reputable firm and who was active in his church with his wife and three daughters.

Tributes poured in; hundreds attended his funeral. Then, his secret emerged.

Days before his suicide, a lawsuit claims, Stokes admitted to running a Ponzi scheme for years. He is accused of bilking friends, retirees and an employee out of up to $2.4 million – and possibly more – by claiming to invest their money in an apparently nonexistent mutual fund called Blackburg.

Now, more than a dozen former clients are going to court. Among them is Garrett Tomberlin, 62, a friend for more than 25 years. The Monroe man invested $10,000 with Stokes, retirement money he fears is lost.

“I felt like I was taken advantage of financially and friendship-wise,” Tomberlin said. “I thought I knew Harry.”

A business and political leader

For more than two decades, Stokes was known in his suburban Union County community through his business and social activities.

He owned Contemporary Benefits Design, an insurance firm incorporated in 1998. Stokes was also licensed to sell investment products such as 401(k) plans and mutual funds.

He and his wife, Sharyn, remained active at their daughters’ schools. And on weekends, he’d sell Italian ice from a cart at local festivals.

Stokes entered politics late, at age 51 in 2009.

Then-Stallings Mayor Lynda Paxton wanted someone to run against an unopposed councilman. A neighbor suggested Stokes, saying she knew him from church and that he was smart and ethical, Paxton recalled.

Stokes, a Republican, mounted a write-in campaign after missing the filing deadline. He walked around town with the mayor, chatted up voters in coffee shops and shook lots of hands.

He spent more than $6,000 of his own money and refused campaign contributions. “I didn’t want to owe anyone any favors,” he told the Observer.

Write-in candidates rarely win, yet Stokes crushed his opponent nearly 2-to-1.

When Stokes took office in late 2009, he had been steering clients to invest in Blackburg for at least four years.

‘The Midas touch’

Stokes’ death left more questions than answers.

When did he create Blackburg? How many people invested in it? Where did their money go?

Investors and companies affiliated with Stokes aren’t talking. Interviews, court filings and other public documents, though, offer a look at how Stokes operated.

Jimmy Bryant, an old friend of Stokes, and his wife, Nancy Kimsley, invested more than $410,000 at Contemporary Benefits Design since 1999, court records show, including Bryant’s entire 401(k). On Jan. 30, 2006, according to court filings, Stokes told them and two other couples that his company had changed brokerage services to Blackburg Funds.

Bryant and Kimsley, now both 71 and living in Chesapeake, Va., had no reason to doubt Stokes, Kimsley said.

They received regular account statements from “Blackburg Financial,” including a statement last June that said their investment had grown to $616,581. “He seemed like he had the Midas touch,” Kimsley said. “That’s where the betrayal is quite profound.”

As Stokes touted Blackburg in 2006, he also landed the backing of a national firm.

That July, he sold Contemporary Benefits Design to National Financial Partners of New York. NFP runs benefits, insurance and wealth management businesses. It manages $10 billion in assets and has affiliates around the country.

Stokes’ company became a subsidiary of NFP. He continued to run it through a management firm he created, Contemporary Benefits Management LLC.

Clients relied on Stokes to pick investments, according to court fillings.

“With a big securities brokerage house backing them up, how could it not look legitimate?” asked Wilmington attorney Cory Reiss, who represents retired Charlotte Fire Department Capt. Donald Ray and his wife, Emily, in the case.

Investors eager for help

The Rays, a Mint Hill couple in their 70s, chose Stokes in 2010 on another client’s recommendation. And their daughter knew him from church.

People are often lured into Ponzi schemes by someone they know and trust, said Tom Bartholomy, president of the Better Business Bureau of Southern Piedmont. When told of the Stokes case, Bartholomy said, “He sounds like he followed the (Ponzi) blueprint perfectly.”

In Ponzi schemes, early investors are paid returns with what actually are contributions from new investors. But with little or no legitimate earnings, the scams need a steady flow of money. They often collapse when it becomes harder to get new investors or if a large group of investors tries to cash out.

According to the Rays’ lawsuit, they told Stokes they wanted a fixed return and acknowledged they knew little about stocks or mutual funds.

Stokes recommended a mutual fund he said he had access to through NFP Securities, another subsidiary of NFP’s.

Blackburg Financial, he told the Rays, earned a fixed 5.99 percent a year. They said they received statements from Blackburg Financial showing their account growing as Stokes said it would.

All told, they invested $325,000 in Blackburg since 2010, records show. When they asked for a $25,000 withdrawal in July 2012, Stokes sent them a cashiers check and claimed the money was withdrawn from the Blackburg fund, the Rays’ suit said.

New problems emerge

In June 2013, Stokes’ finances publicly came into question. But it was not about investments; it was over his role as a council member.

An audit of Stallings’ finances by the state Local Government Commission found he had stopped making automatic payments on health insurance he got from the town. Stokes missed 15 months and owed Stallings $24,742.

Some officials wondered why an insurance agent would need to go through the town for insurance. Stokes told reporters that Stallings offered a better rate than he could get from his own company. He blamed an accounting error and paid the debt.

In July, he emailed the council to say he wasn’t seeking re-election: “My family and my health are very important and both have suffered.”

At an Aug. 12 council session, Stokes apologized for missing meetings, citing “quite a bit of tragedy in the Stokes household” recently, including his car wreck, heart condition and his mother’s death.

He also apologized for the insurance “fiasco,” saying the money he owed was unintentionally going for double car payments. “I should have had better insight,” he said, “that the money wasn’t going to the right place.”

His final words

Three days later, on Aug. 15, Stokes reportedly confessed.

The circumstances are unclear. But according to NFP’s lawsuit, Stokes told a former client and two former colleagues he had been taking money from clients for a fictitious investment called Blackburg since before he sold his business to NFP. He said he intended to pay clients back with personal assets but ran out of money.

NFP learned about the alleged admission that day and immediately fired him. The company did not say who Stokes talked to, or why.

On the morning of Aug. 18, Sharyn Stokes found her husband’s body at the bottom of their pool.

She told authorities he was under stress from work, according to the medical examiner’s report. It detailed the note Stokes left: “Can’t carry the secret anymore. Sorry. Took out 2 one million-dollar life insurance policies that should take care of my family.”

Sharyn Stokes spoke of her loss in remarks for her church, Lee Park Baptist in Monroe. She had a great marriage with her husband of more than 28 years, she said on a video posted online in February. “We were very secure, very comfortable, as far as I knew.”

In court filings, she said her husband handled the family finances. And she said that before he died, she had never heard of Blackburg.

A complicated lawsuit

Claims against Stokes’ estate began appearing weeks after his death. He owed more than $55,000 on business and personal debts, including credit cards and hospital bills.

Then the week before Christmas, NFP and its subsidiary, Contemporary Benefits Design, sued Stokes’ estate and his wife individually and in her role as executor, Contemporary Benefits Management LLC and Sunset Slush of Matthews LLC – the Italian ice business started in 2010 with Sharyn listed as its manager.

NFP wants to be reimbursed for any claims it could be forced to pay Blackburg investors and for defense costs. The company cited agreements it had with the Stokeses covering losses related to false representations or other misconduct.

In its suit, NFP said it appears Blackburg doesn’t exist. Blackburg does not appear to be registered with the U.S. Securities and Exchange Commission or the N.C. Department of State.

NFP said it was unable to determine how much money was invested in Blackburg, but alleges it was used toward the Stokes’ home equity line and funneled into Sunset Slush. NFP also claimed that Sharyn Stokes received a life insurance policy payout worth more than $1 million and was improperly spending the money that potentially could go to NFP and investors.

The missing Blackburg money so far totals about $1.1 million to $2.4 million, NFP said in its suit.

Blackburg-related claims by investors continue to be filed in the NFP case and against the estate, with totals approaching $2 million. It is unclear whether they are part of the figures NFP cited.

Parties point fingers

With Stokes dead and no one to criminally prosecute, litigants are left to untangle the case in civil court. They largely blame each other.

In court filings, Sharyn Stokes denied that she was a member of her husband’s management company, that she knew about any misconduct or that she was wrongfully draining the estate.

Sharyn Stokes sold the couple’s 2,859-square-foot Stallings home in January for $342,500, records show. The closing was delayed because of issues with the buyer’s financing, she said in court records, and she used part of the life insurance proceeds to buy another home. That Union County house cost $226,000.

Court records showed few significant estate assets beyond a $50,000 Disney World timeshare.

Neither Sharyn Stokes nor her lawyers would comment for this story.

But lawyers for the estate acknowledged in filings: “Without question it would appear on its face that (Harry Stokes) may have been involved in activity which has resulted in harm to third-party investors.” If the allegations are true, Sharyn Stokes’ lawyers said, NFP was negligent in failing to supervise him or maintaining safeguards.

Blackburg investors also insist NFP is liable for damages, arguing that NFP and Contemporary Benefits Design took no steps to prevent Stokes, acting as their agent, from defrauding them.

In January, a Union County judge allowed the Rays, the investors from Mint Hill, to join NFP’s suit even as they made claims against NFP as well as Stokes’ widow and businesses associated with the family.

NFP has denied liability.

A lawyer for NFP and Contemporary Benefits Design declined to comment. The local company is based in Monroe. It bills itself as one of the area’s largest comprehensive benefits brokerage firms, insuring nearly 30,000 people and managing benefits for more than 600 companies.

In February, NFP’s suit was transferred to N.C. Business Court, which handles complex business-related litigation. There’s no trial date.

Disappointed and betrayed

In mid-April, the court allowed six more couples who had invested in Blackburg to join NFP’s lawsuit.

That group includes Mark and Cynthia Tarleton. Mark was friends with Harry Stokes for about 20 years, and was a salesman at Contemporary Benefits Design until recently.

Since 2011, the Indian Trail couple invested $148,000 in Blackburg, according to court filings. Within days of Stokes’ death, they learned there never was a Blackburg fund, said their lawyer, David Bland of Matthews.

As for Tomberlin, Stokes’ old friend from Monroe, he also learned his money likely vanished. “I realized I was pretty well whipped in that whole deal,” he said.

Tomberlin prefers to remember Stokes as the friend he knew years ago, but he still feels disappointed and betrayed.

“He was the kind of guy who could make you feel good about buying something,” Tomberlin said. “He was a smooth operator. I guess he would have to be.”

Researcher Maria David contributed to this report.