Take the Money and Run

It took sixteen years and international extradition, but the Colorado Attorney Generalís Office finally got its man.

"It was a ruse. We knew they wouldn't get a brokerage license. It was a way to set a finite date so they'd cease operations," Feigin says. "When they applied for the license, it gave us the opportunity to ask questions they otherwise wouldn't have answered. It was a way of leveraging more information."

The securities division issued subpoenas to the banks in which Schlaks deposited his earnings and uncovered a complicated paper trail that wound through forty separate bank accounts -- 32 in Colorado and eight in New Mexico. "Most businesses that are legitimate don't need forty separate bank accounts," says Victor Reichman, a senior assistant attorney general who got involved with the case much later. "When you have this number, you do it to hide the money."

Feigin filed an injunction in August 1983 to stop Schlaks's operation. On October 18 -- the very day the judge was supposed to hear the case -- Schlaks and company filed for bankruptcy. "Under traditional legal procedures, when someone files for Chapter 11 protection, all other cases [against them] are frozen," says Feigin. "We feared they [filed for bankruptcy] in an effort to stop our injunctive action from going forward."

Bad investment: Jay Schlaks lived in this Humboldt Street mansion while he bilked people out of millions of dollars.
James Bludworth
Bad investment: Jay Schlaks lived in this Humboldt Street mansion while he bilked people out of millions of dollars.

He was right. After three days of testimony, a bankruptcy judge ruled that the injunctive action had to stop.

It was around this time that investors like David realized they'd been duped. For a few months, everything had been going as planned, and David was getting his monthly interest payments. But then three months went by with no payments -- and no word from First Territorial Mortgage. David and his wife called the company, only to find that its phone had been disconnected.

"We got in our old beat-up Dodge and drove over to the building and found out the thing was a scam," David says. "Someone in the building where Mr. Schlaks leased his space said First Territorial Mortgage was defunct. We found out that the company had filed for bankruptcy. Someone took our number and address, and our name got onto the list of people who had been injured by this company. After that, we started receiving notices of informational meetings, and we attended those. We were one of a number of large investors who had been hoodwinked, but it was small potatoes compared to the others. We just wrote it off as a loss and figured we'd paid for a pretty intense lesson.

"The sad side of this whole scenario," David continues, "is that time passes as the wheels of justice grind. Even though they grind because of the energy of caring and competent people, still, it takes time. People's lives go on and sometimes end. I remember one man who was aged and frail. During one of those explanatory meetings, he recounted to a group of about sixty people -- each of whom was involved or who had a family member involved -- that he'd lost $200,000, and that that was what he had to live on for the rest of his life. That kind of thing leaves you with a sick feeling in your stomach. At the time, our loss was a pretty severe jolt, but really, it was a minor bump on the road back to financial stability. For a lot of people, though, it was the end of a long career of financial stability, and it happened at a point in people's lives when their ability to recover their loss was nil."

Some victims had invested the minimum $5,000, but others, like a couple from Arvada, lost $100,000; a man from Pueblo lost $80,000; a 63-year-old man from Louisville lost $62,000, and a 54-year-old Denver man invested $25,000.

The bankruptcy court eventually reversed its decision and allowed the injunction to go forward. The judge appointed a trustee for Schlaks's estate, and his assets, including the Cheesman Park homes, were liquidated. Ownership of the land in New Mexico reverted back to the bank from which Schlaks took out the loan.

On December 20, 1984, the Colorado Attorney General's Office filed People v. Jay Schlaks and set about prosecuting him on 29 criminal counts ranging from theft to fraudulent and prohibited practices. Shortly after that, however, Schlaks fled to Florida, where he got into trouble for operating another scam. This time, he was reportedly trying to sell people coins that he claimed were made with gold salvaged during the restoration of the Statue of Liberty (which, incidentally, is cast in bronze). For reasons that are not fully understood by the Colorado prosecutors, Schlaks was never charged in Florida.

For eighteen months, Frank Oldham of the attorney general's office tried to extradite Schlaks back to Colorado to face his criminal trial. Finally, in July 1986, he succeeded. Schlaks was arrested but quickly freed on bond. He waived his right to a preliminary hearing, and the case was turned over to Denver District Court for trial. But on July 14, 1987, the first day Schlaks was to appear in district court to hear the charges against him, he failed to show. Schlaks's girlfriend and co-defendant, Rebecca Romero (who would later become his wife), was also missing.

Schlaks was also scheduled to be in New Mexico, where a Taos jury had found him guilty of fraud in a related case; before coming to Colorado in 1982, Schlaks had applied for credit so he could buy office equipment for another company, First Territorial Mortgage of New Mexico. His reference for the loan was someone named "Becky" at the New Mexico Land Bank. The bank, however, turned out to be a fake set up by Schlaks.

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