Take the Money and Run

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Some of the other players in Schlaks's charade have paid for their roles as well. William Kraemer, the lawyer for First Territorial Mortgage, was found guilty of securities fraud in 1986. He received four years' probation and was ordered to pay $20,000 in restitution. The New Mexico resident has since completed his probation and paid his dues.

Two other co-defendants received deferred sentences as part of a plea bargain; they both successfully completed the terms of the plea agreements, and the cases against them have been dismissed. One of the company's account executives was not charged in return for his cooperation in the prosecution of Schlaks. Several other account executives are long gone -- "We've searched all over the continent for them," explains Reichman -- but it doesn't trouble the prosecutors too much. They were just pawns, they say; it was Schlaks who orchestrated everything. "These people will never qualify for choirboy, but they're not Jay Schlaks," Reichman says.

Schlaks celebrated his 54th birthday last week at Camp George West, a minimum-security prison in Golden, but he didn't get a visit from his wife, Rebecca, or his two children. They are still more than 7,300 miles away in New Zealand, stuck in cross-continental limbo. Rebecca Schlaks can't become a New Zealand resident because of the outstanding warrant for her arrest in the United States, but she can't return here for the same reason -- and since her passport has expired, she can't go anywhere else. "She's a woman without a country," Reichman says. Which is fine with him. "We'll leave the warrant for her in place. But are we going to go through this brain damage again? No."

McSwigan, the woman who lost $22,000, doesn't blame the attorney general's office for the delays. "As long as [Schlaks] behaved in New Zealand, they couldn't do much," she says. "But once he got in trouble there, New Zealand was happy to be rid of him. I think the attorney general's office handled it as well as they could."

David, the man who lost $7,000, hopes some of the people who lost far more than he will take comfort in knowing Schlaks is paying for his crimes. "It was the persistence of people like Mr. Lewis that brought Mr. Schlaks to justice," says David, who saw Schlaks for the first time when he attended his sentencing in December. "The outcome could have been completely different had it not been for the ingenuity and persistence of these people."

Lewis and Reichman hope they never have to handle another extradition case, and they admit they were ill-equipped to handle this one. Since Colorado is a landlocked state, it's rare for fugitives to flee to other countries from here, they say. While the scam itself was plain vanilla compared to some fraud cases the two have tried, its prosecution had more twists and turns than any they'd ever encountered.

"It involved legal issues I'd never seen before," Reichman says. "Witnesses were dying. This stuff just doesn't happen. And then there was the New Zealand case that was right on par with ours. The whole thing was just bizarre. I started prosecuting cases in 1975, and I've never seen anything like it. Phil Feigin really deserves credit for keeping it going. He had this attitude that he wouldn't let this kind of thing happen in Colorado."

Feigin, who eventually spent ten years in the security division's top post before moving briefly to Washington, D.C., to direct the National Association of State Securities Regulators, now works in Denver as special counsel for the law firm of Rothgerber, Johnson and Lyons. While he was still on the case, however, he managed to convince the state legislature to add the securities-fraud unit -- for which Reichman and Lewis both work -- to the attorney general's criminal-justice section. The case helped legislators understand the need for a bigger commitment toward punishing securities fraud, and it also contributed to getting stiffer penalties for fraudulent criminals. Securities fraud used to be a class-five felony with a maximum sentence of five years; now it's a class-three felony, which can bring much longer sentences.

Now that he knows Schlaks is serving time, Feigin feels proud that justice -- albeit an overdue justice -- was finally served. "It struck me as incredibly wrong for someone to be able to rip off 250 innocent victims and spend the money in such a profligate way. I thought it was important to send the message that Colorado is a bad place to commit securities fraud and that you can't just do these things and then skip town."

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Julie Jargon
Contact: Julie Jargon