Four local families put more than $700,000 into two businesses that state officials said were shell companies, and they are suing to get their money back.
In 2009, Johnson County Commissioner Brian Baird, his wife, Beth, and former commissioner Joseph DeHart, and his wife Nancy, invested in the companies after a Trafalgar man they knew socially told them about an investment opportunity he promised would bring guaranteed returns of 18 percent or more. They received statements showing their money had grown by the promised amount, and their relatives invested, too, according to the lawsuit filed in Johnson County Superior Court 3.
Then in 2011, the families were contacted by the Indiana Secretary of State’s Office and told that Martin McClary, of Trafalgar, and Parry Clark, a Florida resident, whom they had been investing with, were using the money for their personal benefit and that the business they invested in was a shell company, the lawsuit said.
McClary and Clark were charged with multiple felonies in what investigators called an investment scheme that took at least $1.6 million from 33 investors, including many from Johnson County, according to court records.
Baird invested $450,000; Joseph and Nancy DeHart invested $180,000; J. Scott and Delaine DeHart, Joseph DeHart’s son and daughter-in-law, invested $90,000; and Renae and Kelly Fife, Baird’s daughter and son-in-law, invested $31,000. Nancy DeHart also invested $20,000 on behalf of a woman who has since passed away.
The families lost all of their investments, the lawsuit said.
Now, they are seeking restitution and damages in a civil lawsuit, and prosecutors plan to try to get restitution for investors as part of the criminal case.
In a lawsuit filed this month, the families claim McClary, Clark, Prosidian, a Florida company, and Prosperity Capital Enterprises and The Ind. Harvest Co., both Greenwood companies, fraudulently took their investments.
The lawsuit claims the families were told to expect a guaranteed return of 18 percent from a company that issued medical malpractice insurance policies to physicians.
The lawsuit says that McClary and Clark committed negligence, breaches of fiduciary duty, conversion, theft, unjust enrichment, breach of contract and three different types of fraud.
The litigation asks for repayment of lost investments, damages and the opportunity to review the finances to figure out where the money went.
Claims made in a civil lawsuit are the opinion of the person filing them and may be refuted in court.
After a criminal investigation, McClary and Clark were charged with 23 felony counts of securities registration violation, broker-dealer violations and securities fraud.
Prosecutors plan to seek restitution for the victims, including by seizing assets if necessary, Indiana Secretary of State’s Office spokeswoman Valerie Kroeger said.
Clark said in an interview that he was also a victim and that he hoped the investors would get their money back.
McClary and his attorneys could not be reached. He told investigators that he worked for Clark.
Joseph DeHart, Troy DeHart and Brian Baird declined to comment.
Greenwood attorney Bill Barrett, who represents the Bairds, Fifes and DeHarts, said his clients filed the lawsuit with the hope to recover whatever they can, whether in criminal or civil court.
The civil lawsuit should put added pressure on McClary and Clark to return funds, Barrett said.
“It’s harder to defend against a war on two fronts,” he said.
Barrett declined to discuss the details of the case.
According to the lawsuit, McClary told investors Clark had hired him to raise money for Prosidian, a medical malpractice insurance company in Florida.
In 2009, he met with J. Scott DeHart, Joseph DeHart and Brian Baird to try to persuade them to invest their family’s savings in the company, which wasn’t licensed to sell insurance in Florida, the lawsuit said.
McClary knew them socially because they’re all from the same area, Barrett said. He sold them membership units, which are ownership stakes similar to shares in a corporation.
He told them he was a member of Prosidian’s board of directors and was recruiting investors in Indiana, that he had invested a lot of his own money in the company and that he set up Prosperity Capital Enterprises in Greenwood as a holding company to receive investments for Prosidian, according to the lawsuit.
McClary told them that Clark had developed innovative software to analyze insurance underwriting and that prominent investors were backing the company, according to the lawsuit.
Prosidian would provide a guaranteed 18 percent interest rate for investors, and they would be entitled to two-and-a-half times their investment in company stock, the lawsuit said. He told them the time limit to invest was coming to a close and that God had given him a gift to help others prosper through investment, according to the lawsuit.
He encouraged them to study the company’s website and a business plan marked as confidential, which they did before investing, the lawsuit said.
Investigators later discovered that McClary, Clark and all three companies were not registered to sell securities in Indiana. They also failed to register their securities with the Indiana Secretary of State’s Office, as is required by law, according to a probable-cause affidavit.
The families invested their savings, and McClary later persuaded them to invest more after touting the company’s success, according to the lawsuit. He sent Joseph and Nancy DeHart a written update about the company, its investments and business prospects.
Based on that information, they invested an additional $150,000 in Prosidian, the lawsuit said.
A short time after, he stopped by J. Scott DeHart’s business office in Trafalgar and told him that Prosidian was close to writing insurance policies that Lloyd’s of London would reinsure and that they expected the investments to triple in value, the lawsuit said. He told them that the window of opportunity for investment was going to close soon, and that he had to invest additional funds or be blocked from investing more in the future.
J. Scott and Delaine DeHart contributed another $50,000 to the company, the lawsuit said.
About two months later, McClary emailed Baird and said that the company had profited by about $260 million in its trading account and that Baird could get a 150 percent return in a year, according to the lawsuit. He told him that if he invested in the next 10 days he could make about $300,000 from the deal, and Baird agreed to invest another $200,000 in Prosidian.
The Bairds and DeHarts got annual statements in early 2010 that showed that the money in their accounts had grown by 18 percent, as promised, the lawsuit said. The Bairds referred their daughter and son-in-law, Renae and Kelly Fife, to McClary so they could invest their money in Prosidian.
Then in December 2010, McClary told investors that Clark had chosen to stop running the company because of health concerns and that he planned to take it over, the lawsuit said. He told them their investments were at risk.
McClary urged the investors not to call Clark or pursue legal action, because it would compromise his efforts to preserve the company, the lawsuit said.
In March, investors received statements showing that most of their investments remained intact, the lawsuit said.
Later that spring, the Indiana secretary of state securities division contacted them and told them their money was being used for the personal benefit of the men they had been investing with, that the companies weren’t licensed to sell securities for investments, there was no office in Greenwood as they had been told and they had been falsely told how much money the company was making.
Prosidian was not profitable, didn’t have prominent investors and was in fact a shell company that was never licensed to sell insurance in Florida, the lawsuit said.