Financial firm with central Indiana ties faces FBI investigation, civil lawsuits

A financial firm with central Indiana connections is under investigation by the FBI, which says it suspects the firm’s executives of using investor money to carry out a “long-standing fraud scheme.”

The firm, Capstone Capital Management LLC, is also facing multiple civil suits filed by investors who say they were deceived by Capstone and lost money as a result.

Some of those civil suits also allege that Capstone is associated with Indianapolis-based EDU Holding Trust and its trustee, Roger Dobrovodsky, and those lawsuits name Dobrovodsky and EDU as defendants. (Dobrovodsky and EDU, which IBJ originally wrote about in April 2023, have been the subject of numerous other lawsuits, investigations and sanctions over the past several years.)

As a rule, the FBI does not comment on ongoing investigations, and it typically will not even confirm whether an investigation exists. In this case, though, the Indianapolis division of the FBI posted a notice on its website on March 14 that revealed the existence of the Capstone investigation.

In the notice, which is still visible on the FBI’s website, the agency says it is looking for potential victims who might provide information related to the agency’s investigation of “a suspected Ponzi scheme” conducted by Capstone’s executives.

“The executives misappropriated and misdirected funds earmarked for particular investments in order to facilitate the long-standing fraud scheme,” the FBI’s solicitation says.

IBJ tried repeatedly to reach the Capstone executives for comment but was unsuccessful. IBJ also reached out to Dobrovodsky, but, as was the case in 2023, he did not respond.

The FBI’s solicitation is accompanied by an online questionnaire that asks potential victims specific questions, including how much they invested with Capstone, what type of marketing materials they were presented with, what type of returns they expected to receive and to whom they spoke if they had questions about those investments.

The FBI notice does not identify the Capstone executives by name. But the individuals are named in a separate civil suit that also accused Capstone and its principals of financial fraud. That case, which references the FBI investigation, was filed June 14 in U.S. District Court in the District of Nevada. It was dismissed June 28 at the plaintiff’s request, and refiled that same day in Nevada’s Eighth Judicial District Court in Clark County.

The Nevada lawsuit

The plaintiff in the Nevada case is Brynes Capital Life Settlement Wealth Fund 2021 LLC, a Punta Gorda, Florida-based company. The defendants are Capstone Capital Management LLC, a related entity called Capstone Capital South Dakota LLC, and numerous named and unnamed individuals, including Capstone principals Michael Bradburn of Fishers; Tyler Randolph of Humacao, Puerto Rico; and Christian Streib of Granbury, Texas.

The court docket in this case does not contain information about who was to have represented the defendants. IBJ was unable to reach Bradburn, Randolph and Streib via phone calls and texts left at numbers believed to be theirs.

Capstone’s website identifies the company as Capstone Alternative Strategies and names Streib as its CEO, Randolph as its chief aggregation officer and Bradburn as managing director. The website identifies the firm’s headquarters as Atlanta, Georgia. The phone number associated with that address has been disconnected, and a message sent to an e-mail address on the company’s website bounced back as undeliverable.

As of July 2, no federal criminal charges had been filed against Capstone, Streib, Randolph or Bradburn.

Former FBI agent Doug Kouns, the founder and CEO of Carmel-based investigative firm Veracity IIR, said lengthy investigations are not uncommon in cases of suspected financial fraud. The investigations can involve sifting through bank records, financial data, phone and email records—and that takes time.

While still working for the FBI, Kouns investigated a $1 million financial fraud in South Dakota in which victims were persuaded to invest in a nonexistent farm.

The investigation “probably took a couple of years, and that wasn’t even really a very big one,” said Kouns, who is not involved with the Capstone investigation.

Another potential complication in financial cases, Kouns said, is that sometimes the entity under investigation has set up shell companies, registered agents and business registrations in different states. “It provides them another layer of anonymity,” he said.

The Brynes Capital lawsuit and two others against Capstone involve a type of investment called a life settlement. In a life settlement, an insured individual who needs immediate cash can sell the policy, typically for some percentage of the policy’s death benefit. The new owner or owners of that policy take over the premium payments, and in return, they receive the full death benefit when the original policyholder dies.

Brynes Capital was formed in 2021 to acquire a portfolio of life settlement policies, raising money from investors who would then own fractional shares of those policies. Part of the investors’ money went toward purchasing the policies, and part was set aside to pay the premiums on those policies.

Brynes Capital alleges it gave $3.2 million it had raised from investors to Capstone, which was to put that money into an escrow account. Money from that escrow account was to be used only to pay the premiums on the life insurance policies or to buy additional policies, the lawsuit says.

During monthly meetings, the lawsuit alleges, Bradburn provided Brynes Capital with escrow analysis reports showing how much money was being held in escrow, which policies had been acquired and how much money was allocated for both premium payments and the purchase of new policies.

Then, early this year, Brynes Capital alleges, it received a phone call from an FBI agent who informed Brynes Capital that the agency was investigating Capstone for fraud.

Brynes Capital alleges it later learned that Capstone had moved the escrow funds to a different account and used that money as collateral for a loan. The lender, which is identified in the lawsuit only as “The Bancorp,” later called that loan, and all the money that should have been held in escrow was used to repay it.

Brynes Capital also says Capstone failed to make timely premium payments on one of the life settlement policies Brynes Capital had acquired—a policy that carried a $5 million death benefit. That policy subsequently lapsed, which meant Brynes Capital lost the ability to claim that money upon the original policyholder’s death, the suit alleges.

The plaintiff had asked the court to award it $8.2 million—the $3.2 million it originally provided to Capstone and the $5 million death benefit that Brynes Capital says it lost out on.

Other civil suits

Allegations in a lawsuit, of course, represent the plaintiff’s viewpoint, and they can be challenged in court. The Capstone defendants did not respond to questions, and they had not filed a legal answer to the Brynes complaint by the time the case was dismissed.

Capstone is named in two other lawsuits that also make allegations about lapsed premiums and lost investments.

On May 17, the Missouri Trust and Investment Co. filed suit in Marion Superior Court against Capstone Alternative Strategies Inc. as well as Roger Dobrovodsky. Dobrovodsky is named both as an individual defendant and as trustee of Indianapolis-based EDU Holding Trust.

The Springfield, Missouri-based trust alleges that it was appointed to serve as interim trustee of the Zachary Martin Inheritance Protection Trust in 2019, and in that role, it retained several life-settlement investments previously made with EDU.

EDU retained Capstone to administer the life settlements, the lawsuit alleges, but in October 2022, EDU sent Missouri Trust a letter saying Capstone had failed to make premium payments on the investments. As a result, some of the policies had lapsed, but others were within a grace period and had not yet lapsed, the suit says.

EDU sent Missouri Trust two other letters that month requesting additional money so that EDU could pay the premiums directly, the suit alleges, and the Zachary Martin Trust sent a total of $3,232 in premium payments.

“The checks to EDU were cashed, but there is no indication that the funds were used to pay premiums, and per a letter from EDU dated Feb. 3, 2023, we now understand that all policies have lapsed,” Missouri Trust alleges.

The lawsuit also alleges that the defendants have refused Missouri Trust’s requests for information and an accounting of the life settlement investments.

“Defendants’ fraudulent concealment damaged the Zachary Martin Trust by preventing it from having the opportunity to potentially pay the premiums itself to prevent lapse,” the lawsuit alleges.

As was also the case with the Brynes Capital lawsuit, the court docket in the Missouri Trust case does not show that any of the defendants are represented yet by legal counsel.

IBJ left Dobrovodsky a phone message at EDU’s Rockville Road office but did not receive a return phone call. IBJ also e-mailed Dobrovodsky at the address listed on his business card, but that email came back as undeliverable.

(In 2023, Bradburn did respond to IBJ’s query about a similar letter that EDU had sent to a different investor. At that time, Bradburn sent IBJ a lengthy email in which he blamed EDU for the missed premium payments.)

A third lawsuit was filed by Texas investor Donald L. Grogan, a retired engineer who alleges that he lost $1 million investing in life settlements through Capstone. “Don still doesn’t know how exactly that happened, because the defendants and others involved in this scheme have refused to answer some of his questions and have given him conflicting answers to other of his questions,” the lawsuit alleges.

Grogan is not the only one with unanswered questions.

Other investors who have not filed lawsuits also say they want to know what happened to their money. IBJ spoke on multiple occasions with two investors who identified themselves to IBJ but did not want their names used in print.

A Florida investor said he invested a total of $250,000 in senior life settlements from 2018 to 2022, working with a Carmel-based adviser.

The investor said he had never heard Capstone’s name until March when that adviser sent him a letter about potential legal developments with the investment. Capstone was named in that letter. The adviser also informed the investor about the FBI’s investigation of Capstone.

The investor said he has little hope at this point of recovering any of his $250,000, which represents about a quarter of his retirement savings. He has contemplated taking legal action against the Carmel adviser who sold him the investments but is hoping to find other investors willing to join him in the lawsuit and help pay the legal fees.

Another investor, a Tennessee resident, said she invested $167,000 in life settlements in March 2019 after meeting with a salesman at her home and signing a contract with EDU at the time she invested.

The investor said she did receive two payouts totaling $48,144 in late 2022. But right around that time, she also received a letter from Dobrovodsky asking for additional premium payments. The Tennessee investor, like the Florida investor, said she had not heard of Capstone until that time.

In response to letters from Dobrovodsky, she said, she has continued to pay quarterly premium payments since then in hopes of salvaging her investment. But she said she’s given up trying to reach him to answer her questions about what’s going on. She’s also filed complaints with numerous financial regulators in Indiana, Tennessee and the federal government.

Grogan filed suit against Capstone Alternative Strategies LLC, Capstone Capital Management LLC, Bradburn, Streib, Randolph and a Dallas salesman who solicited Grogan’s investment. The suit, filed March 1, 2023, in the District Court of Fort Bend County, Texas, is pending.

In November, Grogan amended his original lawsuit to add several more defendants: Dobrovodsky, both as an individual and as trustee of the EDU Holding Trust; as well as EDU Fiduciary Services LLC as its own entity and as trustee of EDU Holding Trust; and EDU Financial Strategies LLC. The salesman’s company, Lincoln Wealth Advisors LLC, was also added as a defendant.

In his legal response to Grogran’s complaint, the salesman denies that Grogan was ever a client of his or of Lincoln Wealth Advisors. He also denies soliciting Grogan’s investment and denies ever having acted as an agent of Capstone and the other defendants.

One risk of investing in life settlements is that the original policyholder outlives actuarial predictions, which means the new owner of the policy will have to pay premiums for longer than expected.

But Capstone represented that it had done its homework to assess life expectancies and kept enough reserves to pay premiums for that length of time plus two more years, the lawsuit says. Capstone also guaranteed that if those reserves were not sufficient, Capstone would pay the additional premiums, Grogan alleges.

He said that after reading Capstone’s literature and questioning the company to make sure he understood this guarantee, he invested $1 million in October 2015.

The investments seemed to be operating as expected for several years, Grogan said, and he received a $92,230 payout in December 2020 after one of the original policyholders died. But in October 2022, Grogan alleges, Dobrovodsky sent him a letter saying Grogan’s remaining policies had lapsed because Capstone had failed to make premium payments.

Grogan alleges that, when he contacted Capstone, the company in turn blamed Dobrovodsky for the missed premium payments.

Grogan said he has not been able to get basic facts about his investments from Capstone or Dobrovodsky. He also alleges that the defendants “used their various corporate entities as shells in a game, using them interchangeably and sometimes at random” for purposes of committing fraud.

Capstone’s response

In their legal answer to Grogan’s lawsuit, Capstone, Bradburn, Streib and Randolph say they never had any direct communication with Grogan, and they allege that Grogan “failed to conduct reasonable due diligence” regarding his investment. They also say they are not affiliated with the EDU entities, and they describe Grogan’s investment as one that is EDU-related.

Capstone, Bradburn, Randolph and Streib engaged Houston attorney James W. Walker to represent them in the Grogan case.

Contacted by IBJ in April, Walker declined to comment on the case.

Last week, Walker filed a request with the court to withdraw from the case because his clients have not paid their legal bills despite his firm’s “months of efforts to encourage payment.”

Walker’s request notes that his law firm, Pachulski Stang Ziehl & Jones LLP, “has concluded that the Capstone defendants are unable to pay the past due invoices and to satisfy future such invoices for services rendered in this suit.”•