William "Jay" Zubick was issuing change orders almost as fast as his contractor in Idaho could write them down. Battling a serious heart infection, the 42-year-old investment counselor and Ironman triathlete decided in January 2007 that rather than return to his home in an exclusive gated estate community on California's Monterey Peninsula, he would take his wife and four children to the lakeside home he was having built in Coeur d'Alene to convalesce.
Zubick's small circle of clients worried—not just about their investments but about Zubick too. He had become such a good friend to many of them that they threw him a party for his 40th birthday and sent him and his family on an all-expenses-paid vacation to Mexico. But when the endocarditis became so serious that he was sent to Stanford University Hospital, several clients who had formed an investment partnership decided to exercise a clause in their agreement that granted them access to Zubick's office should he become incapacitated.
He had always refused their offer to hire him clerical help; they just wanted to make sure no action needed to be taken on their accounts while Zubick concentrated on his health.
Just a few hours after investor Clyde Wesley Freedman obtained a key from Zubick's wife, Suzanne, and entered the office, he was calling his friends with the news: There was hardly any money in some of the brokerage accounts, while other brokerage accounts didn't even exist. The K-1 tax forms Zubick had been providing them for years were clever fakes, the funds he had distributed to them when they requested it had come from other client accounts, and their money—$15,832,466.12 from 29 separate investors—was gone.
This story, though, has less to do with Jay Zubick and more to do with the mess he left behind in the financial lives of his victims—and how to spot the telltale signs of fraud that can deplete your accounts overnight. Zubick last fall pleaded guilty to 11 counts of securities fraud, money laundering, tax evasion, theft, and forgery and was sentenced to 24 years and eight months in the California state prison system to ponder his future.
A handful of his victims who were at retirement age don't have that luxury of time.
"These people were looking to get a reasonable return on the investment funds they had available," says Larry Biegel, a former public defender who is representing the 29 victims in their civil suit against Zubick. "He said 10 and 12 and 13 percent, and used the old technique of underselling his abilities and then producing. He gave them K-1 [tax forms] showing 18 to 24 percent returns."
Hugo Ferlito of Carmel-by-the-Sea, Calif., a dentist, avid runner, and chairman of the Big Sur International Marathon, sold his Monterey dental practice in 2005 and signed a noncompete clause, all based on Zubick's falsely documented promises that the $500,000 he invested for Ferlito had grown to nearly than $1.5 million. Now 64, Ferlito was set to travel the world with his wife, Karen, but now he spends three days a week traveling to Santa Cruz to work with a community dental service.
Ferlito's traditional IRA remains intact, but with a mortgage to pay and normal living expenses, his plans for retirement are on hold.
"It's not going to happen for the foreseeable future," Ferlito says. "But I'm lucky. I have a degree and am well known in the community and was able to get job offers. I promised Karen we would travel a lot, and we have kept a little of that, but the carefree, go-anywhere-we-want life is on hold."
Tony Wolff, 62, a retired marketing consultant who lost multiple millions of dollars (he declines to say exactly how much) to Zubick's fraud, and his wife, Kimberly, sold their Carmel home and moved into a rental property they had near Big Sur. Wolff has taught yoga and volunteered at nonprofits since retiring before the dot-com bust. He now finds himself in the odd position of wanting to get back in the job market when jobs are increasingly hard to find.
"I was used to being pursued, and now I'm saying, 'Boy, do I have a great thing for you.' But as I said to my nephew, I wouldn't hire anyone who reminded me of my father," Wolff says. "No matter how smart I think I am, it's a burden people carry. It's not ageism. I wouldn't hire someone who reminded me of my father."
Like Ferlito, Wolff uses the word "lucky" to describe his circumstances. "In absolute concrete terms, I probably could get by without working. I could live OK," Wolff says. "But I'm trying to use this as a stimulus, a kick in the ass rather than a kick in the stomach. I've been talking for years about doing good work that feeds my soul, and I'm trying to make this a learning experience rather than something I'm miserable about."
A third Zubick investor, pediatric dentist Ray Stewart, had agreed to sell his portion of a practice that included four offices in Monterey County when the fraud came to light. He and his wife, Penny, had expected more than $1 million from their investment with Zubick; instead, they lost $600,000.
"I thank God, and do so repeatedly, that I didn't have so much of my portfolio and net worth tied up with Zubick," Stewart says. The Stewarts' daughter and son-in-law, who counted Zubick and his wife among their closest friends, lost their children's $100,000 college fund by investing with Zubick.
Stewart, who also signed a noncompete clause, will now consult for private industry, and this month he'll become executive director of the California Society of Pediatric Dentistry. "We have a lovely home in Carmel with a lot of equity and other property we were planning to sell, and with our 401(k) and Zubick investments we felt very comfortable about being able to get by," Stewart says. "I had already arranged to be bought out, and had I not made those agreements, I would have continued to practice for a few years. We're still in a state of flux in terms of our budget. I would say at least half of our net worth is in real estate, and at this point in time, real estate isn't liquid at all."
Zubick's conviction includes a restitution order of $12.2 million. Through a default judgment in the civil case, Biegel said his clients have reclaimed just over $3 million of their missing funds.
It's expected that Zubick will serve at least 12½ years of his sentence. If that happens, he will be 57 years old when he's released, the age at which many people begin thinking in earnest about retiring.