Michael Cox (left) and Joshua Allen (right) with court records in the background.
Ed Price represents clients who are tired of hearing two men plead the Fifth Amendment when hundreds of people stand to lose millions of dollars with Lubbock-based Ferrum Capital in what one judge called a Ponzi scheme.
Lubbock attorney Price:
- Explained why he thinks one of the co-owners in Ferrum has forfeited his right to plead the Fifth Amendment after testifying in another lawsuit tied to Lubbock’s Walk-On’s restaurant.
- Expects more criminal charges to be filed.
- Wishes victims got more in Cox’s bankruptcy.
- Still has new victims coming to him.
Joshua Allen, Ferrum co-owner, testified in person in a deposition Thursday for a San Antonio lawsuit that Price attended by Zoom. The lawsuit is one of many connected to Ferrum.
“He invoked the Fifth Amendment about 500 times. He invoked it to every question,” Price said.
Allen’s testimony and asserting his right to remain silent came a day after the other co-owner of Ferrum, Michael Cox, was the subject of a hearing in bankruptcy court (which LubbockLights.com covered here).
In early 2024, Cox claimed more than $82 million in debt to nearly 400 people or businesses – mostly related to Ferrum.
Cox also pleaded the Fifth when called to testify in various lawsuits against him, which was mentioned in Wednesday’s bankruptcy hearing.
One person associated with Ferrum, Brooklynn Willy Chandler, has been indicted for wire fraud, securities fraud and obstructing an FBI investigation. Willy was a radio host and investment advisor in San Antonio.
Price has been communicating with federal prosecutors who said more criminal charges are coming. He believes Cox and Allen are on that list, but said it could be even more people.
“They can’t share with me … aspects of an ongoing investigation. They’re telling me it’s really imminent. So, whatever that means.”
Ponzi scheme and unregistered securities
Last week, bankruptcy judge Mark X. Mullin ruled Ferrum was a Ponzi scheme.
The judge defined it this way in his April 25 ruling: “The Ferrum Entities were operated as a Ponzi scheme in that new investor money and funds pledged to other investors were used to pay early investors.”
What exactly is a Ponzi scheme and why are they illegal? The Securities and Exchange Commission website explains:
“A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors,” sec.gov said.
Mullin also ruled Ferrum sold unregistered securities in violation of Texas law. When people put money into Ferrum, it was in the form of notes (or loans). The structure of these loans made them securities, the judge ruled, which can only be sold by a licensed securities dealer.
Because of securities violations, Mullin will not let Cox erase $21.7 million of debt to 66 people (or couples) who challenged his bankruptcy.
Challenging Allen’s Fifth Amendment
Price thinks Allen forfeited his Fifth Amendment right to not incriminate himself, he said.
When Allen was called to testify during the deposition in San Antonio this week, he claimed in a legal filing he could not answer questions.
But Price said Allen provided written testimony in a different lawsuit in Lubbock –Raiderland Holdings and Jeffrey Tait Crow versus WTX WO, Joshua Allen and others.
In that lawsuit – set for trial in June – Allen is accused of misrepresenting the risk of investing in the Walk-On’s restaurant off Lubbock’s West Loop 289.
“I never intended to defraud anyone, and I never guaranteed any investment,” Allen testified in a sworn affidavit.
Price explained why that matters in the Ferrum cases.
“We took the position that is a waiver of his Fifth Amendment rights. And so, there’s going to be a hearing set in Bexar County to ask a judge if he did in fact waive his Fifth Amendment rights … ,” Price said.
If so, Allen might be ordered to come back and testify in the Ferrum lawsuit in San Antonio.
It’s not like a police interview where a suspect can stop talking at any time, Price said
“He’s not under arrest with us. These are civil matters. … So it’s not the same thing. … If you wave it, you gotta answer the questions,” Price said.
If Allen starts answering questions, he has to keep answering, Price added.
LubbockLights.com reached out to one of Allen’s attorneys, Nick Olguin, by email to offer a chance to comment but had not received a response by the time this story was published.
Reaction to the Cox bankruptcy rulings
In most bankruptcies, a person’s home is protected. Creditors can’t touch it.
However, Mullin made two recent rulings changing the rules in this case.
Mullin ruled Cox illegally sold securities, which would ordinarily limit the homestead protection to $189,050. However, Mullin also approved a settlement between Cox and an attorney for the bankruptcy trustee, Kent Ries. Click here to see our coverage of the deal before it was approved. The settlement means Cox can keep his equity in his home.
As mentioned above, those rulings mean Cox cannot discharge $21.7 million of debt. But they also mean Cox can no longer use the bankruptcy protections to stop lawsuits against him.
“The bankruptcy really hasn’t done him much good,” Price said.
The settlement between Cox and Ries was not everything Price and his clients wanted.
“We wanted to go after his homestead more strenuously, but that’s a very protected right under the Bankruptcy Code,” Price said.
“We didn’t really have the trustee on our side,” Price told LubbockLights.com.
Price explained further, saying concessions Cox gave up in the settlement go to the bankruptcy estate not only the folks who filed a challenge for securities violations.
Either way, Cox lost his ability to wipe away any debt from the San Antonio lawsuit.
“That was a reasonable way to resolve it,” Price said.
LubbockLights.com reached out to Ries asking if there was anything he could have done differently for the adversaries (the people who challenged Cox’s right to erase his debt.)
“I don’t have anything to do with their adversaries. I cannot help or hurt their cause of action. The estate is not a party to any adversary, and the estate is not affected in any way whether the debtor gets discharged or not. That’s pretty much the same thing in any case, not just this one,” Ries said by email.
Ongoing coverage of Ferrum Capital
-
- Hundreds may have lost millions with troubled local company after criminal case extends to Lubbock from San Antonio
- More charges filed in San Antonio related to FBI investigation of troubled Lubbock firm; one victim speaks about losing retirement savings
- Deal proposed in Lubbock $82 million Mike Cox bankruptcy case could recover small portion for Ferrum participants
- Threat illustrates frustration of Ferrum Capital investors, who want to know where money went, if they’ll recover any
- Cox bankruptcy case in Lubbock may get new judge, as hundreds wait to see about their millions of lost savings
- Judge rejects Lubbock man’s efforts to use bankruptcy to avoid millions of debt in Ferrum Capital case
- ‘I was shocked and ecstatic…’ family reacts after bankruptcy ruling preserves millions in debt related to Lubbock-based Ferrum Capital
- Cox deal to keep his house approved but some of his bankruptcy protections lost
More victims still come forward
“I get calls weekly,” Price said.
Those calls are from people who are just now learning they lost money with Cox.
“Similar stories,” Price said of the new people coming forward.
“And the amounts are all over the place anywhere from $50,000 up to – I’ve got one – $725,000,” Price said.
It’s too late for those folks to file any new claims in the bankruptcy. The deadlines have passed. LubbockLights.com asked what the total dollar figure will be when the bankruptcy is wrapped up.
“I just don’t know. I think it’s going to be somewhere between $80 and $100 million,” Price said.
“The bankruptcy will be closed. And then I guess Mr. Cox is going to have to deal with the U.S. government on the criminal cases,” Price said.
To clarify, only one person, Willy, has so far been charged. Price expects that to change.
Correction: The original version of this story said Cox could only keep a certain dollar value of protection for his home. However, because of a settlement with the trustee, he will keep his entire equity (but he still needs to pay the remaining mortgage.) This story was updated to reflect the correction.
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