Opening arguments in Ferrum Capital trial: Was it a ‘big lie’ and ‘money making machine’ or honest endeavor that failed?

Over the next few weeks jurors will decide if Joshua Allen and Michael Cox sold what federal prosecutors called “the big lie” to feed their criminal “money-making machine” through Lubbock-based Ferrum Capital, or if they simply had a failed business – which is not a crime, defense attorneys pointed out.

The long-awaited trial in San Antonio’s U.S. District Court featured the core arguments for both sides with afternoon opening statements after jury selection.
But questions asked during jury selection also gave insights to attorney strategies for the trial expected to last three weeks.

The prosecution begins

Joseph Blackwell, assistant United States attorney, accompanied his opening arguments with a presentation seen on screens around the courtroom.

He put up a slide with a photo of San Antonio airplane mechanic Richard Pickett, who, he said, met with Brooklynn Chandler Willy, Ferrum’s San Antonio affiliate. Pickett met with Willy, who connected him with Cox in Lubbock.

Willy pleaded guilty earlier this year to wire fraud and other charges.
Blackwell said Cox told Pickett his money was working for him, but Blackwell then told the jury it was being used to pay a previous investor.

Blackwell outlined a process where investors were brought in and as Ferrum had problems, and more investors were brought in with some of their money going to address those problems.

“You’ll hear from investors about what they were told would happen. What they were told was not what happened,” Blackwell said.

“The second round of investors were never told they’d be used to pay the first investors,” Blackwell said.

The prosecution would show where the money went through financial records, bank statements, money tracing and Ferrum’s own records.

Ferrum worked with Sonoqui and Diversified, according to prosecutors, two companies working with Austin-based Collins Asset Group (CAG), a company that bought defaulted loans. If they recovered money from those loans, people who gave money to Collins would benefit.

Blackwell pointed out how Sonoqui and Diversified ended up in a class-action lawsuit along with CAG. Collins paid out a $15.8 million settlement in June 2021.
Blackwell pointed out people who gave Ferrum money were not told about CAG’s settlement and their money eventually was not going to purchase debt.

“No collateral is created and investors are left with paper. A promissory note is only as good as what stands behind it,” he said.

Allen, Cox and Willy eventually made $9 million, Blackwell said.

He also outlined the four counts Allen and Cox are charged with:

• Conspiracy to Commit Wire Fraud
• Conspiracy to Commit Money Laundering
• Conspiracy to Launder Monetary Instruments
• Securities Fraud

“Conspiracy is a criminal agreement – the agreement is the crime,” he said, “not every investor has to lose money.”

He then pulled up a slide showing how two people invested $350,000 and $576,000 into Ferrum IV (under the same ownership as Ferrum Capital), it was then put through a company called Cold Moon Holdings, which he called a money laundering conduit. The money eventually went to Willy.

As to the final count, Blackwell said it’s against the law to take money from a criminal activity – saying the defendants employed a device, scheme or artifice to defraud, making untrue statements or omitting material facts.

Allen’s defense

“Simple truth – a business can fail … miserably … without being a crime. People lost money,” said attorney Eddie Mendoza, adding there was disappointment and frustration. “Those losses matter and demand respect.”

But they came long after the start of the business, he said.

“Mr. Allen did not appear out of nowhere” with his pitch, Mendoza said. “Mr. Allen had friends, served in the community, had friends in the community and church,” he said.

Mendoza talked about CAG.

“It’s not some made up company. They had an office and people. They bought bad debt portfolios,” he said, adding Allen got people – he called lenders – to give money to Ferrum then it would be sent to CAG.

“That’s the start of the story. It’s a real – but risky – industry,” Mendoza said.
The phrase lenders used by Mendoza is important because the defense has said these were loans, not investments, which the prosecution disputes.

Then CAG stopped making payments.

“It was a crisis for everybody – especially Allen,” Mendoza said. “He tried to help people in an ongoing lawsuit for investors and brought concerns to the IRS and FBI. The evidence will show that’s what happened.”

“Look at this with an open mind. I’m confident when you do that, you’ll see a failed business, an effort to recover funds and going to federal authorities. The only choice is not guilty,” he said.

Cox’s defense

“You’ll hear from government witnesses that Mike Cox had a Bible in his office,” said attorney Michael Gross said, adding Cox would come into his office and set aside time to read and study Scripture.

He pointed out Cox’s wife and daughters in the courtroom. Cox had other supporters sitting with his family.

“The family is devout,” Gross said, talking about Cox’s time as a youth minister, leading youth groups, helping people with drug addictions.

Gross used the words truthfulness, honesty and law abidingness to define his client.
Gross described how Cox consulted an attorney in 2017 before entering Ferrum, saying he was careful.

Cox’s office was up front at Ferrum Capital near the receptionist, with others in the back of the building, Gross said.

“Mike Cox was not involved with all these transactions,” Gross said.

Gross then outlined how Cox moved out of the offices used by Ferrum Capital in January 2023 and started operating out of an attorney’s office. An employee went with Cox to the new office, where he still sold Ferrum products. When a customer brought a check in, she’d take it to the Ferrum office, Gross said, emphasizing Cox didn’t handle the money.

“When CAG defaulted it was a complete surprise to Mike Cox. Mike fielded calls as best he could,” Gross said, adding Cox told them he’d find out when people asked what happened.

When the jury hears from people on Cox’s witness list, “You’ll find him not guilty on all four counts,” Gross said.

Deposition from Collins not allowed

Earlier in the morning before jury selection, a deposition from the late Walter Collins was not allowed to be used in the trial.

Anthony Box, representing Allen, asked U.S. District Judge Fred Biery to use a deposition Collins gave last year. Collins owned Austin-based Collins Asset Group.
Biery asked how prosecutors would be able to cross-examine a man who passed away and Blackwell agreed that was a concern.

Biery denied the request.

Lawyers also discussed how the jury would hear about Willy.

Box and Gross said they didn’t want her plea mentioned during trial. Blackwell said it was doubtful she’d testify.

Picking a jury

The rest of the morning was spent selecting a jury.

Biery read parts of the indictment, then added the government must prove what’s in the indictment is true, likening it to a driver being handed a ticket for speeding.
“That doesn’t make you guilty. You can fight it,” he said, referring to a speeding ticket. Then he held up the indictment. “This is just a piece of paper; it is not evidence,” he told potential jurors.

Biery and the three attorneys asked the jury pool questions to determine if they have a bias.

Blackwell asked if anyone had problems with the FBI or IRS.

Box asked:

• If investors lose money to someone does that mean the person committed a crime?
• Does a business failure mean criminal intent?
• Anything wrong with doing business with people who you go to church with?

Gross asked if jurors had a problem with evidence about someone’s character.
Several potential jurors said it would be a hardship to serve for three weeks, which frustrated Biery, who said they were all sent a letter making it clear how long the trial could last.

Biery dismissed most of the jury pool, keeping 15. The judge and attorneys then huddled to the side of the judge’s bench to quietly ask each of the 15 more questions about their fitness to serve.

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