Shyster’s comeuppance

The late Martha Capps was not a financially sophisticated woman, her attorneys said. After inheriting a substantial amount of money and in an attempt to protect herself and her children from an abusive, alcoholic and adulterous husband, she placed her faith in a financial planner, trusting he would take care of her.

Instead, according to her estate’s lawsuit, Hal Blondeau befriended the elderly woman and craftily took her for nearly everything she had.

It was by accident that Blondeau’s conniving was discovered, according to her lawyers, but after a seven-year legal odyssey that saw the case go from the North Carolina Business Court to the 4th U.S. Circuit Court of Appeals and back, a judge has awarded her estate more than $10 million.

Blondeau did not participate in his trial.

Capps, who was diagnosed with dementia in 2001, died in March 2011.

Capps’ son, Bruce Capps, filed suit in 2007, alleging that Blondeau, his mother’s “trusted advisor” since 1988, swindled her out of millions of dollars she inherited from her aunt Anne Kyle of Florida.

Blondeau and Florida attorney Neal Knight allegedly transferred Capps’ money from a trust that they used to finance Knight’s daughters’ undergraduate and law school educations, years’ worth of fine wine and a beach cottage for Blondeau and his wife.

“Hal Blondeau didn’t just go to her account and empty it into a Cayman Islands bank account — that would’ve been obvious,” said attorney Robert Zaytoun of Raleigh. “He was very surreptitious and calculating and he nibbled and nibbled and nibbled.”

According to court documents, Capps held an associate degree and briefly worked as a Department of Agriculture secretary before having children. For most of her life she was a homemaker.

Upon learning that she would be the primary beneficiary of Kyle’s estate, according to court documents, Capps became concerned that her husband would inherit a large marital share if he divorced her.

After meeting Blondeau, who worked at financial services holding company A.G. Edwards, at a free broker lunch, Capps took her new confidante to a meeting with Raleigh attorney John Beard, who referred her to Knight.

“[Blondeau] charmed her immediately and then learned that she would soon be the beneficiary of a multi-million-dollar estate,” said Gilbert File of the Brownlee Law Firm in Raleigh. “Thus, one more example of ‘no such thing as a free lunch.’ ”

Blondeau then wrote Knight a letter telling him to communicate with him rather than Capps, records show. Knight drafted the Anne Kyle Trust, and A.G. Edwards was appointed corporate trustee “at Blondeau’s advice and direction.”

Knight was retained to serve as Capps’ resident process agent and estate administration attorney.

“From there, Blondeau and attorney Neal Knight cozied right up to her,” File said.

In 2000, after convincing Capps to move the brokerage account and AKT to his new company, Morgan Keegan, Blondeau attended a conference between Capps and prominent Raleigh estate planning and tax attorney W. Gerald Thornton to discuss updating her existing estate planning documents.

According to court records, Thornton suggested that Blondeau be excused from the meeting but Capps insisted on having Blondeau present. Because of the situation with her husband, she requested that Thornton communicate with Blondeau rather than call her home.

Since he was only updating the existing documents, documents say Thornton didn’t need or request financial and tax information from Capps or the AKT.

According to court records, in October 2000 Blondeau “fraudulently or through false pretenses obtained Capps’ signature on a written request” to the AKT corporate trustee to disburse $250,000 for a purported domestic court settlement involving her daughter and an unspecified building project.

Zaytoun and File believe that Capps signed whatever documents Blondeau put in front of her, confident they were in her best interest.

“Blondeau gave her her allowance and handled all the paperwork,” Zaytoun said. “Her statements were sent to a P.O. box and she didn’t read the stuff. She trusted him to completely handle her financial life, and he took advantage of that.”

When the money was wired to Capps’ brokerage account, documents say, $200,000 of it found its way into Blondeau’s personal bank account.

In July 2001, plaintiffs say, Blondeau and Capps met with Thornton to discuss finalization of the estate planning update and during this meeting, Thornton offered some general ideas as to how Capps could address the issue of $937,000 of accumulated undistributed income in the AKT.

Those ideas included a charitable lead annuity trust, a grantor-retained annuity trust and a private charitable foundation. According to Capps’ attorneys, Thornton thought Capps might consider the information and contact him for further assistance, but she never did.

That same month, records show, Blondeau and Knight were busy incorporating the Marvin L. Baker Family Foundation in Florida, a nonprofit geared toward donating money to charitable causes. The problem, from the plaintiffs’ perspective, is that Blondeau only gave to causes that benefited him.

“He used it to spread over town to build his practice, to build his client base,” Zaytoun said. “He was looked at as the big-money guy … the Johnny Appleseed of Raleigh. He was using her money for his own self-aggrandizement.”

File agreed.

“He was Peter Pan-ning around on the foundation’s checkbook and ingratiating himself with the elite over here in Raleigh,” he said.

Zaytoun said the foundation was purportedly a “tax shelter” for Capps, but was actually the “cornerstone of the ultimate crime.” File said Capps knew about the foundation but had no idea how it was to impact her or her estate. She had neither control nor a vote in the foundation.

“Knowing about something is very different than informed consent,” File said.

In their estimation, Zaytoun and File said that while the foundation seemed legitimate on its face, it was really a way to get Capps’ money out of North Carolina, where it could be hidden, controlled and eventually pilfered.

A frugal woman, Capps didn’t miss the quarterly income distributions she was due from the AKT that over the course of a decade had grown to more than $2.1 million. Blondeau intentionally kept the information from Thornton, as well, according to court records.

So trusting was Capps, Zaytoun said, that she was oblivious when all of that money was wired from her trust in the form of stocks to the broker company and sold for a loss of about $450,000.

“Then the money was wired to Florida out of her control and out of the brokerage company,” Zaytoun said. “So therefore, they captured the money, this income, through this scheme and put it in the foundation.”

The misdeeds only came to light in 2006 after Bruce Capps investigated the purchase of a $350,000 beach cottage in Morehead City. According to the judgment, Blondeau requested that trustee Regions Bank wire the money to a real estate attorney to close the sale, falsely representing that Capps wanted to buy the home for herself since she was allowing her son and his wife to use a beach condominium owned by the AKT.

“This materially false representation was known by Blondeau to be false at the time it was made,” the judgment reads. “In truth, this money was to be used fraudulently by Blondeau to buy the Beach Cottage for his personal use.”

Four months after the purchase, in October 2004, Blondeau had a quitclaim deed prepared and fraudulently obtained execution of the deed by Capps, according to court documents. The document, recorded in public records, stated that Capps was unmarried and that Blondeau and his wife paid Capps “valuable consideration” for the transfer. Neither was true.

In 2009, Blondeau pleaded guilty to federal charges of investment advisor fraud and served three years in prison. Despite being “judgment-proof,” Zaytoun said it was important to “doggedly pursue” litigation against the former broker to send a message.

“Brokers ought to be looking at a case like this and saying to themselves, ‘Do I really want to overreach on an elderly client’s account — or any account — when there are people out there who will come after me?’”

Plaintiffs reached a confidential settlement with defendants Morgan Keegan and Regions Bank, but whether Capps’ estate recovers any of the judgment against Blondeau remains to be seen.  The family attorneys said they intend to try.

“Hal Blondeau is a very smart man and smart people always have ways of reengineering themselves and he may be able to come into something — maybe he wins the lottery or something,” Zaytoun said. “But one of the things this family wants him to know is that we’ve got a judgment against you and it’s over your head forever.”

In a jailhouse letter from 2011, Blondeau wrote to Senior U.S. District Judge Malcolm Howard that he didn’t know what he could have done to avoid criminal and civil actions against him.

“The only thing I am guilty of is trying to help Mrs. Capps get answers and solve problems,” Blondeau wrote.

Zaytoun added that the foundation used to siphon money from Martha Capps’ inheritance has been renamed the Martha Capps Family Foundation and is being headed by Bruce Capps and his sister Carol.

“Instead of contributing to Ducks Unlimited and other pet charities of Blondeau, the Foundation has given grants for Alzheimer’s research and other causes that Martha would have chosen,” Zaytoun said.

VERDICT REPORT –

Unfair or deceptive trade practices, breach of fiduciary duty, fraud, violation of RICO Act, others

Injuries alleged: $3,364,373.74

Case name: Estate of Martha B. Capps v. Harold Earl Blondeau

Case number: 07 CVS 16486

Court: North Carolina Business Court

Amount: $10,330,683.94 plus $2,931,664.95 in attorneys’ fees and expenses

Date: March 5

Attorneys for plaintiff: Gilbert File of Brownlee Law Firm, Raleigh; Robert E. Zaytoun, Matt Ballew and John Taylor of Zaytoun Law Firm, Raleigh