Millionaire accused of Ponzi scheme battled regulators, foes for years


Ceaseless litigation

A sampling of the myriad civil cases swirling around Credit Nation CEO James Torchia:

Michael Sullivan v. James Torchia, et al. (2013, Cherokee County Superior Court) — Torchia’s former best friend and CFO says that despite his job title, he actually was a co-owner of National Viatical Inc. with Torchia. But while Sullivan was locked up in jail, the suit alleges that Torchia and his attorney reconfigured the business to cheat him out of proceeds. Sullivan claims Torchia even tricked his ex-wife out of his sports and music memorabilia collection and used it to decorate a bar. Torchia has countered that Sullivan had a different story about his ownership of the company in testimony for his divorce and in another lawsuit, when he wanted to minimize his holdings.

Universal Settlements International v. National Viatical Inc., James Torchia and Marc Celello (2007, U.S. District Court, Western District of Michigan) — The two shareholders of the company accused Torchia and Celello of working with their former president Tony Duscio to loot $5 million out of a $43 million portfolio sale. The parties settled for $1 million, but then Torchia refused to pay, alleging the company breached confidentiality by posting legal disclosure about the case on its website. A federal judge sided with the Canadians and slapped a $5 million judgment on Torchia and company.

James Torchia v. Cherokee County, N.C., Sheriff’s Department, et al. (2014, U.S. District Court, Western District of North Carolina) — After Torchia was arrested in Cherokee County, Ga., on a burglary and larceny warrant out of Cherokee County, N.C., he sued in federal court. He claims a North Carolina detective put out the warrant because Torchia cussed him out on the phone. He also says the detective and others tried to interrogate him while he was in jail, even after he’d asked for an attorney. The warrant was later dismissed for lack of probable cause. He wants $5 million and a letter of apology published in the local newspaper.

Credit Nation Capital v. Bobby Guess, Michael Sweet and David Savage (2015, Cherokee County Superior Court) — Bob Guess was Credit Nation’s pitch man, the voice in the ads that aired on Rush Limbaugh’s radio show. Now he’s being sued, along with two salesman, for allegedly convincing Credit Nation investors to invest $10 million in a Texas-based online marketing company called Stamedia Group. The suit accuses them of violating Georgia’s Trade Secrets Act and alleges Guess and Sweet violated non-compete clauses in their contracts.

Ask Jim Torchia about being sued by the federal government, or his never-ending legal brawls with former friends and business associates, and he answers with a clenched jaw. He’s a man at war.

“If you drag me into the ring,” he says, “I’m going to punch.”

He’s at war with the Securities and Exchange Commission, which wants to dismantle the Woodstock millionaire’s empire of investment companies, subprime auto loan businesses and shadowy limited liability companies. The government alleges he’s running a multi-million dollar Ponzi scheme that sucked in elderly and naive investors by promising fat profits from buying rights to other people’s life insurance.

The government has its facts wrong about his business, Torchia says.

“I have never done anything dishonest in my life,” Torchia said in an email to a former salesman he is suing. “So the SEC can go (expletive) themselves.”

He’s at war with his former best friend and chief financial officer, who is now suing him for more than $5 million, claiming Torchia cheated him out of his share of the company while the ex-CFO was in jail. The former insider has gone public, alleging in various legal actions that Torchia once hired a pair of strongmen to “send a real message” to an opposing litigant.

A “con artist” and “maggot,” Torchia calls his former friend, who he says was only an employee, not a partner. “If his lips are moving, he’s lying.”

He’s at war with a pair of Canadian businessmen who hold a $5 million judgment against him, the result of a lawsuit that claimed Torchia and his attorney skimmed that amount during the sale of an investment portfolio.

“They’re just going to have to go fish with me,” Torchia said on the witness stand last month, when an SEC attorney questioned how he was going to pay that $5 million. “I intend to fight it to the death.”

He just might. A fireplug with a combustible temper, he’s used threats and incessant litigation to duck, dodge, sucker-punch and wear down opponents who accused him of breaking the law. That explains how for 16 years he has operated under the noses of Georgia regulators, an investigation of his dealings by The Atlanta Journal-Constitution found.

Twice he’s been accused of scheming to rip off foreign investors for millions of dollars.

But when Georgia regulators accused him of flouting insurance laws and misleading investors, he found their glass jaw. Georgia, it appears, may be outmatched when it comes to brawling with those whom others entrust with their life savings.

Torchia agreed to an interview with the AJC at his office, warning the reporter beforehand to be fair because “I have attorneys.” He would not allow photographs or tape recording, three attorneys sat in during the talk and one ultimately cut off any in-depth questioning.

R. Douglas Gaddis, a retired fraud investigator who pursued Torchia for nearly a decade for the Georgia Insurance Commissioner’s office, said his bosses finally grew weary of the non-stop legal entanglements. After the budget cuts of the Great Recession, he said, they steered investigators toward simpler cases.

“You could describe him as the playground bully,” Gaddis said of Torchia. “He intimidates and threatens, and that’s just his MO.”

With regulators battered into a corner, Torchia has been able to live a rock star life: Sports cars. Big houses. Stretch limousines. Private charter jets. Gambling excursions.

Business exploded. According to the ex-CFO’s 2013 lawsuit, Torchia once claimed $300 million in revenues over a 10-year period, and profits exceeded $20 million.

Now he’s testing his mettle with his biggest adversary yet. The SEC sued in November after a two-year investigation, claiming Torchia bolstered his lifestyle by pilfering company funds, while leaving hundreds of investors across the country at risk of losing their savings.

Profits pour in

Torchia, 58, started out as an insurance agent in south Florida. He later made his fortune in a niche industry: life settlements and viaticals.

To invest is to wager on death. His companies — National Viatical and later Credit Nation — buy life insurance policies from elderly and terminally ill people. The insured get cash up front, albeit at a discount. Torchia banks on the insured dying before his companies have to ante up too much in policy premiums.

In their heyday, says the lawsuit by Torchia’s former CFO, Michael Sullivan, he and Torchia would wire tens of thousands of dollars to Las Vegas and Atlantic City in advance of days-long gambling sprees. And they treated the company “as their personal piggy bank,” the suit alleges, each regularly spending $30,000 a month on company American Express cards.

Almost from the start, though, the company’s tactics caught regulators’ attention. Records obtained by the AJC show the pair faced scrutiny from at least seven states’ enforcement agencies.

“He has had a tradition of, if not breaking the law, working on the edges of the law,” recalled former Georgia Insurance Commissioner John Oxendine.

Tennessee slapped the company with a cease-and-desist order in 2000.

Florida went after Torchia for selling unregistered securities in the late 1990s. The case stemmed from another company’s Ponzi scheme involving viaticals and life settlements. Torchia ultimately wasn’t deemed culpable of fraud. However, he was fined $120,000 and slapped with a cease-and-desist order for selling unregistered securities. The order said he was reckless in promoting investments as safe and “repeatedly demonstrated incompetence.”

Two years ago, South Carolina fined Credit Nation $20,000 and suspended one of its salesmen for making false statements during a pitch.

Georgia undertook a protracted effort to shut him and Sullivan down. The state insurance commissioner raided their office in 2001, accusing them of selling insurance without a license and falsely telling potential investors their money would be insured by Lloyd’s of London.

Torchia hit back, challenging the warrant in Superior Court and suing to get back the boxes of documents seized in the raid. The state accused him and Sullivan of threatening their informer — an ex-employee — with litigation and having her trailed by a private investigator to intimidate her.

Gaddis, the former Insurance Department investigator, said Torchia torpedoed the state’s case against National Viatical in one shrewd move: hiring away one of the state’s enforcement lawyers. Gaddis said his department had teamed with the Secretary of State’s Securities division, whose investigation was being led by attorney Marc Celello.

Torchia and Sullivan hired Celello in 2004. According to the ex-CFO’s lawsuit, they did so “in the belief that doing so would shield them from similar proceedings in the future.” The suit alleges Torchia said, “I made him an offer he couldn’t refuse.”

“So he could block and stop and cause us all kind of grief,” Gaddis said of Torchia.

Gaddis said as far as he knows, no one with the state has followed up on Credit Nation since he retired in 2010.

“If you want to do fraud,” he said, “Georgia is a really good place to do it.”

‘King of torts’

Torchia also has used courts to wage private battles, determined to wring victories out of perceived slights. “I don’t bring ‘em. They bring ‘em,” he says.

“You two face piece of lying (expletive),” went another email to the ex-salesmen, Michael Sweet, who Torchia alleges spilled trade secrets to another company. “You my friend are the lowest of the low and so is your scummy wife and family.”

Sweet said he’s known Torchia for about 25 years and once coached his sons in hockey.

“He is the king of torts,” Sweet said.

Torchia once sued an LA Fitness for $941 in Magistrate Court for throwing away his ping-pong table. He won. He sued a charter jet company he claimed overcharged him. That one, he dismissed.

He’s currently suing a North Carolina sheriff’s office, alleging a detective unjustly put out a warrant for his arrest after they argued on the phone. Torchia was evicting a tenant, and when the detective told Torchia he hadn’t followed the proper process before removing her furniture, Torchia called him a moron and several profane names, Torchia acknowledges in his lawsuit.

He was later pulled over in a traffic stop in Georgia, arrested on the burglary and larceny warrant related to the eviction and driven to North Carolina. The warrant was later dismissed for lack of probable cause.

“I’m going to call him a moron again when I get him on the stand,” Torchia told the AJC. He wants $5 million and a letter of apology published in the local newspaper.

While he’s been duking it out on those fronts, companies have accused Torchia of defrauding them out of millions of dollars. Lawsuits allege that on at least two occasions, he worked with company insiders to fleece foreign investors.

In one case, Torchia had been hired by a government-appointed receiver to manage a portfolio of viatical and life settlement investments which had been owned by a company the SEC went after for securities fraud. Torchia made a deal to sell the portfolio to a Canadian company for $43 million.

Later, the company’s shareholders suspected their former president had misappropriated funds and that Torchia and his attorney, Celello, got $5 million out of the deal by wiring the money to themselves. Celello says that was a servicing fee.

Torchia was also sued by the liquidators of a Cayman Islands hedge fund, who alleged that a former company director conspired with Torchia and Celello to pay them $9 million for worthless promissory notes in Torchia’s insolvent subprime auto loan company.

Celello told the AJC that case settled earlier this month for $55,000. An opposing attorney would not confirm that.

A more personal battle has been with Sullivan.

Allies to enemies

Sullivan’s career nosedived after a woman he met at a nightclub accused him of rape in 2008. A Forsyth County jury found Sullivan guilty of trying to influence the woman, who testified that a middleman offered her $10,000 to drop the charges. But then another jury found him not guilty of the woman’s rape claim.

He served three years. After a few months in jail, he says he became a born-again Christian and changed his life.

“When I look back at the time, the drugs, the gambling and the women, it makes me sick to my stomach,” Sullivan said.

Still, he wants the money he claims Torchia owes him. Earlier this month he filed for Chapter 7 bankruptcy. “I went into jail a multi-millionaire,” Sullivan said. “I came out a pauper.”

When it comes to his former friend, Torchia can appear to be a man unhinged.

Two days before Christmas, Torchia sent a two-page email tirade to Sullivan’s new wife, Heather. “I wanted to take the time to tell you what a scumbag you married,” the email began, going on to call Sullivan a thief, a cheater of old people, a tax evader and a weasel, among other things.

Torchia told the AJC he did that because he suspects she took part in something Sullivan did that’s prompted yet another lawsuit. Last year, Sullivan sent anonymous letters to Credit Nation’s investors informing them of the SEC lawsuit.

Also in December, someone with a fake Facebook account sent friend requests to Heather Sullivan’s friends, then directed them to a website that recounts Sullivan’s criminal record and piles on accusations about shady business dealings, which Sullivan strongly denies.

Torchia says one of his employees, who he will not identify, is behind the website.

Sullivan unsuccessfully tried to have Torchia arrested or restrained, telling two judges in separate hearings he felt threatened by the war of words and that he was being stalked. In each case, the judges ruled the activity didn’t rise to the level of stalking.

During one hearing, a Torchia attorney asked Sullivan why he’s so scared. Because, he answered, his onetime partner has plotted to physically harm his enemies.

Sullivan alleges that Torchia once hired a 6-foot-4-inch, 300-pound limousine driver, along with another man, to fly to Canada and intimidate, and possibly assault, one of the shareholders suing him for fraud. Sullivan said the men didn’t follow through, either from cold feet or because they couldn’t find the right moment to strike.

“I was there in the office when he was hiring these people,” Sullivan said in Cherokee County Superior Court. “When (one of the men) received the money, I was there, and I was there when he returned.”

“That’s absolutely false,” Torchia told the AJC. “Period. End of story. It’s just a lie.”

Records from another Torchia dispute allege he made similar threats.

According to Cherokee County court filings, in 2008 a still-married Torchia bought a house in Canton for $680,000 for his mistress. The relationship ended and each filed petitions for restraining orders, alleging stalking.

The woman’s petition said Torchia “has physically threatened the petitioner by telling her that he was going to call his business associates in New Jersey to have her taken care of.”

Stolen money?

Documents filed in the dispute also speak to Torchia’s lavish lifestyle. Records state he said he gave her a Hummer and paid for furniture and household goods; she said he gave her flat-screen TVs and computer equipment. She described his driving four vehicles: a Lexis sports coupe, a Nissan sports convertible, a Lincoln Navigator and a Ford F350 pickup truck.

Such large living plays into the SEC’s case, which accuses him of diverting company money to casinos, his Canton home, and loans to Torchia’s son's auto dealership.

It was money from the pockets of investors throughout the country who may have been wooed by ads aired during Rush Limbaugh’s radio show, the government complaint alleges.

As with death itself, the radio ads described profits as a sure thing. “If you need income,” the announcer’s voice said, “we have a blended asset investment that’ll pay you 9 percent annual return. Your investment is backed dollar for dollar with hard assets and is non-correlated to the stock market.”

Those ads had already caught the attention of Larry Ainsworth of Lafayette, La., when a financial adviser suggested Credit Nation. He and his wife, June, anted up the $350,000 in her 401(k) account — built up over her 35-year accounting career — into a note they believed was secured by auto loans. They expected a $575,000 return in five years.

The SEC alleges there’s actually little backing up investments. In 2014, the company owed $29 million to investors but had assets of only $2.8 million in outstanding auto loans, life settlements worth $13.3 million at maturity, and less than $1 million in cash, a recent SEC court filing says.

“We just got snookered,” Ainsworth, 56, said.

The SEC wants to freeze Torchia’s companies’ assets. U.S. District Judge William Duffey Jr. is expected to rule any day on whether to appoint a receiver.

Torchia and his attorneys say that would be devastating to the company’s 470-plus investors, who could wind up with pennies on the dollar, and its 35 or so employees, who could be put out of work.

“We think that we’re the best people to continue to run the company,” Celello said.

‘A fast one’

According to an SEC filing, as investigators closed in during spring 2015, Torchia tried to “pull a fast one,” covering up his companies’ insolvency by buying more policies and inflating his total maturity value to $75 million. The SEC said those are high-premium policies on people with long life expectancies, so they’re actually worth far, far less.

Torchia says the SEC isn’t valuing those policies correctly and just doesn’t understand his business.

“If you look at the facts,” he said, “nobody’s ever not gotten paid. Not in my business.”

One of his investors, 80-year-old Charlie Clowers of Decatur, said he always found Torchia to be straight and honest, and he hopes the government doesn’t prove him wrong. He has $200,000 with the company and says it has never missed a $1,600 monthly interest payment.

If those payments stop, “What could I do?” Clowers said. “I’d do without.”




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