Aspen a common target for con artists

ASPEN - With a long trail of civil suits leading back to California, Peter Frommer arrived in Aspen in December and allegedly wrote a string of bad checks that led to his arrest.

Frommer, a dot-com entrepreneur from Malibu, faces 11 counts of check fraud from creditors ranging from the Hotel Jerome to his landlord, a lingerie retailer and two area baby sitters. He also is the target of more than 20 civil lawsuits in California for as much as $5.5 million - for a total of more than $25 million.

Some victims claim Frommer engineered a so-called Ponzi scheme. And if that's the case, it wouldn't make him the first person to try to capitalize on Aspen's wealth by employing one of the most common white-collar crimes.

"Con artists go where the money is, and there's money here," said Pitkin County Sheriff Bob Braudis. "I would say that embezzlement and con games are gross industries here."

Braudis cited the federal case of Victor Kozeny, aka the "Pirate of Prague," perhaps the biggest Ponzi case with Aspen ties.

A Ponzi scheme involves a con artist attracting investors with the promise of a sky-high return on their investments - usually something like 20 percent. The perpetrator then pays out big to initial investors with money from subsequent investors. Those first happy investors tell their friends and attract more investors until the scheme is either found out or the perpetrator flees with the profits.

Ponzi schemes - unlike pyramid schemes, which count on investors to fan out - rely on one central figure and depend on the greed of initial investors who get a taste and want more.

Kozeny - who once owned a $20 million home in the area - faces charges of defrauding investors out of millions for investments in oil fields in the former Soviet Union. The case is pending in federal court. The plan was hatched at a Christmas party in 1997, where visitors were greeted at the door with bowls of caviar, and Natalie Cole was on hand to perform.

"He put on a big splash, entertained, promised a big return on investments, and people basically got fleeced," Braudis said.

'Cocoon of credibility'

Another area Ponzi scheme involved Ronald Wallace of Basalt, was convictied of fleecing wine connoisseurs out of millions of dollars. On Monday, he was spared a prison sentence but ordered to pay victims of his scam $11.2 million.

According to court papers, Wallace marketed and sold such "future" vintage wines as Lafite and Cheval Blanc. The futures allowed customers to buy vintage wines before they had been bottled or released, but on many occasions Wallace never delivered the wine. Through his company, Rare LLC, he sold the wine online and through mail orders.

But instead of buying and delivering the wines, he pocketed the money to fund a lifestyle that included the BMW, membership to the Roaring Fork Club and a remodeling job on his home, prosecutors alleged.

Michael Wise, a financier and former Aspenite, pleaded guilty to two federal counts of wire fraud in 1999 and served three and a half years in federal prison for bilking investors through his Cornerstone Private Capital Corp. in Aspen. His earlier involvement in a 1980s savings and loan scandal earned him a ban from banking.

Aspen police arrested Frommer, 31, at his Woody Creek rental on Feb. 2, took him to the Pitkin County jail and later released him on a $27,500 bond. A Pitkin County judge gave him leave to return to California over the weekend, but he will return to Aspen on Tuesday.

Tom Smutts, who worked with Frommer at a Los Angeles hedge fund in the 1990s, was one of a number of former associates of Frommer who contacted The Aspen Times to tell their stories.

"There was a cocoon of credibility around him," Smutts said. "He seemed like the kind of guy who knew how to make a lot of money. A lot of people trusted him."

And with promises of high returns, Smutts invested with Frommer and won big. He remembers being impressed by Frommer's multimillion-dollar Malibu mansion and said Frommer used the deed on his home to secure investments.

Smutts said he made a 40 percent return on a $10,000 real estate investment but claims he had to cajole the money out of Frommer.

Hearing of his good luck, Smutts' brother invested $125,000 with Frommer and made a return, all with the promise the Smutts brothers would lure more investors. But by then Smutts was leery. Smutts claims he and his brother lost more than $100,000 to Frommer.

Using an Aspen address

Frommer has denied allegations he is ducking creditors and denied there are criminal charges against him in California. He said he just wants to make things right both in California and in Aspen.

He also said he feels sorry for California investors who lost money in real estate investments with him, but he declined comment other than to say he had run into trouble.

"I made a lot of money for a lot of people," Frommer said.

Ron Ryan, investigative coordinator for the Pitkin County Sheriff's Office, said that while the days of masked robbers are over, he has seen an increase in white-collar crime and Internet scams.

Ryan said a number of check fraud cases are under investigation, and Aspen is a common target for Internet criminals who use ritzy Aspen addresses to legitimize an operation or target wealthy residents.

"A lot of times what we have is just an element of a bigger case," Ryan said.

Frommer's defense, so far, is that the alleged bad checks were simple misunderstandings and that he's paid all - or nearly all - of his creditors in Aspen.

"You can't unrob a bank, and you can't unwrite a bad check, but it does make some difference if its paid back right away," said John Van Ness, Frommer's lawyer.