River of Schemes: Fredrick Scott claimed he could transform the East St. Louis waterfront. Now he's facing 20 years for fraud.

Mar 13, 2014 at 4:00 am
River of Schemes: Fredrick Scott claimed he could transform the East St. Louis waterfront. Now he's facing 20 years for fraud.
Tim Lane

In the summer of 2010, Fredrick Douglas Scott stood on the greens at Glen Echo, a private country club in north St. Louis County, wearing an expensive golf shirt and sporting a set of $1,200 Callaway Diablo clubs. Despite being just 26 years old, Scott fashioned himself a member of the financial elite — the kind of guy who takes a break from killing it in the stock market to kill it on the fairways. Then he swung his club.

"I'm just starting to learn," Scott explained as his drive trickled down the fairway. He tried again, this time trying to put into action what the teaching pro at the club had taught him. Another swing, only slightly better. Scott's golf game needed time and practice.

A few minutes later, Scott put the clubs back into the bag and called it a day. The man who Ebony magazine once praised as Wall Street's youngest and most successful African American hedge-fund manager — with more than $3 billion in assets — walked to his car: a nondescript rented Toyota.

Back at his sparsely furnished apartment in the Central West End, Scott fried himself a hamburger that he placed between two pieces of Wonder Bread; they quickly turned soggy with grease and ketchup. Scott was living frugally, but it wasn't because he was a wealthy miser. Despite his carefully crafted persona, he was broke. In fact, he never had the riches he said he did. And whatever money he did have, he already spent in St. Louis trying to convey an image of wealth and success.

Needing some fast cash, Scott tried to make a mark out of Anthony Sanders, publisher of the St. Louis Evening Whirl and Scott's sometimes golfing partner whom he had met at a networking event.

Sanders doesn't remember the details of Scott's proposition. What he does remember is that Scott wanted $9,000, immediately. In return, he would repay Sanders a few days later with $11,000. It was a great offer, Scott assured Sanders. All he needed was that nine grand to make it work.

"I didn't care what the deal was because there was no way I was gonna give him $9,000," Sanders says. "But I could tell he was hurting for money. So I told him I'd give him $1,000. My wife wasn't happy, but he probably spent $1,000 or close to it on me with meals and golf, so I helped him out."

Sanders remembers Scott being profusely appreciative when he came to pick up the check. Scott promised to pay it back soon. It was the last time Sanders would ever see him in person. By June of last year Sanders had largely forgotten about his old golfing buddy and the outstanding loan when photos of Scott showed up in articles about a bogus hedge-fund manager accused of preying on African American investors. The tabloids called Scott the "black Bernie Madoff," and outlets as diverse as CNBC and the New York Daily News covered the scandal.

According to federal prosecutors in New York, Scott conspired to defraud investors out of hundreds of thousands of dollars by using essentially the same trick he played on Sanders: Give him some money, and he'd get you a lot more in return just days later. Instead, the money went straight into Scott's pocket. When the feds finally caught up with him last summer, Scott had fleeced multiple victims out of nearly $1 million. Yet upon his arrest, Scott's bank account was overdrawn by $91. He had already spent — or hid — every penny.

Today Scott sits in a New York jail, where he's awaiting sentencing on guilty pleas of forgery and wire fraud. He faces up to twenty years in federal prison.

"I always knew he wasn't who he said he was. What kind of millionaire big shot drives around in a rented Toyota and cooks hamburgers at home?" Sanders asks. "Nothing against Toyotas and hamburgers, but I know some big-money guys, and that's not what big-money guys do."

But who exactly is Fredrick Douglas Scott, and why — of all places — did he arrive in St. Louis from California in 2009? Those questions aren't easy to answer. For starters, Scott's biography is so riddled with lies it's unclear what — if any — part of his story is true. Also there's this: Those who knew him best during those days in St. Louis aren't talking.

This much, though, is certain: For a time in 2009, officials in East St. Louis, Illinois, saw the smooth-talking Scott as a potential savior for their impoverished city.

East St. Louis mayor Alvin Parks remembers the first time he met Scott during a one-on-one meeting at city hall.

"I didn't know anything about him, other than he seemed to be a relatively nice guy, a relatively intelligent young man, with a lot of passion, a lot of focus, also some flair," says Parks of the young visitor with a slim build and high-pitched voice who often donned fancy suits and bow ties. "He had a certain level of charisma and a compelling story once you got into it. But there's only so much you can tell about a guy in 25 minutes."

Scott also impressed the city council.

"He seemed like a very intelligent guy, and he had a lot of ideas," says Deletra Hudson, the city manager of East St. Louis, whose office Scott often visited during his riverfront dealings.

Scott told the city he had the ability to convince other big-time investors like himself to come in and pour development money all over the East St. Louis riverfront, despite the fact that the shoreline has been an unsolved riddle for the past 40 years.

Parts of the riverfront are federally owned, others lie in the hands of private landowners, which means attempts to develop broad swaths would involve negotiations with several actors — if they'd even be interested. Moreover, some of the riverfront tracts have unclear land titles that could spiral into nasty lawsuits for developers. Then there's the unsightly grain elevator directly across the river from the Gateway Arch. It sustains 300 precious jobs that the city doesn't want to see leave. Finally, there's the question of infrastructure: East St. Louis doesn't have it.

"If Coca-Cola wanted to relocate to East St. Louis tomorrow, it couldn't do it," says Andrew Theising, a political-science professor at Southern Illinois University-Edwardsville and an expert on East St. Louis. "The streets couldn't support the traffic, the sewers couldn't support the volume, and I have serious doubt if the electrical grid and communication infrastructure could handle a large industrial user."

Yet to Parks and other East St. Louis officials, perhaps all the city's riverfront needed was a fresh perspective.

"Maybe there is a guy who's 25 years old who really has got some ideas about how the acquisition of these properties can be done and who could lead us to the land of milk and honey," Parks explains. "Why not? Nothing else had worked until that point."

After just a few meetings with city leaders, the council voted unanimously in December 2009 to give Scott exclusive acquisition rights to the East St. Louis riverfront. The six-month deal would have Scott pump upward of $30 million into the area through his own company, ACI Capital. Once the money was delivered, the city would employ him as its financial manager for three years at an annual salary of $300,000.

Matt Hawkins, president of the Civic Alliance, a budget-watchdog group in East St. Louis, couldn't believe it. Hawkins had been warning the city council for several weeks that they really didn't know Scott like they thought they did.

Before getting the rights to the East St. Louis riverfront, Scott applied for TIF (tax increment financing) money from the city. Approximately 30 percent of the East St. Louis' general fund is tied up in TIF grants, which can only be used for specified projects, such as development.

But Hawkins, a thorn in the side of East St. Louis politicians for his constant calls for transparency (at the time of writing, he has pending lawsuits against the city demanding that it disclose budget details), got ahold of Scott's TIF applications and looked into his background. He couldn't confirm a single thing.

"Usually we can verify a person as bad, accurate or inaccurate. But when you can't verify anything, that's a sign of fraud," Hawkins says. "We made formal complaints to the city council asking that it not to do business with him and said as much in city-council meetings," he adds.

But the council ignored Hawkins and Civic Alliance's warnings and even expedited the vetting process. Whereas Hawkins says most city contracts take a couple of months to broker, Scott's deal was pushed through within a few weeks.

"Where did this guy come from?" asks Hawkins, who remains in disbelief five years later. "Scott was supposed to be from Wall Street. But they don't talk about East St. Louis on Wall Street. And not only did he get here, but he got the royal treatment. They don't do that for everybody."

According to Mayor Parks, Illinois state representative Eddie Lee Jackson, then a member of the East St. Louis City Council, is the one who brought Scott into the fold.

"This is a young man with ideas who you should listen to," Parks recalls Jackson telling him.

Parks says he doesn't know how Jackson and Scott met each other.

"Maybe Scott was a relative or something — I don't know," speculates the mayor.

Despite repeated calls, Jackson refused to comment for this story. Regardless of his connection to Jackson, the question remains: Why would city officials be so eager to enter into a deal with a man whose references didn't check out?

Whatever the case, the Scott deal was supposed to be a secret. Once Hawkins started snooping around, word got out. In January 2010 the Belleville News-Democrat broke the story about the virtually unknown Scott who had been given rights to the East St. Louis riverfront.

When reporter Carolyn Smith asked Parks to comment for the article, the mayor replied: "It's unfortunate that somebody has provided that information to you. That was supposed to be confidential information."

Five months later — in May 2010 — Scott would get much more favorable press when Ebony named him to the magazine's "Top 30 Under 30" list, profiling America's 30 most successful and up-and-coming black artists and entrepreneurs. In the story, Scott is praised for going from a homeless child to the millionaire CEO of ACI Capital by the age of 25.

"I've faced a lot of adversity because of my being African American. And being young is new in this industry," Scott says in the profile. "But my command of the subject matter speaks for itself. My track record speaks for itself, so I'll let my actions speak for me."

Most everything in the article would prove to be a lie. Yet from the day the magazine hit newsstands to the day of his arrest, Scott would use the the Ebony article as his introduction letter when meeting with potential investors. Sanders remembers Scott pulling out the article after a game of golf.

"He'd keep a copy in the back of his car," Sanders remembers. "He made sure people saw that thing."

East St. Louis city manager Hudson remembers being impressed by the write-up.

"Once [the Ebony issue] came out, I was feeling OK about the riverfront deal," she says.

Scott even used it to try to get his hands on the money of one of East St. Louis' biggest celebrities: former Olympic track star Jackie Joyner-Kersee.

Through his city-hall connections, Scott got a sit-down meeting with the gold medalist and the board of the Jackie Joyner-Kersee Foundation, a charity that provides after-school programs for East St. Louis children.

The folks at the JJK Foundation only met him once in 2010, but it was memorable. Those who sat in on the meeting recall Scott talking a big game. He said he was staying at the mansion of a St. Louis Blues player on Lindell Avenue and mentioned that he had just purchased a Bugatti (a super car that sells for north of $1 million) that was being shipped to him from Italy.

And he flashed that Ebony magazine article about him running the largest African American hedge fund.

At the time, the JJK Foundation was restructuring its board and going through some financial difficulties. But Scott didn't seem nearly as interested in helping the foundation's bottom line as he was in managing the personal finances of the former Olympian. Joyner-Kersee, Scott suggested, should invest her personal wealth in his hedge fund.

Joyner-Kersee never did, but after the meeting a few board members looked into Scott's story. They couldn't confirm anything he had told them.

Despite Joyner-Kersee wanting nothing to do with Scott, he would later boast to potential fraud victims that he was on her charity's board — another of his many fabrications.

"It's sad when people try to take advantage of people, and that's what he was doing," Joyner-Kersee says in hindsight. "It was all just a bunch of lies, really."

Eventually officials in East St. Louis also realized that Scott couldn't back up his talk. When his contract expired after six months without even a hint of new development for the riverfront, the city council severed its relationship with him.

It was now the summer of 2010, and Scott's finances were dwindling. He had been staying in the old Hotel Indigo for several months but was now living in that barely furnished apartment in the Central West End where the most expensive décor was the golf clubs. The doors of East St. Louis had closed, but Scott would go on to New York, where he'd step up his game as a big-league financial huckster.

From his midtown office on Madison Avenue, Scott got to work bolstering his image as a rising young investment guru. He had fancy media kits made with studio shots of him in pinstriped power suits, and he paraded his Ebony magazine profile every chance he got. Amazingly, it worked.

Scott served on a panel titled "Building Generational Wealth" during a conference for Al Sharpton's National Action Network. He landed a similar gig speaking at the annual conference of the National Bankers Association, in which he told attendees his incredible rags-to-riches story.

"When I started out in this business, I was homeless, and I started out for a subprime lending company," Scott told the crowd. "I started because I needed the money and I saw there was a guy making $30,000 a month — and I didn't think he was that bright, actually. I had been doing calculus since middle school, so I thought if he could make $30,000 a month, how much could I make?"

He got written up in New York papers for sponsoring a play at a Bronx school about Bessie Coleman, the first African-American airplane pilot.

"We as African Americans need to know more of our history," Scott told the New York Amsterdam News. "I'm a firm believer that if you don't know where you come from, you can't see where you're going next. History is very important in shaping the future."

That same month he appeared on Roland Martin's Washington Watch on TV One, a cable station that targets black audiences. Scott advised young couples not to go into debt paying for outlandish weddings.

"Me and my wife got married at the courthouse," said Scott. "And I told her, 'If you believe in me, there will be a later time when I will have the financial wherewithal to provide you the wedding you've always wanted.' And I did, five years later."

A few weeks after the segment aired, FBI agents arrested Scott on charges of defrauding his investors out of nearly $1 million. According to investigators, Scott worked two scams: promising a high return on investments, and charging fees for future loans. Nobody ever got what they paid for. The money all went to Scott.

For example, Scott told one investor about a major deal in a Chilean mining company that needed backers. The return would be quick and substantial: For a $350,000 investment, the client would get $450,000 — plus a 2 percent equity interest — back within ten days.

In another scam, Scott promised a business owner a $5 million loan for a $250,000 fee. Once the fee was paid, Scott told the businessman that the bank did not approve the loan, but Scott would be willing to personally provide the loan for an extra $125,000.

Part of Scott's ruse was to float names of black-owned banks as his financial sources. By working with Scott, clients would not only enrich themselves, but also the black community as a whole. Bernie Madoff used the same kind of affinity fraud to prey on Jewish investors.

Scott's con worked quite a few times, but not on everyone. One potential client notified the FBI, and another brought concerns to the Securities and Exchange Commission.

For those who did get scammed and then complained to Scott, they were met with threats and intimidation. Scott might have looked and sounded like Urkel, but he could quickly push that nerdy demeanor aside when confronted.

When a victim complained about not getting a loan he was promised, Scott threatened him: "If you badmouth us, I'll have an army of lawyers go after you!"

Another victim who realized he was scammed told Scott he would report him and ACI to the SEC. Scott laughed and said: "I have friends in the SEC. They won't take you seriously."

Scott was brazen in his theft, and he almost hinted at his true intentions in his e-mails to clients. In his auto signature, he had a quote that's often attributed to Albert Einstein: "Two things are infinite: the universe and human stupidity; and I'm not sure about the universe."

It's easy to see Fredrick Douglas Scott as nothing but a thief. But if his claims about growing up poor and being physically abused are true, perhaps there is some room for sympathy.

Scott, through his attorney, declined an interview request for this story.

According to a letter Scott wrote to the judge, his childhood was horrific. Growing up in Compton, California, Scott's mother was a drug addict, and his father was out of the picture. Scott had a stepfather, but he was the type who would only beat you harder if you tried to avoid a beating. Scott describes a time when he tried to use his foot to stop his stepfather's belt from cracking his skin. This only further angered his stepfather, who then burned Scott's feet with an iron so he'd learn to never do that again.

When his mother tried to interfere, she allegedly got a beating, too.

Scott claims he joined the army to escape the violence at home. While stationed in South Korea, he met his wife-to-be — the daughter of an Italian diplomat. They soon had kids, and by the time Scott was discharged, he had a family to support.

Eventually, Scott says he felt the pressure of needing to provide for his wife and kids, so he sought easy money — a lot of it. In his letter to the judge, he blames his childhood of abuse and insecurity for leading him to a life of fraud.

"This time I have been in jail has been a wake-up call. I see now that I had to hit that brick wall, and even though it hurt like hell, I am better for it," he writes. "I can see the triggers of fear that worked in my past — fear of being hungry or scared or homeless or alone. I can see how the rush of being admired and of having material things led to greed and infidelity. How true is the statement that 'hurt people hurt other people?'"

Now Scott says his family is hurting. His wife and three children are homeless, after several months of going back and forth between relatives' houses. Mrs. Scott is unable to work because of her immigration status (she's an Italian national), and her family disowned her because of her relationship with Scott.

At one point, things got so desperate that Scott's family stayed with his estranged biological father — the one who abandoned him as a child — in Georgia. Mrs. Scott had to leave once her father-in-law began walking around the house in the nude and made sexual advances toward her, according to a court document.

But all Scott can do now is be a model prisoner, which his attorney says he's doing by teaching other prisoners two things that got him into trouble: crunching numbers and selling yourself. That might seem ironic, but his fellow inmates need help with their math and job-interviewing skills. And Scott hopes the jailhouse tutoring will earn him some credit toward a shorter sentence.

If given another chance, Scott promises he won't steal.

"I will scrub floors and toilets, whatever it takes. By working in a law-abiding way, supporting my family and repaying the victims of my crime, I can try to right the wrongs I have committed," Scott says.

Back in East St. Louis, Mayor Parks is saddened by what has happened to the charismatic, bow-tied investor he thought could do great things in his city. He still gives Scott the benefit of the doubt.

"It's unfortunate that another young man is going to prison," Parks says. "But at that point, I don't think he was trying to defraud us. I think that it was clear Mr. Scott wanted to be able to get his hands on some money. But I'm not gonna say he was trying to defraud."

The mayor chalks up Scott's failure in East St. Louis as too much ambition and too little experience. He remembers a time near the end of Scott's contract that a concerned citizen stood up at a meeting to scold the mayor and council members: "City of East St. Louis: You brought in a boy to do a man's job!"

"And she was dead, spot-on correct," Parks says.