Sean Mueller, the convicted Ponzi schemer who sacked former Denver Broncos quarterback John Elway, was a brilliant player in so many ways.
But getting a seal of approval and client referrals from a couple of bean counters was among his greatest plays.
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On Monday, C. Randel Lewis, the court-appointed receiver for Mueller's assets, filed a lawsuit against accountants William K. Schaefer and William R. Saetveit of Greenwood Village, Colo.-based Bailey Saetveit & Co.
"Schaefer and Saetveit lent an air of credibility and legitimacy. . . that was essential to the success of the Ponzi scheme," Lewis wrote in the lawsuit.
Schaefer and Saetveit didn't return messages seeking comments.
Without them, nobody had any reason to entrust Mueller with millions of dollars at a time.
Mueller went to Denver's Metro State College for five years but didn't graduate. He then worked for small, relatively unknown brokerages. He then discovered the dicey world of day trading and formed a hedge fund that essentially proposed to day trade his clients' money.
Tall and athletic, Mueller looked good in a suit. Intelligent, he talked an intriguing game. But touting such a dubious investment strategy required credibility if he wanted to get his hands on the big money. Schaefer and Saetveit is where he got it, the lawsuit says.
"Schaefer and Saetveit knew or should have known that the Sham Business was a fraud," the lawsuit states.
Mueller is now serving a 40-year sentence in the Colorado Territorial Correctional Facility in Canon City, Colo. Many of his victims were car dealers, including Elway and his business partner Mitch Pierce. And the firm where Schaefer and Saetveit are partners specialized in service car dealers.
"Schaefer and Saetveit ignored numerous "red flags' and warning signs," the lawsuit says.
Why? The same reason everyone else does.
"Schaefer and Saetveit were deliberately ignorant and apparently blinded by the fictitious profits they were being paid," the lawsuit says.
The lawsuit says Mueller promised Schaefer and Saetveit 5% of his profits in exchange for $20,000 in interest-free loans from each of them to initially stake his firm. It says the accountants each withdrew more than $1 million from the scheme. It says a partnership they formed to invest in Mueller's funds, which also includes several others, withdrew more than $6.5 million.
"Beginning in approximately 2002, Schaefer performed quarterly "reconciliations," the lawsuit states.
But all this meant was comparing Mueller's fake client statements to his fake trading, brokerage and bank statements.
"Because Mueller created both the Investor account statements with fictitious balances and the "photo-shopped" brokerage statements, the total balances always matched," the lawsuit said.
"Many Investors were aware of Schaefer's reconciliations and Mueller touted the fact that Schaefer, a CPA, was performing these reconciliations.
"Schaefer knew or should have known that these reconciliations were wholly illusory and provided a false sense of security to the Investors."
The lawsuit also says both Schaefer and Saetveit urged Mueller to keep better records. And it quotes Saetveit as admitting: "[Mueller's] sloppy bookkeeping wasn't as important to us as his apparent ability to make money."
It's a lesson America apparently has to learn, over and over. It comes from corporate giants like Enron as well as boutique Ponzi schemes like Mueller's:
Unchecked accounting allows any schmo to declare a profit and bag a fee. And accounting is best unchecked by amply rewarded accountants.
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. The column is published each Tuesday and Thursday at 9 a.m. ET. Contact Al at email@example.com or tellittoal.com)