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Investors lost millions. The warning signs were there for years. How did it happen?

Robert C. Reed

J.V. Huffman Jr. in court.

By Sarah Newell Williamson and Ragan Robinson

Record staff writers

Published: January 30, 2010

HICKORY - After 17 years and $25 million mishandled, area stockbrokers were the first to spot the red flags long waving around J.V. Huffman Jr. and his Biltmore Financial Group in Claremont.

Some who lost money in Huffman's scam wonder how the state, the financial community and the investors missed the warning signals for so long.

Huffman was sentenced Monday to at least 30 years in prison. Prosecutors say he simply took money from people and promised to invest it. Instead, he spent it. He covered his tracks by taking cash from new investors to pay what other investors thought was interest from mortgage securities.

Too good to be true

The N.C. Securities Division started investigating Huffman about eight months before his November 2008 arrest, said Liz Proctor, a spokeswoman for the division.

A stockbroker tipped them off when a client wanted to invest with Huffman, and the Biltmore Financial interest rates sounded too good to be true. Later, other stockbrokers ran into similar situations and contacted the Securities Division.

Calls from brokers about potential scams are uncommon, Proctor said. Normally, the investigators don't hear about the problems until investors stop getting money.

None of Huffman's clients ever reported trouble to the Securities Division, she said. Investigators would not elaborate about how much longer Huffman could have kept up his scheme, citing the possibility of more charges against the Biltmore Financial founder.

Too little scrutiny

For the entire time Huffman ran Biltmore Financial Group, he defied state law.

Between 1991 and his arrest in 2008, he was never registered in North Carolina to sell the high-interest securities he promised his clients, Proctor said.

The law requires securities firms, stockbrokers and financial advisers to pass exams and register with the Secretary of State's securities division. There are few exceptions.

Anyone who called the division could have found out Huffman was operating without proper registration.

But they would have to know about the mandatory registration and the office that tracks it.

As the Huffman case wound its way through the courts, investors told prosecutors they checked with the Better Business Bureau about Huffman, and found no complaints.

The Biltmore Financial Group also filed yearly corporate reports with the Secretary of State's office. Its appearance on the Secretary of State's online corporations listing could have given investors a false sense of security.

Simply listing the corporation doesn't mean the state endorses the business, Proctor said. The annual reports companies file are not detailed and, by law, cannot require financial information.

Too much confidence

Huffman had an estimated 500 investors. Many moved money from banks and other investment accounts into accounts with Huffman.

Some told banks about the double-digit interest rates Huffman was promising, even after recession gripped the country.

Gary Sigmon, 66, said he took his savings out of the bank and signed his cashier's check over to Biltmore Financial fewer than two years before Huffman's arrest.

Sigmon said he told his bank about the 12.75 percent interest Huffman guaranteed, and the reply was simply that the bank couldn't match that.

Today, Sigmon is living on Social Security payments. His wife lost her job nearly two years ago. The two invested her 401(k) in Biltmore Financial, as well as their entire savings, he said.

He doesn't understand how Huffman got away for so long with stealing the money his victims worked hard to earn.

"When you're dealing with the millions he dealt with, somebody should've checked him sometime or another," Sigmon said.

Gordon Fox said an accountant told him about Biltmore Financial. Fox and his wife lost much of their savings by investing with Huffman.

They also had an account with a large financial firm in Charlotte, so he was comfortable with investing.

When he moved money from the Charlotte accounts, Fox said he didn't ask for advice, although he thinks he mentioned the interest to his advisor.

He knew people who were withdrawing thousands a month from their Biltmore Financial accounts, and that was enough reference for him.
"Just like everybody else, I couldn't see how he did that," Fox said. "But if he was paying it …"
Too late for blame

Banking and investment professionals say part of their success depends on customer service.

It is standard across the banking industry for bankers to talk to account-holders about investments and offer guidance, said Tony Wolfe, president and CEO of People's Bank.

He said a mention of the high interest rates Huffman was offering should have made a banker suspicious.

Katherine Newton, a broker with Waite Financial, said rule No. 1 in her business is knowing the customer. She said she makes it a point to be familiar enough with her customers to ask questions if they wanted to move their money from accounts with her to investments with others.

She wouldn't criticize the brokers who didn't question Huffman's operation, however.

"I don't know where the blame is," she said. "I don't know that you can place a lot of blame in this case on anyone except (Huffman)."

Gary Sigmon thinks there's plenty of blame to go around. He accepts some of it himself. But he can't understand how J.V. Huffman operated in plain sight of people in the know — the banks, the state and other investors.

In the end, he admits, the blame is beside the point.

"We saved our money all our lives to try to have something," he said, "so we wouldn't have to worry at this time in our lives. That's out the window now."