Federal prosecutors in Philadelphia have unsealed a March 2023 grand jury indictment against Cleothus Lefty Jackson, who they say made “false and misleading” statements about his company, Fallcatcher, when he told Philadelphia-area investors it was developing anti-addiction tracking devices and software for government agencies and insurers.
Neither insurers nor state agencies “expressed any interest in using Fallcatcher’s purported technology,” according to the indictment.
By claiming that they were interested, Jackson, Fallcatcher’s founder, convinced at least 50 people, mostly in Montgomery County, to invest a total of $5 million, according to the government.
When he heard the Securities & Exchange Commission was investigating, Jackson “fabricated” correspondence to make Fallcatcher look legitimate — meanwhile transferring some of the company money to his family’s accounts, according to the indictment.
In 2019 the SEC charged Jackson with civil fraud and froze the company’s assets. In August of that year, Jackson walked away from a proposed settlement, failing to pay his then-attorney, Alan Fellheimer, condemning the SEC’s freeze of his personal accounts and maintaining that the SEC complaint was “devoid of any evidence of misuse of the customers’ funds.”
In a phone interview at that time, Jackson denied wrongdoing but said he didn’t believe he would be treated fairly.
The criminal securities, wire, and aiding-and-abetting fraud charges in the indictment were kept secret until Jackson’s recent arrest in Arizona, where the FBI has taken him into custody, according to the U.S. Attorney’s Office.
“That is great news. Fallcatcher was a nightmare,” investor Dan Flok said when he heard of Jackson’s arrest.
He said he and others had received about half their money back from a fund set up by the SEC to compensate victims from former Fallcatcher assets and other money collected to try to make investors whole.
Flok said he heard about Fallcatcher after following up on radio ads broadcast on his commute to his King of Prussia job from Dean Vagnozzi, who at the time was a Montgomery County insurance salesman with a second business offering investors alternatives to the stock market.
Jackson, who in 2011 had pleaded guilty to mortgage fraud charges in Florida, approached Vagnozzi, referred to as Person 1 in the indictment, in 2018 about prospecting for investors in the Philadelphia area, using the name “Henry O. Ford.”
Jackson paid Vagnozzi $500,000, plus shares of Fallcatcher, to access Vagnozzi’s “network” of local investors, some of whom also invested in other opportunities Vagnozzi promoted, including Par Funding, a Philadelphia small-business lender that stopped paying investors in 2020, was taken over by a court-appointed receiver, and has since been identified as a Ponzi scheme in federal court proceedings.
Besides suing Jackson, the SEC filed unregistered securities charges against Vagnozzi, who denied wrongdoing. To settle the case, Vagnozzi agreed in July 2020 to forfeit his $500,000 Fallcatcher commission and his Fallcatcher shares and pay around $100,000 in penalties to the SEC reimbursement fund for Fallcatcher investors.
To settle a Par-related civil complaint the SEC filed later that month, Vagnozzi in 2021 agreed to pay $5 million. He has not been criminally charged in relation to Fallcatcher or Par.
Vagnozzi later sued his longtime lawyer, John Pauciulo, and Pauciulo’s then-law firm, Eckert Seamans, for bad advice regarding Fallcatcher and Par. Vagnozzi has said that he, like his past clients, was a fraud victim.
Eckert Seamans has agreed to pay $45 million to Vagnozzi’s former clients and other victims and their lawyers, but Vagnozzi and others are contesting that proposed settlement, arguing that they also ought to get some of the money as compensation for lost income due to the fraud and the SEC’s intervention.
Flok, the Fallcatcher investor, who has since moved to Florida, said he learned a lot from dealing with Jackson’s company: “I invest in Vanguard now. No more of that stuff that sounds too good to be true.”
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