Man, 84, charged with fraud in Ponzi scheme

Members of the Mercer Island Covenant Church considered 84-year-old Stephen Klos a successful retired military man and real-estate investor who served as a church usher and frequented a local Bally Total Fitness club.

Klos was charming and talked about his real estate that was worth millions. Invitations to friends and churchgoers to invest — sometimes with promises of returns of 24 percent a year — were met with open checkbooks.

But King County prosecutors Wednesday painted a different picture of Klos, who was charged with 28 counts of securities fraud in a scheme involving the alleged theft of $3.5 million from dozens of churchgoers and others, including more than $3 million from six elderly women in the church.

Prosecutors say Klos and another man, Robert Justice, 52, paid later investors in the scheme with money from new clients, pocketing hundreds of thousands of dollars along the way. Justice is named in five felony counts.

The scheme, according to the state Department of Financial Institutions (DFI), dated to 2004 when Klos began soliciting investments from other churchgoers and members of his gym. The Securities Division of DFI began its investigation in 2007.

Klos was barred from securities and financial dealings in 1992 for running another Ponzi scheme that raised more than $3.4 million, according to Securities and Exchange Commission (SEC) records. No criminal charges were filed in the case, which involved two other men, although SEC records indicate he had to pay back more than $380,000.

The charges filed Wednesday arose from losses suffered by 10 people, although charging documents indicate Klos took money from at least 23 families. As is common in Ponzi schemes, Senior Deputy Prosecutor Scott Peterson wrote, early investors often appear to make money because they are paid with money from later victims.

Pastor Greg Asimakoupoulos said Klos, as head usher, was popular among elderly widows and tried to sell anyone in the 400-member congregation, including the pastor, on his scheme.

Asimakoupoulos said relatives of many widows told him about their loved ones handing money over to Klos, who in turn assured the pastor that his financial plan "was aboveboard."

One family lost $600,0000, money inherited from a loved one, the pastor said.

"He gained access to family funds and was promising returns that were too good to be true," Asimakoupoulos said, adding he was stunned that "someone as well-versed in the Bible as he was could have this side to him."

Asimakoupoulos said he contacted authorities and asked Klos to leave the church three years ago.

One alleged victim, a 66-year-old Issaquah woman, told The Seattle Times that she lost $200,000. The woman, who asked not to be named because she doesn't want her family to know about the loss, said she met Klos at her gym.

The woman said she gave Klos $300,000 and that he repaid only $100,000. Four of the criminal counts filed against Klos relate to her case.

"My friend invested with him, and he got a payback, so I invested," she said.

Klos allegedly told his victims he would invest their money in the stock market; Justice was portrayed as a successful and skilled local investor. Instead of investing the money, prosecutors said Klos spent more than $1 million for his benefit and to help his family. He is accused of using the rest to repay other investors.

The charges say Klos is "romantically involved" with one 85-year-old suspected victim who has given him more than $350,000. She continues to turn over her Social Security, despite warnings from investigators and family, according to the charges.

"The defendant used his charm and influence to persuade elderly victims to invest with him but instead used the money for his personal benefit and lifestyle," King County Prosecutor Dan Satterberg said in a news release.

Justice, who has worked on and off in the trading business since 1999, was charged Wednesday with five counts of securities fraud. He told investigators that he's a friend of Klos'.

Klos told victims that Justice was a licensed securities trader who would keep a small percentage of profits, charges said.

If convicted, Klos faces a standard sentencing range of about 4 ½ to 5 ½ years in prison. Justice faces 12 months to 14 months. Both men are scheduled to be arraigned April 20.

News researcher Miyoko Wolf contributed to this report.

Jennifer Sullivan: 206-464-8294 or jensullivan@seattletimes.com