In Hedge Fund Manager’s Last Hours of Freedom, an Attempt at One Last Victim

It looked to Shaheed Bailey like a ketchup stain.

Two months prior, he reached out to Fredrick D. Scott via LinkedIn and Twitter on behalf of his startup, McChesney Street Capital, LLC, an Orange, N.J.-tech-based lending company which offers an alternative to small businesses and entrepreneurs that have a hard time getting traditional bank lending. They were in need of capital, and Mr. Scott — who in media, his website and LinkedIn pages presented himself as a millionaire investor — appeared to be their ace in the hole; after exchanging dozens of emails, texts and phone calls, Mr. Scott and Mr. Bailey agreed to meet.

But as the pair zigzagged through the streets of Orange, South Orange and Irvington N.J., on Monday, June 3 — during which Mr. Scott sought to convince Mr. Bailey’s fiancee, Stacey, to invest all of their savings with him — Mr. Bailey’s skepticism found an emotional core in the most unlikely of places: a grimy stain.

Indeed, by Tuesday, Scott was arrested on charges he used his investment firm to scam investors, using the funds to pay for expensive dinners, clothing and technology, according to the New York Daily News.

“It was right there on the right sleeve,” said Mr. Bailey of the stain in a wide-ranging interview with BlackEnterprise.com in which he spoke in detail about his time with Mr. Scott. “I thought, ‘If he is who he says he is there’s no way he’s going to have a stain on his shirt. He’s a normal guy and everything, but this is a deep-into-the-fabric type stain, and something’s just not right here’.”

Mr. Bailey’s account of their interaction over the course of five days before Mr. Scott’s arrest offers a glimpse into the sinister world of affinity fraud of which Mr. Scott is accused, and also of a man who, perhaps with knowledge of the doors swiftly closing in on him, was willing to do anything, including prey on an anxiously optimistic startup founder, to get $20,000 to use as he pleased.

It was apparently all in a fantastical effort to secure $20,000 he claimed would get the ball rolling for his company to begin raising over $3 million in capital for Mr. Bailey’s business.

Mr. Scott quickly responded to Mr. Bailey’s interest in his success and story. Mr. Bailey says he and his partner, Thomas Alexis, formed their business in March 2011. They worked together at Wachovia Bank in Warren, N.J; Alexis was the branch manager and the pair envisioned a lending company would do small business loans based on technology that “leverages data, risk analysis, and analyzes cash flow.” Mr. Scott reciprocated the interest, telling Mr. Bailey he was impressed with his business idea.

But communication between Mr. Scott and Mr. Bailey in texts and emails made available to BlackEnterprise.com, show outsize interest in a small investment firm startup on the part of an alleged hedge fund manager who, for his part, claimed to manage $3.7 billion in assets. Mr. Bailey repeatedly told Mr. Scott efforts to secure funding were unfruitful. To make it easier on Mr. Bailey, Mr. Scott, insisting he was all about helping his community, demurred. He offered to allow him to give him $9,000 immediately, then $11,000 thirty days later.

When Mr. Bailey told Mr. Scott his fiancee wasn’t okay with the idea of them spending the last of their savings, Mr. Scott, 29, forced the issue.

“I completely understand her concern, it is validated,” Mr. Scott wrote in an email. “I’m married with three children and when along the path to get where I am today there was a lot of struggle, sacrifice and hard times. BUT, if it was easy than [sic] everyone would do it, running a business and growing a business that is sustainable, viable and profitable is a costly, painful, time consuming endeavor (it’s not for the faint at heart).”

By May 31, Mr. Scott drafted up a contract (provided by Mr. Bailey to BlackEnterprise.com) stating that Mr. Bailey’s company would pay $9,000 immediately, and then another $11,000 30 days later. At some point during the back and forth, that number went down to just $5,000.

Mr. Scott grew more and more incredulous in the days before he and Mr. Bailey met in person. Before long, his language seemed to border on the psychopathic: He warned Mr. Bailey that he was wasting his time, saying he was “a bit insulted that you would think [sic] that I would do all the work up front to get you into a position to attract investment capital for free … my time is valuable, as well as my knowledge, experience and access. I am already charging you not near [what I’m worth] in order to get you investor ready. If you’re [sic] not willing to put your all into your own idea than [sic] it’s a waste of my time either way. I struggled and gave my all several times before someone seeded me.”

Mr. Bailey assured him he wasn’t trying to waste his time. “You’ve got a lot to learn there guy. I was willing to get you there, and for near nothing at that. You are a prime example of what is wrong with the African American small

business community, you all want something for nothing (or a back end hookup); you expect people to put years of relationships, access [their] time and work into you guys for nothing…. and you listen to people who don’t have the access to get you where you want to go.”

It was too bad he didn’t have the money, Mr. Scott continues, because he’d just charged someone $350,000 to help him successfully raise $45 million for another company — only he didn’t say the company’s name or who was involved, let alone how he’d accomplished such a feat.

But on Monday, June 3, Mr. Scott changed his tone and proposed an in-person meeting. His promise, according to Mr. Bailey? “I’m going to help you find your balls today.”

That was just one of several awkward interactions to come.

“Does your mother make iced tea?” he asked, according to Mr. Bailey.

Mr. Bailey says Mr. Scott, ratcheting up the appearance of power and status arrived around 1 p.m. on Monday, pulling up in a brand new Lexus GS driven by a European chauffeur. Once inside, he schmoozed and attempted to woo he, his mother, grandmother and aunt with bar-napkin investment diagrams, disjointed financial jargon, big promises and compliments. He articulated talking points on Mr. Bailey’s startup.

“I don’t like equity investments,” he said. “I prefer loans. This is why they pay me the big bucks.”

They stayed for 30 minutes. They eventually left.

“I told him I’d exhausted everything,” Mr. Bailey said, regretting past investments — some personally sourced — that went sour.

Mr. Bailey promised he’d talk things over with his fiancee, whose resolve remained the same.

“You’re killing me,” he remembers Mr. Scott saying when advised of his fiancee’s refusal. “He kept saying, ‘I’m only charging you 5,000 because I’m really adamant about helping my community. I really want to help you.’”

“Continue to try to call your fiancee for the $5,000,” pressed Mr. Scott, according to Mr. Bailey.

That’s when things took a bizarre turn.

Mr. Scott ordered both his driver and Mr. Bailey out of the car so that he could take what he said was an important phone call. According to Mr. Bailey, the driver began telling him that his boss must really like him. “He sat in your house … he doesn’t sit in anyone’s house,” Mr. Bailey recalled the driver saying. The unidentified driver, according to Mr. Bailey, told him that Mr. Scott had helped him grow his car service business from one car to a fleet of eight. “I thought, ‘Wow, that’s amazing,’” Mr. Bailey recalls. “This guy really does care about his community.’”

Mr. Scott also began inserting a compelling personal narrative to boot. He told Mr. Bailey he’s been poor, had three children, but that his wife’s family “invested 30 million into his hedge fund, and then that first years he said he made a 32 percent return on their investment.

“If I had to take my last, you should be able to take your last and put it back into the business,” he recalls him saying.

He was sold. It was enough for Mr. Bailey, who says he asked his advisory board to look into Mr. Scott’s background; the $20,000 was going to be used so that Mr. Scott’s company could restructure the startup from an LLC to a corporation. Surely, $5,000, Mr. Scott assured him, was enough.

That evening, Mr. Scott secured a loan from investors and a few close advisers who he said vetted Mr. Scott’s background. Only, by Tuesday morning, calls from Mr. Bailey to Mr. Scott went straight to voicemail. Texts went unanswered. And finally, a Google search revealed that he’d been arrested for fraud and brought before a judge in Brooklyn Federal Court. He appeared before a judge and was ordered remanded without bail.

“I was in shock,” Mr. Bailey said, who fired off an angry text message.

Mr. Bailey says he’s relieved he seems to have dodged a major bullet.

“I probably would have never seen my daughter again,” he said, relieved he hadn’t let his fiancee down. “She was happy that we didn’t do it. She just said, ‘Sometimes when I say no it’s for a good reason.'”

All the while, Mr. Scott said the transaction needed to happen sooner than later.

After all, he had a big meeting for them set up for Tuesday morning.