Missouri's mini Madoff may have struck again 

Prisons serve an important function. They keep the bad guys from messing with the rest of us.

The notion that prison bars act as barricades seems obvious enough. On occasion, though, prosecutors miss an opportunity to quarantine a real scoundrel.

Last month, U.S. marshals rounded up Ron Shepard. He was taken into custody on suspicion that he had violated the terms of his probation. Shepard is on probation after pleading guilty to two federal fraud charges in 2008.

Shepard's scam involved Pell grants, of all things. Working out of Raytown and, later, Lee's Summit, Shepard ran a fee-based, college financial-planning service. He got into trouble because his method of making college affordable involved the preparation of false tax returns.

The plea agreement allowed Shepard to avoid prison time. He received five years' probation.

But it appears that Shepard required a more intensive form of rehabilitation than supervised release.

The Missouri secretary of state's office now alleges that Shepard was pulling a Madoff at the time that he was being prosecuted by the U.S. attorney.

On May 24, Secretary of State Robin Carnahan accused Shepard of running a Ponzi scheme. The state says Shepard took more than $3.5 million from at least 40 investors, most of whom live in the Kansas City area.

Carnahan issued a cease-and-desist order, which caught the attention of the U.S. government. On June 9, a warrant for his arrest was issued. Shepard, who is in his early 70s, is now being held at a county jail as his probation is reconsidered.

The Ponzi-scheme allegation calls into question the way Shepard was handled when his Pell-grant scam first came to light. Federal authorities had a con man in their grasp. They let him off when he promised to stay out of trouble.

The record suggests that Shepard was already a serial troublemaker. His insurance license was revoked in 1994 for fraud and deception.

In 2004, Carnahan's predecessor, Matt Blunt, went after Shepard and Jerry McGuire, his brother-in-law, for selling unregulated securities. The men raised $1.4 million from investors, promising low risk and high returns. Yet state officials, when they looked closely, found no indication that the investors' money was being put to use in a way that might yield a profit.

Shepard was running the financial-aid scam at the same time that he and McGuire were sharing investment opportunities with, as they put it, "a few select clients." Doing business as a company he called National College Funding, Shepard prepared hundreds of applications for federal student aid. He found clients by holding free seminars at various locations throughout the city, including schools and churches.

His clients received $447,458 in Pell grants from 1999 through 2003. His methods, however, were illegal.

Shepard's strategies for maximizing financial-aid packages included misstating income. The federal indictment charged him with 12 counts of tax-preparer fraud and five counts of Pell-grant fraud.

In his plea agreement, Shepard admitted to ginning up business losses that reduced an Independence couple's income from $56,356 to $42,545. Central Missouri State University (now the University of Central Missouri) awarded the couple's daughter a $3,050 Pell grant based on the bogus adjusted gross income.

Shepard signed the plea agreement on October 3, 2008. A few months later, U.S. District Judge Nanette Laughrey imposed the sentence. In addition to the probationary period, Shepard was ordered to pay a $200 fine and $6,500 in restitution to the U.S. Department of Education.

The sentence suggests that prosecutors and the judge thought that Shepard did not pose a threat, that he was simply a man whose affairs had gotten a bit off the track. (A spokesman from the U.S. Attorney's Office in Kansas City said, "[W]e don't have any comment.") The secretary of state's recent allegations tell a darker story.

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