The remnants of Anne Sholtz’s old life are evident in the smaller things. They’re visible in the GPS-tracking bracelet — standard issue for felons in home detention — that looped around her ankle for a year, and in her idled passport. They’re traceable in her pillow, which rests today in a leased home miles from the $5-million hillside estate that once broadcast her transformation from Caltech economist to business phenom.

Yes, the wreckage from that existence — the economizing, the isolation from connected friends who now shun her — is graspable. Where the picture turns as murky as Southern California’s whiskey-brown smog is how Sholtz, as a then-thirtysomething go-getter, was able to deceive the very air-pollution market that she helped to conceive, and the lessons it holds for keeping financial crooks out of the trillion-dollar, greenhouse-gas trading system that President Obama has trumpeted as a key to curbing global warming.

Unless you’re in the arcane field of emissions trading, chances are you’ve probably never heard of Sholtz before. Last April, the former Pasadena pollution-broker was convicted in federal court for masterminding a fraudulent, multimillion-dollar deal for credits in Southern California’s novel smog-exchange. Despite pleas that she sock Sholtz with years behind bars, US Central District Court Judge Audrey Collins gave her just a year in home confinement.

Fortunate with a light sentence in that downtown LA courtroom, Sholtz, nonetheless, sustained heavy losses outside of it, squandering, among other potential, her chance to build a unique and lucrative pollution-trading business, with access to Obama or Gov. Arnold Schwarzenegger as an industry confidante. Those opportunities gone, she now drives her mother’s car, not the Mercedes or SUV she previously did. Rather than expanding her patented ideas into climate change, she checks in with her probation officer.

Blown prosperity for Sholtz, it’s been no bonanza for others, either. Between criticism over its secretive, mixed-bag prosecution of her and evidence of Sholtz’s role in a scheme to extract millions in overseas US aid with men purporting to be American intelligence and military operatives, the Dept. of Justice’s LA office probably wishes she would just fade away. Local smog regulators at the South Coast Air Quality Management District (AQMD), whose market-based regulation proved vulnerable to her deceptions, can relate. Trouble is some events are just too big to disappear. And the Sholtz case, no matter its relative obscurity or connection to complex regulations, fits that mold because it underscores the need for vigorous oversight of emissions markets against seemingly inevitable Wall Street-style chicanery.

Saying that she hopes to reconcile the events that dragged her from eco-visionary to convicted felon and industry pariah, Sholtz, 44, gave the Pasadena Weekly her first public comments in seven years. These days, she’s a freelance auditor examining white-collar fraud (ironically, for the federal court system that processed her case) and proclaims herself “happy” and “debt-free.” Just don’t mistake that resilience for satisfaction, or expect to hear weepy remorse from her about the ruins smoldering in her wake. Channeling other emotions, Sholtz said that she was “disappointed” in how prosecutors and bankruptcy officials treated her, and was perplexed over why the whistleblower tips she furnished them about bank money laundering and environmental corruption seemed to have fallen on tin ears.

“Years ago, I was depressed I’d made bad decisions, which led to one disastrous deal and my companies unraveling,” Sholtz said over lunch at a location that she asked go undisclosed, fearing former associates she claimed have threatened her. “I’ve never said anything about this whole experience until now. The only reason I’m speaking is because I’m tired of the misperceptions.”


If two Republican congressmen skeptical about Obama’s carbon-cutting blueprint have their way, Sholtz’s story may yet capture national attention. This spring, US Rep. Joe Barton of Texas, the ranking member of the House’s powerful Energy and Commerce Committee, and Greg Walden of Oregon, ranking member of the House’s Oversight and Investigations Subcommittee, demanded the US Environmental Protection Agency provide a welter of information about Sholtz to them, based partly on the Pasadena Weekly’s coverage. “We believe this case has great relevance in the context of the pending legislation on climate change,” Barton and Walden wrote in a May statement. In it, they cited doubts that federal authorities have the money and legal punch to adequately police a national greenhouse-gas market.

All the same, those doubts may be road-tested. An Obama-backed bill requiring industry and public utilities nationwide to buy and sell federally auctioned permits to discharge carbon dioxide and other greenhouse gases under a so-called “cap-and-trade” regimen narrowly passed the House in June. Formally titled “The American Clean Energy and Security Act of 2009,” the legislation, which includes numerous new energy-efficiency standards and initiatives, represents the most seminal change in US environmental policy since passage of 1970’s Clean Air Act. The 1,300-page bill, co-written by House Democrats Henry Waxman of Los Angeles and Edward Markey of Massachusetts, next goes to the Senate. The overriding objective is to reduce US greenhouse gases from 2005-baseline levels so that by 2020 aggregate levels are down 17 percent and by 2050 they’ve shrunk a colossal 83 percent. (Global warming is caused by the atmospheric buildup of carbon dioxide and other gases that reflect some of the Earth’s heat back towards the planet instead of dispersing into space. Many scientists contend the phenomenon is imperiling the Arctic, biodiversity, food production and weather patterns.)

Hopeful as the White House is about cap-and-trade as a lever to reign in heat-trapping emissions, even enthusiasts acknowledge that the intricacies are jaw-dropping, if not for the sheer mechanics of it, then the geographic lines, industrial sectors and differing populations it will transect. Roughly six billion tons of emissions could be traded yearly at first, estimated David Kreutzer, an economist at the conservative Heritage Foundation in Washington, DC. Entities discharging more than 25,000 tons of greenhouse gases annually — non-nuclear power makers, oil refiners, natural gas producers, coal-fired steel plants, among others — will participate.

Detractors believe with the money at stake, white-collar cheating is practically inevitable. Between now and 2035, greenhouse-gas permits may reach $5.7 trillion in value, Kreutzer said. Some investment houses are already gearing up to act as trade middlemen. Oddly, the watchdog angle was barely touched on during congressional deliberations. Attention mainly focused on provisions allowing companies to soften emission damage offsite, even overseas, if it’s cheaper, and the initial giveaway of 85 percent of credits to carbon-dependent businesses and regions facing sharply higher energy prices. As the bill stands, market oversight will be spread out among the Federal Energy Regulatory Commission, the EPA and several unspecified agencies. “Most of the people I talk to think [the market] will be set up for fraud,” said policy analyst Joel Kotkin. “There’s scamming and then there’s scamming.”

Simultaneously, seven Western states and parts of western Canada are considering launching their own regional cap-and- trade under a Schwarzenegger administration plan. It’s aimed at rolling back carbon dioxide emissions to 1990 levels by 2020. The Western Climate Initiative may be dissolved or modified if a national market is approved. Until then, West Coast officials are studying how to ward off cheaters in areas such as insider-trading, excessive speculation and market manipulation. Sometimes, however, the threat hides in the open.


LA’s implacable smog problem stood to make the Sholtz rich and maybe more influential. A dark-haired woman with wide-set eyes and a slight Midwestern twang, she grew up the brainy daughter of an aeronautical engineer. Schooled in Minnesota and elsewhere, Sholtz said her aptitude in math and science won her countless honors and early interest from NASA. It was a job offer teaching economics at Caltech that pulled her from Washington University in St. Louis, where she was in a doctoral program, to Southern California. Her timing was superb.

The Cold War had just ended and California’s recession was buzz-sawing thousands of blue-collar jobs. Bigwigs then weren’t debating carbon footprints. They were grouching about regulatory overkill in the fight against chronic smog. Legislators, lobbyists and boosters, convinced that costly rules were suffocating manufacturers, saw their chance to emasculate the AQMD’s power. To neutralize the threat, the air district offered something chancy.

The AQMD hadn’t invented the concept of injecting market principles to detoxify the environment and allow industry leeway in deciding how and when to run its smokestacks, towers, generators and other machinery cleaner and greener. It originated with academics decades earlier, and then was embraced by the first Bush Administration to address “acid rain,” a harmful, sulfur dioxide-laced mist emitted from Midwestern power plants that drifted over Northeastern states and into parts of Canada. Most consider the congressionally adopted program a success. Whether the same system will translate for a prodigiously larger, national greenhouse-gas market is anyone’s guess.

It’s for this reason that LA’s experience is instructive. Instead of continuing to rely on fine-print dictates to regulate individual machinery at power stations, oil refiners, cement companies, defense plants and other manufacturers, as smog officials had done for decades, the AQMD in 1994 gambled on economics. Some tactic was needed to chop emissions by 70 percent to meet national clean air standards. Environmental groups fretted that cap-and-trade here was a recipe for stalling progress, but regulatory chic was in trader’s garb. The spectacle of LA’s notorious air pollution being traded like a blue-chip stock sounded exotic and the world press flocked to the district’s eco-conscious Diamond Bar head- quarters to hear the details.


Under the now 15-year-old market, 332 of the area’s heaviest polluters are allotted credits based on their aggregate emissions of two harmful chemicals: oxides of nitrogen and sulfur. These credits, calculated from baseline production levels, essentially are permits to pollute by the pound. If an entity reduces more of its discharges than required under its cap set by regulators — usually by installing high-tech, gunk-trapping equipment — it can sell the differential between what it’s allowed to emit and what it actually released into the skies (or expects to) to others in the form of credits. (A company can choose not to trade, just as long as its emissions fall below its limits.) Every year, firms’ emission allotments shrink by a certain percentage so pollution dips regionally. Each credit is assigned a period for its one-year use, the date it was issued and one of two geographic zones it can be used in.

To date, there have been 5,170 trades worth $980 million in the “Regional Clean Air Incentives Market” (RECLAIM). District officials argue that it’s achieved it goals, shrinking nitrogen oxides 73 percent and sulfur oxides 59 percent. Trades are made company to company, or through broker-type middleman. Here’s where symmetry enters. During the RECLAIM design phase, the district solicited technical expertise from lawyers, academics and others, bidding out consulting contracts to some of them. The Pacific Stock Exchange and Caltech received work performing market analyses, with Sholtz one piece of their brainpower. It was there she hobnobbed with AQMD staff and there she promoted two concepts of her own: a plan to stabilize prices and planning by establishing two staggered cycles for RECLAIM credits expiring in a given year, and to deter fraud by assigning credits identifying numbers, somewhat akin to a bar code, so officials could track their movements. Only the staggering portion of Sholtz’s plan was approved.

Jack Broadbent administered RECLAIM for the district back then and remembered Sholtz. “She came across in a very professional manner, pretty slick, part advertising, part substance,” said Broadbent, now executive officer of the Bay Area AQMD. “Anne (also) did a good job of ticking a number of us off. She asked what air pollution regulators know about these … ideas.” Arrogant or merely self-assured, few seemed as poised to capitalize on RECLAIM as the ever-hustling Midwesterner. While still working out of her apartment and teaching at Caltech, as well as at USC as an environmental law scholar, she founded a smog-credit exchange allowing buyers and sellers to arrange favorable deals. Every RECLAIM transaction in this eBay-like auction made her a 3 percent to 6 percent commission.

Her company, Automated Credit Exchange, touted itself as the first-ever electronic trading system for pollution credits. Unlike traditional brokerages such as Cantor Fitzgerald, Sholtz’s system relied on analytical, NASA space-exploration software licensed through Caltech to create mathematically optimal trades from a mishmash of data. Industrial heavyweights like Disney, Northrop-Grumman, Chevron and the LA Dept. of Water and Power signed up as clients; the Pacific Stock Exchange, Bank of America and US Trust served as trade clearinghouses.

In February 1996, Sholtz celebrated her company auctioning a record 2.4 million RECLAIM credits in a single week. A Los Angeles Times story the next year exalted Sholtz’s ingenuity, quoting one client who called it “absolutely wonderful.” She later set up shop with an office on South Raymond Avenue in trendy Old Pasadena. With money and publicity flowing, and nibbles about selling her analytical software to advertisers and officials auctioning federal airwaves, Sholtz appeared destined for the cover of Forbes. There were trips to the United Nations, meetings with Al Gore, her 7,000-square-foot estate festooned with koi ponds in gated Bradbury a few miles east of Pasadena, not to mention exhilaration for what lay ahead.

It was a Horatio-Alger-meets-green-entrepreneur fairytale. Unfortunately, some fairytales end miserably. In 2002, nine of Sholtz’s clients complained to the AQMD that the fast-riser known for her wonky lingo and oft-clingy outfits had bamboozled them in what would become a convoluted bankruptcy of her firms, with claims in the $80 million range. The EPA was summoned. Before long, investigators had zeroed in on a particular transaction.

Beginning in fall 1999, Sholtz informed one of her clients, a New York-based energy trading firm called A.G. Clean Air, that then-Mobil Corp. (now Exxon-Mobil) needed to purchase about $17.5-million in RECLAIM credits to operate in the LA Basin. Mobil indeed had an option contract with her to acquire those credits, and if A.G. sold them to the oil titan through her, it could make a bundle, perhaps $5 million, depending on credit prices. But when A.G. couldn’t buy enough credits to complete the Mobil transaction itself, Sholtz discovered that credits from her own company that she needed to use had been committed elsewhere by an employee while she was out ill. She had a dilemma: come clean or try to fix the muddle herself.

To trick A.G. into believing she could still consummate the deal for credits, Sholtz staged an elaborate act, court records show. From November 2000 to April 2002, she emailed and faxed fraudulent sales documents to A.G., including phony invoices showing, Mobil owed her about $16 million when in fact it did not under the option contract. In more artifice, she emailed A.G. officials “falsified” correspondence between her and a Mobil executive that she was impersonating. The fakery was intended to buy her time until she could unload A.G.’s credits to someone else besides Mobil and pay A.G. what it could’ve made with the oil company if the original deal could’ve been completed. Eventually, A.G. caught on to the stonewalling, technically known as “lulling,” demanding to be paid in full. By then, authorities were onto her. A.G. and Mobil declined comment for this story.


Sholtz asserts, as she has in court documents, that the initial federal charges against her were overblown, and in this regard she has a point. Contrary to early media accounts and government reports about her, she never trafficked in counterfeit credits because there weren’t any.

Her downfall, she insisted in interviews and in her plea agreement, traced from her entanglements with a smooth-talking Texas financier named Jimmy Keller. He was on Sholtz’s payroll from 1998 to 2000 before she fired him, and Sholtz said she last spoke with Keller in 2002. (One of her ex-cohorts said he died several years ago.) Sholtz said it was Keller who committed the credits that could’ve stopped her prosecution by encumbering them in a phony, high-yield investment scheme involving bank notes. It took her about eight months to reconstruct what had happened. When she had, though, RECLAIM credit prices had plunged, diminishing the money she had to throw at the problem. “I wasn’t panicked — I was angry,” Sholtz said. “I should have just said, ‘I will find a way out,’ and admit I messed up. I could’ve sold my part of the company and learned a big lesson. But I thought nobody would’ve traded with us anymore or that A.G. might’ve forced us to sell the company to them and fire our employees. I didn’t have the courage or maturity to ask for help.”

Because AQMD regulators were blind originally to what had transpired, Sholtz continued barreling forward. Among other actions, she solicited money from new investors to pay off existing ones in a “Ponzi-type” scheme, Howard Grobstein, the court-appointed bankruptcy trustee, wrote in filed documents. In another instance, she blamed the destruction of the World Trade Centers during the 9/11 terrorist attacks for missing deal paperwork. Sholtz disputes that she misled as many people as some have charged, and said she felt demonized by a few of the accusations against her. “There’s been so much misinformation, it’s astounding,” she said. “Some people really didn’t want to know the truth. They just wanted to blame me without looking at themselves or their associates.”

Nonetheless, in February 2001, while still misleading A.G., Sholtz assisted the Netherlands government test its own nitrogen-oxide emissions-trading program. Months later, she tried playing white knight when RECLAIM credit prices soared during the California electricity crisis by offering to stabilize trading through a centralized auction similar to hers. Gov. Gray Davis had ordered power plants statewide to generate electricity however they could, even from high-polluting machinery. Traders and speculators from Texas to New York seized the opportunity, hoarding credits to sell at huge markups to utilities frantically buying more than their allotment. With RECLAIM approaching meltdown, district brass temporarily pulled utilities from the market. They also spurned Sholtz’s rescue plan.

The next year, her two promising companies flopped into bankruptcy. What she hoped would be a reorganization plan ossified into dissolution. It got messier. Individual investors claimed losing retirement accounts, college funds and nest eggs in the collapse. Multimillion-dollar settlements were cut with two large energy entities, Calpine and Intergen. The Bradbury mansion was sold. Where she was once hailed as brilliant, foresighted and charming, she was now characterized as dishonest and, according to one official, “manipulative.” Just as that was occurring, questions arose about her PhD cited in stories, the Netherlands and elsewhere. As the Weekly reported, she had no doctorate because she hadn’t completed her dissertation at Washington University. Sholtz said that a colleague had introduced her at a public function as “Dr. Anne Sholtz” and since she was close to earning her advanced degree, she let the lie stand. “That would have been so easy to fix,” she said, “but, again, it required a level of maturity that I didn’t have.”


EPA agents arrested her at a Monrovia gym in 2004. The theatrics of it, Sholtz suspected, were meant to intimidate her. “I was handcuffed and outside there were guys with big guns,” she recalled. “They wanted to embarrass me. Did they think I was going to flee in my Spandex?” The incarceration of a niche-green celebrity chummy with AQMD brass at the Metropolitan Detention Center rattled others, too. Inside local environmental and regulatory circles, feelings of betrayal, fury and anguish erupted.

She’d eventually be indicted on six federal counts stemming from the A.G.-Mobil transaction. One knowledgeable source said Sholtz lucked out, because federal investigators had turned over to the Justice Dept. enough evidence for more than 80 counts. Charges filed, the white-collar case seemed to turn invisible, as if the region’s virulent smog — still the unhealthiest in the nation for ozone and particulate matter — had devoured it. Four years lapsed from her 2004 arrest to her 2008 sentencing, and even then her punishment warranted no Justice Dept. press release.

The two prosecutors handling the case, Assistant US Attorneys Joseph Johns and Dorothy Kim, have steadfastly refused comment beyond Johns saying last year it was a calculated gamble to have Sholtz plead guilty to a single count. Adding to the mystery in United States v. Anne Sholtz, many of the key court documents, the transcript of her sentencing hearing among them, remain quarantined by judicial order. Justice Dept. spokesman Thom Mrozek said one reason is that her case involves “under seal filings” that might signal ongoing investigations into other areas. Wayne Nastri, the EPA’s West Coast administrator, was virtually the only significant suit to speak up. In a January 2008 letter to Judge Collins, Nastri recommended that she hand Sholtz a message-sending sentence. “Environmental regulatory programs which utilize market mechanisms,” Nastri wrote, “will fail if the integrity of such programs can be seriously compromised.”

At the April 2008 sentencing hearing, which caught many off guard because of the case’s frequent delays, Sholtz wept and foretold of family harm if she were given hard time. But what mattered to Collins, according to numerous people present that day, was that Sholtz’s companies had paid A.G. so it actually turned a profit in its trade-dealings with her over time, in spite of her misleading actions. (Sholtz estimates that amount at $28 million.) Alluding to that and other factors, Collins stunned the Justice Dept., EPA and some of Sholtz’s victimized investors by giving her a skimpy sentence: one year of home detention as part of her five years of probation, plus a conditional ban on AQMD emissions trading.

In a surreal coda to one of the bigger cases of cap-and-trade criminality, Collins chided prosecutors for their strategy while praising Sholtz’s defense attorney, Richard Callahan of Pasadena. Even so, environmentalists and others say it’s incumbent on regulators to learn from Sholtz’s gaming so it’s not repeated on the bigger carbon stage. “We definitely see [this] fraud as a cautionary tale for the state 35 and the country as we move toward greenhouse gas regulations and potential market mechanisms,” said Bill Magavern, director of Sierra Club California. “In discussions about it, I’ve brought up the fact that there has been outright criminal fraud and I find that most people don’t know about it.”


Thumb through the federal government’s case file on Sholtz and you’d think she’d confined her ambitions to smoggy Southern California. The felony that torpedoed her career, after all, involved Torrance refiner ExxonMobil Corp. What you’d never glean from the available prosecution documents was Sholtz’s involvement in a spectacular and alarming international venture — one intersecting the worlds of espionage, foreign policy, environmental markets and con-artistry — in the years before authorities were chasing her. All of that has been buried until now. A months-long Pasadena Weekly investigation, based on business records, operational memos, wire transfers, invoices, resumes and other documents scooped up by federal and bankruptcy officials and obtained by the paper, coupled with Sholtz’s own rendition of events, tells part of this bizarre story of cap-and-trade money gone sideways into areas it was never intended to occupy.

Peel back to 1998. After losing about $1.7 million in soured deals in the AQMD’s smog-cap-and-trade program when a credit’s buyers’ check bounced, Sholtz said that Keller confided to her about an opportunity to dig her way out. The seemingly well-connected financier-dealmaker she’d hired that year told her that not only could she recoup her losses and then some but simultaneously serve her country. The US government, he said, farmed out contracts to private firms for an extraordinary purpose: returning to federal coffers some of the government bonds, gold, cash and other valuable items distributed to America’s allies, in some cases going decades back. Whether they were first allocated as foreign aid, secret payments or other forms of funding from Washington, D.C. was not evident. 

Keller, according to Sholtz, explained that once the booty was returned to the US, it could be converted into high-yield securities able to generate revenue. Contractors involved in this so-called “repatriation” or “extraction” effort could use the interest from the securities for their own business and charitable purposes before delivering the items back to the US Treasury. Sholtz said Keller introduced her in Las Vegas to a cadre of men supposedly able to pull off these sensitive operations. Many of them had CIA and military special-forces backgrounds, and she said Keller told her it was “normal business” to employ them. “He said, ‘You’re special, the government has been watching you.’ I fell for it hook, line and sinker.”

Sholtz wasn’t exactly dispassionate about the older Keller in those days. In fact, she was in a romantic relationship with him, impressed by his smarts, interests and charms. “He swept me off my feet,” Sholtz said. “He had that Southern air about him.” So, during the same summer the Monica Lewinsky scandal exploded, Sholtz, then 33, launched a money-retrieval mission dubbed “Operation Bald Headed Eagle.” Its specific target was a pallet of boxes stashed near the Philippine capital of Manila allegedly containing $20 million in mid-1930s US Federal Reserve notes, plus German bonds, platinum bars and other commodities of mysterious origin and undisclosed value. Based on her correspondence, Sholtz seemed transfixed by it all.

With the money she expected to rake in, Sholtz said she hoped to pave over the financial hole she claimed Keller created for her, re-capitalize her companies and support local philanthropies. To accomplish this trifecta, she founded a “charitable trust” supposedly blessed by the United Nations to take initial possession of the goods, memos show. Sholtz said one of the lawyers assisting her set up “Gold Ray Ltd,” which was chartered in the British West Indies. Technically, her companies, Automated Credit Exchange and its parent, EonXchange, were not part of Gold Ray. Like the Iran-Contra scandal of the late-1980s, Operation Bald-Headed Eagle married profit to American foreign policy. In the place of the enterprising, buck-toothed Colonel as its shot-caller, it was an entrepreneurial economist who seemed to fancy herself as an Olivia North.  

Mission financing wasn’t quite as daring as selling arms for hostages, but it was dicey, nonetheless. According to a Sept. 14, 2004, memo by Kathy Phelps, the lawyer for the court-appointed trustee overseeing Sholtz’s bankruptcy proceedings, an outwardly normal series of RECLAIM trades actually was Sholtz misappropriating roughly 500,000 credits owned by clients Chevron Corp., Mobil and oil-and-gas producer Aera Energy, which she then sold to power maker Southern California Edison for $1,913,162. In a June 18, 1998 letter from Sholtz to Edison, Sholtz instructed the utility to pay that amount to a Florida attorney assisting her with “Eagle.”

Phelps, approached about her memo entitled “EonXchange – analysis of stolen credits,” said she and the bankruptcy trustee handed over evidence about “Eagle” to the government because it wasn’t their focus. Even so, Phelps wondered if the losses Sholtz incurred from “Eagle” were a reason why she initiated some of the financial improprieties later alleged. “The depth of what [she] was involved in was extensive,” Phelps said. Shown Phelps’ memo, Sholtz adamantly denied the RECLAIM credits sold to Edison were stolen but conceded she lacked the records to pinpoint where they’d originated. “The money we made from the Edison deal was our money!” Sholtz added. “We just sold [Edison] credits we got stuck with from another transaction. It wasn’t some grand scheme.”

The paper trail suggests otherwise. Within days of receiving the windfall from the Edison transaction, it became the down payment on her plan to ferry former US aid fro the Philippines, records show. At its core, “Eagle” involved retrieving the treasure in a meticulously choreographed, special-access transfer from a holding company near Clark International Airport outside of Manila and flying it 7,400 miles to McCarran International Airport in Las Vegas without the usual inspections.

An aviation outfit on Imperial Highway in El Segundo that called itself “Air America Holdings, Inc.” agreed to transport the goods on an executive Boeing 707. Sholtz negotiated with the firm’s president, who claimed to have been a veteran CIA pilot for the agency’s Air America charter airline, which gained notoriety as an American paramilitary asset during the Vietnam War. The airline later disbanded. 

This pilot, in a missive on a conspiracy-focused Web site, said that after Vietnam ended the CIA formed a new, covert airline under his last name. With the agency’s assistance, he flew missions from 1974 to 1988, delivering arms to Asia, the Middle East, even the Soviet Union. By the late-1980s, he said he shut the charter down because he believed CIA operations were harming US interests. Two years later, he asserted the Justice Dept. charged him with wire fraud to “silence and discredit” him. The book, Drugging America: A Trojan Horse, also captured his story. The pilot, whose name and others the Weekly is withholding because none of them were charged for their participation in “Eagle,” did not return phone calls seeking comment.


Sholtz said this pilot not only told her he was still associated with the CIA; he instructed her on what to write in operational documents. Whether you believe her insistence she was merely the front, and not a ringleader, this was no standard mission. Members of her “Eagle” team declared holding “diplomatic immunity” and other high-level governmental protections freeing the 707 from customs, immigration and security scrutiny, Gold Ray letters signed by Sholtz stressed repeatedly. 

The team itself was no less formidable. A retired US Army lieutenant colonel with 14 years in US Special Forces and a Philippine colonel were two of the point men. Another, the overseas lawyer representing the Philippine company maintaining the booty, was once connected to Philippine President Ferdinand Marcos’ administration, several knowledgeable sources said. Sholtz recalled meeting this lawyer to discuss “Eagle” in Sri Lanka, where she said he told her the loot was given to Marcos’ people by US authorities who supported them. Marcos was deposed in 1986. Emails and calls to the Philippines embassy about the colonel and to the Philippine bar association about the lawyer went unreturned.

Sholtz and Air America Holdings settled on a $200,000 fee for the chartered 707 to make the three-leg trip that would take it from Los Angeles International Airport to the Philippines and finally to Las Vegas, invoices show. On June 26, 1998, the pilot warranted in a short memo to Sholtz that their aircraft would not face the usual restrictions and protocols landing in Las Vegas, implying Nevada airport personnel were in on the caper and that they’d lined up a protected spot to unload the plane’s cargo. “This is to certify that entry into and departure from the drop off point of the merchandise has been cleared and traditional formalities for the personnel and merchandise will not be observed,” the pilot wrote. No government body, in other words, was going to be hassling them about the contents of the 707’s belly.

But three weeks later, “Eagle” had yet to lift off. The jet they intended to use had experienced “severe mechanical malfunctions,” the pilot wrote in a “sincere” apology to Sholtz. “Obtaining an alternate aircraft is not as simple as telephoning a (typical) charter service,” he said in a July 13 letter. “The only aircraft we can utilize must meet rather narrow parameters of ownership, nationality, crew requirements and most importantly range.” As an alternative, the pilot suggested switching to an older, slower, propeller-driven DC-6 or another Boeing 707 standing by in London. Sholtz would only have to pay $25,000 more for the round trips. “Air America also owns a C-130 but this aircraft is considered too high profile for this mission, and is too expensive to operate,” the pilot wrote. “We therefore have discontinued its use.”

Despite the hiccups and apparent pressure that Sholtz felt to hasten the mission, her plan still retained its VIP access in and out of international airports. The retired-lieutenant colonel working with the ex-CIA pilot, she wrote July 17, had “full diplomatic papers” that conferred on him “full diplomatic immunity,” a flag, which may been code for something else” and an inspections clearance-pass alternatively called the “raincoat” or “rain repellent.” All she needed from her Manila contacts was confirmation, preferably in writing, that everything was synched in the Philippines, she said in a July 22 memo. “We prefer the (plane’s) tail number not be recorded, but we have been able to alter this as a strict requirement, and we can allow it be recorded … The most important verification is that the diplomatic flight will be able to skip customs and proceed strictly to the hanger” to load the merchandise and related equipment. Air America Holdings, she added, was ready to take off within 72 hours of payment. 

Asked why she believed Washington would condone such furtive actions when the Air Force could simply dispatch its own C-130 to collect the pallets, Sholtz responded: “I wasn’t looking at the mechanics. We were meeting real people who were supposedly working with the US government. We needed to help our country. I was starry-eyed, thinking this is going to be fantastic! You don’t think something this big could not be true.” Guy Bailey, a Miami attorney who represented Sholtz on “Eagle” before a falling out, remembered her recounting the same story as the documents paint. “She said she was in some sort of contractual arrangement with the CIA and the Treasury Dept. to go retrieve currency, gold or something from the Philippines,” Bailey told the Weekly. Bailey said that as far as he knew, the 707 arrived in the Philippines, waited a week there to collect the goods and left with an empty cargo hold for unexplained reasons.

Sholtz said she’s heard that version and another one where the booty was returned to the US, and everybody profited but her because she’d been swindled. By mid-summer 1998, Sholtz said “Eagle” team members wouldn’t answer her questions, then her phone calls. It was as if they’d vanished. “I don’t know what happened. Sometimes it depends on the day,” she said. “I thought they’d chosen us to do this great work, and it was so flattering and if you have any narcissism, it’s ‘Oh boy.’ Nobody said it was illegal. Now I’m thinking there has to be a conspiracy.”


While it seems likely “Eagle” was little more than a Nigerian-type scam on Sholtz, the fact that RECLAIM money was alleged to have helped finance it infuses it with relevance in understanding how well authorities have policed cap-and-trades heretofore. There’s also the issue of Washington’s awareness of former — or phony — spies and soldiers portraying themselves as agents on government-sanctioned missions. If something like Eagle would deliver gold bars into a U.S. airport un-checked, what else could be brought into the country? 

For its part, the CIA denied involvement with “Eagle” and its participants. “These individuals, to my knowledge, neither have, nor have had any affiliation with the agency,” said agency spokesman Paul Gimigliano. “We’re not part of this tale.” State Dept. spokeswoman Laura Tischler said diplomatic officials knew nothing about “Eagle,” either. She did note it’s illegal to claim diplomatic immunity if it’s not officially conferred. The Treasury Dept. never answered the Weekly’s inquiries. In New York, the UN office of legal affairs found no evidence after searching its records that the organization was affiliated with Sholtz or Gold Ray. A UN official said the organization doesn’t typically approve private charities, and says it’s illegal to misuse the UN’s name.

Meanwhile, back in Los Angeles, the silence over “Eagle” today is crushing. All three companies allegedly fleeced of their RECLAIM credits to help finance the scheme — Chevron, Mobil and Aera —refused comment or never returned calls. Edison spokesman Steve Conroy would only say the utility was reviewing the matter after the Weekly’s inquiries.

In spite of ample documentation and a four-year investigation, the US Attorney’s Office never charged Sholtz, Keller or their associates with a potential array of felonies stemming from alleged misuse of smog-credit money or the extraction scheme. One natural question that arises is whether the US intelligence community or other federal officials pressed the Justice Dept. not to prosecute “Eagle” for unstated reasons, and whether that prompted the record-sealing and prosecutorial silence. Justice Dept. spokesman Thom Mrozek rejected the notion of external arm-twisting. In fact, his only elaboration on the entire Sholtz matter was that his office “has never been influenced by political pressure” from outside.

For all the Dept. of Justice’s explanations, EPA officials were disappointed “Eagle” wasn’t prosecuted or fleshed out by the FBI and others. In a statement to the Weekly, the EPA said: “[We] investigated this fraudulent scheme because companies and individuals must legally and accurately trade air pollution credits if cap-and-trade programs are to succeed and air emissions are to be actually reduced.” The agency had known about the offshore ventures for years. In 2004, Ronald Modjeski, the EPA criminal investigative agent assigned the case, filed an affidavit confirming Sholtz’s deal-making for federal-reserve notes, currency, gold and other financial instruments for “large amounts of money.” The EPA refused to allow Modjeski, who spent nearly 4,000 man-hours investigating Sholtz, to be interviewed.


In hindsight, Sholtz said that she believes Keller and the others on the “Eagle” team targeted her all along. They probably knew from research that her maternal grandfather, David Sholtz, had been governor of Florida during the 1930s, and decided to appeal to her public-service instinct, she added. Soon after she fired Keller in 2000, Sholtz said the tone of their relationship changed. She claimed that he began placing threatening phone calls describing what she was wearing, her location and how he didn’t plan on serving any jail time to intimidate her from testifying about him. In Pasadena in 2002, Sholtz said another “Eagle” participant tried frightening her with the warning: “You know people disappear all the time.” She refused to identify him. “I told the US attorney during my prosecution that there’s this whole world where people are roped into thinking they are working with the CIA and military personnel or [the National Security Agency] and they didn’t seem interested. I got scammed, but so do a lot of people and they’re too embarrassed to talk about it.”

After “Eagle” fizzled, Sholtz didn’t lose her appetite for cloak-and-dagger currency repatriation. Just months later, in February 1999, she set her sights on the western coast of Africa, documents and interviews indicate. This time, Sholtz hired Dale Toler, a former combat pilot with an intelligence background who was now CEO of a Virginia electronics-technology company. His assignment: to haul back $35 million in US currency supposedly squirreled away in Ghana. A mission report about the venture, prepared by the squad acting on Sholtz’s behalf, said the U.S. Treasury Dept. suspected beforehand that the U.S. cash that the Africans contended holding was “potentially fraudulent.” Even so, the report said, “preliminary arrangements were also made with United States Customs officials for a prearranged arrival point” should the “recovery” be successful. The millions at the center of it had originally been appropriated for Sierra Leone, a small, mineral-rich, war-torn country west of Ghana.  

The trip to extract the $35 million for Sholtz formally kicked off when her squad’s lead agent met a burly, bespectacled doctor who’d represented himself as Ghana’s security chief at the Golden Tulip hotel in the capital city of Accra. (Toler, in an interview with the Weekly, confirmed he was there without letting on whether he was the negotiating agent.) Detective work soon confirmed the Ghanaian had lied about the position he supposedly held, but he knew plenty about the $35 million. The agent drove with him in a black Dodge Dakota pickup for about 45 minutes to a private, walled residential compound topped with shards of glass for a discussion on how the money would be transferred. Security personnel concerned about the agent’s safety tailed the pickup as long as they could. 

Inside the property, the Ghanaian told the agent he required $80,000 for his cut to arrange the movement of the U.S. currency to the Accra airport for its repatriation to America. Not so fast, the agent said. Under the original agreement, the Ghanaian was to receive his commission after the transfer. The Ghanaian said his terms had changed: he needed early compensation to pay others involved. For an hour, the two men squabbled back and forth over logistics and promises to no avail. Afterwards, the Ghanaian drove Sholtz’s representative back to the Golden Tulip hotel in a circuitous route so the agent would be unable to retrace where he’d been. 

A few hours later, at a night meeting at the Kata International Hotel, the two tried reviving the negotiations. Sholtz’s agent insisted on seeing the $35 million with his own eyes; his counterpart demanded $10,000 for the privilege. After being arm-twisted further, the Ghanaian agreed to the inspection. The next day he picked up the agent at the Golden Tulip and took him to a different walled compound. At a picnic table inside, the agent was shown stacks of what appeared to be American currency “five wide and two across,” the mission report said. They money was wrapped in thick plastic and stored in a small, metal box. When the agent tried touching the currency, he was warned he was not allowed to by one of the Ghanaian’s associates. The associate tried delicately unsealing a packet to show him it was genuine, only to clumsily reveal ordinary paper with the dimensions of U.S. dollars tucked under the real ones.  

Realizing his own vulnerability in the midst of a flimsy con, the agent pretended he was satisfied and requested to be driven back to the Golden Tulip by the Ghanaian’s associates. The car took a long, winding path in the dark until the agent determined they were headed in the opposite way of the hotel and maybe to someplace from where he’d never return alive. When traffic slowed, the agent jumped out of the car and “evaded” the men, the mission report said, in what might’ve been a scene out of an espionage flick. From solicitation to dangled loot, the whole setup was a “scam,” the report concluded. 

Sholtz estimated she lost more than $125,000 of her own money on the failed excursion. There’s no indication RECLAIM credits were involved. Toler said one of the chief reasons he agreed to go, despite suspecting beforehand the $35 million was bogus, was that Sholtz herself was planning to make the trip, and that she likely would’ve been either kidnapped for ransom or killed by the Africans. (Sholtz acknowledged she had intended to go.) Toler, overall, blamed Keller for whipping up Sholtz, who he described as dishonest and gullible. “Much of this [currency repatriation] is fantasy,” Toler added. But Sholtz “believed there was money in the Philippines and Ghana, even though she’d been advised by me it didn’t exist. It was her greed. People made a lot of money off her. I’ve seen over the years folks who think the world revolves around a deal.” Toler said that Keller died in the Bahamas a few years ago; this may explain why the feds have had difficulty saying whether they ever charged him.

In October 1992, about five years before the Ghana operation, a congressional probe into international bank fraud suggested that Toler’s firm, a now-defunct Virginia machine-tool company called RD&D, was part of an alleged, clandestine effort quarterbacked by the CIA to arm the Iraqi military and curry favor with Saddam Hussein’s government. A federal prosecutor appearing before a Senate intelligence committee testified that Toler’s company was not a CIA front, but wouldn’t respond when asked if Toler had worked for the US National Security Administration, which conducts global eavesdropping operations. Whatever his background, Sholtz said she was stunned at Toler’s negative comments about her. Sholtz said that Toler in 2002 tried to locate money she contends that Keller had “stolen” from her. “Toler said we were the victims, and now he’s changing his story,” Sholtz said. “I’m speechless.” 

Also involved in the Ghana operation, records and interviews show, was the Jedburgh Group, a Lake Mary, Florida-based firm that provides intelligence, security and financial-services to industry and governments worldwide. Former US intelligence and military officers work for Jedburgh. By far the best known is retired US Major General John Singlaub, a decorated military officer involved with the CIA’s predecessor agency, the Korean War and American counterinsurgency efforts. In the late-1980s, he was connected to the Iran-Contra scandal and ultra-right-wing, anti-communist groups in Central America.

Jedburgh executive David Keith Freeman confirmed to the Weekly that his company was a client of Sholtz’s “for a short time a very long time ago,” and said it helped evaluate the mission’s “potential for recovery.” He refused further comment about Ghana and other work the firm provided for Sholtz, citing client-confidentiality rules. Freeman did say the practice of people posing as former or current US intelligence officers in financial scams is fairly widespread and known in the industry as “hooky spooky. It’s the frog and the scorpion,” he said.

Roughly six months later after the Ghana-operation debacle, in Nov. 1999, with authorities still unaware of what had occurred, Sholtz wasn’t a marked smog-credit broker, by any means. She was an invitee to a major climate change conference at the United Nations as a member of the Emissions Marketing Assoc., records show.


So why weren’t these activities in the Justice Dept.’s crosshairs if they wanted to send a message about tainting cap-and-trades as the regulatory milieu shifts toward them? Furthermore, even if there are legitimate ex-spies and soldiers traveling around the globe for f someone like Sholtz, shouldn’t there be some transparency? USC law school professor Rebecca Lonergan, who worked in the US Attorney’s Los Angeles office for 16 years, said prosecutors probably made a judgment call based on what they could prove in court, what evidence they could gather overseas, the intricacies of her different schemes and other factors. “When you have a person like [Sholtz] one of the difficulties is sifting through the mass of seemingly exculpatory evidence,” Lonegran said. “You have a person who would make a great movie living as a con artist but you have to find out the individual schemes. Criminal prosecutors simply can’t charge a person with being a fraudster.”

True as that may be, there’s still interest. Larry Neal, deputy Republican staff director for the House Energy and Commerce Committee, said Congressmen Barton and Walden believe it’s important to remove the veil of secrecy over the Sholtz matter to follow where it leads. “We haven’t seen allegations on currency-repatriation scams, but it is our aim to gather all facts surrounding the Sholtz case, regardless of what they entail,” Neal wrote via email. “… It has been more than a year since the sentencing and there’s still no public justification for all the judicial (secrecy). After all, the case was an about an Anne Sholtz cap-and-trade scam, not an al Qaeda terrorism cell.”

For his part, AQMD Executive Director Barry Wallerstein both refused an interview about Sholtz and forbade anyone at the air district from commenting for this story. (His feelings about Sholtz aside, Wallerstein is said to be upset about a book on the iconic Los Angeles smog crisis this writer co-authored with a former AQMD staffer.) But that doesn’t mean he’s not talking. In a seven-page letter to US Rep. Henry Waxman, the Los Angeles Democrat who chairs the House’s Energy and Commerce Committee, Wallerstein portrayed the RECLAIM cap-and-trade as virtually bulletproof to criminality. In this letter, prompted by congressional interest in Sholtz, Wallerstein ticked off the AQMD’s “robust” computer database that checks the availability and ownership of credits, well-scrutinized trade registration forms and a three-person trade-approval team. “The safeguards … have been successful in preventing any fraudulent trades from ever being registered,” Wallerstein contended.

Yet considering the breadth of Sholtz’s activities, questions about whether RECLAIM bankrolled attempted asset-repatriation ventures, much less speculators’ profiteering of the market during the 2001-02 electricity crisis, there are obviously cracks in the machine. Would stamping the credits with identification numbers and developing methods to police their ownership history in real time have helped? “What this points up is that there had to have been a failure in the design,” said EPA Senior Counsel Allan Zabel. “It’s ridiculous if people can get away with this sort of stuff. The system must be sufficiently designed so that somebody trying to do it would trigger a red flag that brings in investigative interest.”

In answering some of Barton and Walden’s questions about cap-and-trade fraud, the EPA said its criminal investigative agents meet with AQMD officials weekly. As of June, though, the EPA reported it had no criminal cases with filed charges involving emissions-trading crimes —anywhere. But the story doesn’t end there. Between the time of her arrest and the date of her sentencing, Sholtz tried softening her punishment. In 2005, she testified in the trial of a con man who stole about $4.5 million from an Idaho businessman in a wire fraud case that she was knew about from her financial dealings. More provocatively, she offered to spill about sensitive subjects closer to home.

On April 9, 2005, her lawyer, Richard Callahan, emailed the US Attorney’s Office a two-page letter entitled “Areas of Possible Cooperation for Anne Sholtz.” Callahan wrote that his client would share “credible firsthand information” on four different subjects if it would help Sholtz’s plea agreement. Sholtz, Callahan wrote, knew about a “major US bank” that was engaged in money-laundering, check kiting, manipulation of subpoenaed documents and even murder. In a direct reference to the “Eagle” scheme and others, Callahan said Sholtz had details about “fraud, money laundering [and] wire fraud by people claiming to work for the US government … in the ‘extraction of assets’ overseas …”

Sholtz’s last tipoff was a humdinger. Callahan said that she had knowledge of “repeated and flagrant violations” inside the air district’s RECLAIM program that resulted in retribution — and threats of more of it — against potential whistleblowers, and the release of over one million excess pounds of nitrogen oxide when AQMD personnel could’ve offset it. By 2007, RECLAIM had transacted about 40 million pounds of air pollution credits, reports show, so one million pounds in unauthorized discharges would be no small addition. Sholtz, Callahan said, also knew about “manipulation of data [or presenting it in a misleading fashion] to choose projects that would lead to personal gain for … (AQMD) Board Members …” This document was the only one in which Sholtz declined comment. It’s not evident if any of her tips sparked arrests or investigations because there have been no publicly revealed inquiries into RECLAIM since Sholtz’s arrest. A district spokesperson asked for comment referred back to Wallerstein’s gag order.

If all this seems like a crippling, humiliating and tragic slide for someone who might’ve ascended to legend of the Green Economy, Sholtz said she’s largely put it behind her as she moves towards new horizons that she aimed to keep private. She’s not sure if she’ll re-approach the cap-and-trade world again if she’s allowed to broker. “The RECLAIM business was exciting,” Sholtz said, her eye- brows arching. “Being able to do a transaction, solve a problem, make software do new things, help the environment. The money just comes in and it goes.”

LA Weekly News Editor Jill Stewart contributed to this story.