Wednesday, February 29, 2012

John Terzakis Pleads Guilty to $25 Million Ponzi Scheme


Source-  http://www.fbi.gov/sanfrancisco/press-releases/2012/vesta-strategies-majority-owner-pleads-guilty-to-25-million-ponzi-scheme 

SAN JOSE, CA—John Terzakis pleaded guilty in federal court in San Jose on Feb. 23, 2012, to three felony counts: conspiracy to commit wire fraud, wire fraud, and money laundering arising out of his role as majority owner of Vesta Strategies, LLC, United States Attorney Melinda Haag announced.

Terzakis, formerly of Hinsdale, Ill., owned Vesta through Single Site Solutions Corp., a Willowbrook, Ill., company that at one time managed land-development and commercial real estate projects in the Chicago area. Vesta was a qualified intermediary for the purpose of conducting tax-deferred real estate exchanges pursuant to Internal Revenue Service Code Section 1031 (26 U.S.C. § 1031). In general, a Section 1031 exchange allows taxpayers to avoid paying tax on capital gains by depositing the proceeds from an investment real estate sale, that would otherwise qualify as a taxable capital gain, with a qualified intermediary for up to 180 days. Under Section 1031, if the taxpayer purchases another investment property within those 180 days, the proceeds from the first sale may be rolled over into the new investment without being taxed as capital gains.

According to the indictment, Vesta, based in San Jose, collapsed in July of 2008 with approximately $25 million owed to its Section 1031 depositors. Vesta lacked the ability to meet its redemption obligations because its owners and managers misappropriated the money themselves and because new client deposits were used to pay off existing depositors.

The indictment alleged that Terzakis, along with Robert Estupinian, Vesta’s former CEO, and Peter Ye, the former Vice President of Operations, and later President, used the company to defraud Vesta clients of their Section 1031 deposits and obtained money and property, namely Vesta client deposits, by means of materially false and fraudulent pretenses. Among the false promises alleged were claims that Vesta was a safe and financially secure Section 1031 exchange company, that Vesta client deposits would be held by Vesta, and that Vesta client deposits would be returned at the time of redemption. The indictment alleged that new client deposits were used to pay off existing client obligations, in a Ponzi-like manner, in furtherance of the conspiracy. The indictment also alleged that the Vesta owners diverted Vesta client deposits to themselves.

In pleading guilty, Terzakis, admitted to Conspiracy to Commit Wire Fraud, in violation of 18 U.S.C. § 1349 (Count One); Wire Fraud, in violation of 18 U.S.C. § 1343 (Count Five); and Money Laundering, in violation of 18 U.S.C. § 1957 (Count Ten).

Co-defendant Peter Ye, of San Jose, pled guilty on June 21, 2010, to three felony counts: conspiracy to commit wire fraud, wire fraud, and money laundering. He remains free on a bond. His related case is CR 10-00044 DLJ.

Co-defendant Robert Estupinian, of San Jose, pled guilty on Feb. 2, 2011, to three felony counts: conspiracy to commit wire fraud, wire fraud, and money laundering. He remains free on a bond.

Terzakis is currently on home confinement with electronic monitoring, secured by a bond.

The sentencing of Terzakis and the two related Vesta co-defendants is scheduled for June 28, 2012, before Judge D. Lowell Jensen in San Jose, Calif.

The maximum statutory penalty for the counts of wire fraud and conspiracy to commit wire fraud, in violation of 18 U.S.C. §§ 1343 and 1349, respectively, is 20 years’ imprisonment, a fine of $250,000 or twice the gross gain or twice the gross loss to any victim, and restitution. The maximum statutory penalty for money laundering, in violation of 18 U.S.C. §§ 1957, is 10 years’ imprisonment, and a fine of $250,000 or twice the amount of the criminally derived property involved in the transaction. The government is also seeking restitution from the defendants in the amount of $24,633,341.34, as well as forfeiture of criminally derived proceeds. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.




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Tuesday, February 28, 2012

Martin B. Feibish to Plead Guilty to Federal Charges for Allegedly Operating a “Ponzi Scheme”


Source-  http://www.fbi.gov/boston/press-releases/2012/investment-broker-to-plead-guilty-to-federal-charges-for-allegedly-operating-a-ponzi-scheme 

PROVIDENCE, RI—Martin B. Feibish, 81, of Providence, an independent insurance agent, investment broker, and creator of two investment companies, has signed an agreement filed with the U.S. District Court in Providence to plead guilty to federal charges of defrauding an investor by perpetrating a self-contained “Ponzi Scheme” on one victim, and for filing a false tax return, announced United States Attorney Peter F. Neronha.

According to an information and plea agreement filed with the court, it is alleged that between 2001 and February 2011, Feibish induced a person to invest in excess of $5 million by creating false and fictitious investment schemes. Court documents allege that Feibish returned only a portion of the funds to the investor, and that he falsely and fraudulently represented that the funds were returns on the investor’s investments. It is alleged that the funds provided to the investor were actually the result of a “Ponzi Scheme” perpetrated by Feibish with the investor’s own money.

It is alleged in court documents that Feibish induced the victim to invest monies with his companies so that he could control the funds and use them for his own benefit, including to fund his gambling activities.

It is also alleged in court documents that for tax year 2009, Feibish filed a false tax return claiming income in the negative amount of $94,699. It is alleged that Feibish had received income substantially in addition to the amount reported.

Feibish is charged with one count each of mail fraud and filing a false tax return. He is scheduled to be arraigned on March 19, 2012, before U.S. District Court Magistrate Judge David L. Martin.

Mail fraud is punishable by a maximum sentence of 20 years in federal prison; three years’ supervised release; and a fine of $250,000. Filing a false tax return is punishable by up to three years in federal prison; three years’ supervised release; and a fine of $1,000,000.

An information is merely an allegation and is not evidence of guilt. A defendant is entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.




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Monday, February 27, 2012

Former Coral Mortgage Operator Matthew Kent Sentenced in Multi-Million-Dollar Securities Fraud


Source-  http://www.fbi.gov/stlouis/press-releases/2012/former-coral-mortgage-operator-sentenced-in-multi-million-dollar-securities-fraud 

ST. LOUIS—The United States Attorney’s Office announced that Matthew Kent, vice president and co-operator of Coral Mortgage Bankers Corporation’s University City office was sentenced to 30 months in prison and ordered to pay $1.2 million restitution.

According to court documents, between May 2007 and December 31, 2010, Kent, his partner in Coral Mortgage, David Rubin, and Joshua Gould, formerly of Woodbury Financial, embezzled approximately $1,500,000 from a retired individual solicited by Rubin with Kent’s knowledge to provide funds for operating capital for Coral’s St. Louis operations. The individual was assured that the funds would not be spent, would be held in a secure trust account, used only as collateral for Coral’s operations and that the individual would receive regular interest payments. Between May 2007 and December 2008, the client provided Rubin and Kent approximately $1,200,000 from his and his wife’s life savings. Despite representations that the funds would not be spent, Rubin and Kent used approximately $250,000 of the funds for operating expenses, including payment of their own salaries. Rubin and Kent transferred the balance of the funds to Gould. Gould used those funds for personal expenses including car payments, mortgage payments, payment of substantial personal credit card bills, the renovation of his personal residence, jewelry, and adult entertainment, including substantial expenses at the Penthouse Club and PT’s. Gould also used the money to finance start-up costs and operational costs of several business ventures, including The Sports Nook, True Hockey and Free Poker Experience. Gould and Rubin prepared and gave the individual victim false account statements, including statements falsely representing to the victim that as of September 30, 2010, he had $1,126,365 in his Investment Fund and $217,123 in his Family Charity Fund, when in fact all of the funds had been embezzled, diverted, and stolen by Gould, Kent, and Rubin.

MATTHEW KENT, University City, MO, pled guilty last November to one felony count of wire fraud and appeared today for sentencing before United States District Judge Rodney W. Sippel.

Rubin and Gould previously pled guilty. Gould was sentenced in July to 97 months in prison and ordered to make restitution to the victims in the amount of $4,323,092. Rubin awaits sentencing in March 2012.




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Sunday, February 26, 2012

SEC Charges China-Based Executives with Securities Fraud


Source-  http://www.sec.gov/news/press/2012/2012-31.htm 

Washington, D.C., Feb. 22, 2012 — The Securities and Exchange Commission today charged two China-based executives with defrauding investors into believing they were investing in a Chinese coal business when in fact they were investing in an empty shell company.

The SEC alleges that Puda Coal Inc.’s chairman Ming Zhao schemed with former CEO Liping Zhu to steal and sell Puda Coal’s sole revenue-producing asset, a coal mining company named Shanxi Puda Coal Group. Zhao secretly transferred Puda Coal’s controlling interest in Shanxi Coal to himself and then sold a substantial portion to a fund controlled by what is reported to be China’s largest state-owned financial firm. The scheme enabled Zhao rather than Puda Coal’s public shareholders to profit from a lucrative business opportunity.

The SEC alleges that Zhao and Zhu failed to disclose these transactions in Puda Coal’s periodic reports to the SEC, and continued to raise funds from U.S. investors by conducting two public offerings to purportedly raise capital to enable Shanxi Coal to acquire coal mines. Unbeknownst to investors, Puda Coal no longer had an ownership stake in that company after Zhao’s secret maneuvers. After the SEC began investigating, Zhao and Zhu further schemed to forge a letter from the Chinese financial firm purporting that Puda Coal investors weren’t harmed by the asset transfers. In reality, the scheme left Puda Coal as a shell company with no ongoing business operations.

“Zhao and Zhu duped investors with promises that their money would be invested in a Chinese coal company when in fact the company was an empty shell that had been looted by the defendants,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This enforcement action reflects our continuing commitment to hold accountable officers and directors of issuers who misuse their access to the U.S. capital markets to commit fraud for personal gain.”

George S. Canellos, Director of the SEC’s New York Regional Office, added, “The massive fraud perpetrated by Zhao and Zhu wiped out hundreds of millions of dollars in shareholder value and was compounded by their brazen obstruction of the SEC’s investigation.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Puda Coal entered the U.S. capital markets through a reverse merger in July 2005. Puda Coal’s common stock was listed and traded on the NYSE Amex from September 2009 to August 2011.

The SEC alleges that Zhao embarked on the scheme with Zhu in September 2009 to enrich himself at the expense of Puda Coal’s public shareholders. Just weeks before Puda Coal announced that Shanxi Coal had received a highly lucrative mandate from the provincial government authorities to become a consolidator of smaller coal mining companies, Zhao quietly transferred Puda Coal’s 90 percent stake in Shanxi Coal to himself. In July 2010, Zhao transferred a 49 percent equity interest in Shanxi Coal to CITIC Trust Co Ltd., a Chinese private equity fund controlled by state-owned investment firm CITIC Group. CITIC Trust placed its 49 percent stake in Shanxi Coal in a trust and then sold interests in the trust to Chinese investors. Zhao caused Shanxi Coal to pledge 51 percent of its assets to CITIC Trust as collateral for a loan of RMB 3.5 billion ($516 million in U.S. dollars) from the trust to Shanxi Coal. In exchange, CITIC Trust gave Zhao 1.212 billion preferred shares in the trust.

According to the SEC’s complaint, the transactions were not approved by Puda Coal’s board or shareholders and not disclosed in Puda Coal’s SEC filings, which Zhao and Zhu signed knowing that they were materially false and misleading. During the two Puda Coal public offerings in 2010, CITIC Trust was separately selling interests in Shanxi Coal to Chinese investors while Zhao and Zhu were still telling U.S. investors that Puda Coal owned a 90 percent stake in that company.

The SEC further alleges that Zhao and Zhu continued their fraudulent scheme to deceive public investors even after the SEC began its investigation. Zhu forged a letter purportedly from CITIC Trust falsely stating that no funds had actually been loaned to Shanxi Coal and disclaiming any interest in Puda Coal’s or Shanxi Coal’s assets. Zhao’s counsel provided the forged letter to the SEC’s investigative staff and Puda’s audit committee. After Puda Coal disclosed the letter in an SEC filing and further misled shareholders about the ownership of Puda Coal’s assets, Zhu admitted forging the letter and resigned as CEO. Zhao remains the chairman.

Zhao and Zhu are charged with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, as well as violating the proxy solicitation rules and various corporate reporting, recordkeeping and internal controls provisions of the Exchange Act. The SEC’s complaint seeks a final judgment ordering Zhao and Zhu to disgorge their ill-gotten gains plus prejudgment interest, imposing financial penalties, barring them from acting as officers or directors of a public company, and permanently enjoining them from committing future violations of these provisions.

The SEC’s investigation, which is continuing, has been conducted by Sheldon Pollock, Scott York and George Stepaniuk of the SEC’s New York Regional Office with investigative support from Neil Hendelman and Desiree Marmita. The SEC’s Cross Border Working Group, which has representatives from each of the SEC’s major divisions and offices and focuses on U.S. companies with substantial foreign operations, has assisted the New York Regional Office enforcement staff in the investigation.




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Saturday, February 25, 2012

SEC Charges Three Oil Services Executives With Bribing Customs Officials in Nigeria


Source-  http://www.sec.gov/news/press/2012/2012-32.htm

Washington, D.C., Feb. 24, 2012 — The Securities and Exchange Commission today charged three oil services executives with violating the Foreign Corrupt Practices Act (FCPA) by participating in a bribery scheme to obtain illicit permits for oil rigs in Nigeria in order to retain business under lucrative drilling contracts.

The SEC alleges that former Noble Corporation CEO Mark A. Jackson along with James J. Ruehlen, who is the current Director and Division Manager of Noble’s subsidiary in Nigeria, bribed customs officials to process false paperwork purporting to show the export and re-import of oil rigs, when in fact the rigs never moved. The scheme was designed to save Noble Corporation from losing business and incurring significant costs associated with exporting rigs from Nigeria and then re-importing them under new permits. Bribes were paid through a customs agent for Noble’s Nigerian subsidiary with Jackson and Ruehlen’s approval.

The SEC separately charged Thomas F. O’Rourke, who was a former controller and head of internal audit at Noble. The SEC alleges that O’Rourke helped approve the bribe payments and allowed the bribes to be booked improperly as legitimate operating expenses for the company. O’Rourke agreed to settle the SEC’s charges and pay a penalty.

“These executives knowingly authorized and paid foreign officials to process false documents, and they consciously concealed the scheme from Noble’s audit committee,” said Gerald Hodgkins, Associate Director in the SEC’s Division of Enforcement. “When executives bribe government officials overseas, their misconduct puts their companies in legal peril and damages the integrity of foreign markets and the reputation of U.S. companies abroad.”

Noble Corporation was charged with FCPA violations as part of a sweep of the oil services industry in late 2010. The company cooperated with investigators and agreed to pay more than $8 million to settle civil and criminal cases.

According to the SEC’s complaint against Jackson and Ruehlen filed in U.S. District Court for the Southern District of Texas, the executives who perpetrated the scheme worked at Noble Corporation and its Nigerian subsidiary Noble Drilling (Nigeria) Ltd, whose rigs operated in Nigeria on the basis of temporary import permits granted by the Nigeria Customs Service (NCS). These temporary permits allowed the rigs to be in the country for a one-year period. NCS had the discretion to grant up to three extensions lasting six months each, after which the rigs were required to be exported and re-imported under a new temporary permit or be permanently imported with the payment of sizeable duties.

The SEC alleges that Jackson and Ruehlen had a role in arranging, facilitating, approving, making, or concealing the bribe payments to induce Nigerian customs officials to grant new temporary permits illegally and favorably exercise or abuse their discretion to grant permit extensions. Together, Jackson and Ruehlen participated in paying hundreds of thousands of dollars in bribes to obtain about 11 illicit permits and 29 permit extensions. Jackson approved the bribe payments and concealed the payments from Noble’s audit committee and auditors. Ruehlen prepared false documents, sought approval for the bribes, and processed and paid the bribes.

The SEC’s complaint against Jackson and Ruehlen alleges they directly violated the anti-bribery provisions of Section 30A of the Securities Exchange Act and the internal controls and false records provisions at Section 13(b)(5) and Rule 13b2-1 of the Exchange Act. The complaint alleges that they aided and abetted Noble’s violations of Section 30A and the books and records and internal controls provisions at Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. The complaint further alleges that Jackson directly violated Exchange Act Rule 13b2-2 by misleading auditors and Exchange Act Rule 13a-14 by signing false certifications of Noble’s financial statements. He also is liable as a control person under Section 20(a) of the Exchange Act for violations of the anti-bribery, books and records, and internal controls provisions by Noble, Ruehlen, and O’Rourke.




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Friday, February 24, 2012

Rufus Paul Harris, Benjamin Stanley and Darryl Horton Sentenced to Lengthy Imprisonment for Stock Fraud Scam


Source-  http://www.fbi.gov/atlanta/press-releases/2012/former-corporate-officers-sentenced-to-lengthy-imprisonment-for-stock-fraud-scam

ATLANTA—RUFUS PAUL HARRIS, 43, of Oklahoma City, Oklahoma, BENJAMIN STANLEY, 48, of Kennesaw, Georgia, and DARRYL HORTON, 50, of Okemos, Michigan, were sentenced today by United States District Judge Timothy C. Batten to significant terms of imprisonment on fraud charges stemming from a stock pump-and-dump scam involving their former company, Kennesaw, Georgia-based Conversion Solutions Holdings Corporation (“CSHC”).

In commenting on the case, United States Attorney Sally Quillian Yates said, “These significant sentences reflect the seriousness of the massive fraud these defendants committed against numerous victims who invested in the defendants’ company. By issuing false information about the company’s assets, the defendants lured victims into purchasing stock at artificially high prices. While the defendants got rich, victims lost millions. But the defendants won’t be enjoying any of the ill-gotten gains—they will be spending many years in prison. The President’s Financial Fraud Task Force will continue its work to root out fraud and restore investor confidence in our financial markets.”

“Today is a great accomplishment in the fight against fraud. Investment fraud not only victimizes individual investors, but the American public. Postal Inspectors will continue to work with its law enforcement partners to aggressively investigate and bring to justice those individuals who commit such crimes,” said Keith Morris, Postal Inspector in Charge of the Atlanta Division.

HARRIS was sentenced to 23 years in prison to be followed by five years of supervised release. STANLEY was sentenced to 16 years in prison to be followed by five years of supervised release. HORTON was sentenced to 4½ years in prison to be followed by three years of supervised release. Each defendant will be jointly and severally liable to repay $44,025,620.06 in restitution to over 5,000 investor victims.

HARRIS and STANLEY were convicted by the jury’s verdict on May 26, 2011, after a two-week jury trial. HORTON pleaded guilty to committing the offense of mail fraud while the jury was deliberating and so no jury verdict was reached as to him.

According to United States Attorney Yates, the charges, and other information presented in court: HARRIS was the founder and chief executive officer of CSHC; STANLEY was the co-founder and chief operating officer; and HORTON was the chief financial officer. The three defendants conspired to issue false press releases and financial statements about the company for the purpose of inflating the stock price, while at the same time they secretly transferred shares to family members who sold them at the inflated prices.

The defendants began issuing a series of press releases beginning in approximately July 2006, that publicly claimed CSHC’s ownership or control of entire issuances of foreign sovereign bonds issued by the Republics of Venezuela and Finland. These bonds were, on their face, worth billions of dollars and paid tens of millions in annual interest. In at least one of the press releases, HARRIS was quoted as stating that, based on CSHC’s acquisition of such large quantities of sovereign debt, “we are looking at a new justifiable reorganization release price of $25.63 [per share].” At the time, CSHC shares generally traded at less than approximately $1 per share. In October 2006, CSHC issued an annual report claiming as much as $800 million in assets, $500 million of which was in the form of foreign sovereign bonds as stated in at least some of the press releases. Also according to this report and its attachments, CSHC’s anticipated income included $19,869,792 in interest revenue from those bonds.

The evidence at trial showed that the three defendants knew these public statements were untrue, and knew that CSHC had little if any assets of any value and did not own or control the foreign sovereign bonds and other assets that it claimed to have. CSHC also had little if any in the way of revenue or profits from any business activity.

During the weeks that the defendants disseminated these misrepresentations via press releases and SEC filings, CSHC’s stock price on the open market more than tripled. The stock, which was a “penny-stock” trading for less than $1 per share in August 2006, sold for between $3-$4 per share in October 2006. During this time, HARRIS, STANLEY and HORTON transferred substantial quantities of CSHC stock to family members and others, who sold the stock in the open market at artificially inflated prices.

On May 24, 2011, before the trial concluded, HARRIS jumped his bail and fled Atlanta. The trial continued as to the other two Defendants and as to HARRIS in absentia. HARRIS was arrested by a U.S. Marshals Service task force in Utah on May 28, 2011, and he has been held in detention pending this sentence.

This case was investigated by special agents of the Federal Bureau Investigation and Postal Inspectors with the U.S. Postal Inspection Service, based on a referral from the United States Securities and Exchange Commission (“SEC”). The SEC has brought civil fraud charges against CSHD.

Assistant United States Attorney Justin S. Anand prosecuted the case.




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Thursday, February 23, 2012

Four Hedge Fund Managers Indicted in $40 Million Ponzi Scheme


Source-  http://www.fbi.gov/charlotte/press-releases/2012/four-hedge-fund-managers-indicted-in-40-million-ponzi-scheme 

CHARLOTTE, NC—A federal grand jury sitting in Charlotte returned an indictment against Jonathan D. Davey, 47, of Newark, Ohio, Jeffrey M. Toft, 49, of Oviedo, Fla., Chad A. Sloat, 33, of Kansas City, Mo., and Michael J. Murphy, 51, of Deep Haven, Minn., on February 22, 2012, on four criminal charges relating to an investment fraud conspiracy, announced Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina.

Joining U.S. Attorney Tompkins in making today’s announcement are Chris Briese, Special Agent in Charge of the Federal Bureau of Investigation (FBI), Charlotte Division, and Jeannine A. Hammett, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation Division (IRS-CI).

According to the criminal indictment, the defendants operated “hedge funds” as part of a conspiracy that took in $40 million from victims for a Ponzi scheme operating under the name Black Diamond Capital Solutions (Black Diamond). The indictment alleges that the conspiracy lasted from about October 2007 through about April 2010. The indictment alleges that the defendants lied to get money from their victims by claiming, among other things, that they had done due diligence on Black Diamond and were operating legitimate hedge funds with significant safeguards, when in reality, neither claim was true. The indictment also alleges that, as Black Diamond began collapsing, the defendants and others created a new Ponzi scheme and with a separate Ponzi account that Davey administered. Thereafter, new victim money was deposited into the Ponzi account and used to make Ponzi payments to other victims and to fund the defendants’ lifestyles.

The indictment also charges Davey with tax evasion for claiming to the IRS on his 2008 tax return that $810,000 that Davey stole from victims was a “loan.” In reality, the indictment charges, Davey stole that $810,000, plus approximately $500,000 in 2009, from victims to build Davey’s personal mansion. Davey attempted to evade the taxes due and owing in 2008 by calling the money a “loan” from his investors to “Sovereign Grace, Inc.,” a Belizian corporation that Davey created as a diversion for his victims and the IRS.

The first charge against all four defendants, alleging conspiracy to commit securities fraud, carries a maximum sentence of five years’ imprisonment and a fine of up to $250,000. The second charge against all four defendants, alleging conspiracy to commit wire fraud, carries a maximum sentence of 20 years’ imprisonment and a fine of up to $250,000. The third charge against all four defendants, alleging a money laundering conspiracy, carries a maximum sentence of 20 years’ imprisonment and a fine of $250,000 or twice the amount of criminally derived proceeds. The final charge against Davey only, alleging tax evasion, carries a maximum sentence of five years’ imprisonment and a fine of up to $250,000.

The defendants will be making their initial appearances in U.S. District Court in the coming weeks.

This indictment follows a series of convictions and other charges in this matter. On December 16, 2010, Keith Simmons was convicted following a jury trial of securities fraud, wire fraud, and money laundering. Simmons is in custody awaiting sentencing.

On April 27, 2011, a criminal bill of information and a Deferred Prosecution Agreement were filed against CommunityONE Bank, N.A., for its failure to maintain an effective anti-money laundering program. As alleged in that bill of information, Simmons was a customer of CommunityONE, and used various accounts with the Bank in furtherance of the Ponzi scheme. However, as alleged in that bill of information, the Bank did not file any suspicious activity reports on Simmons, despite the hundreds of suspicious transactions that took place in his accounts.

Other defendants convicted in this case are set forth below. It should be noted that those defendants already sentenced had their sentences reduced by the Court to reflect their cooperation with the United States in its investigation and prosecution of others.

Bryan Keith Coats, 51, of Clayton, N.C., pled guilty on October 24, 2011, to conspiracy to commit securities fraud and money laundering conspiracy. Coats is awaiting sentencing.
Deanna Ray Salazar, 54, of Yucca Valley, Calif., pled guilty on December 7, 2010, to conspiracy to commit securities fraud and tax evasion. Salazar is awaiting sentencing.
Jeffrey M. Muyres, 36, of Matthews, N.C., pled guilty on May 17, 2011, to conspiracy to commit securities fraud and money laundering conspiracy. Muyres was sentenced to 23 months’ imprisonment by Chief Judge Robert Conrad, Jr., on January 18, 2012.
Roy E. Scarboro, 47, of Archdale, N.C., pled guilty on December 3, 2010, to securities fraud, money laundering, and making false statements to the FBI. Scarboro was sentenced to 26 months’ imprisonment by Chief Judge Robert Conrad, Jr., on May 4, 2011.
James D. Jordan, 49, of El Paso, Texas, pled guilty on September 14, 2010, to conspiracy to commit securities fraud. Jordan was sentenced to 18 months’ imprisonment by Chief Judge 
Robert Conrad, Jr., on June 29, 2011.
Stephen D. Lacy, 52, of Pawleys Island, S.C., pled guilty on December 9, 2010, to conspiracy to commit securities fraud. Lacy was sentenced to six months’ imprisonment by Chief Judge Robert Conrad, Jr., on May 4, 2011.

The details contained in this indictment are allegations. The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law. The conviction or guilty plea of any other person is not evidence of the guilt of any of the defendants.




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Wednesday, February 22, 2012

Michael Joseph Krzyzaniak Sentenced for Orchestrating $20 Million Investment Scam


Source-  http://www.fbi.gov/minneapolis/press-releases/2012/minneapolis-man-sentenced-for-orchestrating-20-million-investment-scam 

MINNEAPOLIS—Earlier today in federal court, a 63-year-old Minneapolis man was sentenced for orchestrating four different investment scams that lured people into investing millions of dollars in ventures that were never finished. United States District Court Chief Judge Michael J. Davis sentenced Michael Joseph Krzyzaniak to 151 months in prison on one count of wire fraud and one count of income tax evasion.

As the sentencing hearing began, Chief Judge Davis advised Krzyzaniak that the U.S. Attorney’s Office has made it a priority to weed out those who have engaged in fraud. And while imposing sentence, the judge went on to call Krzyzaniak, who was previously convicted in the District of Minnesota for a similar crime, a “sociopath or something close to it.”

Krzyzaniak was indicted on April 12, 2011, and pleaded guilty on June 28, 2011. In his plea agreement, Krzyzaniak, also known as Michael Joseph Crosby, admitted that from 2003 through January of 2011, he conducted a scheme to defraud individuals in Minnesota and elsewhere by convincing them to invest money in prospective business projects, which, in fact, turned out to be fraudulent. In total, investors provided Krzyzaniak with between $20 and $50 million for investment.

After today’s sentence was imposed, U.S. Attorney B. Todd Jones said, “Krzayzaniak represents the worst in criminals in that he does not learn from or feel remorse for his wrong doing. Instead, he just continues to victimize those around him. As a result, he needs to be removed from our community, so he cannot defraud anyone else. And that’s exactly what Chief Judge Davis has done.”

In his position as the president or business officer for one or more business entities, Krzyzaniak contacted potential investors and induced them to contribute funds by making false statements about purported investment opportunities. The business projects he claimed to be developing included Internet terminals at airports; golf courses in various states; a golf club resort in Desert Hot Springs, California; alternative energy projects in Hartsel Springs, Colorado; and a NASCAR-type race track in Elko, Minnesota.

Krzyzaniak told investors their money would be invested in a particular project, and that they could expect a substantial investment return. He then indicated that each project was proceeding toward a successful conclusion, having secured appropriate approval from the government, regulatory agencies, and others. In addition, Krzyazniak claimed he had various financing sources available, if needed, as well as a number of celebrity endorsements. All of those representations were false.

Krzyzaniak admittedly spent large portions of the funds provided him to pay for personal expenses, fund his lavish lifestyle, and distribute lulling payments. In some instances, Krzyzaniak invested funds but only in an effort to prevent the fraud from being discovered. In addition, Krzyzaniak admitted that between 2004 and 2007, he failed to file federal income tax returns or pay income taxes, as required by law.

As indicated above, this was not Krzyzaniak’s first encounter with the federal criminal justice system. In 1993, he pleaded guilty to mail fraud in the District of Minnesota in connection to another investment scheme but fled before the case was resolved. He was ultimately apprehended in Florida and sentenced to 72 months in prison. He failed to disclose that information to any of his recent investors.




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Monday, February 20, 2012

SEC Charged John Kinnucan and his Portland, Oregon-Based Expert Consulting firm Broadband Research Corporation with Insider Trading


Source-  http://www.sec.gov/news/press/2012/2012-30.htm 

Washington, D.C., Feb. 17, 2012 — The Securities and Exchange Commission today charged John Kinnucan and his Portland, Oregon-based expert consulting firm Broadband Research Corporation with insider trading. The charges stem from the SEC’s ongoing investigation of insider trading involving expert networks.

The SEC alleges that Kinnucan and Broadband claimed to be in the business of providing clients with legitimate research about publicly-traded technology companies, but instead typically tipped clients with material nonpublic information that Kinnucan obtained from prohibited sources inside the companies. Clients then traded on the inside information. Portfolio managers and analysts at prominent hedge funds and investment advisers paid Kinnucan and Broadband significant consulting fees for the information they provided. Kinnucan in turn compensated his sources with cash, meals, ski trips and other vacations, and even befriended some sources to gain access to confidential information.

In a parallel criminal case, Kinnucan has been arrested and charged with one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, and two counts of securities fraud.

“Obtaining important and unreported financial results from company insiders and selling that information to hedge funds is not legitimate expert networking services — it’s old-fashioned insider trading,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

The SEC has charged 22 defendants in enforcement actions arising out of its expert networks investigation, which has uncovered widespread insider trading at several hedge funds and other investment advisory firms. The insider trading has occurred in the securities of 12 technology companies — including Apple, Dell, Fairchild Semiconductor, Marvell Technology, and Western Digital — for illicit gains totaling nearly $110 million. Related SEC insider trading cases stemming from the Galleon investigation involved illicit gains in excess of $91 million.

According to the SEC’s complaint filed in federal court in Manhattan, Kinnucan’s misconduct occurred from at least 2009 to 2010, a period during which he generated hundreds of thousands of dollars in annual revenues for Broadband. Kinnucan obtained material nonpublic information from well-placed employees at a variety of publicly-traded technology companies.

The SEC’s complaint specifically alleges that in July 2010, Kinnucan obtained material nonpublic information from a source at F5 Networks Inc., a Seattle-based provider of networking technology. On the morning of July 2, Kinnucan learned that F5 had generated better-than-expected financial results for the third quarter of its 2010 fiscal year, with the public announcement scheduled for July 21. Within hours of learning the confidential details, Kinnucan had phone conversations or left messages with several clients to convey that F5’s revenues would exceed market expectations. At least three clients — an analyst and two portfolio managers — caused trades at their respective investment advisory firms on the basis of Kinnucan’s inside information. The insider trading resulted in profits or avoided losses of nearly $1.6 million.

The SEC’s complaint, which charges Kinnucan and Broadband with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, seeks a final judgment ordering them to disgorge their ill-gotten gains plus prejudgment interest, requiring them to pay financial penalties, and permanently enjoining them from future violations.




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Saturday, February 18, 2012

Eric Matthew Dickey Sentenced to More Than 12 Years in Federal Prison for Running an Investment Fraud Scheme That Targeted the Elderly


Source-  http://www.fbi.gov/dallas/press-releases/2012/fort-worth-man-sentenced-to-more-than-12-years-in-federal-prison-for-running-an-investment-fraud-scheme-that-targeted-the-elderly 

FORT WORTH, TX—Eric Matthew Dickey, 47, was sentenced today by U.S. District Judge Terry R. Means to 151 months in federal prison following his guilty plea in October 2011 to one count of mail fraud stemming from an investment fraud scheme he ran, announced U.S. Attorney Sarah R. Saldaña of the Northern District of Texas. In addition, Judge Means ordered that Dickey pay $1,247,238 in restitution to the victims of his crime. Dickey, a Fort Worth resident, has been in federal custody since his arrest in May 2011.

According to documents filed in the case, prior to July 2009 and continuing to March 2011, Dickey, representing himself as a certified financial planner (CFP), solicited investments from individuals by falsely promising to purchase FDIC insured certificates of deposit (CDs) at a 3.75 percent guaranteed annual percentage yield. However, Dickey was not a CFP and the investments did not exist. Instead, Dickey deposited proceeds he received into his checking count. During the time he ran the scheme, Dickey received more than $2 million from victims. According to documents filed in the case, and testimony at today’s sentencing hearing, Dickey targeted the elderly in his scheme.

To further his fraud, give the impression of a legitimate financial transaction, and to entice victims into “investing” more money, after depositing their money, Dickey provided victims with fraudulent documents purporting to be receipts for the purchase of the CDs. In addition, Dickey paid prior investors with money received from recent investors, giving the appearance of legitimate financial returns on their investment.




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Friday, February 17, 2012

Frederick Darren Berg Sentenced to 18 Years in Prison for Ponzi Scheme and Bankruptcy Fraud


Source-  http://www.fbi.gov/seattle/press-releases/2012/mercer-island-man-sentenced-to-18-years-in-prison-for-ponzi-scheme-and-bankruptcy-fraud 

FREDERICK DARREN BERG, 49, of Mercer Island, Washington, was sentenced this morning in U.S. District Court in Seattle to 18 years in prison, and three years of supervised release for wire fraud, money laundering, and bankruptcy fraud. The amount of restitution, which will exceed $100 million, will be determined in April 2012. BERG is the founder of the Meridian Group of investment funds. The funds represented that $245 million in investor money was invested in real estate contracts and real estate; however the funds were actually elaborate Ponzi schemes. BERG used investor money for a luxurious lifestyle. At sentencing U.S. District Judge Richard A. Jones told BERG he had “reckless disregard for his victims… and had no moral compass.”

“The greed in this case is stunning,” said U.S. Attorney Jenny A. Durkan. “This defendant stole and squandered the dreams of hundreds: dreams of retirement, dreams of homeownership, dreams of a college education for their children and grandchildren. While we could not restore those dreams, today he was held accountable for his acts.”

According to records in the case, between 2001 and 2009, BERG used more than $100 million from over 800 investors for his own expenses and to keep his investment fraud going. Between 2003 and 2010, BERG diverted approximately $45 million from his investment funds without his victim’s knowledge or permission for the purchase of busses and the operation of MTR Western and several subsidiary bus companies. During the 10 years that BERG operated his investment funds, he used investor money for the purchase of: a $1.95 million condominium at Second and Union in Seattle; a $1.25 million house in La Quinta, California; a $1.4 million condominium in San Francisco, California; and a $5.475 million waterfront home on Mercer Island. BERG spent at least an additional $5 million to remodel the Mercer Island house. The forensic analysis of BERG’s bank accounts further showed that between 2001 and 2010, he spent at least $5.5 million on the purchase and operation of two Lear jets and at least $3.6 million on the purchase, operation and frequent modification of several yachts.

In 2010, BERG claimed he was cooperating with bankruptcy trustees in his personal and corporate bankruptcies in an effort to help unravel his fraud schemes. Federal investigators learned that he had concealed approximately $400,000 from the trustees and later lied about the source of these funds when confronted by the trustee in his personal bankruptcy. Further investigation revealed the funds came from the sale of a home he had failed to disclose in his bankruptcy proceedings and the funds were deposited into a series of bank accounts he concealed from the trustee. BERG used this money for a variety of personal expenses including lease payments on a Porsche Cayenne and Porsche 911 Turbo Cabriolet, 12 months advance rent on a Los Angeles apartment, the purchase of an Audi S5 convertible, a retainer for a criminal defense attorney, and insurance on jet skis and his yacht.

BERG was arrested in Los Angeles on October 21, 2010. BERG was indicted in November 2010. BERG pleaded guilty in August 2011. The amount of restitution will be determined at a hearing in April 2012. Prosecutors believe victims will be owed as much as $130 million.

“To feed his unadulterated greed, Mr. Berg took advantage of hopeful investors—many of them senior citizens who depended on their carefully built savings to afford assisted living, medical care, and higher educational opportunities for future generations,” said Steven M. Dean, Assistant Special Agent in Charge of the FBI Seattle office. “Although this sentencing doesn’t change the fact that many lives are brutally impacted by Mr. Berg’s actions, the FBI is pleased that, at least, Mr. Berg will serve significant time for his crimes. The FBI thanks all our state and federal agency partners for their contribution to a case that has significance for so many victims.”

“I have spoken with the victims of financial fraud schemes and can tell you that the emotional and financial pain they endure is beyond description,” said Kenneth J. Hines, the IRS Special Agent in Charge of the Pacific Northwest. “Those who peddle false investments and prey on investors for their own personal financial benefit need to understand that law enforcement will not sit by and let it happen.”

Prosecutors wrote in their sentencing memo that hundreds of victims were hit with significant losses. “Indeed, many of Mr. Berg’s victims will be forced to make significant changes to their lifestyle and that of their families such as foregoing retirement, taking additional jobs to support their children’s’ education and selling their homes. Others are likely to be forced into bankruptcy and may also lose their homes because of the financial devastation Mr.Berg’s fraud has caused,” prosecutors wrote in their sentencing memo.




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Thursday, February 16, 2012

Ira J. Pressman Sentenced to Eight Years in $6 Million Ponzi Scheme


Source-  http://www.fbi.gov/philadelphia/press-releases/2012/bala-cynwyd-man-sentenced-to-eight-years-in-6-million-ponzi-scheme 

PHILADELPHIA—Ira J. Pressman, 64, of Bala Cynwyd, was sentenced today to 97 months in prison for a Ponzi scheme that defrauded 20 investors out of more than $6 million. Pressman pleaded guilty July 22, 2011 to wire fraud, mail fraud, and money laundering. Since 2006, Pressman ran a company called PJI Distribution Corporation that purported to purchase and sell closeout and overstock merchandise. Pressman solicited individuals to invest in these closeout deals, promising investors no risk returns of up to 100 percent annually. Unbeknownst to the investors, however, most of these closeout merchandise deals were fictitious. Instead, Pressman used new investors’ money to pay returns to the old investors.

In addition to the prison term, U.S. District Court Judge Jan E. DuBois ordered Pressman to pay restitution in the amount of $7,072,158.




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Monday, February 13, 2012

Richard Pettibone Pleads Guilty to $1.5 Million Ponzi Scheme and Sentenced to 36 Months


Source-  http://www.fbi.gov/washingtondc/press-releases/2012/former-alexandria-businessman-pleads-guilty-to-1.5-million-ponzi-scheme-and-sentenced-to-36-months 

ALEXANDRIA, VA—Richard Pettibone, 44, formerly of Alexandria, Va., pleaded guilty today to operating a $1.5 million investment Ponzi scheme and was also sentenced to 36 months in prison, followed by three years of supervised release.

Neil H. MacBride, United States Attorney for the Eastern District of Virginia, and James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office, made the announcement after the plea was accepted by United States District Judge James Cacheris.

According to court documents, between 2002 and 2006 Pettibone operated Benten Investors, which Pettibone advertised as an investment company in the real estate and private lending market. Pettibone received at least $2 million from investors based on lies and misrepresentations regarding the use of investors’ funds, the investment risk, and the amount of return on the investment, including that investors would earn guaranteed profits. Pettibone also caused to be sent IRS documents and fake monthly account statements designed to lull investors into a false sense of security regarding the use of investors’ funds and the company’s profitability.

In reality, Benten Investors was not profitable and Pettibone used investors’ funds for personal purposes including, but not limited to, the maintenance of a yacht, the payment of credit card bills, and the purchase of real estate. Pettibone concealed his personal use of investors’ money in part by buying assets in the names of his associates. As a result of Pettibone’s fraudulent conduct, investors lost approximately $1.5 million.

According to court documents, as the scheme collapsed, Pettibone wired $530,000 from Benten Investors accounts and fled to Costa Rica, where he was eventually apprehended and later extradited to the United States. At sentencing, the United States and the defendant jointly recommended a sentence of 36 months in prison in addition to approximately 11 months Pettibone spent incarcerated in Costa Rica during extradition.




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Sunday, February 12, 2012

Frederick Barren Berg Sentenced to 18 Years in Prison for Ponzi Scheme and Bankruptcy Fraud


Source-  http://www.fbi.gov/seattle/press-releases/2012/mercer-island-man-sentenced-to-18-years-in-prison-for-ponzi-scheme-and-bankruptcy-fraud 

FREDERICK DARREN BERG, 49, of Mercer Island, Washington, was sentenced this morning in U.S. District Court in Seattle to 18 years in prison, and three years of supervised release for wire fraud, money laundering, and bankruptcy fraud. The amount of restitution, which will exceed $100 million, will be determined in April 2012. BERG is the founder of the Meridian Group of investment funds. The funds represented that $245 million in investor money was invested in real estate contracts and real estate; however the funds were actually elaborate Ponzi schemes. BERG used investor money for a luxurious lifestyle. At sentencing U.S. District Judge Richard A. Jones told BERG he had “reckless disregard for his victims… and had no moral compass.”

“The greed in this case is stunning,” said U.S. Attorney Jenny A. Durkan. “This defendant stole and squandered the dreams of hundreds: dreams of retirement, dreams of homeownership, dreams of a college education for their children and grandchildren. While we could not restore those dreams, today he was held accountable for his acts.”

According to records in the case, between 2001 and 2009, BERG used more than $100 million from over 800 investors for his own expenses and to keep his investment fraud going. Between 2003 and 2010, BERG diverted approximately $45 million from his investment funds without his victim’s knowledge or permission for the purchase of busses and the operation of MTR Western and several subsidiary bus companies. During the 10 years that BERG operated his investment funds, he used investor money for the purchase of: a $1.95 million condominium at Second and Union in Seattle; a $1.25 million house in La Quinta, California; a $1.4 million condominium in San Francisco, California; and a $5.475 million waterfront home on Mercer Island. BERG spent at least an additional $5 million to remodel the Mercer Island house. The forensic analysis of BERG’s bank accounts further showed that between 2001 and 2010, he spent at least $5.5 million on the purchase and operation of two Lear jets and at least $3.6 million on the purchase, operation and frequent modification of several yachts.

In 2010, BERG claimed he was cooperating with bankruptcy trustees in his personal and corporate bankruptcies in an effort to help unravel his fraud schemes. Federal investigators learned that he had concealed approximately $400,000 from the trustees and later lied about the source of these funds when confronted by the trustee in his personal bankruptcy. Further investigation revealed the funds came from the sale of a home he had failed to disclose in his bankruptcy proceedings and the funds were deposited into a series of bank accounts he concealed from the trustee. BERG used this money for a variety of personal expenses including lease payments on a Porsche Cayenne and Porsche 911 Turbo Cabriolet, 12 months advance rent on a Los Angeles apartment, the purchase of an Audi S5 convertible, a retainer for a criminal defense attorney, and insurance on jet skis and his yacht.

BERG was arrested in Los Angeles on October 21, 2010. BERG was indicted in November 2010. BERG pleaded guilty in August 2011. The amount of restitution will be determined at a hearing in April 2012. Prosecutors believe victims will be owed as much as $130 million.

“To feed his unadulterated greed, Mr. Berg took advantage of hopeful investors—many of them senior citizens who depended on their carefully built savings to afford assisted living, medical care, and higher educational opportunities for future generations,” said Steven M. Dean, Assistant Special Agent in Charge of the FBI Seattle office. “Although this sentencing doesn’t change the fact that many lives are brutally impacted by Mr. Berg’s actions, the FBI is pleased that, at least, Mr. Berg will serve significant time for his crimes. The FBI thanks all our state and federal agency partners for their contribution to a case that has significance for so many victims.”

“I have spoken with the victims of financial fraud schemes and can tell you that the emotional and financial pain they endure is beyond description,” said Kenneth J. Hines, the IRS Special Agent in Charge of the Pacific Northwest. “Those who peddle false investments and prey on investors for their own personal financial benefit need to understand that law enforcement will not sit by and let it happen.”

Prosecutors wrote in their sentencing memo that hundreds of victims were hit with significant losses. “Indeed, many of Mr. Berg’s victims will be forced to make significant changes to their lifestyle and that of their families such as foregoing retirement, taking additional jobs to support their children’s’ education and selling their homes. Others are likely to be forced into bankruptcy and may also lose their homes because of the financial devastation Mr.Berg’s fraud has caused,” prosecutors wrote in their sentencing memo.




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Saturday, February 11, 2012

Charles Michael Vaugn Sentenced for Operating Ponzi Scheme


Source-  http://www.fbi.gov/atlanta/press-releases/2012/atlanta-man-sentenced-for-operating-ponzi-scheme 

ATLANTA—CHARLES MICHAEL VAUGHN, 43, of Atlanta, Georgia, was sentenced to federal prison today by United States District Judge Richard W. Story on wire fraud charges in connection with a $10 million Ponzi scheme.

United States Attorney Sally Quillian Yates said, “Despite the fact that Ponzi schemes are one of the oldest types of fraud schemes, they continue to be quite successful because of the creativity of the con artist, the slick presentations, and the promises of lucrative investment returns. Fraudsters with a computer and printer can come up with phony spreadsheets and paperwork that make their investments look golden when really the returns are an illusion. Potential investors should carefully scrutinize every aspect of a salesperson’s pitch before parting with their hard-earned money.”

Brian D. Lamkin, Special Agent in Charge, FBI Atlanta Field Office, said, “While Mr. Vaughn will now be held accountable for his elaborate fraud scheme, the many victims harmed in this matter are forced to rebuild their lives as best they can. Because of the victim impact often seen in such cases, the FBI will continue to aggressively pursue those individuals who engage in this type of high dollar investment fraud activity.”

United States Postal Inspector in Charge Keith Morris said, “Our Postal Inspectors are trained to follow the money, even if the paper trail is difficult to find. Innocent victims hand over their hard-earned savings, and criminals often only invest it in themselves. No matter how complex the case, our Inspectors will make every effort to help those victims, by bringing the fraudsters to justice.”

VAUGHN was sentenced to eight years and four months in prison to be followed by three years of supervised release, and was ordered to pay restitution in the amount of $8,833,686. VAUGHN pleaded guilty to the charges on October 24, 2011.

According to United States Attorney Yates, the charges, and the evidence presented in court: VAUGHN founded and operated “CM Vaughn, LLC,” a tax and financial consulting firm based in Atlanta, Georgia. From July 2004 through March 2008, VAUGHN sold investments in a pooled investment fund or “hedge fund” called “CM Vaughn Emerging Ventures Fund.” Over 50 individuals sent money to VAUGHN for purposes of investing in the fund.

VAUGHN falsely represented to investors that his fund earned from 15 percent to as much as 50 percent per year, and stated that their investments would be “insured” and could not decrease below a certain amount. He also prepared client statements that falsely indicated the current value of each investor’s accounts. While the statements generally showed substantial investment gains, the numbers included in the statements were false, as none of the investors’ monies had actually been invested in any fund. Instead, VAUGHN had used the investments to finance a lavish lifestyle and to make payments to earlier investors. VAUGHN obtained over $10 million from his victims.




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