A Michigan federal judge handed down a sixteen-year sentence to a man whose Ponzi scheme contributed to the demise of one of the fastest growing broker-dealers in the country. Edward P. May, 75, who was indicted in October 2009 on fifty-nine counts of mail fraud, pled guilty to each count in April 2011. Each count of mail fraud carries a potential maximum sentence of twenty years in federal prison, along with a fine of up to $250,000 and and restitution to victims. Authorities had described May's Ponzi scheme as the largest in the history of cases prosecuted in the Eastern District of Michigan.
Beginning in 1997, May operated E-M Management Co. LLC in Lake Orion, Michigan. May then created over 150 limited liability companies that purported to acquire telecommunications equipment and provide service to various hotels in the United States and foreign countries. Potential investors were provided with fictitious offering documents such as private placement memoranda outlining the various contracts and agreements May had allegedly entered into with hotels such as the Hilton, Sheraton, and Hyatt hotel groups. Investors were guaranteed a certain monthly amount of interest income ranging from $30,000 to $100,000. To solicit investors, May utilized the services of Frank Bluestein, a former registered representative at GunnAllen Financial. In total, over 1,000 individuals invested over $200 million with May, not knowing that May's alleged contracts and agreements did not exist and that May was operating a massive Ponzi scheme. Authorities have estimated investor losses exceeded $35 million.
The scheme was widely acknowledged as one of the primary reasons for the collapse of GunnAllen, then one of the nation's fastest growing broker-dealers. The company faced a barrage of investor lawsuits following the discovery of May's scheme. Frank Bluestein, the former GunnAllen registered representative, has denied knowledge of the scheme and claimed that he too was a victim of May, having bought the investments himself.
The SEC also charged May with various securities law violations in November 2007.
A copy of the SEC Complaint is here.