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Entries in elderly (3)

Tuesday
Nov202012

SEC: Secretive 'Trust' With World War II Ties That Promised 38% Annual Returns Was $15 Million Ponzi Scheme

The Securities and Exchange Commission ("SEC") instituted a civil enforcement action against a Florida man and a California woman, alleging that the investment opportunity promising 38% annual returns and requiring strict secrecy was, in reality, a Ponzi scheme that raised more than $15 million from unsuspecting investors.  Billy W. McClintock, 70, and Diane Alexander, also 70, were charged with multiple violations of federal securities laws in connection with the alleged scheme, which promised lucrative gains through a highly-secretive entity known as the "Trust".  The SEC is seeking injunctive relief, an asset freeze, disgorgement of all ill-gotten gains, and civil monetary penalties.

According to the SEC, McClintock was a resident of Bradenton, Florida, and had previously served time in prison due to a cocaine trafficking conviction.  McClintock and Alexander apparently shared a long-time friendship, and sometime before 2002, McClintock confided to Alexander that he was associated with a secretive investment club known as the "Trust".  Apparently, while on a trip to London, McClintock had happened upon a man named "John" who was a member of the Trust and disclosed to McClintock that he could lend money to the Trust and receive a 38% annual return.  The "Trust" was allegedly formed after World War II by several wealthy European families, with offices in Luxembourg and Zurich, and had the power to create money "through fractional banking and the sale of banking debentures"

The "Trust" was shrouded by heavy secrecy, with McClintock being told that the communication of any details about the trust to any third person, such as an attorney, certified financial accountant, or financial planner, would result in that person's permanent ban from participating in the Trust.  After hearing McClintock's story, Alexander accepted McClintock's offer to serve as United States Regional Director for the Trust, in addition to three other unnamed Regional Directors.  Along with McClintock - the 'United States National Director' - the two relayed the same story to potential investors, along with the promise of steady annual returns of 38%.  The two also appealed to investors' religious beliefs, telling them to "put your money in the Trust and your trust in God.” In total, approximately 220 investors contributed over $15 million to the "Trust".

However, contrary to their representations, there is no evidence that any secretive Trust ever existed, and neither Alexander nor McClintock ever sent any investor funds to any Trust.  Rather, according to the SEC, investor funds were simply pooled together in classic Ponzi scheme fashion, and the regular interest payments made to investors were in fact comprised of these commingled funds.  Additionally, investors were not told that, in return for referring investors to the "Trust", Alexander received a 'management' fee of 5%, which she also received for every investor that 'rolled over' their principal investment upon expiration. As the SEC stated, 

the Trust is a Ponzi scheme in which new investor funds, not Trust profits, pay the purported fees  and interest owed to earlier investors. 

Ironically, Alexander sought to convince investors to disregard the old agage that  'If it sounds too good to be true, it probably is,' claiming that it was simply 'a lie that came from the pit of hell.' 

A copy of the SEC complaint is here.

Monday
Sep102012

Reno Man Indicted For Alleged $2.1 Million Ponzi Scheme That Preyed On Elderly

A Nevada man was arrested Friday for what authorities described as a long-running Ponzi scheme targeting elderly investors that may have bilked victims out of at least $2 million.  Gary Harrison Lane, 59, was charged with twelve counts of mail fraud, as well as five counts of tax evasion, in a federal grand jury indictment unsealed in early August.  Mail fraud carries a maximum potential prison sentence of twenty years per offense, while tax evasion carries a maximum 5-year term. 

According to authorities, Lane was a long-time financial advisor at Bank of America Investment Services, which later merged with Merrill Lynch.  There, beginning in at least May 2002, Lane targeted inexperienced elderly investors with the promise of steady annual returns of six percent through investments in United States treasury bonds with maturities of two years or less.  Based on these representations, Lane convinced twelve elderly investors to entrust him with $2.1 million.  After he received the money, Lane would then send each investor written documentation purportedly confirming the purchase of the promised treasury bond(s). 

However, according to authorities, a treasury bond with a maturity of two years or less never had an annual return of anywhere close to six percent during the relevant time period.  Additionally, there was no record of Lane purchasing the investments through his employer.  Instead, Lane is alleged to have diverted investor funds to his wife, who would then in turn deposit the funds into an E*Trade owned by her.  Lane never purchased any treasury bonds as promised, said authorities; instead, the purported "confirmations" were fictitious and investor funds were used for Lane's personal expenses or to make Ponzi-style payments to existing investors. 

Financial advisors often face strict procedures for ensuring compliance with securities laws and regulations.  These include regular disclosure of any outside business activities or unauthorized sales of securities, as well as prohibitions on targeting inexperienced or susceptible investors.  These duties are serious matters for brokerages and broker-dealers, who can face liability for failure to adequately supervise rogue financial advisors.  Indeed, several lawsuits appear to have already been brought and settled against Lane's former employers accusing them of failures to supervise Lane.  As such settlements are often accompanied by confidentiality agreements, specifics are unavailable.  

Sunday
Aug052012

86-Year Old Former Church Usher Pleads Guilty To $3.5 Million Ponzi Scheme

An 86-Year old Georgia man pled guilty to charges he defrauded members of his church and gym out of more than $3 million in a Ponzi scheme.  Joseph Klos, 86, pled guilty to ten counts of securities fraud and agreed with prosecutors to serve one year in jail an pay $2.3 million in restitution to his victims.  Klos, who at 86 is believed to be the oldest individual since at least 2002 implicated in a Ponzi scheme, had originally faced up to 55 years in prison after being charged in April 2011 with twenty-eight counts of securities fraud.  According to the terms of his agreement with prosecutors, the one-year sentence is contingent on Klos fully satisfying the restitution order by the scheduled sentencing date of December 28.  Should he fail to fully repay his victims by then, the sentence changes to a sixty-eight month sentence.  

Klos was charged with using his companies, Stephen Klos & Associates, Genesis and Genesis II, along with his position as head usher at the Mercer Island Covenant Church to solicit investors, targeting elderly congregants,  Investors were told that their money would be used to invest in the stock market and could expect to receive annual returns of fifteen percent.  According to prosecutors, Klos told investors that the Bible did not advocate charging interest, and thus he chose to invest victim's money "out of the goodness of his heart."  In total, Klos raised approximately $3.5 million from his victims between 2004 and 2009.  Of that amount, Klos pocketed nearly $1 million, while over $2 million was returned to investors in the form of fictitious interest payments.  

Not surprisingly, this was the second time Klos had been accused of operating a Ponzi scheme.  Indeed, he had been barred from future association with securities institutions after being implicated in another Ponzi scheme in the early 1990's that raised more than $3 million from investors.  While the case was settled without an admission of guilty and Klos never faced criminal charges, he was ordered to repay nearly $400,000 in penalties.  

Sentencing is currently scheduled for December 28, 2012.