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Entries in ponzi scheme (2)

Wednesday
Feb062013

Maine Woman Receives 80-Year Sentence For $4.7 Million Ponzi Scheme

In what is likely the stiffest sentence for a female Ponzi schemer, a Maine woman was sentenced to serve eighty years in prison for her role in a $4.7 million Ponzi scheme.  Karen Bowie, 61, received the sentence after being convicted at a week-long trial in Austin, Texas of property theft.  While Bowie was not charged with masterminding the scheme, authorities accused her of playing a focal role in promoting the scheme, in which she received over $2 million that was diverted from investors.  While Bowie would be eligible for parole due to her conviction on state crimes, the sentence will likely be a life sentence.

Bowie was part of Titan Wealth Management, LLC ("Titan"), which was in the business of recommending European mid-term notes ("MTN's") to clients.  Potential investors were told that the notes were low risk and offered outstanding short-term returns ranging from 10% to 50%.  Additionally, Titan's owner, Thomas Lester Irby, told investors that Titan would receive no fees or compensation from selling the notes, and in the event of emergency, Irby could easily liquidate a $10 million MTN that he personally owned.  Irby and Titan would eventually raise over $3 million from more than 30 investors.

However, investor funds were not pooled to purchase MTN's or even any interest in MTN's.  Instead, millions of dollars in investor funds were used to pay putative MTN 'profits', as well as diverted for Irby's personal benefit.  Bowie, who did not deal directly with investors but instead directed Irby to make false representations, also received nearly $2 million without providing any apparent consideration.  Irby was sentenced in 2010 to 24 years in prison after being charged with money laundering.

Bowie's 80-year sentence should serve as a stark reminder of the perils of proceeding to trial rather than accepting a guilty plea. The severity of Bowie's sentence is not only grossly disproportional to the relatively meager amount of funds involved, but is also easily one of the highest handed down to a Ponzi schemer - man or woman. (While women have been convicted of operating Ponzi schemes, they are handily outnumbered by men.)  Indeed, the 30-year sentence handed down to a Florida woman for orchestrating a $100 million Ponzi scheme pales in comparison to Bowie's sentence.  Other examples of women being sentenced for Ponzi schemes are herehereherehere, and here.

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.