As expected, a North Carolina man entered a guilty plea to federal charges that he operated a $40 million Ponzi scheme. Bryan Keith Coats, 51, had been expected to plead guilty following court records indicating a change of plea hearing had been set. Originally indicted on charges of investment fraud and money laundering, Coats pled guilty to one count of conspiracy to commit fraud and one count of money laundering conspiracy. Coats faces a maximum sentence of fifteen years in federal prison, although federal sentencing guidelines will likely result in a lower sentence.
According to a separate enforcement action filed by the United States Commodity Futures Trading Commission, the scheme started in April 2007, when Coats, along with defendants Keith Simmons and Deanna Salazar, solicited customers to invest in various entities operating as Black Diamond Capital Solutions, LLC and Black Diamond Holdings (collectively, "Black Diamond"). Potential investors were told that Black Diamond operated a sophisticated forex trading system, and had three years of experience engaging in highly successful forex trading. Investors were promised average monthly returns of up to four percent, and assured that various safety mechanisms were in place to protect the underlying principal, including the representation that no more of twenty percent of invested funds were at risk.
In June 2008, Coats established his own hedge fund, Genesis Wealth Management, LLC, through which he solicited customers for Black Diamond. As a result, at least 240 individuals invested $35 million with Black Diamond. However, in March 2009, Black Diamond began to refuse principal redemptions and interest payments, providing investors with several false excuses. Following an investigation by the CFTC, a company principal admitted that Black Diamond "has never traded currency, held brokerage accounts, or advised anyone on currency trades," and utilized hypothetical trading results to calculate the gains customers were supposedly making.
Coats is the seventh individual to plead guilty in the scheme thus far. He is scheduled to be sentenced at a later date.
A copy of the CFTC complaint is here.