Two Utah Men Indicted in "Ponzi Scheme Within Ponzi Scheme"

In what is at least the second instance this year, two Utah men were indicted last week for operating separate Ponzi schemes in which one invested in the other.  Robert L. Holloway, 54, was arrested in San Diego on four counts of wire fraud and one of filing a false tax return in connection with his trading company.  Robert J. Andres, 60, was arrested in Houston and charged with five counts of wire fraud.  Each count of wire fraud carries a maximum sentence of twenty years in federal prison, along with a fine of up to $250,000.

Andres, who claimed to be an attorney, operated Winsome Investment Trust ("Winsome"), which solicited investors to participate in an unnamed commodities pool.  Since at least 2005, Andres and other Winsome employees provided potential investors with a prospectus that contained an overview of the purported trading program and describing it as a joint venture investment.  The program was said to generate historical returns of 2%-10% a day, and investors could reasonably expect a 1% daily return.  "Loss" days were described as "nonexistent," with only one "loss" day having occurred since the program's inception.  Investors were told that the pool funds would be managed by an experienced member of the securities industry who previously managed over 200 people at a brokerage firm and had a seat on the Chicago Mercantile Exchange.  In total, Winsome took in more than $25 million from investors. That "manager" was Holloway.

Holloway operated US Ventures LC ("USV"), which also purported to participate in an unnamed commodity pool, and controlled nine commodity futures trading accounts in the name of USV.  From May 2005 to November 2008, USV took in approximtely $29.3 million from investors - $24.8 million of which was directed from Andres and Winsome.  To conceal their fraud, both USV and Winsome distributed fictitious account statements to investors that depicted steady account gains.  Investors were shown that their accounts were purportedly generating daily average returns ranging from .2729% to .85% - a compound annual return easily exceeding 50%.  Additionally, virtually no losses were shown. 

Instead of generating consistent trading profits, both Andres and Holloway operated Ponzi schemes, using funds from new investors to pay returns to existing investors.  Engaging in trading partly funded by investors of Andres' scheme, Holloway sustained nearly $11 million in losses from February 2005 through March 2007, and withdrew an additional $15.7 million.  The majority of these withdrawals was used to make Ponzi-style payments to existing investors.  Both Holloway and Andres also misappropriated investor funds for personal use, including the financing of Holloway's wife's eBay business and Andres' purchase of an aerospace consulting business.  

A complaint filed against the two entities by the U.S. Commodity Futures Trading Commission ("CFTC") alleges that Andres recently contacted investors under the guise of confirming the amount to be returned to each investor.  If investors indicated that they had given or assisted others in taking legal action against Winsome or Andres, then the return of funds would be delayed and handled by an attorney.  None of these funds were returned.

Both Andres and Holloway are free on bail and required to appear in Salt Lake City for upcoming hearings.  A court-appointed receiver, Wayne Klein, has filed 22 lawsuits in attempts to recover money for defrauded investors, with plans to file an additional 42.  

A copy of a Justice Department press release announcing Holloway's arrest is here.

A copy of a Justice Department press release announcing Andres' arrest is here

A copy of the CFTC Complaint filed against Andres and Winsome Ventures is here.