Investors Win Civil Suit Against Defunct Arizona Ponzi Scheme Operators

A federal jury awarded $46.5 million to investors in a failed Arizona Ponzi scheme that bilked investors out of millions of dollars.  More than 1,000 victims brought a class-action suit seeking damages from the remaining high-ranking employees of several Fresno leasing companies after the alleged mastermind, John Otto, committed suicide.  The jury verdict against Dan Ramirez and Andy Fernandez came several days after Judge Donald Black found HL Leasing Inc., Heritage Pacific Leasing and Air Fred LLC liable to victims for almost $68 million, bringing the total award to $114 million.  

Otto created the three companies in 2001, soliciting investments from victims by representing that the money was being used to buy lease agreements from American Express at a discount.  Investors were promised above-average monthly returns based on the alleged success of the leasing arrangement.  To reassure investors, Otto false represented that he was registered with the California Division of Corporations.  However, there were no legitimate lease agreements with American Express, and Otto was not registered with the California Division of Corporations.  Instead, investor funds were used to fund the lavish lifestyle and salaries of corporate officers and to pay purported returns to older investors.  

The class-action plaintiffs argued that the corporate officers were aware of the scheme and engaged in fraud to keep the scheme sustainable.  For example, Ramirez made millions of dollars in salary between 2004 and 2008, and Fernandez was paid $125,000 per year with bonus for her role as CFO.  Attorneys for Ramirez and Fernandez argued they were unaware of the scheme and, upon its discovery, went to the FBI.  The jury rejected this explanation, finding Ramirez liable under the theory of fraudulent concealment and both Ramirez and Fernandez guilty of aiding and abetting the fraud. 

A hearing on whether Otto's wife can be held liable as a shareholder of the leasing companies is scheduled for September.  An FBI probe of the companies remains ongoing.