A Kansas attorney and a British real estate speculator each pled guilty to their role in a Ponzi scheme that bilked investors out of more than $52 million. James Scott Brown, 66, of Leawood, Kansas, and Derek J. Smith, 67, of Oxfordshire in the United Kingdom, each entered guilty pleas to charges of conspiracy to commit mail fraud and conspiracy to commit wire fraud before United States District Judge Linda R. Reade in the Northern District of Iowa. Each of the charges carries a maximum prison sentence of five years and criminal monetary penalties of up to $250,000. Under the Mandatory Victim Restitution Act, restitution may also be ordered to defrauded victims.
Brown and Smith, along with Martin T. Sigillito, were the target of a 22-count federal indictment unsealed on April 28, 2011. According to the indictment, Brown and Sigillito, also an attorney, began marketing the British Lending Program ("BLP") to investors in 2000. Investors were solicited to invest in the BLP, which was advertised as a prominent real estate development venture. The two represented to potential investors that Smith was a highly successful real estate investor who had a proven track record of identifying undervalued properties that could be quickly purchased, refurbished, and resold for a quick profit. BLP borrowed large amounts of money from investors, who were told that they would receive high rates of interest in return. During the scheme, which lasted nearly a decade, BLP took in investor loans" of nearly $52.5 million. Yet little if any of these funds were used for legitimate real estate projects. Instead, Smith, Sigillito, and Brown each were paid multi-million dollar "fees" for their involvement. Additionally, approximately $27 million was used to make payments to investors in the form of interest payments and principal redemptions. At the time of the indictment, BLP was alleged to be insolvent.
As a result of their plea agreement, both Smith and Brown agreed to forfeit any property gained through proceeds of the fraud, including a $52.5 million judgment. Brown also agreed to forfeit a 207-acre farm in Arkansas, while Smith agreed to forfeit several pieces of property in England. The U.S. Probation Department will calculate a sentencing recommendation based on federal sentencing guidelines.
The Department of Justice Press Release announcing the indictment is here.
A Copy of the Indictment is here.