A California man has pled guilty to charges that he targeted members of the Los Angeles Iranian-American community to invest in what authorities allege was a $20 million Ponzi scheme. John Farahi, 54, entered a guilty plea to four felony counts - mail fraud, loan fraud, selling unregistered securities, and conspiracy to obstruct justice. Originally indicted on forty counts, Farahi had faced a potential maximum sentence of 717 years in federal prison. Under Farahi's plea agreement, prosecutors have agreed to recommend a prison sentence of no more than ten years.
Farahi was well-known in the Iranian-American community and hosted a daily finance-based radio talk show that was conducted in Farsi. Through his company, NewPoint Financial Services, Inc. ("NewPoint"), Farahi solicited potential investors from May 2003 to April 2009 by telling them that the securities were low-risk and were issued by companies that had received funds from the Troubled Asset Relief Program ("TARP"). In total, Farahi and NewPoint raised more than $20 million from over 100 investors - mainly Iranian-Americans. However, rather than use investor funds to purchase these low-risk securities, Farahi and NewPoint instead engaged in risky trading in options futures. Farahi suffered heavy trading losses, and by 2009 had lost nearly $18 million of investor funds. Additionally, investor funds were funneled to an entity controlled by Farahi and used to construct a multi-million dollar home for Farahi and his wife.
After sustaining the heavy trading losses, Farahi and NewPoint ceased soliciting new investors. After the Securities and Exchange Commission opened an investigation into NewPoint in April 2009, evidence was uncovered that NewPoint might be engaged in offering fraud. This resulted in an SEC lawsuit filed against NewPoint and Farahi in early 2010 and an indictment in December 2011.
Farahi is currently scheduled to be sentenced in January 2013 before United States District Judge Phillip Gutierrez.
A copy of the Complaint filed by the SEC is here.