California Man Gets 14 Years for $16 Million Ponzi Scheme

A Southern California man was sentenced to fourteen years in prison for his role in a Ponzi scheme that bilked investors out of $16 million.  David Lincoln Johnson, 73, received the sentence after electing to stand trial after being indicted on multiple charges of mail fraud.  Following a six-day jury trial, Johnson was convicted of fourteen counts of mail fraud.  Johnson is the last of three defendants to be sentenced for the scheme, with co-defendants Christiano Kawika Hashimoto, and Catherine Lipscomb, previously pleading guilty to mail fraud and receiving sentences of 10 years and two years, respectively.  The three were arrested and charged in an 85-count indictment that was unsealed in June 2009.

According to the indictment, Hashimoto and Lipscomb were officers of Financial Solutions, a California company that purported to raise money that would be used to invest in other companies.  Johnson owned and operated Gentech Fabrication, Inc. ("Gentech"), which was a custom manufacturer of metal products for the United States government, among other entities.  Both Gentech and Financial Solutions maintained bank accounts at Bank of America.  Beginning in early 2004, Hashimoto began soliciting investments in his company, telling prospective investors that one of the companies he planned to invest in was Gentech, which he represented was involved in the construction of equipment for the U.S. government and which purportedly backed Hashimoto's investment contracts.  Unknown to investors was that the majority of Gentech's work derived from its assumption of work for another company with U.S. government contracts.

To convince potential investors of the legitimacy of the operation, Hashimoto arranged with Johnson to provide tours of Gentech's facilities, including representations that the government contract guaranteed their investments.  Once investors were sold on the viability of the operation, Hashimoto then recruited those investors as sales agents, promising them commissions on new investors they recruited equal to a percentage of those new investments.  Potential investors were told that they could expect a fixed rate of interest ranging from 5% to 20%, payable on a monthly basis.  Promissory notes supplied to investors also indicated that their investment was backed by a $100 million government bond. 

In May 2004, the U.S. government cancelled its contract for the work Gentech was purporting to perform. However, existing investors were not informed of this event, and Hashimoto and Johnson continued to solicit new investors on the basis of the contract.  In total, nearly $24 million of deposits were made into Financial Solutions' Bank of America account from mid-2003 until November 2004.  However, less than 5% of those funds was ultimately directed to Gentech.  Instead, nearly $2 million was transferred to Hashimoto for personal use, and approximately $14 million was used to make Ponzi-style payments of interest and principal redemptions to investors.  

In addition to the prison sentence, Johnson was also ordered to pay $17.3 million in restitution to victims of the scheme.  

A copy of the indictment is here.