During his storied career as a punter at the University of Texas, Russell Allen Erxleben kicked three field goals longer than sixty yards, a record that still stands, booted a 67-yard field goal that remains tied as the longest field goal kicked in NCAA history, and is one of the top 50 greatest Texas Longhorns football players according to the Bleacher Report. However, after his football career ended, Erxleben then embarked on a storied crime spree that not only included a 1999 conviction for a $36 million investment scam, but today's announcement that Erxleben was indicted for running a $2 million Ponzi scheme based on World War I German gold bonds and a $58 million painting. Erxleben, 56, was arrested today and charged with five counts of wire fraud, one count of securities fraud, and two counts of engaging in monetary transactions derived from unlawful activity. Each count of wire fraud and securities fraud carries a 20-year maximum sentence, while the engaging in monetary transactions charge carries a 10-year maximum sentence.
Erxleben oversaw the operation of several Texas companies, including WALTEC Consultants ("WALTEC"), LRE Holdings ("LRE), and the MDM Group. Both WALTEC and MDM were said to have alternate meanings, with WALTEC serving as an acronym for We All Like To Earn Cash, and MDM meaning Million Dollar Man or My Damn Money. Beginning in 2005, Erxleben promoted several investment opportunities to potential customers, including (1) a post-World War I German Gold Bearer Bond investment program, and (2) an investment pool for a supposedly-valuable piece of artwork. Investors were not told that Erxleben had previously served a 7-year prison sentence for a prior securities fraud conviction.
The German Gold Program
The main investment pitched by Erxleben was his ability to purchase defaulted German Gold Bearer Bonds, which had originally been issued by Germany in the 1920s and 1930s to help finance reconstruction and recovery efforts following World War I. Investors were told that Erxleben could purchase a single bond for $1,000 that represented a legal claim against the German government for $1,000,000. According to Erxleben, the bonds would be placed in a trust and converted into an asset-backed security that would be rated by a major financial ratings company, would greatly appreciate in value, and were favored by institutional investors. In return, investors were promised annual returns exceeding 100% for thirty years.
The Artwork Scheme
After his success with the German gold bond venture, Erxleben began soliciting investors in 2009 to participate in the authentication of a late 19th century painting by well-known French artist Paul Gaugin that could possibly be worth $58 million. Investors were told that an art authenticator could be retained to verify the painting for $75,000 - $25,000 of which was due to be paid immediately.
In total, Erxleben and his companies raised more than $2 million from investors in the German bond and artwork venture. However, according to authorities, Erxleben failed to disclose that his previous securities fraud conviction prohibited him from dealing in securities, and that he still owed over $28 million as a result of a restitution order. Instead, Erxleben operated the classic Ponzi scheme, using investor funds for a variety of unauthorized purposes that included the payment of Ponzi-style payments to existing investors and the misappropriation of funds for the personal use of Erxleben and his family.
Erxleben appeared before Magistrate Judge Mark Lane on Thursday, where prosecutors sought to have Erxleben kept in custody due to concerns that he was a flight risk and may attempt to intimidate witnesses or obstruct justice. He was ordered to remain in custody, and formal arraignment is scheduled for next week.
A copy of the indictment is here.