A California man was sentenced to ten years in prison for masterminding a Ponzi scheme that duped dozens of investors out of nearly $17 million. Jeffrey J. Sykes received the sentence from a Texas federal judge after previously pleading guilty earlier this year to two counts of securities fraud. U.S. District Judge John McBryde also ordered Sykes to pay nearly $17 million in restitution to his victims.
Sykes operated Gemstar Capital Group ("Gemstar"), which solicited investors for what was billed as a U.S. Treasury Bill trading program. In 2006, Sykes met an individual identified only as M.K. while at a golf tournament, telling him that Gemstar was looking to expand its operations by enlisting the services of a brokerage firm to buy and sell U.S. Treasury Bills. M.K. agreed to assist Sykes, forming a limited liability company known as KCG in order to solicit investors. Investors were provided with quarterly account statements purpritedly showing consistent account growth. In total, M.K. and Sykes raised more than $45 million from dozens of investors.
However, unbeknownst to investors, there was no U.S. Treasury Bill trading program, and Sykes did not use investor funds as represented. Instead, Sykes operated a Ponzi scheme, in which money from newer investors was used to pay older investors in the form of interest and principal redemptions. Additionally, Sykes used a great deal of investor funds for personal expenses. In a fortunate stroke of luck for investors, at the time Sykes was arrested there remained a great deal of investor funds in money market accounts that allowed investors to receive some of their funds back.