"We do not offer ridiculously high interest rates. We leave that to the scam artists. One of our goals is to put these scammers out of business. Drive 'em right off the 'Net!"- Gregory N. McKnight
McKnight operated Legisi Holdings, LLC, which was a shell company headquartered in the territory of Nevis in the West Indies. Beginning in December 2005, McKnight began soliciting investors for a pooled investment program referred to as both Legisi.com or Legisi. In an effort to reach as many potential investors as possible, McKnight also promoted the investment at www.legisi.com. Investors were told that McKnight would invest all offering proceeds, and use his trading profits to pay monthly returns to investors. According to McKnight, his investing activities regularly generated monthly profits of at least 15%, and told investors they would receive a minimum monthly return of 15%. Investors were also assured that McKnight would set aside 10% of his monthly trading profits for a reserve fund established for the benefit of Legisi investors. In total, McKnight and Legisi raised more than $70 million from at least 3,000 investors from all 50 states.
However, McKnight was not the prodigious trader he held himself out to be. Rather than generating 15%-18% monthly trading profits, McKnight suffered trading losses of more than $3 million. McKnight invested less than half of the approximately $72 million raised from investors, instead diverting the remainder for a variety of unauthorized uses. This included the payment of fictitious profits and principal redemptions to investors, more than $2 million for personal expenses, and over $100,000 for vacations.
Authorities questioned McKnight in May 2007 about his purported trading. According to the SEC, within hours of that conversation, McKnight posted an announcement on the Legisi website announcing the Legisi program was closed to investors (which he attributed to a "massive influx" of new investors). McKnight also closed the Legisi website to the public, and began requiring a login and password.
While the Securities and Exchange Commission initiated a civil enforcement action in 2008, McKnight was not criminally charged until February 2012. An associate, Matthew J. Gagnon, was also sentenced to a 5-year term for his role in the fraud.
A copy of the SEC Complaint is here.