A California man will spend the next 64 months in prison after defrauding investors out of over $7 million in what he advertised as a computer program that could generate exorbitant profits by identifying market trends. Douglas Hollingworth, 64, received the sentence after previously pleading guilty earlier this year to wire fraud and money laundering counts. Hollingsworth was also ordered to pay $4.9 million in restitution to his victims.
Hollingsworth owned and operated several companies, including Baytree Investors, LLC ("Baytree"), and Capsule Partners, LLC ("Capsule"). Beginning in June 2007, Hollingsworth began soliciting potential investors to invest in Baytree or Capsule, telling them they could expect potential monthly returns of 6% (72% annually). Hollingsworth explained to potential investors that he had developed computer trading software that allowed him to profit from the advanced identification of market trends by engaging in the short-term trading of securities. Some investors were also told that Hollingsworth was developing additional trading software - to improve on his existing trading software - and that some of their funds would be devoted to creating that software.
Despite being visited by federal law enforcement in 2010 concerning his investment activities, and the subsequent seizure of certain bank accounts under his control, Hollingsworth continued to solicit investors for Baytree and Capsule.
Not surprisingly, Hollingsworth was not able to pay monthly 6% returns to investors through expertly-timed trading strategies; rather, Hollingsworth operated an elaborate Ponzi scheme that used incoming investor funds to pay returns and principal redemptions to existing investors. As is typical in Ponzi schemes, Hollingsworth used investor funds for a variety of uses, including not only payments to investors, but also to sustain a lavish lifestyle that included the purchase of fine jewelry, at least $14,000 in Best Buy purchases, and over $20,000 in dental care.
At the sentencing hearing, U.S. District Judge Charles R. Breyer ordered Hollingsworth to surrender immediately to begin serving his sentence. After serving his sentence, Hollingsworth will also be subject to a three-year period of supervised release.
A copy of a superseding indictment is here.