Two Florida men have entered guilty pleas to charges that they operated a Ponzi scheme that raised nearly $19 million by peddling "guaranteed" certificates of deposit to mostly elderly investors. Donald Ray Babb, 58, of Merritt Island, Florida, and Ralph Ruth, of Melbourne, Florida, each pleaded guilty to a single charge of conspiracy to commit wire fraud. Each man faces up to twenty years in federal prison at a sentencing likely to take place in early 2015.
Babb and Ruth operated several businesses, including Southeast Mutual Insurance and Investment LLC, Capstar Industries LLC, and First Merchant Capital LLC (the "Companies"). The men met while working in the automobile dealership industry, and beginning in 2006, began soliciting potential investors through word of mouth and newspaper advertisements on claims that the Companies were licensed financial institutions offering risk-free certificates of deposit with high rates of return. The Companies would ultimately raise nearly $19 million from at least 150 investors, many of whom were elderly and who invested a significant portion (or all) of their life savings.
However, there were no certificates of deposit offering high rates of return; instead, Babb and Ruth used the Companies to orchestrate a classic Ponzi scheme whereby funds from new investors were used to pay interest and principal redemptions to existing investors. The men used investor funds to live a life of luxury that included the purchase of high-end watercraft, three airplanes, and real estate in Florida and North Carolina. The scheme collapsed in late 2013, and the pair were later arrested. An investigation found that, of the approximately $18.5 million raised by the Companies, approximately $7.8 million was repaid to investors in the form of interest payments and return of principal.
In addition to criminal charges, the Florida Office of Financial Regulation brought civil fraud charges against the men and the Companies. A court-appointed receiver has recovered approximately $1 million