A Utah man who once billed himself as the "Bamboo Cyclist" as he cycled across the country has entered a guilty plea to federal charges that he operated a Ponzi scheme that caused at least $2.5 million in losses to victims. James Ronald Donahoo, II, 36, pleaded guilty to wire fraud, money laundering, and failure to file a tax return in a Utah federal court last week. According to the plea agreement, Donahoo and prosecutors stipulated to a 48-month prison sentence, which must still be approved by U.S. District Judge Dee Benson. The agreement also calls for a three-year period of supervised release following completion of the sentence, as well as payment of approximately $2.8 million in restitution to victims.
Donahoo exercised control over Paradigm, Inc. ("Paradigm"), a Utah corporation that Donahoo represented was in the business of making bridge loans or "hard money loans" to small businesses. Donahoo told potential investors that they could earn monthly returns ranging from 1% to 3%. The safety of the investment was touted by Donahoo, who told investors that each dollar invested was secured by a corresponding amount in the bank. Investors were also shown monthly bank statements for Paradigm that purportedly reflected their investment growth. In total, Donahoo raised at least $2.5 million.
However, while Paradigm did invest approximately $1.5 million in various businesses, none of investors' funds were used as represented. Further, the various businesses that received investments from Paradigm were operated by various family, friends, and acquaintances of Donahoo. Approximately $267,000 was used to make Ponzi-style payments to existing investors, while Donahoo also misappropriated funds to sustain a lavish lifestyle that included the purchase of more than $11,000 in fur coats, trips to Hawaii, jewelry, and a Mercedez Benz.
After several investors obtained judgments against Donahoo following the scheme's collapse, he reportedly began traveling the country by bicycle billing himself as the "Bamboo Cyclist" as he promoted various philanthropic causes. Donahoo promoted his cause through various social media sites, including YouTube. One website apparently formed by one of Donahoo's victims suggested that these efforts, including Donahoo's claim that he was soliciting "micro loans" for 3rd world countries, were simply a continuation of Donahoo's deceit. One of the YouTube videos is embedded below:
Sentencing is scheduled for October 7, 2014 at 2:00 P.M.