Former CPA Accused Of Running $29 Million "Pure" Ponzi Scheme

A California woman faces civil and criminal charges over allegations that she ran a $29 million Ponzi scheme that promised 8% annual returns by investing in “federally guaranteed” securities. Carol Ann Pedersen, 65, was the subject of charges filed by the Securities and Exchange Commission and the U.S. Attorney’s Office for the Central District of California. Pedersen consented to entry of a final judgment in the Commission’s action and also pleaded guilty to a single wire fraud charge in the criminal case. Pedersen could face up to twenty years in prison on the wire fraud charge, although she will likely receive a lower sentence under non-binding federal sentencing guidelines.

According to the Commission, Pedersen received her CPA license in California in 1977 and provided accounting services to numerous California individuals and families. Beginning in 1991, Pedersen also began soliciting those same clients to offer money management and investment adviser services. Potential clients were told either that their funds were used to purchase specific securities on their behalf or that their funds were being pooled with other investor funds to invest in an extensive stock portfolio. For clients in the former category, Pedersen promised that she would only purchase investments offering at least 8% annual returns. Those in the latter category had their funds invested in the CA Pedersen Client Investment Pool and signed limited partnership agreements granting Pedersen sole authority to invest their funds.

To conceal her alleged wrongdoing, Pedersen generated periodic account statements that were provided to both individual and pooled investors purportedly showing their various investment holdings. From September 2010 to July 2017, Pederson raised over $29 million from 25 investors. The scheme began to fall apart in 2017 when Pedersen was unable to make scheduled distributions to investors. Several investors filed suit against Pedersen and a receiver was subsequently appointed.

With one known exception, the Commission alleges that Pedersen failed to invest any of the funds she received from investors and instead ran a “pure” Ponzi scheme by using investor funds to make distributions to other investors “almost from the moment of inception.” Pedersen is also accused of misappropriating nearly $2 million of investor funds for her own use including car payments, medical costs, and home renovation expenses.

Unfortunately, this is another tale where standard due diligence might have prevented the scheme from continuing until implosion. As the Commission alleges, Pedersen concealed her failure to invest practically any funds in the securities she promised by generating account statements that were sent to investors. Thus, Pedersen would likely have had difficulty accomodating an investors’s request to provide statements from the entity(ies) custodying those assets. Rather than focusing on a promised rate of return, potential investors should focus on verifying the claims made by an investment professional.

A copy of the Commission’s complaint is below: