California Fugitive Faces Criminal Charges For Alleged $300 Million Ponzi Scheme Targeting Veteran Pensions

A California man has been indicted on federal fraud charges for running what authorities allege was a massive Ponzi scheme that purportedly obtained pensioners’ future cash flows by paying up-front premiums and then selling those structured cash flows to potential investors. The U.S. Attorney’s Office for the District of South Carolina announced that Scott Kohn and his company Future Income Payments, LLC (“FIP”) had been indicted on charges of mail fraud conspiracy and wire fraud conspiracy. The charges come as multiple states have already filed lawsuits or instituted cease-and-desist proceedings against FIP, which apparently collapsed after stopping payments to investors in April 2018. If convicted of the charges, Kohn could face up to twenty years in federal prison. However, Kohn must first be found - he is a fugitive and rumored to be in the Philippines.

Kohn is convicted felon who pleaded guilty in 2006 to felony charges of trafficking in counterfeit goods and later served a 15-month term in federal prison. Following his release, Kohn formed Pensions, Annuities, and Settlements (“PAS”) in 2011 which would later be known as FIP. Through various marketing tactics, FIP and Kohn solicited pensioners by offering the ability to receive a lump sum, buyout, or advance through the sale of a portion of their future pension payments. FIP and Kohn attempted to classify the process as a “Purchase and Sale Agreement” even though the transaction was simply the loan of money to the pensioner in exchange for an agreement to pay future sums based on that principal amount. For example, the following “Recitals” from one Virginia man’s “Purchase and Sale Agreement” made multiple references to a “seller,” “purchased asset,” and “purchase price”:


Unbeknownst to many of the pensioners was that the “Purchase and Sale Agreement” also obligated them to pay a significant amount of future pension payments to FIP that often equated to an annual interest rate exceeding 100% over a five-year term. These payments obligations sometimes continued even after death, forcing some pensioners to secure life insurance policies that could cover those obligations if necessary. According to the Consumer Finance Protection Bureau, which sued FIP and Kohn in September 2018, “many military veterans, retirees, and their spouses have contracted with FIP..” Federal law prohibited the assignment of military pension payments.

FIP and Kohn then offered the income streams from those pensioners to third-party investors in the form of 60-month or 120-month cash flow payments providing annual payments from 6% to 12%. FIP used a network of various financial professionals to pitch the “pension loan” program to potential investors through promises of a consistent and predictable income stream that could be purchased using retirement funds as well as assurances that FIP had established short and long-term reserve accounts to mitigate default risks. Those financial professionals were often incentivized through an up-front commission after an investor’s purchase.

According to federal authorities, FIP “diverted new investor funds flowing into the business to fund payments to earlier investors” in a textbook example of a Ponzi scheme. FIP ceased doing business in April 2018 while owing investors approximately $300 million.

Kohn is rumored to be in the Philippines given his apparent familiarity with the country through the use of a Philippines-based corporation used in the scheme.

A copy of the Indictment is below:

Maine Woman Receives 80-Year Sentence For $4.7 Million Ponzi Scheme

In what is likely the stiffest sentence for a female Ponzi schemer, a Maine woman was sentenced to serve eighty years in prison for her role in a $4.7 million Ponzi scheme.  Karen Bowie, 61, received the sentence after being convicted at a week-long trial in Austin, Texas of property theft.  While Bowie was not charged with masterminding the scheme, authorities accused her of playing a focal role in promoting the scheme, in which she received over $2 million that was diverted from investors.  While Bowie would be eligible for parole due to her conviction on state crimes, the sentence will likely be a life sentence.

Bowie was part of Titan Wealth Management, LLC ("Titan"), which was in the business of recommending European mid-term notes ("MTN's") to clients.  Potential investors were told that the notes were low risk and offered outstanding short-term returns ranging from 10% to 50%.  Additionally, Titan's owner, Thomas Lester Irby, told investors that Titan would receive no fees or compensation from selling the notes, and in the event of emergency, Irby could easily liquidate a $10 million MTN that he personally owned.  Irby and Titan would eventually raise over $3 million from more than 30 investors.

However, investor funds were not pooled to purchase MTN's or even any interest in MTN's.  Instead, millions of dollars in investor funds were used to pay putative MTN 'profits', as well as diverted for Irby's personal benefit.  Bowie, who did not deal directly with investors but instead directed Irby to make false representations, also received nearly $2 million without providing any apparent consideration.  Irby was sentenced in 2010 to 24 years in prison after being charged with money laundering.

Bowie's 80-year sentence should serve as a stark reminder of the perils of proceeding to trial rather than accepting a guilty plea. The severity of Bowie's sentence is not only grossly disproportional to the relatively meager amount of funds involved, but is also easily one of the highest handed down to a Ponzi schemer - man or woman. (While women have been convicted of operating Ponzi schemes, they are handily outnumbered by men.)  Indeed, the 30-year sentence handed down to a Florida woman for orchestrating a $100 million Ponzi scheme pales in comparison to Bowie's sentence.  Other examples of women being sentenced for Ponzi schemes are herehereherehere, and here.