This is the one of my recurring posts that offer quick summaries of similar cases. Think of them as the Kay and Peele version of my blog posts, though not nearly as funny and always safe for work.
It is the oldest (white collar) trick in the book—stealing money from your investors. When I check the press releases of all the U.S. Attorney offices across the country to find blog post topics, this is probably the most common type of white collar case.
There are a million ways to get it done. Lie about the finances of your company. Lie about the returns an investor can expect. Lie about what you are doing with the investors’ money once you get it. Sometimes the schemes I read about are clever and intriguing; sometimes they are run of the mill. No matter the type, the cases are always there.
For the most part, the defendants buy fancy cars. Maybe that’s in the “How To Defraud Your Investors” manual?
To get an idea of what kinds of cases are drawing the attention of the Department of Justice and FBI agents, read on.
United States v. Mattera. John Mattera, a former mutual fund executive for Praetorian Global Ltd., was sentenced to 11 years in prison in the Southern District of New York. He was also ordered to forfeit $11.8 million. Mattera pleaded guilty to stealing $13 million in funds from investors by falsely claiming that his mutual fund owned stock in Facebook and Groupon. I assume the actual fraud occurred several years ago since Groupon’s adjusted stock price has dropped from approximately $26 in November 2011 to just under $8 this month. Mattera admitted he took money from 130 investors. The facts were somewhat salacious since he used the money in part to rent a $45,000/month waterfront home and buy luxury cars, including two Rolls Royces and a Ferrari. Eleven years is a fairly harsh penalty but Mattera’s sentence was likely influenced by his four prior felony convictions for fraud-related offenses.
United States v. Betts. Seth Betts, a principal of Betts and Gambles Global Equities, was arrested on June 20, 2013 after the filing of a criminal complaint in the Southern District of New York. He is accused of perpetrating a scheme to defraud an unnamed public university of over $8 million. He allegedly solicited the university’s investment in collateralized mortgage obligations (CMOs) and promised he would sell the CMOs to third parties at a profit in a short period of time. However, Betts supposedly never delivered any CMOs to the university nor did he return any funds or profit to it. Like Mattera, Betts allegedly used the money to buy a home and luxury cars, including a Ferrari and a Maserati. He is charged with a single count of wire fraud. Betts was named a “2009 Mover and Shaker” by South Florida Business Leader magazine.
United States v. Sweeten. The president of Symtech International, Inc., Theodore Sweeten, pleaded guilty on June 19, 2013, to a charge of wire fraud in the Eastern District of New York. Sweeten claimed to have invented the “Clean Air Valve” and other environmental products. The August 2013 indictment alleged that he defrauded an investor of $5 million by telling him that he needed the investment to “lease” a credit line of $100 million. However, rather than using the money to get a credit line as promised, Sweeten simply distributed the money to himself and to two other defendants. The other two defendants were Thomas Bannon, the president of Overseas Investors LLC, and Robert Bardey, an attorney. The three defendants “falsely represented that a $100 million account had been created at HSBC by sending the victim fabricated bank documents on HSBC letterhead.” At least they don’t appear to have spent the money on luxury cars but maybe that would have come out at trial.
United States v. Scott. The CEO of ACI Capital Group LLC, Frederick Douglas Scott, 29 years old, was arrested in early June on charges that he conspired to steal hundreds of thousands of dollars from investors. ACI was a registered investment advisor with the SEC. Mr. Scott allegedly defrauded investors by having them wire money into ACI’s accounts and then taking the money. He allegedly promised investors a quick return, claiming that he would invest in companies that were associated with ACI. According to the government, Scott instead used the funds to buy personal items at Louis Vuitton, True Religion, the Apple Store and Starbucks. A May 2010 issue of Ebony described him as the “youngest African American hedge fund founder in history” and named him a “Top 30 Under 30.”
United States v. Peppel. Michael Peppel, the former CEO of MSCi, Inc., was sentenced in the Southern District of Ohio on June 4, 2013, to two years in prison for defrauding investors. MSCi was a computer sales company that was listed on the NASDAQ stock market until April 2003. This was no small company: its sales in 2001 were over $810 million, plus it had 160 offices and over 1300 employees. Peppel pleaded guilty in August 2010 to conspiracy, securities fraud, and money laundering. He falsified accounting records and financial statements to mislead investors that the company was in good financial shape. In addition to the two year prison sentence, Peppel was ordered to pay a $5 million fine and to forfeit a $20,000 Italian oil painting and a $9000 Italian bronze sculpture.