Friday, May 25, 2012

Investment Club Manager Sentenced in Virginia to 12 Years in Prison for $40 Million Fraud

Alan James Watson, 47, of Clinton Township, Michigan, was sentenced today to 12 years in prison for fraudulently soliciting and accepting $40 million from more than 900 members of his investment club, Cash Flow Financial LLC (CFF). Watson subsequently lost nearly all of the investors’ money through non-disclosed, high-risk investments. Victims were located in Virginia and nationwide. Watson was also ordered to forfeit $36,615,344.
U.S. District Judge Gerald Bruce Lee in the Eastern District of Virginia also sentenced Watson to three years of supervised release. Watson pleaded guilty to one count of wire fraud on September 22, 2011.

The sentencing was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney for the Eastern District of Virginia Neil H. MacBride; James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office; and Postal Inspector in Charge of Criminal Investigations Gerald O’Farrell of the U.S. Postal Inspection Service (USPIS).

“Mr. Watson deceived members of his investment club from early on and drove his scheme deeper and deeper while investors remained none the wiser,” said Assistant Attorney General Breuer. “His lies destroyed lives, and today’s sentence ensures he will pay for his destructive actions. The 12-year prison sentence handed down today is a signal to fraudsters that criminal deception born from greed will not be tolerated.”

“The pitch Mr. Watson made to investors was a big fat lie, and he kept lying until his scheme collapsed and investors lost nearly everything,” said U.S. Attorney MacBride. “Based on these lies, investors recommended Mr. Watson’s club to their friends and family, and the damage to these relationships was just as harmful as the financial devastation itself.”

“More than 900 unwitting victims thought they had done their homework and calculated their investment wisely; instead, they were met with false documentation that yielded no return on their investment,” said FBI Assistant Director in Charge McJunkin. “Investigating white-collar crime has been and will continue to be a priority for the FBI and our law enforcement partners, as demonstrated by this case and today’s sentence.”

According to court documents, Watson created CFF in 2004 and served as the club’s chief executive officer. From 2006 to 2009, Watson received almost $40 million from investors. Watson purported that the money would be invested through an equities-trading system developed by an expert consultant, Trade LLC, with a promised return on investment of 10 percent per month. In reality, Watson admitted that only $6 million of the $40 million was ever invested in Trade LLC, while the remaining $34 million was secretly invested in miscellaneous, high-risk ventures without the consent of investment club members. These high-risk investments resulted in a near complete loss of the $34 million.

According to court documents, despite the losses for the investors, Watson continued to create false monthly account statements showing net gains from their investments. In addition, Watson included “bonus” items on the account statements that appeared as trading profits, the result of a Ponzi scheme he orchestrated to use new investor funds to pay off earlier investors.

In March of 2009, Watson ceased investing in Trade LLC and re-deposited those funds in separate unauthorized ventures. In 2010, nearly a year after he had fully withdrawn finances from Trade LLC, Watson informed investment club members that he had not invested their money as promised and that none of the reported returns had ever materialized. This resulted in a combined $40 million loss for investment club members.

The Commodity Futures Trading Commission (CFTC) has filed a related civil case in the Eastern District of Michigan.

This case was investigated by the FBI’s Washington Field Office, USPIS, the CFTC, and the U.S. Securities and Exchange Commission. The department thanks these agencies for their substantial assistance in this matter.

Trial Attorney Kevin B. Muhlendorf of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mark D. Lytle of the Eastern District of Virginia are prosecuting the case on behalf of the United States.

The investigation has been coordinated by the Virginia Financial and Securities Fraud Task Force, an unprecedented partnership between criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases in the nation and in Virginia. The task force is an investigative arm of the President’s Financial Fraud Enforcement Task Force, an interagency national task force.

President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

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