Wednesday, May 23, 2012

Ponzi Scheme Mastermind Sentenced to 50 Years in Prison

Keith Franklin Simmons, 47, of West Jefferson, North Carolina, was sentenced today to 50 years in prison in connection with a $40 million Ponzi scheme he operated, announced Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina. U.S. District Judge Robert J. Conrad, Jr. also ordered the defendant to serve three years under court supervision following his prison term and to pay $35,331,632 in restitution.

Joining U.S. Attorney Tompkins in making today’s announcement is Chris Briese, Special Agent in Charge of the Federal Bureau of Investigation (FBI), Charlotte Division; and Jeannine A. Hammett, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation Division (IRS-CI).

“What makes this case particularly troubling is that from the beginning, this defendant had no intention of investing a single dime of the victims’ money,” said U.S. Attorney Tompkins. “Simmons made slick presentations to his victims about lucrative investment returns that were filled with lies and deceit. Simmons was a con artist who pocketed people’s savings to finance his own lavish lifestyle and went to great lengths to cover up his crimes. The impact of Simmons’ fraud has been devastating to his victims, who trusted him with their hard-earned money. I want to caution potential investors before they turn over their life’s investments to pay close attention to sales pitches that promise large returns on investments. If it sounds too good to be true, it probably is.”

“Keith Simmons preyed on the elderly and the vulnerable, swindling his victims out of millions of dollars. This case is a stark reminder to the con artists who run these schemes that they will face lengthy prison sentences, and it is a lesson to investors to be cautious and to question promises of large payoffs,” said Chris Briese, Special Agent in Charge of FBI Charlotte.

“Our investigators worked closely with the U.S. Attorney’s Office in bringing this case to a successful conclusion. We are sending a clear message that North Carolina will not tolerate financial crime and that we will put financial criminals behind bars,” stated Jeannine A. Hammett, Special Agent in Charge of IRS.

In December 2009, Simmons was arrested by the FBI and detained without bond. In August 2010, a superseding bill of indictment charged Simmons with one count of securities fraud, one count of wire fraud, and two counts of money laundering. In December 2010, Simmons was convicted on all four counts by federal jury. According to filed court documents, court proceedings, and today’s sentencing hearing, beginning in April 2007, Simmons began soliciting victims to invest in Black Diamond for supposed trading in the foreign currency exchange market. From April 2007 through September 2009, Simmons and his co-conspirators induced over 400 victims nationwide to invest more than $40 million in Black Diamond through a series of false representations, including bogus claims that Black Diamond was generating profits of more than 48 percent annually in the foreign currency trading market. In reality, none of the representations Simmons made to his victims were true. Simmons never invested the funds in any foreign currency market. Rather, court records indicate, Simmons used his victims’ money to fund a lavish lifestyle.

At sentencing, Judge Conrad noted, “The court could not help being struck by the devastation suffered by the victims in this case,” and that there was a “callousness to this Ponzi scheme that seems singular to this court.” Judge Conrad said that the defendant’s conduct “had a generational impact on the victims seldom seen by this court.” Judge Conrad also said that, “A 50-year sentence is an enormous sentence, but there seems to be no other sentence...that would accomplish justice in this case.”

In addition to providing for restitution to victims, federal law also provides for forfeiture of proceeds of crime. Accordingly, Judge Conrad sentenced Simmons to forfeit properties, including numerous pieces of real estate, a vehicle, funds obtained from the sale of real estate, and funds obtained from the sale of shares of ultimate fighting companies. In addition, via administrative agency processes, the FBI has already forfeited numerous additional vehicles and collectible coins seized from Simmons. Simmons had purchased the forfeited properties with over $4,800,000 in proceeds of the scheme. The U.S. Attorney’s Office will request liquidation of any finally forfeited assets and return of net proceeds of liquidation to victims.

CommunityONE Bank:

In today’s sentencing hearing Judge Conrad also released $400,000 to be paid by CommunityONE Bank as restitution to the victims of the Ponzi scheme that the bank failed to detect and report. In April 2011, CommunityONE Bank entered into a deferred prosecution agreement with the Department of Justice related to the Black Diamond Ponzi scheme. The deferred prosecution agreement allowed the Bank, which had been critically undercapitalized, to undergo a merger and recapitalization, thereby avoiding losses from a bank failure to innocent account holders and to the FDIC fund estimated at $500 million. At the time of the deferred prosecution agreement, the $400,000 figure represented sixteen percent of the bank’s total value.

As part of the deferred prosecution agreement, CommunityONE Bank admitted to failing to maintain an effective anti-money laundering program which would have detected and reported Simmons’ suspicious transactions. Court documents show that from April 2007 until September 2009, Simmons deposited more than $35 million in investor funds into his CommunityONE Bank account and withdrew over the same time span more than $35 million from that same account.

CommunityONE Bank did not file any Suspicious Activity Report (SAR) on Simmons during this time period, despite the hundreds of suspicious transactions that took place over those two and a half years. Under the Bank Secrecy Act, banks are required to establish, implement, and maintain programs designed to detect and report suspicious activity indicative of money laundering and other financial crimes, such as investment fraud schemes. According to court documents, the bank failed to detect and report the suspicious transactions, as required by the Bank Secrecy Act, due to deficiencies in its anti-money laundering program.

Salazar Sentencing:

In a related proceeding, Judge Conrad also sentenced today Deanna Salazar, 55, of Yucca Valley, California, to serve 54 months in prison and three years of supervised release for her role in the Black Diamond Ponzi scheme. She was also ordered to pay $5,112,687 in restitution. In December 2010, Salazar pled guilty to conspiracy to commit securities, commodities and wire fraud and tax fraud.

According to filed documents and court proceedings, Salazar invested with Black Diamond through the investment firm Life Plus Group LLC (“Life Plus”), which she controlled. Salazar agreed with Simmons and others to induce investments for Black Diamond and Life Plus by making a series of false and fraudulent representations, material omissions, and deceptive half-truths. For example, Salazar falsely represented to victims that she had conducted due diligence on Black Diamond and used a variety of analytical and research tools in selecting Black Diamond as an investment vehicle when, in reality, she did not conduct any due diligence at all and deliberately closed her eyes to the truth about Black Diamond.

Other defendants convicted in this case are set forth below. It should be noted that those defendants already sentenced, including Salazar, had their sentences reduced by the court to reflect their cooperation with the government in its investigation and prosecution of others.

  • Jeffrey M. Muyres, 37, of Matthews, North Carolina, pled guilty on May 17, 2011 to conspiracy to commit securities fraud and money laundering conspiracy. Muyres was sentenced to 23 months’ imprisonment by Judge Conrad on January 18, 2012.
  • Roy E. Scarboro, 47, of Archdale, North Carolina, pled guilty on December 3, 2010 to securities fraud, money laundering, and making false statements to the FBI. Scarboro was sentenced to 26 months’ imprisonment by Judge Conrad on May 4, 2011.
  • James D. Jordan, 49, of El Paso, Texas, pled guilty on September 14, 2010 to conspiracy to commit securities fraud. Jordan was sentenced to 18 months’ imprisonment by Judge Conrad on June 29, 2011.
  • Stephen D. Lacy, 52, of Pawleys Island, South Carolina, pled guilty on December 9, 2010, to conspiracy to commit securities fraud. Lacy was sentenced to 6 months’ imprisonment by Judge Conrad on May 4, 2011.
  • Bryan Keith Coats, 51, of Clayton, North Carolina, pled guilty on October 24, 2011 to conspiracy to commit securities fraud and money laundering conspiracy. Coats is awaiting sentencing.

Additional Pending Cases Related to the Scheme:

In February 2012, four additional defendants were indicted in connection with the Black Diamond Ponzi scheme. Jonathan D. Davey, 47, of Newark, Ohio; Jeffrey M. Toft, 49, of Oviedo, Florida; Chad A. Sloat, 33, of Kansas City, Missouri; and Michael J. Murphy, 51, of Deep Haven, Minnesota, face four criminal charges relating to an investment fraud conspiracy.

According to filed court documents, the defendants operated “hedge funds” as part of the Black Diamond Ponzi scheme, and in doing so, lied to get money from their victims by claiming, among other things, that they had done due diligence on Black Diamond and were operating legitimate hedge funds with significant safeguards when, in reality, neither claim was true. According to filed documents and court proceedings, when Black Diamond began collapsing, the defendants and others created a new Ponzi scheme and with a separate Ponzi account that Davey administered. Thereafter, new victim money was deposited into the Ponzi account and used to make Ponzi payments to other victims and to fund the defendants’ lifestyles.

Keith Simmons has been in local federal custody since he was arrested in 2009. Upon designation of a federal facility he will be transferred to the custody of the Federal Bureau of Prisons. Federal sentences are served without the possibility of parole.

The Black Diamond investigation relates to the work of Charlotte’s Securities Fraud Task Force, a group made up of several agencies including the FBI, the securities division of the North Carolina Secretary of State’s Office, the North Carolina Attorney General’s Office, the IRS Criminal Division, the U.S. Postal Inspection Service, the Mecklenburg County District Attorney’s Office, the Securities and Exchange Commission, the Commodities Futures Trading Commission (CFTC), and the U.S. Attorney’s Office. The multi-agency task force promotes collaboration between the agencies in the fight against corporate fraud, insider trading, accounting fraud, market manipulation schemes, and other finance-related crimes.

In announcing the sentence, U.S. Attorney Tompkins thanked the FBI and IRS for their assistance in the investigation. U.S. Attorney Tompkins also acknowledged the assistance and cooperation of the CFTC. This matter is being prosecuted by Assistant United States Attorneys Kurt W. Meyers and Mark T. Odulio of the U.S. Attorney’s Office in Charlotte.

No comments:

Post a Comment