Working Group Highlights Accomplishments & Credits Successes to Continued Cooperation
CHARLOTTE, N.C. - Jill Westmoreland Rose, Acting U.S. Attorney for the Western District of North Carolina, today announced the annual meeting of the district’s White Collar and Securities Fraud Working Group. The working group was formed in 2011 to combat financial fraud by bringing together key federal, state and local law enforcement and regulatory partners. The working group targets a wide-range of financial schemes, including accounting fraud, Ponzi schemes and other finance-related matters. The annual meeting, which was hosted by U.S. Attorney’s Office in Charlotte, focused on strengthening existing relationships identifying recent trends, discussing ongoing investigations and setting enforcement priorities.
Members of the working group include officials from the U.S. Attorney’s Office (USAO), U.S. Securities & Exchange Commission (SEC), U.S. Commodity Futures Trading Commission (CFTC), Federal Bureau of Investigation (FBI), U.S. Secret Service, Internal Revenue Service-Criminal Investigation (IRS-CI), U.S. Postal Inspection Service, Homeland Security Investigations, Federal Deposit Insurance Corporation, Office of the Inspector General (FDIC-OIG), the North Carolina Attorney General’s Office, the North Carolina Department of Secretary of State, Securities Division, the North Carolina State Bureau of Investigation (SBI), and the Mecklenburg County District Attorney’s Office.
“Since its formation in 2011, the working group has worked collaboratively on a range of investigations leading to the successful prosecution of cases involving a variety of financial fraud schemes," said Acting U.S. Attorney Rose. “Financial crimes can have devastating effects on the victims of fraud, who are not always able to fully recover their losses. The working group’s accomplishments are a clear message to the public that we are committed to protecting investors from financial scams, safeguarding our financial systems from fraud and going after those who engage in unlawful financial activities," Rose added.
Examples of prosecutions include:
• United States v. Beaver: Chuckie Beaver pleaded guilty in November 2014 to one count of securities fraud for defrauding more than 30 investors of over $2 million dollars. From June 2012 to April 2014, Beaver induced over 30 victims falsely claiming their money would be invested in “Best Services, Inc.," a company owned by Beaver and specializing in the repair of industrial electronic equipment. Beaver solicited friends, neighbors, and fellow church members to invest with his company, claiming that his company needed more capital to purchase materials to complete a large number of outstanding repair orders from major corporations. To further the scheme, created and showed his investors bogus documents, including false repair orders indicating significant work activity, fake customer checks, and fake customer emails, giving a false impression he had strong relationships with major corporations. Beaver awaits sentencing.
• United States v. Burks: Paul Burks, president of ZeekRewards, was indicted in October 2014 on federal charges for operating an Internet Ponzi scheme and is awaiting trial. The indictment alleges that from January 2010 to August 2012, Burks was the owner of Rex Venture Group, LLC (RVG), through which he owned and operated Zeekler, a sham Internet-based penny auction company, and its purported advertising division, ZeekRewards (collectively “Zeek"). The indictment alleges that Burks and his conspirators induced victims - including over 1,500 victims in the Charlotte area - to invest more than $850 million in their fraudulent scheme. Dawn Wright Olivares, Zeek’s Chief Operating Officer and Zeek’s Senior Technology Officer, Daniel C. Olivares, pleaded guilty in December 2013 to investment fraud conspiracy. Dawn Wright Olivares also pleaded guilty to tax fraud conspiracy. Both defendants await sentencing.
• United States v. Davey et. al.: Jonathan Davey was sentenced in January 2015 to 21 years in prison for his role in Ponzi scheme that defrauded victims of more than $40 million. Davey, a certified public accountant and registered investment advisor, served as the “Administrator" for numerous hedge funds for the Black Diamond Ponzi Scheme, an investment fraud scheme that deprived 400 victims of more than $40 million. Davey collected over $11 million from victims with his own hedge fund, by falsely stating that he had done proper due diligence on Black Diamond and that he was operating a legitimate hedge fund with significant safeguards. As the Black Diamond scheme began to collapse, Davey and others started a derivative Ponzi scheme and collected over $5 million from new victim investors, and used the new victim money to make payments to old investors and to themselves. Davey was one of 11 conspirators sentenced in the Black Diamond Ponzi scheme. The conspirators’ prison terms ranged from six months to 40 years.
• United States v. Femenia, et. al.: John W. Femenia, a former Wells Fargo investment banker, and three of his conspirators were sentenced in February 2015 to prison terms ranging from 6 to 60 months, arising from their participation on an insider trading conspiracy. From March 2010 to December 2012, Femenia, Roger A. Williams, Kenneth M. Raby, Aaron M. Wens, Frank M. Burgess, Jr., and James A. Hayes conducted illegal insider trading activities based on stolen material non-public information, including information on Wells Fargo and its clients’ upcoming corporate mergers and acquisitions.
• United States v. Gandy et. al.: Terry Gandy was sentenced in December 2014 to 57 months in prison for stealing over $2 million from more than 30 investors. Gandy mainly targeted his former co-workers at Philipp Morris and solicited funds from them, promising rates of 20% to 30% annual rates of return. Gandy used the victims’ money to fund his own personal lifestyle, including luxury hotels, multiple trips to Las Vegas, cash withdrawals at Las Vegas casinos, luxury cars, and to pay purported “profits" to other investors who asked for their money. To support his fraudulent scheme, Gandy provided his victims false account statements depicting bogus and over-inflated account balances. His conspirator, John Reid Perkins, was sentenced to 64 months in jail for his role in the scheme.
• United States v. Hunter: Toby Hunter is scheduled to be sentenced on May 6, 2015, for his role in securities fraud scheme that was part of the racketeering conspiracy related to the Operation Wax House investigation. Hunter and his conspirators targeted professional athletes and doctors as well as their personal and professional acquaintances and convinced them to invest in a series of sham corporations controlled by the Enterprise. They collectively stole over $27 million from more than 50 investor victims, including monies that the investor victims were induced to obtain as loans from financial institutions. The Enterprise used the victims’ money to finance its mortgage fraud operations and to support its members’ lifestyles.
• United States v. Mason: James Mason pleaded guilty in June 2014 to conspiracy to commit securities fraud and tax evasion for running a $5 million foreign currency investment fraud. Mason used most of investor victims’ money for his personal and familial living expenses, including purchasing a $435,000 home for his daughter and a $52,000 Lincoln vehicle for himself. Mason, who did not inform his investors about his 2000 federal wire fraud conviction, unsuccessfully invested a small amount of investor money. He currently awaits sentencing.
• United States v. McDougal: Claude Darrell McDougal pleaded guilty in July 2014 to securities fraud for orchestrating a Ponzi scheme and defrauding his victims of over $2.5 million. From 2006 to 2010, McDougal induced over 25 investors from Charlotte and elsewhere by promising their money would be invested in securities, in the form of promissory notes offered by US Financial Alliance Consultants, LLC (Financial Alliance). McDougal created the Charlotte-based company in 2005, but it was never registered as a dealer of securities in North Carolina or elsewhere. McDougal was also not registered to sell securities in North Carolina or another state. McDougal is awaiting sentencing.
• United States v. Rand: Michael Rand was sentenced in April 2015 to 120 months in prison on conspiracy and obstruction of justice charges in connection with federal investigation into a seven-year accounting fraud conspiracy at Beazer Homes USA, Inc. (“Beazer"). Rand was Beazer’s Chief Account Officer and directed an accounting fraud conspiracy to falsify reported profits at Beazer by lying to Beazer’s auditors, fraudulently achieving earnings targets, falsifying Beazer’s books and records, and deceiving the public by boosting and lowering company earnings. Rand was convicted of wire fraud conspiracy, conspiracy to commit securities fraud, to make false and misleading statements to auditors and accountants, to circumvent Beazer’s internal accounting controls, and to falsify the books, records, and accounts of Beazer.
• United States v. Shepherd: James Alexander Shepherd was sentenced in February 2015 to 84 months in prison for defrauding more than 100 investors of over $6 million. From 2006 to 2013, Shepherd defrauded investors, primarily in Union County, of approximately $6 million. Shepherd carried out the fraud by promising his victims returns on their investments in funds he owned and controlled, among other things. In about 2006, Shepherd began misappropriating some of the investors’ money and used it to pay other investors, to trade in his personal accounts, and to fund the operations of a newsletter he distributed nationwide. Shepherd also used the money to fund his personal lifestyle, including to pay for a $2 million home.
• United States v. Wright: C. David Wright was sentenced to 48 months in October 2014 for running a $1 million Ponzi scheme that he referred to as a “Commodity Investment Group." Wright told investors that he invested in hedge funds, commodities, and Quick Trip service stores. In reality, Wright diverted victim money to a side-business he owned, used it to make Ponzi payments, and to fund his own lifestyle.
• Bank of America Residential Mortgage-Backed Securities (RMBS): In addition to collaborating on criminal enforcement matters, the U.S. Attorney’s Office and the SEC brought a historic civil fraud suit against Bank of America in August 2013 concerning an $850 million mortgage securitization. As part of the historic $16.65 billion settlement reached in August 2014, Bank of America acknowledged that it marketed this securitization as being backed by bank-originated “prime" mortgages that were underwritten in accordance with its underwriting guidelines, when, in fact, Bank of America knew that a significant number of loans in the security were “wholesale" mortgages originated through mortgage brokers. The bank sold these RMBS to federally backed financial institutions without conducting any third party due diligence on the securitized loans and without disclosing key facts to investors in the offering documents filed with the SEC.
“Our annual meeting provides an opportunity to renew and strengthen ties with our regulatory and law enforcement partners. As a member of the group, I am proud of the work we’ve accomplished," said Assistant U.S. Attorney (AUSA) Mark T. Odulio, who represents the U.S. Attorney’s Office in the working group.
For tips on how to identify investor scams and for additional information on investor fraud please visit: www.stopfraud.gov.
Source: U.S. Department of Justice, Office of the United States Attorneys
