Former CEO and CFO of Hanover Corporation Indicted in $18 Million Ponzi Scheme
|U.S. Attorney’s Office November 05, 2009|
NASHVILLE, TN—United States Attorney Edward M. Yarbrough; My Harrison, Special Agent in Charge, Memphis Division, Federal Bureau of Investigation; Chris Pikelis, Special Agent in Charge, Nashville Field Office, Internal Revenue Service-Criminal Investigation; and Ronald Waller, Supervisory Postal Inspector, Atlanta Division-Nashville Domicile, United States Postal Inspection Service, announced today the indictment of Terry Kretz, the former Chief Executive Officer of Hanover Corporation, LLC (“Hanover”), and Robert Haley, the former Chief Financial Officer of Hanover, on charges stemming from an $18 million Ponzi scheme that they allegedly perpetrated from approximately January 2004 to August 2006. Kretz, 56, of Lebanon, Tennessee, and Haley, 50, of Gallatin, Tennessee, were both charged with one count of conspiracy, one count of securities fraud, one count of wire fraud, four counts of mail fraud, and seven counts of money laundering in an indictment returned by the grand jury on November 4, 2009. In addition, Kretz was also charged with one count of false statements to a bank.
According to the indictment, Hanover was an investment firm that purported to invest in stock options, real estate, equity shares of companies, and other securities, largely through it’s own in-house trading room. Clients who invested with Hanover generally did so through a promissory note. Under those notes, clients provided Hanover a set amount of funds (referred to in the notes as a “loan”), which Hanover employees could invest in any of several ways described in the note. In return, the clients were promised regular returns (referred to as “interest”) and, upon maturity of the note, their original investment back.
To induce clients to invest with Hanover, Kretz and Haley made various misrepresentations about the financial condition of Hanover and how client funds would be invested. For example, Kretz falsely represented to clients, orally or in promissory notes, that funds would be only invested in the ways described in the promissory-note agreements and that the funds were guaranteed. Kretz and Haley also attracted clients by grossly exaggerating the strength of Hanover’s financial condition and holdings, as well as the financial and operational status of the start-ups in which it was investing. In addition, Kretz and Haley falsely claimed to clients that Hanover’s trading room was making significant investment gains when, in reality, it had been generally unsuccessful, and most clients had lost money during this time period. Kretz and Haley also never told any clients that their funds would be used to pay clients who had invested before them or, conversely, that any returns they received would come from funds of clients who invested after them.
According to the indictment, contrary to their promises and without any clients’ knowledge, Kretz and Haley did in fact use most of the client funds to make periodic “interest” payments (or to pay back the principal) on other clients’ investments. Kretz and Haley also used part of the client funds for their own personal benefit to pay their salaries, to purchase real estate, and for other purposes. By sending earlier clients the expected “interest” payments (payments that were really just funds received from new investors) Kretz and Haley preserved the illusion of success, thereby inducing new clients to invest and preventing existing clients from demanding return of their money, until the scheme ultimately collapsed. The proceeds of the overall scheme are alleged to exceed $18 million.
United States Attorney Ed Yarbrough commented: “The lengthy scheme perpetrated by these defendants had a devastating effect on victims in Middle Tennessee and elsewhere. While multi-million-dollar investment frauds like this one have, unfortunately, become all too common, the United States Attorney’s Office and its law-enforcement partners will continue to investigate those who perpetrate such scams and bring them to justice. The United States Attorney’s Office thanks the many law-enforcement agencies involved in this case for their hard work on this lengthy and complex investigation.”
The case was investigated by agents with the Federal Bureau of Investigation, the Internal Revenue Service-Criminal Investigation, and the United States Postal Inspection Service. The United States is represented by Assistant U.S. Attorney Ty Howard.
The public is reminded that an indictment is merely an accusation and is not evidence of guilt. All defendants are presumed innocent unless and until proven guilty in a court of law.