Vacuum Cleaner Distributor Sentenced to 130 Months in Ponzi Scheme
|U.S. Attorney’s Office December 21, 2011|
PORTLAND, OR—Today U.S. District Judge Garr M. King sentenced Johnny “Mickey” Brown, 59, of Beaverton, Oregon, to 130 months in federal prison following a jury trial that concluded on May 11, 2011. The federal jury found Brown guilty of all 14 counts in an indictment charging him with wire fraud, false statement to a financial institution, and tax evasion. After release from the Bureau of Prisons, Brown will serve five years on supervised release.
“The office of the United States Attorney will prosecute those who prey on the elderly and other vulnerable victims to the full extent of the law,” stated U.S. Attorney Amanda Marshall. “Brown is a con man who abused the victims in this case, both financially and emotionally. Many of the victims lost their life savings and some lost their homes. All of the victims experienced a loss of dignity and trust. We are pleased that he will be spending the next ten years in prison where he won’t be able to take advantage of anyone for a very long time.”
The evidence presented at trial proved that Johnny “Mickey” Brown fraudulently obtained credit cards from unsuspecting victims, many of whom were elderly or financially naïve, who believed they were investing in vacuum cleaner inventory for a profitable business. Once he secured the victims’ cards through false promises of no-risk dividends based upon the sale of the vacuum inventory, he immediately obtained all the available credit balance from each card. Brown did this by running the cards through a U.S. Bank Merchant Point of Sale terminal and falsely disguised each transaction as a sale of merchandise when, in fact, he didn’t sell anything at all. Each of these pretext or “fake” sales caused U.S. Bank to automatically deposit the amount of the fraudulent sale entered in the credit card machine into defendant Brown’s business bank account.
Brown used the money he obtained from his scheme for personal and business expenses. The largest business expense was the monthly debt service on 596 credit cards and payments of “dividends” to the many victim investors. These payments had to be made in order to extend the life of the Ponzi scheme. While some of the money was used to pay regular business expenses, the vast majority went to fund the scheme and for Brown’s personal use, including an elegant home and wardrobe, private education for his children, high-end vehicles, and large donations to the Living Water Christian Assembly in Albany, Oregon.
U.S. Bank froze Brown’s business accounts in March 2003. The account was frozen, not due to the credit card activity, but in response to U.S. Bank’s recognition that Brown was receiving the proceeds of, and making monthly payments on, U.S. Bank loans in excess of $232,000 to 17 customers. Brown then frantically attempted to run $1,000,000 in fake refunds on many of the hundreds of victim credit card accounts he had improperly charged. U.S. Bank’s credit card processing office detected this activity and reversed the fraudulent refunds.
At that point, Brown orchestrated a massive campaign to dispute over 1,000 prior fake sales by submitting false “credit slip” documents to the various credit card companies. Some victims cooperated with Brown’s credit slip effort, while some did not. Brown succeeded in charging back a total of $4,241,941 in fake sales to U.S. Bank. Ordinarily, merchant charge backs would have been charged against the merchant’s business account. But since Brown’s account had long since been depleted and closed, U.S. Bank was forced to absorb the full loss. Individual victims also lost significant sums of money when their credit card companies refused to credit the victim’s accounts.
While carrying out this scheme, the evidence proved that Brown was also evading the payment of federal taxes due on 1993-1995 tax returns he had signed and filed, self-assessing a total tax due of $130,871. He never paid any part of that tax. In order to evade payment of the tax debt, Brown conducted his business and bought and sold assets through nominees. In order to further hide income from the IRS, Brown ran his credit card fraud scheme by use of a credit card processing agreement and bank accounts set up in the name of an employee. He directed the employee to set up a business entity, open bank accounts and set up a merchant credit card processing agreement for his use. The employee was listed as the owner of defendant Brown’s finance company and those bank accounts as well. All of his business was done through bank accounts in the name of the employee and others.
The case was investigated by the Portland Office of the FBI, the Eugene Office of the IRS, Criminal Investigation, and by the Oregon Division of Finance and Corporate Securities.
Assistant United States Attorneys Lance Caldwell and Scott Erik Asphaug prosecuted the case on behalf of the United States.