Former Chief Operating Officer Pleads Guilty in $132 Million Scheme to Defraud Clients of Funds Allegedly Held in Trust
| U.S. Attorney’s Office January 06, 2009 |
WASHINGTON - A former chief operating officer of Investment Properties of America, based in Richmond, Va., pleaded guilty today to conspiring to commit mail and wire fraud and to making a material false statement to federal investigators, Acting Assistant Attorney General Matthew Friedrich of the Criminal Division and Acting U.S. Attorney Dana Boente for the Eastern District of Virginia announced.
On July 10, 2008, a federal grand jury returned a superseding indictment against Lara Coleman, 40, for her role in a scheme to defraud and obtain millions of dollars in client funds held by the 1031 Tax Group (1031TG), a qualified intermediary company owned by the same person who owned Investment Properties of America.
Coleman, a resident of Houston, entered the guilty plea in U.S. District Court in Richmond before U.S. District Judge Robert E. Payne. Coleman pleaded guilty to one count of the superseding indictment that charged her with conspiracy to commit mail and wire fraud and to a one-count information charging her with making a material false statement to federal investigators.
According to the plea agreement and statement of facts, Coleman and others used 1031TG and its subsidiaries in a scheme to obtain millions of dollars of client funds by false pretenses. Section 1031 of the Internal Revenue Code allows investment property owners to defer the capital gains tax that would otherwise be due on properties sold, if the proceeds are used to purchase new property in a specified time frame. To facilitate such exchanges, investment property owners deposit the proceeds from the sale of their property with qualified intermediaries and sign exchange agreements, which include various promises by the qualified intermediaries to clients regarding the safekeeping of exchange funds in trust.
In the plea agreement and statement of facts, Coleman admitted that 1031TG falsely represented that it would hold client funds solely to complete the clients’ 1031 exchanges. Coleman admitted that after obtaining clients’ exchange proceeds with that false promise, she and others misappropriated approximately $132 million in client funds to support the lavish lifestyle of the owner of 1031TG, pay operating expenses for the owner’s various companies, invest in commercial real estate and purchase additional qualified intermediary companies to obtain access to additional client funds. In addition, Coleman admitted that she lied to federal investigators about statements that she had made in 2006 to internal attorneys for Investment Properties of America about the amount of money that she and others had misappropriated.
Coleman has agreed, under the terms of the plea, to a sentence of 10 years in prison. At sentencing, scheduled for May 1, 2009, she also faces a $500,000 fine. In addition, the indictment seeks forfeiture of all funds and assets owned by Coleman that were derived from or connected to the misappropriation of the approximately $132 million in 1031TG funds.
In related cases, Robert D. Field II and Richard E. Simring have pleaded guilty to participating in the conspiracy to defraud 1031TG customers. Field was the chief financial officer and Simring was the chief legal officer of a holding company that was set up, in part, to oversee both Investment Properties of America and 1031TG, however neither company was ever officially made a subsidiary of the holding company. Both men are also scheduled to be sentenced on May 1, 2009.
This case is being prosecuted by Assistant U.S. Attorney Michael S. Dry for the Eastern District of Virginia and Trial Attorney Brigham Cannon of the Criminal Division’s Fraud Section. This continuing investigation is being conducted by the U.S. Postal Inspection Service, Internal Revenue Service.