Folsom Man Sentenced for Investment Fraud Scheme

SACRAMENTO, CA—United States Attorney Benjamin B. Wagner, FBI Special Agent in Charge Herbert M. Brown, and IRS Special Agent in Charge Scott O’Briant announced that today Senior United States District Judge Lawrence K. Karlton sentenced Luis Fernandez, 37, of Folsom, to four years and nine months in prison, to be followed by three years of supervised release, for running a Ponzi scheme that resulted in losses to approximately 50 victims and their families. Fernandez was also ordered to pay restitution in an amount to be determined at a subsequent hearing.

This case was the product of an extensive investigation by the Federal Bureau of Investigation and the Internal Revenue Service, Criminal Investigation. Assistant United States Attorney R. Steven Lapham prosecuted the case.

According to court documents, Fernandez was the owner and president of Fernandez Financial Inc. (FFI) in Folsom. Between September 2004 and March 2009, Fernandez collected approximately $7.4 million from investors by promising them a three percent monthly return on their money. Fernandez actually invested only about half the money he received, reserving the rest for Ponzi payments to the investors and withdrawals to himself. Of the money that Fernandez did invest he sustained losses in five of the six calendar years that the scheme operated. After subtracting monthly payments to investors totaling approximately $5.3 million, Fernandez caused a total loss to investors of approximately $2.1 million.

According to court documents, Fernandez and most of the victims of the fraud were natives of the Dominican Republic. To lure investors into the scheme, Fernandez falsely represented to investors that FFI was profitable in both good markets and bad, and that it was consistently generating a return that was sufficient to pay the promised 3 percent rate of return. To lull existing investors into keeping their money with FFI, Fernandez, and others, acting at Fernandez’s direction, concealed the losses and falsely represented that FFI continued to do well, going so far as to provide investors with false documentation purporting to show stock market gains.

Despite sustaining losses in the market, Fernandez paid himself nearly $1 million. This included a home in Folsom and a late model Corvette, both of which were purchased with investor money.

This law enforcement action is part of the work being done by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. One component of the FFETF is the national Securities Fraud Working Group, which is tasked with combating investment fraud schemes. For more information on the task force, visit StopFraud.gov.