Federal Judge Sentences the Last Defendant in $40 Million Ponzi Scheme to 21 Years in Prison
CHARLOTTE, NC—On Thursday, January 15, 2015, U.S. District Judge Robert J. Conrad, Jr. sentenced Jonathan D. Davey, 50, of Newark, Ohio to 252 months in prison for his role in Ponzi scheme that defrauded victims of more than $40 million, announced Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina. Judge Conrad also ordered the defendant to spend three years under court supervision upon his release from prison and to pay $21,815,407.44 as restitution. In February 2013, after deliberating for 45 minutes, a federal jury convicted Davey of securities fraud conspiracy, wire fraud conspiracy, money laundering conspiracy and tax evasion.
U.S. Attorney Tompkins is joined in making today’s announcement by John A. Strong, Special Agent in Charge of the Federal Bureau of Investigation (FBI), Charlotte Division, and Thomas J. Holloman, III, Special Agent in Charge of the Internal Revenue Service—Criminal Investigation Division (IRS-CI).
According to filed court documents and today’s sentencing hearing:
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, “Divine Circulation Services,” 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, when, in reality, neither claim was true. As the Black Diamond scheme began to collapse, Davey and other hedge fund managers started a derivative Ponzi scheme using a so-called “cash account” that Davey controlled. Davey and his coconspirators collected over $5 million from new victim investors for the cash account and used the new victim money to make payments to old investors and to themselves.
As administrator for the scheme, Davey controlled most funds and wires and published a website for victims that reflected fake high returns. By the end of the scheme, the website falsely reflected over $120 million in supposed value for victim-accounts, when Davey and the hedge fund managers in reality had less than $1 million total in their accounts. Davey also used an elaborate network of shell companies to evade taxes and commit money laundering with the proceeds of the Ponzi scheme. For example, Davey used an offshore shell company in Belize to funnel victim money to build his mansion in Ohio.
In handing down the 21-year sentence, Judge Conrad stressed that Davey’s conduct, “was driven by greed that the Court rarely sees.” Judge Conrad further noted that, “from the beginning, in different ways, Davey lied to people for obtaining their money.”
Judge Conrad also stressed that the 21-year sentence reflected the effects of the fraud on the hundreds of elderly and vulnerable victims and that Davey’s conduct caused “life wrecking damage” and caused victims to lose “life savings, trust, faith, and their sense of dignity.” Finally, Judge Conrad found that “there are real life consequences of evil present in this case and the defendant was personally responsible for those consequences.”
Davey was remanded into federal custody following the sentencing hearing to immediately begin serving his prison sentence. He will be transferred to the custody of the Federal Bureau of Prisons upon designation of a federal facility. All federal sentences are served without the possibility of parole.
The other 10 defendants sentenced in this case are:
• Keith Franklin Simmons was re-sentenced to 40 years in prison in December 2014, following Simmons appeal.
• Bryan Keith Coats was sentenced to 15 years in prison in November 2012, which later was reduced to 13.5 years to reflect Coats’ cooperation with authorities.
• Chad A. Sloat was sentenced to 70 months in prison in September 2014.
• Jeffrey M. Toft was sentenced to 66 months in prison in September 2014.
• Deanna Ray Salazar was sentenced to 54 months in prison in May 2012.
• Michael J. Murphy was sentenced to 48 months in prison in September 2014.
• Roy E. Scarboro was sentenced to 26 months in prison in May 2011.
• Jeffrey M. Muyres was sentenced to 23 months in prison in January 2012.
• James D. Jordan was sentenced to 18 months in prison in June 2011.
• Stephen D. Lacy was sentenced to six months in prison in May 2011.
In April 2011, a criminal bill of information and a Deferred Prosecution Agreement were filed against CommunityONE Bank, N.A., related to its failure to file a suspicious activity report (SAR) about the Black Diamond scheme and failing maintain an effective anti-money laundering program. The bank agreed to pay $400,000 toward restitution to victims of the Ponzi scheme that operated through accounts maintained at the bank.
Assistant United States Attorneys Kurt W. Meyers and Mark T. Odulio of the Western District of North Carolina prosecuted the case. The FBI and IRS handled the investigation. U.S. Attorney Tompkins also thanked the U.S. Commodity Futures Trading Commission for their assistance in the investigation.