Ponzi Scheme Operator Sentenced to More Than Six Years on Securities Fraud Charges
Claude Darrell McDougal, 56, formerly of Charlotte, was sentenced today to 78 months in prison for orchestrating a Ponzi scheme that defrauded his investor victims of over $2.5 million, announced Jill Westmoreland Rose, Acting U.S. Attorney for the Western District of North Carolina. U.S. District Judge Max O. Cogburn, Jr. also ordered McDougal to serve two years under court supervision after he is released from prison and to pay $2,020,078.26 as restitution to the victims of his fraud.
North Carolina Secretary of State Elaine F. Marshall and John A. Strong, Special Agent in Charge of the Federal Bureau of Investigation (FBI), Charlotte Division join Acting U.S. Attorney Rose in making today's announcement.
According to court documents and today's sentencing hearing, from 2006 to 2010 McDougal induced over 25 investors in Charlotte and elsewhere to invest more than $2.5 million, by promising his victims their money would be invested in securities, in the form of promissory notes offered by "U.S. Financial Alliance Consultants, LLC" (Financial Alliance).
McDougal created Charlotte-based Financial Alliance in 2005, a company that was never registered as a dealer of securities in North Carolina or elsewhere, according to court records.
Also, according to court records, McDougal was not registered to sell securities in North Carolina or in any other state, following termination from his previous employer in August 2009.
Court documents show that McDougal induced his victims to invest with Financial Alliance by falsely "guaranteeing" fixed rates of return between 6% and 15% annually.
McDougal collected over $2.5 million dollars from victim-investors, many of whom were elderly and invested most, if not all, of their life-savings with him. Instead of investing the victims' money as promised, McDougal squandered it. According to court records, over the course of the three-year scheme, McDougal invested only $580,000 of the victims' money and used approximately $450,000 to pay some victims supposed “payouts” from profits made on investments. However, these payments were not based on profits, but came from funds contributed by new investors, commonly referred to as "Ponzi" payments. Court records show that McDougal used approximately $1.19 million of the investors' funds to support his own lifestyle, including to buy dinners, jewelry, and electronics, and to pay for hotel stays, furniture and other business-related expenses. McDougal pleaded guilty to securities fraud in July 2014.
Following the sentencing hearing McDougal was released on bond. He will be ordered to report to the Federal Bureau of Prisons upon designation of a federal facility. All federal sentences are served without the possibility of parole.
The case was investigated by the North Carolina Secretary of State, Securities Division, with assistance from the FBI's Charlotte Division.
Special Assistant U.S. Attorney Kevin M. Harrington prosecuted the case. Mr. Harrington is an Enforcement Attorney with the North Carolina Department of Secretary of State, Securities Division, and was appointed to serve as a Special Assistant United States Attorney (SAUSA) with the U.S. Attorney’s Office in Charlotte in September 2011. The SAUSA position reflects the partnership between the North Carolina Securities Division and the United States Attorney that helps ensure the effective and vigorous prosecution of white collar criminals, particularly in the area of securities fraud. The charges were brought in connection with the president's Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys' offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.