Orange County Man Pleads Guilty in Two-Pronged Ponzi Scheme That Caused Scores of Investors to Lose More Than $14 Million
LOS ANGELES—An Orange County man who operated a Ponzi scheme that featured false promises of large returns to victims who invested in debt obligations and distressed real estate pleaded guilty today to federal mail fraud and wire fraud charges.
William Donnelly Yotty, 69, who currently resides in Monarch Beach, but during the course of the scheme lived in Lodi, California, pleaded guilty to the two felony counts before United States District Judge Margaret M. Morrow.
Yotty, who has been held without bond since being arrested in this case in May 2014, faces a statutory maximum sentence of 40 years in federal prison when he is sentenced by Judge Morrow on November 23.
In a plea agreement filed last week in United States District Court, Yotty admitted that he ran several Lodi-based companies that offered bogus investments in corporate debt obligations and in distressed real estate that he and his salespeople said could be “flipped” for substantial profit.
In the first scheme, which ran from the spring of 2007 through 2009, Yotty and his associates “offered victims investments in convertible debentures (CDs), promissory notes and other financial instruments that defendant falsely and fraudulently represented and promised were safe and secure and would pay substantial interest,” according to the plea agreement. Using companies he operated under the names Global Capital Associates, Inc.; Infostar Systems, Inc.; Pacific Financial Solutions, Inc.; and The Money People, Inc., Yotty solicited money from victims by promising annual interest rates as high as 25 percent. Yotty and salesmen working for him told prospective investors that the companies issuing the debt had sufficient income to pay the promised interest on the investments, and that the capital investment would be returned when the notes matured.
“In fact, as defendant then well knew, the returns were not guaranteed and the investors’ principal was not secure because the only way defendant could fund the ‘interest’ payments he promised to investors was with other investors’ money,” Yotty admitted in his plea agreement.
In the second scheme, which was run through a company he called Fortuno, Inc. and took place during roughly the same time at the first scheme, Yotty offered victims the opportunity to purchase foreclosed real estate at below-market prices, which would allow them to resell, or “flip,” the properties at two or three times their purchase price. In fact, Yotty himself was flipping the properties to the investors at substantial profits for himself. Yotty concealed from the investors that the price they were paying for the properties was double or triple what Fortuno had paid, and that this inflated price would prevent the victims from realizing any profit of their own. As a further inducement to invest in Fortuno, Yotty and his salespeople also falsely promised victims that the properties were in livable condition and that Fortuno would manage the properties until the promised resale.
Yotty and others involved in the scheme raised more than $10 million in the debt obligation scheme, and more than $6 million in the real estate flipping scheme. When the schemes collapsed, approximately 240 investors lost over $14 million.
The investigation into Yotty’s Ponzi scheme was conducted by the Federal Bureau of Investigation.