Investment Fund Manager Pleads Guilty to Securities Fraud for Operating a $17 Million Ponzi Scheme
On Monday, November 10, 2014, James M. Peister pleaded guilty at the federal courthouse in Central Islip, New York, to securities fraud for operating a $17.9 million Ponzi scheme. Peister deceived investors about the stability and performance of their investments in a fund that he founded and managed to prevent them from seeking to redeem their interests. Pursuant to his plea agreement with the government, Peister agreed to pay $9,657,218.65 in restitution to the victims of his fraud and consented to the forfeiture of $17.9 million, which includes his residence in St. James, New York, and his Hummer sport utility vehicle. When sentenced, Peister faces up to 20 years in prison and a fine of up to $5,000,000.
The guilty plea was announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York and George Venizelos, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI).
“For nearly a decade, rather than make sound investment decisions as he had promised, James Peister fleeced dozens of investors and used their money to fund his own lavish lifestyle. When the financial crises struck in 2008 and his investor pool dried up, Peister’s carefully woven web of lies and deceit began to untangle and his scheme was revealed. Monday’s plea marks the end of Peister’s scheme and demonstrates this Office’s steadfast commitment to investigating and prosecuting fund managers who prey on the investing public,” stated United States Attorney Lynch. Ms. Lynch expressed her grateful appreciation to the FBI, the agency responsible for leading this investigation, and to the United States Securities Exchange Commission and United States Commodity Futures Trading Commission for their cooperation and assistance in the investigation.
According to court filings and facts presented at the plea hearing, between January 2000 and June 2009, Peister raised more than $17 million from at least 74 investors in connection with his investment funds: Northstar International Group Inc., North American Globex Group, and North American Globex Fund, LP. Through representations in marketing materials and other disclosures to investors and potential investors, Peister promised to invest in a variety of securities, including stocks, futures and fixed income instruments. Contrary to his purported investment strategy, Peister used new investors’ money to pay out existing investors and to finance business and personal expenses, including payments on a personal residence and a Hummer luxury sport utility vehicle. To conceal the true nature of the use of his victims’ money, Peister grossly overstated the value of the assets under his management by providing bogus financial statements to investors and to auditors. As a result, investors believed that their accounts with Peister were performing satisfactorily, and they continued to invest with him. Peister’s Ponzi scheme collapsed in the wake of the financial crisis in 2008 when he could no longer keep up with demands for redemptions from nervous investors. Since Peister’s arrest this past June, the government has seized his Hummer sport utility vehicle and restrained rental payments owed to Peister in connection with the leasing of property that was purchased with proceeds of his fraud.
Monday’s plea took place before United States District Judge Joseph F. Bianco.
The government’s case is being prosecuted by Assistant United States Attorneys Jacquelyn M. Kasulis, Jonathan P. Lax and Brian D. Morris.
This prosecution was the result of efforts by President Obama’s Financial Fraud Enforcement Task Force which was created in November 2009 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’s 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. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants. For more information on the task force, visit http://www.StopFraud.gov.