Financial Fraud Enforcement Task Force Announces Regional Results of Operation Broken Trust, Targeting Investment Fraud
|U.S. Attorney’s Office December 06, 2010|
HOUSTON—Following an announcement today by Attorney General Eric Holder in Washington, D.C., United States Attorney José Angel Moreno announced the regional results of Operation Broken Trust, a nationwide operation conducted by his office and members of the Financial Fraud Enforcement Task Force which targeted investment fraud in the Southern District of Texas and throughout the country. Operation Broken Trust is the first nationwide operation of its kind to target a broad array of investment fraud schemes that directly prey upon the investing public.
The interagency Financial Fraud Enforcement Task Force (FFETF) was established by the President to lead an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. Starting on Aug. 16, 2010, to date Operation Broken Trust has involved enforcement actions against 343 criminal defendants and 189 civil defendants for fraud schemes involving more than 120,000 victims throughout the country. The operation’s criminal cases involved more than $8.3 billion in estimated losses and the civil cases involved estimated losses of more than $2.1 billion. In the Southern District of Texas, the four-month enforcement period of Operation Broken Trust resulted in two criminal cases being prosecuted involving alleged investment fraud schemes affecting no less than 150 victims and victim losses of approximately $23.5 million combined.
“With this operation, the Financial Fraud Enforcement Task Force is sending a strong message,” said Attorney General Holder. “To the public: be alert for these frauds, take appropriate measures to protect yourself, and report such scheme to proper authorities when they occur. And to anyone operating or attempting to operate an investment scam: cheating investors out of their earnings and savings is no longer a safe business plan—we will use every tool at our disposal to find you, to stop you, and to bring you to justice.”
“If it sounds too good to be true, then it probably is,” said U.S. Attorney Moreno. “Even before Charles Ponzi, the namesake for this type of confidence scheme, made this type of investment fraud infamous during the 1920s, unsuspecting investors have fallen prey to schemes that promise extraordinary and consistent returns on their investments. Investors should be leery of ‘proprietary or secret’ investment strategies that offer them, or a small group of investors, the ‘privilege’ of participating in these types of schemes. This office is committed to the aggressive prosecution of financial frauds and to the recovery of victims’ losses.”
The president’s FFETF 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. For more information on the task force, visit StopFraud.gov.
In the Southern District of Texas the FFETF member agencies responsible for the investigations leading to charges include the FBI who participated in both cases, Internal Revenue Service - Criminal Investigations, Securities and Exchange Commission and the Commodities Futures Trading Commission.
Operation Broken Trust cases in the Southern District of Texas include:
United States vs. James Watson, (Cause No. 4-10-cr-329-S)
“The Texas Music Festival Scam”
Indicted in May 2010, James Watson pleaded guilty to a superseding information on Nov. 30, 2010, to conspiracy to commit bank fraud admitting that he kited a $400,000 check to Bank of America that was part of a scheme where Watson bilked at least 18 investors, including a 92-year-old woman and her 72-year-old daughter, of at least $2.5 million by posing as a successful concert promoter. The superseding information alleges Watson made fraudulent misrepresentations to investors he solicited for the “Texas Music Festival,” which was to be held in Houston between Aug. 30 and Sept. 1, 2008. In reality, Watson had an extensive criminal history and was on federal supervised release after completing a prison term imposed following a 2002 conviction in the Eastern District of California for engaging in essentially the same scam related to the Sacramento Jazz Festival in California. Watson falsely told investors that a charity would be holding the ticket receipts for the concert and promised investors not only return of their investment, but a substantial profit. In actuality, Watson siphoned investor funds to bankroll an extravagant lifestyle, withdrew the $400,000 from Bank of America from the check kite and disappeared on what was supposed to have been the third day of the Texas Music Festival without paying the artists, vendors or police officers working the event, nor the investors. Assistant U.S. Attorney Belinda Beek is prosecuting this case. As a result of the Texas Music Festival scam, the district court in the Eastern District of California revoked Watson’s term of supervised release in Decemeber 2008 and handed down a 28-month term of imprisonment and is requiring Watson to pay the balance of $399,837 in restitution to investors previously ordered. Watson is pending sentencing in the Southern District on this charge on Feb. 18, 2011, and faces an additional 60 months imprisonment as well as court ordered restitution.
United States vs. Robert David Watson (Cause No. 4:10-cr-796)
“The Alpha One Scam”
On Nov. 16, 2010, a Houston grand jury indicted Robert David Watson (no relation to James Watson), charging him with securities fraud, mail fraud, wire fraud, and money laundering arising from an investment scheme in which approximately 132 victims from numerous states were allegedly defrauded of approximately $21 million. According to the indictment, since at least 2003 through May 2009, Watson raised approximately $42 million from more than 130 investors under the pretense that he was to use the money to trade, including buying and selling foreign currencies. Watson allegedly persuaded people to invest or remain invested in his enterprises claiming he sought profits from foreign currency markets using a model called Alpha One. Among other things, the indictment alleges Watson falsely represented to investors that Alpha One earned high historical returns since 2000, never had a losing month and earned an annualized returned of 23.04 percent between June 2006 and February 2009. In actuality, according to the indictment, Watson executed a minimal number of trades and earned little profits. Nonetheless, he allegedly caused periodic sham account statements to be sent to investors via the U.S. Mail or via wire communications or electronically that purported to track returns from trading profits and prepared phony statements of trading activity and bank accounts. When investors withdrew supposed returns or their principal investments, Watson allegedly caused funds raised from other investors, not profits, to be used to cover the withdrawal. According to the indictment, Watson did minimal trading but paid himself the lucrative sum of approximately $500,000 or more annually during the course of the scheme. On or about May 14, 2009, one week before the SEC obtained an injunction shutting down his enterprises and placing them into receivership, the indictment alleges Watson purchased a $33,000 diamond ring with investor funds. Assistant U.S. Attorney Stephen Corso is prosecuting the case. Robert Watson is pending trial on Jan. 18, 2011, and is presumed innocent unless and until convicted through due process of law. If convicted of any of the fraud charges, Robert Watson faces a maximum statutory punishment of 20 years’ imprisonment. The money laundering charge carries a maximum punishment of 10 years’ imprisonment.
As a part of Operation Broken Trust, the task force is making the public aware of resources available to protect against these types of fraud and how to report fraud when it occurs. To learn more about investment scams, how to take steps to protect yourself from scams, or how to report investment fraud if you believe you have been victimized, the task force recommends that you visit its website, StopFraud.gov, which includes links to a wide array of task force member resources.