Financial Fraud Enforcement Task Force Announces Regional Results of Operation Broken Trust, Targeting Investment Fraud
|U.S. Attorney’s Office December 06, 2010|
NASHVILLE, TN—Following an announcement today by Attorney General Eric Holder in Washington, D.C., representatives of the Financial Fraud Enforcement Task Force in Nashville, including U.S. Attorney Jerry E. Martin; Martin P. Phanco, Inspector in Charge, United States Postal Inspection Service; Amy S. Hess, Special Agent in Charge of the FBI’s Memphis Division; Sarah Beth Pulliam, Special Agent in Charge, Nashville Division of the United States Secret Service; Christopher R. Pikelis, Special Agent in Charge, IRS Criminal Investigation-Nashville Field Office; Mark Gwyn, Director, Tennessee Bureau of Investigation; Greg Gonzales, Commissioner, Tennessee Department of Financial Institutions; Leslie Newman, Commissioner, Tennessee Department of Commerce and Insurance; Jackie Moore, Chief of Police - Franklin, Tennessee Police Department; and Ricky V. Watson, Chief of Police - Brentwood, Tennessee Police Department, announced the regional results of Operation Broken Trust, a nationwide operation which targeted investment fraud in the Middle District of Tennessee 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 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 Middle District of Tennessee the intended losses to victims totaled $20,100,000.00
“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 schemes 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.”
“Investment fraud continues to pose a significant threat to the economic stability of the U.S. economy,” said United States Attorney Jerry E. Martin. “The United States Attorney’s Office is committed to its responsibility to aggressively investigate and prosecute investment fraud and other significant financial crimes. To that end, we will continue to rely heavily on the strong relationships we have with both our law enforcement and regulatory agency partners.”
“This Operation is a great example of how the FBI works with fellow federal, state, and local agencies to target those who commit fraud and criminally manipulate financial systems for personal gain,” said Amy S. Hess, Special Agent in Charge of the FBI’s Memphis Division. “This sweep is a warning to those who are involved in or hope to commit similar crimes, that we will continue working together to bring them to justice.”
"Investment fraud is like a 'house of cards.' The underlying structure can fall apart at any time and leave many investors in financial ruin," said Special Agent in Charge Christopher Pikelis, IRS Criminal Investigation-Nashville Field Office. “The premise behind these types of schemes is simple: Promise high returns and use money from new investors to pay previous investors or to fund lavish lifestyles. IRS Criminal Investigation is committed to investigating these types of schemes in an effort to protect the financial well being of the American taxpaying public. We will continue to work with our law enforcement partners to bring perpetrators of these schemes to justice."
"The Department of Commerce & Insurance (TDCI) values its working relationship with the U.S. Attorney's office," says TDCI Commissioner Leslie A. Newman. "Many of the Tennessee fraud prosecutions were, in part, a result of the initial work of our securities division's investigation and enforcement staff. We appreciate the opportunity to partner with the U.S. Attorney's office to bring criminal actions against these bad actors."
The president’s Financial Fraud Enforcement Task Force 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.
Operation Broken Trust cases in the Middle District of Tennessee included:
United States vs. Michael J. Park—Park, 43,of Nashville, Tennessee, former Brentwood financial advisor and owner of Park Capital Management Group (“PCMG”), was indicted on charges of mail and wire fraud for operating an elaborate Ponzi scheme between September 2001 and June 26, 2008 that defrauded more than 76 investors of more than $15,000,000 in funds deposited with PCMG for investment in brokered stocks and other marketable securities. As an inducement, Park promised investors that he would generate annualized returns on investment of between 10 percent and 28 percent. However, Park never intended to invest the client funds he solicited. Instead, Park used the money placed with PCMG to subsidize a lavish lifestyle that included expensive homes, cars, and a country club membership. On September 30, 2010, Park was sentenced to 96 months in prison.
United States vs. Sheila Kennedy—Kennedy, 59, of Clarksville, Tennessee, was indicted on charges of conspiracy, money laundering, and mail and wire fraud for operating multiple investment-fraud schemes spanning several years and which included several co-conspirators and at least two separate schemes to defraud more than 100 investors. Between 2005 and 2006, Kennedy and a co-defendant solicited investors to invest in fraudulent real estate opportunities in Nevada, Kentucky, Indiana and several other states. The scheme required that investors give Kennedy and Scarborough money—often in the form of checks payable to a company operated by other co-conspirators, and, in return, receive so-called “promissory notes” or “time notes.” However, Kennedy never intended to invest the funds in real estate and no such real estate opportunities had ever existed. Instead, Kennedy converted the funds to her own personal use and for the benefit of her co-conspirators. When investors began to complain that they were not receiving returns on their investments, Kennedy devised a spin-off scheme in which she falsely represented to investors that she was about to receive an extremely large inheritance from which she would guaranty each investor’s investment. Kennedy promised the investors that if they made a renewed their investment or provided additional funds, the funds would be used to facilitate Kennedy obtaining her purported inheritance, thus entitling the investors to receive an additional return on their investments from the inheritance funds. However, no such inheritance existed and, instead, Kennedy used the fraudulently obtained investor funds to pay for hotels, gambling at casinos, spa services, clothing, and other personal purchases in New York, New Jersey, and elsewhere. On November 12, 2010, Kennedy was sentenced to 136 months in prison.
United States vs. Ann Scarborough, Kenneth Kennedy, & Phillip Russell—Scarborough, 65, Kennedy, 66, and Russell, 64, were indicted along with Sheila Kennedy on charges of conspiracy, money laundering, and mail and wire fraud for operating multiple investment-fraud schemes spanning several years and which included at least two separate schemes to defraud more than 100 investors. Kenneth Kennedy, a retired military lawyer and former elected County Attorney in Kentucky, along with Scarborough, a personal friend of Sheila Kennedy from Kentucky, and Russell, a financial advisor in Brentwood, Tennessee, conspired with Sheila Kennedy to misrepresent to investors that Sheila Kennedy was on the verge of receiving a billion-dollar inheritance from a step-grandfather from Russia who fled to the United States shortly before the Bolshevik revolution. According to the story told investors by Scarborough, Kennedy, and Russell, the inheritance had been tied up in the courts and with the Office of Comptroller of Currency for years. As the scheme progressed, Kenneth Kennedy and Ann Scarborough solicited some investors specifically for this purported inheritance, claiming that more money was needed to get the inheritance “released” or to pay related expenses. On October 21, 2010, following a two-week trial, a jury convicted Kenneth Kennedy and Ann Scarborough for their roles in the multi-million-dollar investment scam. Each faces up to 20 years in prison on the fraud offenses and up to 10 years on the money laundering offense. Defendant Phillip Russell failed to appear for trial and is currently a fugitive.
United States vs. William Walter Spencer—Spencer, 69, of Franklin, Tennessee, former Franklin financial advisor, was indicted on charges of mail and wire fraud for operating a Ponzi scheme between December 1997 and November 2009 that defrauded more than 100 friends and fellow church members of more than $1,897,718 in funds deposited with him for investment in stocks and securities. Spencer used his position as a deacon to induce members of his church to invest, and promised inflated returns of between 10 percent and 12 percent. Spencer characterized each investment as a “personal loan,” and executed and provided each investor with a promissory note. Spencer also pledged personal assets and life insurance policies as collateral for each promissory note, and promised each investor that he would repay the principal for each loan in periods ranging from six months to one year. However, Spencer did not have the liquid assets or income necessary to pay the interest promised to investors, nor to return the loan principal as each promissory note matured. On August 23, 2010, Spencer was sentenced to 78 months in prison.
United States vs. Jeffrey L. Cassman—Cassman, 34, of Nashville, Tennessee, former owner of the Cassman Financial Group, Inc., was indicted on charges of mail fraud and securities fraud for an investment-fraud scheme he operated between January 2003 and November 2005 that defrauded more than 20 investors of more than $1 million dollars. Cassman promised investors that he would invest their money in tax liens and other types of investments that were “guaranteed” or “fool proof,” and further told investors that they would receive a high rate of return. However, Cassman never intended to invest client funds in tax liens or other investments. Instead, Cassman used the funds for personal living expenses and to repay other investors to give them the false impression that the “returns” were from their investments. Cassman fled the United States and was later located living in Guatemala with his wife and 10 children. Cassman was returned to the Middle District of Tennessee on October 19, 2010 to face trial.
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, www.StopFraud.gov, which includes links to a wide array of task force member resources.