Danbury Investment Adviser Pleads Guilty to Stealing from Clients in Ponzi Scheme
|U.S. Attorney’s Office September 13, 2012|
David B. Fein, United States Attorney for the District of Connecticut, today announced that STEPHEN B. BLANKENSHIP, 63, of New Fairfield, waived his right to indictment and pleaded guilty yesterday before United States District Judge Vanessa L. Bryant in Hartford to mail fraud and securities fraud charges stemming from a long-running scheme to defraud investors of hundreds of thousands of dollars.
“Over the course of several years, this defendant deceived investors into entrusting him with their funds, and then into believing their funds were safe and their investment accounts were appreciating,” stated U.S. Attorney Fein. “All along, he was using those funds to pay business and personal expenses, and to pay other investors as part of a Ponzi scheme. Investor fraud is a serious and growing national problem, and the Department of Justice and our law enforcement partners are committed to uprooting these schemes and prosecuting those who perpetrate them. I commend the FBI, SEC, Connecticut’s Department of Banking, and the Danbury Police Department for investigating this matter and shutting down this unscrupulous investment adviser.”
According to court documents and statements made in court, BLANKENSHIP owned and operated Deer Hill Financial Group, LLC, in Danbury, which he represented to be an investment management firm in the business of managing client funds and buying and selling securities on behalf of clients. However, at no time was Deer Hill Financial Group registered with the Securities and Exchange Commission (“SEC”) as an investment company, investment adviser, broker-dealer, or in any other capacity.
From approximately 2002 to March 2012, BLANKENSHIP falsely represented to numerous individuals that he had investment opportunities that were safe and would pay a consistent return to investors. BLANKENSHIP had been affiliated with registered broker-dealers in California and New York, and many of his victims were his prior customers. BLANKENSHIP’s false representations to his victims included that Deer Hill was being operated as a legitimate investment management firm, that investors could obtain a greater rate of return by withdrawing money from their existing brokerage accounts and investing directly with him, and that funds would be invested in publicly-traded mutual funds or established securities. In fact, there were no actual investments or investment opportunities, the money was not invested in publicly traded mutual funds, nor was it invested in established securities. BLANKENSHIP failed to invest the money as represented and instead used the victims’ funds to pay business expenses and personal expenses for travel, grocery shopping, credit card payments, mortgage payments, and improvements on his home.
In order to create the appearance of legitimacy, BLANKENSHIP sent investors fraudulent account statements reflecting fictitious holdings, fictitious transactions, fictitious prices for the securities, and phony balances, all of which were intended to convince investors that their money was secure and appreciating. BLANKENSHIP also falsely represented to his victims that he could achieve—and was achieving—a consistent and positive return on the invested funds when, in fact, he was not achieving such returns. He also used a portion of the victim-investors’ funds to make fraudulent lulling payments to other victim-investors to create the appearance that there were actual investment returns.
Through this scheme, BLANKENSHIP defrauded at least eight investors of more than $500,000.
BLANKENSHIP pleaded guilty to one count of mail fraud and one count of securities fraud. Judge Bryant has scheduled sentencing for December 5, 2012, at which time BLANKENSHIP faces a maximum term of imprisonment of 20 years on each count.
In a parallel action, the SEC today filed a complaint alleging that BLANKENSHIP and Deer Hill violated the antifraud provisions of the federal securities laws and acted as unregistered brokers. The complaint seeks disgorgement of ill-gotten gains plus prejudgment interest, monetary penalties, and the entry of a permanent injunction against BLANKENSHIP.
This matter is being investigated by the Federal Bureau of Investigation, the Securities and Exchange Commission, the State of Connecticut Department of Banking, and the Danbury Police Department. The case is being prosecuted by Assistant United States Attorney Michael S. McGarry.
In December 2010, the U.S. Attorney’s Office and several law enforcement and regulatory partners announced the formation of the Connecticut Securities, Commodities and Investor Fraud Task Force, which is investigating matters relating to insider trading, market manipulation, Ponzi schemes, investor fraud, financial statement fraud, violations of the Foreign Corrupt Practices Act, and embezzlement. The task force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service-Criminal Investigation; U.S. Secret Service; U.S. Postal Inspection Service; U.S. Department of Justice’s Criminal Division, Fraud Section, and Antitrust Division; U.S. Securities and Exchange Commission (SEC); U.S. Commodity Futures Trading Commission (CFTC); Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP); Office of the Chief State’s Attorney; State of Connecticut Department of Banking; Greenwich Police Department; and Stamford Police Department.
Citizens are encouraged to report any financial fraud schemes by calling, toll free, 855-236-9740, or by sending an e-mail to firstname.lastname@example.org.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) 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.
To report financial fraud crimes, and to learn more about the President’s Financial Fraud Enforcement Task Force, please visit www.stopfraud.gov.
On October 1, 2012, the U.S. Department of Justice and the Securities and Exchange Commission are hosting the Northeast Region Investor Fraud Conference. The conference, at the University of Connecticut - Stamford Campus from 9:00 a.m. to 1:00 p.m., is open to members of the community, law enforcement, victim advocates, and others interested in detecting and combating an unprecedented rise in Ponzi and other investment fraud schemes that involve thousands of victims and billions of dollars of losses. Conference participants include U.S. Attorneys from Connecticut, Massachusetts, New Jersey, and New York, as well as senior officials from the SEC, FBI, CFTC, and other financial fraud enforcement and regulatory agencies.