Philadelphia Businessman and New Jersey Lawyer Convicted in Manhattan Federal Court in Connection with Multiple Investment Fraud Schemes
Hundreds of Thousands in Fraud Proceeds Spent on Red Carpet Gala at Philadelphia Ritz-Carlton
|U.S. Attorney’s Office February 06, 2013|
Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (FBI), announced today that a jury found Tyrone L. Gilliams, Jr., a Philadelphia businessman, and Everette L. Scott, Jr., a New Jersey attorney, guilty yesterday afternoon on fraud charges stemming from two separate schemes. In the larger of the two schemes, the defendants solicited and misappropriated $5 million in investments in a bogus United States Treasury Strips investment program. In the other scheme, the defendants solicited and misappropriated a $450,000 investment in a Utah coal mine. In addition to buying luxury cars, jewelry, and other items, Gilliams spent hundreds of thousands of dollars of investor money organizing and promoting a multi-day festival in Philadelphia that headlined Sean “Diddy” Combs. Gilliams and Scott were convicted after a two-week trial before U.S. District Judge Deborah A. Batts.
Manhattan U.S. Attorney Preet Bharara stated, “Tyrone Gilliams may have had his 15 minutes of fame as a result of his flagrant, multi-million-dollar deception, but now he and his partner in crime face a significantly longer time to pay the price of their fraud.”
According to the Indictment and the evidence presented at trial:
In 2009 and 2010, Gilliams was the owner of TL Gilliams LLC, which purported to engage in transactions in commodities like oil and gold. Scott was an attorney at a small law firm in New Jersey and acted as TL Gilliams’s general counsel.
In the summer of 2010, Gilliams solicited $5 million dollars from two investors for purposes of trading in U.S. Treasury Strips, which are a derivative of U.S. Treasury Bonds. Gilliams and Scott arranged for the investors to make their investments by wiring them into an attorney trust account maintained by Scott’s law firm. Upon receiving the money, Scott—at Gilliams’ direction—misappropriated more than $700,000 to satisfy expenses stemming from an unrelated and failed venture to buy a coal mine in Utah. Scott also claimed $50,000 of the investment money for himself as purported fees. At Gilliams’ direction, Scott transferred most of the remainder to bank and brokerage accounts that he controlled.
At most, Gilliams purchased $250,000 worth of Treasury Strips with the more than $4 million in investment money transferred by Scott. Over a span of less than six months, Gilliams spent more than $1.6 million on an unrelated gold investment; more than $200,000 to purchase a commercial warehouse in Denver; at least $100,000 to buy or lease luxury cars; at least $50,000 for construction work on his home; at least $100,000 on luxury hotel and travel expenses; and more than $500,000 promoting both a festival called “Joy to the World” involving an album release party with Jamie Foxx at the Vault nightclub in Philadelphia, and culminating in a red carpet, black tie gala at the Philadelphia Ritz-Carlton, headlined for a $120,000 fee by Sean “Diddy” Combs; and a December 2010 comedy performance in Nassau, Bahamas, called the “Gatta Be Jokin’ Comedy Jam.”
Gilliams did not engage in any trading of Treasury Strips and, as a result, did not derive any profits. Nonetheless, during the period when he was spending investor money, Gilliams provided them with false reports of trades and profits and made occasional, nominal payments that he falsely claimed represented profits from Treasury Strips trading. Other than these purported profit payments, which totaled approximately $100,000, neither investor received any of their combined $5 million investment back.
In a separate scheme, Gilliams and Scott arranged in late 2009 for an investor to transfer $450,000 to Scott’s attorney trust account, to be held in escrow until used in connection with a venture to purchase the assets of a bankrupt Utah coal mine. Once the money was in Scott’s account, he secretly misappropriated approximately $112,000 by claiming it as purported fees, and transferred the rest to Gilliams or other individuals and entities at Gilliams’ direction. Until August 2010, Gilliams and Scott falsely assured the victim that his $450,000 remained safely in escrow, long after Scott’s escrow account had been emptied. Although the victim repeatedly demanded the return of his funds, Gilliams and Scott pacified him by producing forged bank documents and a false attorney attestation letter written by Scott purporting to show that Gilliams was in possession of the millions of dollars necessary to purchase and operate the Utah coal mine. In August 2010, after an attorney for the victim threatened Scott with professional discipline for his failure to return the escrowed funds, Gilliams and Scott paid the victim $450,000 using funds they raised for investment in Treasury Strips.
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Gilliams, 45, of Philadelphia, Pennsylvania, and Scott, 51, of Sewell, New Jersey, were each convicted of one count of securities fraud and two counts of wire fraud. Each count carries a maximum potential penalty of 20 years in prison. They also each face a maximum fine of $5 million or twice the gross gain or loss from the offense on the securities fraud count, and of $250,000 or twice the gross gain or gross loss from the offense on each wire fraud count. Gilliams and Scott are scheduled to be sentenced on September 17, 2013, at 10:30 a.m., and September 24, 2013, at 10:30 a.m., respectively, before Judge Batts.
Mr. Bharara praised the work of the Criminal Investigators of the United States Attorney’s Office and the Federal Bureau of Investigation, which jointly investigated this case. He also thanked the U.S. Securities and Exchange Commission.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The 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.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Michael A. Levy and David B. Massey are in charge of the prosecution.