Financial Fraud Enforcement Task Force Announces Regional Results of Operation Broken Trust, Targeting Investment Fraud
|U.S. Attorney’s Office December 06, 2010|
SACRAMENTO, CA—Following an announcement today by Attorney General Eric Holder in Washington, D.C., representatives of the Financial Fraud Enforcement Task Force in Sacramento, including U.S. Attorney Benjamin B. Wagner, FBI Acting Special Agent in Charge Michelle Klimt, and IRS-Criminal Investigation Special Agent in Charge Scott O’Briant, announced the regional results of Operation Broken Trust, a nationwide operation, which targeted investment fraud in the Eastern District of California 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 August 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.
During the takedown period for Operation Broken Trust, from August 16, 2010, to the present, charges were filed in six cases in the Eastern District of California, charging 13 defendants with felony investment fraud offenses. These 13 defendants are allegedly responsible for defrauding at least 250 persons of more than $31 million. Additional federal investment fraud cases were filed prior to the commencement of Operation Broken Trust, and many investment fraud investigations are continuing, with future charges anticipated.
“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.”
U.S. Attorney Wagner stated, “Operation Broken Trust has focused on those who peddle fraudulent investment schemes to the public. Our efforts, however, do not end today. More investigations into investment fraud are underway, and more arrests will be made. Prosecuting financial frauds that victimize small investors is a high priority with this office. Unfortunately, these schemes are all too common. Investors should be wary of investment opportunities that are presented as highly profitable and completely safe. Many fraudsters take advantage of cultural, ethnic or religious ties to their victims to engender the trust necessary to carry out these schemes.”
Kevin Baker, Acting Assistant Special Agent in Charge of the Sacramento FBI office, said, “On a day-to-day basis, we see the devastating impact that these investment fraud cases have on the victims, many of whom lose their life savings. While we often can’t recover all of the invested monies, we are committed to tracking down and bringing to justice the scamsters who engage in this type of fraud.”
“Investment fraud schemes target hardworking people with illusions of wealth. Operation Broken Trust is an example of how easy it is for investors to fall for a ‘get rich quick’ scam and lose their life savings,” said Scott O’Briant, IRS Criminal Investigation Special Agent in Charge. “IRS CI is committed to identifying and investigating those who take advantage and impact the financial well being of others for their own personal financial benefit.”
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.
Information on how to protect yourself from financial fraud, and how to report investment scams if you believe you have been victimized, is available on the Web site of the Financial Fraud Enforcement Task Force at http://www.stopfraud.gov/protect-securities.html. The site includes links to a wide array of task force resources.
The efforts to prosecute investment fraudsters in this district have been accomplished through the efforts of the Federal Bureau of Investigation, Internal Revenue Service-Criminal Investigation, United States Secret Service, and Placer County Sherriff.
Operation Broken Trust cases in the Eastern District of California included:
United States v. Barry Winnett
On December 1, 2010, Barry Winnett, 49, of Roseville agreed to plead guilty to assisting an unnamed co-schemer in the operation of a $2.9 million Ponzi scheme. Winnett’s plea agreement states that he held himself out as an escrow officer for a company he named Contour Escrow Services, despite never having had a license to perform escrow services. According to the plea agreement, twenty-two people invested money at the urging of Winnett’s co-schemer, and Winnett received and disbursed money as directed by the co-schemer. Winnett and the co-schemer both knew that they were using later investors’ money to pay earlier investors. Victims entrusted $2,975,352 to Winnett’s control, thinking that the co-schemer was using the money to invest in real estate and that Winett was a legitimate escrow officer. Bank account records show that Winnett disbursed $564,241 to the co-schemer, $160,458 to himself, and the remainder among earlier investors. Assistant United States Attorney Matthew D. Segal is prosecuting the case.
Charged 12/1/10, guilty plea filed 12/1/10, arraignment set for 12/6/10, at 2:00 p.m.
United States v. Leo Wheeler
2: 10-cr-492 GEB
Leo Wheeler, 55, of Sacramento County, was indicted by a federal grand jury on 29 counts of mail fraud related to a real estate investment scheme he operated in Lake County, Calif. The indictment alleges that Wheeler, a licensed general building contractor, operated two companies: PLK Hartman Road LLC and Providence Homes Inc. From 2005 through 2007, Wheeler solicited investors to provide money for loans to be used for a real estate development project known by the name of the “Hartman Road Project.” The money solicited from investors was purportedly intended to pay off a loan on the property and to pay for infrastructure improvements. Investors were guaranteed an 11 percent annual rate of return and six months of prepaid interest. In fact, much of the money was used by Wheeler for his own personal use and for other unrelated projects with which he was involved. To sustain his scheme, Wheeler created false invoices to document expenditures he did not actually make, had lulling interest payments made to investors, and created fictitious business entities. Assistant United States Attorney Russell L. Carlberg is prosecuting the case.
Indicted 11/24/10, status conference set for 12/17/10.
United States v. Christopher Jackson
On November 15, 2010, Christopher Jackson, 43, of Sacramento, was arraigned after being arrested on a criminal complaint charging him with wire fraud. As charged in the complaint, during the period of 2005 to 2009, Jackson, using the corporate name Genesis Innovations, recruited people to invest in real estate. The complaint further alleges that Jackson promised investors a 14 percent annual rate of return and convinced them to entrust him with their retirement savings. According to the complaint, Jackson received about $11 million dollars from investors, but only invested about $2.5 million in real estate. The complaint states that the rest of the money was used to distribute purported investment returns and to fund Jackson’s lavish lifestyle, which included a leased Lamborghini and Range Rover, a purchased BMW, frequent meals at high-end restaurants, stays at luxury hotels, and jewelry. Assistant United States Attorney Matthew D. Segal is prosecuting the case.
Charged 11/9/10, preliminary examination set for 1/18/11.
United States v. Jesse Alvin Cripps Sr.
Jesse Alvin Cripps Sr., 57, previously of Visalia, was indicted on 27 counts of mail fraud and three counts of money laundering. The indictment alleges that between July 2001 and June 2008, Cripps, who was working as a financial advisor, devised a scheme to defraud investors through various means, using his church contacts to solicit individuals to invest money with him. In most instances, Cripps offered individuals an opportunity to purportedly invest in a real estate investment trust (REIT). The indictment alleges that Cripps told investors that the REIT fund was an investment group for real estate in either Nevada or California, that the REIT fund was secured by real property, that they would earn typically 10 to 12 percent interest per month, and that if the investment did not work out, the investor would still own the property and could sell it. The indictment alleges that, as a result of Cripps’s false and fraudulent statements, investors gave him money to invest in the purported real estate investment trusts. Instead of investing, Cripps used the money for his own business and personal expenses.
The indictment also alleges that as part of his scheme to defraud, Cripps would periodically send the investors statements showing the purported progress of their investments and the interest earned to date. The defendant would also use investors’ money to pay interest amounts owed to other investors. The indictment alleges that the periodic payments and statements lulled the investors into believing in the legitimacy of their investments, brought in new investors, and avoided reporting to and detection by law enforcement. Assistant United States Attorney Michele Thielhorn is prosecuting the case.
Indicted 11/10/10, arrested in Texas, arraignment set in Fresno on 12/8/10.
United States v. James Berghuis
On September 2, 2010, James Berghuis, 38, formerly of Sacramento, was indicted and arrested on charges of mail fraud, wire fraud, and money laundering, relating to his operation of Berghuis National Lending Inc., a Sacramento mortgage and lending company. Through his company, Berghuis offered short-term bridge loans for clients that were funded by private investors. Berghuis would identify clients in need of bridge loans and act as the intermediary between the clients and investors. The indictment alleges that beginning no later than April 2005, Berghuis began making material false representations to investors and using investor funds to pay off other investors, pay business expenses, and for his own personal expenses. Assistant United States Attorney Camil A. Skipper is prosecuting the case.
Indicted 9/1/10, status conference set for 1/10/11.
United States v. Bhamani, et al.
In August, eight individuals involved in a real estate investment fraud scheme were indicted on charges of mail fraud, wire fraud, and money laundering. The defendants were charged with conducting a scheme to defraud investors of over $11.4 million through a family-run real estate development company in Sacramento that promised to use investor money to acquire real estate that would be renovated and resold for a profit or for development. Investors were promised a 12 to 15 percent annual return. According to the indictment, the defendants claimed the investments were safe because they would be secured by a deed of trust on the property in which the investor would be in no worse than second or third position, and that the indebtedness on the property would never exceed 70 percent of the value of the property. In fact, the company acquired the properties through 100 percent financing from private lenders, frequently had multiple investor names on the title, and was leveraged by as much 300 to 400 percent. The indictment also alleges that the company operated like a Ponzi scheme in that the source of the funds used to make interest payments to investors was not from profits but rather from money obtained from new investors. Assistant United States Attorney R. Steven Lapham is prosecuting the case.
Indicted 8/12/10, status conference set for 2/17/11.
The charges are only allegations and a defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt.