Idaho Falls Man Indicted on Multiple Federal Charges of Fraud
Defendant’s Investment Scheme Allegedly Caused $4 Million Loss to Investors
|U.S. Attorney’s Office November 15, 2012|
BOISE—Gene Edward Hinsley, II, 63, of Idaho Falls, Idaho, was indicted by a federal grand jury in Boise yesterday on multiple counts of wire fraud, mail fraud, and interstate transportation of property taken by fraud, U.S. Attorney Wendy J. Olson announced. Hinsley is scheduled to make his first appearance in federal court in Pocatello on November 27.
The 19-page indictment charges Hinsley with six counts of wire fraud, three counts of mail fraud, and one count of interstate transportation of property taken by fraud. The indictment alleges that between 2004 and 2008, Hinsley schemed to defraud investors by obtaining money in connection with what Hinsley represented as securities issued in the form of investment contracts for speculating in the silver market. The indictment alleges that Hinsley knowingly transmitted by wire the U.S. Postal Service account statements and letters regarding the status of investments. The indictment also alleges that Hinsley did not register the securities he was selling, and he was not a registered securities broker-dealer.
According to the indictment, beginning in 2004, Hinsley, as the sole owner and operator of Galaxy Coin LLC in Idaho Falls, began offering an investment program to people wanting to invest in silver. The program purportedly used Hinsley’s expertise to buy and sell silver and generate a return on investment by selling the silver for more than what it was purchased for. The indictment alleges that the agreements between Hinsley and investors provided that the investor would earn a profit by investing money with Hinsley; the investor was not expected to expend any effort to obtain the return, other than providing investment funds. The indictment alleges that Hinsley misrepresented to investors that the investment was low-risk, risk free, or moderately risky; that the investors’ only risk was that they might end up with the silver; and that the investors could withdraw all or part of the invested funds upon notice. The indictment alleges that these representations were false as investors were unable to withdraw their funds, and Hinsley did not return the money when requested by investors to do so. Hinsley’s investment scheme allegedly was structured to pay investors 80 percent of profits and Hinsley 20 percent. As Hinsley gained investors and conducted more transactions, he eventually switched to a fixed rate of return of 13 percent every two months, or 78 percent annually.
The indictment alleges that Hinsley initially paid investors the returns he promised and, based on the reliability of generous investment returns and bi-monthly, e-mailed account statements, misled investors into believing he was investing prudently, and obtaining consistent monthly returns. The indictment further alleges that because Hinsley made these false representations, investors did not attempt to remove their investment and thus generated a positive image to attract new investors.
The indictment alleges that on April 7, 2008, Hinsley advised investors that he was unable to purchase silver due to its declining price, and no one would sell to him. He also advised investors that he was reducing the return he was paying to two percent per month, or 24 percent annually, and that he would not return their investments until October 2008. In September 2008, Hinsley advised investors that he would continue to pay the two percent per month return but would postpone payouts of principal for an additional six months. Because Hinsley allegedly failed to maintain accurate business records, the government estimates that Hinsley issued investment contracts to over 100 investors of over $4 million. The indictment alleges that the estimated net loss on investment was between $1.5 million and $2 million.
Wire fraud and mail fraud, per count, is punishable by up to 20 years in prison; interstate transportation of property taken by fraud is punishable by up to 10 years. The charges each carry a maximum fine of $250,000 and up to three years of supervised release.
The case is being investigated by the Federal Bureau of Investigation.
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 is 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. For more information on the task force, visit www.stopfraud.gov.
An indictment is a means of charging a person with criminal activity. It is not evidence. The person is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.