The Lastest Game of Pin the Tail on the Ponzi
Link to the new story.
California AG arrests three for $200 million Ponzi scheme
May 22, 3:50 PM
Attorney General Jerry.Brown Jr. last night filed 79 criminal charges against three men who allegedly conned thousands of people for more than a decade in a $200 million Ponzi scheme.
The defendants -- James Stanley Koenig, 57, of Redding; Gary T. Armitage, 59, of Healdsburg; and Jeffery A. Guidi, 54, of Santa Rosa -- were arrested late last night and are now in custody. Bail has been set at $5 million each.
"These three men callously swindled thousands of individuals out of $200 million to bankroll their extravagant lifestyles," Brown said. "They took investors money and used it to pay for an 80-acre castle estate, a Lear jet, luxury homes and fancy cars. The Ponzi scheme ultimately collapsed under its own weight, causing hardship to thousands, many of whom were retirees who lost their life savings."
The charges, filed in Shasta County Superior Court, mark the culmination of a year-long investigation, which found that Koenig, Armitage and Guidi created a network of more than 55 business ventures over a period of 10 years to enrich themselves and keep their Ponzi scheme afloat.
Brown's investigation revealed that in 1997, the three men began peddling construction and real estate projects across California. This included: "Quail Hollow," a residential subdivision in Susanville; Lake College, a for-profit vocational school in Redding; Mountain House Golf Course near Tracy; a light industrial distribution center in Brentwood; and dozens of other so-called "investment opportunities." Victims were promised that these were safe, secure, low-risk investments with double-digit returns, averaging 12 percent.
In recruiting their victims, Armitage organized "investment planning seminars," many of which targeted retirees, in the Bay Area and throughout California. Based on advice from these seminars, Californians invested sums ranging from $50,000 to more than $1 million. Some turned over their entire retirement portfolios and savings accounts.
Many of the construction and real estate projects, however, were poorly managed and were not financially viable, resulting in huge losses. Some projects were left unfinished or ended up in foreclosure.
Rather than inform investors about the failures, Koenig, Armitage and Guidi sought to attract new investors, whose funds could be used to offset losses and pay returns to earlier investors. In doing so, the defendants withheld vital information that impacted investment decisions, including past business failures and Koenig's 1986 federal fraud conviction.
With double-digit returns and no knowledge of the investment failures, most investors kept their money in place and many invested in new projects. This Ponzi scheme continued for more than 10 years.
Beginning in 2001, Koenig, Armitage and Guidi redirected investors' millions into the purchase of more than 20 senior housing and residential care facilities. This included: Alterra Clare Ridge in Fresno; Sterling House in Bakersfield; Clare Bridge Cottage in Bakersfield; Seasons in Modesto, Northridge, and Vacaville; Oakdale Heights West in Redding; Oakdale Heights in Bakersfield, Fresno, San Leandro, Beverly Hills, Santa Clarita, Roseville, Laguna Beach, and La Mesa; Senior Oaks Senior Living in Redding; and other facilities in Pennsylvania, Oregon, Nevada, North Carolina, and Virginia.
Under this scheme, the defendants' company would purchase an assisted living facility and sell it to one of their affiliate companies. The affiliate would then sell ownership shares in the property as an "investment opportunity" at an even higher price to new investors. Meanwhile, an additional affiliated company would manage the property to maximize revenue.
Revenues, however, were not reinvested into the facilities, but were pooled and used to pay interest to keep investors at bay.
In April 2007, the Ponzi scheme began to collapse under a mountain of debt, and the defendants were unable to pay interest to investors. Nevertheless, they continued to solicit new investors in the vain hope that they could keep the operation alive, raising $23 million from 91 new investors.
The defendant's businesses finally went closed their doors in June 2008.
During the course of its investigation, Brown's office identified more than 1,000 victims with losses totaling $200 million.
Over the 10 years, Koenig, Armitage and Guidi siphoned fees, revenues and profits from their business ventures for their personal benefit, using the funds to purchase an 80-acre castle estate, a Lear jet, luxury vehicles, lavish vacations and expensive wine and art.
Last night, the defendants were charged with selling securities by means of false statements or material omissions. Koenig was charged with 40 counts of securities fraud and 37 counts of residential burglary. Armitage was charged with 42 counts of securities fraud and 37 counts of residential burglary. Guidi was charged with 39 counts of securities fraud and 33 counts of residential burglary.
If convicted on all counts, each could face more than 100 years in prison.
If you believe you have been a victim of this scheme, please contact the Attorney General's office at 1-800-952-5225.
- Source, Attorney General's office.