‘Crusader’ Faces Fraud Charges Over Ponzi Scheme
After allegedly defrauding hundreds of investors with false promises of high returns, the chief executive officer of a purported foreign currency trading firm is now facing Ponzi scheme charges filed by the Securities and Exchange Commission.
The SEC said First Capital Savings & Loan Ltd. Chief Executive Jeffery Lowrance secretly used the money of hundreds of investors to fund his start-up alternative newspaper USA Tomorrow.
After the fraud was revealed in an investigation conducted by Erin Schneider, Robert Leach, and Cary Robnett of the SEC’s San Francisco Regional Office, the Ponzi scheme operator fled to Peru.
Earlier this year, Lowrance was captured by authorities in the said country.
Investigations of the Ponzi scheme began in June 2008 and Lowrance and First Capital had lost all of the investors’ money by September 2008.
By continuing to tout First Capital’s sham high, fixed-rate high returns, Lowrance solicited at least an additional $1 million from at least 36 investors between June 2008 and February 2009, the SEC said.
Last week, Lowrance was arraigned in an indictment filed by the United States Attorney’s Office for the Northern District of Illinois, in addition to a separate criminal fraud charges filed by the Commodity Futures Trading Commission.
According to the SEC, the Ponzi scheme operator funneled about $21 million from investors in at least 26 states, including California, Oregon, Illinois and Utah, by promising huge profits from a specialized foreign currency trading program.
The complaint,which was filed before the federal district court in San Jose, California, stated that Lowrance and First Capital promised investors with monthly returns of up to 7.15 percent through foreign currency trading. Some investors were told their investments were guaranteed and were given bogus letters of credit.
First Capital also published a spreadsheet claiming a multi-year history of profitable trades, but the trades were fake, the SEC alleged.
Instead of engaging in foreign currency trading as claimed, the SEC said Lowrance and First Capital secretly diverted investor funds to pay fake returns to earlier investors, to pay Lowrance (despite his failure to earn a profit for the investors), and to fund his newspaper.
The SEC clarified that “First Capital actually conducted little foreign currency trading, lost money on the little trading that it conducted, and never engaged in any profitable business operations.”
By promising to share their Christian values and their limited-government political views, Lowrance targeted certain investors and solicited them through ads in his newspaper, which he distributed at a September 2, 2008 political rally in Minneapolis, Minnesota.
Marc Fagel, Director of the SEC’s San Francisco Regional Office, said: “Lowrance ironically portrayed himself as a crusader against corruption in government, while he ripped off investors who put their trust in him.”
The SEC’s complaint seeks court orders prohibiting the defendants from engaging in securities fraud and requiring them to disgorge their ill-gotten gains and pay financial penalties.
Last month, the SEC concluded that certain Ponzi scheme investors through Stanford Group whose name has been stained by the fraud are entitled to a protection under the Securities Investor Protection Act of 1970 (SIPA).
The securities regulator asked the Securities Investor Protection Corporation (SIPC) to initiate a court proceeding under SIPA to liquidate the broker-dealer.