Four hedge fund managers indicted in USD40m Ponzi scheme
A federal grand jury sitting in Charlotte has returned an indictment against Jonathan D Davey, 47, of Newark, Ohio, Jeffrey M Toft, 49, of Oviedo, Florida, Chad A Sloat, 33, of Kansas City, Mo, and Michael J Murphy, 51, of Deep Haven, Minn, on four criminal charges relating to an investment fraud conspiracy, announced Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina.
US Attorney Anne M Tompkins made the announcement in conjunction with Chris Briese, Special Agent in Charge of the Federal Bureau of Investigation (FBI), Charlotte Division, and Jeannine A Hammett, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation Division (IRS-CI).
According to the criminal indictment, the defendants operated “hedge funds” as part of a conspiracy that took in USD40 million from victims for a Ponzi scheme operating under the name Black Diamond Capital Solutions (Black Diamond). The indictment alleges that the conspiracy lasted from about October 2007 through about April 2010. The indictment alleges that the defendants lied to get money from their victims by claiming, among other things, that they had done due diligence on Black Diamond and were operating legitimate hedge funds with significant safeguards, when in reality, neither claim was true. The indictment also alleges that, as Black Diamond began collapsing, the defendants and others created a new Ponzi scheme and with a separate Ponzi account that Davey administered. Thereafter, new victim money was deposited into the Ponzi account and used to make Ponzi payments to other victims and to fund the defendants’ lifestyles.
The indictment also charges Davey with tax evasion for claiming to the IRS on his 2008 tax return that USD810,000 that Davey stole from victims was a “loan.” In reality, the indictment charges, Davey stole that USD810,000, plus approximately USD500,000 in 2009, from victims to build Davey’s personal mansion. Davey attempted to evade the taxes due and owing in 2008 by calling the money a “loan” from his investors to “Sovereign Grace, Inc.,” a Belizian corporation that Davey created as a diversion for his victims and the IRS.
The first charge against all four defendants, alleging conspiracy to commit securities fraud, carries a maximum sentence of five years’ imprisonment and a fine of up to USD250,000. The second charge against all four defendants, alleging conspiracy to commit wire fraud, carries a maximum sentence of 20 years’ imprisonment and a fine of up to USD250,000. The third charge against all four defendants, alleging a money laundering conspiracy, carries a maximum sentence of 20 years’ imprisonment and a fine of USD250,000 or twice the amount of criminally derived proceeds. The final charge against Davey only, alleging tax evasion, carries a maximum sentence of five years’ imprisonment and a fine of up to USD250,000.
The defendants will be making their initial appearances in U.S. District Court in the coming weeks.
This indictment follows a series of convictions and other charges in this matter. On December 16, 2010, Keith Simmons was convicted following a jury trial of securities fraud, wire fraud, and money laundering. Simmons is in custody awaiting sentencing.
On 27 April, 2011, a criminal bill of information and a Deferred Prosecution Agreement were filed against CommunityONE Bank, NA, for its failure to maintain an effective anti-money laundering program. As alleged in that bill of information, Simmons was a customer of CommunityONE, and used various accounts with the Bank in furtherance of the Ponzi scheme. However, as alleged in that bill of information, the Bank did not file any suspicious activity reports on Simmons, despite the hundreds of suspicious transactions that took place in his accounts.
Other defendants convicted in this case are set forth below. It should be noted that those defendants already sentenced had their sentences reduced by the Court to reflect their cooperation with the United States in its investigation and prosecution of others.
Bryan Keith Coats, 51, of Clayton, NC, pleaded guilty on 24 October, 2011, to conspiracy to commit securities fraud and money laundering conspiracy. Coats is awaiting sentencing.
Deanna Ray Salazar, 54, of Yucca Valley, Calif, pleaded guilty on 7 December, 2010, to conspiracy to commit securities fraud and tax evasion. Salazar is awaiting sentencing.
Jeffrey M Muyres, 36, of Matthews, NC, pleaded guilty on May 17, 2011, to conspiracy to commit securities fraud and money laundering conspiracy. Muyres was sentenced to 23 months’ imprisonment by Chief Judge Robert Conrad, Jr, on 18 January, 2012.
Roy E Scarboro, 47, of Archdale, NC, pleaded guilty on 3 December, 2010, to securities fraud, money laundering, and making false statements to the FBI. Scarboro was sentenced to 26 months’ imprisonment by Chief Judge Robert Conrad, Jr, on 4 May, 2011.
James D Jordan, 49, of El Paso, Texas, pleaded guilty on 14 September, 2010, to conspiracy to commit securities fraud. Jordan was sentenced to 18 months’ imprisonment by Chief Judge Robert Conrad, Jr, on 29 June, 2011.
Stephen D. Lacy, 52, of Pawleys Island, SC, pleaded guilty on 9 December, 2010, to conspiracy to commit securities fraud. Lacy was sentenced to six months’ imprisonment by Chief Judge Robert Conrad, Jr, on 4 May, 2011.
The details contained in this indictment are allegations. The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law. The conviction or guilty plea of any other person is not evidence of the guilt of any of the defendants.
This matter is being prosecuted by Assistant United States Attorneys Kurt W Meyers and Mark T Odulio of the Western District of North Carolina, and the case against Jeffrey Muyres was prosecuted by Assistant United States Attorney Mark T Odulio. The investigation is being handled by the FBI and the IRS.
- Special Reports
- By Location
- Asian Hedge Funds
- BVI Hedge Fund Services
- Bermuda Hedge Fund Services
- Canada Hedge Fund Services
- Cayman Hedge Fund Services
- Channel Islands Stock Exchange
- Future of offshore funds
- Gibraltar Hedge Fund Services
- Guernsey Hedge Fund Services
- Hedge Funds in Germany
- Hong Kong Hedge Fund Services
- Ireland Hedge Fund Services
- Isle of Man Hedge Fund Services
- Jersey Hedge Fund Services
- Jersey Private Equity Services
- Latin American Hedge Funds
- London Hedge Fund Services
- Luxembourg Hedge Fund Services
- Malta Hedge Fund Services
- Middle East Hedge Fund Services
- Singapore Hedge Fund Services
- South African Hedge Fund Services
- Spanish Hedge Funds 2008
- Switzerland Hedge Funds
- US East Coast Hedge Fund Services
- US Hedge Fund Services
- By Subject
- Conference reports
Latest Special Report
- By Location
- How to set up a hedge fund