 |
|
|
 Business News | September 2007 
SEC Charges Grifters Behind $428M Scam
 Colin Dodds - CCH Wall Street
go to original
The SEC has filed charges against the perpetrators of a gigantic, $428-million securities fraud that ripped off thousands investors all over the United States.
Its case, filed in federal district court in Chicago, charges 26 defendants with running the gargantuan fraud, which employed bogus securities called "Universal Leases." They told investors that the leases were the equivalent of timeshares in a number of hotels in Cancun, Mexico. The purported leases included a pre-arranged rental agreement that promised to deliver investors consistent, high returns.
But it was all a scam. And when it collapsed, investors woke up with losses of roughly $310 million.
The Commission claims that Michael E. Kelly, among others, raised the $428 million through the Universal Lease scheme from 1999 until 2005. Kelly is currently being held in jail in Chicago, where he faces federal criminal charges over the same scam.
More than $136 million of that money raised came from IRA accounts. The high level of IRA assets indicates that the grifters were targeting retirement savers and retirees.
"This case illustrates the Commission's continuing commitment to hold accountable those who prey upon the retirement funds of older Americans," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "Kelly and his cohorts told investors they were purchasing a safe, high-income investment suitable for a retirement account. In reality, investor funds were at grave risk as investor funds were used in a way that guaranteed the collapse of the scheme."
In order for the scam to gain traction, the con artists employed a nationwide network of unregistered sales reps to sell the Universal Leases. Those reps collected more than $72 million in commissions, with the scammers often paying the reps commissions as high as 27%. Both the reps and the designers of the scheme withheld that fact from investors.
A former resident of Indiana, Kelly and others ran the scheme from Cancun, Mexico, through a number of foreign companies in Mexico and Panama. They also transferred investor assets through a number of foreign banks. In its complaint, the SEC credited the perpetrators with having taken “sophisticated and extraordinary steps” over the course of the scheme.
In announcing its case, the SEC acknowledged the assistance of the German and Mexican governments as well as a significant number of state securities agencies in busting the six-year scam.
State regulators started putting pressure on the scam in early 2004. But Kelly and company simply changed the name of the investment from “Universal Leases,” to “Residence Club Memberships” in mid-2004. They also cut the returns they were paying out. By mid-2005, they stopped paying returns altogether.
The SEC has also charged Kelly’s two sons, Michael and Donald, as well as John Corwin, a former car salesman with whom Kelly had previously worked. It also charged nine of the top-selling sales reps of the bogus investments. The two younger Kelly’s, as well as Corwin, are still living in Cancun, Mexico.
The Commission’s complaint seeks disgorgement of ill-gotten gains, civil penalties and permanent injunctions. |
| |
|
Vallarta Weddings
Tell a Friend
Site Map
Print this Page
Email Us