Three Men Indicted for $52 Million Ponzi Scheme
St. Louis Man Gained $8 Million from Fraud, Claimed Loans Were for Overseas Projects
KANSAS CITY, MO—Beth Phillips, United States Attorney for the Western District of Missouri, announced today that two attorneys, one residing in Webster Groves, Mo., and the other residing in Leawood, Kan., along with a real estate speculator in the United Kingdom, have been indicted by a federal grand jury for their roles in a fraud conspiracy that stole more than $52 million from their victims.
Martin T. Sigillito, 62, of Webster Groves; James Scott Brown, 66, of Leawood; and Derek J. Smith, 67, of Oxfordshire in the United Kingdom, were charged in a 22-count indictment returned under seal by a federal grand jury in St. Louis, Mo., on Thursday, April 28, 2011. That indictment was unsealed and made public today following Sigillito’s initial appearance in the U.S. District Court in St. Louis, Mo.
“The federal indictment alleges that conspirators stole more than $52 million through a Ponzi scheme that lasted nearly a decade,” Phillips said. “Combating financial fraud is a priority for the Department of Justice. We will aggressively prosecute those who illegally profit at the expense of their victims.”
“When it comes to Ponzi schemes, the amount of money stolen in this case is the largest in the history of the Eastern District of Missouri,” said Special Agent in Charge Dennis L. Baker of the FBI St. Louis Division. “No matter how elaborate the schemes, they all eventually collapse.”
“IRS Criminal Investigation is committed to investigating Ponzi schemes in an effort to protect the financial well being of the American public,” said C. Steve Howard, Acting Special Agent in Charge of IRS Criminal Investigation, St. Louis Field Office. “We will continue to work with our law enforcement partners to bring this investigation to a thorough and complete conclusion.”
Sigillito, Brown, and Smith are each charged with participating in a conspiracy to commit wire and mail fraud. The federal indictment alleges that, during a 10-year period from 2000 to 2010, investors in the United States loaned a total of $52.5 million to Smith through a Ponzi scheme that was known as the British Lending Program. Victims believed they were loaning money for legitimate real estate development projects, the indictment says, but in reality, most of their money was kept by Sigillito and Brown (or used to pay interest and principal to other lenders). According to the indictment, Sigillito gained nearly $8 million from the fraud scheme and used it to support an affluent lifestyle.
The Defendants
Sigillito is an attorney and an ordained priest and bishop in the church of the American Anglican Convocation. Sigillito, doing business as Martin T. Sigillito and Associates, Ltd., maintained an office in Clayton, Mo. The business claimed to provide international business consulting services, but did not have any actual associates or law partners and employed only a single clerical assistant. Sigillito portrayed himself as an expert in international law and finance and an experienced international businessman and attorney. He also claimed he was a lecturer at Oxford University in England, based upon his participation in an annual summer program of continuing legal education at Oxford through the University of Missouri - Kansas City.
Sigillito had very few, if any, law clients. Instead, Sigillito’s primary occupation from 2000 to 2010 was the BLP. Sigillito was a member of several exclusive, private clubs in St. Louis (including The Racquet Club and the Boone Valley Golf Club) and spent some of the fees on collecting rare and antique books, maps, prints, coins, jewelry, artifacts, liquor, and rugs. He routinely traveled first class, including internationally, took his family on expensive vacations, purchased a country home in Marthasville, Mo., employed a chauffeur, sent his children to private schools, purchased and leased Volvo automobiles, and invested in a condominium project at the Lake of the Ozarks in Missouri. Prior to 2000, the indictment notes that Sigillito was not financially successful, was divorced, and had declared bankruptcy.
Brown, an attorney, practiced law in England for several years prior to 2000. Brown also participated in the UMKC program at Oxford University. Between 2000 and 2010, Brown did not actively practice law; instead, Brown’s primary occupation was the BLP, from which he took substantial fees. Brown did business as British American Group and as J. Scott Brown and Associates.
Smith was a structural engineer and business and real estate speculator/developer who resided near London, England. Smith did business as Princess Hotels Management and as Distinctive Properties. According to the indictment, Smith was previously successful but during the 1990s Smith acquired distressed hotel properties which were not profitable due to a recession in the English real estate market. By the end of the 1990s, Smith was in need of capital to maintain his ownership of several small hotels which were not trading profitably and to support his retention of several options to purchase land.
The British Lending Program
According to the indictment, in the original, legitimate form of the British Lending Program (BLP), funds were loaned by U.S. investors/lenders for short terms at high interest rates. Early loan funds were sent to the United Kingdom and lenders received written loan agreements through a British law firm. Borrowers paid interest to lenders directly or through intermediaries and loan principal was repaid at the termination of a loan (unless a loan was “rolled over,” or renewed, for an additional year).
Sigillito became involved in the BLP in 2000. Brown and Sigillito developed a packet of marketing materials and began marketing the BLP to other U.S. lenders. Later, the indictment says, Brown and Sigillito also utilized third-party recruiters to locate new investors and bring their funds into the BLP. Soon afterward, Smith became the sole and exclusive borrower in the BLP and became the focal point of marketing efforts by Sigillito and Brown.
Sigillito allegedly told investors that Smith and the BLP had a track record of success and a unique ability to identify undervalued properties and properties whose value could be greatly increased through the re-zoning process. Smith’s goal was to sell or “flip” the properties for a profit. Conspirators also allegedly claimed that Smith was a highly successful real estate owner and developer who generated cash flow and profits from “flipping” properties and options. In reality, the indictment says, Sigillito knew that Smith’s trading properties were unprofitable and required funding to avoid foreclosure, that Smith’s re-zoning efforts did not produce successful property flips and that Smith could never repay the large sums which had been borrowed in his name from BLP lenders.
Sigillito allegedly claimed that Smith was willing to borrow at, and could afford to pay, high rates of interest, and that British banking practices made it cumbersome for Smith to borrow funds in a timely fashion to take advantage of time-sensitive opportunities. In reality, the indictment says, no real estate developer could afford to make enough money from BLP loans with the small amount of funds left over after payment of interest and fees to make a profit and to meet BLP interest and redemption obligations. Also as Sigillito allegedly knew, Smith could not borrow from a traditional lending institution because he lacked sufficient equity in his properties to serve as collateral, because his hotels were not profitable and b! ecause his options could not serve as loan collateral.
Sigillito also allegedly claimed that there was little or no risk of not being repaid in full, because the present market value of Smith’s assets exceeded his liabilities by a ratio of at least 2-to-1 and often as high as 6-to-1. In reality, the indictment says, Sigillito knew that Smith’s financial statements were false and misleading.
Sigillito allegedly told investors/lenders that their loan funds were sent to Smith in England for use in his real estate activities and that payments of interest and principal came from England out of Smith’s business revenues and profits. In reality, the indictment says, the vast majority of BLP loan funds were never sent to or received by Smith for use in productive business activities. Instead, the vast majority of funds allegedly remained under the control of Sigillito and Brown; the funds were allegedly used to pay fees to Sigillito, Brown and others, and to pay interest and principal to prior BLP lenders.
According to the indictment, Smith received the benefit of a total of approximately $6.1 million during the time in which approximately $52.5 million in loan funds were received in the BLP. In contrast, during the same period, Sigillito took “fees” totaling approximately $7.8 million, Brown took “fees” totaling approximately $1.4 million and approximately $27 million was used to pay interest and principal to lenders. All BLP funds were dissipated and as of June 2010, the BLP had no funds.
Many BLP lenders placed a great deal of trust in Sigillito and Brown based on their claimed expertise, their status as attorneys, affinity through family connections and private organizations, and particularly Sigillito’s mastery of multiple languages, his status as a board member of The Racquet Club and his status as a bishop. The indictment alleges that Sigillito took advantage of several lenders who were particularly vulnerable due to age, friendship, lack of financial expertise, family circumstances and faith.
Sigillito allegedly used high pressure tactics to persuade some lenders to loan funds to Smith. As part of his sales tactics, the indictment says, Sigillito often avoided giving direct and specific answers to questions about documentation and his claimed due diligence in the BLP. Once loans were “closed,” Sigillito allegedly avoided direct contact with lenders.
Many victims loaned funds which had been saved for retirement and were held in Individual Retirement Accounts. Many IRA lenders let their “interest” accrue and also rolled their loans over annually for years, each time receiving a signed loan agreement for a new, larger amount. Thus, many IRA lenders were led to believe that their IRA accounts were growing and that they could be relied upon in retirement.
Wire Fraud
In addition to the conspiracy, Sigillito is charged with nine counts of wire fraud. The indictment alleges that on nine separate occasions Sigillito wired funds across state lines as part of the fraud scheme. The wire transfers typically involved hundreds of thousands of dollars and, in one case, a transfer of $15 million.
Mail Fraud
The indictment also charges Sigillito with six counts of mail fraud related to documents that were mailed to lenders.
Money Laundering
The indictment also charges Sigillito with six counts of money laundering related to financial transactions with funds illegally obtained by wire fraud.
Forfeiture Allegation
The indictment also contains a forfeiture allegation, which would require Sigillito to forfeit to the government $52.5 million, which was derived from proceeds of the alleged offenses, as well as property that was seized by law enforcement officials, including hundreds of antique books, antique maps and prints, antique jewelry, antique coins, antique artifacts, six Persian rugs, dozens of bottles of cognac champagne, whiskey, and wine, a 2006 Volvo S40, $19,500 in cash, $19,237 from bank accounts, and residential property in Marthasville.
Phillips cautioned that the charges contained in this indictment are simply accusations, and not evidence of guilt. Evidence supporting the charges must be presented to a federal trial jury, whose duty is to determine guilt or innocence.
This case is being prosecuted by Jess Michaelsen, Steven Holtshouser and Richard Finneran, Special Attorneys to the U.S. Attorney General. It was investigated by the FBI and IRS-Criminal Investigation. |
No comments:
Post a Comment