Facing 20 years in federal prison, R. Gregory Gibbs plead guilty to mail fraud in an investigation that uncovered a massive Ponzi scheme. Facts, as they appear in the US Attorney’s news release appear below:
Gibbs admitted that he engaged in a scheme to defraud numerous individuals who had invested in Golden Summit, a business he owned and operated, a Foreign Currency Market (“FOREX”) Ponzi scheme. The FOREX is an over-the-counter speculative market in which buyers and sellers trade one currency for another. As part of Gibbs’s scheme, he would enter into loan agreements with investors who would loan Golden Summit money for a period of 12 months and, in return, Golden Summit promised to pay a guaranteed rate of interest of between 3 to 5% per month. From August of 2004 until March of 2007, pursuant to his loan agreement program, Gibbs accepted approximately $21 million of investor funds from approximately 150 investors located in 24 states across the nation.
Named after Charles Ponzi, a ponzi scheme is a fraudulent investment operation where high returns are promised to investors and usually paid out of other investors money rather than from profits generated from the investment promised.
Gibbs has acknowledged that although he initially believed that he could make good on his promises of paying investors a large return on their investments, by June of 2006, his sustained and rapidly growing FOREX trading losses made it apparent that he would not be able to do so. Despite this, Gibbs continued to accept new investor money and made false representations about his trading success and the safety of the client investments. Specific misrepresentations by Gibbs to many investors included his claim that the majority of the money that he traded in the FOREX was his personal funds. This statement led investors to believe that Gibbs had significant personal assets and that he could make good on his promised interest payments even if he experienced trading losses in the FOREX market. In truth, the vast majority of the money traded by Gibbs was investor funds. Gibbs made other misrepresentations to many investors to assuage their concerns regarding the safety of their investments, including his claim that he had enough personal assets on hand to pay all outstanding “loan” obligations – both principal and interest – if he became incapacitated or died. In truth, he had very limited personal assets – other than those purchased with investor funds – and his mounting trading losses made repayment of the outstanding loan obligations almost impossible given his sustained losses in the FOREX.
Of the approximately $21 million that Gibbs received from investors, he deposited approximately $7.2 million in a FOREX trading account and utilized these funds to make foreign currency market trades. He lost approximately $6.2 million of that money. Gibbs also paid other individuals approximately $1.4 million for referring investors to Golden Summit. In addition, he utilized approximately $1.75 million in investor funds for personal expenditures, including approximately $1.1 million spent building a luxurious home for himself and his family.
OBSERVATION: Most of the time in any white collar crime scheme, some portion of the money stolen seems to end up enriching the one (including the family) who committed the crime. As a white collar crime speaker, there is a general pattern of behavior that seems pleasant and pleasurable for a time. Yet, the final outcome – the consequences – are far more severe than any short term benefit received.
Consistent with typical “Ponzi” or pyramid scams, Gibbs made some payments of what he purported were returns on investments to certain investors. The payments were intended to convince the investors that the investments were sound and to conceal the significant FOREX trading losses. In fact, however, the payments were made from deposits from investors who had come into the scheme later.
COMMENTS are welcome. If anyone knew R. Gregory Gibbs or fell victim to his scheme, feel free to comment.