99 Years in Prison for investor fraud Ponzi Scheme. Texas convicts Edward S. Digges Jr. Better watch out if you defraud folks in Texas is the message!

Well…I’ve been writing about a lot of, what seem to be, Texas investor shenanigans and then I see that a Texas District Court and jury find that they’ve had enough.  I suppose we could all agree that a 99 year prison sentence does seem to send that message.

Edward S. Digges Jr. was sentenced last week to 99 years in state prison for orchestrating a multistate, fraudulent investment scheme that involved the lease of credit card and debit card terminals.

The jury’s sentence came after a four-week trial that resulted in the Feb. 4 conviction of Digges for aggregated securities fraud. The Texas State Securities Board and the Collin County district attorney’s office prosecuted Digges, a former Maryland lawyer who was convicted of federal mail fraud in 1990.

I have to say that some folks do not learn.  That is unfortunate as EVERY CHOICE HAS A CONSEQUENCE.  It seems that as humans we might take the wrong path and pay the price, but if we take that same path again…the price GETS BIGGER.  Digges, now some 20 years later, is finding out just how significant the consequence is of his actions.  Just he picked on the wrong state.  They say things are bigger in Texas…and having lived there…it does seem to be true.  In this case I know it’s true!

Digges controlled an entity called the Millennium Terminal Investment Program. It offered securities that were purportedly based on the revenue generated by point-of-sale terminals that merchants use to process credit and debit transactions. Digges raised at least $10 million from about 130 Texas investors, the majority of whom were elderly.

“Edward Digges has a long history of defrauding some of our most vulnerable citizens, and this sentence ensures he will never again do so,” Texas Securities Commissioner Denise Voigt Crawford said. “The conviction will not return money to investors, however. This case highlights the importance of checking the background of any financial professional you choose to do business with, and the importance of obtaining full disclosure before investing.”

To attract Texas investors, Digges employed a sales force made up largely of insurance agents. Investors were told they would receive a monthly payment of $50 for each terminal they purchased – equivalent to a 12% annual return. Millennium also said investors could sell the terminals back to the company after five years, recouping their initial investment in the equipment and the 12% annual returns for five years. The company said it had established a reserve fund to ensure these payments to investors.

HOW TO CREATE AND SPOT A FRAUD…  When an investment adviser promises something that isn’t real and seems too good to be true – like a 12% annual return – then run for the hills cause there is likely a fraud taking place.  This reminds me of the series of articles that I’ve written about BizRadio and Daniel Frishberg.  While there is no accusation of fraud, there sure seem to be similarities.  Investors promised something that they now find, not only didn’t happen but can’t happen.   See articles here and here.  The PROMISE of something extraordinary is the first part of a scam in the works.

According to evidence presented in the case, no such reserve fund existed, and the Millennium program was in financial turmoil. The terminals were not producing enough revenue to pay investors, and the program operated at a loss from the start – a fact concealed from investors. The majority of lease payments made to investors came from other investors, not from money generated by placement of the terminals. Company principals also used investors’ money to pay their personal expenses.

Digges also concealed his background and the degree of control he exercised over Millennium. He failed to disclose he spent two years in federal prison following his mail fraud conviction in 1990; the conviction stemmed from a scheme to overbill clients at his law firm. Nor did Digges tell investors that he had a civil judgment against him for $3.6 million in a suit related to the overbilling scheme.

In addition, Digges has a long list of federal and state regulatory sanctions imposed against him for selling investments in the Millennium program. The Texas State Securities Board began investigating Digges in mid-2005 after newspaper advertisements for the Millennium program appeared in newspapers marketed to senior citizens.

Now don’t take this the wrong way, but 99 years for a $10 million scam – well, I wouldn’t want to be a white-collar criminal in Texas.

SPOTTING A FRAUD:  This Ponzi scheme, just like all the rest, have a foundation of three things:  PROMISE, ILLUSION and TRUST.  If a person (generally a TRUSTED person) PROMISES you something that most people wish they could get (a great INVESTMENT return) and support the whole idea by an ILLUSION (fake statements – flashy lifestyle – media hype, etc.) then you have all the makings for a FRAUD.  If you’ve invested in such a “thing” you’ve likely invested in a FRAUD.  You, as I put it, fell into the PIT.

The only hope for investor relief is found in IRC Section 165.  There’s an article that I wrote here about that for folks who seek to find some way to get some of their lost investment back.  Check out the article.


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