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!

February 22, 2010

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.

YOUR COMMENTS ARE WELCOME.


Child Sex Crimes Come From Many Walks of Life! Choices, Consequences and Convictions

February 25, 2008

The US Attorney’s office recently announced two high profile cases involving child pornography and child sex offenses.

First, Metropolitan Police Department Officer, Kenneth Longerbeam, age 39, has pled guilty to traveling to the District of Columbia in order to have sex with a minor in December 2007.

This case tragically illustrates that child predators come from all walks of life, even those sworn to uphold the law” stated U.S. Attorney Taylor. “We must be vigilant in our efforts to protect our children from those who wish to do harm to the most precious, yet vulnerable members of our community.”

“Every member of the Metropolitan Police Department is held to the highest standard of public service. Inherent in every officer’s oath is the promise to protect others. Longerbeam’s actions are contrary to everything the Department stands for, and as a result of his guilty plea I am seeking to suspend him without pay,” said Chief Lanier.

The next portion of this will likely be repulsive to my readers. However, it is necessary in order for parents, and those concerned with the welfare of children, to become aware of the attitudes of child predators. According to the news release:

Longerbeam, the defendant acknowledged that on December 18, 2007, he received a text message from a friend who informed the defendant that he had a boy coming over and that he was going to engage in sex with the child. During the ensuing exchange of text messages, the defendant asked how old the child was and was told that the child was 14 years old. After the defendant’s friend stated that he was going to have sex with the child, the defendant asked whether the boy was “into 3 ways.” When the friend told the defendant that the child was into “3-ways”, the defendant responded: “Kool, when can I join?”

The defendant subsequently traveled from the State of Maryland into the District of Columbia to serve his tour of duty at the Metropolitan Police Department’s Fourth District. When the defendant completed the his tour, he traveled to his friend’s house to have sex with the child. The defendant was arrested by task force members at that time.

The second to be reported here is a guilty plea for possession of child pornography from a former aide to a U.S. Senator. James Michael McHaney, 28, of Washington, D.C., pled guilty today before the Honorable Chief Judge Thomas F. Hogan in the U.S. District Court for the District of Columbia to one count of Possession of Child Pornography.

According to the government’s evidence, on November 30, 2007, a cooperating witness (“CW”) working in an undercover capacity under the supervision of law enforcement agents, went on-line and observed that “Mike,” previously identified as James “Michael” McHaney, was on-line with the screen name of “lilmikierocks.” The CW and “Mike” had previously met and had exchanged images of child pornography. At approximately 12:15 p.m., the CW initiated contact by saying “Hey, what’s up?” The on-line conversation took place using AOL.

After approximately ten minutes, the CW asked “Mike” whether he was going to be at work all day, to which “Mike” responded that he could take a long lunch. CW asked whether “Mike” was interested in engaging in sex with a 13-year-old boy, and “Mike” replied, “I’ll be there.” “Mike” asked whether the child was at the CW’s residence and agreed to meet the CW and the child there. “Mike” then asked whether the CW had a photograph of the child with whom he and the CW were going to have sex and whether the child had “pubes” (referring to pubic hair). When the CW answered “barely any pubes” and “none under his arms” to the latter question, “Mike” replied that was “hot.” “Mike” also agreed to bring “visual aids” on a flash drive that contained both videos and over 1000 images of child pornography. “Mike” said that his hard drive was at another individual’s house being loaded with more images of child pornography.

At approximately 1:15 p.m., law enforcement officers observed James Michael McHaney at the lobby of the CW’s residence, located in Northwest Washington, D.C., and he was placed under arrest. A search incident to the arrest of the defendant revealed a flash drive which contained in excess of 600 images of child pornography. The majority of the pornographic images were of prepubescent males, which the defendant possessed for his personal use, and to distribute to others. The ages of the children appeared to range from approximately three to five years old to young teens. Among the images were movie files depicting prepubescent male children engaging in sexual acts.

Every choice has a consequence! As a speaker on teen ethics and social networking child protection, it is sick to see what and who child predators are. One would never think that a child predator would be an aid to a U. S. Senator or a police officer, but as evidenced above – child predators can be anyone!

While the two guilty pleas show evidence that law enforcement is vigilant, you know that more crime takes place against children than any would like to admit. However, parents need to take an interest in knowing how the new playground for sexual predators works and how to protect children from those predators.

Comments are welcome!


Sixty-Six Months In Prison – Mortgage Fraudster Caught Before The Damage Was Done! Comments by Business Ethics Speaker Chuck Gallagher

January 10, 2008

A little over a year ago, Robert Michael Stewart, age 26, was providing “samples” of mortgage files to prospective buyers – those buyers intending to use the data for identity theft. Having obtained the data from his employment at a Pikesville, Maryland mortgage company, Stewart had files that included social security numbers, bank account and credit card numbers, copies of driver’s licenses, tax statements, payroll and statement of earnings, and bank account statements.

So in January 2007, Stewart had approximately 200 personal and financial data foldes at this home which were to be sold to others. After providing (cooperating witnesses) information to his buyers, Stewart negotiated the price for each file and told the buyers that he would sell 325 files for $50 each.

Wonder if it ever crossed Stewart’s mind that such a small sum would cost him so much of his life?

January 10, 2007, an individual helped Stewart carry files from the mortgage company to his vehicle. Then the next day, Stewart was observed loading boxes from his residence into his vehicle. Stewart then, along with the cooperating witness moved boxes from Stewart’s vehicle into the suspected purchasers vehicle (they were the cooperating witnesses). They paid Stewart $8,000.

Wow…a whopping $8,000. Well…Stewart took the money and then the long arm of the FBI came in and by that point it was all over. Arrested!

Every choice has a consequence!

According to the Mortgage Fraud Blog (an excellent resource):

United States Attorney Rod J. Rosenstein said, “People disclose sensitive personal and financial information every time they apply for mortgage loans and other forms of credit. Law enforcement agencies will continue to be aggressive in catching and punishing criminals who seek to use that information. Under federal law, every identity thief serves at least two years in federal prison in addition to the sentence for the fraud scheme.”

Young and stupid. I’ve been in that position and I know how difficult it is to accept the consequences for your actions. But, it is true, you reap what you sow. Sometimes the consequences from our actions (whether positive or negative) come quickly – much like Stewart experienced here. Many times consequences come long after choices are made. Fortunately, in this case, the fraudster was caught before the damage was done.

Sixty-six months in Federal prison will give Mr. Stewart a lot of time to think about the choices he made and what he will do with his life upon release. Every choice has a consequence. So if Stewart decides to make positive choices he can use his experience to benefit himself and others. Having much the same experience, I know that positive can come from a negative experience.

Chuck Gallagher - The Ethics Expert

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