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Banking and Finance

Massachusetts Man Indicted For $6 Million Ponzi Scheme

 Two years after being charged with fraud by Massachusetts securities regulators, a former Belmont resident and prominent Shaklee distributor was arrested and charged with operating a Ponzi scheme that duped over a dozen investors out of at least $6 million. John William Cranney, also known as Jack Cranney, was indicted on four counts of wire fraud, sixteen counts of mail fraud, and three counts of money laundering. Each of the wire fraud and mail fraud counts carries a maximum prison term of twenty years, while each money laundering count carries a 10-year maximum term. Cranney was scheduled to make his first appearance in a Texas federal court today.

The Massachusetts Securities Division previously levied civil fraud charges against Cranney in July 2012, alleging that Cranney used his affiliation as an independent distributor with Shaklee Corporation ("Shaklee") to lure in family, friends, and colleagues. Shaklee is a multi-level marketing system of independent distributorships that sell health and personal nutrition products, and Cranney's family was credited for introducing Shaklee to the east coast. Cranney was affiliated with Shaklee since 1967, and served as a "sponsor" for approximately 50,000 distributorships in a business model similar to Avon or Mary Kay Cosmetics.

Through these connections, Cranney held himself out as a financial advisor and operated several shell companies including Cranney Capital I, LLC, Cranney Capital II, LLC, Cranney Capital III, LLC, Cranney Industries, and Cranney Capital I Employee Stock Ownership Plan ("Cranney ESOP"). Beginning in mid-2002, Cranney solicited potential investors by offering short to medium-term investments with annual returns ranging from 10% to 12% annually. These investments were memorialized in the form of promissory notes, and when the note matured, many investors opted to "roll-over" their investment into a new promissory note offering similar returns. Additionally, Cranney also told investors that they could "roll over" money held in their IRA or 401(k) accounts to the Cranney ESOP without incurring withdrawal fees or penalties even though the investors were not employed by Cranney.

Based on these representations, criminal authorities allege that Cranney raised at least $6 million from over a dozen investors (Massachusetts securities regulators allege that Cranney raised over $10 million from at least 36 investors nationwide). However, according to authorities, instead of making investments as promised, Cranney misappropriated investor funds to fund his Shaklee distributorships, pay personal expenses, and meet investor redemptions. When the financial markets began experiencing difficult times in 2008, Cranney began to default on making payments of principal and/or interest to investors, and soon altogether ceased returning investor funds.

After state regulators filed charges against him in July 2012, Cranney subsequently filed for personal bankruptcy in March 2013. Cranney's personal residence was sold to satisfy creditor claims, and authorities also seized money from two Shaklee distributorships controlled by Cranney. Cranney has maintained that he did not run a Ponzi scheme, and that the "investments" alleged by regulators were, in reality, loans. At a hearing in May 2013 in a Massachusetts bankruptcy court, many of Cranney's victims fought the trustee's efforts to convert the case to a Chapter 7 liquidation on the basis that investors could benefit from Cranney's "vast experience in handling and making money."  It is unknown if that position has since changed.

 For more news and analysis of Ponzi schemes, visit Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.

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