Former FBI Agent and Wife Charged with Investment Fraud

Former FBI Agent and Wife Charged with Investment Fraud

There is little new about another investment fund fraud or Ponzi scheme case except of course the victims. For whatever reason, these cases were rare prior to the time Bernard Madoff was arrested. Since the King of Ponzi schemes was trotted off to jail however the Commission has brought dozens - perhaps hundreds - of these cases in a seemingly never ending stream. Most are variations on a theme. The scam solicits investors with promises of high and often guaranteed returns. Later they learn that there are no returns except to the promoter who lives high and well for a time.

The SEC's latest offering is no different. In SEC v. Aubrey, Civil Action No. SACV 11-1564 (C.D. Cal. Filed Oct. 12, 2011) brothers Jerry and Timothy Aubrey and their salesmen, Brian Cherry and Aaron Glasser raised millions from investors through high pressure cold calls, selling shares in now-defunct Progressive Energy Partners, LLC. The promise was annual returns of 50% or more. There were no returns, only big, undisclosed commissions for the salesmen and a lavish house, L.A. Lakers box seats and vacations in Hawaii, Las Vegas and Palm Springs for the brothers Aubrey - along with an SEC enforcement complaint alleging violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b).

Despite the filing of Aubrey and a numerous of similar cases, the U.S. Attorney's Office for the Eastern District of Virginia uncovered an investment fund fraud action with a new wrinkle: The defendants are a former FBI agent and his wife living in Fredericksburg, Virginia. John Graves and his wife Sara were indicted for defrauding investors.

Following his resignation from the FBI in 1999, Mr. Graves founded Brook Point Management. He served as president. The firm sold insurance, performed real estate and tax planning services and recruited and advised investment clients. Mr. Graves held the requisite degrees and securities registrations as a certified financial planner with Series 7 and 65 registrations.

Between June 2008 and July 2011 Mr. Graves and his wife defrauded 11 investors out of about $1.1 million, according to the court papers. The husband and wife team made a series of misrepresentations to investors regarding the safety of the investments as well as the use of the funds. The money was diverted to their use to acquire real estate and pay personal expenses, including credit card bills. Portions of the investor funds were also used to repay other investors. Mr. Graves continued to make misrepresentations to investors and the SEC even after the scheme was uncovered.

The couple have been charged with one count of conspiracy to commit mail and wire fraud, one count of mail fraud and four counts of wire fraud. Mr. Graves was also charged with three counts of investment adviser fraud and one count of making false statements. The case is pending. U.S. v. Graves (E.D.Va. Filed Oct. 11, 2011).

For more cutting edge commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.

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