Authorities charged three men with operating a massive Ponzi scheme that targeted retirees and raked in nearly $30 million. Robert C. Pribilski, 54, Mahmut Erhan Durmaz, 42, and John T. Burns III, 53, were each charged with multiple criminal fraud counts, with Pribilski and Durmaz each charged with five counts of wire fraud and four counts of mail fraud, and Burns charged with three counts of wire fraud and three counts of mail fraud. Both wire fraud and mail fraud carry a maximum sentence of twenty years in prison, as well as criminal monetary penalties. Additionally, the government is seeking $28 million in forfeiture from the three defendants. While Pribilski and Burns are scheduled to be arraigned later this week, Durmaz fled the United States several years ago and is believed to be hiding in Turkey.
According to authorities, the three men were associated with USA Retirement Management Services ("USARMS"), which solicited retirees through mass-mailings to estate planning seminars held at country clubs and banquet halls. The men portrayed themselves as educated and experienced in foreign investments that were specifically tailored to senior needs. Investors were pitched "Turkish Eurobonds" through the purchase of USARMS promissory notes that yielded lucrative annual returns ranging from 8 to 11 percent. Based on these representations, over 100 investors contributed more than $20 million to USARMS.
However, authorities allege that many of these representations were simply untrue. For instance, USARMS did not actually invest these funds in Turkish Eurobonds. Instead, investor funds were used to make over $7 million in Ponzi-style payments to existing investors under the guise of profits from successful trading. Additionally, the men misappropriated nearly $5 million in investor funds to support a lavish lifestyle that included expensive cars, homes, vacations, and even pornography. Durmaz even purchased a stamp collection and funded the purchase of the cyrogenic preservation of umbilical cord stem cells.
Moreover, while investors were told that Durmaz had earned a Masters in Business Administration and was a Certified Senior Advisor, neither of these representations were true. Finally, nearly $14 million was transferred to relatives and related companies in Turkey. When the scheme was uncovered in 2010 by the Securities and Exchange Commission, only $900,000 remained in financial accounts controlled by USARMS.
In addition to the newly-unveiled criminal charges, the SEC instituted a civil enforcement action against the three in 2010, seeking disgorgement of all ill-gotten gains and civil monetary penalties.
A copy of the SEC's complaint is here.
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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