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CHARLOTTE, NC (WBTV) -
A federal jury in Charlotte convicted an Ohio man Friday on charges related to a Ponzi scheme that affected people in North Carolina.
48-year-old Jonathan D. Davey of Newark, Ohio was convicted of four criminal charges related to investment fraud. The federal indictment charged the CPA with serving as the "Administrator" for numerous hedge funds for the Black Diamond Ponzi Scheme, with soliciting over $11 million from victims with his own hedge fund, "Divine Circulation Services," and with tax evasion.
The charges stemmed from the Black Diamond investigation, which brought criminal charges against eleven individuals and CommunityONE Bank, related to conduct between October 2007 and April 2007. The investigation found 400 victims who were deprived of more than $40 million.
Evidence at the trial showed Davey lied to collect more than $11 million from victims mainly in North Carolina, Virginia, and Ohio.
Investigators say Davey claimed, among other things, that he had done due diligence on Black Diamond and was operating a legitimate hedge fund with significant safeguards.
As Black Diamond collapsed, Davey and other hedge fund managers started a derivative Ponzi scheme using what they called a "cash account" that Davey controlled.
Davey and his co-conspirators collected more than $5 million from new victim investors for the accounts, and used the new money to make Ponzi payments to old investors and themselves.
Also during the trial, it came out that Davey used an elaborate network of shell companies to evade taxes and commit money laundering with the proceeds of the Ponzi scheme. In one instance, Davey used an offshore shell company in Belize to funnel money to build a mansion in Ohio, creating a sham "loan" by pretending investors had loaned money to the Belizean shell company.
As Administrator, Davey controlled most of the funds and wires, and published a website for victims that reflected false returns.
During the trial, the Government showed how the website reflected more than $120 million in supposed value for victim accounts, but the hedge fund managers had less than $1 million total.
Davey was convicted of all charges after the jury deliberate for 45 minutes. He is out on bond, and has not yet been sentenced. He faces a statutory maximum sentence of five years in prison for count one (securities fraud conspiracy) and a $250,000 fine, a maximum of 20 years in prison for count two (wire fraud conspiracy) and a $250,000 fine, a maximum of 20 years in prison for count three (money laundering conspiracy) and a $250,000 fine, and a maximum of five years in prison for count four (tax evasion) and a $250,000 fine.
Several others were also convicted in the scheme:
• Keith Franklin Simmons, 47, formerly of West Jefferson, N.C., was convicted following a jury trial of securities fraud, wire fraud, and money laundering. Simmons was sentenced to 50 years in prison on May 23, 2012.
• Bryan Keith Coats, 52, of Clayton, N.C., pleaded guilty on October 24, 2011, to conspiracy to commit securities fraud and money laundering conspiracy. Coats was sentenced to 15 years in prison on November 16, 2012.
• Deanna Ray Salazar, 55, of Yucca Valley, Calif., pleaded guilty on December 7, 2010, to conspiracy to commit securities fraud and tax evasion. Salazar was sentenced to 54 months in prison on May 23, 2012.
• Jeffrey M. Muyres, 37, of Matthews, N.C., pleaded guilty on May 17, 2011, to conspiracy to commit securities fraud and money laundering conspiracy. Muyres was sentenced to 23 months in prison on January 18, 2012.
• Roy E. Scarboro, 48, of Archdale, N.C., pleaded guilty on December 3, 2010, to securities fraud, money laundering, and making false statements to the FBI. Scarboro was sentenced to 26 months in prison on May 4, 2011.
• James D. Jordan, 49, of El Paso, Texas, pleaded guilty on September 14, 2010, to conspiracy to commit securities fraud. Jordan was sentenced to 18 months in prison on June 29, 2011.
• Stephen D. Lacy, 53, of Pawleys Island, S.C., pled guilty on December 9, 2010, to conspiracy to commit securities fraud. Lacy was sentenced to six months in prison on May 4, 2011.
• Chad A. Sloat, 34, of Kansas City, Missouri, pleaded guilty on October 17, 2012, to conspiracy to commit securities fraud and failure to file a tax return. Sloat is currently waiting to be sentenced.
• Jeffrey M. Toft, 50, of Oviedo, Fla., pleaded guilty on November 26, 2012, to conspiracy to commit securities fraud, conspiracy to commit wire fraud, and conspiracy to commit money laundering. Toft is currently waiting to be sentenced.
• Michael J. Murphy, 52, of Deep Haven, Minnesota, pleaded guilty on January 22, 2013, to conspiracy to commit securities fraud. Murphy is currently waiting to be sentenced.
On April 27, 2011, a criminal bill of information and a Deferred Prosecution Agreement were filed against CommunityONE Bank, N.A., related to its failure to file a suspicious activity report (SAR) and maintain an effective anti-money laundering program.
Court records showed co-conspirator Simmons was a customer of CommunityONE, and used various accounts with the bank to further the Ponzi scheme.
The bank never filed any suspicious activity reports, despite what investigators say were hundreds of suspicious transactions.
CommunityONE agreed to pay $400,000 toward restitution to victims of the Ponzi scheme that operated through accounts maintained at the bank.