Almost a year after local money manager Trevor Cook was sentenced to 25 years in prison in connection with a $194 million Ponzi scheme that he operated, three new individuals were charged in connection with the fraud.
Jason Bo-Alan Beckman, 41, of Plymouth; Gerald Joseph Durand, 60, of Faribault; and conservative radio show host Patrick Kiley, 73, of Burnsville were charged with conspiracy, 11 counts of wire and mail fraud, and six counts of money laundering, according to an indictment that was unsealed Wednesday.
According to the indictment, between 2005 and November 2009, the three defendants-along with Cook and Christopher Pettengill, who is awaiting sentencing for his involvement in the scheme-defrauded investors through what they marketed as a foreign currency trading program. The program was offered through entities purportedly named United Brokerage Services (UBS), although they had no connection to the global financial services provider of the same name. In order to attract investors, the five allegedly gave false information about the performance, safety, and liquidity of the program.
According to the U.S. Attorney's Office in Minnesota, the men lied about their backgrounds and qualifications; falsely told investors that the currency program would earn a double-digit rate of return, typically between 10.5 and 12 percent annually, with little or no risk to investment assets; and said that investor assets could be withdrawn at any time and would be held in segregated accounts, which wasn't the case.
After investments were secured, investors allegedly received statements that purported to be from the UBS entities, and some received checks that were presented as investment returns. The statements gave the appearance that the program was performing as promised. Most investors, however, didn't get statements or checks from the parties that were actually in possession of their funds, the U.S. Attorney's Office said.
Some investors' assets really were invested in foreign currency trading, but the trading was high-risk and often resulted in significant financial losses-a fact that was allegedly concealed from them. The defendants also failed to tell investors that one of the trading firms it was working with was in dire financial condition and continued to solicit assets to go to that firm. They additionally hid concerns about Cook's operation of the trading program and information about illegal practices related to it, according to the U.S. Attorney's Office.
Of the $194 million that the five men secured in investor assets, only $109 million was alleged to have been sent to currency trading firms. Another $68 million was allegedly lost in higher-risk trading, and $52 million was allegedly paid to investors, purporting to be returns on investments or withdrawals of investments. Approximately $30 million in investor assets were diverted to fund the business and personal expenses, and other investments, of the fraud-scheme operators, the U.S. Attorney's Office said.
In 2007, UBS, AG filed a trademark infringement lawsuit against Cook, Durand, Kiley, and others-prompting the defendants to begin operating their scheme under other names, including "Oxford" and "Universal Brokerage FX."
Cook pleaded guilty in April to federal fraud and tax evasion charges relating to the operation the scam, which is believed to have defrauded more than 900 investors. Last August, he was sentenced to 25 years in prison. Pettengill pleaded guilty in June to one count of securities fraud, one count of conspiracy to commit wire fraud, and one count of money laundering.
According to the Star Tribune, Kiley and Beckman made initial appearances at the federal courthouse in St. Paul on Wednesday-and Durand is expected to turn himself in soon. Kiley and Beckman were reportedly released on unsecured bonds of $100,000 and are restricted from making financial transactions on behalf of themselves or others without government approval; they also can't contact investors.
If convicted, Beckman, Durand, and Kiley face a potential maximum penalty of 20 years in prison on each wire fraud and mail fraud count, 10 years on each money laundering count, and five years on the conspiracy count.
To read more about Wednesday's events in the courtroom, and to hear investor reactions to the just-announced charges, click here to see the Star Tribune story.