The onetime commander of the California National Guard base in Los Alamitos has pleaded guilty to mail fraud in a Ponzi scheme that defrauded 28 investors of $2.7 million, federal prosecutors said.
Ret. Col. Timothy Melvin Murphy, 70, of Orange, ran his investment scam through an entity known as Capital Investors Inc., also of Orange, the office of U.S. Attorney André Birotte Jr. of the Central District of California said.
In pleading guilty yesterday, Murphy admitted that he made materially false promises to clients, offered fraudulent investment opportunities to certain of his clients, and that he created and used a variety of false documents to execute the scheme,” prosecutors said.
The FBI investigated the case.
As the probe unfolded, investigators discovered that Murphy sometimes offered “guaranteed” returns, misdirected investors’ money and “created false account statements to mislead his clients into thinking that their money was properly invested and generating the promised income.”
But the former officer “did not use the clients’ investment funds as he promised he would — an investors got plucked for $2.7 million, prosecutors said.
Sentencing before U.S. District Judge David O. Carter is preliminarily set for June 25. Murphy faces up to 20 years in federal prison, a substantial fine, a restitution order and supervised probation after getting out of jail, prosecutors said.
Murphy now joins a growing list of convicted or accused Ponzi schemers in their senior years.
In Rhode Island yesterday, Martin B. Feibish, 81, of Providence, pleaded guilty to mail fraud in an alleged Ponzi swindle that lasted 10 years and plucked $5 million from a single victim.
The Orange County Register is reporting that prosecutors believe Murphy’s scam in California began as early as 2001.
Federal prosecutors in Rhode Island said the Feibish scheme also dated back to 2001.
BULLETIN: (UPDATED 4:14 P.M. EDT U.S.A. APRIL 14) The CFTC has gone to federal court in Idaho, alleging that Brad Lee Demuzio of Chubbuck was running a Forex Ponzi scheme that tanked.
Unable to make payouts, Demuzio “fabricated a letter purporting to be from the CFTC and bearing the fraudulently copied signature of a CFTC officer, which falsely represented that the company’s funds had been frozen in connection with a purported CFTC investigation,” the CFTC charged.
But Demuzio didn’t stop there, the agency charged.
“The complaint also alleges that Demuzio subsequently fabricated a second letter fraudulently providing an update as to the status of the purported investigation as well as a third document purporting to be a dismissal of the investigation and bearing the fraudulently copied signature of an Administrative Law Judge,” the agency charged.
Meanwhile, the CFTC alleged, the official seal of the Commission was used in the bid to cover up the fraud and Demuzio “attempted to pass these documents off to investors as official Commission documents.”
Chubbuck now has been indicted on five counts of wire fraud, the CFTC said, noting that the FBI was involved in the probe.
“On or about January 13, 2012, Demuzio confessed to an agent of the Federal Bureau of Investigation that he had knowingly made false statements to investors and fabricated Commission documents,” the CFTC said.
The scheme, which operated through an entity known as Demuzio Capital Management (DCM) and netted $1.8 million, began to unravel during the summer of 2011, when certain investors told Demuzio they wanted their capital outlays and purported profits back, the CFTC said.
Checks were issued to investors in August 2011, but the checks bounced, the CFTC said.
By Aug. 5, Demuzio said he could not pay because “the Commission had frozen DCM’s funds in the course of an investigation,” the agency said.
As part of the scheme, Demuzio manufactured a document addressed to himself, with a CFTC official as the purported sender.
This document falsely stated in part that “the CFTC has opened an investigation into your activities. This investigation requires the temporary freezing of your current assets. The investigation along with the freezing of your assets is intended to be temporary.”
By October, the CFTC alleged, Demuzio had manufactured another letter to himself that purportedly had originated at the agency, thanked him for his cooperation and suggested that a decision would be forthcoming.
Among other things, the bogus October letter asserted that “This letter is being sent to express our appreciation to you for your cooperation during the investigation . . . We are also writing to confirm to you that a letter of resolution will be sent to you no later than Friday October 14, 2011.”
By Oct. 11, a third bogus document surfaced. This one was styled “Order of Dismissal” and purported “to have been signed by a Commission Administrative Law Judge,” the agency said.
This document, the CFTC alleged, included this false statement:
“At the parties’ request, the complaint is DISMISSED with prejudice and this proceeding is TERMINATED in its entirety. IT IS SO ORDERED.”
Demuzio confessed to the FBI in a signed statement, the CFTC said.
“The first and most important mistake that I have made has been to lie to each of these individuals, all of whom are close friends and family,” the confession read in part, according to the CFTC. “I have lied to them about the money we made and how we made it.”
And Demuzio further confessed in his statement that he had “engaged in a series of lies that culminated in my making letter [sic] from the cftc showing that I could not return their money because of an investigation,” the CFTC said.
“Ephren Taylor professed to be in the business of socially-conscious investing. Instead, he was in the business of promoting Ephren Taylor. He preyed upon investors’ faith and their desire to help others, convincing them that they could earn healthy returns while also helping their communities.” — David Woodcock, director of the SEC’s Fort Worth Regional Office, April 12, 2012
Ephren W. Taylor II: From: YouTube
URGENT >> BULLETIN >> MOVING: The SEC has gone to federal court in Atlanta, alleging that well-known speaker Ephren W. Taylor II was at the helm of an $11 million Ponzi scheme targeting African American church congregations through two investment “programs” offered by City Capital Corp.
Taylor is 29, the son of a minister. Taylor last was known to be living in New York, but [h]is current whereabouts are unknown,” the agency alleged.
“He failed to respond to a number of Commission investigative subpoenas, including a subpoena requiring his appearance for testimony,” the agency advised a federal judge in a complaint filed in Atlanta.
Former City Capital COO Wendy Jean Connor, 43, of metropolitan Raleigh, N.C., also was charged in the alleged caper. The agency said that she pocketed “hundreds of thousands of dollars” in salary and commissions that came from money investors plowed into the Ponzi, which was at least in part a promissory-notes scam married to a “sweepstakes machine” business and other purported businesses.
Taylor “secretly” funded his wife’s singing career with Ponzi money and “diverted hundreds of thousands of dollars to publishing and promoting his books” and “hiring consultants to refine his public image,” the SEC charged.
The scheme was multifaceted and occurred across multiple jurisdictions, with Taylor focusing on African Americans, denigrating traditional investment options and encouraging his audience to plow money from their Individual Retirement Accounts into his schemes, the agency charged.
The ‘Building Wealth Tour’
“Taylor conducted a multi-city ‘Building Wealth Tour,’ on which he spoke to church congregations — including Atlanta’s New Birth Church — or at wealth management seminars featuring other speakers,” the agency charged. “Taylor promoted the Building Wealth Tour on his personal website, through City Capital press releases, and in conjunction with the churches and civic groups that hosted him. Taylor heavily emphasized his Christian background . . . and, indeed, was at times referred to as ‘Minister Taylor.’
“He also touted his ‘socially conscious’ investment focus and successful entrepreneurial history,” the agency continued. “Taylor devoted considerable time to denigrating traditional investment vehicles, such as CDs, mutual funds and the stock market, labeling them as ‘foolish’ and ‘money losers.’”
One of his scam websites was styled SweepstakesIncome.com, the agency alleged, further alleging that the purported investment opportunity was positioned as the “brainchild of self-made millionaire Ephren Taylor.”
Part of the pitch “featured Taylor’s lengthy dissertation about ‘How You Can Create a Zero-Maintenance, Residual Income Using the Sweepstakes Empire!’” the agency alleged.
Priming The Ponzi
To prop up the multifaceted Ponzi, the SEC alleged, investors were encouraged to “roll their notes over” for another year or longer — with corresponding promises that delaying redemptions would “increase the rate of return,” the SEC charged.
“The roll-over solicitations typically touted the supposed ‘great things — usually of a socially conscious nature — City Capital was doing with the investor’s money, which were all untrue,” the SEC charged. “Investors who renewed were issued new promissory notes with the new term and interest rate. Any investor who resisted was subjected to an endless cycle of unreturned phone calls and emails, empty promises of imminent action, and claims that the investor had in fact already agreed to roll over his note. To the extent investors survived this gauntlet to still insist on repayment, any funds they received invariably came from new investor money.”
Undisclosed Risks
Meanwhile, the SEC alleged today that schemes involving sweepstakes machines already were on the radar of law enforcement even as Taylor dialed up his efforts to get investors to send him money.
“Offering materials stressed that the sweepstakes machines did not involve gambling, comparing them to McDonald’s ‘Monopoly’ prize game,” the SEC charged. “Investors were not told about the risks of illegality of the machines, or that several law enforcement agencies had taken action against City Capital’s and other parlors.”
Investors paid up to $4,497 per machine, amid claims City Capital had purchased and established several ‘internet cafes’ featuring the machines,” the SEC alleged.
City Capital paid employees a commission of 10 percent for selling the machines, and Taylor and Connor were paid “overriding commissions of 10% per machine,” the SEC charged.
All in all, the sale of sweepstakes machines raised at least $4 million from more than 250 investors, the agency charged.
Returns From ‘Thin Air’
In April 2010, the SEC charged, “City Capital’s bookkeeper alerted Taylor and Connor to the weak performance of the company’s recently acquired North Carolina and Texas parlors, explaining that the locations each suffered a loss after deducting operating expenses.
“Rather than tell investors assigned to machines in those locations that they would get no distributions — perhaps to avoid an investor backlash — Taylor and Connor instructed the bookkeeper to pay simulated returns essentially pulled from thin air,” the SEC continued.
“The bookkeeper had to divert funds received from new sweepstakes machine investors — and from investors’ funds in other City Capital ventures — to make these payments,” the agency charged. “As the parlors continued to lose money over the ensuing months, Taylor and Connor instructed the bookkeeper to continue making these simulated payments, telling her simply to make the same payment ‘as last month.’ These payments ended after August 2010, when City Capital ran out of money.”
The onetime commander of the California National Guard base in Los Alamitos has pleaded guilty to mail fraud in a Ponzi scheme that defrauded 28 investors of $2.7 million, federal prosecutors said.
