BULLETIN: No Profitable Sunrise For Florida Ponzi Pitchman; Gary D. Martin Sentenced In North Carolina To 10 Years In Federal Prison For ‘Queen Shoals’ Money-Laundering Conspiracy And Ordered To Pay More Than $31 Million In Restitution

In a development that could give pause to promoters of the purportedly “private” Profitable Sunrise scheme now on the radar of regulators in North America and Europe, a Florida man has been sentenced to 10 years in federal prison for his role in pitching a purported “opportunity” known as Queen Shoals.

The announcement of the prison sentence of Gary D. Martin, 61, was made by U.S. Attorney Anne M. Tompkins of the Western District of North Carolina. She was joined by Roger A. Coe, acting special agent in charge of the FBI office in Charlotte, and North Carolina Secretary of State Elaine F. Marshall.

Marshall’s office issued a cease-and-desist order late last month to Profitable Sunrise, a purportedly “private” program. Tompkins’ office, meanwhile, is involved in the probe of the alleged Zeek Rewards Ponzi scheme, which described itself as a “private” program, according to court files.  In August 2012, the SEC said Zeek was selling unregistered securities as investment contracts and had gathered at least $600 million.

While Profitable Sunrise is alleged by regulators to be offering returns in excess of 300 percent a year, Queen Shoals promised a much lower annualized percentage of between 8 percent and 24 percent.

The $32.5 million Queen Shoals Ponzi scheme was operated by Sidney Hanson. Martin formed an LLC with a similar name and pitched Queen Shoals from Florida. Federal prosecutors effectively accused him of passing along lies told by Hanson to fleece investors, including senior citizens.

Chief U.S. District Judge Robert J. Conrad Jr., who ruled in August 2011 that promises of “guaranteed” annual earnings were used by Martin to lure customers into the fraud, described the effect as devastating

“People in their 60’s, 70’s, 80’s and even 90’s lost everything because Hanson and Martin defrauded them,” prosecutors quoted Conrad as saying.

And, prosecutors said, Conrad also noted that Martin “went into homes, got people to rely on him and told them things that weren’t true, and based on false representations, many lost their life savings . . . He is seriously culpable.”

Conrad ordered Martin to pay more than $31.7 million in restitution and to serve two years’ probation upon completion of the prison sentence.

The Martin case speaks to the issue of how a lack of due diligence on the part of promoters can cause problems if a scheme later turns out to be a scam, perhaps especially if promoters add their own lies to a pitch and recruit other pitchmen.

From a statement by prosecutors (italics/bolding added):

Court records show that although Hanson never directly told Martin that Queen Shoals was a Ponzi scheme, Martin induced victims to invest in the Queen Shoals Ponzi scheme through a series of false and fraudulent representations. Specifically, Martin falsely claimed that QSC had over 20 years’ experience in financial services and international finance and that he had a vast background in financial services, including the silver, gold and foreign currency trading markets. In fact, Martin had no such experience, held no professional licenses related to finance or investments and had never engaged in any silver, gold or foreign currency trading.

According to court documents, Martin, through the QSC web site and other means, also made false claims about QSC’s financial expertise in “Self-Directed IRA Strategies and Fixed Rate Accounts.” Martin held QSC out as “leaders in Professional Private Placement Retirement Planning” and falsely claimed that QSC had a “proven method of diversification [that] spreads the risk nicely for a balanced portfolio,” when, in fact, QSC offered no such diversification and funneled victim funds solely into the Queen Shoals Ponzi scheme. Court records show that Martin routinely vouched for the success and reliability of Queen Shoals by claiming to have personally invested a significant amount of his own money into Queen Shoals when, in fact, Martin personally invested only $4,000.

According to filed documents and today’s sentencing hearing, Martin engaged in money laundering transactions by utilizing the referral fees he received from Hanson to pay commissions to himself and the so-called QSC consultants. From in or about 2007 to in or about 2009, Martin received over $1.9 million in referral fees from Hanson and paid the consultants over $1.5 million during the relevant time period in return for inducing victims to invest in the Queen Shoals Ponzi scheme. These payments caused QSC consultants to induce additional victims to invest in the Queen Shoals Ponzi scheme, thereby perpetuating the scheme.

In March 2011, Hanson, then 63, was sentenced to 22 years in federal prison.