Idaho Falls Man Sentenced For Interstate Transportation Of Property Taken By Fraud
Defendant Ordered to Pay Over $2 Million in Restitution to Victims of Fraud
POCATELLO – Gene Edward Hinsley, 64, of Idaho Falls, Idaho, was sentenced today to five years of probation for interstate transportation of property taken by fraud, U.S. Attorney Wendy J. Olson announced. U.S. District Judge Edward J. Lodge also ordered Hinsley to serve six months of home detention and pay $2,012,539.55 in restitution to victims of the fraud.
On October 8, 2013, Hinsley was convicted by a federal jury in Pocatello on count eight of the indictment that charged him with interstate transportation of property taken by fraud. The jury was unable to reach a unanimous verdict on the remaining seven counts, including charges of wire fraud and mail fraud. Prior to sentencing, the defendant and the government entered into a post-trial agreement in which the government agreed to dismiss the remaining counts and the court could consider “relevant conduct” in determining Hinsley’s sentence.
During the six-day trial, the jury heard evidence that between 2004 and 2008, Hinsley, who was the sole owner and operator of Galaxy Coin LLC, a business located in Idaho Falls, schemed to defraud investors by obtaining money in connection with what he represented as securities issued in the form of investment contracts for speculating in the silver market. According to the evidence, Hinsley transmitted account statements and letters regarding the status of investments, by wire and the U.S. Postal Service. Hinsley did not register the securities he was selling and he was not a registered securities broker-dealer.
The government presented evidence that in 2004, Hinsley began offering an investment program that used his expertise to buy and sell silver and would generate a return on investment by selling the silver for more than the purchase price. The parties’ agreement provided that the investor would earn a profit by investing money with Hinsley, and that the investor was not expected to expend any effort to obtain the return other than providing the investment funds. According to the evidence, Hinsley misrepresented to investors that their investment was low-risk, risk free, or moderately risky; that the investors’ only risk was that they might end up with the silver; and that the investors could withdraw all or part of their invested funds upon notice. The jury heard evidence that Hinsley did not return the money when requested by investors to do so.
The government presented evidence that Hinsley’s investment scheme was structured to pay investors 80% of profits and Hinsley 20%. As Hinsley gained investors and conducted more transactions, he eventually switched to a fixed rate of return of 13% every two months, or 78% annually. Hinsley initially paid investors the returns he promised and, based on the reliability of generous investment returns and bi-monthly, e-mailed account statements, misled investors into believing he was investing prudently and obtaining consistent monthly returns. Because of these misrepresentations, investors did not attempt to remove their investment and generated a positive image to attract new investors.
The jury also heard evidence that in April 2008, Hinsley notified investors that he was unable to purchase silver due to its declining price and no one would sell to him; that he was reducing the return to 2% per month, or 24% annually; and that he would not return their investments until October 2008. In September 2008, Hinsley told investors that he would continue to pay the 2% monthly return, but would postpone payouts of the principal for an additional six months. Because Hinsley failed to maintain accurate business records, the government estimated that he issued investment contracts to over 100 investors of over $4 million, with a net loss of between $1.5 million and $2 million.
The case was investigated by the Federal Bureau of Investigation.
Today's announcement is part of efforts underway by President Obama's Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys' offices and state and local partners, it's the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.