Ponzi Scheme Operator Pleads Guilty To Securities Fraud
United States Attorney Anne M. Tompkins Western District Of North Carolina
Defendant Spent Nearly $1.2 Million Of Investors’ Funds On Personal Expenses
CHARLOTTE, N.C. – Claude Darrell McDougal, 55, formerly of Charlotte, appeared before U.S. Magistrate Judge David S. Cayer today and pleaded guilty to securities fraud for orchestrating a Ponzi scheme that defrauded his investor victims of over $2.5 million dollars, announced Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina.
North Carolina Secretary of State Elaine F. Marshall and John A. Strong, Special Agent in Charge of the Federal Bureau of Investigation (FBI), Charlotte Division join U.S. Attorney Tompkins in making today’s announcement.
According to court documents and today’s plea hearing, from 2006 to 2010 McDougal induced over 25 investors in Charlotte and elsewhere to invest more than $2.5 million, by promising his victims their money would be invested in securities, in the form of promissory notes offered by US Financial Alliance Consultants, LLC (Financial Alliance). McDougal created Charlotte-based Financial Alliance in 2005, but his company was never registered as a dealer of securities in North Carolina or elsewhere, court records reflect. Also, according to court records, McDougal was not registered to sell securities in North Carolina or in any other state, following termination from his previous employer in August 2009.
According to court documents, McDougal induced his victims to invest with Financial Alliance by “guaranteeing” fixed rates of return between 6% and 15% annually. Court records show that often McDougal’s victims were elderly and the funds they invested – and McDougal squandered – were most, if not all, of their life savings. During the course of the fraud, McDougal invested only $580,000 of the victims’ money and used approximately $450,000 to pay some victims supposed “payouts” from profits made on investments. However, court records show that these payments were not based on profits, but came from funds contributed by new investors, commonly referred to as “Ponzi” payments.
Today, McDougal admitted in court that he used approximately $1.19 million of the investors’ funds to support his own lifestyle, including to buy dinners, jewelry and electronics, and to pay for hotel stays, furniture and other business-related expenses.
McDougal has been released on bond. At sentencing, he faces a maximum of 20 years in prison for the securities fraud offense a fine of $5,000,000. A sentencing date has not been set.
The case was investigated by the North Carolina Secretary of State, Securities Division, with assistance from the FBI, Charlotte Division.
The prosecution is being handled by Special Assistant United States Attorney Kevin M. Harrington and Assistant U.S. Attorney Kurt W. Meyers of the Western District of North Carolina.
Mr. Harrington is an Enforcement Attorney with the North Carolina Department of Secretary of State, Securities Division, and was appointed to serve as a Special Assistant United States Attorney (SAUSA) with the U.S. Attorney’s Office in Charlotte in September 2011. The SAUSA position reflects the partnership between the North Carolina Securities Division and the United States Attorney that helps ensure the effective and vigorous prosecution of white collar criminals, particularly in the area of securities fraud.
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. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.