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OPERATOR OF ‘CAP X’ PONZI SCHEME SENTENCED TO NINE YEARS IN FEDERAL PRISON FOR BILKING VICTIMS OUT $8 MILLION

FOR IMMEDIATE RELEASE
April 11, 2011

LOS ANGELES – The promoter of a bogus investment scheme that promised quick returns through the resale of office equipment was sentenced today to 108 months in federal prison for orchestrating a Ponzi scheme that caused victims across the United States to lose more than $8 million.

Peter Jerald Frommer, 35, of Santa Barbara, was sentenced by United States District Judge George H. Wu. In addition to the prison term, Judge Wu ordered Frommer to pay $8.1 million in restitution.

Frommer pleaded guilty in November to wire fraud, money laundering and three counts of failing to file federal income tax returns for the tax years 2004 through 2006.

Frommer operated a bogus investment scheme under the names “Cap Exchange” and “Cap X,” companies that he falsely claimed traded in surplus property of defunct companies. Frommer told numerous victims throughout the United States that he used commercial auction websites to purchase large lots of equipment for resale at higher prices.

From early 2004 through August 2006, Frommer solicited more than $13 million from more than five dozen victims by promising “guaranteed” returns of up to 15 percent in as little as six weeks. Frommer obtained money from 64 investors throughout the United States. Frommer claimed that he would use victims’ money to buy the distressed assets for Cap X, and then would share profits from the subsequent sales. Instead, Frommer used the victims’ money to make Ponzi payments and to maintain a lavish personal lifestyle, which included a $20 million Malibu mansion, parties that featured celebrity performers, and luxurious personal travel and automobiles.

Additionally, Frommer convinced many investors to put money into other bogus ventures that he pitched, including a wireless Internet company, a high-end automobile parts venture, real estate deals, and other investments beyond Cap-X.

In a series of filings made in relation to today’s sentencing hearing, prosecutors focused on the impact Frommer had on his victims. “Plainly put, Frommer’s greed led to pain, distress and a terrible disruption of the lives of his victims,” according to one of the government’s briefs.

In one of the filings, prosecutors quoted extensively from a series of letters sent by victims who urged Judge Wu to impose a stiff sentence. Those comments included:

“The effects of Peter Frommer’s crimes have been devastating for me. The only event in my lifetime that was worse was the death of my child.”

“He is the West Coast version of Bernie Madoff.”

“I am sorry to admit my family was victimized by Peter Frommer. A close relative of ours introduced us when my family and I were in California seeking cancer treatment for our youngest son. In a moment of weakness, when we were struggling with the cost of his cancer treatment, we were duped and convinced ourselves, our adult children, and a sister that this was a smart and safe investment. We made a terrible mistake.”

“My son values his education and was very intent on attending a prestigious California university. Unfortunately, he has not been able to attend that college because of the change in financial circumstances caused by Peter Frommer’s actions. What value do you put on the quashing of a teen’s dreams?”

Judge Wu ordered Frommer to begin serving his sentence on May 31.

The investigation into Frommer was conducted by the Federal Bureau of Investigation and IRS-Criminal Investigation.

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Release No. 11-056

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