FOR FURTHER INFORMATION CONTACT
AUSA VICKIE E. LEDUC at 410-209-4885
FOR IMMEDIATE RELEASE
FORMER CEO OF BETHESDA INVESTMENT COMPANIES
INDICTED FOR STEALING $3.1 MILLION AND INCOME TAX EVASION
Understated Taxes Owed by $408,284 Over Four Years
Greenbelt, Maryland -- A federal grand jury has indicted John J. Lawbaugh, age 36, of Poolesville, Maryland on charges of wire fraud, mail fraud, theft from a registered investment company and income tax evasion, announced United States Attorney for the District of Maryland Rod J. Rosenstein.
United States Attorney Rod J. Rosenstein stated, "The Department of Justice is committed to holding accountable corporate officers who defraud investors. We must remain vigilant to keep our capital markets free of fraud and abuse."
According to the 33-count second superseding indictment unsealed today upon his arrest, Lawbaugh was the Chairman of the Board, Chief Executive Officer (CEO) and majority stockholder of 1st Atlantic Guaranty Corporation and SBM Certificate Corporation from 1997 to August 16, 2002, when he was removed by each company’s respective board of directors. 1st Atlantic and SBM are face-amount certificate companies that are registered with the United States Securities & Exchange Commission (SEC) under the Investment Company Act of 1940. Face-amount certificate companies issue certificates to investors promising to repay their invested principal (the face amount) plus accrued interest at a specified rate when the certificate matures. The certificate companies in turn seek to earn their profits by investing the funds at a higher rate of return. 1st Atlantic and SBM both maintained their offices in Bethesda, Maryland.
The indictment alleges that from 1997 to August 2002, Lawbaugh schemed to defraud 1st Atlantic and SBM investors, and 1st Atlantic and SBM themselves, of approximately $3.1 million. The indictment alleges that in some cases, Lawbaugh diverted funds that were tendered to him by investors to unknown purposes and never actually placed the funds with 1st Atlantic or SBM. In other instances, the indictment charges that Lawbaugh diverted SBM corporate funds to “off-the-books” bank accounts that he created, then disbursed these funds to various personal accounts or accounts in the names of other businesses he controlled. The indictment contends that Lawbaugh then used these funds for personal purposes, as well as making payments of “interest” or principal to investors whose funds he had never in fact placed with either 1st Atlantic or SBM.
The SEC commenced a civil action against Lawbaugh in U.S. District Court in Greenbelt, Maryland in September 2003. That action ultimately ended with the entry of a default judgment against Lawbaugh.
The indictment further alleges that Lawbaugh evaded income taxes for the calendar years 1999 through 2002 by not reporting the diversions and thefts described above. The indictment charges that Lawbaugh understated his taxable income by the following amounts:
Income Falsely Tax Falsely Actual Actual Tax
Reported Reported Income Owed
1999 $38,310 $5,649 $308,247 $95,227
2000 48,901 7,680 374,791 121,016
2001 125,309 29,287 621,824 215,171
2002 113,013 23,834 177,107 43,320
As shown above, for the calendar years 1999 to 2002 Lawbaugh reported taxes owed of $66,450 when in fact he owed $474,734, understating the taxes owed by $408,284.
Lawbaugh faces a maximum sentence of 5 years in prison and a $250,000 fine, followed by up to 3 years of supervised release, on each of the 21 counts charging wire and mail fraud; 5 years in prison and a $250,000 fine, followed by up to 3 years of supervised release, on each of the 8 counts charging theft from a registered investment company; and 5 years in prison followed by up to 3 years of supervised release on each of the 4 counts charging income tax evasion. Lawbaugh had his initial appearance in U.S. District Court today.
An indictment is not a finding of guilt. An individual charged by indictment is presumed innocent unless and until proven guilty at some later criminal proceedings.
United States Attorney Rod J. Rosenstein praised the investigative work performed by the Securities and Exchange Commission, Federal Bureau of Investigation and Internal Revenue Service - Criminal Investigation. Mr. Rosenstein thanked Assistant U.S. Attorneys Jefferson M. Gray and Chan Park, who are prosecuting the case.
This page last modifiedFebruary 2, 2006