FOR FURTHER INFORMATION CONTACT
AUSA VICKIE E. LEDUC or
MARCIA MURPHY at 410-209-4885
JUNE 26, 2007
FOR IMMEDIATE RELEASE
FORMER CEO OF BETHESDA INVESTMENT COMPANIES PLEADS GUILTY
TO STEALING $1.261 MILLION AND TO INCOME TAX EVASION
Evaded $388,798 in Taxes on Stolen Funds
Greenbelt, Maryland -- John J. Lawbaugh, age 37, of Poolesville, Maryland, pleaded guilty today to wire 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, “By abusing his authority as chief executive officer of two investment companies, Mr. Lawbaugh stole more than $1.2 million. It is essential for us to protect investors in order to preserve public confidence in our financial markets.”
Special Agent In Charge, Francis L. Turner, IRS - Criminal Investigation stated "We view schemes as organized tax evasion and it is a top priority for us to stop promoters of schemes."
According to the plea agreement, Lawbaugh was the chairman of the board (COB), chief executive officer (CEO) and majority stockholder of 1st Atlantic Guaranty Corporation from 1997, and COB and CEO of SBM Certificate Company from July 2000, until August 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). 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.
Lawbaugh admitted that between August 1999 and October 2001, he misappropriated $1,261,882.40 in 1st Atlantic and SBM funds and diverted those funds to unauthorized uses, including for his personal benefit and for the benefit of his family. Lawbaugh carried out these thefts mainly in three ways. First, on seven occasions, Lawbaugh caused 1st Atlantic or SBM to issue cashier’s checks or wire transfers of funds in amounts that were greater than were actually needed to carry out particular investment transactions. Lawbaugh then diverted the excess funds to pay for various personal expenses and purchases, including clothes, books, car repairs, gasoline, restaurants, country club and golf expenses, and a trip to Mexico. By this means, Lawbaugh fraudulently obtained funds totaling $918,614.25.
Second, on four other occasions, Lawbaugh fraudulently diverted investment proceeds that should have been paid to 1st Atlantic into two undisclosed “off-the-books” bank accounts that he established in the name of 1st Atlantic at a bank other than that regularly used by the company. Lawbaugh exercised sole control over these two accounts, and used these funds for personal or other unauthorized purposes. By this means, Lawbaugh fraudulently obtained funds totaling $154,928.58.
Finally, on three occasions Lawbaugh had loan origination or other fees relating to various real estate transactions in which 1st Atlantic or SBM were participants paid to largely inactive companies that he had previously established for other purposes, and whose bank accounts he controlled, without disclosing these transactions to the respective company’s board of directors, to their accounting departments or to the SEC. By this means, Lawbaugh fraudulently obtained funds totaling $188,338.61.
Lawbaugh also admitted that by failing to report these transactions on the joint tax returns he and his wife filed for the years 1999-2001, he understated his taxable income by $1.092 million, resulting in an additional tax due and owing of $388,798.00.
Lawbaugh faces a maximum sentence of five years in prison followed by three years of supervised release and a $250,000 fine on each of the wire fraud, theft and income tax evasion charges. U.S. District Judge Roger W. Titus has scheduled a sentencing hearing for October 2 and 3, 2007 and October 25 and 26, 2007.
United States Attorney Rod J. Rosenstein praised the Securities and Exchange Commission; the Federal Bureau of Investigation; and the Internal Revenue Service - Criminal Investigation for their investigative work. Mr. Rosenstein thanked Assistant U.S. Attorneys Jefferson M. Gray and Harry Gruber, who are prosecuting the case.