OPERATOR OF $8.9 MILLION PONZI SCHEME RECEIVES 65-MONTH SENTENCE
THURSDAY, MARCH 21, 2013
Public Affairs Officer
CINCINNATI – Jerry Smith, 50, of Brookville, Indiana, was sentenced to 65 months in prison, ordered to pay $5,406,950.65 in restitution to victims and $72,412.70 in restitution to the IRS for his role in an investment scheme that ensnared approximately 72 investors in Ohio, Indiana and Kentucky.
Carter M. Stewart, United States Attorney for the Southern District of Ohio, Dugan Wong, Inspector in Charge, U.S. Postal Inspection Service, and Denise Rocawich, Acting Special Agent in Charge, Internal Revenue Service Criminal Investigation, Cincinnati Field Office (IRS), announced the sentence imposed yesterday by Senior U.S. District Judge Herman J. Weber.
On June 12, 2012, Smith pleaded guilty to three counts of a four-count bill of information charging him and his co-conspirator, Jason Snelling, 48, Cincinnati, with crimes arising out of their operation of a multi-million dollar Ponzi scheme. Smith admitted that he engaged in a mail and wire fraud conspiracy in connection with a scheme to defraud investors in CityFund and Dunhill, two bogus “day trading” entities which were nothing more than bank accounts where investors’ funds were deposited and then spent by Snelling and Smith.
Smith also admitted that he engaged in obstruction by creating fictitious trading statements and providing them to federal agents to impede the investigation and cover up the fraud. Finally, Smith admitted that he committed tax evasion by failing to report the embezzled investor funds as income on his tax returns for the tax year 2008 and additional tax years.
“Consistent with a classic Ponzi scheme, early investors were paid interest or return of capital payments, which were not generated by investment earnings, but rather by monies solicited from later investors,” Stewart said. “These payments served to lull the victims into a false sense of security and to prevent or delay the discovery of the fraudulent investment scheme.”
During the course of this fraudulent scheme, Smith used investors’ money to pay for his expensive rural Indiana home, to buy a boat and jet skis, and to operate his insurance business.
Smith issued himself a monthly payment from CityFund Advisory, LLC. He made checks payable to his corporation, Smith’s Realty and Insurance. All of the monthly checks were, in fact, income to Smith and were not reported on his personal federal income tax returns. For the 2006 through 2009 income tax years, Smith willfully and knowingly omitted a total of $345,735.62 in income on his personal income tax returns, resulting in a total tax loss to the IRS of $72,412.70.
On October 23, 2012 Snelling was sentenced to 131 months in prison, ordered to pay $5,336,177.78 in restitution to the victims and $596,928.69 in restitution to the IRS. Smith was also ordered to pay $5,000,000 in a forfeiture money judgment.
“The Postal Inspection Service is committed to investigating investment schemes like the one run by Smith and Snelling that target Postal customers every day,” Inspector in Charge Wong said. “Postal Inspectors have a long history of investigating mail fraud dating back to Charles Ponzi himself. It is part of our mission to protect the customers of the Postal Service.”
“Investment fraud is like a 'house of cards.' Because Ponzi schemes have no legitimate business purpose, they can collapse when the money runs out, leaving many investors in financial ruin," said IRS Acting Special Agent in Charge Rocawich. “Investors should watch for red flags, such as guaranteed above-market interest earnings. Investors should thoroughly investigate the nature of any investment before investing their retirement savings.”
This case was prosecuted by Senior Litigation Counsel Anne L. Porter and was investigated by U.S. Postal Inspectors and special agents of IRS-Criminal Investigation.