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Thursday, November 19, 2009

Department of Justice

United States Attorney James R. Dedrick Eastern District of Tennessee


LUIS HIRAM RIVAS SENTENCED TO TWENTY-FOUR YEARS AND FIVE MONTHS IN PRISON FOR $18 MILLION PONZI SCHEME

[CHATTANOOGA, Tenn]– Luis Hiram Rivas was sentenced to 24 years and five (5 ) months in prison, ordered to pay $ 18,011,312 in restitution, serve three years supervised release, and pay $500 in special assessments. The sentence was imposed today in Chattanooga, Tennessee, by United States District Judge Curtis L. Collier. The Court imposed the maximum sentence possible under the Sentencing Guidelines.

Rivas pled guilty to three counts of an indictment by the federal grand jury in Chattanooga, charging him with one count of wire fraud in violation of Title 18, United States Code, Section 1343; one count of money laundering in violation of Title 18, United States Code, Section 1957; and one count of bankruptcy fraud in violation of Title 18, United States Code, Section 152(7). He also pled guilty in Chattanooga to two counts of wire fraud charged by a federal grand jury sitting in the District of South Carolina. Rivas has been in custody since his arrest in Kansas in June, 2008.

Pursuant to a plea agreement with the United States, involving both the Eastern District of Tennessee and the District of South Carolina, Rivas pled guilty to devising a so-called Ponzi scheme between March 2007 and May 2008. During the course of the fraud, he represented himself to be an experienced and successful foreign currency trader and guaranteed up to a 96% annual rate of return for three years, paid monthly, on investments. The operation was headquartered in Chattanooga, but spread with the opening of offices, called trading centers, in Knoxville, Tennessee, Spartanburg, South Carolina, Panama City, Florida, and Tulsa, Oklahoma.

Rivas successfully defrauded hundreds of individuals in various states, including Tennessee and South Carolina, and obtained in excess of $18 million. Early investors received monthly payments made from the investments of newer investors, making this a classic "Ponzi scheme." Much of the investors' money was never invested, but instead was used to purchase luxury items for Rivas, his girlfriends, and so-called equity traders. He misapplied invested funds with extravagant purchases of houses, cars, furs, jewelry, limousine service, clothing, home improvements and furnishings, hotel suites, and cash for "shopping sprees." These purchases were made both as lavish gifts and rewards to employees and others helping the defendant to further the scheme, as well as for personal gifts made from investor funds. In one example, on November 8, 2007, Rivas conducted a monetary transaction through a federally insured financial institution with the proceeds of the wire fraud scheme to purchase a Land Rover in Chattanooga for $163,000.

Rivas used proceeds of the fraud to promote the scheme by giving gifts and bonuses to some of his investors to encourage them to recruit others. These investors were called "equity agents." Criminally derived proceeds were also spent in amounts over $10,000. Each of these transactions constitutes a separate violation of the money laundering statute.

Rivas also engaged in bankruptcy fraud. On May 15, 2008, three of the victims filed an involuntary bankruptcy petition to force the defendant into bankruptcy. Rivas illegally shifted hundreds of thousands of dollars out of the bankruptcy estate.

Based upon his guilty plea, Rivas had faced maximum penalties totaling seventy-five years in prison and fines of up to $1.25 million. The maximum penalty for each violation of the wire fraud statute is 20 years in prison and a $250,00 fine. The maximum penalty for one count of laundering criminally derived proceeds is ten years in prison and a $250,000 fine. The maximum penalty for one count of bankruptcy fraud is 5 years in prison and a $250,000 fine.

The investigation, which led to the guilty plea and subsequent sentencing of Rivas was conducted by Internal Revenue Service - Criminal Investigation, the United States Secret Service, the Office of the United States Trustee, Assistant U.S. Trustee William Sonnenburg, and the Federal Bureau of Investigation. Assistant U.S. Attorney Gary S. Humble represented the United States.

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