Jury Convicts Two Defendants in Multi-Million-Dollar Investment Scam
Following a two-week trial, a jury on Wednesday, convicted Kenneth Kennedy, 66, of Clarksville, Tennessee and Ann Scarborough, 65, of Hopkinsville, Kentucky of several crimes related to their roles in a multi-million-dollar investment scam. Kennedy, a retired military lawyer and former elected Trigg County Attorney in Cadiz, Kentucky, was found guilty of three counts of wire fraud and five counts of mail fraud. Scarborough, a long-time Hopkinsville businesswoman, was found guilty of seven counts of wire fraud and one count of money laundering. Each face up to 20 years in prison on the fraud offenses and up to 10 years on the money laundering offense.
“It is gratifying that, after a lengthy investigation and complex trial, a jury held these defendants accountable for their criminal conduct,” said U.S. Attorney Jerry Martin. “White collar criminals who defraud victims pose a continuing threat to Middle Tennessee citizens. The U.S. Attorney’s Office and its law enforcement partners will continue to investigate and prosecute those who commit these type of crimes.”
At trial, the jury heard extensive evidence related to the three-year investment scam that defrauded victims in both Kentucky and Tennessee. According to the evidence, four defendants – Sheila Kennedy, her husband Kenneth Kennedy, Ann Scarborough, and Philip Russell perpetrated the scam from April 2005 to into mid 2008. Sheila Kennedy held herself out as a real estate guru who could obtain huge returns on properties to be developed. She enlisted Ann Scarborough, a personal friend from Kentucky, and later, Russell, a financial advisor in Brentwood, Tennessee, to solicit investors for these projects. Victims were told of projects involving strip malls in Las Vegas, a Disney theme park in Middle Tennessee, a medical center in Arizona, and new land for the Bonnaroo music festival, among many others. In each case, investors received a “promissory note,” guaranteeing their initial investment and promising them five or more times their money in just a few months. According to financial records and testimony by law enforcement agents, however, none of the purported real estate deals ever existed. Instead, the investor money was misappropriated for the benefit of Sheila and Kenneth Kennedy, Scarborough, and Russell.
When the promissory notes came due, Sheila Kennedy, Scarborough, Russell, and Kenneth Kennedy offered investors various excuses, including that the money was “tied up” because of IRS problems, the Patriot Act, and banking regulations stemming from the terrorist attacks on September 11, 2001. Later, investors were assured that they would be paid from a purported billion-dollar inheritance that Sheila Kennedy was to receive from a distant relative. As told to different victims with varying details, this inheritance was from a step-grandfather from Russia who fled to the United States shortly before the Bolshevik revolution. According to the defendants, the inheritance had been tied up in the courts and with the Office of Comptroller of Currency for years. As the scheme progressed, Kenneth Kennedy and Ann Scarborough solicited some investors specifically for the purpose of obtaining this purported inheritance, claiming that more money was needed to get the inheritance “released” or to pay related expenses. On cross examination, however, both Scarborough and Kenneth Kennedy admitted they had never seen a single document related to this inheritance.
Following the convictions, District Judge William J. Haynes set Scarborough and Kenneth Kennedy’s sentencing date for March 4, 2011. Sheila Kennedy and Philip Russell were also originally charged in the indictment. Sheila Kennedy previously pleaded guilty to several counts of wire fraud, mail fraud, and money laundering, and her sentencing is scheduled for November 12, 2010. Philip Russell had been scheduled to go to trial with Scarborough and Kenneth Kennedy on October 5, 2010. On the first day of trial, however, Russell failed to appear, and the court issued a warrant for his arrest. To date, Russell remains a fugitive.
The case was investigated by agents with the Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigation, and the United States Postal Inspection Service. The United States was represented by Assistant U.S. Attorneys Ty Howard and Sandra Moses.
Stop Medicare Fraud
The U.S. Department of Health and Human Services (HHS) and U.S. Department of Justice (DOJ) are working together to help eliminate fraud and investigate fraudulent Medicare and Medicaid operators who are cheating the system.