Investment Club Manager Pleads Guilty to $40 Million Fraud
WASHINGTON – Alan James Watson, 46, of Clinton Township, Mich., pleaded guilty today to fraudulently soliciting and accepting $40 million from more than 750 members of his investment club and losing nearly all of it through non-disclosed, high-risk investments. Victims were located in Virginia and nationwide.
The guilty plea was announced by U.S. Attorney Neil H. MacBride for the Eastern District of Virginia, Assistant Attorney General Lanny A. Breuer of the Criminal Division, and James W. McJunkin, Assistant Director in Charge (ADIC) of the FBI’s Washington Field Office.
Watson pleaded guilty before U.S. District Judge Gerald Bruce Lee in the Eastern District of Virginia to one count of wire fraud. He faces a maximum penalty of 20 years in prison when he is sentenced on Dec. 9, 2011.
“A.J. Watson took huge risks with others’ money and lost big,” said U.S. Attorney MacBride. “He covered up his massive losses through lies and deceit to members of his investment club, many of whom would never have joined his club and have now lost everything.”
“Without the consent of his clients, Mr. Watson gambled away investors’ funds on risky ventures that led to millions of dollars in losses,” said Assistant Attorney General Breuer. “He used his investment club to cheat people who trusted him out of their savings. The Justice Department will continue to be aggressive in our pursuit of financial fraudsters – whether they are on Wall Street or Main Street.”
“More than 750 unwitting victims thought they had done their homework and calculated their investment wisely; instead, they were met with false documentation that yielded no return on their investment,” said FBI ADIC McJunkin. “Schemes like this are why the FBI investigates white collar crimes, determined to protect potential victims.”
According to a statement of facts filed with his plea agreement, Watson created an investment club in 2004 and served as the club’s chief executive officer. From 2006 to 2009, Watson received almost $40 million from investors. Watson purported that the money would be invested through an equities-trading system developed by an expert consultant, Company A, with a promised return on investment of 10 percent per month. In reality, Watson admitted that only $6 million of the $40 million was ever invested in Company A, while the remaining $34 million was secretly invested in miscellaneous, high-risk ventures without the consent of investment club members. These high-risk investments resulted in a near complete loss of the $34 million.
According to court documents, despite the losses for the investors, Watson continued to create false monthly account statements showing net gains from their investments. In addition, Watson included “bonus” items on the account statements that appeared as trading profits, the result of a Ponzi scheme he orchestrated to use new investor funds to pay off earlier investors.
In March of 2009, Watson ceased investing in Company A and re-deposited those funds in separate unauthorized ventures. In 2010, nearly a year after he had fully withdrawn finances from Company A, Watson informed investment club members that he had not invested their money as promised, and that none of the reported returns had ever materialized. This resulted in a combined $40 million loss for investment club members.
The Commodity Futures Trading Commission (CFTC) has filed a related civil case in the Eastern District of Michigan.
This case was investigated by the FBI’s Washington Field Office, the CFTC and the Securities and Exchange Commission. The department thanks these agencies for their substantial assistance in this matter.
Assistant U.S. Attorney Mark D. Lytle and Trial Attorney Kevin B. Muhlendorf of the Criminal Division’s Fraud Section are prosecuting the case on behalf of the United States.
The investigation has been coordinated by the Virginia Financial and Securities Fraud Task Force, an unprecedented partnership between criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases in the nation and in Virginia. The task force is an investigative arm of the President’s Financial Fraud Enforcement Task Force, an interagency national task force.President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: www.stopfraud.gov.