FORMER ZNETIX SALESMAN SENTENCED TO 30 MONTHS
FRANK A. BADGER, 63, of Grand Rapids, Michigan was sentenced in Seattle by U.S. District Judge Marsha J. Pechman to thirty months in prison. BADGER entered a plea of guilty on March 28, 2005, to Conspiracy to Commit Securities Fraud, Wire Fraud, Mail Fraud, and Money Laundering. The prosecution of BADGER stems from the multi-state investigation of financial transactions related to the Znetix stock fraud, the largest stock fraud ever in the State of Washington.
According to court documents, in early 2002, just after the SEC obtained a Preliminary Injunction against Znetix and related parties freezing accounts and appointing a receiver, BADGER convinced three elderly investors who had been his clients while he was a stockbroker to allow him to take money from their accounts for investment purposes. BADGER did not disclose the nature of the investments. In one case, BADGER asked an 80-year-old Paw Paw, Michigan woman to sign a blank authorization form. At the time, BADGER was no longer an authorized agent or broker of a securities firm, but he fraudulently used a seal and letterhead from his former firm to make the authorization to withdraw funds appear legitimate. BADGER then authorized the wiring of $200,000 from the victim's annuity account to Steven J. Reimer, for a purported investment in a high-yield trading program. When an employee of the insurance company that held the victim's annuity called BADGER about the $200,000 withdrawal, BADGER falsely told the employee that Reimer was the victim's son-in-law. As part of the alleged scheme to defraud, Michael J. Culp, another defendant in the Znetix case, sent materials to the victim claiming that the money obtained by BADGER had been invested in a Bellevue, Washington-based company called Constitution Coffee. According to court documents, this claim was false. Two other elderly clients invested $100,000 each with BADGER, and their money was also sent to Steven J. Reimer. Reimer was sentenced to 70 months in prison after pleading guilty to conspiracy to commit securities fraud, wire fraud, mail fraud, unlawful sale of unregistered securities and money laundering, in connection with the Znetix stock fraud. In May, 2004, Michael J. Culp was convicted at trial of multiple counts of conspiracy, securities fraud, and money laundering for his role in the Znetix fraud. Culp was sentenced to 8 years in prison. BADGER also admitted that he had sold investments in Cascade Pointe LLC, an affiliate of Znetix, but had used some of the money provided by investors to pay personal expenses and to pay unrelated investors in the fashion of a "Ponzi" scheme.
In sentencing BADGER to 30 months in prison, Judge Pechman took into account that NASD arbitrators in 1999 had found that BADGER engaged in fraud and breach of fiduciary duty with respect to other clients. After serving his prison sentence, BADGER will be required to pay 50 percent of his gross household income towards his restitution obligation of $400,000.
This case was investigated jointly by the State of Washington Department of Financial Institutions, Securities Division, the Internal Revenue Service, and the Federal Bureau of Investigation. The case was prosecuted by Assistant United States Attorneys Jeffrey B. Coopersmith and Ye-Ting Woo.
For additional information please contact Emily Langlie, Public Affairs Officer, United States Attorneys Office, Western District of Washington at (206) 553-4110.