United States Attorney
Northern District of Texas

1100 Commerce St., 3rd Fl.
Dallas, Texas 75242-1699

Telephone (214) 659-8600
Fax (214) 767-0978

Ponzi Scheme Operator Faces Federal Charges

James Ray Phipps Ran “Life Without Debt” Ponzi Scheme
From Office in Colleyville, Texas

A man who is charged in a federal indictment with running an elaborate Ponzi investment scheme that defrauded investors of approximately $21 million was arrested by federal agents yesterday outside of a post office in Anniston, Alabama, announced U.S. Attorney Richard B. Roper. James Ray Phipps appeared yesterday in federal court in Birmingham, Alabama, where a United States Magistrate Judge detained him pending a detention hearing set for tomorrow, Thursday, April 20. Phipps, who ran “Life Without Debt” from an office in Colleyville, Texas, is charged with three counts of mail fraud, one count of wire fraud, 13 counts of money laundering, one count of corruptly endeavoring to obstruct and impede the Internal Revenue Service (IRS) laws and three counts of income tax evasion in an indictment returned by a federal grand jury in Fort Worth, Texas, last week.

The indictment describes a Ponzi scheme is a type of illegal pyramid scheme where money from new investors is used to pay off earlier investors until the scheme collapses. A hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.

According to the indictment, from June 1996 through August 20, 2001, Phipps ran the Ponzi scheme using unsolicited faxes, unsolicited mailings and weekly conference calls that encouraged others to become members and contribute money to “Life Without Debt” and receive money in return for recruiting other members. Members were encouraged to contribute between $2,000.00 and $100,000.00 with the larger the contribution made to “Life Without Debt” the larger the return of money from the plan. Phipps restricted the contributions to cash or money orders with the payee line left blank.

The $2000.00 plan, for example, required each member to recruit two new members repeating this cycle until there was an eight-level matrix with 510 members. Phipps’ literature represented that “the end result is that $2000 is compound leveraged into $122,400 with minimum effort and absolutely no risk.”

Phillps required members to mail contributions to “Life Without Debt” at 603 Field Street in Colleyville, Texas. Members were required to recruit two new members within 90 days of enrollment and those new members were required to recruit two more new members. Phipps would represent that he would collect a four percent fee for administering “Life Without Debt” and would distribute the remainder of contribution money to the people above them in the pyramid matrix, referred to as “upline” from new recruits. In fact, Phipps instructed members that contributed by money order to send nine money orders leaving the payee lines blank for processing by “Life Without Debt,” explaining that one money order was for his four percent fee and the other eight money orders were payments for “up-line” members in the “Life Without Debt” matrix.

To perpetuate the scheme and conceal its illegality, “Life Without Debt” provided purported “educational” materials to new members including literature and audiocassette tapes which were anti-government/anti-income tax, in nature. Phipps would also send lulling cash payments to “Life Without Debt” members to keep them in the scheme and entice them to recruit other potential investors.

With regard to the tax charges alleged in the indictment, Phipps failed to report any income on a tax return since 1987 and failed to file a tax return since 1988. Further, he responded to legal IRS correspondence with frivolous arguments that he was a “sovereign” citizen not subject to the jurisdiction or tax laws of the United States.

An indictment is an accusation by a federal grand jury and a defendant is entitled to the presumption of innocence unless proven guilty. However, if convicted on all counts of the indictment, Phipps faces a maximum statutory sentence of hundreds of years imprisonment, millions of dollars in fines, and restitution to the victims of his crimes.

U.S. Attorney Roper praised the investigative efforts of the Internal Revenue Service - Criminal Investigations, the U.S. Postal Inspection Service and the Department of Justice (DOJ) Tax Division. The case is being prosecuted by Assistant United States Attorney William McMurrey and Robert A. Kemins, Trial Attorney with DOJ Tax Division.

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