San Diego Woman Charged in Federal Indictment Alleging Ponzi Scheme that Claimed to Offer Investments in Construction Loans
SANTA ANA, California – A San Diego woman has been arrested on federal fraud and identity theft charges that allege she ran a multi-million dollar Ponzi scheme in which she solicited funds from investors by falsely claiming their money would be used to make short-term construction loans to other investors seeking to defer capital gains taxes through “1031 like-kind exchanges.”
Susan Margaret Werth, 57, was arrested by FBI special agents at her residence on October 4. Later that day, after being transported to United States District Court in Santa Ana, Werth entered a not guilty plea to charges contained in a four-count indictment returned on October 3 by a federal grand jury in Los Angeles.
The indictment charges Werth with two counts of wire fraud and two counts of aggravated identity theft related to the alleged scheme she ran out of two San Diego-based companies, Commercial Exchange Solutions, Inc. (CES) and Exchange Solutions Company, Inc. (ESC).
Werth and others working at her direction allegedly solicited millions of dollars from victims by falsely claiming their funds would be used to provide short-term construction loans to clients who were engaged in like-kind exchanges of commercial properties. According to the indictment, a 1031 like-kind exchange is a method of deferring the payment of capital gains taxes pursuant to section 1031 of the tax code in which a taxpayer sells an investment property and reinvests the proceeds to buy a like-kind investment property of equal or greater value.
Werth falsely promised victims that their investments were risk-free and 100 percent guaranteed by CES’s “collateral account” at Wells Fargo Bank, according to the indictment. Werth allegedly lulled victims by creating fictitious Wells Fargo bank statements to show that CES had an account with a balance of $7.2 million, as well as fabricating emails she claimed were from an employee of Wells Fargo Asset Management. Werth also falsely told investors that her companies were investing in properties that had been evaluated by the international valuation firm of Duff & Phelps.
In return for their short-term investments of 30 to 90 days, Werth promised victims a rate of return of at least 15 percent.
According to the indictment, “[i]n truth and in fact, as defendant Werth then well knew, the representations described above were false and fraudulent in that defendant Werth operated CES/ESC as a Ponzi scheme, in which the vast majority of its incoming revenue was comprised of victim-investor funds, which defendant Werth used to repay prior victim-investors, to pay her personal expenses, to withdraw cash, to repay investors’ principal, and to make fictitious profit payments to some investors.”
The identity theft charges stem from communications Werth allegedly sent under the names of the Well Fargo employee and an employee of Duff & Phelps
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty in court.
If she were to be convicted of the charges in the indictment, Werth would face a statutory maximum sentence of 20 years in federal prison for each of the wire fraud charges, as well as a mandatory two-year consecutive sentence for identity theft.
At her arraignment last week, Werth was released on a $100,000 bond. She was ordered to stand trial in United States District Court in Santa Ana on November 27.
On October 1, the Securities and Exchange Commission filed a civil complaint in this matter that alleges Werth raised approximately $26 million in her Ponzi scheme, and spent $2 million to fund her personal lifestyle.
The case against Werth is being investigated by the Federal Bureau of Investigation.
This matter is being prosecuted by Assistant United States Attorney Valerie Makarewicz of the Tax Division.