San Diego Woman Sentenced to Nearly Six Years in Federal Prison for Ponzi Scheme Run Via Sham Commercial Real Estate Investments
SANTA ANA, California – A San Diego woman who ran a multimillion-dollar Ponzi scheme was sentenced today to 70 months in federal prison for deceiving 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, 58, was sentenced by United States District Judge James V. Selna, who ordered her to pay $6,290,510 in restitution to her victims.
Werth, who pleaded guilty on May 2 to one count of wire fraud, 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. She ran the Ponzi scheme out of two San Diego-based companies, Commercial Exchange Solutions, Inc. (CES) and Exchange Solutions Company, Inc. (ESC).
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 and others working at her direction falsely promised victims that their investments were risk-free and 100 percent guaranteed by CES’s “collateral account” at Wells Fargo. She lulled her 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.
In reality, Werth knew the representations were false and fraudulent because she operated CES and 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 total loss resulting from Werth’s Ponzi scheme exceeded $6 million.
“[Werth’s] conduct affected honest citizens who entrusted [her] with significant amounts of money, some, their retirement funds and savings,” the prosecution wrote in its sentencing memorandum.
One victim lost two-thirds of his life savings to Werth and was forced – at age 72 – to seek employment in an attempt to recoup the money he lost. Another victim – a 62-year-old woman – planned to retire in the near future, but could not do so after losing more than $800,000 to Werth, according to court documents.
In December 2018, a default judgment was entered in a Securities and Exchange Commission lawsuit against Werth in this matter.
The FBI investigated this matter.
This case was prosecuted by Assistant United States Attorney Valerie L. Makarewicz of the Major Frauds Section.