Former South Bay Resident Convicted Of Defrauding Japanese Investors In Almost $7 Million Ponzi Scheme
SAN FRANCISCO – Kevin Kyes was convicted of one count of conspiracy to commit wire fraud, seventeen counts of wire fraud, one count of conspiracy to commit money laundering, and two counts of money laundering by a federal jury today, announced Acting United States Attorney Alex G. Tse, Federal Bureau of Investigation Special Agent in Charge John F. Bennett, and the Internal Revenue Service, Criminal Investigation, Special Agent in Charge Michael T. Batdorf. The jury’s verdict followed a week-long trial before the Honorable Susan Illston, U.S. District Judge.
The jury found that Kyes, 69, formerly of Campbell, Calif. and currently of Roseville, Calif., conspired to commit wire fraud and committed wire fraud as part of a nearly $7 million Ponzi scheme in which the victims were a group of more than 60 Japanese investors. The jury also found that Kyes conspired to and did launder the proceeds of this fraud. The jury acquitted Kyes of one count of wire fraud.
The evidence at trial showed that, from December 2012 through July 2015, Kyes worked with John Holdaway, 73, of Sandy, Utah, to defraud the Japanese investors through a business that they referred to as “Money Management Strategies,” or MMS. Kyes and Holdaway told the investors their money would be invested in high-speed trading programs with historical returns of well over 100% annually. Kyes and Holdaway also told investors that their investments would be safe, in part because their principal investment would never leave the bank accounts into which the funds were sent, and that instead, MMS would draw a credit line secured by their funds and use that to fund trading. Kyes and Holdaway further explained that any trading losses would be borne by MMS. Based on the representations of Holdaway and Kyes, these investors wired money to bank accounts in Northern California controlled by Holdaway and Kyes. The Japanese investors sent approximately $6.8 million to Holdaway and Kyes during the scheme.
The evidence at trial demonstrated that, in reality, Holdaway and Kyes did not invest the money as promised. Instead, they spent the money themselves, used it to fund Ponzi-type payments back to investors, spent the money to pay back prior creditors to whom they owed funds, and spent it on gold-related businesses. In addition, Holdaway and Kyes told investors that they were receiving distributions or returns on their investment. To back up their claims, Holdaway and Kyes created and sent to investors fake documents, including phony account statements and forged letters from an accountant. Holdaway, with Kyes’s knowledge and participation, also sent emails to investors under fake names, to give the appearance that multiple people worked for Holdaway and Kyes, and lied about traveling to Europe or elsewhere to work on their investments.
On June 14, 2016, a federal grand jury indicted Kyes and Holdaway charging them with one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349; eighteen counts of wire fraud, in violation of 18 U.S.C. § 1343; one count of conspiracy to engage in monetary transactions in property derived from specified unlawful activity, in violation of 18 U.S.C. § 1956(h); and five counts of engaging in monetary transactions in property derived from specified unlawful activity, in violation of 18 U.S.C. § 1957.
On October 6, 2017, Holdaway pleaded guilty to one count of conspiracy to commit wire fraud. His next appearance is a status conference scheduled for October 5, 2018, at 11:00 a.m., before Judge Illston.
Kyes’s sentencing hearing on today’s convictions is scheduled for August 17, 2018, at 11:00 a.m., before Judge Illston, in San Francisco. The maximum statutory penalty for each count of conspiracy to commit wire fraud and wire fraud is 20 years in prison, a fine of $250,000, 3 years of supervised release, forfeiture, and restitution. The maximum statutory penalty for each count of conspiracy to commit money laundering and money laundering is 10 years in prison, a fine of $250,000, 3 years of supervised release, forfeiture, and restitution. Any sentence following conviction, however, will be imposed by the court only after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
Assistant U.S. Attorneys Benjamin Kingsley and Helen Gilbert are prosecuting the case with assistance from Bridget Kilkenny and Patricia Mahoney. The prosecution is the result of an investigation by the FBI and the IRS, Criminal Investigation.