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Justice News

Department of Justice
U.S. Attorney’s Office
Northern District of Ohio

FOR IMMEDIATE RELEASE
Thursday, November 17, 2016

North Canton man sentenced to more than three years in prison for $1.5 million fraud

 

A  North Canton was sentenced to more than three years in prison for his role in a $1.5 million fraud scheme, said U.S. Attorney Carole S. Rendon and Stephen D. Anthony, Special Agent in Charge of the FBI's Cleveland Office.

James W. Wallace was found guilty earlier this year of conspiracy to commit wire fraud and bankruptcy fraud. U.S. District Judge Benita Pearson sentenced Wallace to 41 months in prison and ordered him to pay approximately $900,000 in restitution.

Wallace, acting with others, engaged in a scheme to defraud at least 15 small business owners of at least $1.5 million through an investment and loan scam. This took place between 2009 and 2012, according to court documents.

Wallace, acting through his companies Wallace Financial and Washington Integrity, fraudulently induced individuals to purchase “aged shelf corporations,” which served no legitimate business purpose other than to funnel money back to Wallace for his personal use. Wallace told potential buyers, who were individuals who often could not get funding from traditional financial institutions, that they could get them loans substantially greater than any available to them from commercial institutions through the purchase of an “aged shelf corporation” through Wallace Financial and Washington Integrity. 

Aged shelf corporations were corporations that had been created some years before, but had never engaged in any business and were corporations on paper only. Wallace induced the would-be borrowers to believe that with the purchase of these previously created but dormant corporations they would qualify for private loans, credit cards with high credit limits, and other credit opportunities in amounts greater than were otherwise available to them from financial institutions. Wallace misinformed buyers by telling them that they had private lenders waiting to lend money to the owners of these aged shelf corporations when he knew that no such private lenders existed. Wallace  also falsely told would-be borrowers that other individuals had successfully obtained funding, but shrouded the details of their prior "successes” as well as the identities of their “private lenders” under a veil of mystery, citing proprietary and trade secrets, when no customers in fact received any private funding, according to court documents.         

Wallace also fraudulently misrepresented that the money customers paid to Wallace Financial and Washington Integrity for aged shelf corporations was used to obtain trade references, gain high PAYDEX scores (credit scores for corporations), and effect private placement of the loans. Wallace falsely told customers that their profit in the transaction would come later, after loans had been funded, from a percentage of the loans they succeeded in acquiring. Instead, Wallace used a substantial share of the money to pay for personal expenses including strip clubs, jewelry, tattoo salons, meals at restaurants and bars, vacations and resort hotels, testosterone supplements, luxury products, sports equipment, tanning salons, payments on personal loans and mortgages, cash withdrawals, and transfers to personal accounts, according to court documents.

Wallace also filed a false bankruptcy petition in the Northern District of Ohio. This took place after FBI agents executed a search warrant related to the case, and after former Wallace Financial and Washington Integrity customers filed lawsuits against him. Wallace falsely withheld information regarding his involvement with Washington Integrity; the number and amounts of creditors and debts owed by Wallace and his companies, bank accounts he possessed, his interests in executory contracts in the forms of the aged shelf corporation agreements he held with customers of Wallace Financial and Washington Integrity, and by falsely claiming a negative gross income for the two years preceding his bankruptcy filing, according to court documents

This case is being prosecuted by Assistant U.S. Attorney Om Kakani, following an investigation by the Federal Bureau of Investigation.

 

Topic: 
Bankruptcy
Financial Fraud
Updated November 17, 2016