Donahoo Pleds Guilty to Wire Fraud, Money Laundering, and Failure to File Tax Return in Investment Scheme; Loss to Victims is more than $2.5 Million
SALT LAKE CITY - James Ronald Donahoo, II, age 36, of St. George, Utah, entered guilty pleas to wire fraud, money laundering, and failure to file a tax return in U.S. District Court in Salt Lake City Thursday afternoon in connection with a scheme to defraud individuals and companies he recruited to invest in Paradigm Investing, Inc., a Utah corporation he exercised control over.
Sentencing is set for Oct. 7, 2014, at 2 p.m. before U.S. District Judge Dee Benson. The plea agreement includes a stipulated sentence of 48 months and supervised release of three years after Donahoo completes his prison sentence. Donahoo also agreed to pay restitution in the approximate amount of $2,793,501.17 to victims of the fraud. Donahoo is in custody.
As a part of the plea agreement, Donahoo admitted that he misrepresented to investors that if they would invest in Paradigm, they would make a 1 percent to 3 percent return on their investment, which would be paid out monthly. Paradigm never earned any revenues on any of its purported investments from which interest payments could have been made.
Donahoo admitted he told investors that Paradigm was in the business of making bridge loans or “hard money loans” to small businesses. According to the plea agreement, Paradigm did invest approximately $1.5 million in various businesses. However, the investments were not used to fund bridge loans or hard money loans as Paradigm’s investors were told. Instead, businesses run by Donahoo’s friends, associates, or family members received the money, according to the plea agreement.
He created false bank statements for Paradigm that he showed to investors to convince them that the investment was safe, low risk, and a good investment. He also told investors that the risk was mitigated by the fact that for every dollar invested, he had a dollar in the bank.
Donahoo made payments to investors totaling more than $267,000 out of investor funds in furtherance of what was a Ponzi scheme.
Donahoo admitted that on or about Dec. 5, 2008, he caused two investors to send a $100,000 wire transfer from California to Utah as an investment in Paradigm. On about December 11, 2008, he purchased fur coats in Park City in excess of $10,000. He admitted in the plea agreement that he knew this transaction involved money obtained from his criminal scheme.
He also admitted that he did not file a tax return for 2008, even though he transferred funds from the Paradigm bank account to his personal bank account totaling $335,000. He used those funds for personal purposes.
The case was investigated by special agents of IRS-Criminal Investigation and prosecuted by the U.S. Attorney’s Office in Salt Lake City.