April 28, 10

NEWS / Minnesota Man Sentenced to 117 Months in Prison for Running Ponzi Scheme

A Rosemount, Minn., man was sentenced today to 117 months in prison for his role in running a Ponzi scheme involving commodity pools, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney B. Todd Jones for the District of Minnesota.

U.S. District Court Judge Donovan W. Frank also ordered Charles "Chuck" E. Hays, 56, to pay $21,825,090 in restitution and $7,850 in victim attorney’s fees, as well as to serve three years of supervised release following his prison term. Hays pleaded guilty before Judge Frank on April 14, 2009, in St. Paul, Minn., to one count of mail fraud, one count of wire fraud and one count of structuring transactions to avoid financial reporting requirements. Hays was arrested Feb. 5, 2009, and charged in a criminal complaint with mail fraud and wire fraud. Hays has been detained without bond in federal custody since his arrest.

Shortly after Hays’ arrest, the government seized a $3 million yacht Hays purchased with investor funds, as well as two of Hays’ bank accounts, which contain approximately $1 million in funds obtained through the fraudulent scheme. The government estimates in court documents that investors lost more than $20 million in the scheme.

According to the plea agreement, Hays admitted to devising and participating in a scheme in which he solicited individuals to invest money with him and his company, Crossfire Trading LLC, from January 2001 through February 2009. Hays told potential investors he was a day trader in stock index futures and other futures contracts. Hays also admitted that he falsely represented to potential investors that his trading was consistently profitable and earned approximately three percent per month. According to court documents, many people chose to invest money with Hays and Crossfire based on these misrepresentations.

Hays also admitted that once an individual invested money, he provided the investor with a document that outlined the purported terms of the agreement with Crossfire. Hays admitted the investment agreements misrepresented the goal and activities of Crossfire and how investor profits and losses would be handled. According to the investor agreements, Crossfire was falsely presented as a day-trading company whose primary activity was short-term trading of futures. However, instead of using investor funds to trade in the equities listed in the investor agreement, Hays admitted he diverted and converted those funds for his personal use and other unauthorized purposes.

Hays also admitted that he instructed investors to mail him a check or to wire money to Crossfire’s bank account. Hays admitted he then created and sent investors fraudulent monthly summaries purportedly showing investments and any gains clients supposedly realized.

In addition, Hays admitted that when investors asked him for details regarding his trading or investment philosophy, he misrepresented to them that Crossfire traded through an account at a registered brokerage firm in Chicago, where he said investors’ funds were maintained. To support those misrepresentations, Hays admitted he showed several investors a fraudulent statement that reflected a $37 million balance in Crossfire’s account at the registered brokerage firm, when in reality Crossfire did not have an account with the firm. According to court documents, Hays used funds received from new investors to make payments to earlier investors in order to give legitimacy to the scheme.

In a related action, the U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement action against Hays and Crossfire on Feb. 5, 2009.

The case was prosecuted by Assistant Chief Robertson Park and Trial Attorney Laura Perkins of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Ann Anaya for the District of Minnesota. Significant assistance was also provided by Assistant U.S. Attorney Jim Alexander for the District of Minnesota. The case was investigated by the U.S. Postal Inspection Service. The Department acknowledges the substantial assistance provided by the CFTC in connection with this investigation.

Today’s sentencing is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

http://www.justice.gov/opa/pr/2010/April/10-crm-489.html

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