A conservative estimate of the amount lost by the American public, between 2008 and 2014, in Ponzi investment schemes stands at $50 billion. The estimated value does include the sum ripped off by con artists through stock, real estate, and commodity schemes as well. However, the majority of the investors lost their
Additionally, using technological advancements, white collar criminals find newer methods to fly beneath the radar. Thus, financial authorities find it increasingly difficult to stop the culprits beforehand. The Forex scheme offered and sold by Keith F. Simmons (resident of North Carolina, USA) is a
In the year 2007, Simmons began soliciting investments in his North Carolina based entity named Black Diamond Capital Solutions LLC (formed on July 6, 2005). The firm was unregistered with the CFTC in any capacity. A casual onlooker would misunderstand the firm for the
In April 2007, Simmons invited a lady named Deanna Salazar to invest in the Forex market through BDCS. Salazar, who was already linked to several con schemes, used the opportunity to enter into a joint venture agreement whereby she would market the illicit scheme to her clients and in return, would get an equal share in the joint venture’s profits earned through investments from customers brought by her. For this purpose, Salazar, a
In an attempt to propagate the Black Diamond scheme further and attract new investors, Salazar entered into “
One of the
To quickly bring in investors, Davey organized a hedge fund named Divine Circulation Services Ltd in Belize. The company successfully promoted the scheme by tapping the religious beliefs of the general public. Davey was also in control of another Belize firm named Sovereign Grace Inc.
Very soon, the trio changed the name of the
In a bid to attract new clients, Davey met Bryan Coats of North Carolina. At that time, Coats was the head of the
In his marketing effort, Davey was assisted by Jeffrey M. Toft, Chad A. Sloat, and Michael J. Murphy. To any prospective investor, the four of them introduced themselves as hedge fund traders and stated that they have done due diligence on Black Diamond and that it was a low-risk hedge fund.
Simmons also had another bunch of
As a result of such coordinated activities, the Black Diamond Fraudulent scheme was extended to investors in several US states including California, Colorado, and Texas.
Initially, Simmons had little success in marketing the BDCS scheme. However, the arrival of Salazar and Davey brought a tide of change to the marketing campaign. Simmons, Salazar and Davey
The promotional materials claimed that Black Diamond uses an automated trading system, which was
Furthermore, the solicitation materials assured investors that the risk of losing money invested in BDCS is limited because of the automatic
By December 2009, the promotional materials and convincing sales pitch had enabled Simmons to fleece $40 million from more than 400 investors.
In the majority of Forex Ponzi schemes, the swindler would at least open one, if not several, Forex trading account and try his luck to multiply the capital. It was not so in this case of Simmons. Strangely, Simmons neither had a Forex trading account, nor did execute a single trade either directly or indirectly on behalf of the investors of Black Diamond. Instead, he spent at least $2 million of the investors fund to set up, advertise and operate several other businesses unrelated to Forex trading.
Furthermore, Simmons used approximately $19 million of the investors’ funds to return principal or pay purported profits. As does every other scammer, Simmons spent $5.8 million on real estate purchases and improvements, cars, and luxury trips.
To conceal the fraud, Simmons continued to send fabricated monthly account statements to customers. The statements showed significant positive returns from the supposed Forex trading. Since the reports did not show a single
Simmons used CommunityOne Bank in North Carolina for all the monetary transactions.
Of the $7 million plowed by Salazar’s customers, only $5 million were sent directly to Black Diamond. The rest of the money ($2 million) was sent to her directly by the clients with the hope that she would take the responsibility to deposit the money safely in their name in the Black Diamond scheme. However, she took $1.5 million and sent only $500,000 to Black Diamond.
In the same manner, out of the $1.9 million transmitted by the Black Diamond as alleged profits or principal to be paid to the investors, only a sum of $600,000 was returned. Of the $2.8 million siphoned off from investors, Salazar used more than $400,000 for the purchase of expensive cars and to undertake lavish trips.
Coats’ clients invested a sum of $27 million in the Ponzi scheme. On his part, Coats took $400,000 as management fees. This includes $200,000 taken after Black Diamond stopped sending payments to the customers. Coats used the money to acquire an expensive car, maid service, home improvements, and a sky diving trip.
As Black Diamond started crumbling with an increase in withdrawal requests, Davey refrained from sending new investors’ funds to Black Diamond. However, to keep the scheme afloat, in June 2008, Davey created and administered another fake account to receive funds from the new investors. Davey also shared the new investors’ money with the
As the number of investors placing withdrawal requests increased, Simmons fell short of funds to continue the payout. However, this did not restrain Simmons, Salazar, Davey, and Coats from promoting or accepting funds from new investors in any manner. As things began to grow out of proportion, on March 19, 2009, Simmons sent an email to Salazar stating that Black Diamond would shut down for restructuring and, therefore, would be liquidating the accounts of all customers. However, Simmons guaranteed that all gains from the Forex trading would be paid out.
Simmons lied to investors that Black Diamond restructuring process involves several accounting reviews. He further told clients that multiple paymasters and accountants are necessary for the fund disbursement process and this is creating havoc in processing the payout requests. Salazar, Davey and Coats passed on the message to their respective clients.
While sending out the email on restructuring, there was only $600,000 left in the Black Diamond accounts. The restructuring plan was the first in a series of excuses created by Simmons.
The blatant restructuring lie was soon followed by another excuse from Simmons. This time around, he blamed the investors for the delay. Simmons said that some of the customers have tried to take advantage of the situation by placing excessive withdrawal requests and this has caused a delay in returning the funds.
Very soon, to keep the investors calm, Simmons spun another story. Simmons falsely told investors that a German liquidity provider named Klaus Bruner is willing to provide $120 million to Black Diamond to clear the investors’ withdrawal requests and replace the Black Diamond on the purported trading platform. Simmons further claimed that regulatory procedures have delayed attempts to transfer funds and all the parties are working towards resolving the issue at the earliest. As it was found later in the investigation, Klaus was simply a fictional character.
To some investors, Simmons asked for excuse by stating that Black Diamond’s accounts were frozen because of certain banking regulations and as soon as the problem is solved, all pending payments will be cleared. To another set of investors, Simmons informed that the funds of Black Diamond were frozen by CFTC, US Treasury, and the Federal Reserve for reasons unrelated to the firm’s operations.
Salazar, Davey, and Coats continued to forward these outrageous excuses to their customers without examining the truth behind it. In fact, Salazar and Davey assisted Simmons in drafting some of the excuses to their customers. Davey also threatened two of the investors with additional delays in the payout process if there was an attempt to speak to any of the regulators. On his part, Simmons threatened some of his clients that if they make any attempts to contact the paymaster, the payout process will get jeopardized.
In another attempt to convince customers regarding the safety of their funds, Simmons showed the list of real estate owned by him. Furthermore, Simmons stated that these properties act as security for the funds allegedly being used for the Forex trading by Black Diamond. In reality, the list of real estate showcased by Simmons was bought with the money looted from the investors. The investors also failed to note that the value of the real estate was insufficient to be a security for the funds invested in Black Diamond.
To ease the concerns of clients, Simmons also told that Black Diamond held approximately $77 million worth US Treasury notes in an account at JP Morgan Chase bank. To substantiate the claim, Simmons showed an altered JP Morgan Chase bank document to the customers. The original document belonged to another entity, which was in no way related to Black Diamond.
For at least eight months (until November 2009), Simmons, Salazar, Davey, and Coats continued to claim that the funds would be returned. However, during that period, the clients continued to receive monthly account statements showing a positive increase in the balance.
In early 2008, two businessmen who dealt with Simmons grew suspicious of his activities and informed William Sands, a county commissioner and volunteer at the sheriff's department. Sands and James Williams, the sheriff, began their snooping activity. However, the lack of documentary evidence or complaints from the investors against Simmons made it difficult for the officers to take any action against him. Sands, in the meantime, began gathering information from the disgruntled employees. One of the insiders informed Sands that Simmons gave hints about the money in the Cayman Islands and fleeing in chartered jets. The Sheriff immediately alerted the FBI who quickly collected the evidence against Simmons.
On December 18, 2009, the Sheriff received the
Following a jury trial of securities fraud, wire fraud, and money laundering, Simmons was convicted on December 10, 2010. He was sentenced to 40 years (reduced from 50 years after an appeal) imprisonment and ordered to pay a compensation of $35 million to the investors.
Salazar, who pleaded guilty on December 10, 2010, was sentenced to 4.5 years imprisonment and ordered to pay criminal restitution of $5 million for committing securities fraud and tax evasion.
In April 2011, a deferred prosecution agreement (DPA) was filed against the CommunityOne Bank for failing to report the suspicious activity and maintain an effective money laundering scheme. The bank agreed to pay $400,000 as compensation to the victims of the Ponzi scheme.
In May 2011, Roy E. Scarboro and Stephen D. Lacy were sentenced to 26 months and six months in prison respectively. A month later, James D. Jordan was sentenced to 18 months in prison.
In January 2012, Jeffrey M. Muyres was sentenced to 23 months in prison.
In November 2012, Bryan Keith Coats was sentenced to 15 years imprisonment. Considering his cooperation with the authorities, the sentence was later reduced to 13.5 years.
On February 22, 2012, Davey was indicted by the jury on charges of securities fraud, wire fraud, money laundering, and tax evasion (to the Internal Revenue Service, Davey had shown the stolen amount of about $1.3 million as a personal loan). In February 2013, Jonathan Davey was sentenced to 21 years in prison and ordered to pay approximately $22 million as restitution.
In September 2014, Chad A. Sloat, Jeffrey M. Toft, and Michael J. Murphy were sentenced to 70 months, 66 months and 48 months in prison respectively. Furthermore, the three were ordered to pay a compensation of $2.17, $3.75, and $2.55 million respectively. Sloat was also ordered to pay $93,000 in restitution to the Internal Revenue Service.
As of July 31, 2015, Keith F. Simmons, Deanna Salazar, and their companies had to pay a total of $76 million in civil penalties connected to this Forex scam.
Words can hardly explain the devastation undergone by the victims of Black Diamond. However — it is a lesson never to be forgotten by the investors in every corner of the globe.
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