Three Californians Charged with $200 Million Scam

Three Northern California men accused of having “callously swindled” thousands of individuals, were arrested late last week.
Three Californians Charged with $200 Million Scam
A golfer tees off at the Mountain House golf course near the Altamont Pass wind farm in Mountain House, California. It is alleged that the project is part of a 'ponzi' scheme that has seen 3 men arrested. (Justin Sullivan/Getty Images)
5/25/2009
Updated:
10/1/2015
<a><img src="https://www.theepochtimes.com/assets/uploads/2015/09/74171404Ponzi.jpg" alt="A golfer tees off at the Mountain House golf course near the Altamont Pass wind farm in Mountain House, California. It is alleged that the project is part of a 'ponzi' scheme that has seen 3 men arrested. (Justin Sullivan/Getty Images)" title="A golfer tees off at the Mountain House golf course near the Altamont Pass wind farm in Mountain House, California. It is alleged that the project is part of a 'ponzi' scheme that has seen 3 men arrested. (Justin Sullivan/Getty Images)" width="320" class="size-medium wp-image-1828167"/></a>
A golfer tees off at the Mountain House golf course near the Altamont Pass wind farm in Mountain House, California. It is alleged that the project is part of a 'ponzi' scheme that has seen 3 men arrested. (Justin Sullivan/Getty Images)

Three Northern California men accused of having “callously swindled” thousands of individuals, were arrested late last week.

California state attorney general Jerry Brown filed 79 criminal charges against James Koenig, 57, Gary Armitage, 59, and Jeffrey Guidi, 54, of running a $200 million ponzi scheme that bilked money from investors, many of whom lost their entire life savings.

Court filings accuse the three men of creating 55 businesses over a ten year period to mask their losses and keep the ponzi scheme afloat, while the three enjoyed an 80-acre castle estate, a private jet, luxury cars, and expensive art.

According to Brown’s investigation, starting in 1997 the three men began peddling construction and real estate projects to investors across California. The projects include “Quail Hollow,” a residential subdivision, Lake College, a for-profit vocational school, the Mountain House Golf Course, a light industrial distribution center, and dozens of “investment opportunities.”

Most of the projects were in financial ruin and either discontinued or foreclosed. Meanwhile, Koenig, Armitage, and Guidi promised investors a low risk 12 percent annual return.

The perpetrators used funds from later investors to pay earlier investors. The scheme lasted for ten years.

By mid-2007, the business began to collapse under a mountain of debt, as the three men were unable to pay interest.

Ponzi schemes on the rise

While accounting frauds and fake corporate earnings plagued the dot.com era, the recent period of high finance, hedge funds, and large returns also contributed to the proliferation of ponzi schemes.

As the stock market jumped and real estate prices ballooned, many investors also went looking for higher returns and more risky bets. And many investment schemes ultimately became unrealistic.

After Bernie Madoff’s alleged $50 billion fraud and Allen Stanford’s banking collapse came to light, the U.S. Securities and Exchange Commission and Department of Justice has stepped up efforts to unearth such fraudulent business activities.

As a result, a steady stream of ponzi schemes and other frauds have been uncovered since last September.

The Commodity Futures Trading Commission earlier this year also reported a rise in frauds and ponzi schemes related to commodities as prices in oil and grains fell.

Analysts believe that the number of ponzi schemes has remained steady, but the recent financial crisis has led to the uncovering of many scams. Most scams rely on soliciting new investors to pay off earlier ones, and as the Wall Street collapse unfolded, investors became risk averse and many ponzi scheme operators could not generate the new funding to sustain their schemes.