U.S. man arrested in gold-bullion Ponzi case
NEW YORK (Reuters) - A man accused of running a multimillion-dollar Ponzi scheme in which investors were told their deposits were backed by offshore gold bullion reserves was arrested on Tuesday, nearly seven years after his operation shut down and he moved to Mexico, authorities said.
David Copeland Reed, 38, was charged with conspiracy, money laundering and wire fraud in an indictment unsealed in U.S. District Court in Manhattan, prosecutors and the FBI said.
The charges carry a prison term of up to 40 years.
Reed ran the alleged scam around a purported Internet banking operation he founded known as OSGold, according to the charges outlined in court documents. The business operated from March 2001 until June 2002, when Reed moved from North Carolina to Cancun, Mexico, taking customer funds with him, authorities said.
Millions of dollars of the investors' and depositors' money has never been returned, and no gold bullion reserves associated with OSGold have been located, authorities said.
Reed was arrested in Columbia, South Carolina, where he moved recently, authorities said. The name of his attorney was not immediately available.
Authorities said customers opened accounts with OSGold by wiring money to bank accounts that Reed and others controlled. The deposits were said to be backed by gold bullion reserves stored in an off-shore vault.
For the first few months of operation, OSGold operated reliably and developed a reputation as a secure way to engage in Internet banking, prosecutors said in court papers. Once depositors opened an online account, they could purportedly use their OSGold funds to wire money to locations around the world and to purchase items over the Internet, the indictment said.
OSGold account holders were also offered the opportunity to put money in a high-yielding investment program known as OSOpps that promised a guaranteed return of their principal as well as soaring rates of return, the court papers said. The high returns were said to come from gains on foreign exchange trading, but neither Reed nor his associates did any such trades, according to the indictment.
Clients worldwide opened about 66,000 accounts with Reed, transferring at least $12.8 million to three bank accounts that he and his associates controlled, according to the indictment.
Authorities called the alleged swindle a Ponzi scheme, a fraud in which earlier depositors are paid with money taken in from newer ones.
Reed and unidentified co-conspirators are accused of laundering customer funds through bank accounts in the United States, Mexico, Latvia and elsewhere, and using the money for their own personal expenses. Prosecutors said an investigation into the case is continuing.
(Editing by Jeffrey Benkoe)