Two charged with bilking hundreds in fraud scheme
CHICAGO (Reuters) - U.S. authorities on Friday charged a California firm with bilking hundreds of investors of almost $26 million in an illegal commodities trading scheme, in a complaint that said one owner used $1 million in victims' funds to invest in a golf course.
Futures regulators and law enforcement agencies froze the assets of Safevest LLC, of Mission Viejo, California. The firm and its owners and officers, Jon Ervin and John Slye, were named in a complaint by the Commodity Futures Trading Commission.
Ervin, who operated the firm, was arrested on a federal wire fraud charge, according to the U.S. Attorney's office for the Central District of California.
In addition to allegedly using victims' funds to invest in a golf course in Georgia, the U.S. attorney said Ervin spent more than $41,000 to buy a sport utility vehicle.
The agencies allege that Safevest solicited some 550 investors to transfer $25.7 million in funds to participate in a commodity-trading pool.
Instead of their promise to deposit customer funds into accounts for trading commodity futures, Safevest "misappropriated virtually all customer funds," the CFTC said.
Many of the fraud victims were parishioners recruited by Slye, an ordained minister and pastor of a church in Washington, D.C., and a founder and former board member of the National Foundation for Cancer Research.
CFTC alleges that Safevest misrepresented to clients that the firm consistently produced daily profits between 0.5 percent to 1.0 percent trading commodity futures on the Chicago Mercantile Exchange.
Besides skimming investor funds to pay their personal expenses, Slye and Ervin allegedly used at least $18.5 million to pay off other pool participants in a manner characteristic of a "Ponzi scheme."
A Ponzi scheme is one that involves paying high returns to investors out of the money paid in by subsequent investors, rather than from actual profits generated by a real business, and encouraging the original investors to find new recruits.
The Securities and Exchange Commission also filed a lawsuit against Safevest and Ervin on Friday.
(Reporting by Ros Krasny; Editing by Leslie Adler)
