NEW YORK Commodities trader and hip-hop promoter Tyrone Gilliams was arrested Wednesday on charges of running a $4 million investment scam, according to a criminal complaint filed by federal prosecutors in New York.
Gilliams was the subject of a Reuters Special Report in May that detailed his activities and allegations against him by Ohio businessman, David Parlin, in a civil lawsuit.
Known for promising his investors superior returns that might make Ponzi-king Bernard Madoff blush, Gilliams was arrested in Philadelphia and is charged with one count of wire fraud.
Federal authorities allege that Parlin, working through an intermediary, placed $4 million with Gilliams to be invested in U.S. Treasury Strips, a derivative tied to Treasury bonds.
The complaint alleges that Gilliams "did, in fact, misappropriate at least $2 million of the $4 million" he received from Parlin.
The Reuters story in May (link.reuters.com/kag59r)said that Gilliams used some of Parlin's money to sponsor a glitzy black-tie charitable event in Philadelphia attended by rappers and local politicians. One of the guest attendees at the charitable event was hip-hop mogul Sean "P. Diddy" Combs.
Federal authorities began investigating Gilliams soon after the Reuters story was published, according to people familiar with the matter who declined to be identified.
Gilliams, who has been representing himself in the civil lawsuit, could not be reached for a comment. He was expected to be arraigned later today in New York federal court.
The U.S. Securities and Exchange Commission's Philadelphia office was also reported by the sources to be investigating Gilliams. Daniel Hawke, the administrator of the SEC's Philadelphia office, declined to comment.
Agents with the New York office of the Federal Bureau of Investigation are also looking into whether a California-based group of investors who invested $1 million with Gilliams may have been similarly scammed, according to two sources familiar with the matter.
Louis Craco, the lawyer for Parlin, declined to comment on the arrest.
The FBI arrested Gilliams, who lives in a Philadelphia suburb, just days after he was scheduled to sit for a deposition in Parlin's civil lawsuit. The deposition was postponed.
A charitable fund set up by Parlin invested $4 million with Gilliams on the recommendation of New York financier Vassilis Morfopoulos. In his lawsuit, Parlin also named Morfopoulos as a defendant.
Federal authorities did not charge Morfopoulos with any wrongdoing. His attorney, Christopher Chang, in a statement, said: "Morfopoulos will continue to do whatever is necessary to get David Parlin's money returned from Gilliams."
The investment scheme that Parlin invested in, on the surface, certainly seems to have been too good to be true. Parlin claims he was told he could expect to earn a return of 5 percent a week.
In the complaint, an investigator with U.S. Attorney's Office for the Southern District says Gilliams has claimed in the civil lawsuit that he always intended to invest the $4 million from Parlin in a gold deal in the west African nation of Ghana.
But the investigator says he has "neither seen nor been told anything that corroborates Gilliam's assertion."
(Reported by Matthew Goldstein; editing by John Wallace and Claudia Parsons)