Air Force News, news from Iraq - Air Force Times

Alleged fraud targeted some service members

The Securities and Exchange Commission has charged individuals at three California companies in a scheme that allegedly forced some military members into home foreclosure and personal bankruptcy.

The scheme also allegedly targeted the Southern California Filipino community and church members in California, Arizona and elsewhere.

SEC officials in the Los Angeles regional office said the Ponzi-like scheme cost more than 75 investors an estimated $10 million. Information was not available from the SEC about the number of people in the military community who were victims.

Using “sham investment seminars” and “referral partners,” including an Air Force technical sergeant, the defendants gained control over investors’ finances, the SEC alleges. In a complaint filed in U.S. District Court in Riverside, Calif., the SEC describes an Air Force technical sergeant at Davis-Monthan Air Force Base, Ariz., as one of the scheme’s “largest referral partners,” soliciting more than 48 investors, including some of his fellow airmen at Davis-Monthan.

SEC officials had no comment about whether the technical sergeant is considered a victim. A Davis-Monthan spokesman said the individual has retired, and the Air Force has no actions pending against him.

The complaint, alleging violations of federal securities laws, names James B. Duncan, Hendrix M. Montecastro and Maurice E. McLeod, working through Pacific Wealth Management, LLC, a Nevada-based limited liability company located in Murietta, Calif.; Stonewood Consulting, Inc.; and Total Return Fund, LLC.

Attorneys for the companies did not return calls seeking comment.

Investigators said the scheme required investors to commit to a three-year investment, turn over all their financial affairs to Pacific Wealth Management, and ask no questions of the PWM management regarding the use of their funds or credit.

The complaint alleges that between October 2004 and June 2006, the defendants offered investors securities in the form of real estate investment contracts, contending that the money earned would help make mortgage payments on investment homes purchased on their behalf. Instead, officials allege the defendants operated a form of pyramid scheme, using money from new investors to make mortgage payments on previously purchased investment homes.

Throughout that period, they allegedly urged investors to refinance their homes and invest the equity with the plan. In the summer of 2006, as money was drying up, officials said the defendants began to apply for credit cards, opening new lines of credit in the names of individual investors, who were instructed to max out the credit cards and wire the funds to the defendants.

Investors who questioned this were told that Pacific Wealth Management would stop making mortgage payments if they didn’t cooperate, the complaint alleges.

By November 2006, PWM was contacting investors and encouraging them to transfer their retirement funds into investments, the complaint says. By the end of 2006, PWM was unable to provide its investors with enough money to make mortgage payments.

SEC officials warn those in the military community to be careful when approached by someone with an investment opportunity, regardless of their relationship with that person.

“These men refused to provide any written agreements to investors and pressured them into thinking they would lose out on a major investment opportunity if they failed to trust them,” said Rosalind Tyson, acting director of the SEC’s Los Angeles Regional Office. “Investors should be wary of salesmen who do not provide specific information or documentation.”

“We want to get the word out about this so that hopefully service members will look at information and ask the right questions to help them make the right decisions,” said Diana Tani, assistant director of the SEC’s Los Angeles office.

Schemes such as this one often are called affinity fraud, which involves infiltrating a tight-knit community like the military and showcasing a respected leader or member of the community as a successful investor, giving the false impression that the investment is safe and secure.

That individual often becomes an unwitting victim of the fraud, according to the SEC.

As part of Military Saves week, the SEC is highlighting its resources that help military families understand affinity fraud and take steps to protect themselves, at http://www.sec.gov/investor/military.shtml. More information is also available at http://www.militarysaves.org.