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Investment Club Manager Pleads Guilty to $40 Million Fraud

A Michigan man who ran an “investment club” pleaded guilty in federal court in Virginia to defrauding more than 750 members out of almost $40 million.

Alan James Watson, 46, entered his guilty plea today in U.S. District Court in Alexandria to one count of wire fraud. He faces a maximum penalty of 20 years in prison when he is sentenced on Dec. 9, according to court documents.

“A.J. Watson took huge risks with others’ money and lost big,” U.S. Attorney Neil MacBride in Alexandria said in an e-mailed statement. “He covered up his massive losses through lies and deceit to members of his investment club.”

From 2006 through July 2009, Watson, of Clinton Township, Michigan, solicited about $40 million from investors who were members of a club he created, which the Commodity Futures Trading Commission in a lawsuit described as a “commodity pool.”

Watson told the investors their money was being invested through an equities-trading system developed by an expert consultant, Trade LLC, with a promised return on investment of 10 percent per month, according to court papers filed in Alexandria and in a related lawsuit in Michigan. Trade LLC, which is no longer in business, was sued separately by the commission over activities related to Watson’s club, according to the CFTC.

Only $6 million was invested with Trade LLC, prosecutors said. The rest was “secretly invested” in more than 25 other “high-risk” ventures, losing almost $34 million, the government said. In 2009, Watson stopped investing in Trade LLC and “re-deposited” that money in other losing ventures, according to court documents in Alexandria and Michigan.

Watson created false monthly statements for his investors showing that they were making money, prosecutors said.

The case is U.S. v. Watson, 11-cr-00441, U.S. District Court, Eastern District of Virginia (Alexandria).

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