New Mexico Realtor Charged in $76 Million Ponzi Scheme
A New Mexico man who once headed the state’s biggest independent residential brokerage was charged with running a Ponzi scheme that caused more than $76 million in investor losses, the Justice Department said.
Douglas F. Vaughan, 63, was accused of operating a promissory note program marketed as a way of investing in his real estate business from 2005 to 2010, according to a federal indictment unsealed today in Albuquerque. About 600 investors had money in the program when the scheme collapsed last year, prosecutors said.
The company, the Vaughan Co. Realtors, was at one time New Mexico’s largest independent residential brokerage, according to the indictment. When it filed for bankruptcy in February 2010, it was the third-biggest residential real estate brokerage in the state, New Mexico Business Weekly reported.
“Vaughan allegedly misrepresented to investors their guaranteed rate of return, the safety of their investments, and even what it was they were investing in,” Kenneth Gonzales, the U.S. Attorney for Albuquerque, said in a statement. “People who trusted Vaughan ended up losing a lot of money, in some cases, their life savings.” The U.S. Securities and Exchange Commission sued Vaughan in March in connection with the alleged Ponzi scheme.
Amy Sirignano, a lawyer representing Vaughan, didn’t immediately return a call seeking comment after regular business hours.
Robert Gorence, an Albuquerque lawyer who withdrew from representing Vaughan in the lawsuit, didn’t respond to a telephone message. A voice-mail message left at Vaughan’s telephone number also wasn’t returned.
Vaughan made an initial appearance in federal court in Albuquerque today and is being held pending an arraignment and a detention hearing scheduled for Feb. 28, said Elizabeth M. Martinez, a spokeswoman for New Mexico’s U.S. attorney, Kenneth J. Gonzales.
Vaughan’s company was incorporated in November 1972 and Vaughan served as chairman, chief executive officer, president and majority owner as well as the only member of the board of directors, according to the indictment.
In about April 1993, Vaughan began accepting money in exchange for interest-bearing promissory notes, the indictment charged.
The notes were supposedly secured by a deed of trust that included Vaughan’s personal bank accounts, and stock and real estate holdings, according to the indictment. He paid referral fees to people who sold, and relied on word-of-mouth from existing investors to recruit relatives, friends and associates.
The proceeds subsidized operations of his company, which wasn’t generating enough real estate-related revenue to sustain itself, and to repay the interest and principal on earlier investments, the indictment said.
Ferrari, Basketball League
Prosecutors said Vaughan also took more than $5.4 million for personal expenses, including trips to Las Vegas, construction of a mansion overlooking the Tanoan Country Club, the purchase of a Ferrari automobile and an ownership interest in a basketball league.
By 2005, the company was “insolvent” and the promissory note program was its sole source of income, the indictment says. Vaughan’s company had a cumulative net operating loss of more than $54 million for the years 2004 to 2009.
Vaughan was charged with three counts of wire fraud, 17 counts of mail fraud, five counts of money laundering and four counts of false writing and documents. He faces as many as 20 years in prison on each fraud count, 10 years for each money laundering count and five years for each false writing charge.
The case is U.S. vs. Vaughan, 11-cr-00404, U.S. District Court, District of New Mexico (Albuquerque).
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