Health Care Boss Gets Five Years in Texas
DALLAS (CN) - The former head of a Texas medical insurance association was sentenced to five years in federal prison for his role in a $10 million Ponzi scheme.
Duncan MacDonald III, 50, of Dallas, pleaded guilty in July 2013 to a felony information charging him with conspiracy to commit wire fraud.
U.S. District Judge Jane J. Boyle will determine restitution later.
Prosecutors said that from 2006 to at least 2012, MacDonald was president and director of Dallas-based Global Corporate Alliance, a holding company that managed the North American Consumer Alliance out of offices in Euless and Addison.
NACA was a nonprofit member association that created insured benefit association healthcare programs to be were sold to companies by GCA. GCA collected "overage" fees that were in excess of "conservative management fees" that also were collected.
Prosecutors said MacDonald created an "overage program" that would sell interests in the overages collected to investors, who would then be paid for each new healthcare plan enrollee.
The state said say MacDonald installed co-conspirator Gloria Ann Solomon, 71, of Dallas, as the program's manger. Solomon was hired in January 2007 as GCA's chief administrative officer. She has also pleaded guilty to a felony information charging her with conspiracy to commit wire fraud and will be sentenced on April 17.
Prosecutors said MacDonald originally planned to have one person invest in the program, but later made it available for several investors.
"MacDonald admits that he significantly inflated the current and projected enrollment figures by the thousands in an attempt to sell the overage program to investors," prosecutors said Friday. "He and Solomon knew that the figures were false and that the sales agent would relay the figures to investors he was soliciting."
MacDonald and Solomon used false information to persuade one investor to invest $2 million in the program, then used the money to pay previous investors, prosecutors said - the hallmark of a Ponzi scheme.
Solomon sent emails from fictitious GCA employees in response to investor complaints about the delayed payments.
"The overage program did not generate any income or revenue," prosecutors said. "Less than 50 people actually bought any healthcare policies during the lifetime of the program. MacDonald and Solomon admit that any payments made to existing investors came from money that GCA received from new investors in the program."
The SEC sued MacDonald and Solomon in June 2013, in Federal Court, accusing them of raising money by lying about the company and running a "stall campaign" when they missed payments.
"To support their claims of success, MacDonald and Solomon directly and indirectly made misrepresentations to investors about the state of their company's business, its history, and the use of the investors' funds," the complaint stated. "For example, they led investors to believe that their company had a successful history of soliciting paying members, that the company was generating significant revenue from these paying members, and that MacDonald and Solomon had previously sold off a portion of that revenue to a Chinese hedge fund. None of this was true."
The SEC seeks disgorgement and civil penalties. A trial judge entered an agreed partial judgments against MacDonald and Solomon in August 2013, enjoining them from violating federal securities laws.