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Feds Allege $60 Million Fraud at Canopy

CHICAGO (CN) - A Malibu man who co-founded Canopy Financial defrauded Spectrum Equity Investors of $60 million with phony auditor reports and financial statements, and stole more than $2 million outright, federal prosecutors say.

Jeremy Blackburn, 36, copied a sample auditor report from KPMG to claims that "Canopy had over $23 million in total assets and $5.9 million in total liabilities" at the end of 2008, according to the federal complaint.

Blackburn created fake bank statements from Northern Trust, showing that Canopy had nearly $9 million in an account at the end of June, the complaint states. He submitted the phony documents to investors, including Spectrum, which sent him $60 million to buy stock in a health-care software company, prosecutors say.

The scheme began unraveling when KPMG discovered that Canopy was using its name on the phony reports and sent the company a cease and desist letter, declaring that it had never audited Canopy's financial statements, according to the complaint.

Prosecutors say that in November, Canopy's general counsel sent Spectrum a letter stating that Canopy's supposed "KPMG Independent Auditors' Report" and financial statements for 2007 and 2008 were not actually authorized by KPMG and that it cannot rely on those documents "in making or holding any investment in or having any other business dealings with Canopy."

Northern Trust told investigators that the account number on the phony bank statements belonged to another customer, and that Canopy's account with Northern was a client's "Health Savings Account," which had a balance of $86,952.35 at the end of June, according to court documents.

Blackburn redeemed his Canopy shares for $1.6 million, and took more than $2 million for his personal use, according to the criminal complaint.

He allegedly sent more than $1 million from Canopy to "an American Express account, a corporate jet leasing company, and a luxury automobile dealership," and put $1.17 million in his personal bank accounts.

Officials say Blackburn also tried to get a mortgage using the falsified bank statement, claiming it was from his own bank account. Northern Trust notified Canopy about the fake statement, Blackburn told it that "he was not going through with the loan and Northern Trust should destroy all documentation," according to prosecutors.

Canopy ultimately sold more than $63 million in stock to "multiple entities" in July, and another $12 million in August, then filed for bankruptcy prosecutors say.

Blackburn was one of three co-founders of Canopy and was its president and COO. The Chicago Tribune identified the other co-founders as Vik Kashyap and Anthony Banas, and added that they "have not been charged with any wrongdoing."

Kashyap, former Canopy CEO, was not aware of the fraudulent activities, his lawyer told the Tribune.

Blackburn was released on a $1 million unsecured bond. If convicted, he faces up to 20 years in prison and a $250,000 fine for wire fraud, and mandatory restitution.

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