(CN) - A federal judge awarded more than $2 million to an investor who was defrauded by a scheme involving fake Swedish banks, alter egos and racketeering.
U.S. District Judge Dale Fischer conducted the bench trial in Los Angeles on the federal complaint Alaskan real estate developer Thomas Alexander filed against Companies Inc. (CI), its affiliates, president and two employees in 2011.
Alexander had filed suit after losing the $524,785 he entrusted with the defendants.
CI president Kevin Wessell; its asset protection specialist, Matt Mitchell; and its bank and trust administrator, Casey Lawrence, had led Alexander to believe that a Swedish credit union, The Alps, was a safe place to put his money, according to the ruling.
But "Alexander's money was not safe in The Alps," Fischer wrote. "The Alps was undercapitalized, was controlled by Wessell, was not regulated by Swedish authorities and was being used to buy, sell and lend money on real estate ventures in the state of Washington."
Fischer called Wessell "the mastermind behind the scheme." She concluded last week that the defendants either intentionally or recklessly misled Alexander.
"Wessell's deposition testimony was the most evasive the court has experienced in thirty-three years," the judge wrote.
She added: "Wessell also consistently was evasive, or simply lied, at trial."
CI, the company Wessell controlled, now goes by the name Worldwide Education Services and was formerly known as Incway Corporation. It filed for bankruptcy and has an automatic stay of any attempts to enforce a judgment against it in this case. Though Wessell sold CI in 2010, Fischer noted that the sale itself and Wessell's "professed motives for doing so, are suspect - to say the least."
Wessell also claimed not to know who owned 1-800-Company, a brand name attached to CI, nor whether he was an officer of Presidential Services Inc. (PSI), which provided 1-800-Company with management services, the court found.
Fischer decided that "there was a unity of interest between and among, Wessell, Incway, CI, PSI, 1-800-Companies, and The Alps such that the separate personalities of the entities and Wessell no longer existed. The evidence shows that these entities were alter egos of Wessell. There is evidence of commingling of funds and other assets, treatment by Wessell of the entities' assets as if they were his own, failure to maintain adequate corporate records, identical equitable ownership of two or more entities, inadequate capitalization, concealment of the identity of the responsible ownership, diversion of assets, and manipulation of assets and liabilities between entities."
"Wessell has placed Incway and PSI into bankruptcy in a transparent effort to avoid liability," the judge added.
The testimony Mitchell gave at deposition "impeached" his credibility, Fischer found, noting that the man spent seven years helping CI clients invest overseas though he had no experience in asset protection, no college degree, and no expertise in banking law.
In addition to giving the false "impression that he knew what he was talking about," Mitchell also deliberately concealed his position as a board member of The Alps," the ruling states.
Lawrence also knew "little about Swiss banks and less about Swedish banks," the court found. "The only Swedish bank she knew was The Alps."
The 37-page ruling notes credible deposition testimony from two other investors, Paramount International Holdings CEO Pankaj Topiwala and real estate developer Neil Vacchiano, who claim to have also been defrauded by CI and its officers.
Topiwala filed a similar federal complaint in Maryland in January 2012 for $5.5 million.
Alexander realized the fraud too late when his brother allegedly advised him that operations of The Alps were nothing like that of U.S. credit unions, and that he might face delays in making withdrawals.
In late July 2011, Alexander's attempt to withdraw $320,000 failed, his emails went without response, his call to The Alps was forwarded to an answering service that serviced more than 200 other companies, and CI never returned his calls, the court found.
"Alexander has never recovered any portion of the $524,785, and has spent close to $175,000 in attorney's fees and costs to get it back," Judge Fischer wrote.
She added that "there is no evidence that it ever did business in Sweden, much less that it made loans to anyone in Sweden."
"Indeed, all the documents that Wessell produced involving The Alps relate to investments in Washington," the decision states. "About 95% of The Alps' loans were in the state of Washington."
Fischer found all three individual defendants had committed intentional misrepresentation, concealment and suppression of facts, and racketeering. Mitchell and Lawrence are also liable for negligent misrepresentation, and Wessell owes $2 million in punitive damages for "deliberate deceit and trickery."
Alexander can recover that $2 million from Wessell as an alternative to the $1.5 million in RICO treble damages he is owed from Wessell, Mitchell and Lawrence.
This amount is in addition to the $524,785, plus interest, that the defendants owe in economic damages.
"Wessell, Mitchell and Lawrence engaged in a pattern of racketeering activities by committing acts of mail and wire fraud within a 10 year period to further their fraudulent investment scheme," the opinion states.
They "willfully and knowingly were part of [the] scheme to defraud and obtained money by means of false pretenses, misrepresentations, and representations that were made recklessly," Fischer added. "Wessell solicited potential clients by conducting free online seminars on how to set up an asset protection plan with the specific intent of defrauding investors."
The three also "concealed material facts, specifically that Wessel and Mitchell were directors of The Alps, that CI had made loans to The Alps, that The Alps was regularly engaged in the business of investing in real estate in the United States, that The Alps was not a credit union as that type of institution in known in the United States, and it did not have an actual physical presence in Sweden but operated out of Valencia, California," according to the ruling.
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