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Sunday, July 14, 2024 | Back issues
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Ponzi Schemer Not Guilty of Money Laundering

(CN) - Keith Simmons, the man behind a $35 million Ponzi scheme, cannot be convicted of money laundering because his payments to investors were essential to his fraud, "represent[ing] a single, ongoing enterprise," the 4th Circuit ruled.

From April 2007 to December 2009, Keith Simmons operated a $35 million Ponzi scheme through his firm Black Diamond Capital Solutions.

More than 400 investors gave their money to Simmons who promised to invest their money in an exclusive foreign currency exchange fund. He represented that only ten or twenty percent of their investment would be at risk at any given time, and sent monthly earnings statements reporting large profits.

But in fact, Simmons never invested any of the investors' money, fabricated the earnings reports, and spent the money on himself.

Simmons "purchased $4.6 million in real estate, invested $1.2 million in an extreme fighting venture, funneled $2.2 million to his other businesses, and bought lavish gifts and trips for his employees and girlfriends," according to the judgment.

At first, Simmons was able to satisfy investors' withdrawal requests with other investors' money, but when he was unable to attract more investors to the fund, Simmons began telling lies to delay the withdrawals.

In 2009, fabricated earnings statements showed Black Diamond's account held more than $292 million, when in fact it only held $523.60.

Simmons confessed to the fraud in December 2009, when the FBI raided his offices.

A jury convicted him on one count of securities fraud, one count of wire fraud, and two counts of money laundering, and a judge sentenced him to fifty years in prison.

But the 4th Circuit reversed the sentence in part on Tuesday, finding that the money-lauding convictions were based on Ponzi-style payments that were an essential part of Simmon's fraud.

Therefore, to convict him of both fraud and money laundering would punish Simmons twice for the same offense.

"A defendant cannot be convicted of money laundering merely 'for paying the essential expenses of operating the underlying crime,'" Judge Diana Motz said, quoting Supreme Court precedent in United States v. Santos, which Congress effectively overruled by amending the money-laundering statute in 2009, but which still applies to Simmons' pre-amendment crimes.

"The very victims who received the payments that formed the basis for Simmons's money-laundering charges unequivocally testified to the critical importance of those payments in fostering the (misplaced) confidence necessary to perpetuate the fraud," Motz continued, writing for the court's majority. (Parentheses in original.)

Simmons' scheme only began to unravel when the payments stopped, further evidence that they were central to his fraud.

"Santos requires that we hold that Simmons's Ponzi scheme, like the lottery scheme in Santos, represented a single, ongoing enterprise that the defendant could sustain only by making limited payouts," Motz held.

Judge Paul Niemeyer dissented from the ruling, writing, "The fraud committed by Simmons in obtaining investors' money was a distinct, antecedent crime, completed when Simmons received the money. In these circumstances, I submit, the two crimes (money laundering and wire or securities fraud) did not merge so that Simmons was subjected to punishment twice for the same conduct." (Parentheses in original.)

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