Real Estate Man Gets|12 Years for Ponzi Scam

     ALBUQUERQUE (CN) – A prominent New Mexico real estate man was sentenced to 12 years in federal prison for his role in a $74 million Ponzi scheme.
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     Douglas F. Vaughan, 64, of Albuquerque, was sentenced Wednesday for wire and mail fraud charges and ordered to pay $74.7 million in restitution, the U.S. Attorney’s Office said in a statement.
     Vaughan agreed to forfeit $38.3 million in previously seized money and real estate in Spring Valley, Nev., prosecutors said.
     Vaughan raised more than $74 million from 600 investors by promising them big returns.
     A 30-count indictment in February 2011 accused him of raising the money by selling promissory notes to fund his real estate brokerage, Vaughan Company Realtors. The scheme collapsed in early 2010 and Vaughan pleaded guilty in December 2011 to wire fraud and mail fraud.
     The plea included 16-pages of stipulated facts, in which Vaughan admitted to the allegations in the indictment and described in detail how he established, marketed and administrated the Ponzi scheme.
     “Vaughan led investors to believe that their investments in the promissory note program were actually or virtually risk-free because they were guaranteed by VCR, Vaughan’s personal guarantee, and a $2.5 million deed of trust on certain real estate,” prosecutors said in the statement. “Vaughan marketed his promissory note program by representing that the invested funds would be used to purchase real estate and to acquire smaller real estate companies.”
     Instead, Vaughan used the money to pay the interest and principal on notes taken out by earlier investors, to pay himself under the guise of salary and bonuses, and to subsidize VCR.
     Prosecutors said that without money from new investors, VCR was insolvent by 2005, when the scheme began.
     But Vaughan continued to distribute the same marketing materials for the promissory note program, sign the same promissory notes, and make the same corporate and personal guarantees.
     He told investors he would not make more than $2.5 million in notes, but company records show that he was responsible for more than $24.35 million in notes by the end of 2004. This ballooned to more than over $74 million by the end of 2009, with annual losses for 2009 of more than $13.9 million.
     “Vaughan admitted that, when his Ponzi scheme began to collapse and he became unable to meet the monthly interest payments to note holders, he made false and misleading excuses to investors and failed to disclose that VCR had insufficient revenue to make the interest payments,” prosecutors said. “In Feb. 2010, when Vaughan filed for personal and corporate bankruptcy, the aggregate principal balance owned to approximately 600 note holders was approximately $74,745,723.93 and the interest expense owed to note holders exceeded $1 million per month.”
     The plea agreement also resolves Vaughan’s bankruptcy case and a civil complaint filed by the SEC in March 2010.

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