DALLAS (CN) - A principal of W Financial Group was sentenced to 5 years in federal prison and ordered to pay nearly $13 million in restitution for a massive investment fraud. Michael Wallens Jr., 31, of Plano, was sentenced Wednesday by U.S. District Judge Barbara Lynn. His father will be sentenced in January.
Wallens and his father, Michael Wallens Sr., 53, of Nantucket, Mass., both pleaded guilty last year to one count of securities fraud.
The father, who is free on bond, will be sentenced on Jan. 7, 2012.
Prosecutors said the Wallenses and co-defendant Adley Husni Abdulwahab, 36, sold collateral-secured debt obligations issued by W Financial Group.
The CDSOs are promissory notes, a type of security also known as an investment contract. The three men sold the CDSOs to about 180 investors for $17 million, prosecutors said.
They promised, but did not, put investors' money into government or corporate AAA bonds, qualified receivables or insured notes, the government says.
"Acting through WFG, they used investor money to purchase Michael Wallens Sr.'s used car dealership, its automobile inventory and the dealership's accounts receivables," the Department of Justice said in a statement.
"They also used investor money to invest in residential lots, a home building company and a power company. When Wallens Jr. became aware that the offering materials didn't accurately disclose the true facts, he did not take the necessary steps to end the false representations in the offering materials, and he did not contact investors to disclose the true facts. In fact, they took investor money as their own personal compensation."
Abdulwahab has been indicted on one count of conspiracy and five counts of securities fraud. He is in custody in Richmond, Va., where he recently was sentenced to 60 years in federal prison for his role in another securities fraud. Prosecutors expect him to appear a Dallas court soon to face the pending WFG charges.
Wallens Jr. must report to the Bureau of Prisons on Jan. 3.
The SEC suedWFG in 2008, saying it falsely claimed to have a 17-year record of success, though it actually was set up in 2006 to run the scam.