Securities Fraudster Gets 10 Years in Prison

FORT WORTH (CN) - The owner of Gemstar Capital Group was sentenced to 10 years in federal prison for a $40 million Ponzi scheme he ran with former Dallas Cowboy Michael Kiselak.

Jeffrey J. Sykes, 54, of San Bernardino County, Calif., also was ordered to pay $16.9 million in restitution.

Sykes pleaded guilty in January to two counts of securities fraud: sending investor bogus account statements. Gemstar, based in Redlands, Calif., was a venture capital company.

Sykes and Kiselak, 46, of Westlake, Texas, formed Kiselak Capital Group to solicit investors in May 2007.

"Using information Sykes provided, [Kiselak] secured approximately 37 investors who invested more than $20 million," the U.S. Attorney's Office said in a statement. "[Kiselak] sent the money, minus fees he withheld for himself, to Gemstar to be invested by Sykes."

Prosecutors said that neither Kiselak Capital Group or Gemstar actually did such trading and that Sykes raised $20 million by lying to investors about a Treasury note trading program.

"Sykes and M.K. used some of the money for personal expenses," prosecutors said in the statement. "Some of the money was invested in ventures that the investors were unaware of and had not given their consent to participate in. Some of the money was returned to investors, although in some cases, Sykes falsely claimed that the funds represented the return of capital and/or profits from the T-Bill trading program."

Investors recovered some of their money: the amount that Sykes held in low-risk money market accounts.

The SEC sued Sykes, Kiselak and Gemstar in Dallas Federal Court in May 2009. It accused Kiselak of promising investors 2.25 percent monthly returns, falsifying documents and dumping 95 percent of investors' money into Gemstar.

It also accused him of failing to disclose a 35 percent performance fee levied on Gemstar profits. A federal judge froze the accounts, the SEC said at the time.

An alleged victim of the scheme sued Kiselak, Sykes and others in Dallas County Court on April 3 this year, claiming he lost more than $1.6 million.

Kiselak played with the Cowboys from 1998 to 2000.

Sykes was ordered to report to prison by May 24.

Follow @davejourno

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit