Two Florida men were charged with operating a $14 million Ponzi scheme that solicited money for real estate investments from area investors, including from Niles, Girard, Youngstown and Boardman.
Edward A. Allen, 35, of 115 Hallum Drive, Auburndale, Fla., and David L. Olson, 60, of 3218 Forest Brook Drive N., Lakeland, Fla., each were charged with 30 counts of conspiracy, mail fraud, wire fraud, securities fraud and money laundering.
The indictment was unsealed Wednesday.
The two men, who prosecutors say operated under the umbrella company A&O Companies, face a maximum of 20 years in prison and a $5 million fine.
Allen was the CEO and Olson, who formed the company in September 2005, was the president, records state. They are scheduled to be arraigned July 12 in front of U.S. Northern District Judge Benita Y. Pearson in Youngstown.
Calls to Cleveland attorney Mark B. Marein, representing Allen, and Akron public defender Carlos Warner, representing Olson, were not returned.
The indictment alleges that between 2006 and Jan. 20, 2009, the two solicited investors to buy into their company's real estate ventures. But prosecutors allege they used the money they took from investors to pay their employees' salaries, used them for personal expenses and to pay off other investors, whom they promised between 20 and 45 percent interest on their return.
Court filings show that there were at least two investors from Niles, one from Girard, two from Boardman and two from Youngstown. Others listed in the indictment were from North Olmsted, Olmsted Township and Columbiana.
Allen and Olson lied to investors, telling them their investment was secured through promissory notes and their investments were guaranteed through a lakefront Florida property, the indictment states. The property, however, was promised as collateral on more than $8 million in promissory notes, while the property was purchased for only $425,000, before a sinkhole that drained water from the lake developed and reduced its value, the indictment states.
Once they issued the fraudulent notes, they paid some investors the promised interest payments "to give the false impression that there were actual investments," charges state, which allowed them to set up the Ponzi Scheme in which they solicited more investors to pay off the interest payments to original investors.
Filings said they solicited investors with good credit who purchased the properties for the company. The property was placed in the investor's name, but the mortgage was supposed to be paid by A&O. Lending institutions were then provided with false information about the mortgages, the indictment states.
The case stems from a 2010 civil suit filed by the Security Exchange Commission, which alleged the two fraudulently misrepresented unregistered offers and sales of securities and provides more insight into the scheme.
The case was settled by a mediator May 5, court records indicate. The settlement, however, was not made public, though other records indicated that the SEC considered waiving penalties.
The complaint filed by the SEC said Allen and Olson raised about $14.8 million and promised 20 percent annual returns to at least 100 investors in nine states, the indictment states. The filing also said the two spent $5.1 million on purchasing and rehabilitating property. It said the investors took $2.2 million for themselves, $3 million for employee salaries and $1 million for a "lavish" office building.
Allen and Olson recruited investors through the Georgia-based World Group Securities Inc., where both were registered representatives. Olson worked until 2007 at the Boardman branch.
Records said that the duo convinced some investors to take out home equity loans so they could invest proceeds to A&O and persuaded other investors to refinance their home mortgages so they could invest excess cash from lower monthly payments to the company.
''Ponzi'' is a pyramid investment scheme that promises high returns to investors using money from new investors to pay earlier investors. These schemes eventually collapse with the later investors losing their money, according to the Ohio Department of Commerce.