Cybercrime & Technology

SAN FRANCISCO—Attorney General Edmund G. Brown Jr. said six individuals arraigned today on identity theft charges “wreaked financial and emotional havoc” on victims by making tens of thousands of dollars in fraudulent charges in their names. The defendants face multiple felony counts of identity theft, conspiracy, possession of stolen property, and grand theft.

The identity theft ring was able to steal 20 identities and over $170,000 worth of cash, expensive clothing, jewelry and accessories. They bought flat screen TVs, a Gucci watch and $31,000 worth of merchandise from Neiman-Marcus. Members of the ring raised cash by returning items bought using fake identities.

“This criminal identity theft ring wreaked financial and emotional havoc on the victims, who will now endure hours of work fixing their credit and rebuilding their lives,” Brown said. “It’s important to keep these fraud rings from ripping off other victims.”

The six defendants face charges of violating California Penal Code section 182 for conspiring to commit identity theft, section 484 for theft, section 530.5 for identity theft, and section 496 for possession of stolen property. Possible sentences for each defendant range from a minimum of four years to a maximum of 27 years and four months.

The individuals facing charges today include:
• Matthew Medlin, 31, of Campbell.
• Jessica Campos, 30, of Santa Clara, also faces charges of violating California Penal Code section 502(c) for using dental office clients’ personal information.
• Chev Chan, 31, of San Jose, also faces charges of violating California Penal Code section 496 for receiving stolen property.
• Quang Le, 32, of Santa Clara. Le also faces charges of violating California Penal Code section 487 for grand theft.
• Daniel Lee Lesly, 31, of Los Altos. Lesly also faces charges of violating California Penal Code section 487 for grand theft.
• Nick Phuong Luu, 29, of Vallejo. Luu also faces charges of violating California Penal Code section 487 for grand theft, and section 496 for receiving stolen property.

In late 2009, Brown’s office was notified by the U.S. Postal Inspection Service that several individuals reported their social security numbers had been illegally used to apply for credit cards. The credit card information was sent to a San Jose residence later discovered to be the home of Chev Chan.

The subsequent investigation revealed that between June and December of 2009, the defendants, along with other unnamed suspects, engaged in an identity theft spree throughout the Bay Area. The ring’s leaders, Nick Luu and Chev Chan, used several San Jose, Santa Clara, Sunnyvale, and Campbell addresses to divert the victims’ mail. Luu and Chan also had victims’ mail sent through false change-of-address forms and opened five Post Office boxes in San Jose.

Most of the victims’ identities were stolen from clients at a San Jose law office and Santa Clara dental office where two of the defendants worked.

During a search of Nick Luu’s residence, Brown’s office found 10 dental claim forms that contained patients’ names, addresses, dates of birth and social security numbers. The forms were given to Luu by Jessica Campos, an employee of the Santa Clara dental office, to use to manufacture fake identities. Campos was told by leaders in the ring to obtain current employers and addresses of Asian males who were about the same ages as the conspirators. As a result of Campos’ involvement, three dental office patients had their personal information used to make fraudulent purchases.

Chev Chan, used stolen identities to open Discover, Bank of America, and Chase credit cards while he worked at the San Jose law office. Chan used his work computer to change account addresses and open fraudulent credit card accounts under two victims’ names. Chan also used his employment address to receive mail and open two Post Office boxes under the victims’ names.

One of the defendants, Quang Le, was seen on video surveillance at Zales Jewelers in Eastridge Mall making a fraudulent purchase of $4,400. Le also racked up over $31,000 in fraudulent charges at Neiman-Marcus.

The fraud ring also opened fraudulent bank accounts and wrote dozens of checks. Daniel Lesly wrote 15 non-sufficient-funds checks totaling almost $2,000 from an account he fraudulently opened at Bank of America. The checks were written from the account to Target and Lucky’s. Lesly also returned a Gucci watch, previously purchased using a fake identity, and took over $2,000 in cash for the exchange.

To enable him to use the credit cards, defendant Mark Medlin used the victims’ identities to open credit lines and manufacture fake California driver’s licenses. These fraudulent driver’s licenses were used by Nick Luu, Chev Chan, and Quang Le.

Additional items purchased with the stolen identities include:
• A watch worth $8,150 from Ben Bridge Jewelers
• Merchandise worth $6,402 from Nordstrom
• A 55” flat screen television worth $3,277 from Sears online
• A 40” flat screen television worth $1,509 from Sears online
• Comforters and bedding worth $725 from Macy’s
• A Movado watch worth $1,281 from Kay’s Jewelers
• A Tag Heuer watch worth $4,485 from Macy’s
• Jewelry worth $8,150 from Ben Bridge Jewelers

A copy of the complaint available upon request.

Sacramento—Attorney General Edmund G. Brown Jr. today announced the arrest of William Arthur Sassman II who “looted” the life savings of dozens of investors to bankroll his lavish lifestyle and prop up a multi-million dollar Ponzi scheme.

Sassman, 41, of Sacramento, was arrested at his residence this morning on a total of 100 counts: 43 counts of grand theft, 40 counts of misrepresentation or omission in the sale of a security, 16 counts of first-degree burglary and 1 count of use of a device, scheme, or artifice to defraud in the sale of a security. If convicted, Sassman faces up to 52 years in prison. Sassman is being held in the Sacramento County Jail and bail has been set at $3.2 million.

“William Arthur Sassman solicited millions of dollars from California investors with promises of high returns on business and real estate investments,” Brown said. “In reality, Sassman looted their savings to prop up a Ponzi scheme, so he could buy homes and Ferraris.”

Over the past decade, Sassman used four companies—InTex, LLC; Formulating Insurance Agency (FIA); Formulating Investments (FI); and Systematic Management Services (SMS)—to solicit investments ranging from approximately $10,000 to $500,000 from more than 50 individuals across Northern California and beyond.

Sassman, a licensed insurance agent, convinced investors, many of whom were senior citizens, to shift their savings from IRAs, annuities, life insurance accounts, 401(k)s and certificates of deposit to “high return” investments with his companies. These investments included foreclosed properties and real estate in Georgia, Mare Island and Vallejo; a strip mall in Folsom; commercial property in El Dorado Hills; the production of a laptop computer stand called the “Notefloat” and annuity, stock and foreign currency investments.

However, Sassman made few, if any, of these investments and rarely paid the double to triple digit returns he promised. Instead, Sassman spent investors’ millions financing his lavish lifestyle, including $1.1 million on his American Express card, $300,000 on automobiles, $75,000 at Polo Ralph Lauren and three homes.

The limited funds Sassman invested were channeled into other illegal operations including a “stock trading program” run by a group indicted in federal court earlier this year for running a Ponzi scheme and a European investment scam that promised a 200 percent profit in 45 days or 800 percent annually.

As Sassman burned through investor funds, he paid returns to early investors by using funds from new ones. Investors are still owed close to $4.4 million, and additional losses could reach $3 million.

In September 2009, Sassman and his companies filed for bankruptcy.

Some of Sassman’s Victims

In October 2004, a Sacramento resident invested more than $250,000 in FIA. Sassman promised her a seven percent annual return. Her money was combined with money from other investors for a total of more than $700,000. Of that money, approximately $400,000 was spent on Sassman’s personal expenses, more than $50,000 went to Sassman’s wife, and more than $34,000 was paid in returns to other investors. The victim lost $170,000 of her investment.

In late 2005, Sassman promised a Rancho Cordova woman that if she closed her $78,000 life insurance policy and invested the funds with him, she would receive an 8 percent return on her investment. In early 2009, the victim was diagnosed with cancer and her son took over her finances. Her son contacted Sassman and requested $7,000 from his mother’s investment to help pay for her medical expenses. Sassman promised to send a check, which never arrived. Soon after, the victim’s son contacted Sassman and asked him to return the entire balance of the $78,000 investment. Sassman sent a check for $14,000 that bounced. The victim’s investment was never returned.

In January 2007, a Sacramento couple invested more than $80,000 with Sassman’s company SMS to be invested into real estate and to earn interest. Sassman informed the couple that their money had been used to purchase property, which was undergoing renovation. The couple was unaware that their entire investment had been used to pay other investors.

Santa Ana – Attorney General Edmund G. Brown Jr. announced that Ralph Adam Rendon, 33, of Orange County, was sentenced to five years in state prison yesterday for selling $154,000 in “phony travel packages” to senior citizens seeking to visit Cuba for religious and cultural purposes.

Rendon pleaded guilty to one count of Grand Theft. As part of the plea agreement, Rendon was ordered to pay $154,000 in restitution.

"This individual sold $154,000 of phony travel packages, ripping off senior citizens who wanted to go to Cuba for religious and cultural purposes,” Brown said. “In reality, Rendon never arranged for travel to Cuba, but used the funds to purchase a Mercedes, pay his rent and hire a divorce lawyer.”

Brown’s criminal complaint, filed in Orange County Superior Court last year, contends that in 2006 Rendon began advertising his travel agency, USA to Cuba, in religious magazines. USA to Cuba purportedly arranged trips for Jewish and Greek Orthodox Americans who wanted to visit members of their faith in Cuba.

Approximately 41 individuals, including 20 senior citizens, responded to the ads and purchased travel packages from Rendon. About half the victims were Californians. The remainder came from New York, Texas, Michigan, Illinois, Florida, Wyoming, Nevada, Arizona and Utah.

Victims paid up to $4,000 for the travel. Once Rendon received payment, he falsely informed his victims that the trip had been cancelled by the U.S. Treasury Department. Rendon ignored demands for refunds.

In June 2006, investigators with Brown’s office and the Santa Ana Police Department launched an investigation, interviewed victims and conducted an audit of Rendon’s financial records. The audit revealed that he used his customers' money to pay for personal expenses.

The case was referred for prosecution and Rendon was arrested April 17, 2008. While out on bail, Rendon started a second company, London Exchange, which charged customers $500 to apply for credit cards that did not exist. Brown had Rendon arrested last month on suspicion of grand theft and forgery. As part of the plea agreement, charges related to this matter will not be pursued.

The Attorney General’s Office offers the following reminders to people who want to purchase a travel package:

• Travel agents must register with the Attorney General's Office as a seller of travel. To see if a travel agent is registered, go to: http://vcinweb.doj.ca.gov/SellerOfTravel/SotprodTest/sotInput.asp.
• Travel agents must deliver services before charging their fee to arrange trips.
• If an agent is unable to arrange a trip, they must refund all consumers' money within three days.
• Travel agents must deposit the money they are given to arrange trips in a special trust account.
• Travel agents that sell trips to Cuba must obtain a Travel Service Provider license from the U.S. Treasury Department.

Santa Ana – Attorney General Edmund G. Brown Jr. today announced that agents from his office and the Santa Ana Police Department have arrested a “serial con artist” who defrauded hundreds of people by charging them $500 to apply for credit cards that did not exist.

Ralph Adam Rendon, 33, of Orange County, was arrested late last week on suspicion of grand theft and forgery. While no new charges have been filed at this point, his bail has been increased to $1 million and a search warrant was executed at his Santa Ana business. He is currently being held in custody at the Santa Ana Jail.

“This serial con artist was arrested and charged last year for selling bogus travel packages to senior citizens who wanted to go to Cuba,” Brown said. “He is behind bars again for charging his victims hundreds of dollars in application fees for credit cards that did not exist.”

On April 8, 2008, Brown’s office filed 78 criminal counts of grand theft, embezzlement, and mishandling consumer funds against Rendon in Orange County Superior Court for stealing more than $160,000 from consumers who paid him for trips to Cuba that he never booked. He was arrested a few days later and posted bail. Trial in that case is set to begin on October 26, 2009.

Nearly a year after posting bail, Rendon started a Santa Ana based company called London Exchange, which offered “No FICO” credit cards with credit lines of $50,000 to $100,000. A “No FICO” credit card does not require a credit check. Rendon’s company also claimed to offer credit repair counseling.

To receive the credit cards, consumers were required to pay an upfront processing fee of $500. However, no consumers who investigators have interviewed reported receiving a credit card, despite paying the fee. Rendon collected more than $300,000 from over 600 individuals who responded to his company’s online advertisements from May to August 2009.

The scheme eventually unraveled after the credit card processing company that Rendon used to process his customers’ payments discovered that he was a defendant in a pending criminal case. The credit card processing company notified Brown’s office, which launched an investigation.

After interviewing several consumers, investigators from Brown’s office obtained a warrant to search the company’s Santa Ana office in September 2009. Investigators found hundreds of credit card applications and checks made out to the London Exchange. No evidence was found indicating that any credit cards were ever issued or that the company employed professionals who could offer credit repair counseling.

The company also failed to register with Brown’s office as a credit repair agency as required by California law.

Consumers who may have applied for one of these credit cards should check their credit reports for any suspicious activity. Although investigators have seized credit card applications as well as computers records containing personal identifying data, this information could have been misused. If you believe you have been defrauded by the London Exchange, file a complaint with the Attorney General’s Office at (916) 322-3360.

To view a copy of the first press release about Rendon, go to http://ag.ca.gov/newsalerts/release.php?id=1546&year=2008.

Los Angeles – Continuing his fight against financial fraud, Attorney General Edmund G. Brown Jr. today filed suit against “Madoff middleman” Stanley Chais, who directed hundreds of millions of dollars of his clients’ investments to Bernard Madoff, while actively concealing the link between the two.

This suit seeks at least $25 million in civil penalties, restitution for victims, disgorgement of profits and compensation and an injunction prohibiting future violations of California law.

“For decades, Stanley Chais posed as an investment wizard, but in truth, he was nothing more than a Madoff middleman, channeling hundreds of millions of dollars in investor funds to his friend’s Ponzi scheme,” Brown said. “Chais intentionally concealed his close ties to Madoff, while collecting nearly $270 million in fees.”

From the early 1970s until December 2008, Chais directed hundreds of millions of dollars to Madoff through three funds -- the Brighton, Lambeth and Popham companies -- collectively known as the Chais Funds.

Chais, who operated out of Beverly Hills, attracted hundreds of investors to these funds by producing annual returns of 20 to 25 percent.

Chais claimed that he generated these high returns through superior skill and experience, use of advanced technology and connections to sophisticated brokers in New York. Investors were discouraged from asking about his investment strategy and were led to believe that he utilized a complex and diversified approach involving arbitrage, derivates, stock, currency and futures trading.

In reality, Chais turned over all of the Chais Funds’ investments to Madoff, who relied on such feeder funds and middlemen to attract the cash flow needed to prop up his Ponzi scheme. In return, Madoff produced made-to-order returns.

Chais told Madoff that he did not want any losses on the Chais Funds’ trades, and Madoff accommodated his request. Between 1999 and 2008, despite supposedly executing thousands of trades on behalf of the Chais Funds, Madoff did not report a loss on a single equities trade. The Chais Funds received improbably high and consistent returns of between 20 and 25 percent, with only three months of negative returns between 1996 and 2007.

For his services, Chais charged investors an astronomical annual fee of 25 percent on all profits. Over the past decade, Chais collected almost $270 million in fees.

Although Chais turned over all the Chais Funds’ assets to Madoff, most investors had never heard of Madoff and were completely unaware of the connection between the two men until after the Ponzi scheme collapsed and their investments were lost.

After conducting a seven-month investigation, Brown today filed suit in Los Angeles Superior Court. The suit demands:
• An injunction prohibiting Chais, his successors, agents, representatives and employees from continuing to operate;
• Full restitution of any money or other property acquired through these illegal actions;
• Disgorgement all profits and compensation obtained through these illegal actions; and
• Payment at least $25 million in civil penalties.

Brown is suing Chais for:
• Committing securities fraud in violation of California Corporations Code Section 25401;
• Engaging in acts, practices or a course of business as an investment advisor that are fraudulent in violation of California Corporations Code Section 25235;
• Making or disseminating untrue or misleading statements in violation of California Business and Professions Code Section 17500; and
• Engaging in unfair competition in violation of California Business and Professions Code Section 17200.

On March 12, 2009, Madoff pleaded guilty to 11 felony counts and admitted to defrauding thousands of investors of billions of dollars. Federal prosecutors estimated client losses, which included fabricated gains, of almost $65 billion. On June 29, 2009, Madoff was sentenced to 150 years in prison, the maximum allowed.

On June 22, 2009, the SEC filed a complaint against Chais in U.S. District Court for the Southern District of New York alleging that he committed fraud by misrepresenting his role in managing the funds' assets and for distributing account statements that he should have known were false.

Los Angeles — Continuing his fight against mortgage scams, Attorney General Edmund G. Brown Jr. today announced that agents from his office have arrested Michael McConville, and two of his associates for their roles in a “criminal conspiracy” to steal nearly $1 million from borrowers seeking to refinance their homes.

McConville and his co-conspirators lured dozens of borrowers into refinancing home loans by falsely promising low interest rates and brokers’ fees, and other attractive terms. They then negotiated different terms with lenders, forged the victims’ signatures on the final loan documents and collected hefty brokers fees – ranging from $20,000 to $57,000 – that were never disclosed. Only when the borrowers received true copies of the loan documents after the refinance did they discover that their names had been forged. In total, defendants stole over $950,000 from more than 70 borrowers, leaving victims holding $30 million in loans with terms they did not agree to.

“After victims signed their closing papers, McConville and his associates doctored the loan documents, forged borrowers’ signatures and slipped in hefty fees that were never disclosed,” Brown said. “This was not some clerical error but a criminal conspiracy to steal nearly a million dollars from borrowers.”

Earlier this week, Brown filed 44 criminal charges against:

• Michael McConville, 31, of Simi Valley, sales manager of ALG, Inc, a Los Angeles based mortgage company. McConville was arrested at his home late Thursday. He is being held in Ventura County Jail on $2 million bail.

• Garrett Holdridge, 23, of Palmdale, California and Texas, loan officer for ALG, Inc. Holdridge is being held at the Los Angeles County Jail (Palmdale Station) on $2 million bail.

• Alan Ruiz, 28, of Huntington Beach, a loan officer for ALG, Inc. Ruiz was arrested at his home late Thursday. He is being held at Orange County Sheriff's Main Jail on $2 million bail.

The charges include:

• 28 counts of grand theft, by violating Penal Code section 487, subdivision (a);
• 14 counts of forgery, by violating Penal Code section 470, subdivision (d);
• One count of elder abuse, by violating Penal Code section 368, subdivision (d);
• One count of conspiracy to commit grand theft, by violating Penal Code section 182, subdivision (a)(1);
• Three special allegations of aggravated white-collar crime in excess of $500,000, by violating Penal Code section 186.11, subdivision (a)(2); and
• Taking in excess of $3,200,000, by violating Penal Code section 12022.6, subdivision (a)(4) and (b).

From April 2007 to October 2008, McConville and his associates provided homeowners closing documents bearing terms promised, but which the lender never approved. After homeowners signed those documents, key pages were removed and replaced with pages bearing the terms that the lender had actually agreed to. The homeowners’ signatures were forged on the replacement pages, and ALG forwarded the forged documents to the escrow company.

Homeowners only discovered they had been defrauded when they received the final loan documents with the true terms and saw their signatures forged on disclosures of closing costs, Truth-in-Lending disclosures, loan applications and other documents. ALG often collected between $20,000 and $30,000 in undisclosed broker fees. In one transaction, they collected over $57,000 in such fees.

As a result of this scheme, homeowners suffered devastating financial losses. Some were forced to sell their homes, come out of retirement, or tap into retirement savings. Others paid significant prepayment penalties -- in one case, over $21,000. Borrowers often never received the significant amounts of cash-out they were promised.

VICTIMS
Michael McConville promised one couple a 5.5 percent fixed interest rate, cash-out of $58,000 and $4,500 in closing costs. Only after they signed the documents, they realized their copy did not include the pages detailing the key terms of the loan. The couple soon received loan documents from Indymac Bank and discovered their signatures had been forged and they had received a 7 percent interest rate, no cash-out, and over $50,000 in closing costs, including a $42,000 origination fee paid to ALG.

ALG contacted a 65-year-old retired woman in July 2007 and promised her a 30-year fixed rate loan at 5.25 percent. A month later, a notary had arrived at the victim’s house with loan documents reflecting the 5.25 percent fixed interest rate. After closing, the victim discovered she had received an adjustable rate mortgage with an initial rate of 8.65percent, a $22,000 origination fee, and $2,230 in miscellaneous fees. The victim’s signature had been forged on most of the documents.

Brown recently sued Michael McConville and his brother Sean for their part in the “Property Tax Reassessment” scam which targeted Californians looking to lower their property taxes. Tens of thousands of mailers were sent out that featured official-looking logos and demanded hundreds of dollars in payments for property tax reassessment and reassessment appeal services. The statements warned homeowners that if payments were not received by the 'due date' they faced late fees or would have their file marked 'non-responsive' or 'ineligible for future tax reassessments.' A copy of the press release can be found at: http://ag.ca.gov/newsalerts/release.php?id=1734

Brown has made it a top priority to combat mortgage fraud. In July, as part of a nationwide sweep, Brown filed suits against 21 individuals and 14 companies who ripped off thousands of homeowners seeking mortgage relief. In total, Brown has sought court orders to shut down 32 companies and has brought criminal charges and obtained lengthy prison sentences for deceptive mortgage consultants.

Fresno – Attorney General Edmund G. Brown Jr. announced that agents from his Bureau of Gambling Control, working with the FBI, today arrested Chukchansi Casino’s former General Manager, Jeff Livingston, who “willfully abused his trust” by using a corporate credit card to spend more than $30,000 on down payments for two cars and a Hawaiian golf vacation.

Livingston, 49, of Fresno, was arrested at his residence this morning on two federal counts of theft by an officer or employee of a gaming establishment on Indian lands. If convicted, Livingston faces up to 20 years in prison. Livingston is a former Broward County, Florida Deputy Sheriff.

“Jeff Livingston willfully abused his trust as casino general manager to conceal more than $30,000 in lavish purchases, including a Shelby Mustang and a Hawaiian golf vacation,” Brown said.

Brown’s office launched an investigation into Livingston in February 2008 after the Tribal Gaming Agency of the Chukchansi Gold Resort and Casino discovered questionable charges on the casino’s corporate credit card. Brown’s office asked the FBI to join the investigation because the matter involved an employee of an Indian casino. The Chuckchansi Casino is located 35 miles north of Fresno in Coarsegold, Calif.

The joint investigation revealed that Livingston made unauthorized purchases with the casino’s corporate credit card, including:
• A $20,000 down payment on a new Ford Mustang Shelby;
• A $5,000 down payment on a new Ford Fusion for the casino’s former Vice President of Marketing; and
• A $7,000 Mercedes Benz PGA National Golf Championship package in Maui, Hawaii.

Livingston attempted to conceal the down payments by making it appear as if they were part of a ten car purchase he made for a casino giveaway.

Livingston was indicted yesterday by a federal grand jury on two counts of theft by an officer or employee of gaming establishments on Indian Lands in violation of U.S. Code Section 1168 (Title 18).

The defendant was arraigned earlier this afternoon in Fresno in the U.S. District Court, Eastern District of California.

A copy of the federal indictment, issued July 23, 2009, is attached.

Sacramento -- Attorney General Edmund G. Brown Jr. announced that agents from his office this week raided Internet cafes in Stockton and San Diego that illegally operated “Las Vegas-style games” including video poker, keno and slots.

"Agents from my office shut down Internet cafes in Stockton and San Diego that are a cover for illegal gaming operations,' Brown said. 'These are unregulated and illegal gambling parlors, operating Las Vegas-style games in violation of the law.”

Beginning in early June, undercover agents entered establishments in Stockton and San Diego and played various Las Vegas-style games on computers at these Internet cafes. The agents purchased a card that allowed them 'Internet time' on the café’s computers. If they won, an on-site employee paid them in cash.

In Stockton, law enforcement agents raided the Lucky Déjà Vu Internet Cafe and the Déjà Vu topless bar and seized 98 computer terminals, 2 master computer servers, money machines and business records, plus more than $4,000 in cash.

In San Diego, law enforcement agents raided five locations: Café Hong Hung, ‘08 Wireless, Café 2000, Phnom Penh Video and ‘05 Billiards. In total, agents seized 31 video slot machines and approximately $13,000 in cash.

Additional sites in San Diego and Oceanside are under investigation for similar activity.

Brown’s office is working with the San Diego Police Department in “Operation Jackpot” to identify and close businesses that offer illegal gambling in violation of Penal Code Section 330b, which prohibits individuals from owning and operating slot machines.

Agencies involved include the Attorney General’s Office Bureau of Gambling Control, the San Joaquin Sheriff’s Office, the San Joaquin District Attorney’s Office, the High Tech Crimes Task Force, the Department of Alcoholic Beverage Control, the San Diego Police Department, the San Diego District Attorney’s Office and the Oceanside Police Department.

Sacramento -- Attorney General Edmund G. Brown Jr. announced today that prosecutors from his office have filed grand theft, embezzlement and burglary charges against Maria Elna Flora, 59, of Sacramento, after she “fleeced” retirees out of almost $350,000 to pay for a daily gambling habit.

Flora was arrested yesterday by Yolo County law enforcement officials and is being held in Sacramento County Jail. Bail has been set at $400,000. Flora is scheduled to be arraigned on June 22. If convicted on all charges, she could spend more than 30 years in prison.

The case is a product of an investigation by the California Department of Insurance, with assistance from the Yolo County District Attorney’s office.

“Maria Elna Flora fleeced retirees out of hundreds of thousands of dollars by getting them to shift their life savings into sham real estate investments,” Brown said. “Flora stole thousands from retirees and gambled it away playing the slots at the local casino.”

Flora, a licensed life insurance agent, sold annuities to retirees looking for financial security. After completing legitimate annuity sales, Flora would offer additional investment opportunities, promising returns ranging from 10 to 20 percent. The funds, she said, would be used to make real estate loans to investors willing to pay high interest rates. In reality, none of the funds Flora collected were invested as promised.

From January 2005 through August 2007, Flora convinced at least ten individuals living in Butte, El Dorado, Sacramento, Solano, Stanislaus and Yolo counties to invest between $5,000 and $88,000. Flora encouraged investors, who ranged in age from 67 to 92 years old, to shift savings from life insurance policies, certificates of deposit and savings accounts, to her short term, high return investment. In total, retirees invested almost $350,000 with Flora.

In most of these cases, Flora made a few interest payments to investors and then stopped. When victims asked about the returns, Flora promised to pay at a later date, but never did.

In 2007, the California Department of Insurance initiated an investigation after Flora’s former employer filed a complaint. Earlier this year, the case was turned over to the Yolo County District Attorney’s Office for prosecution. The Yolo County District Attorney’s Office continued the investigation and then referred the case to Brown’s office because there were victims in at least five other California counties.

The investigation found that Flora used investors’ money to fund an expensive gambling habit which included almost daily slot play from January 2005 through August 2007 at Thunder Valley Casino.

Flora’s victims included:
• A 78-year old Placerville resident who invested $88,000;
• A 76-year old retired bookkeeper in Elk Grove who invested $50,000;
• An 85-year old retired education professional in West Sacramento who invested $47,000;
• A 71-year old Modesto resident who invested $45,000;
• An 83-year old Chico resident who invested $42,600;
• A 72-year old Woodland resident who invested $32,000;
• A 92-year old Vacaville resident who invested $20,000;
• An 80-year old retired department store employee in Citrus Heights who invested $10,000;
• A 73-year old Sacramento resident who invested $10,000; and
• A 67-year old West Sacramento resident who invested $5,000.

Yesterday, Brown filed 92 criminal charges against Flora in Sacramento County Superior Court for:
• Grand theft in violation of Section 487 of California’s Penal Code;
• Embezzlement from an elder or dependent adult in violation of Section 368 of California’s Penal Code; and
• Burglary in violation of Section 459 of California’s Penal Code.

Brown is committed to protecting Californians from financial scams. Earlier this month, Brown announced that agents from his office, working with law enforcement in Tennessee and Nevada, arrested two individuals for stealing millions of dollars through phony stock sales and an illegal pyramid scheme. Last month, Brown filed 79 criminal charges against three men who swindled thousands of individuals, including many retirees who lost their life savings, in a $200 million Ponzi scheme.

Copies of the felony complaint and arrest warrant affidavit, filed in Sacramento County Superior Court, are attached.

Riverside – Attorney General Edmund G. Brown Jr. announced that agents from his office, working with law enforcement in Tennessee and Nevada, arrested two individuals earlier this week for stealing millions of dollars through “phony stock sales” and an illegal pyramid scheme.

The defendants -- James A. Sweeney, II, 62, of Afton, TN and Patrick M. Ryan, 34, of Canyon Lake, CA -- were arrested on June 3, 2009 in Afton, TN and Las Vegas, NV, respectively, and are being held until they are extradited to Riverside County. Both face 78 counts of grand theft and securities fraud. Bail has been set at $8.8 million each.

“These two con men stole $8.8 million dollars through phony stock sales and an illegal pyramid scheme,” Brown said. “They stole investors’ money and used it to pay for luxury homes, fancy cars and a $100,000 Las Vegas wedding.”

Brown’s complaint contends that Sweeney and Ryan, co-founders of Riverside-based Big Co-op, Inc., stole $8.8 million from more than 1,000 Californians through an illegal pyramid scheme and phony stock sales.

Big Co-op, also operating as Ez2Win.biz, purported to be an online shopping hub where consumers could go to purchase thousands of goods and services from big name retailers including, Sears, Target and Macy’s, at discounted prices.

Pyramid Scheme

Consumers were informed that if they purchased a Big Co-op membership, they could save money on their own purchases and also earn commissions and rewards by convincing others to shop on the site.

In reality, consumers never received rebates or rewards. Instead, profits were based on recruiting others to purchase memberships, and having those purchasers recruit others to purchase memberships (and so on).

Members earned $100 commissions for every six members recruited. Those recruited then paid Big Co-op from $19.95 to $99.95 in ongoing monthly membership fees.

According to the complaint, from 2005 to 2007, Big Co-op generated $1.3 million in revenues through this pyramid scheme.

Phony Stock Sale

In addition to the pyramid scheme, the two sold phony stock in Big Co-op as a stand-alone investment and as part of certain membership plans.

At seminars and meetings across California, Sweeney and Ryan pitched Big Co-op as the future of online commerce, compared it to Google and EBay, and falsely informed investors the company was already turning huge profits. Investors were also told that an initial public offering (IPO) was imminent, and that when the company went public, the shares could climb to well over $100 per share.

In reality, Big Co-op was never profitable, there was not an impending IPO, and the only significant revenue generated was a result of the sale of phony stock and membership fees for the pyramid scheme.

Shares in the company were sold for $0.50 to $5.00, with two-for-one deals offered to investors willing to pay cash. From 2005 to 2007, Big Co-op took in $7.5 million from this scheme.

With investor cash, Sweeney and Ryan bought luxury homes, country club memberships, five Mercedes, paid for a $100,000 Las Vegas wedding and ran up $30,000 to $50,000 in monthly credit card bills.

After receiving numerous complaints, the California Department of Corporations issued two “Desist and Refrain Orders” against Sweeney, Ryan and other associates: the first, on October 23, 2006, directed them to cease selling stock in the company and the second, on May 2, 2007, directed them to cease selling memberships in the company. Following the second order, the case was referred to Brown’s office for prosecution.

On May 29, 2009, Brown filed 78 criminal charges in Riverside County Superior Court against both Sweeney and Ryan for:
• Grand theft, in violation of California Penal Code section 487(a);
• Sale of unqualified securities in violation of California Corporations Code section 25110;
• Fraud in the offer of securities in violation of California Corporations Code sections 25540/25401;
• Operation of a fraudulent securities scheme in violation of California Corporations Code sections 25540/25541; and
• Operation of an endless chain scheme in violation of California Penal Code section 327.

If convicted on all charges, each could face more than 25 years in prison.

These arrests build on Brown’s commitment to protect Californians from the get-rich-quick schemes that proliferate in a down economy. In the past few months, Brown has entered into settlements enforcing tough restrictions on three companies – YTB International, Imergent, Inc. and Stores On Line - that falsely promised customers that they could earn full-time income by selling merchandise and travel over the Internet.

A copy of the felony complaint is attached.