Virginia Man Sentenced for Conducting $270 Million Investment Fraud Scheme

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The owner of a Virginia-based investment firm was sentenced today to serve 144 months in prison for orchestrating a $270 million stock loan scheme that defrauded his clients of more than $35 million.

Acting Assistant Attorney General Mythili Raman of the Department of Justice’s Criminal Division, Acting United States Attorney Dana J. Boente of the Eastern District of Virginia and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement after sentencing by U.S. District Judge Gerald Bruce Lee of the Eastern District of Virginia.

William Dean Chapman, 44, of Sterling, Va., pleaded guilty to one count of wire fraud on May 23, 2013. 

 Chapman was the founder and owner of Alexander Capital Markets (ACM), whose primary business was to offer a financial product that provided customers with a purportedly fully hedged loan at an above-market rate of interest against a customer’s securities.

  This served as collateral for the transaction for a percentage – typically between 85 percent and 90 percent – of the securities’ value.

  For example, in exchange for a customer’s Apple stock, ACM would provide a cash loan to that customer worth 85 percent or 90 percent of the stock’s value.

  After a period of time – between two and seven years, and typically three years – the customer could receive back their securities, or the equivalent cash value, if they repaid the balance of the loan plus accrued interest.

  Alternatively, because the loans were non-recourse, the customer could walk away at the end of the redemption period having already received up to 90 percent of the value of their securities.

ACM’s customers were assured that ACM was engaged in hedging transactions such that ACM would be able to return the full value of the securities, or the cash equivalent, at the end of the contract period.

  In reality, ACM simply sold the securities upon receipt, remitted up to 90 percent of the sales proceeds to its customers as the loan, and retained the remaining sales proceeds for itself and the parties who sold, marketed or facilitated the product.

Because ACM simply sold the securities upon receipt and no legitimate hedge existed, ACM could not return securities, or the cash equivalent, to the customers at the end of the redemption period unless it had sufficient funds to buy back the securities.

  By in or about April 2008, ACM was functionally insolvent.

  ACM did not have – and could not have expected to have – sufficient funds to cover its outstanding liabilities.

  Nevertheless, Chapman continued to solicit new customers despite knowing that ACM would never be able to fulfill its financial obligations.

Over seven years, Chapman took in more than $270 million in stock, and 122 victims lost more than $35 million as a result of

this scheme.   At the same time that ACM was amassing massive liabilities and failing to repay its existing clients,

Chapman used his clients’ money to support a lavish lifestyle by purchasing

a custom-built $3 million home in Great Falls, Va.; condominiums in the Turks & Caicos and Pompano Beach, Fla.; and a Lamborghini and Ferrari.

This case was investigated by the FBI’s Washington Field Office.

 The Criminal Division and the U.S. Attorney’s Office for the Eastern District of Virginia recognize the substantial assistance of the U.S. Securities and Exchange Commission on this case.

  Assistant United States Attorney Chad Golder and Trial Attorney Henry Van Dyck of the Criminal Division’s Fraud Section prosecuted the case on behalf of the United States.

 

News Source : Virginia Man Sentenced for Conducting $270 Million Investment Fraud Scheme

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