Iowa man pleads guilty to fraud in Ponzi scheme
IOWA CITY (AP) — A Cedar Rapids man pleaded guilty Thursday to defrauding investors out of hundreds of thousands of dollars as part of a Ponzi scheme he ran from a business out of his home.
Jeffrey J. Kinseth, 58, pleaded guilty to one count of wire fraud during a hearing in federal court in Cedar Rapids and was released on bond pending sentencing, which has not been set, the U.S. Attorney's Office said.
Under the plea agreement signed last month by Kinseth and made public Wednesday, he acknowledged that he used the company he owned and operated, Virtual Vision, to solicit and accept money from 11 investors in 2008 and 2009. He told them that he would trade futures or foreign currency contracts and promised "substantial returns on their investments."
Instead, he used most of their money to pay back other investors and for other uses, while suffering losses in the investments he did make, the document states. To cover up his fraud, he issued phony account statements that falsely assured investors their money was growing. He sent several false emails to investors, including one in which he promised he would travel to Florida to deliver a "sack of cash," the document says.
The plea agreement calls for Kinseth to help the government identify all of his victims and pay full restitution in an amount that will be determined during a pre-sentence investigation. The deal does not include a recommended prison sentence for the charge, which carries a maximum of 20 years.
The U.S. Commodity Futures Trading Commission last year filed a complaint alleging Kinseth had fraudulently solicited money for a pooled investment vehicle, misappropriated investor funds and issued false statements to conceal losses and fraud. Under a settlement, Kinseth and his company agreed to pay a $575,000 penalty and $575,000 in restitution and refrain from engaging in any trading activity. Kinseth was not registered with the CFTC.
The CFTC alleged Kinseth accepted nearly $1 million from investors, misappropriating more than $800,000. Half of the misused funds went to pay earlier investors and half went for personal items such as his mortgage payment, the CFTC alleged.
Kinseth's attorney didn't return a phone message.
The U.S. Securities and Exchange Commission has alleged that Kinseth was a friend and associate of "serial fraudster" Matthew Gagnon of Portland, Ore., a self-proclaimed business opportunity expert who ran a website called Mazu. The SEC said that Gagnon used his site to promote a $72 million Ponzi scheme and other shady investments, including in 2009 the opportunity to have funds traded by Kinseth.
The SEC said in a 2010 complaint that Gagnon promoted Kinseth as an experienced and successful trader and promised he would bring returns up to 30 percent per year. But Kinseth was actually a novice who took self-study online courses and had lost money trading, the complaint said.
A judge last year ruled that Gagnon violated the registration, anti-fraud and anti-touting provisions of the federal securities laws.