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David B. Fein, United States Attorneyfor the District of Connecticut, today announced that STEPHEN B. BLANKENSHIP,63, of New Fairfield, waived his right to indictment and pleaded guiltyyesterday before United States District Judge Vanessa L. Bryant in Hartford tomail fraud and securities fraud charges stemming from a long-running scheme todefraud investors of hundreds of thousands of dollars.
“Over the course of several years, thisdefendant deceived investors into entrusting him with their funds, and theninto believing their funds were safe and their investment accounts wereappreciating,” stated U.S. Attorney Fein. “All along, he was using those fundsto pay business and personal expenses, and to pay other investors as part of aPonzi scheme. Investor fraud is a serious and growing national problem, and theDepartment of Justice and our law enforcement partners are committed touprooting these schemes and prosecuting those who perpetrate them. I commendthe FBI, SEC, Connecticut’s Department of Banking, and the Danbury PoliceDepartment for investigating this matter and shutting down this unscrupulousinvestment adviser.”
According to court documents andstatements made in court, BLANKENSHIP owned and operated Deer Hill FinancialGroup, LLC, in Danbury, which he represented to be an investment managementfirm in the business of managing client funds and buying and selling securitieson behalf of clients. However, at no time was Deer Hill Financial Groupregistered with the Securities and Exchange Commission (“SEC”) as an investmentcompany, investment adviser, broker-dealer, or in any other capacity.
From approximately 2002 to March 2012, BLANKENSHIPfalsely represented to numerous individuals that he had investmentopportunities that were safe and would pay a consistent return to investors.BLANKENSHIP had been affiliated with registered broker-dealers in Californiaand New York, and many of his victims were his prior customers. BLANKENSHIP’sfalse representations to his victims included that Deer Hill was being operatedas a legitimate investment management firm, that investors could obtain agreater rate of return by withdrawing money from their existing brokerageaccounts and investing directly with him, and that funds would be invested inpublicly-traded mutual funds or established securities. In fact, there were noactual investments or investment opportunities, the money was not invested inpublicly traded mutual funds, nor was it invested in established securities.BLANKENSHIP failed to invest the money as represented and instead used thevictims’ funds to pay business expenses and personal expenses for travel,grocery shopping, credit card payments, mortgage payments, and improvements onhis home.
In order to create the appearance oflegitimacy, BLANKENSHIP sent investors fraudulent account statements reflectingfictitious holdings, fictitious transactions, fictitious prices for the securities,and phony balances, all of which were intended to convince investors that theirmoney was secure and appreciating. BLANKENSHIP also falsely represented to hisvictims that he could achieve—and was achieving—a consistent and positivereturn on the invested funds when, in fact, he was not achieving such returns.He also used a portion of the victim-investors’ funds to make fraudulentlulling payments to other victim-investors to create the appearance that therewere actual investment returns.
Through this scheme, BLANKENSHIPdefrauded at least eight investors of more than $500,000.
BLANKENSHIP pleaded guilty to one countof mail fraud and one count of securities fraud. Judge Bryant has scheduledsentencing for December 5, 2012, at which time BLANKENSHIP faces a maximum termof imprisonment of 20 years on each count.
In a parallel action, the SEC todayfiled a complaint alleging that BLANKENSHIP and Deer Hill violated theantifraud provisions of the federal securities laws and acted as unregistered brokers.The complaint seeks disgorgement of ill-gotten gains plus prejudgment interest,monetary penalties, and the entry of a permanent injunction againstBLANKENSHIP.
This matter is being investigated by theFederal Bureau of Investigation, the Securities and Exchange Commission, theState of Connecticut Department of Banking, and the Danbury Police Department.The case is being prosecuted by Assistant United States Attorney Michael S.McGarry.
In December 2010, the U.S. Attorney’sOffice and several law enforcement and regulatory partners announced theformation of the Connecticut Securities, Commodities and Investor Fraud TaskForce, which is investigating matters relating to insider trading, marketmanipulation, Ponzi schemes, investor fraud, financial statement fraud,violations of the Foreign Corrupt Practices Act, and embezzlement. The taskforce includes representatives from the U.S. Attorney’s Office; Federal Bureauof Investigation; Internal Revenue Service-Criminal Investigation; U.S. SecretService; U.S. Postal Inspection Service; U.S. Department of Justice’s CriminalDivision, Fraud Section, and Antitrust Division; U.S. Securities and ExchangeCommission (SEC); U.S. Commodity Futures Trading Commission (CFTC); Office ofthe Special Inspector General for the Troubled Asset Relief Program (SIGTARP);Office of the Chief State’s Attorney; State of Connecticut Department ofBanking; Greenwich Police Department; and Stamford Police Department.
Citizens are encouraged to report anyfinancial fraud schemes by calling, toll free, 855-236-9740, or by sending ane-mail to ctsecuritiesfraud@ic.fbi.gov.
Today’s announcement is part of effortsunderway by President Obama’s Financial Fraud Enforcement Task Force (FFETF)which was created in November 2009 to wage an aggressive, coordinated, andproactive effort to investigate and prosecute financial crimes. With more than20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners,it’s the broadest coalition of law enforcement, investigatory and regulatoryagencies ever assembled to combat fraud. Since its formation, the task forcehas made great strides in facilitating increased investigation and prosecutionof financial crimes; enhancing coordination and cooperation among federal,state and local authorities; addressing discrimination in the lending andfinancial markets; and conducting outreach to the public, victims, financialinstitutions and other organizations. Over the past three fiscal years, theJustice Department has filed more than 10,000 financial fraud cases againstnearly 15,000 defendants including more than 2,700 mortgage fraud defendants.
To report financial fraud crimes, and tolearn more about the President’s Financial Fraud Enforcement Task Force, pleasevisit www.stopfraud.gov.
On October 1, 2012, the U.S. Departmentof Justice and the Securities and Exchange Commission are hosting the NortheastRegion Investor Fraud Conference. The conference, at the University ofConnecticut - Stamford Campus from 9:00 a.m. to 1:00 p.m., is open to membersof the community, law enforcement, victim advocates, and others interested indetecting and combating an unprecedented rise in Ponzi and other investmentfraud schemes that involve thousands of victims and billions of dollars oflosses. Conference participants include U.S. Attorneys from Connecticut,Massachusetts, New Jersey, and New York, as well as senior officials from theSEC, FBI, CFTC, and other financial fraud enforcement and regulatory agencies.
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