A former Heartland Financial Services Inc official was sentenced to almost six years in prison and fined US$27 million for his involvement in a scheme that defrauded investors out of US$29 million, regulators said.
Daniel Danker, former vice-president and secretary of Indiana-based Heartland, was sentenced by US Judge John Tinder in Indianapolis after Danker's March guilty plea to federal charges of money laundering and mail fraud.
Danker's plea and sentence are the first to date for a defendant in the case, considered one of the larger alleged "Ponzi" operations ever investigated by US authorities, said Robert Burson, senior associate director of the Securities and Exchange Commission's Midwest Regional Office in Chicago.
In a Ponzi scheme, people are promised high returns on their investments while money is taken from new investors to pay off earlier investors. Such schemes can theoretically go on indefinitely, except the debt balloons until the operation collapses.
"These are significant sanctions," said Burson in a telephone interview. "It shows that criminal authorities are moving very quickly in the fraud area," he said, noting that the plea was negotiated and entered into 10 months after the conduct was uncovered. ``That's pretty quick by traditional fraud standards,'' Burson said.
Danker's attorney had no comment.
On Aug. 10, Tinder, who also presides over an SEC case involving the firm, entered a temporary restraining order against Danker, Heartland, JMS Investment Group LLC, Kenneth Payne, Johann Smith and Constance Brooks-Kiefer, the SEC said.
From at least March 1999 to the present, the defendants defrauded some 330 investors, many of whom were elderly, through the offer and sale of three bogus investments, including units of Heartland and interests in an offshore bank in Belize, the SEC said.
They also sold shares in initial public offerings of financial institutions and technology companies represented by units of JMS, the SEC said.
Rather than using investor funds for legitimate securities transactions, the defendants commingled investors' funds from all three schemes in a common bank account controlled by Smith and Brooks-Kiefer, the SEC said.
Then, they used most of the US$29 million raised from investors to repay investors in the Ponzi operation and for other non-investment related purposes, the SEC said.
On Nov. 16, Tinder perman-ently barred JMS and Smith from committing additional violations of federal securities laws.
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