TIMOTHY D. MARTIN
Practice had gone an hour longer than usual and Jeff was getting nervous. The Littleton High School Cougars had done well this season and were headed to the state basketball championships. Seventeen-year-old Jeff Wilson was a tall, good-looking kid and the star of the basketball team. He was outgoing and well liked by his classmates and teachers alike.
Coach Mather called his name again and Jeff snapped out of his thoughts. The coach was saying something about the players not letting up at this point in the season. Jeff didn't understand why the coach was pushing so hard when the players had done so well this year. Finally the whistle was blown and the players headed for the showers, but Jeff went straight out the door to his motorcycle. His parents would be home soon and he had work to do.
When Jeff arrived after basketball practice, he was relieved to find that his parents were not there yet. He rushed into the house and dropped his gym bag and schoolbooks on the floor. He needed to check his e-mail before his parents came home. The computer was in his parents' bedroom. When he entered their bedroom he saw his younger brother sitting at the computer chatting with his online friends. His annoyance was apparent when he told his brother to get off the computer, as he was in a hurry to use it. He locked the door as the younger boy left the room.
Logging into his Web site, he was nearly petrified when he saw the number of new e-mails he had received, each asking the same thing — "Where is my money?"
Jeff checked his E-Gold account to see how much was left in it. At the moment there wasn't nearly enough to cover the requested refunds and profit payments, so he checked his DMS account to see if prices had improved since the previous Friday — things looked worse. Prices were continuing to decline and his account had lost another 15 percent. He had less than what he had started with. Jeff's original plan had been to invest the entirety of the UWI money he had received but, after the significant gains DMS had reported last year, he thought he could invest just half of it and still show his investors acceptable returns. They certainly wouldn't be able to tell that he had spent the rest on himself.
This year was different. The markets had fallen and the options he purchased were losing money. He was down to a quarter of what he had invested and prices were still falling. Things just weren't happening like he had expected. If only he hadn't wanted that motorcycle so much.
Jeff was nervous. The sweat was running down his neck and forehead. The state championships were in three weeks, the whole school was counting on him and he didn't need this kind of stress. How was he going to come up with the money to pay these people back? What would happen if they found out who he was? What would happen if they found out he had spent their money on a new motorcycle? What could he do? He heard the garage door open — Mom and Dad were home. He quickly signed off the Web site and shut down the computer. The investors would not be getting a response that night.
I was at my desk in the Idaho Department of Finance one morning when I received a call. The man on the other end of the line identified himself as Rob Miles from Denton, Florida, and said he wanted to get some information on Universal Wealth, Inc. (UWI). He said that he and his wife had made a sizeable investment with the investment firm and he was concerned because he hadn't heard from them since he transferred his money. Miles had sent e-mails to them but had received no response.
I asked him how he became acquainted with the company. Miles said he was looking for an investment that would give him a better return than he was getting at his bank. A friend referred him to the Web site of the Internet-based investment company UWI, which promised returns of 20– 50 percent on a low-risk investment. Miles gave me the company's URL and told me that his research indicated the Web site was operating out of Australia.
I reviewed UWI's Web site briefly while Miles and I were on the phone. It showed that the firm had offices along the East Coast of the United States and in the United Kingdom but did not disclose the specific locations due to "security issues." I asked him what made him decide the firm had ties to Idaho. He stated that the Web site gave the names of a number of options-trading firms as advisors, one of which was DMS Options Trading (DMS).
Miles contacted them for information on UWI, and the representative he spoke with said that DMS did not have an account by that name but the company had received a number of calls about the firm and they were looking into it. A DMS employee called Miles back a few days later and told him the UWI Web site was operating out of Idaho and suggested he call the Idaho Department of Finance. So Miles called me. I told Miles that our records had no registration or licensing information on UWI but that I would do some investigating to see what I could find.
After reviewing the UWI Web site, I could tell it was put together quite well but the text was poorly written. I couldn't determine if the information had been written by someone outside the country who wasn't fluent in English or if the author simply wasn't trained in professional writing. I had seen hundreds of Nigerian advance-fee scams with their poorly written letters and e-mails, and at least this wasn't that bad.
The Web site claimed that UWI was an international investment program "open only to qualified, accepted, private UWI members." It said that the program was exempt from U.S. and British securities laws and that the company's traders "invest and trade in stock options based off of trading signals received by professional licensed advisories."
The UWI Web site made several claims about the company, its investment process and the returns that the investors could expect. I found the following representations.
UWI has been in business for seven years and has more than 500 members.
UWI offers one basic program that has a fluctuating return based on the performance of the funds traded.
By joining UWI, you will be entered into a pool of investors just like you.
The funds will be invested into stock options. These trades will be made based off intra-day signals received by three different professional option advisors.
These investments would normally require large sums of money to operate; however, as a group our money can be pooled together and we can participate in trades that are typically only available to the wealthiest investors.
The returns average a rate of 20-50 percent per month. That means you could earn 100 percent of your money back in two months.
Investors were required to make Internet transfers to UWI using E-Gold deposits. As the Web site explained, E-Gold was an alternative digital currency with a low transfer cost and real-time clearances that provided privacy and legal benefits. UWI also claimed the deposits were backed by "100-percent real gold." E-Gold acted as a third-party escrow system where investors deposited funds and used E-Gold digital currency to make purchases on the Internet. Other restrictions were that UWI accepted only investments of $1,000 or more, and withdrawals were limited to one per month. The Web site provided a table representing the organization's performance for the previous seven years.
Year One — 263% returns
Year Two — 198% returns
Year Three — 502% returns
Year Four — 318% returns
Year Five — 312% returns
Year Six — 427% returns
Year Seven — 387% returns
My next step was to determine who owned the Web site. My Whois search indicated a private owner with an Australian domain registrar, so I tried to find the owner on an Australian Whois Web site. That did the trick. UWI was registered to Jeffrey Wilson in Littleton, Idaho. His name and address were listed along with the date the Web site was set up.
The next day I received a call from Dan Marcella of DMS Options Trading in Boca Raton, Florida. He informed me that DMS was receiving a large number of inquiries from investors who had put money into a company called UWI. They were telling him that they believed DMS was somehow connected to UWI. He said he had conducted an internal investigation and had no evidence of a connection to UWI. He then reviewed investor accounts that may have had trades similar to those mentioned by the complainants, and the only match he found was Jeffrey Wilson in Littleton, Idaho. Dan told me he gave that information to several of the investors and suggested that they call the securities regulator in Idaho, and he was calling now to follow up.
Marcella provided me with the information he had on the investors who had called him and gave me information on Wilson's account. He said that he would send me the account documents and e-mail correspondence.
After I looked at it, this information appeared to confirm Wilson's involvement with UWI.
When I hung up with Marcella, I searched the Internet; the National White Collar Crime Center's database; and state, national and foreign securities databases, but none of them contained information UWI. I checked the CLEAR AutoTrax database and other public databases, but again found nothing.
The following day I received two more calls from UWI investors. Their stories were the same — referrals to UWI, Internet investments made with E-Gold and then no further contact from anyone with the firm. I searched the Internet for Jeffrey Wilson, but the only information I could find was on a high-school basketball player in Littleton, Idaho, a star athlete who was leading his team to the state championships.
A check of the Idaho driver's license database verified that his address matched the one on the UWI domain registration, but I thought that couldn't be right — his driver's license showed that he was only 17 years old. He was a teenager; he couldn't possibly have the knowledge and skills needed to run an international options-trading firm. Perhaps his father or some other relative had the same name. I found a driver's license for David Wilson, age 46, and Margaret Wilson, age 42, at that address.
Perhaps it was time to bring Jeff Wilson in.
The next few days were difficult for Jeff. He was withdrawn and preoccupied and had been avoiding the computer. He didn't know how to respond to the growing number of unhappy e-mails he was receiving. Coach Mather was pushing him harder and harder. Jeff couldn't concentrate in class and he was behind on his homework. His dad was on him for forgetting to shovel the snow from the driveway and his mom was worried because he was not hungry. Then it happened — a sheriff's deputy was at the door asking to see Jeffrey Wilson. Mr. Wilson called Jeff to come down and explain what was going on, and the deputy handed Jeff a subpoena from the Idaho Department of Finance requesting that he appear in Boise in 10 days. His face was white and his throat was dry. Jeff's father shut the door and seemed confused and angry. He demanded to know what was going on. Jeff led him into the master bedroom and logged into his Web site.
A few days after Jeff was served his subpoena, I received a call from Harold Madison, an attorney in Portland, Oregon. He said that he was an attorney and a relative of Jeffrey's and he wanted to know why Jeff was being subpoenaed. I asked if he was representing Jeffrey and Madison said for the time being he was. I told him we had reason to believe that Jeff was involved in violations of the Idaho Securities Act, stemming from his operation of a Web site through which he solicited and sold unregistered securities to investors throughout the United States. Madison said that he believed Jeff had only been involved for a few months but he didn't know how much money was brought in. He asked if he could attend the investigative testimony by telephone, but I told him both Jeff and his attorney needed to appear in person. He said he would advise Jeffrey on how to respond but he would probably be turning the case over to a local attorney in Boise.
On the day Jeff Wilson was expected to give a sworn statement, he appeared at our offices with his father and John Rivera, a Boise attorney. John asked if he could sit in on the meeting, and I consented. The court reporter swore in Jeff and I informed him of his constitutional rights before questioning him about his involvement in UWI.
I asked Jeff if he had an educational or occupational history in investments and he replied that he did not. I asked him if he was the one who created UWI and its Web site. He said that he was. I asked him if anyone else was involved with him in this business, and he said no but he had a cousin who knew about it. His cousin was about the same age as Jeff.
When I asked Jeff how he came up with the idea for UWI, he explained that he had seen similar Web sites on the Internet and was interested in what they did. He even made a small investment in one to see what happened. I asked him if he made a return on his investment, but he had not. Jeff then began looking into similar Internet securities and investment services and realized that many of them offered very high returns with low risk and paid a monthly return. They didn't look too complicated and Jeff decided that he could set up something similar.
UWI's investors would deposit money into his E-Gold account and he would withdraw the money and deposit half of the funds into a UWI bank account and the other half into his personal account. He then opened an account at DMS in his name and deposited the investors' money in DMS's high-yield program. I asked him why he put half of the money in his own account and he said he wanted to have money in reserve to pay the investors' monthly return if he needed to. To relax Jeff a little during the interview, I switched topics and asked him about school, his friends and his basketball team. I have found that for some people this method works better than continuing to increase their stress level.
We then turned to the Web site he created. He had made several representations on the Web site that were highly suspect. On the home page, Jeff wrote that the program was only offered to a select group of investors. When I asked why he claimed the firm was located in the Northeastern United States with offices throughout the world, he said he thought it sounded more prestigious. I questioned him about the monthly returns of 20–50 percent he quoted to the investors — he just made up the numbers. As for claiming UWI was a low-risk investment, he said he thought it would bring in more investors.
To conclude our interview, I asked if he felt what he did was wrong. Jeff said he realized it was but at the time he didn't think about it. He also said he thought returning the investors' money would be the right thing to do, but he didn't know where he was going to get the cash.
After the interview was over, Jeff's father asked what we intended to do with his son. I told him I couldn't say but that we would review the facts and notify them of our decision. Mr. Wilson looked at Jeff and said he would certainly be working to pay back the investors. He would also be reconsidering Jeff's computer use, his ownership of a motorcycle and his involvement in basketball.
When he returned home, Jeff's life changed. He got a part-time job and went to work after school. He had to miss the basketball championship and sold the motorcycle.
After reviewing my evidence in the case, I started writing the report using a standard format that included the subject's name, the entities involved and a description of the events. I specified the laws, statutes and violations and listed the possible counts that could be filed with the court. I submitted my final report to my supervisor for review and we concluded — based on Jeffrey's age and the amount of money he scammed from investors — that we would not send it on to the attorney general for civil or criminal prosecution. Our securities statute allows the Director of the Idaho Department of Finance to issue administrative orders, so we decided to issue a Consent Order to Cease and Desist, which outlined the facts of the case, stated our findings of violations and provided for the admission of the violations. The order required restitution to investors and the payment of a fine in the amount of $2,000. Jeff signed the order and agreed to its findings and terms.
Timothy D. Martin, CFE, is a securities investigator with the Idaho Department of Finance. He has more than 20 years of investigative experience with the state of Idaho specializing in investment fraud. He has extensive experience in undercover investigation and asset identification and recovery. Mr. Martin is an expert witness and has provided testimony in numerous court cases in the areas of securities and commodities fraud. Mr. Martin is the state agency representative to the National White Collar Crime Center (NW3C) and serves on the state of Idaho's advisory committee for homeland security.