Courts: SEC suit leads to $27.8-million decision against Douglas Cross of Laguna Niguel and four others in what judge described as Ponzi scheme.

A federal judge has issued civil judgments totaling $27.8 million against a Laguna Niguel man and four business associates in what the judge described as a Ponzi scheme that bilked more than $21 million from investors nationwide.

Stating that if an investment “sounds too good to be true, it probably is,” U.S. District Judge Richard A. Paez found that Douglas S. Cross and the others misappropriated the money raised from 700 investors for investments that never existed.

The judge ordered Cross, 43, to pay the government $8.6 million, including interest, from funds he misappropriated while operating Cross Financial Services Inc. in Laguna Niguel and Las Vegas from March to December, 1993.

Cross filed for bankruptcy protection in May to liquidate about $500,000 in assets, according to Bankruptcy Court documents. But lawyers for the Securities and Exchange Commission, which filed the lawsuit against the group, said that a judgment based on fraud can’t be discharged in bankruptcy and that the agency will continue to pursue Cross.

The SEC had filed suit in June, 1994, and immediately won a court order freezing the assets of Cross; Owen R. Fox of Playa del Rey; Carroll E. Siemens of Las Vegas and Peoria, Ariz.; Bruce Franklin of Las Vegas, and Michael J. Colello of New Rochelle, N.Y.

Fox, 49, who bought Cross Financial, was ordered to pay $7.8 million. The investigation found that he continued to operate the Ponzi scheme, which used funds from new investors to pay off prior investors. The judge also ordered Siemens, 62, a major partner under both Cross and Fox, to pay $6.5 million.

The court order was issued Sept. 7 and mailed to the parties. The agency released information on the judgment Thursday.

The SEC charged, and Paez found, that the group told investors that their money would be lent to companies holding accounts receivable from the federal government and promised returns of 10% to 24% a year, but that no such loans were ever made.

In addition, Paez found that Siemens secretly used funds to make high-risk loans to shaky companies at interest rates ranging from 60% to 72% a year. SEC staff lawyers Karen Matteson and Kathleen Herkenhoff charged in their court documents that Siemens was engaged in loan-sharking.

No criminal charges have been filed against any of the defendants.

Matteson and Herkenhoff said the SEC has accumulated about $2 million in funds to be returned to investors. They said they will pursue each of the defendants to raise as much as possible for the victims.

“We don’t know where most of the money went,” Matteson said. “Tremendous amounts of money went out in checks to cash. It was spent.” A government receiver has sold two boats and is about to sell a plane--all owned by Fox. The search will continue for more assets, the lawyers said.

Of the remaining defendants, Franklin, a former Cross Financial officer, was ordered to pay $2.3 million and Colello was ordered to return nearly $3 million that he was given to put into Swiss bank accounts. The SEC lawyers said Switzerland has frozen those accounts.

Up to 30 former Cross Financial salespeople at offices in St. Louis, Philadelphia and the Miami area also face a variety of orders issued by their respective state securities regulators, the lawyers said. The salespeople had picked up $1 million in commissions that weren’t disclosed to investors, the lawyers said.