Receiver Reports on Alleged Ponzi Scam
An alleged real estate scam squandered nearly half of the $17.5 million raised from hundreds of investors who were promised quick and easy profits, according to a report filed with a federal judge in San Francisco.
Chicago D&P; Inc., a company run by a mother-and-son team in Emeryville, Calif., and Reno spent $8.1 million of investor funds on expenses that blurred the lines between business and personal interests, court-appointed receiver Stephen E. Anderson wrote in his report.
Chicago D&P;’s leaders were Pat Morgen, who founded the company in 1999, and her son, Shalom Gibson. Their whereabouts are unknown.
Some of the investors’ money went toward Macy’s merchandise and a vehicle fleet that included a Hummer stretch limousine, Anderson said.
The report provided the first detailed glimpse at Chicago D&P;’s alleged misdeeds since U.S. District Judge Charles Breyer shut down the company and froze its bank accounts two months ago. The report was filed with Breyer late last week.
Anderson’s preliminary findings are bad news for 471 investors who turned money over to Chicago D&P; from 2001 until Breyer shut the company down. Chicago D&P; raised much of its money from churches and military families.
“It is quite possible that at the end of the day the only funds that will be available for distribution will be the funds seized” in May, Anderson wrote. Through June, Chicago D&P; had just under $767,000 in the bank.
In a civil lawsuit filed against Chicago D&P;, the Securities and Exchange Commission describes the company as a classic Ponzi scheme, an enterprise that raises money from new investors to pay the returns promised to previous investors.
Chicago D&P; distributed $9.4 million to investors before its demise, Anderson estimated. Many of those investors were enticed by the promise of quick profits.
By April, Chicago D&P; was promising investors that they could double their money in just six months, the report said.
Neither Morgen nor Gibson has appeared in court since the SEC sued the mother and son in May.
The SEC cracked down on Chicago D&P; after reviewing a fraud investigation by convicted swindler Barry Minkow, who specializes in sniffing out scams.
