Money Manager Pleads Guilty

James P. Lewis Jr., the Orange County money manager accused of defrauding investors for 20 years, pleaded guilty Monday to one count of mail fraud and one count of money laundering, telling a federal judge in Santa Ana that he knew he could be sentenced to as many as 30 years in prison.

A handful of victims and family members looked on as bailiffs led Lewis, 59, into U.S. District Judge Cormac Carney’s courtroom wearing jailhouse khakis. His face looked puffy and his eyes were downcast as he walked slowly to the defense table, wearing handcuffs attached to a chain at his waist.

The shackles allowed Lewis to raise his right hand only slightly as he swore to tell the truth. But his voice was clear as he told Carney that he was in full possession of his faculties, was giving up his right to a trial, and realized his sentence could be lengthy.

“Yes, sir,” he said, “I understand that. I understand the maximum is 30 years.”

Federal authorities have charged Lewis with an elaborate plot to deceive investors, who were told that he was earning returns of 18% to 40% a year by leasing medical equipment, financing purchases of medical insurance, making commercial loans and buying distressed businesses that he reorganized and sold at hefty profit.

In fact, federal prosecutors alleged, those investments were fictitious, and the minority of Lewis investors who actually saw cash returns were receiving funds taken from other investors in what’s known as a Ponzi scheme.

Meantime, they said, Lewis used investors’ funds to buy homes and cars for himself, his wife and family, and two girlfriends, and lost $22 million trading foreign currencies, the prosecutors said.

The government agreed to dismiss 12 counts of its 14-count indictment in return for Lewis’ guilty pleas. In addition to a prison sentence, Lewis could be fined $500,000 or twice the losses his victims sustained, said Assistant U.S. Atty. Gregory Staples.

Staples told Carney that the net losses probably would total $70 million to $80 million. With a loss of more than $50 million, he noted, federal sentencing guidelines suggest Lewis should go to prison for 30 years -- the maximum possible under the two charges he pleaded guilty to.

Lewis’ attorney, Scott Schlegel, said he would argue that a 17-year sentence was appropriate under the guidelines. But he also said he might ask Carney not to apply them, because a series of appeals court decisions has made the guidelines no longer binding on judges.

Schlegel said he might also argue that the recent appellate decisions required Carney to impanel a jury to determine the exact losses sustained by the 3,300 people who entrusted money -- much of it their retirement savings -- to Lewis and his Financial Advisory Consultants Inc. in Lake Forest.

Carney scheduled a hearing for Nov. 28 to consider that matter, with sentencing set for Jan. 23.

According to the receiver in the case, Robb Evans & Associates of Sun Valley, investors have filed claims for $156 million in losses.

Evans also has demanded that more than 400 people who received more from Lewis in purported profits than they invested must return some $72 million in fictitious gains to help offset the losses of other investors.

Evans has threatened to sue those who don’t voluntarily return those profits.

Recoveries from the winners and the sale of various Lewis assets could bring investors’ net losses down from $156 million to the $70-million range Staples suggested in court, said Robb Evans’ Kenton Johnson.