A 47-year-old Gilbert man could spend at least three decades in federal prison for a bogus investment scheme that bilked at least eight investors out of $855,000 when they thought they were helping homeowners facing foreclosure.
A federal grand jury handed down a 25-count indictment against Gerald Lee Kelly in connection to the scam that inevitably collapsed after he promised his investors an 18 percent to 25 percent return on their investment from his short term, high-interest loan program that he said would help distressed homeowners, the U.S. Attorney's Office in Phoenix announced on Tuesday.
The charges in the indictment against Kelly include four counts of wire fraud, six counts of mail fraud, 10 counts of money laundering and five counts of structuring financial transactions to avoid federal bank reporting requirements, according to the U.S. Attorney's Office.
From 2006 to 2007, Kelly operated a business called Cornerstone Financial Holdings, LLC ("Cornerstone"), and through that entity defrauded investors by promising them the high returns, according to the indictment.
The indictment also alleges that Kelly told victims that their investments would fund short-term, high-interest loans to distressed homeowners and that they would be secured by promissory notes, second deeds of trust, home equity lines of credit, contracts or some other form of documentation which purportedly conveyed an interest in the homeowners' properties.
The indictment also charges that Kelly knew that these forms of security for the investors were worthless, overstated, inadequate or a sham, and that Kelly knew Cornerstone was in a precarious financial condition.
The loan programs were incapable of generating the high rates of return promised to investors, and Kelly used victims' funds to make payments to other victims as well as for his own personal expenses, the indictment says. It also alleges that eight investors lost about $855,000 during the time he ran the scheme.
Acting U.S. Attorney Ann Birmingham Scheel said in an issued statement, "The defendant took advantage of the victims at their most vulnerable time, fearing the loss of their homes. This office, along with its investigating partners, is committed to investigating and prosecuting those that take advantage of distressed homeowners."
"Those who find ways to fraudulently benefit from programs meant to help struggling taxpayers keep their homes will be brought to justice," said Dawn Mertz, IRS Special Agent in Charge. "We are pleased to work with our law enforcement partners to bring this type of scam to the courts and to alert the public to be vigilant in protecting their money."
Kelly has been summoned to appear in United States District Court for arraignment on Wednesday, Jan. 25.
Kelly could not be reached for comment.
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