Gilbert man sentenced in investment scam - East Valley Tribune: Public Safety

Gilbert man sentenced in investment scam

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Posted: Saturday, November 3, 2012 2:15 pm | Updated: 7:20 pm, Sun Nov 11, 2012.

A Gilbert man who used the cover of his financial business to provide fraudulent loans to distressed homeowners was sentenced to slightly more than two years in federal prison and ordered to repay the victims he scammed nearly $1 million in restitution.

Gerald Lee Kelly, 48, who formerly owned and operated Cornerstone Financial Holdings, LLC, was sentenced on Monday by U.S. District Judge Susan R. Bolton to 27 months in federal prison for his role in an investment scheme, according to the criminal division of the Internal Revenue Service.

Kelly had pleaded guilty on May 14 to wire fraud, transactional money laundering, and structuring financial transactions through a financial institution following a joint investigation by federal authorities.

Kelly, who was promising investors inflated returns in monthly payments, admitted as part of his guilty plea that he operated a business called Cornerstone Financial Holdings, LLC and solicited funds from investors to purportedly make loans to individual homeowners in need of financing secured by second deeds of trust or some variation of a security instrument. From 2006 to 2007, Kelly defrauded investors out of about $855,000 by promising them the high returns from Cornerstone Financial, according to the indictment.

Kelly had 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.

Kelly also admitted that he falsely represented to several lender and investor victims that they would typically earn a return of 18 percent to 25 percent on their principal, that some would receive monthly payments for a fixed period of time and that they would be repaid their principal when the homeowner-borrowers obtained refinancing or sold their homes.

Kelly said that Cornerstone’s loan program was not generating sufficient income to pay the rate of return, make promised payments or repay principal as represented, causing the victims in the case to lose approximately $855,000. The Court ordered Kelly to pay restitution of $915,028.33 to 11 victims, according to the IRS.

The investigation in this case was conducted by Internal Revenue Service Criminal Investigation, the FBI and the United States Trustee’s Office.

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