Opinion ID: 2749072
Heading Depth: 3
Heading Rank: 1

Heading: The Ponzi scheme.

Text: In 2000, after a Vallejo, California newspaper article touted Robert Brown’s investment capabilities, he organized a public seminar. Some attendees requested that Brown invest for them, and he agreed to do so. Unfortunately, Brown invested only some of the investors’ money and took the rest “off the top” for his own use. Brown’s investments were initially successful enough to mask his wrongdoing, but they soon turned south. Brown then began a classic Ponzi scheme: he would “lie to [investors] and make them feel that everything was still going well,” and use money from new investors to pay off past investors. Brown told investors he felt “blessed” by his ability to generate returns to “give back to the community.” He also told investors he would not take management fees; rather, one hundred percent of their funds would be invested, and he would be paid only after he doubled their money. Duane Eddings had seen Brown driving around town in his Ferrari and had wanted to meet him for some time. In the summer of 2005, Eddings introduced himself to Brown. The meeting was fortuitous, because Brown was then “desperate for new money.” Brown and Eddings promptly established a “business relationship” under which Eddings brought in new investors for “15 or 20 percent of the new money.” 6 UNITED STATES V. BROWN At Brown’s instruction, Eddings opened up separate bank accounts to keep the investors he recruited apart from Brown’s; one account was for “WISE Investors.” Soon after their relationship was established, Eddings became aware of the Ponzi scheme. By September 2005, Brown was sending “lulling letters” to investors, “trying to basically stall people, hoping that they wouldn’t go to the authorities.” Brown testified that Eddings “was getting people complaining to him” about their investments and that the two talked about “what was going to go into the letters.” Bank records showed that in November 2005 Eddings deposited new investor funds into his WISE Investors account and then immediately used that money to pay old investors. Brown and Eddings jointly solicited new investors through seminars at a Berkeley restaurant; Brown was the primary presenter and Eddings was responsible for the “finance and the contracts.” Generally, Eddings transferred funds from his account to Brown’s to pay Brown’s investors; at least once, however, Eddings paid Brown’s investors directly from his WISE Investors account. Over time, it became increasingly difficult to pay investors, and Eddings complained to Brown about needing money to “pay some of his own bills and a credit card he had got behind on.” Brown agreed to increase Eddings’s “referral fee” to fifty percent of the funds Eddings obtained. From 2005 to 2007, Eddings personally received over $1,866,000 from the WISE Investors account. Approximately 165 investors deposited funds into that account. The last transfer of money from the WISE Investors account to Brown was on May 22, 2007. Brown continued UNITED STATES V. BROWN 7 the Ponzi scheme thereafter, taking in several hundred thousand dollars in 2007.