Ponzi scheme: Faithful drawn into scam
Utah LDS among 5,200 victims of large Ponzi web
SACRAMENTO More than 5,200 clients across America including some in Utah and some who are members of The Church of Jesus Christ of Latter-day Saints trusted James Paul Lewis Jr. with their life savings, pouring hundreds of millions of dollars into his Southern California investment funds on the word of a few friends.
Many heard about Financial Advisory Consultants through fellow churchgoers, although professional athletes and at least one movie actor are said to be investors.
As their own retirement accounts sagged with the stock market, they marveled at Lewis' reports of consistently returning upward of 40 percent from one fund and 20 percent from another, year in and year out for two decades.
They scrambled to give him money, any caution or doubts pushed aside as they saw their fellow investors periodically withdraw as much as $250,000.
Their financial futures came crashing down this week, when a federal judge froze the company's assets and the FBI carted away documents and computers from Lewis' three-room Orange County office suite.
No charges have been filed, but the FBI alleges Lewis was operating a Ponzi scheme, in which early investors are paid with money from later investors. The federal Securities and Exchange Commission says the "fraudulent scheme" involved $813 million from more than 5,200 investors.
The California Corporations Department has identified investors in Utah, Idaho, Oregon, Colorado, Georgia and California, according to an FBI affidavit.
Many of Lewis' investors learned of Financial Advisory Consultants through friends at church and were eager to get in on a semisecret investment opportunity that appeared open to only a lucky few. Many considered Lewis a friend, some attending weddings and funerals with him.
Clients say Lewis is a member of the LDS Church, and his first clients came from that community. But over the years, his investors came from churches of many other denominations as well.
Most said they accepted the word of their fellow churchgoers and were reassured when Lewis periodically paid out as much as a quarter-million dollars to mostly wealthy investors who rarely withdrew the bulk of their contributions.
"It's a house of cards," said Barry Minkow, himself once imprisoned for seven years for defrauding investors through his ZZZZ Best carpet cleaning company. "It will go down as the longest-running Ponzi scheme in history, and the mutual fund that didn't exist."
Minkow, who now works as an anti-fraud investigator for San Diego-based Fraud Discovery Institute, provided state and federal regulators with documents questioning Lewis' legitimacy, also prompting an investigation and story by The Associated Press earlier this month.
The FBI's search warrant and the SEC's civil complaint listed the same warning signs as the AP's story earlier this month: The 57-year-old Lewis was investing tens of millions of dollars for clients and claiming extraordinary financial returns without being licensed or regulated as required.
Moreover, the El Toro-based firm has never provided clients with any details on how it invests their money. Since June, Lewis has been delaying withdrawal requests with the false excuse that millions of dollars in investments have been frozen by the U.S. Department of Homeland Security.
Yet investor after investor told the AP that they missed or ignored the warning signs in what the FBI and other scam experts said appears to be a classic case of affinity fraud.
"He's a family man, he's a religious man, he goes to church every Sunday. He sent us pictures of his grandchildren," said Tom Parsa of Irvine, Calif. "This is devastating, devastating news."