Jury Convicts 2 of Investment Scam Involving Forged Closing Documents

Allison Tussey —  December 28, 2013 — Leave a comment

Melvn Russell “Rusty” Shields, 44, Granite Falls, North Carolina, and Michael Sims, 59, Gilroy, California, two of the founders of S3 Partners, were convicted by a federal jury convicted on investment fraud related charges.

Evidence at trial showed that from 2006 to 2009, the defendants and the third S3 Partner founder, Sam Stafford, 57, Campbell, Calif. (who pleaded guilty prior to trial) defrauded individual investors in the Northern District of California and elsewhere in connection with various real estate development projects. The three defendants conducted their business as S3 Partners out of a variety of locations including San Jose and Campbell; Hickory, N. Car.; and Valrico, Flor.

Shields, Sims, and Stafford engaged in investment fraud targeting elderly investors, encouraging them to cash out their individual retirement accounts (IRAs) and wire the proceeds to the S3 Partners for the purchase of shares in an S3 Partners-controlled company or to invest in other S3 projects. The defendants falsely represented to investors that they would receive predictable high rates returns (as high as 12-15% per year), with minimal to no risk of investing, and that investor money would go to a particular project. Shields and Stafford fraudulently obtained millions of dollars from banks by submitting forged and fraudulent invoices and loan closing documents. Shields, Sims, and Stafford collectively obtained more than $21 million from investors and banks and converted a substantial portion of those funds for their personal benefit, their personal business ventures, and other unauthorized purposes. Their conduct resulted in a near-total loss to investors.

The jury convicted Shields on 32 of the 39 counts in the superseding indictment, including finding him guilty of conspiracy to commit wire and bank fraud, 14 counts of wire fraud, 7 counts of bank fraud, 7 counts of making a false statement to a bank, and 3 counts of securities fraud. The jury acquitted Shields as to the remaining counts in the superseding indictment. The jury convicted Sims of 2 counts of wire fraud and acquitted him on the remaining counts in the superseding indictment. Stafford, pleaded guilty on October 17, 2013, to having conspired with Shields and Sims to commit wire, mail, and bank fraud.

Shields and Sims are scheduled to be sentenced on April 14, 2014, before the Honorable Ronald M. Whyte, United States District Court Judge, in San Jose. Stafford’s sentencing is scheduled for March 17, 2014 at 9:00 a.m. before the Honorable Ronald M. Whyte in San Jose.

The maximum statutory penalty for conspiracy to commit wire and bank fraud, bank fraud, and making a false statement to a bank, in violation of Title 18, United States Code, Sections 1349, 1341 and 1014, is 30 years in prison and a fine of $1,000,000, plus restitution. The maximum statutory penalty for wire fraud, in violation of Title 18, United States Code, Section 1343, is 20 years in prison and a fine of $250,000, plus restitution. The maximum statutory penalty for each count of Title 15, United States Code, Sections 78j(b) and 78ff; and 17 C.F.R. Section 240.10b-5-securities fraud, is 20 years in prison and a fine of $5 million, plus restitution. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

United States Attorney Melinda Haag and FBI Special Agent in Charge David J. Johnson announced the verdict.

Assistant U.S. Attorney Joseph Fazioli and Assistant U.S. Attorney Timothy Lucey prosecuted the case with the assistance of Paralegal Specialist Lakisha Holliman and Legal Assistant Laurie Worthen. This prosecution is the result of an investigation by the Federal Bureau of Investigation.

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