Man Pleads Guilty to Fraud in Ponzi Scheme
CEDAR RAPIDS, Iowa (AP) — A Cedar Rapids man has pleaded guilty to wire fraud after admitting he defrauded investors out of hundreds of thousands of dollars in a Ponzi scheme.
Jeffrey J. Kinseth entered the guilty plea Thursday afternoon during an appearance in federal court in Cedar Rapids. He was released on bond.
Under a plea agreement, Kinseth acknowledged that he used his company, Virtual Vision, to solicit and accept money from 11 investors in 2008 and 2009.
He promised he would trade futures or foreign currency contracts and bring "substantial returns." Instead, he used most of their money to pay back other investors and for other uses, while suffering losses in the investments he did make. To cover up his fraud, he issued phony account statements telling investors their money was growing.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
A Cedar Rapids businessman has admitted that he defrauded investors out of hundreds of thousands of dollars as part of a Ponzi scheme he ran from a business out of his home, according to the terms of a plea agreement.
Jeffrey J. Kinseth, 58, is scheduled to appear Thursday in federal court in Cedar Rapids to plead guilty to one count of wire fraud under a deal with the U.S. Attorney's Office, according to court records released Wednesday. The fraud charge was filed Monday in a document known as an information, which is typically used when defendants are cooperating.
Under the plea agreement signed last month by Kinseth, he acknowledged that he used the company he owned and operated, Virtual Vision, to solicit and accept money from 11 investors in 2008 and 2009. He told them that he would trade futures or foreign currency contracts and promised "substantial returns on their investments."
Instead, he used most of their money to pay back other investors and for other uses, while suffering losses in the investments he did make, the document states. To cover up his fraud, he issued phony account statements that falsely assured investors their money was growing. He sent several false emails to investors, including one in which he promised he would travel to Florida to deliver a "sack of cash," the document says.
The U.S. Commodity Futures Trading Commission last year filed a complaint alleging Kinseth had fraudulently solicited money for a pooled investment vehicle, misappropriated investor funds and issued false statements to conceal losses and fraud. Under a settlement, Kinseth and his company agreed to pay a $575,000 penalty and $575,000 in restitution and refrain from engaging in any trading activity. Kinseth was not registered with the CFTC.
The CFTC alleged Kinseth accepted nearly $1 million from investors, misappropriating more than $800,000. Half of the misused funds went to pay earlier investors and half went for personal items such as his mortgage payment, the CFTC alleged.
Kinseth's attorney didn't return a phone message.
The U.S. Securities and Exchange Commission has alleged that Kinseth was a friend and associate of "serial fraudster" Matthew Gagnon of Portland, Ore., a self-proclaimed business opportunity expert who ran a website called Mazu. The SEC said that Gagnon used his site to promote a $72 million Ponzi scheme and other shady investments, including in 2009 the opportunity to have funds traded by Kinseth.
The SEC said in a 2010 complaint that Gagnon promoted Kinseth as an experienced and successful trader and promised he would bring returns up to 30 percent per year. But Kinseth was actually a novice who took self-study online courses and had lost money trading, the complaint said.
A judge last year ruled that Gagnon violated the registration, anti-fraud and anti-touting provisions of the federal securities laws.
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