Monday, January 04, 2010

Butler gets 90 years for Ponzi Scheme Targeting Seniors

Posted By CotoBlogzz | 01-04-2009 6:30 PM

SANTA ANA, CA  - Jeffrey Gordon Butler was sentenced today to 90 years and eight months in state prison for stealing the life savings of over 125 unsuspecting elderly victims in a Ponzi scheme by fraudulently soliciting more than $11 million in investments through the illegal sale of unqualified promissory notes or stocks and filing false tax returns on his ill-gotten profits.

Butler, 51, San Juan Capistrano, was found guilty by a jury June 30, 2009, of 693 felony counts for making untrue statements of material fact in the offer and sale of securities, the offer and sale of unqualified securities, theft from elderly persons, using a scheme to defraud in the sale of a security, and filing false tax returns for years 2001 through 2004.  A restitution hearing has been scheduled for Jan. 29, 2010

The defendant's wife, Peggy Warmath Butler, 49, San Juan Capistrano, was also convicted June 30, 2009, of four felony counts of filing false tax returns and excessive taking sentencing enhancements. Peggy Butler was sentenced to one year in jail, seven years of formal probation, and will have to serve seven years in state prison if she violates her probation. The Orange County District Attorney's (OCDA) office objected to the sentence, advocating for a minimum sentence of three years and four months.

"Many of Jeffrey Butler's victims had trouble believing that he was capable of stealing their life's savings. He stole more than money from the people who trusted him. Jeffrey Butler also stole his victims' dignity, independence, and dreams," stated Orange County District Attorney Tony Rackauckas. "By sentencing him to 90 years in prison it means that Jeffrey Butler will spend the rest of his life in prison unable to victimize another person."

A Ponzi scheme is when investors are offered high, short-term returns on investments, but instead of the investments generating actual income and legitimate profits, the money from the investors is kept for the benefit of the defendant or used to repay earlier investors. Jeffrey Butler sold more than 300 promissory notes or stocks without obtaining a license for the notes from the California Department of Corporations, as required by law.  The majority of the victims involved in this case were over 65 years old and unaware of the risks of their investments. Several of the victims lost their life savings and many died awaiting the jury trial.

Jeffrey Butler first met many of his victims while operating a company called Senior Information Services, which offered to assist senior citizens in the creation of living wills, trusts and other estate planning structures for a fee.  Through this business, the defendant gained the trust of many of his clients, whom he later victimized.  Between 1995 and 2004, in a series of businesses that changed forms and names, Jeffrey Butler failed to provide his investors with any documents or other information about his companies, how the companies made money, or any of the risks of investing in the companies as required by law to protect consumers and investors.   The defendant transferred investments between companies on several occasions without informing or providing only limited information to his elderly investors. The defendant immediately took 10 percent of the investors' money for himself without their knowledge or consent. 

In 2000, Jeffrey Butler moved his clients' funds to his newest venture, Global Network Providers (Grenada), Inc. (GNPG), without the knowledge of the investors.  The clients' money went to the development of a "telecommunications" company supposedly located on the eastern Caribbean island of Grenada. The company had very few assets and no income.

Jeffrey Butler convinced investors that GNPG paid 12 percent interest per year on promissory notes, when in fact the notes did not require payment for up to three years, and did not specify a time or method of payment. Investors were not made aware that these investments were not authorized to be sold in California. Some of the victims agreed to invest after being misled into believing that GNPG was an Individual Retirement Account (IRA) qualified investment, when in reality the investments were not IRA qualified. In an effort to fool his investors, Jeffrey Butler simply had "IRA" typed at the top of the promissory notes. He failed to inform many of the investors that the "telecommunications" company was based in Grenada. Being that GNPG was on the island of Grenada in the Caribbean, the company was not subject to U.S. laws. Butler eventually ran out of funds to maintain his scheme and sent his victims a letter in which he continued to lie to investors, claiming that Hurricane Ivan had caused a delay in payments.

Peggy Butler worked with her husband, Jeffrey Butler, by maintaining the financial records for each of the Butlers' companies and accounting for the deposits and expenditures of investor funds. Between 2001 and 2004, the Butlers filed false tax returns and failed to report income of more than $5.5 million, resulting in an unpaid tax liability of more than $530,000.

For the trial against the Butlers, a jury of 12 people and eight alternates was selected from a pool of 2,200 prospective jurors. The jury trial began Nov. 7, 2008 and lasted almost eight months. It included testimony from 92 victims, including 82 elderly victims, and video testimony from 49 victims, which was recorded prior to trial to ensure that the victim's testimony was preserved in the event that they were unavailable to testify at trial due to death or illness. At least six victims died during the course of the trial and 52 victims died prior to the case being brought before the jury. Due to the large number of criminal charges, it took two days for the verdict to be read against the two defendants.

Senior Deputy District Attorney William Overtoom of the Major Fraud Unit prosecuted this case.

OCDA's  Tips on How to Avoid Becoming an Investment Fraud Victim:  If it sounds too good to be true, it is not!  For instance, when listening to someone about a great investment opportunity, ask yourself:   
1.    Why are they offering this to me?  Why can't they get money from the bank?
2.    Why are they offering me such a great deal when they can get my money cheaper in other ways?
3.    Can I afford the higher risk for the promise of a higher return?
4.    Why have other brokers/investors/businesses passed on this deal?
5.    Has the promoter provided professional references, not including other investors with a vested interest, for the promoter and his investment?

Before investing, always check with the Department of Corporations ( to find out if the promoter and the investment have been qualified.  Never turn over your life's savings without first discussing it with a qualified, independent professional.

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