Michigan Attorney General Bill Schuette’s office offers tips on how to avoid investment fraud.
Beth LeBlanc/Lansing State Journal
A 58-year-old Madison businessman has been charged in federal court for his alleged role in what may be one of the largest Ponzi schemes in the state’s history.
Arthur Lamar Adams is accused of fraudulently obtaining in excess of $100 million from more than 250 investors in at least 14 states over a seven-year period.
Adams, facing two counts of wire fraud and one count of bank fraud, made his initial appearance and was arraigned Tuesday before U.S. Magistrate Judge Linda Anderson.
Adams faces a maximum 70 years in federal prison and fines totaling $1.5 million if convicted. Authorities say he defrauded investors through a Ponzi scheme using his Madison-based company, Madison Timber Properties LLC.
Adams waived indictment, and his attorney, John Colette, said his client will likely plead guilty. But Colette said it could take considerable time because in financial cases each victim has to be notified of a potential guilty plea.
Anderson agreed to the U.S. attorney’s office recommendation to allow Adams, who is listed with residences in Jackson and Madison, to remain free on a $25,000 unsecured bond, but he will be on home confinement via GPS monitoring.
No date has been set for when Adams will be back in court.
Prosecutors didn’t say whether anyone else will be charged in the alleged scheme.
When asked if his client was cooperating with authorities, Colette said “it would be safe to say that.”
U.S. Attorney Mike Hurst said greed drove Adams to lie, cheat and steal.
“While this may be one of the largest Ponzi schemes ever committed in our state, our citizens can rest assured that these criminal actions by this defendant sadly affecting so many people will be met with swift and certain justice,” Hurst said.
The criminal charges were filed against Adams after the U.S. Securities and Exchange Commission filed legal action last month against Adams and his company, Madison Timber Properties.
The SEC said in its lawsuit that beginning in approximately 2004, Adams through his company committed securities fraud by operating a Ponzi scheme. The SEC said Adams raised at least $85 million from over 150 investors.
The SEC is seeking a judgment that Adams violated anti-fraud provisions of federal securities laws. It seeks to freeze his assets.
Federal prosecutors set the timeline for the scheme as beginning as early as 2011 and continuing through April. Adams allegedly schemed to defraud investors by soliciting millions of dollars of funds under false pretenses, failing to use the investors’ funds as promised, and converting investors’ funds to Adams’ own benefit without the knowledge of the investors.
Instead of investing his clients’ money, Adams used the invested funds for his own personal benefit and for purposes other than those represented to investors, which also included making payments due and owing to other investors, thus perpetuating the Ponzi scheme.
Authorities say Adams falsely represented to investors that Madison Timber Properties was in the business of buying timber rights from landowners and then selling the timber rights to lumber mills at a higher price. Neither Adams nor Madison Timber Properties had such timber rights or contracts with lumber mills, except in only a few instances, Hurst said.
Adams allegedly entered into fraudulent investment contracts with investors, most often in the form of promissory notes on behalf of Madison Timber Properties. The loans typically guaranteed investors an interest rate of 12-13 percent, with the interest to be repaid over the course of 12-13 months. The monthly payments due on these promissory notes were typically due on the first or the 15th of the month.
- Creating false documents: The false documents caused investors to believe that their investments were secured by sufficient collateral from which they could recover all or part of their investment in the event that Madison Timber Properties defaulted on the loans. Specifically, Adams created false timber deeds purporting to be contracts conveying timber rights from landowners to Madison Timber Properties. Adams forged the signatures of landowners and also created false timber deeds purporting to convey timber rights from Madison Timber Properties to the investors.
- Notarizing false documents: Adams had many of the documents notarized to make the investments appear legitimate. He also required the investors to agree not to record their timber deeds unless Madison Timber Properties defaulted on the loan agreement by failing to make a payment. In many instances, he also provided a “timber cruise summary” purporting to state the value of the timber located on a particular parcel of land, which was also false and had been created by Adams to induce investors to give money to him under false or fraudulent pretenses.
Investors are requested to gather and retain any documents they have concerning their investments with Madison Timber Properties and/or Adams.
Information about developments in this investigation and further instructions on how to provide information to the pertinent authorities will be provided at the earliest possible date, authorities said. The FBI and the U.S. attorney’s office also are to be reaching out to identified victims soon.
The case is being investigated by the FBI and the SEC.
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