Proceeds of crime from US$550 million Ponzi scheme go on sale at online auction next week as Covid-19 solution

By Christine Duhaime | May 31st, 2020

The proceeds of crime from a massive US$550 million Ponzi scheme perpetrated by two convicted fraudsters in the US – Kevin Merrill and Jay Ledford – are being auctioned at an online auction house starting next week, in part because of Covid-19.

Diamonds, sports memorabilia, art, gold coins, comic book from securities fraud being sold online

The auction house is selling the assets from one of the largest forfeitures from a Ponzi scheme in the US. Items up for auction include gold coins, a collection of Spider Man comic books, art, autographed sports memorabilia, diamonds, luxury watches, rare wines and other items seized by and forfeited to the US government, as part of its investigation of Merrill and Ledford for wire fraud, securities fraud and money laundering in 2018 in Maryland.

Covid-19 impacting forfeiture sales

Because of Covid-19, the sale of several mansions bought by Merrill and Ledford have fallen through, as buyers have backed away from buying. The sale of an interest in a Gulfstream G200 private jet and many exotic cars have had to be placed on hold due to Covid-19.

The online auction takes place on this site here, starting on June 3, 2020.

Indicted in 2018 for massive fraud

Merrill and Ledford (an accountant), raised more than US$550 million from investors selling fictitious securities in debt collection portfolios. They were the subject of a complaint by the Securities and Exchange Commission (“SEC“) for securities violations arising from their operation of the Ponzi scheme and were indicted and charged with money laundering, wire fraud, conspiracy and identity theft.

Fabricated wire confirmations

Merrill and Ledford sold securities through several layers of corporate entities to obfuscate their activities. They fabricated the value of the debt assets of the company to lure in investors and re-sold the same securities to newer investors, sometimes seven times over. They also sold what are called phantom securities or assets, which are assets that do not exist.

They then engaged in fraud related to banking, fabricating bank documents, including paperwork to show wire transfers took place when they hadn’t, and paperwork of purported wire confirmations from banks to prove that funds had been wired when they hadn’t. They also fabricated accounting records.

Investors’ money spent on cars, mansions, private jets, casinos

Merrill spent a large portion of investor funds on himself, including as follows:

  • an art collection;
  • a luxury watch collection;
  • US$500,000 interest in a private jet;
  • prepaid life insurance policies;
  • diamonds and jewellery;
  • a comic book collection valued at US$200,000;
  • 12 mansions;
  • 25 exotic cars including two Rolls Royces, two Lamborghinis, a Ferrari and a Bugatti worth over US$10 million;
  • sports memorabilia;
  • fine wine collection;
  • gold coins;
  • Bitcoin; and
  • shares in tech companies.

Merrill also rented exotic cars and took numerous private jet trips. He and Ledford spent US$25 million of investor money at various casinos. The accountant Ledford, also used investor funds and bought diamonds, cars and mansions.

Lies to investigators to obstruct justice

Before being indicted, Merrill was questioned by investigators for the SEC. He lied to the investigating agents and gave them fabricated documents, presumably to divert their attention away from him.

“Out and out fabricating”

US Attorney Robert Hur, who prosecuted the criminal case against Merrill, Ledford and a third man, said that the defendants told lies to prospective investors about almost every conceivable aspect of the scheme and took extraordinary steps, including identity theft, to fool investors and engaged in “out and out fabricating” of documents, including wire transfer confirmations.

He described the case to reporters as one that involved wading through layers of lies and deception. The identity theft involved using the names of employees without their consent on corporate documents. Some sophisticated investors did due diligence on the investments but were given fake bank, asset and trading records by Merrill and Ledford and relied upon them and were duped, without suspecting Merrill and Ledford had created falsified documentation.

“Wading through layers of lies and deception” US Attorney Robert Hur (Source: WJZ YouTube Channel)

Mental health and gambling addiction

Shortly after their arrests, Merrill and Ledford negotiated guilty pleas on the condition that it be recommended to the Courts that they be housed in minimum security prisons.

Merrill sought, as part of his plea, special treatment to address mental health issues during incarceration, suggesting that he may have had mental health issues that may have impaired his judgment.

“Obscenely greedy con artist”

At sentencing, the government called Merrill a “con artist” who was “obscenely greedy.” He was sentenced to 22 years in jail.

Sentencing of Merrill (Source: WJZ YouTube Channel)

Ledford sought, as part of his plea, special treatment to address a gambling addiction problem, as well as the ability to enter a drug detox and rehab program, and to avail himself of mental health treatment programs in prison. He was sentenced to 14 years in prison.

But that wasn’t the end of it.

Violating Court order restraining assets

In violation of a Court order temporarily restraining all the identified and unidentified personal accounts and assets of Merrill and of the corporate entities, Merrill and his wife, Amanda Merrill, proceeded to deal with and dispose of some of those assets, including an account in Merrill’s name that the government had not discovered (but was part of the temporary asset restraint order).

When Merrill was arrested, the FBI had seized a number of assets and property including US$520,000 in cash in his Maryland home, his cars, jewellery and watches. Merrill was subsequently incarcerated and held in remand because the Court held that he posed a flight risk and a risk of the obstruction of justice. The lies to investors and investigators, as well as the fabrication of bank wires and the possibility of the dissipation of assets to defeat the asset restraint order, gave rise to a heightened risk of obstruction of justice and mandated remand, particularly since authorities were still investigating the extent of the fraud and attempting to locate victims. Merrill’s fraudulent conduct demonstrated that he would not likely respect any Court order, including in respect of the order over assets.

“Drink the good wine and replace it with s**t”

Concerns that Merrill was unlikely to abide by a Court order turned out to be valid.

While in remand, Merrill expressed his resentment to his wife that his accounts were frozen, and also realized that the government had failed to identify all his accounts and assets, and he was determined to use those unidentified assets.

He told her that the government had “taken enough” and instructed her to go to Florida and take cash that he had stashed there and hide it from authorities and to drink all the good wine in the house and replace it with “shit” wine.

“Fuck them” he wrote in a jail house note for her. Prison guards found the note in one of Merrill’s socks.

Ignoring the restraining order in respect of assets, Amanda Merrill dealt with an account in Merrill’s name without disclosing it to authorities and traveled to the mansion in Naples, Florida, where she removed bulk cash in suitcases. She instructed her lawyer to inform the US government that she had traveled to Florida for baby clothes. The FBI then executed search warrants at the Maryland and Florida houses and found US$23,000 in cash.

Amanda Merrill was charged with violating a Court order, obstruction of justice and conspiracy to remove property.

Merrill’s wife guilty of illegally dealing with assets

She pled guilty in a deal to one count of obstruction of justice. At sentencing, the Court was told that Merrill had conned and lied to her, as well as everyone else. Her lawyer said that she suffered a break down and should be given some accommodation. The Court disagreed and held that a message needed to be sent to deter violations of Court orders in respect of asset restraint in such cases and obstruction of justice. She was sentenced to house arrest and six weekends of jail time.

Merrill is incarcerated at Allenwood, Pennsylvania, until June 17, 2037, and Ledford is incarcerated at Safford, Arizona, until August 23, 2030.

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