3 U.S. Men Arrested on Fraud Charges

THREE U.S. citizens are in custody this week awaitingextradition to the United States for charges stemmingfrom a multimillion-dollar U.S. federal fraud and tax evasioncase.The three men were arrested in their homes last weekin a joint operation between the International Police(INTERPOL), Costa Rica’s Judicial Investigation Police(OIJ) and a special agent from the U.S. State Department.The U.S. Department of Justice alleges the men,together with five others arrested in Southern Californiaat the same time, duped hundreds of victims into investingtens of millions of dollars in a fraudulent offshorefund that claimed to invest money in highly profitableforeign-currency trading.The eight suspects were affiliated with the GenesisFund, a now-defunct private investment fund that the U.S.Justice Department calls a “Ponzi” scheme, a name derivedfrom U.S. citizen Charles Ponzi’s postage-stamp speculationfraud in the early 1920s. Such schemes, according tothe U.S. Securities and Exchange Commission, work onthe “rob-Peter-to-pay-Paul” principle, as new investors’money is used to pay off earlier investors and enrich thefounders until the house of cards collapses.The suspects are charged with 83 counts of conspiracy,obstruction, mail fraud, wire fraud, money laundering, taxevasion, failure to pay taxes, and seeking the forfeiture of assets, the U.S. Justice Department reportedin a statement.THE men arrested in Costa Rica werealleged founders and managers of theGenesis Fund. John S. Lipton, 58, allegedlythe principal manager of the fund, andRichard B. Leonard, 71, allegedly an earlyinvestor, promoter, and later, a fund manager,were arrested May 11 in their homesin the Tango Mar complex in Cóbano, onthe southern tip of the Nicoya Peninsula inthe Puntarenas province.Victor H. Preston, 64, was arrested inSan José on the same day at the same time,INTERPOL said in a statement.Preston and Leonard had lived in CostaRica since 2000, and Lipton since 1998,according to the U.S. Justice Department,and all became pensioned residents in thepast five years, according to INTERPOL.Costa Rican INTERPOL chief PauloMonge told The Tico Times the investigationleading to the men’s arrest began May5 and when they made the arrests, the suspectsdid not put up any resistance.THE three are serving two-monthterms of preventive detention while authoritiesarrange for their extradition to theUnited States, a process expected to take atleast two months, according to JudicialBranch spokeswoman Sandra Castro.The Tico Times tried to contact themen through San José attorney JorgeGranados, whom Castro said represents thethree, but the lawyer did not return phonemessages this week.The U.S. Justice Department indictmentalleges that between May 1998 andJune 2002, Genesis Fund investors, mostof whom are U.S. citizens, handed over$80 million to the defendants in a pyramidscheme perpetuated through the activerecruitment of new investors. For a percentageof the profits generated by newinvestments, recruiters allegedly offeredseminars and told prospective investorstheir funds would be pooled and investedin highly profitable foreign currency trading.INSTEAD, most investors’ funds wereallegedly used to make payments to otherinvestors and to fatten the defendants’ bankaccounts. In that way, INTERPOL said, thedefendants allegedly attracted thousands ofinvestors who paid out about $100 millionsince the scheme began in 1994. Total lossesof capital were approximately $60 million.The indictment also alleges that in June2002, only weeks after trumpeting thefund’s value at $1.3 billion, the managerssuspended payments, the fund collapsed,and investors were later lulled into believingtheir investments could be recoveredthrough a new investment plan. Monthslater, fund managers were still tellinginvestors in Costa Rica, mostly U.S. expatriates,they would try to return theirmoney (TT, Nov. 1, 2002).THE defendants allegedly claimed thefund had no U.S. Internal Revenue Service(IRS) obligations and the managers allegedlydiverted funds to offshore bank accountsand accounts in the names of trusts that werenot reported to the IRS.Some of the defendants allegedly hidtheir financial activity from the IRS by creatingsome accounts that they disclosed toauthorities and others that they concealed.The indictment alleges investors wereadvised to open offshore accounts and createoffshore corporations to receive payoutsfrom the fund, and they allegedly wereadvised against keeping financial records.To conceal the fund’s true, frail structurefrom investors and the U.S. government,its management allegedly relocatedits offices from Anaheim, California, toCosta Rica in April 2000, but notbefore destroying electronic data on computers,according to the U.S. Departmentof Justice statement.COSTA Rican judges began investigatingthe fund in late 2003, sortingthrough documents obtained during a raidof Lipton’s Tango Mar home May 6, 2003(TT, Aug. 29, 2003). Lipton was arrestedthat day and then released shortly after asthe result of a fraud charge pressedby an alleged former fund manager,George Dennison Sprague (TT, May16, 2003).Lipton declared his innocence toreporters; and in a May 30, 2003, letter toThe Tico Times, maintained that similaraccusations against him in Hong Kong andIreland were discredited.Costa Rican authorities and INTERPOLare now seeking alleged former fundmanager Sprague, who bears a Costa Ricanpassport, for fraud charges stemming froma lawsuit for which, according to JuanCarlos Rodríguez, lawyer for a group offoreign investors, damages could reach“several million dollars.”The charges are unrelated to Genesis,stemming from a different allegedlybogus high-interest scheme involvingthree shell companies in Costa Rica (TT,Oct. 31, 2003).AT least two of the Genesis Fund’sfounders, of whom authorities believethere were 11, and one investor, havebeen found guilty of tax evasion orembezzlement.Swiss fugitive Joachim Luthi, whoclaimed to be a German named TerrySexton, was reportedly extradited fromthe United States to Switzerland to facefinancial crimes charges in 1995 (TT,Aug. 29, 2003).Another, California native EdwardLashlee, pleaded guilty to conspiracy andtax-evasion charges in 2003 and was sentencedto 10 years in prison and a$500,000 fine.Former investor Arnold Mitchell ofSan Diego was sentenced to eight monthsin prison in 2003 after pleading guilty tousing Genesis accounts to conceal $3.7million from the IRS.