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DOJ: California Man Used 'Hundreds' of Advisors in $300M Ponzi Scheme

Scott Kohn worked with a network of hundreds of financial advisors and insurance agents, several now barred by FINRA, as part of a scheme targeting seniors and veterans, the DOJ says.

A California man was sentenced to 10 years in prison by a South Carolina federal judge for his role in a Ponzi scheme that defrauded military veterans and seniors out of millions of dollars, according to the Department of Justice. 

According to the DOJ, Scott Kohn and his co-conspirators orchestrated the scheme through his company, Future Income Payments, by soliciting pensioners facing “financial distress” (including military veterans) and offering them a cash payment to purchase the rights to their monthly pensions and disability payments, while later reselling these to unsuspecting investors. 

By the time the scheme faltered, Kohn’s victims totaled more than 2,500 retirees and left more than 13,000 veterans facing exploitative loans, with more than $310 million in victims’ losses, according to the DOJ.

“These hundreds of millions in losses will reverberate through the victims’ lives long after the defendants serve well-deserved federal prison sentences,” said South Carolina U.S. Attorney Adair F. Boroughs.

The DOJ’s indictment against Kohn details how Future Income Payments offered pension holders a lump sum payment in exchange for the pensioner promising to pay monthly payments to the company with annual interest rates going as high as 240%.

FIP worked with a network of “hundreds” of financial advisors and insurance agents to get investors for the "structured cash flow" securities, promising a high rate of return and a “consistent and predictable income,” according to the indictment.  

FIP assured investors it had created short- and long-term reserve accounts to mitigate default risk for the pensioners—though these accounts did not exist or were inadequately funded, according to the DOJ. Kohn and his co-conspirators convinced many seniors to invest their retirement savings in the scheme, concealing the details of the original deal with the pensioners and misleading investors about the health of the company. 

According to the DOJ, the scheme ran from about April 2011 to 2018, and during that time Kohn and co-conspirators used the funds to live lavish lifestyles,” according to the indictment. 

Several brokers were barred from the industry by FINRA as a result of their involvement in the scheme, including Dee Dee Brooks, a California-based broker at Signator Investors, also allegedly recommended the securities. According to FINRA, Brooks also allegedly made inappropriate recommendations to clients about securities from the Woodbridge Group, a massive $1.3 billion Ponzi scheme that affected about 9,000 investors, according to the DOJ. The Woodbridge Group solicited investors’ funds, claiming their money would be used to loans to third-party property owners who would pay interest to investors. But executives used the funds to pay previous investors, and for personal expenses, according to the DOJ.

The regulator also barred NYLife Securities broker Kari Bracy for allegedly refusing to testify about her FIP sales to clients, according to her BrokerCheck profile.

Additionally, seven brokers (including two from MML Investors Services and one from Sagepoint) were suspended by FINRA for inappropriately soliciting investors in the FIP securities, according to the law firm Iorio Altamirano

South Carolina Judge Bruce Hendricks ordered Kohn to forfeit $297 million, in addition to his prison sentence. Four other defendants in the scheme already pleaded guilty, though none have sentencing hearings set as of yet, according to the DOJ.

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