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Prime Bank Mastermind Sentenced

Thursday February 20, 2003 - Page A-24
ISSN 1523-567X

Regulation & Law

Financial Institutions
Mastermind, Accomplice Sentenced
To Prison in Prime Bank Fraud Scheme

LOS ANGELES--The alleged mastermind of a "prime bank" fraud scheme in the mid-1990s that promised fabulous returns on investments, but instead cost more than 30 victims almost $3.5 million, was sentenced Feb. 18 to 46 months in federal prison, the U.S. Attorney in Los Angeles announced Feb. 19 (U.S. v. Gibbons, C.D. Cal., No. CR-00-201, sentencing 2/18/03).

In addition to John M. Thomas, who authorities charge orchestrated the investment fraud, Cenobio Herrera Lanz, who purported to be a licensed escrow officer safeguarding the victims' money, was also sentenced Feb. 18, to 33 months in prison for his role in the scheme, the U.S. Attorney added in a statement.

U.S. District Court Judge Dickran Tevrizian, also ordered each of the defendants to pay about $1.6 million in restitution to the victims, the statement noted.

In April 2002, Thomas pleaded guilty to one count each of wire fraud and money laundering, while Herrera Lanz pleaded guilty to wire fraud charges.

Previously, two other participants in the scam, William Lewis, the highest producing broker used by Thomas to solicit investors, and Michael Gibbons, who said he was a program trustee, pleaded guilty to charges related to the scheme, and each was ordered to pay $1.6 million in restitution, the U.S. Attorney said.

Scams on Rise Again

The investment program, known as the Circle Foundation Investment Trust (CFIT), purported to be a prime bank, or "roll program," in which investor funds were supposed to be leveraged several times and then traded among the world's top banks. Such programs are not legitimate investment programs, but nevertheless were a common scam in the 1990s, the U.S. Attorney said, adding that "they are on the rise again today."

Investors in CFIT were told their money was to be held in an escrow account, where it would be bonded and never be at risk, the U.S. Attorney said. They were also promised annual returns of up to 2,000 percent, with no risk, he added.

Herrera Lanz falsely told investors he was the escrow officer responsible for the CFIT escrow account at a branch of Bank of America, the statement added. Investors were instructed to wire transfer their funds into Herrera Lanz's account, which, in fact, was a simple checking account under his sole control, the U.S. Attorney noted.

Herrera began writing checks from that account to himself and the other defendants "almost as fast as the funds were coming into the account," the statement charged. While the defendants spent the money on cars and houses for themselves, investors were told their money was still in the account, but that CFIT was experiencing trading problems that would be resolved soon, the U.S. Attorney noted.

Most of the victims never recovered any of their investments, he added.

By Tom Gilroy