Ponzi Scheme—Lewis Guilty Plea

James Paul Lewis Jr. has agreed to plead guilty to one count of mail fraud and one count of money laundering in one of the largest Ponzi schemes in US history.^[1] According to prosecutors, Mr. Lewis’s scheme involved nearly 3,300 investors who lost a total of nearly $70 million.^[2]

Mr. Lewis promised investors annual returns of 18 to 40 percent in a scheme that involved buying and selling distressed businesses, leasing equipment to medical offices and financing medical insurance premiums.^[3] Mr. Lewis allegedly raised more than $300 million, but used some of the investors’ money to trade in currency futures, where he lost $22 million, and to buy several houses, luxury cars, and a lot of jewelry.^[4]

In pleading guilty to the two fraud counts, Mr. Lewis avoided 12 other counts, and agreed to help investors recoup some of their losses.

Mail Fraud
Mail fraud, codified at 18 U.S.C. § 1341, involves devising a scheme or artifice to defraud, and using the mail to carry out that scheme.

The punishment for mail fraud is a fine, imprisonment for up to 20 years, or both. If a financial institution is harmed in the scheme, the fine can be as high as $1,000,000, and the prison sentence can be as long as 30 years.

Money Laundering
Under 18 U.S.C. § 1956(a)(1), it is illegal for a person to conduct a financial transaction knowing that the proceeds of that transaction were obtained by specified unlawful means, and having the intent to continue carrying on that specified unlawful activity.^[5] In this case, mail fraud is a specified unlawful activity.^[6]

The punishment for money laundering is a fine of “not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater,” imprisonment for 20 years, or both.^[7]

We have previously discussed Ponzi schemes here.

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[1] Calif. Man Pleads Guilty in Ponzi Scheme, Associated Press, Oct. 17, 2005, available here.
[2] Id.
[3] Id.
[4] Id.
[5] 18 U.S.C. § 1956(a)(1)(A)(i).
[6] Id. § 1956(c)(7)(A) (incorporating the definition of an offense under 18 U.S.C. § 1961(1)(B)).
[7] Id. § 1956(a)(1).