wmlro.com: gloves off in ponzi scheme
Miguel Salazar and Carlos Flores have pleaded both guilty to one count of mail fraud following a ponzi scheme that learned lessons from the derivatives markets.
Flores, 43, of Lakewood, California and Salazar, 36, of West Covina, California created a firm called SF Capital which claimed to be in the business of factoring accounts receivables. They specialised, they said, in the narrow but highly lucrative field of latex gloves and that the demand for such gloves had increased dramatically since 11 September 2001, the outbreak of SARS and other infectious diseases, etc. The paid said that the end result was a rapidly increasing invoicing with which payments were not keeping up.
This opened, they said, the way for a specialist finance shop providing factoring services at various points in the supply chain. Such a business needed capital - a factoring company usually advances to the invoice issuer about 70% (in some cases more) of the invoice amount, paying the balance, less a service charge and interest, when the account is settled by payment to the factor.
According to a statement by the FBI, "between 2002 and 2006, more than 30 individuals invested more than $1.3 million with SF Capital. Many individuals renewed or increased their investments after receiving payments from SF Capital that appeared to be interest or dividend payments. However, SF Capital was not in the business of financing accounts receivable and the purported investment returns paid to investors were Ponzi payments that came from other investors. Flores and Salazar also used proceeds from the scheme for their personal benefit. For example, Salazar used investor money to pay more than USD140,000 for luxury dugout seats at Dodger Stadium. As a result of the scheme, victims lost nearly USD700,000."
Salazar is scheduled to be sentenced by District Judge Manuel Real on May 3. Flores is scheduled to be sentenced on February 22. Both men face statutory maximum sentences of 20 years in federal prison.
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