The founder and principal manager of a bogus foreign exchange fund that effectively operated like a Ponzi scheme has been sentenced to nearly six years in prison on tax charges.
John S. Lipton, formerly of Mission Viejo and Laguna Hills, Calif., was sentenced by U.S. District Judge Dale S. Fischer in Los Angeles to 70 months in prison. The court also ordered Lipton to pay restitution of $2,915,427.16 to the IRS.
On April 8, 2010, Lipton pleaded guilty to conspiracy to defraud the United States and tax evasion. Lipton and several co-defendants were indicted on charges stemming from the operation of the fund he operated under the name of "Genesis," a bogus foreign currency exchange investment fund that operated as a Ponzi scheme from May 1998 to June 2002 and received investments of millions of dollars. The remaining defendants are scheduled to begin trial in April 2011.
According to the indictment, the defendants falsely claimed that investors received monthly returns of 4%, when investments were actually used to make "profit" distributions to defendants and early investors. Lipton was one of the founding members of the Genesis Fund and its principal manager. The defendants promoted the Genesis Fund as having no reporting obligations to the IRS. Bank accounts in the names of trusts and offshore bank accounts were allegedly used to receive distributions from the Genesis Fund that were not reported to the IRS.
Some of the defendants allegedly created "disclosed" and "undisclosed" Genesis Fund accounts for themselves and certain fund investors in order to conceal from the IRS all but a small portion of the fund's distributions. In addition, some Genesis Fund investors were allegedly advised to create nominee offshore corporations and bank accounts to receive distributions from the fund.
The indictment further alleged that to obscure the operations of the fund and to limit scrutiny of its operations by investors and the government, the defendants caused the Genesis Fund to maintain no financial statements or other statements of operation. Additionally, in or about April 2000, to conceal the true nature of its operations from investors and the government, Genesis Fund's administrative operations were relocated from Anaheim, Calif., to Costa Rica. At about the same time, paper records were moved to Costa Rica and electronic data on computers was destroyed.
In his plea agreement, Lipton admitted that he used, and conspired with others to use, foreign trusts, corporations, and bank accounts, to receive distributions from the Genesis Fund and did not report these distributions to the IRS. Lipton also admitted that he directed the transfer of approximately 19 boxes of Genesis Fund documents to Costa Rica, rather than turn them over in response to a grand jury subpoena. Lipton acknowledged that he did not file federal individual income tax returns from 1989 through 2005.
Three defendants, Richard B. Leonard, Victor H. Preston and Teresa R. Vogt have entered guilty pleas in this matter. The trial of the remaining four defendants on tax fraud and conspiracy charges is set for April 2011. A separate trial on charges related to the Ponzi scheme is set for September 2011.