(Reuters) – The owner of a Virginia-based investment firm who orchestrated a $270 million stock scam that defrauded clients out of $35 million, must serve 12 years in prison, federal law enforcement authorities announced on Friday.
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William D. Chapman of Sterling, Virginia, was sentenced on Friday after pleading guilty to wire fraud in May, according to the U.S. Department of Justice.
Chapman, 44, used his clients’ money to make lavish purchases for himself, including a Lamborghini and Ferrari, as well as a $3 million home and resort condominiums, the Justice Department said.
Chapman was founder and owner of Virginia-based Alexander Capital Markets. A lawyer for Chapman at the Office of the Federal Public Defender in Alexandria, Virginia, did not return a call requesting comment.
Alexander Capital Markets offered a type of purported hedged loan that customers could use to protect them against potential investment losses. They would receive cash loans worth between 85 percent to 90 percent of the value of their securities, which they would use as collateral.
After a period of time – typically three years – they could get back their securities, or the equivalent cash value, if they fully paid off the loan and interest, according to the Justice Department.
Chapman told customers that the firm was hedging transactions to protect against market losses and would be able to return the full value of their securities, or the cash equivalent, at the end of the period.
But Chapman’s firm simply sold the securities it received from customers, then gave 90 percent of the sales proceeds back to them as the purported loan. The firm kept the rest of sales proceeds for itself and the parties who sold or marketed the product.
That meant no legitimate hedge existed and the firm could not return the securities or a cash equivalent to the customers unless it had enough money to buy them back on the market. The firm was insolvent by April, 2008, according to the Justice Department, and therefore could not have expected to cover its outstanding liabilities, the department said.
Nonetheless, Chapman continued to solicit new customers in the scam, which lasted for seven years, and used his clients’ money to support a “lavish lifestyle,” the Justice Department said.
(Reporting by Suzanne Barlyn; Editing by Kenneth Barry)