The head of a now-defunct investment company that bilked more than 100 credit unions out of millions of dollars was charged last week with fraud and bribery in one of the biggest Ponzi schemes ever.
Robert F. Bentley, head of Bentley Financial Services, was expected to pleaded guilty to the charges that he sold more than $370-million worth of securities he billed as FDIC-insured CDs that turned out to be nothing more than personal promissory notes. Bentley preyed on small institutions-more than 100 credit unions were customers-because of their lack of sophistication and the promise of high returns, investigators said.
In a classic Ponzi scheme, Bentley used proceeds from later investors to pay of earlier customers to make it appear as if the scheme was legitimate. The Ponzi scheme was named after Charles Ponzi, who bilked New England investors out of millions of dollars in the 1920s.
The criminal charges come more than three years after Bentley was shut down by the Securities and Exchange Commission, which took over his company and created the largest receivership in SEC history with more than $370 million worth of claims. Frank Mayer, a Philadelphia attorney managing the receivership, said they have been slowly paying off claims and by year-end will have paid off more than $330 million. That means the 112 credit unions victimized in the scheme have received about 90% of the principal of their investments, with forgone interest putting credit union losses in the tens of millions of dollars in the case.
Mayer said he hopes to make additional payments to claimants in the future. "We still expect more recoveries," he said, citing outstanding bond claims and lawsuits.
The criminal charges against Bentley come two years after he settled civil fraud charges with the SEC and agreed to forfeit about $2 million. Five other Bentley associates, including salesmen, also agreed to settle civil SEC charges and pay modest forfeitures.
The criminal charges are more serious and bring a potential jail term of years. Those charges, brought in a so-called criminal information, include an allegation that Bentley entered into a bribery scheme with an investment manager at Sunflower Bank in Kansas under which Bentley offered Parker an illegal commission, or bribe, to steer the bank's securities purchases to Bentley's firm. The charges alleged the investment manager, Monty Parker steered more than $185 million of the bank's investments to Bentley, earning him a $1 million commission.
Among the other, larger CU investors in the scheme: Clawson Community FCU ($15.8 million); Houston Energy CU ($13.9 million); Cheney FCU ($10.7 million); Texaco Houston CU ($10.2 million); Ukrainian Self-Reliance Michigan FCU ($8.2 million); Entex CU ($7.5 million); Government Employees CU of Maine ($7.2 million); Kentucky Employees CU ($7.1 million); Mutual CU ($6.5 million); Defense Contracts South FCU ($4.6 million); Central Jersey FCU ($4.6 million); Ascension School Employees CU ($4.2 million); Texas Gulf FCU ($4.1 million) and North Oakland Community CU ($4.7 million).
The biggest bank investors include: The Honedale National Bank ($16.2 million); Community National ($11.4 million); First National of Port Alleghany ($8.3 million). and Fairfax State Savings Bank ($7.4 million).
