PITTSBURGH – A well-known local investment broker was arrested Friday and charged with a long-running Ponzi scheme that sold three local credit unions $2.1 million in fictitious CDs.
The broker, Eugene Miley, pocketed much of the funds and used the remainder to pay interest on principal on the oldest "CDs" to make the scheme appear legitimate, the features of a classic Ponzi scheme, according to the charges.
Authorities claim Miley, 58, sold the phony CDs to Moonlight CU, in Worthington ($1.4 million worth); VANtage Trust CU, in Wilkes-Barre ($594,000) worth) and Stanwood Area CU, in New Stanton ($99,000 worth).
"The problem was that none of the CDs were ever purchased," said Nile Frederickson, a spokesman for the Pennsylvania Attorney General’s office, which brought the charges against Miley. "As with any Ponzi scheme, the money coming in was used to pay off the earliest investors to make it seem like a viable investment." Like some of the larger Ponzi schemes uncovered in recent months, including the huge Madoff scheme, Miley kept the appearance of a successful investment by sending the credit unions regular statements purporting to own certificates in legitimate banks.
Miley told investigators he was able to continue the ruse until January when Mooonlight CU requested redemption of the CDs. Until then, whenever anyone asked for redemption he would just sell more phony CDs.
Authorities will seek a court order for restitution," Frederickson told The Credit Union Journal Friday. "We’re still trying to determine what assets are out there to recover from," he added.
Miley allegedly used long-standing relationships with officials at the three credit unions to sell them various high-interest CDs, authorities claim. Miley is not licensed to operate as a financial investment company, financial advisor or financial products dealer.
Miley was charged with two counts of securities fraud and three counts each of theft by deception and theft by failure to make required disposition of funds.
Miley was arrested at his home in Cranberry Township Friday morning. A preliminary hearing in the case was scheduled for Nov. 20.
