Arrest made in Ponzi scheme

Victims bilked in excess of $500,000

Nov 10, 2016 - by Lt. Bob Vander Yacht

Bellingham (WA) David P Thomas, 05-21-1960, of 308 Alder Street in Bellingham was booked into Whatcom County Jail on 25 counts of 1st degree Theft, as well as 29 counts of Securities Fraud related violations. In total we are aware of 17 adult victims. Many of these victims are from Bellingham and Whatcom County. Additional victims reside in Spokane Washington, San Antonio Texas, Brigham City Utah and Ashland Oregon. The manner in which Thomas illegally handled client funds is called a Ponzi scheme.

On 04-18-16 Officers were contacted by a local victim that was concerned about bonds she had purchased from Thomas. Our Detective assigned to this investigation worked collaboratively with the Securities Division of the Washington State Department of Financial Institutions. During the course of this investigation 16 additional victims were contacted which show a consistent plan and scheme by Thomas to defraud victims of their personal funds. The pattern and scheme has been consistent across victims and over several years.

Thomas presented himself to the victims in this case as an investment advisor and maintained the use of Thomas & Company Wealth Management as his business name both verbally and in paperwork offered to victims as recently as October of 2015, even though the company has not been registered legally with the state since November of 2010.

Between March 2012 and May 2016, Thomas raised at least $545,000 from 17 investors, many of them elderly, who were relying on Thomas to give them professional financial advice. Thomas was a former investment adviser representative and securities salesperson. Thomas is currently a licensed insurance agent doing business through his insurance company, Insured Income Solutions, LLC, which, according to its website, is specially designed for “retirees and those within five years of retirement.”

It appears that Thomas defrauded his clients by offering and selling Debentures without disclosing that Debentures are unsecured debt and are therefore high-risk investments that would not be suitable for people who need a secure retirement income. Thomas failed to disclose that the issuer of the Debentures was his own company, originally Thomas & Company Wealth Management, LLC (“Thomas & Company”), and then Insured Income Solutions. Neither company appear to have had significant assets or source of income for repaying investors.

Thomas misrepresented or failed to disclose material information about the investments, including the risks, by telling clients the “bond” was absolutely secure with a guaranteed return of their money.

Although Thomas told clients they were buying a bond, the certificates state they are 'Debentures'. Stating and referring in paperwork to these bonds being secure is misleading. Unlike bonds, which generally are secured, Debentures are not secured by assets and have a lower priority than bonds if a company is being liquidated or declares bankruptcy. He also mislead clients in his presentation of the Debenture certificates. For example a Debenture Agreement has “No. 0509” printed at the top which is misleading because this was not the 509th Debenture that was issued by Thomas & Company. The formality of the Debenture Agreement also made it appear that Thomas' company was legitimate, yet the company appears to have had no significant business activity. Both the Debenture Agreement and the Debenture Certificates misleadingly refer to “directors”. The Debenture Agreement referenced the “Directors of the

Company,” which was misleading because there were no outsiders involved in the company. Each Debenture Certificate was signed by Thomas as “Managing Director,” which implies that the company had other directors. Thomas testified before the Washington State Securities Division on July 25, 2012 that he was the sole member of Thomas & Company. During additional testimony before the Washington State Securities Division on November 4, 2015 Thomas stated that he created the Debenture Certificates himself and that he “pulled a copy of what to do from the Internet.” In reviewing the certificates issued to individuals in this case also shows that there are many times that the certificate number is duplicated between clients.

Through execution of a search warrant financial documents were accessed that show that each victim listed in this case had one or more financial payments deposited into accounts held by Thomas. These payments were made to him by the victims in this case in the form of personal checks, cashier's checks, and wire transfers. Thomas was operating a Ponzi scheme, using funds from new investors to repay prior investors. The funds being deposited into Thomas' accounts were used for personal miscellaneous expenses, casinos, restaurants, and often withdrawn as cash. He failed to disclose that he was using investor funds to finance his own gambling activities and to pay other personal expenses. For example, bank records show that in September 2013 a victim invested $25,000 with Thomas. When the investment check was deposited, the Thomas & Company bank account was overdrawn by more than $175. Within two weeks Thomas had spent more than $5,000 at the Bellagio Hotel & Casino in Las Vegas. In April 2014 the same victim invested an additional $15,000 with Thomas. At that time, the Thomas & Company bank account was overdrawn by $551.76. Within days, Thomas wrote five checks to prior investors, including a $1,062.50 check to this particular victim with the notation “Note interest” on the check. He failed to disclose to this victim that they were not receiving “interest” earned on their earlier investment, but rather being paid with a portion of their own funds. This pattern is consistent over the years with each and every victim. Financial documents do not show any investment products being purchased by Thomas on behalf of any of the victims in this case.

Thomas has issued approximately 29 Debenture certificates to the victims in this case. Several victims have been issued more than one certificate. The certificates are mainly in the name of Thomas & Company Wealth Management. Of note the company name on the certificates changed in the spring of 2016 to Insured Income Solutions. Coincidentally this occurred after Thomas had talked with the Securities Division and had been asked about the continued use and offerings by his inactive company, and had also been contacted by our Detective.

Interviews of each victim shows a pattern of trust built by Thomas through past business with each client through insurance products, word of mouth, and public presentations. After trust was built Thomas would offer the 'bond(s)' to his clients as the best and safest place to put their money for their future needs. After selling these bonds Thomas consistently became very difficult to get a hold of, or the client would not hear from him again after giving him their money. Interest payments made via this Ponzi scheme were most often late, or not made at all, and were only provided after much prodding by each individual. Each individual contacted in this case believed their money was in a secure investment.

Not one victim had any indication of the actual use of the funds. Each have expressed

devastation that their monies are not in bonds as told and promised by Thomas. For many of the victims in this case, the monies given to Thomas consisted of their life savings, their retirement funds, all of the money they had.

Our detective has gathered evidence indicating that Thomas bilked his victims out of approximately $545,000.

Thomas by color and aid of deception did obtain control over the funds of the above listed 17 individuals and deprived them of such funds in excess of five thousand dollars per offering. There is Probable Cause to arrest Thomas for RCW 9A.56.030 Theft in the first degree, 25 counts. This represents each deposit made by the 17 individuals.

Thomas in connection with the offer, sale of any security, directly or indirectly employed a scheme to defraud and made untrue statements of a material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, and engage in acts, practices and course of business which did and would operate as fraud upon each victim listed in this case. Probable Cause exists for his arrest for Securities Fraud RCW 21.20.010 and RCW 21.20.400 Unlawful offers, sales, purchases, 29 counts, which represents each certificate offered.

It is possible that Thomas has victimized additional clients. If you believe that this is a possibility please contact Bellingham Police Department Detective D. Wagner at 360-778-8767.

 


Media Contact

​Lieutenant Bob Vander Yacht
Bellingham Police Department PIO
Rvanderyacht@cob.org


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