Corruption: Man sentenced to 16 years in prison in $80 million Ponzi scheme

U.S. Attorney’s Office 
Eastern District of California

SACRAMENTO, CA—United States District Judge Garland E. Burrell, Jr. sentenced Anthony Vassallo, 34, of Folsom, today to 16 years in prison, to be followed by three years’ supervised release, for wire fraud in connection with a Ponzi scheme that took in more than $80 million between April 2006 and December 2008, United States Attorney Benjamin B. Wagner announced.

According to court records, beginning in 2006, Vassallo and co-conspirator Kenneth Kenitzer ran Equity Investments Management & Trading (EIMT). Vassallo claimed that he had developed computer software that enabled him to make profits of approximately three percent per month, or 36 percent per year. Investors were told that this strategy had worked successfully for years with one loss situation that had been corrected so that it would not happen again. In fact, Vassallo’s strategy had been historically unsuccessful, losing money overall.

According to court documents, Vassallo told investors that he traded online on the Russell 2000 index through TradeStation, a licensed securities broker-dealer. In fact, by September 2007, EIMT had been barred from trading at the brokerage. Nonetheless, Vassallo continued to tell investors and sub-fund managers that he was investing in reputable stocks through that brokerage. Instead, he was using the money for his own benefit, to pay interest to other investors, and investing in a number of shady schemes, all of which failed.

The scheme began to unravel in late 2008, and investors began demanding their money back. Vassallo and his intermediaries engaged in stalling tactics, claiming that Vassallo was “restructuring” the funds, TradeStation was conducting an audit, or the SEC had frozen the TradeStation account due to a baseless complaint. Vassallo continued to recruit new investments. One investor transferred $250,000 to Vassallo’s account less than two weeks before Vassallo admitted to a group of investors that he had ceased trading and their money had been lost.

At sentencing, Judge Burrell addressed Vassallo: “You are a liar. Numerous victims have described their financial crisis as a result of your crime and the heart rendering consequences they are enduring because of your fraudulent conduct....A substantial prison sentence will be important...to protect the public.”

More than 300 individuals invested in Vassallo’s scheme, contributing at least $83 million. Of that amount, more than $55 million was returned to investors, although nearly $17 million of that constituted amounts paid to some investors above the amount of their original investments. Thus, actual loss to the investors totaled more than $44.8 million. A hearing to determine restitution is set for August 23, 2013. Co-conspirator Kenitzer pleaded guilty in a related case, and he is set for sentencing on September 6, 2013.

U.S. Attorney Wagner said, “This lengthy sentence is justice served, though it is small comfort to the victims of Vassallo’s crimes, many of whom lost their homes, health, and retirements to this fraud. This case was unusual in its scope, but not in the nature of the fraudulent conduct. This office has been very active in prosecuting investment frauds, and we will continue to work closely with the FBI and the IRS to root out fraudsters and make sure they are held to account for violating the trust of law-abiding members of our community.”

“Vassallo knowingly victimized unsuspecting investors for personal gain. The magnitude of Vassallo’s misconduct is unacceptable,” said Acting Special Agent in Charge Manuel Alvarez, Jr. of the Sacramento Division of the Federal Bureau of Investigation. “The FBI is committed to identifying and thoroughly investigating greed-motivated financial crimes and will continue to seek justice for victims.”

“This was a classic Ponzi scheme, where you rob Peter to pay Paul,” said IRS-Criminal Investigation Special Agent in Charge José M. Martínez. “Eventually, you run out of Peters and Pauls. Today’s sentencing sends a clear message that IRS-CI is committed to identifying and investigating those who take advantage and impact the financial well-being of others for their own personal financial benefit.”

This case was the product of an investigation by the Internal Revenue Service-Criminal Investigation and the Federal Bureau of Investigation. Assistant United States Attorneys Jean M. Hobler and Lee S. Bickley prosecuted the case.