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2 plead guilty in $52 million Ponzi scheme

2 plead guilty in $52 million Ponzi scheme

September 17th, 2011 by JIM SALTER, Associated Press in News

ST. LOUIS (AP) - A Kansas attorney and a real estate speculator from the United Kingdom pleaded guilty Friday to defrauding investors of $52 million in what authorities say is one of the largest Ponzi schemes Missouri has seen.

James Scott Brown, 66, of Leawood, Kan., and Derek Smith, 67, of Oxfordshire, England, originally pleaded not guilty, but changed their pleas at a hearing in U.S. District Court in St. Louis. A sentencing date has not been set.

Both men could get up to five years in prison. But Smith's attorney, Scott Rosenblum, said the plea agreement calls for probation.

Meanwhile, federal prosecutors say both men agreed to forfeit property and money in an effort to pay back defrauded investors. Rosenblum said he did not know the value of what Smith would forfeit. An attorney for Brown did not return messages seeking comment.

They were indicted in April along with alleged scheme leader Martin Sigillito of the St. Louis suburb of Webster Groves, Mo. Sigillito is scheduled for trial in March.

The $52 million is the most taken in a Ponzi scheme in eastern Missouri, said Dennis Baker, head of the FBI office in St. Louis.

Federal prosecutors say the scheme was known as the British Lending Program. Beth Phillips, the U.S. Attorney in Kansas City, Mo., said victims believed they were loaning money for real estate projects. In reality, she said, most of the money was being kept by those involved in the scheme, or used to pay interest and principal to other lenders.

Prosecutors said Brown admitted the men marketed the British Lending Program based on fraudulent and deceptive information. They claimed there was little or no risk of not being repaid in full.

Phillips' office said many victims loaned retirement savings held in Individual Retirement Accounts. She said they were led to believe that their IRA accounts were growing and that they could be relied upon in retirement.