SAN FRANCISCO (CBS SF) — A Los Angeles man who was a former employee of a Novato-based real estate investment company was charged with running a $350 million Ponzi scheme, federal prosecutors said Tuesday.
Lewis Wallach, once CEO of Professional Financial Investors, was charged with one count of wire fraud and one count of conspiracy to commit wire fraud. Wallach also allegedly embezzled more than $26 million from the company.
A criminal information was filed Tuesday in federal court following an investigation by the FBI. A separate investigation was conducted by the U.S. Securities and Exchange Commission.
“We allege that PFI became a classic Ponzi scheme,” U.S. Attorney David Anderson said in a statement. “Money taken from new investors was allegedly used to pay existing investors while losses mounted behind the scenes.”
Prosecutors said the scheme came to an end four months ago following the death in May of the company’s founder, who allegedly conspired with Wallach for years to defraud investors.
PFI owned about 70 properties in Marin and Sonoma counties, according to the information, and Wallach allegedly helped to manage the firm, raising more than $350 million since 2015.
That money was also allegedly raised by Wallach and PFI’s founder through Professional Investors Security Fund, according to a complaint filed Tuesday by the SEC.
But from at least 2015, Wallach and PFI’s founder knew that the revenue they were generating from the properties was insufficient to pay investors and hid that knowledge, the information alleges.
They allegedly even falsely assured investors during the last few months that the company would survive.
The complaint alleges Wallach used the more than $26 million in investor funds he misappropriated to, among other things, purchase a vacation home, luxury cars and coin collections, and to pay private school tuition.
Wallach used the funds he embezzled between 2015 and May 2020 to pay personal credit cards, as well as to invest in a Texas land development project, a California office development project and oil and gas search and development projects, the information alleges.
Wallach is represented by attorneys Ed Swanson and Mary McNamara of Swanson & McNamara LLP.
“For the past few months, Mr. Wallach has fully cooperated with the government in its investigation and has voluntarily turned over property and money to PFI and PISF,” Swanson said. “He will continue to work with government to remedy the harm he has caused investors.”
If Wallach is found guilty, he faces up to 20 years in prison for each count.
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