Source: Federal Bureau of Investigation (FBI) State Crime Alerts (b)
RIVERSIDE, California – A Riverside County man has pleaded guilty to a federal criminal charge for running a Ponzi scheme that lasted nearly 20 years and fraudulently obtained more than $24 million from at least 200 investors, the Justice Department announced today.
Paul Horton Smith Sr., 59, of Moreno Valley, pleaded guilty late Monday afternoon to one count of wire fraud.
According to his plea agreement, Smith operated Riverside-based companies named Northstar Communications LLC, Planning Services Inc., and eGate LLC. From July 2000 to May 2020, Smith obtained money from investors by soliciting individuals – who often were elderly or retired – to invest in something Smith called “Northstar.” Some of the investors previously were Planning Services clients.
Smith communicated with the victim investors regarding Northstar in person, over the telephone, and via email and text messages. He falsely told investors that Northstar was an annuity or an investment like an annuity He falsely told other investors that Northstar invested in real estate or followed the stock market. He typically told the investors that their investment would generate a fixed rate of return and was a “safe investment.”
While Smith led most Northstar investors to believe his company reinvested their initial investment, generating the percentage they were to earn, in fact, he never invested the money. Instead, Smith deposited all investor funds into a non-interest-bearing checking account.
Smith used some money from later Northstar investors to pay earlier Northstar investors’ monthly interest payments and to repay earlier investors who wanted to withdraw their investment.
For example, in April 2019, Smith caused one victim to invest with him $400,000 – life insurance proceeds after the victim’s spouse had died. The victim wrote a personal check for that amount and the check was deposited into a bank account in Riverside, which then was electronically transferred to the bank’s Alabama headquarters for processing.
Smith promised the victim he would invest the $400,000 in a safe investment with a 5% rate of return. But Smith never invested the money. Instead, he transferred the funds to pay other victims of his Ponzi scheme. In an attempt to conceal his criminal activity, Smith made 11 payments to the victim that totaled $163,324.
As a result of the scheme, Smith fraudulently obtained more than $24 million from at least 200 investors. Of these investors, 106 victims have not been fully repaid. The total loss for these victims is $13,331,505.
United States District Judge Jesus G. Bernal scheduled an April 1 sentencing hearing, at which time Smith will face a statutory maximum sentence of 20 years in federal prison.
The FBI investigated this matter. The United States Securities and Exchange Commission, which filed a complaint and obtained a judgment against Smith and Northstar Communications LLC in 2020, provided assistance.
Assistant United States Attorney Benjamin J. Weir of the Riverside Branch Office is prosecuting this case.
