NZ Company Ordered to pay $4.5 million in Ponzi Scheme

The US Commodity Futures Trading Commission (CFTC) has obtained an order of default judgment against Jeffery Alan Lowrance and his NZ-based company ‘First Capital Savings and Loan’ for $US 4.5 million; $US 3.3 as civil monetary penalty and $1.2 million in restitution. Lowrance was charged with violating anti-fraud provisions of the Commodity Exchange Act and subsequent amendments. The District Court for the Northern District of Illinois found that through his company Lowrance solicited approximately $1 million from 36 members of the public for the sole purpose of trade off-exchange foreign currency (forex) contracts. The money was never deposited into forex accounts, but rather used to pay off previous First Capital investors, cover personal expenses, and to create a religious newspaper, the USA Tomorrow.

Between April 2007 that year and February 2011 the company sought capital to invest in forex contracts, despite having never been legally registered with the CFTC to trade in these contracts. Lowrance was apprehended in Lima, Peru on 6 February 2011 and extradited to the US in July before facing trial on 28 October. The practical links between this case and New Zealand appear to be limited. Lowrance, formerly a resident of Houston Texas, created First Capital Savings and Loan in February 2007 and registered it in New Zealand as an offshore finance company, with offices registered in Cook St, Auckland. It was owned by First Capital Panama, in turn owned by another company called Overseas Capital, which has a director in Panama. Overseas Capital was owned by Auckland Banshares, at the time owned by a Tauranga investment banker, Joan-Lesley Hansford-Jensen. The company was struck off the NZ companies register on 22 June 2010, and no liability for NZ nationals or government bodies has been discussed.

Lowrance, purported to be worth $US 60 million and spending much of his time in Panama, has been under investigation for some time. His former company, Mentor Investing Group, was issued a cease and desist notice from the State of California Department of Corporations in September 2006 for unregistered forex trading. At this point Lowrance began channeling business into the newer First Capital, soliciting approximately $20 million from 400 investors between April 2007 and June 2008.

Investors were promised high monthly returns (up to 4.15%), boasting on their website that their financial disclosures consituted, “the most honest and transparent way for us to show you that we are making good and steady money trading in the FOREX currency market.” None of the trades described on their website, subsequent promotional material or statements provided to investors were made on actual forex trades; indeed First Capital never held a forex trading account during the relevant period and Lowrance’s trading account in his own name never held a balance of higher than $US 4002. Purported returns paid out to investors came from the investors’ original principal or from subsequent payments from other investors. The Court concluded that Lowrance misrepresented the use of investment funds, the success of his traders, and the nature and consistency returns, misappropriating funds and providing fraudulent account statements. Further, given the reasonable likelihood that this behaviour would continue, a permanent injunction was granted against both Lowrance and First Capital.

Lowrance and First Capital have been the subject of a number of recent fraud cases. In October 2009 he was ordered to pay $US 40 million to 200 American investors in case brought in Sioux Falls, South Dakota. In that instance Lowrance had promised monthly returns as high as 7%, and, like in the more recent case, failing to make live market trades transferred money between accounts to indicate earnings. At the time of this trial Lowrance was still at large, and disgruntled investors had threatened trips to his Panama residence to confront him, supported by employees that never received recompense. Another cases currently pending against Lowrance and First Capital by the Securities Exchange Commission accuse Lowrance of defrauding $US 21 million from investors from 26 states, alleging a “classic modus operandus of a ‘Ponzi Scheme’”, as well as facing charges from the US Attorney General’s Office.

Edward Miller is a lawyer and activist based in Western Australia, focusing on issues regarding food, energy, trade and the environment. He welcomes feedback: edwardmilla[at]gmail.com

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