Wednesday, October 15, 2008
Federal fraud trial of Giles financial adviser winds down
Closing arguments are scheduled this morning as the two-and-a-half-week trial of former Giles County financial adviser Ted James Johnson Jr. draws to a close in federal court in Roanoke.
Johnson, who was the county's circuit court clerk and commissioner of the revenue before turning to finance, faces dozens of charges linked to securities fraud. Prosecutors say the two companies that he and his partner ran, Mountain Investments and Dogwood Farms, were Ponzi schemes in which Johnson promised high returns from market investments, but actually used money from new investors to make payments to earlier investors. The operation collapsed as Johnson filed bankruptcy in 2004, listing debts to investors of more than $8 million.
Prosecutors took two weeks to present their case against Johnson, with a parade of witnesses testifying that they lost their savings, and page after page of records showing how the money was spent on Johnson and his partners' personal expenses or was used to pay off other investors.
Johnson's defense came Tuesday and took just one day. It was mostly his own testimony. In well over three hours on the witness stand, he insisted that he had not meant to defraud anyone and that he wanted to pay everyone back. While the government accuses him of operating as an unlicensed commodities trader, Johnson said his business was really to take personal loans from people and try to find ways to use the money to generate returns, whether it was in the markets or land development. Over and over he testified that his clients, who he at one point called "so-called investors," had little understanding of what he was actually doing because they had not asked the proper questions.
One exchange that highlighted this theme came when Assistant U.S. Attorney David Bybee asked about a $7.5 million deed of trust Johnson drew up that would have given 80 or more people some claim to proceeds from the sale of more than 200 acres Johnson controlled around the Pearisburg Wal-Mart. The claims were worthless because the land itself was not worth $7.5 million -- Johnson said the highest appraisal he had was for $2.1 million, but he was sure it would be worth much more if he could subdivide it properly.
Beyond the relative values of claims and land, the deed of trust never became official because it was never recorded at the courthouse. It sat in Johnson's safe until investigators seized it with his other records.
Bybee asked Johnson if he thought he should have recorded the deed. Johnson said no, it was the responsibility of the people lending him money to secure their claim. Besides, he added, it would have cost thousands of dollars to record such a large deed of trust.
Bybee asked if Johnson had told anyone about the need to record the deed, the cost of doing so, or even that all the investors were being lumped into one deed of trust that far exceeded the land's appraised value.
No, Johnson said firmly.
"It is the lenders' responsibility to bring it in," he said.
Johnson, who was the county's circuit court clerk and commissioner of the revenue before turning to finance, faces dozens of charges linked to securities fraud. Prosecutors say the two companies that he and his partner ran, Mountain Investments and Dogwood Farms, were Ponzi schemes in which Johnson promised high returns from market investments, but actually used money from new investors to make payments to earlier investors. The operation collapsed as Johnson filed bankruptcy in 2004, listing debts to investors of more than $8 million.
Prosecutors took two weeks to present their case against Johnson, with a parade of witnesses testifying that they lost their savings, and page after page of records showing how the money was spent on Johnson and his partners' personal expenses or was used to pay off other investors.
Johnson's defense came Tuesday and took just one day. It was mostly his own testimony. In well over three hours on the witness stand, he insisted that he had not meant to defraud anyone and that he wanted to pay everyone back. While the government accuses him of operating as an unlicensed commodities trader, Johnson said his business was really to take personal loans from people and try to find ways to use the money to generate returns, whether it was in the markets or land development. Over and over he testified that his clients, who he at one point called "so-called investors," had little understanding of what he was actually doing because they had not asked the proper questions.
One exchange that highlighted this theme came when Assistant U.S. Attorney David Bybee asked about a $7.5 million deed of trust Johnson drew up that would have given 80 or more people some claim to proceeds from the sale of more than 200 acres Johnson controlled around the Pearisburg Wal-Mart. The claims were worthless because the land itself was not worth $7.5 million -- Johnson said the highest appraisal he had was for $2.1 million, but he was sure it would be worth much more if he could subdivide it properly.
Beyond the relative values of claims and land, the deed of trust never became official because it was never recorded at the courthouse. It sat in Johnson's safe until investigators seized it with his other records.
Bybee asked Johnson if he thought he should have recorded the deed. Johnson said no, it was the responsibility of the people lending him money to secure their claim. Besides, he added, it would have cost thousands of dollars to record such a large deed of trust.
Bybee asked if Johnson had told anyone about the need to record the deed, the cost of doing so, or even that all the investors were being lumped into one deed of trust that far exceeded the land's appraised value.
No, Johnson said firmly.
"It is the lenders' responsibility to bring it in," he said.
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