Between 2003 and 2006, Jon Weldon James, 33, defrauded 50 investors, taking more than $33 million via phony investments. Instead of investing in real estate as he promised, James used the funds to pay for his wedding at the St. Regis Monarch Beach luxury resort in Dana Point, to open a music recording studio and to found a production company called On the Ball Entertainment.
How was he able to defraud so many?
In this case, investors simply were not on the ball. As reports indicate, James bought few properties and earned no returns on investments. He followed the classic Ponzi pattern by using new investors' funds to show profits to later investors. He also faked account statements. Victims invested from savings and IRA accounts, often after attending one of James' convincing presentations at local restaurants, confirms the U.S. Department of Justice. Among his seven company names were J.W. James and Associates Inc., The Virtual Cash Flow Corp. and The Cloaking Device Inc.
James pleaded guilty to a federal wire fraud charge in February, relating to a deal he made with a couple, promising them an annual return of 20 percent on a real estate property investment of approximately $500,000. On July 12, he was sentenced to 78 months in federal prison and ordered to pay $11,172,412 in restitution to victims.
More Real Estate Stories The Most Affordable Cities to buy a House on Forbes.com America's Best Cities for Young Professionals on Forbes.com America's Cleanest Cities on Forbes.com James is just one of many real estate scammers now behind bars because of federal law enforcement efforts. Ponzi schemes and real estate scams are still hoodwinking investors. An Ohio man reportedly defrauded investors to the tune of $9 million; his victims are seeking restitution from his widow. Bernie Madoff is the most notorious architect of collapsing Ponzi pyramids: His scheme resulted in $65 billion in losses. There are many reasons why these cases are more common, including the collapse of the housing bubble, which exposed numerous fraudulent activities, including diverting TARP funds and misstating information on loan documents.
Mortgage and real estate investment frauds are not new schemes. White collar criminals are expert at devising elaborate scams to defraud investors. Other California cases prove the lengths to which these kinds of people will go; however, there are ways to protect yourself.
Note to investors: these cases confirm that you should independently check out any real estate professional before you do business with them, even if they have been recommended by a trusted business associate or friend, and especially if they offer a real estate investment strategy that promises 20 percent returns.
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