November 6, 2007
The State of Maryland has resolved a major investment fraud investigation by successfully placing a company and its principals into receivership.
Maryland Attorney General Douglas F. Gansler says as many as 1,000 investors lost more than $50 million in what was essentially a Ponzi scheme.
After hearing three days of testimony detailing the business activities of the defendants, Judge Thomas P. Smith, Circuit Court for Prince Georges County, issued an order placing POS DH, LLC, Metropolitan Grapevine, LLC, and Andrew H. Williams, Jr., into receivership and freezing their assets.
The court determined that victims invested their money in promissory notes and investment contract securities, investments that are essentially without value. The court also determined that the defendants businesses generated no significant income and that they are insolvent with liabilities of $200,000,000 to $300,000,000 and current assets of approximately $2,000,000.
The court concluded that the defendants were paying previous investors with funds received from new investors, and that the investment program was, in fact, a Ponzi scheme.
This court order now places the financial control of POS DH, LLC, Metropolitan Grapevine, LLC, and Williams, in the hands of the court-appointed receiver, said Gansler. The receiver will now take all of the assets of the Defendants traceable to this investment scam and create a pool of money to be refunded to the investors and other creditors.
The state filed suit in August 2007, claiming the defendants were violating Marylands securities laws by operating an investment program involving the promised payment of homeowners mortgages in five years following a payment to POS, while misrepresenting or failing to disclose details about risk, use of proceeds, and company personnel.
The companies used a variety of business names, including POS Dream Homes, Metro Dream Homes, POS Caf, Metro Grapevine, and other names as part of the overall scheme.
Gansler says the investigation revealed that POS Dream Home operated an unregistered promissory note investment program under the guise of a mortgage payment plan. Using personal sources and public meetings to solicit potential investors in Metropolitan Grapevine and POS, agents offered the opportunity to live mortgage free.
For an up-front payment to POS of $5,000 plus a percentage of the loan amount, a home buyer or owner was promised full payment of their mortgage in five years or less. The owner then would split the value of the home with POS.
The money to make the payments allegedly was generated from POSs investment in POS cafes, which included an ATM, credit card reader, and other revenue-generating devices.
While soliciting investors, POS and its agents failed to disclose to investors where the cafes were located, past financial results, operating expenses, the lack of any registration of the investments, and the history of management personnel.
Williams is the subject of a 2001 order by the Circuit Court for Prince Georges County, enjoining and restraining him from engaging in the securities business in Maryland. Neither company, its notes, or its promoters is registered with the Securities Division as required by Maryland law.
The attorney general says his Securities Division brought the actions not only to halt the fraudulent scheme and prevent new investor losses, but also to protect whatever assets remain for distribution to the programs existing investors.
There is great risk of loss of investors money where there is no demonstrated source of income except other investors, said Gansler. In todays already jittery climate of rapid change in home values and questionable mortgage practices, fraudulent programs like this further erode confidence in the investment and mortgage markets.
