California Attorney General Edmund G. Brown Jr. announced the arrest of two individuals accused of stealing millions of dollars through "phony stock sales" and an illegal pyramid scheme.
"These two con men stole $8.8 million dollars through phony stock sales and an illegal pyramid scheme," Brown said. "They stole investors' money and used it to pay for luxury homes, fancy cars and a $100,000 Las Vegas wedding."
The defendants -- James A. Sweeney, II, 62, of Afton, TN and Patrick M. Ryan, 34, of Canyon Lake, CA -- were arrested in Afton, TN and Las Vegas, NV, respectively, and are being held until they are extradited to Riverside County. Both face 78 counts of grand theft and securities fraud. Bail has been set at $8.8 million each.
Brown's complaint contends that Sweeney and Ryan, co-founders of Riverside-based Big Co-op, Inc., stole $8.8 million from more than 1,000 Californians through an illegal pyramid scheme and phony stock sales.
Big Co-op, also operating as Ez2Win.biz, purported to be an online shopping hub where consumers could go to purchase thousands of goods and services from big name retailers including, Sears, Target and Macy's, at discounted prices.
Consumers were informed that if they purchased a Big Co-op membership, they could save money on their own purchases and also earn commissions and rewards by convincing others to shop on the site.
In reality, consumers never received rebates or rewards. Instead, profits were based on recruiting others to purchase memberships, and having those purchasers recruit others to purchase memberships (and so on).
Members earned $100 commissions for every six members recruited. Those recruited then paid Big Co-op from $19.95 to $99.95 in ongoing monthly membership fees.
According to the complaint, from 2005 to 2007, Big Co-op generated $1.3 million in revenues through this pyramid scheme.
Phony stock sale
In addition to the pyramid scheme, the two sold phony stock in Big Co-op as a stand-alone investment and as part of certain membership plans, Brown charged.
At seminars and meetings across California, Sweeney and Ryan pitched Big Co-op as the future of online commerce, compared it to Google and EBay, and falsely informed investors the company was already turning huge profits. Investors were also told that an initial public offering (IPO) was imminent, and that when the company went public, the shares could climb to well over $100 per share.
In reality, Big Co-op was never profitable, there was not an impending IPO, and the only significant revenue generated was a result of the sale of phony stock and membership fees for the pyramid scheme.
Shares in the company were sold for $0.50 to $5.00, with two-for-one deals offered to investors willing to pay cash. From 2005 to 2007, Big Co-op took in $7.5 million from this scheme.
With investor cash, Sweeney and Ryan bought luxury homes, country club memberships, five Mercedes, paid for a $100,000 Las Vegas wedding and ran up $30,000 to $50,000 in monthly credit card bills.
After receiving numerous complaints, the California Department of Corporations issued two "Desist and Refrain Orders" against Sweeney, Ryan and other associates: the first, on October 23, 2006, directed them to cease selling stock in the company and the second, on May 2, 2007, directed them to cease selling memberships in the company. Following the second order, the case was referred to Brown's office for prosecution.