Twomen who stole millions of dollars through phony stock sales and an illegal pyramid scheme were convicted today on charges of grand theft and securities fraudin a Riverside, Calif., court.
James A. Sweeney, II, 64, of Afton, Tenn., and Patrick M. Ryan, 35, of Canyon Lake, Calif., were found guilty on 65 counts of grand theft and securities fraud. The two men, who face a maximum of more than 20 years in state prison, will be sentenced June 14 in Riverside County Superior Court.
Sweeney and Ryan, co-founders of Riverside-based Big Co-op, Inc., stole approximately $8.2 million from more than 1,000 Californians through an illegal pyramid scheme and phony stock sales,according to court testimony.
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 at discounted prices from big-name retailers including, Sears, Target and Macy's.
Consumers weretoldthey could save money on their own purchases, plus earn commissions and rewards, by convincing others to shop at the site. In reality, consumers never received rebates or rewards. Instead, their monetary gains were based on recruiting others to purchase memberships, and having those purchasers recruit others to purchase memberships,a classic pyramid scheme.
Individuals who were recruited paid Big Co-op between $19.95 and $99.95 in monthly membership fees for the rewards program.
From 2005 to 2006, Big Co-op generated $1.2 million in revenues through this pyramid scheme.
In addition to the pyramid scheme, the two men sold phony stock in Big Co-op as a stand-alone investment,prosecutors said.
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 turning huge profits.
Investors were also told that an initial public offering (IPO) was imminent, and that when the company went public, the stock would double or triple and their investment 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 as a result of the sale of phony stock and the payment of 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 2006, Big Co-op took in more than $7 million from this scheme.
With investor cash, Sweeney and Ryan bought luxury homes, country club memberships, five Mercedes, and ran up $30,000 to $50,000 in monthly credit card bills. Investor funds were also used to pay for an elaborate bachelor party in Las Vegas, a $23,000 wedding ring and a $100,000 wedding.
In October 2006, after receiving numerous complaints, the California Department of Corporations issued two desist and refrain orders against Sweeney, Ryan and other associates directing them to cease selling stock in the company. In May 2007, a second order directed them to cease selling memberships in the company. Following the second order, the case was referred to the Attorney General's office for prosecution.