SIGTARP, along with United States Attorney for the Central District of California André Birotte Jr. issued a release stating that former fund manager John Farahi pleaded guilty on Thursday to four felony counts-mail fraud, loan fraud, selling unregistered securities, and conspiracy to obstruct justice. Farahi admitted to cheating investors out of millions of dollars by falsely promising to purchase corporate bonds backed by TARP. He also worked with his corporate counsel to cover up the fraud.
Farahi formerly ran New Point Financial Services, Inc., based in Beverly Hills. In a plea agreement filed in United States District Court, Farahi admitted that the scheme caused losses of more than $7 million to investors. Prosecutors, however, reserved the right to argue that losses actually exceeded $20 million.
“Facing significant investment losses in late 2008, Farahi exploited TARP as a way to double-down on his long-running Ponzi scheme,” said Christy Romero, Special Inspector General of SIGTARP. “In order to attract fresh capital and to pay off existing investors, Farahi touted the safety of his purported low-risk investments in various companies backed by TARP. When investor cash ran short, Farahi also defrauded three different banks, two of which were TARP recipients, in order to keep his scheme going.”
Farahi admitted in the plea agreement that the scheme in which he was engaged started as early as November 2005, when he used investor funds to pay off prior investors and subsidize options futures trading. He also admitted to extending the scheme in 2008 by drawing down on personal credit lines based upon false statements to federally insured banks.
He further admitted to violating federal securities laws by selling unregistered securities and failing to comply with the SEC’s rules and regulations for doing so. Finally, he admitted to conspiring with his attorney to obstruct an SEC investigation by altering documents and providing misleading testimony under oath on three separate occasions.
The statutory maximum penalty for the charges to which Farahi pleaded guilty is 75 years in federal prison. However, the government agreed under the terms of Farahi’s plea agreement to recommend a sentence of no more than 10 years in prison. The final sentencing decision will be made by United States District Judge Phillip Gutierrez in January 2013.
The case against Farahi is the result of an investigation by SIGTARP and the FBI, with assistance from the SEC. The prosecution was brought in coordination with President Obama’s Financial Fraud Enforcement Task Force, established to wage an aggressive and coordinated effort to investigate and prosecute financial crimes.
Attorney André Birotte Jr. affirmed his office’s commitment to bringing justice to financial criminals.
“The United States Attorney’s Office will continue to work with all its law enforcement partners, including the FBI, the SEC, and SIGTARP, to aggressively pursue investment fraud schemes and to protect investors at both the public and private level,” said Birotte.
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