Officials at the U.S. Securities and Exchange Commission (SEC) think their case against Chris Hashimoto is so strong, they're asking a federal judge to rule against the alleged scammer before the case even goes to trial.
In a June 6 request to a federal judge, the SEC described a so-called "investment opportunity" that spanned 25 states and defrauded $18.1 million from more than 1,000 people - including an estimated $1.7 million from Camp San Luis soldiers and their friends and relatives.
The SEC was very clear about what they thought had happened: "The inescapable conclusion is that Hashimoto was running a Ponzi scheme," court documents read.
Nels Mitchell, associate regional director at the SEC, was equally straightforward: "The evidence is so clear, we think we're entitled to judgment," he said.
If Stephen V. Wilson, the presiding federal judge in the case, enters a judgment against Hashimoto, Hashimoto would be required to pay a massive amount of money. First there's the $18.1 million he allegedly conned. Then there's a bill for about $95,000 to pay for the cost of the investigation. The SEC wants him to pay $120,000 in civil fines. And there's also the quarter-million dollars in interest he'd have to pay on the money people gave him.
In all, it adds up to $18,641,799.69
And that's not all: Once civil proceedings are finished, Hashimoto could face criminal charges. Thom Mrozek, spokesman for the U.S. Attorney's office, was unable to confirm or deny that federal prosecutors were investigating this case.
However, in a related story, the U.S. Attorney's office recently prosecuted an L.A.-area man named John Jeffers, who stole $26 million over the course of a four-year-long Ponzi scheme. On June 6, Jeffers was convicted and sentenced to 14 years in federal prison.
In the Hashimoto case, Judge Wilson is expected to respond to the SEC's request by the end of this month.
Hashimoto's lawyer, Santa Monica's Bruce Ishimatsu, was unable to comment on this story.
According to local victims and the SEC's investigation, Hashimoto's Ponzi scam started sometime around September 2003. That's when Hashimoto visited Camp San Luis at the request of his friend Robby Robison. He and Robison served in the Army together in the 1980s, and by 2003 Robison was second in command at Camp San Luis' Angel Gate Academy (AGA) - a military school for problem students from the L.A. area.
When Hashimoto first came to Camp San Luis to talk about his investment company, Financial Solutions, the head of AGA, Lt. Col. Jonathan Kinsman, said he was immediately suspicious and asked Hashimoto not to come back. The current head of AGA, Col. Fred Gage, denies that ever happened.
Regardless of which man is right, one thing is certain: After Gage took over AGA in July 2003, Hashimoto returned to the base many times. In October and December of 2003, Gage admits he okayed two meetings Hashimoto held on base in AGA offices. Although he himself had invested money in Financial Solutions at that point, Gage denies that he went to the classes and claims he would have put a stop to them had he known what was happening.
Had he gone, he would have discovered that Hashimoto was promising soldiers he was using their money to finance a $13 million Air Force contract held by a company called Gentech Fabrication.
"Each project costs them about $500,000 to produce," Hashimoto wrote in a letter to other potential investors. "However, the government pays them $2 million after completion."
Hashimoto was also flaunting sales projections that showed the 11 companies Hashimoto said he owned or was investing in grossing more than $13 billion by 2008. Best of all, there were the promissory notes each soldier signed that guaranteed a 20 percent return on their money the first month, and a 10 percent return each following month.
'The inescapable conclusion is that Hashimoto was running a Ponzi scheme.'
Court documents filed by the U.S. Securities Exchange Commission
Money flowed to Hashimoto - $90,000 from a single Los Osos family alone - and in about a year, he'd hired 157 sales agents and raised $21 million from more than 1,000 people across 25 states.
On Oct. 29, one of those agents, according to the SEC, held a sales presentation in Chicago and told "prospective investors that Financial Solutions financed ... a government contract to build 'invisible walls' for the Federal Bureau of Investigations."
On the 22nd, Hashimoto himself hosted a lavish buffet dinner and sales presentation - with a lobster and prime rib dinner and open bar - at the Ritz-Carlton in Marina Del Rey, Calif. Hashimoto told attendees that their investments would be secured by a $100 million government bond and even offered what he called proof. The catch was, attendees were allowed to look at that proof all they wanted, but they were only allowed to leave with copies of the proof if they invested a minimum of $2,500 that night.
Two weeks later, his house of cards began to tumble.
On Nov. 3, a federal judge froze Hashimoto's businesses, assets, and bank accounts. The next day, court-appointed investigators raided Financial Solution's Riverside-area office and soon discovered Hashimoto had another office in L.A.
They arrived there minutes too late. There were clients waiting in the lobby and hot food uneaten on desks, but no employees. Investigators did find a handgun and ammunition in a drawer. They also discovered that every e-mail, calendar entry, contact list, and document had been deleted from the office's computers.
Over the next months, investigators would discover that there were no military contracts, no $100 million bond. Those rosy sales projects "had no basis in reality," the SEC put it. And while Hashimoto did invest some money into the companies that he said he was, it was at far, far lower amounts than would have provided returns that he was promising local soldiers.
In fact, two of those businesses no longer existed.
"If," court records read, "they ever did, [investigators were] were unable to find any evidence of them other than their public corporate records."
The SEC described it like this: Financial Solutions had no source of income, but they still paid out $4.9 million in "interest" to investors. That means Hashimoto was simply paying investors with the principal from other purchasers. That's what's called a Ponzi scam.
Only a few of Hashimoto's investors broke even or made money. One group that did make money were regional vice presidents. Hashimoto's friend from Camp San Luis, Robbie Robison, was one of the topmost. And he made $243,655.
When the SEC subpoenaed Robison back in 2005, he, like Hashimoto, refused to testify, citing his Fifth Amendment rights.
Since last November, Hashimoto has gotten caught allegedly breaking the law several times. There was the time the SEC says he secretly opened an account at a brokerage firm and deposited 2 million shares of stock that had been issued to Financial Solutions.
Then there was the time he held a meeting with extremely nervous investors at the Madonna Inn and told them that he would be able to repay them from monies the courts didn't know about and hadn't frozen.
Someone secretly recorded the meeting and gave the tape to the SEC. After the SEC slammed him in court, Hashimoto recanted: "Quite frankly, I was merely bragging about my abilities to make good on the investments," he told the court.
It's behavior like that that caused the government to seek such stiff fines against Hashimoto, said Nels Mitchell at the SEC.
The SEC has asked Judge Wilson to fine Hashimoto what's called a "third-tier civil penalty." Those are fines that are reserved for the most egregious and serious allegations, Mitchell said.
Which is also how the SEC put it in their request to Judge Wilson for a ruling: "From his misrepresentation about government contracts to recent lies to investors about his ability to redeem their losses, Hashimoto's fraud was particularly blatant and recurrent." Â³
Staff Writer Abraham Hyatt can be reached at email@example.com.