A 59-year-old Moreno Valley man who ran a Ponzi scheme that netted over $20 million from unsuspecting investors could face up to 20 years in federal prison when he's sentenced, authorities said Tuesday.
Paul Horton Smith Sr. pleaded guilty Monday to wire fraud under an agreement with the U.S. Attorney's Office.
U.S. District Court Judge Jesus Bernal accepted the plea and scheduled Smith's sentencing for April 1 at the federal courthouse in downtown Riverside.
Smith remains free on bond.
All of Smith's companies, operating under the Northstar Communications umbrella, were shut down by the U.S. Securities and Exchange Commission in 2020.
According to federal prosecutors, Smith operated a Ponzi scheme from July 2000 to May 2020, when he was arrested.
Smith defrauded at least 200 investors, procuring roughly $24 million in ill-gotten gains, the U.S. Attorney's Office said.
Instead of investing funds lodged in Northstar and subsidiary accounts, he shelled out money received from new investors to satisfy rates of return guaranteed to earlier ones, never turning an honest profit, according to the government.
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"Smith communicated with the victim investors regarding Northstar in person, over the telephone and via email and text messages," according to a U.S. Attorney's Office statement. "He falsely told investors that Northstar was an annuity or an investment-like annuity.
"He falsely told other investors that Northstar invested in real estate or followed the stock market. He typically told the investors that their investment would generate a fixed rate of return and was a `safe investment."'
Smith maintained funds in a non-interest-bearing checking account.
The defendant told investors during a February 2020 workshop, "Your pockets aren't going to get picked, OK?" according to the SEC.
"Smith ... advertised himself on his website as a chartered senior financial planner and ... also conducted free seminars via Planning Services Inc. at various locations around the Riverside area, where he discussed estate planning, trust creation to protect assets and other financial matters," the U.S. Attorney's Office said.
Court papers offered examples of what happened to the victims, including a 70-year-old woman who went to church with Smith and turned over $175,000 for him to invest.
"Instead of investing the victim's money, Smith transferred her funds to other investors, and he used her money to pay off the other investors' tax bills with the IRS and the California Franchise Tax Board," the U.S. Attorney's Office said.
In another example, the defendant persuaded a client to invest $400,000 in proceeds from a life insurance payout arising from the death of a spouse.
"Smith promised the victim he would invest the $400,000 in an investment with a 5% rate of return," the government said. "Instead, he transferred the funds to pay other victims of his Ponzi scheme. In an attempt to conceal his criminal activity, Smith made 11 payments to the victim that totaled $163,324."
Some of the victims were ultimately able to recover their losses stemming from the fraud under court order. However, 106 victims haven't recovered all of their money and remain owed a total $13 million, prosecutors said.
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