Two top company officials and a salesman for Hanover Corp. pleaded guilty late last week for their roles in what federal officials called a "classic Ponzi scheme" that cost investors more than $18 million.
On Friday, Hanover CEO Terry Kretz and salesman Daryl Bornstein pleaded guilty to securities fraud, money laundering, and conspiracy to commit securities fraud, wire fraud and mail fraud. Wednesday, the company's CFO, Robert Haley, pleaded guilty to the same charges. Kretz and Haley also pleaded guilty to mail fraud.
Between October 2004 and August 2006 — here's a link to our past coverage — Kretz and Bornstein offered investment opportunities in Hanover via high-interest promissory notes, telling clients their money would be used for investing in stock options and startup companies. In fact, more than half the money went to repay earlier investors, to pay salaries, or to benefit the defendants personally.
Kretz gave $176,000 of the funds to Madison's Cornerstone Church, which was sued by a bankruptcy trustee in an effort to regain the money. The church settled the lawsuit, paying back $50,000.
Kretz and Bornstein issued promissory notes to investors who had previously lost money, with the funds to satisfy those notes coming from new investors. Meanwhile, Haley issued checks to investors purportedly for "interest," but that were, in fact, simply transfers from newer investors. In addition, he prepared false balance sheets "overstating Hanover's financial health."
"Ponzi schemes typically leave unsuspecting investors in financial ruin and many have lost their life’s savings," said U.S. Attorney David Rivera. "The U.S. Attorney’s Office and our law enforcement partners will continue to place a great emphasis on educating the public about investment fraud and will vigorously pursue those who prey upon unsuspecting investors."
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