Former Novato exec pleads guilty in $26M Ponzi scheme
A businessman facing allegations of embezzling $26.7 million in a Ponzi scheme from the late Kenneth Casey’s Novato real estate investment company pleaded guilty Wednesday afternoon in San Francisco, the U.S. Attorney’s office reported.
Former Professional Financial Investors CEO Lewis Wallach, 64, changed his innocent plea under a deal that requires he pay back the $26.7 million he took from the firm.
Prosecutors accused the Los Angeles man of defrauding 1,300 investors and then used $330 million to help pay for his personal, lavish lifestyle that included the purchase of Judy Garland’s landmark Malibu beach house for $3.54 million in 2018.
The criminal complaint was filed Sept. 29 alleging conspiracy and wire fraud charges against the Marin County executive, who prosecutors contend Wallach worked with Casey, the company founder, to fool investors. Casey died in May of a heart attack.
A look into Casey’s affairs after his death launched a dual probe by the U.S. Securities Exchange Commission and by attorneys tasked with settling his estate. An audit of PFI and its Ignacio Boulevard subsidiary, Professional Investors Security Fund, found the misappropriations that also led to both companies entering into bankruptcy on July 27.
According to Wallach’s plea agreement, the PFI chief admitted that investors were told their “regular interest and distribution payments would be paid from income on the residential and commercial properties owned and managed by PFI,” the U.S. Department of Justice reported.
Further, he was aware PFI was “not profitable and that income from the properties was not sufficient to pay both interest and distributions,” thus creating a Ponzi scheme, the feds outlined. He consequently lied to investors about the company having “significant reserves to allow it to survive and expand during the economic downturn caused by the COVID-19 pandemic,” according to the DOJ. Its Corporate Fraud Strike Force team worked with the SEC on the scheme, which spanned from 2015 to 2020.
Wallach also concluded in his plea that he used the new funds for personal gain, citing the purchase of real estate as one type of large investment he used the money for to benefit himself. Home improvements and jewelry were also listed.
Wallach faces penalties amounting to a maximum 20 years in prison on each of his two counts of wire fraud and conspiracy, in addition to a $250,000 fine with restitution. He has also agreed to surrender assets derived from the charges.
The defendant is freed on a $500,000 bond. A status hearing is scheduled for March 24.
Wallach’s San Francisco law firm, Swanson and McNamara and creditors who were bilked out of their investments have repeatedly declined to comment.
