10 February – LAWFUEL – The Law News Network – R. Alexander Acosta, United States Attorney for the Southern District of Florida, and Jonathan I. Solomon, Special Agent in Charge, Federal Bureau of Investigation, today announced the unsealing of a February 2, 2006 Indictment charging defendants, Erik Baxter Walsh, a/k/a “Erik Hutton Masters,” and John Patrick Abresch, for their roles in a “boiler room” operation in South Florida that fraudulently induced investors throughout the United States and Europe to invest more than $3,000,000 based on materially false statements and the concealment of material facts. The defendants used the money they received from investors for their personal benefit, such as leasing luxury automobiles and the purchase of a $1,000,000 home, and to perpetuate their scheme.
All defendants are charged in the Indictment with conspiracy to commit wire fraud, mail fraud, and securities fraud (18 U.S.C. § 371), wire fraud (18 U.S.C. § 1343), mail fraud (18 U.S.C. § 1341), securities fraud (15 U.S.C. §§ 78j(b) and 78ff(a), 17 C.F.R. § 240.10b-5), conspiracy to launder money (18 U.S.C. § 1956(h)); and money laundering (18 U.S.C. §§ 1956(a)(1)(A)(i) and 1957). Defendant Walsh was separately charged in one count for making false statements to the U.S. Securities and Exchange Commission (“SEC”)(18 U.S.C §§ 1001(a)(2) and (a)(3)).
According to the Indictment, in February 2000, Walsh gained control of a company called Discovery Capital Group, Inc., which was a small registered broker-dealer operating since 1991. Walsh became the Chairman and Chief Executive Officer (“CEO”) of Discovery Capital, and he later hired Abresch in May 2001 as the Vice-President and Director of Institutional Sales. Walsh and Abresch hired numerous sales agents to work at Discovery Capital, and those sales agents, along with Walsh and Abresch, fraudulently solicited investors throughout the United States and Europe to invest in Discovery Capital through the purchase from Discovery Capital of notes called “Subordinated Bond Agreements” and through the purchase of stock in Discovery Capital as part of a Private Placement Offering.
To assist sales agents in convincing investors to purchase stock in Discovery Capital, Walsh prepared various sales scripts, which Abresch instructed sales agents to use to sell or “pitch” investors. The scripts instructed sales agents to make various materially false statements, including that E.F. Hutton & Company — “a 50 year old financial name in the brokerage business” — was a “significant shareholder” in Discovery Capital and that Discovery Capital had been involved with “some of the most profitable IPO’s, private placements, and bridge loans on the Street.”
According to the Indictment, when investor money was received, the money was most often deposited into “off-the-books” bank accounts, over which Walsh had signature authority. The money was later funneled into “on-the-books” bank accounts, thereby concealing the fact that the money coming into Discovery Capital’s official bank accounts originally came from investors. Walsh and Abresch did not issue stock certificates to investors, who believed they had purchased stock in Discovery Capital as part of the Private Placement Offering, and further did not reflect on Discovery Capital’s financial records the debt purportedly incurred in the form of notes issued by Discovery Capital. To lull existing investors into believing that their investments in Discovery Capital were legitimate, Walsh and Abresch would provide investors with purported interest and dividend payments, which in truth were funds recently received from new investors.
If convicted, Walsh and Abresch face a maximum sentence of: 5 years’ imprisonment for conspiring to commit wire fraud, mail fraud, and securities fraud; 5 years’ imprisonment for each count of wire fraud and mail fraud; 10 years’ imprisonment for each count of securities fraud; 20 years’ imprisonment for conspiring to launder money; 20 years’ imprisonment for each count of money laundering under Section 1956; and 10 years imprisonment for each count of money laundering under Section 1957. Walsh also faces an additional maximum term of imprisonment of 5 years for making false statements to the SEC
In a separate Indictment, returned by a federal Grand Jury on January 26, 2006, Walsh and his wife, Delaney Taylor Walsh, a/k/a “Delaney Taylor Masters,” were charged with conspiracy to commit wire fraud (18 U.S.C. § 371) and substantive charges for wire fraud (18 U.S.C. § 1343). These charges arise out of fraud committed by the Walshes in connection with securing mortgages from lenders to purchase two homes in South Florida, as well as fraud in connection with obtaining home equity lines of credit secured by those same homes. The Walshes submitted false information regarding their employment history, their financial assets, and their current salaries, and they submitted false, fictitious, and altered bank statements, cashiers checks, W-2 wage and earnings statements, and brokerage account statements. In total, the Walshes obtained loans with a combined value of more than $3.5 million. If convicted, the Walshes each face maximum terms of imprisonment of 5 years for conspiring to commit wire fraud; 5 years for the first two counts of wire fraud; and 20 years for the last two counts of wire fraud.
Mr. Acosta commended the investigative efforts of the Federal Bureau of Investigation and the cooperative efforts of the SEC’s Southeast Regional Office. This case is being prosecuted by Assistant United States Attorneys Charles Duross and Harry Schimkat.
A copy of this press release may be found on the website of the United States Attorney’s Office for the Southern District of Florida at www.usdoj.gov/usao/fls . Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or on