A Goleta man has surrendered to federal authorities after being named with four other defendants in an indictment that accuses them of taking more than $25 million from victims who thought their money was being pooled to purchase lottery tickets that offered the chance to win huge prizes.
Scott Henry Walther, 31, made his initial court appearance Wednesday afternoon in United States District Court in Los Angeles. Walther, who was released on a $25,000 bond, was ordered to appear for an arraignment on July 2.
Walther and his co-defendants were indicted by a federal grand jury on February 28. The indictment alleges 11 counts of mail fraud and 12 counts of money laundering.
Through companies located in Costa Rica, The Netherlands and other places, the defendants allegedly mailed more than 1 million solicitations that fraudulently offered people an increased chance of winning foreign and domestic lotteries such as “The Australian Lottery,” “The International Irish Sweepstakes,” and “The NY Super 7.” The solicitations claimed that people could purchase “positions” in lotteries that would be grouped together, or pooled, to buy larger blocks of tickets in a given lottery or horse race. The solicitations falsely indicated that participants in the pool had a nearly guaranteed chance to win millions of dollars and that previous participants in the pool had already won millions of dollars. According to the indictment, the solicitations misrepresented that the companies were backed by governmental or legitimate lottery entities. As part of the scheme, the solicitations claimed that winnings were invested into trust or pension accounts that would pay monthly pension checks until the end of the victim’s life, and then would pay a survivor’s benefit as if the money were a life insurance policy.
The other defendants named in the indictment are:
Sonny Vleisides, 36, who lived in Costa Rica at the time of the scheme but was arrested in Florence, Italy on a provisional arrest warrant on April 19;
James Ray Houston, 61, who is believed to be in Costa Rica;
Dennis Emmett, 59, who is currently serving a prison term in Costa Rica; and
William Cloud, 57, who was arrested in Amsterdam on a provisional arrest warrant on April 21.
A sixth defendant in this case, Santa Monica attorney Henry Walther, who is Scott Walther’s father, pleaded guilty on March 6 to mail fraud and international money laundering. Henry Walther, 62, who resides in Pacific Palisades pleaded guilty before United States District Judge Dean D. Pregerson, who is scheduled to sentence the defendant on September 17, at which time he faces a maximum possible sentence of 40 years in federal prison.
Victims of the scheme were directed to send their money to mail drops in Ireland, The Netherlands and other locations, where participants in the scheme returned the money to the United States. From domestic bank accounts controlled by Henry Walther and others, some of the money was sent back to victims who were told that they were receiving “winnings,” even though the “winnings” were far less than the amount of money sent in by victims. The rest of the money was either spent to further the scheme or to enrich the defendants. Investigators estimate that victims lost approximately $20 million during the scheme, which ran for more than 15 years until it was shut down by federal agents in July 2006.
“This investigation brought an end to an elaborate scheme in which the perpetrators relied on the public’s trust in the U.S. Mail to victimize some of our most vulnerable citizens, our seniors,” said Acting Inspector in Charge Robert Malaby. “Whether it’s a pension fraud scheme or an illegal foreign lottery, when the U.S. Mail is used to commit fraud, Postal Inspectors are called upon to investigate and bring the perpetrators to justice. The U.S. Postal Inspection Service is committed to keeping our nation’s mail system free from criminal misuse.”
Debra D. King, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigation Division in Los Angeles, stated: “The fraud committed by these individuals against innocent investors in the operation of their foreign lottery and pension schemes is a crime that IRS-Criminal Investigation takes seriously. This indictment, and the arrests of the perpetrators of this fraud, is indicative of our resolve to bring those who prey upon innocent investors, for their own financial gain, to justice.”
The 23 counts in the indictment carry a maximum statutory penalty of 460 years in federal prison and fines of up to $8.75 million.
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until proven guilty in court.
This case is the result of an investigation by the United States Postal Inspection Service and Internal Revenue Service – Criminal Investigation Division.
CONTACT: Assistant United States Attorney Ellyn M. Lindsay
Special Agent Michael Moriarty
Spokesman, IRS-Criminal Investigation Division
Postal Inspector Renee Focht
Release No. 07-065