LAWFUEL.COM – Legal Newswire Service –
LEV L. DASSIN, Acting United States Attorney for the
Southern District of New York, and JOSEPH M. DEMAREST, JR.,
Assistant Director-in-Charge of the New York Office of the
Federal Bureau of Investigation (“FBI”), announced today the
arrest and indictment of DAVID COPELAND REED on charges stemming
from the operation of an international, Internet-based, “gold
unit” Ponzi scheme. According to the Indictment unsealed today in
Manhattan federal court:
In March 2001 REED founded OSGold, which held itself
out as an on-line “bank” that could provide its customers with
Internet banking services purportedly backed in part by gold
bullion reserves stored in an off-shore vault. Customers opened
accounts with OSGold by wire-transferring money through
intermediaries to bank accounts controlled by REED and others,
and were able to track their supposed OSGold account balances
through the OSGold website. Around May 2001 REED began offering
OSGold customers the opportunity to invest in a “high yield
investment program” known as “OSOpps” which, according to the
OSOpps website, promised a 30% compounded return over three
months, or a 45% rate of return for investments left for 12
months, and that an investor’s principal was fully guaranteed.
Investment returns from OSOpps were supposedly transferred into
the investor’s OSGold account and OSOpps investors could
purportedly access their OSGold accounts on-line and view the
apparent returns they received from their OSOpps investments.
REED represented that the OSOpps investments could achieve the
advertised high returns because the investors’ money was traded
in foreign exchange markets.
Between March 2001, when REED started OSGold, and June
2002, when OSGold ceased operations, customers throughout the
world opened an estimated 66,000 accounts with OSGold/OSOpps,
transferring a total of at least approximately $12.8 million to
three bank accounts controlled by REED and his associates. For
the first few months of its operation, OSGold appeared to operate
reliably and developed a reputation as a secure way to engage in
Internet banking while OSOpps provided investors with online
statements purporting to show promised rates of return on
investments.
In fact, neither REED nor anyone else at OSOpps engaged
in any foreign exchange trading with the funds customers had
invested. Instead, REED and his co-conspirators laundered the
customers’ funds through numerous bank accounts controlled by
REED and/or his associates in the United States, Mexico, and
Latvia, and elsewhere; and withdrew customers’ funds via cash
withdrawals and/or checks made out to cash. The funds were then
employed for personal expenses of REED and his associates,
including, for example, airplane tickets for REED and his family
to travel to Mexico; vehicles for the use of REED and his
associates; and businesses belonging to REED and his associates
in the Cancun, Mexico, area, including a night club, a shopping
mall, and a gymnasium. To deceive his customers, REED, or
employees working at his direction, manually altered OSOpps
account statements in order to make it appear to customers that
they were receiving the advertised investment returns.
The scheme began to unravel in around March 2002 when
an OSOpps investor unsuccessfully attempted to withdraw
approximately $10 million from OSOpps accounts.
Following complaints by this investor, other customers attempted to
withdraw their money from OSGold and OSOpps. In response to
inquiries, REED and employees working at his direction sent
lulling e-mails that falsely indicated, among other things, that
there were technical problems with regard to accessing
OSGold/OSOpps monies and that the problems were being addressed.
OSGold and OSOpps ultimately ceased operations in or about June
2002 and REED fled the United States for Mexico. Prior to their
departure, REED and his wife withdrew large amounts of cash from
the various accounts he controlled which he then secreted (among
other ways) in duffel bags and clothing in order to transport
that cash to Mexico. Millions of dollars of the investors’ and
depositors’ money, including principal, have never been returned.
No gold bullion reserves associated with OSGold have been
located.
REED, 38, was arrested this morning in Columbia, South
Carolina, where he moved recently after having lived in Mexico
for years. REED is charged with conspiracy to commit money
laundering and wire fraud. If convicted, the defendant faces a
maximum sentence of 40 years’ imprisonment. This case has been
assigned to United States District Judge JOHN G. KOELTL. REED
will be presented later today in Columbia, South Carolina.
Mr. DASSIN praised the investigative work of the FBI in
this case. Mr. DASSIN said the investigation is continuing.
This investigation is being handled by the Computer
Hacking & Intellectual Property group of the Major Crimes Unit of
the United States Attorney’s Office. Assistant United States
Attorneys ROSEMARY NIDIRY and MARCUS A. ASNER are in charge of
the prosecution.
If you believe you were a victim of this crime,
including a victim entitled to restitution, and you wish to
provide information to law enforcement and/or receive notice of
future developments in the case or additional information, please
contact Wendy Olsen-Clancy, the Victim Witness Coordinator at the
United States Attorney’s Office for the Southern District of New
York, at (866) 874-8900 or Wendy.Olsen@usdoj.gov. For additional
information, go to: http://www.usdoj.gov/usao/nys/victimwitness.html
on the Internet.
The charges contained in the Indictment are merely
accusations and the defendant is presumed innocent unless and
until proven guilty.
09-038 ###
