Terrence Ezekiel Paulin, 47, Ashland, Kentucky, pled guilty to investment fraud during a federal court session in Great Falls, Montana, on June 7, 2012, before U.S. District Judge Sam E. Haddon. Sentencing has been set for September 14, 2012. He is currently detained.
In an Offer of Proof, the government stated it would have proved at trial the following:
During late 2007 or early 2008, Shawn Swor was a mortgage broker in Missoula, . Swor’s business consisted, largely, of making hard money loans to clients who could not get loans through conventional banking means. Hard money lenders are lending companies offering a specialized type of real-estate backed loan. Hard money lenders provide short-term loans (also called “bridge” loans) that provide funding based on the value of real estate that has been collateralized for the loan. Hard money lenders typically have much higher interest rates than banks because they fund deals that do not conform to bank standards.
At the time, in late 2007 and early 2008, Swor was looking into funding sources from a number of people, mostly over the Internet, who would contact him promoting investment ideas involving securities. Swor promoted himself as someone who could find sources of funds and link them together with people wanting to borrow money. He admitted during interviews with law enforcement that he had difficulty verifying the credibility of those holding themselves out to be viable funding sources.
One of the funding sources Swor met over the internet in late 2007 was Paulin, who was also a hard money lender and broker. Swor started working with Paulin identifying the validity of different funding sources offered over the internet. Paulin and Swor found several investment opportunities in securities programs they believed could be used to raise funds for the loans they were working on at the time. Swor and Paulin worked on this project for at least a month before it was determined most of the sources were not legitimate. Over the next couple of months, Paulin and Swor stayed in contact with each other as other opportunities arose.
When Dan Oaheyoh Two Feathers met Swor, Two Feathers claimed he knew several different ways to generate cash flow through the purchase and sale of securities in Europe; providing large rates of return for investors as well as the brokers and traders which could be used to funds the hard money loans both Swor and Paulin were working on. In February of 2008, Two Feathers, Swor, and Paulin decided to start a business to offer investments in high yield investment opportunities using several different leveraged investment and securities programs. On February 26, 2008, Two Feathers, Swor, and Paulin formerly established and registered DTF Consulting Group as a Missoula, Montana, company.
Two Feathers proposed using a large security, such as a Letter of Credit or a Note, which could be leased from a hedge fund, pension fund or bank. Once the security was in hand, the concept was to borrow against the large security and those funds would be used to invest in a risk free investment such as government securities. Two Feathers explained that he had connections in the world of international finance and international banking experience and could purchase securities at a discount and sell them in Europe at a premium. This would allow for additional profit margin on each transaction completed.
The DTF principals would solicit investors whose money would be used to secure the large security through a lease. Prospective investors would, in a short period of time, receive a substantial profit from buying the government securities at a discount and selling them at a premium.
In one particular instance, on or about February 20, 2008, Paulin, using the alias name of Terrence Sovereign, solicited a $10,000 investment in the DTF program from a woman in Florida, representing that the investment would produce a return of 100% within a few weeks. He told this investor that he was working with two partners, Dan Latham (the former surname of Two Feathers) and Swor. Paulin collected the investment proceeds in cash and provided the investor with personal checks as a means of assuring the investor of the safety of the investment in the leveraging scheme. Attempts to deposit the checks and recover the investment failed as Paulin had no funds in the account. There was no record of this money being deposited into the DTF account at Farmers State Bank in Victor, Montana, where the money from the scheme was often deposited.
Paulin manufactured a fraudulent Letter of Credit from Wachovia Bank in the amount of $1.5 billion to show potential investors that DTF had the necessary negotiable instrument available to make the investment trading program work. Paulin acknowledged to investigators that the document he created was fraudulent and that he knew it was fraudulent. Paulin claimed the fraudulent document was created at Two Feathers’ direction and request. Two Feathers advised investigators that it was Paulin’s idea and that he did not request or direct its creation, although he admitted knowing about the Letter of Credit. Paulin’s understanding was that the Letter of Credit was to be used to entice potential investors into DTF’s trading program. However, according to Paulin, Two Feathers started using the letter in other ways, including representation of the document as genuine to a real estate agent for the attempted purchase of property.
Paulin and Swor had a falling out with Two Feathers after the real estate agent discovered that the Wachovia Bank Letter of Credit was bogus and turned it over to local law enforcement and both stopped promoting the DTF scheme in June of 2008.
The DTF promotion attracted eight victims. A secondary scheme was tailored more as an advanced fee scheme where the investor would pay money up front for a hard money loan. Three more victims paid the advanced fee on the promise that DTF could and would secure loan funds. The total loss for all 11 victims between February and June of 2008 was approximately $800,000. The money, in whole or in part, was wired to the DTF account at Farmers State Bank in Victor, Montana, which was controlled by Two Feathers.
Of that amount “” not including the $10,000 in cash received from the Florida victim “” Paulin received $278,175 from Two Feathers.
Swor and Two Feathers pled guilty to federal charges and are awaiting sentencing.
Paulin faces possible penalties of 20 years in prison, a $250,000 fine and 3 years supervised release.
The United States Attorney’s Office announced the guilty plea.
The investigation was a cooperative effort between the Federal Bureau of Investigation and the Criminal Investigation Division of the Internal Revenue Service.