Massachusetts Man Accused of $10.4 Million Ponzi Scheme

A Massachusetts man was accused of operating a Ponzi scheme that defrauded victims nationwide out of over $10 million.  John W. Cranney, of Belmont, Massachusetts, was accused of multiple violations of the Massachusetts Uniform Securities Act, including the failure to register his companies as broker-dealers with the State and the sale of unauthorized securities to investors.  In the complaint, the Massachusetts Securities Division is seeking a cease-and-desist order, disgorgement of ill-gotten proceeds, injunctive relief, and administrative fines.

According to authorities, Cranney used his affiliation as an independent distributor with Shaklee Corporation ("Shaklee") to lure in family, friends, and colleagues.  Shaklee is a multi-level marketing system of independent distributorships that sell health and personal nutrition products, and Cranney's family was credited for introducing Shaklee to the east coast.  Cranney has been with the company since 1967, and served as a "sponsor" for approximately 50,000 distributorships in a business model similar to Avon or Mary Kay Cosmetics.  

Through these connections, Cranney held himself out as a financial advisor and operated several companies including Cranney Capital I, LLC, Cranney Capital II, LLC, Cranney Capital III, LLC, Cranney Industries, and Cranney Capital I Employee Stock Ownership Plan. Beginning in mid-2002, Cranney solicited potential investors by offering short to medium-term investments with annual returns ranging from 10% to 12% annually through a legitimate investment vehicle as part of a qualified retirement plan.  These investemnts were memorialized in the form of promissory notes, and when the note matured, many investors opted to "roll-over" their investment into a new promissory note offering similar returns.  

Based on these representations, Cranney raised approximately $10.4 million from thirty-six investors nationwide, many elderly and at least one of Cranney's relatives. However, according to authorities, instead of making investments as promised, Cranney misappropriated investor funds to fund his Shaklee distributorships, pay personal expenses, and meet investor redemptions.  When the financial markets began experiencing difficult times in 2008, Cranney began to default on making payments of principal and/or interest to investors, and soon altogether ceased returning investor funds.  Several investors later filed suit against Cranney, obtaining attachments on his personal residence that was recently listed for sale at an asking price of $3.8 million.  

Cranney's lawyer acknowledged that his client was aware of the investigation and ihad been cooperating with authorities.  

A copy of the Complaint filed by the Massachusetts Securities Division is here.