SEC Says Sports Betting Club Offering "Quintillion-Fold" Returns Was $29 Million Ponzi Scheme
“[w]e grow money a million times faster than Warren Buffet . . . actually we grow it a quadrillion times faster.”
The SEC has filed civil fraud charges against two convicted felons and several businesses they controlled alleging that their purported sports betting operation offering 250% - 600% annual returns was in reality a Ponzi scheme that raised nearly $30 million from hundreds of investors nationwide. John F. Thomas, 74, and Thomas Becker, 72, along with multiple entities they controlled and several of the top scheme sales agents, were named as defendants in an action filed August 30, 2019 in Nevada federal court. The Commission is seeking injunctive relief, disgorgement of ill-gotten gains, and imposition of civil monetary penalties.
According to the Complaint, Thomas and Becker previously pleaded guilty to felony money laundering and conspiracy charges in 1991 arising from a pyramid scheme they ran together. Beginning sometime in mid 2014, Becker and Thomas began offering identical investments in six entities they controlled:
Einstein Sports Advisory, LLC;
QSA, LLC;
Vegas Basketball Club, LLC;
Vegas Football Club, LLC;
Wellington Sports Club, LLC; and
Welscorp, Inc.
Potential investors were told that Becker and Thomas had developed a “proprietary handicapping system that is highly accurate in predicting the outcome” of sporting events, and were told that their funds - known as the “bankroll” - would be pooled with other investor funds to make bets until the original investment grew by a predetermined “target” range of 500% to 1,200%. According to the Sports Advisory Agreement entered into by each potential investor, the profits purportedly generated using the proprietary strategy would then be split between the company and the investor.
The SEC alleged that Becker and Thomas were responsible for running the companies’ daily operations, which ranged from communicating with financial institutions and investors, analyzing sports games, and recruiting and managing various sales brokers and agents to recruit potential investors. Thomas and Becker purportedly drafted various form marketing letters to be forwarded to potential investors that made claims including that the investment was a “low-risk way to TRIPLE your funds in less than 6 months” and also including a falsified history of returns.
Thomas allegedly expounded on his claims of extraordinary returns, telling investors in emails that he was able to “grow money 10-fold in 4 months,” a “quadrillion-fold in 5 years, and a QUINTILLION-FOLD in 6 years.” The Complaint also details claims made by Thomas to an investor that:
“we grow money 10 times faster than Warren Buffet….”
“[w]e grow money a million times faster than Warren Buffet . . . actually we grow it a quadrillion times faster.”
“[t]he King - Warren Buffet - takes more than 6 years to triple an investor’s funds. We triple money in less than 6 months.”
In total, the scheme raised nearly $30 million from more than 600 investors nationwide.
The Complaint details the vast network of over 150 brokers and agents used by the operation to solicit investors. Those brokers and agents received lucrative commissions for locating new investors, including a 10” “front-end sales SEC” and a 10” back-end commission based on investor payouts. As the SEC alleges, these sales commissions were not disclosed to investors. The three highest-paid brokers, who were charged by the SEC with operating as unregistered broker-dealers, were:
Douglas Martin (and his entity EFS): $458,000 in commissions;
Paul Hanson: $281,000 in commissions;
Damian Ostertag: $414,000 in commissions.
Rather than generate extraordinary returns by using investor funds for sports betting, the SEC alleges that the vast majority of investor funds (over 85%) was misappropriated for various purposes including the payment of over $13 million to investors as fictitious returns, more than $8 million for personal and business expenses, and nearly $6 million for broker and agent commissions. The Complaint identifies roughly $4.4 million that may have been used for “possible sports betting,” but notes that spreadsheets maintained by Thomas and Becker and provided to investors showing the purported investment performance were false and significant overstated any investment returns.
A copy of the Complaint is below: