Ponzitracker

Federal authorities arrested a former hip-hop mogul and accused him of operating a $4 million Ponzi scheme that purported to invest in derivatives of United States Treasury bonds. Tyrone Gilliams Jr., 44, was arrested last week on federal wire fraud charges, which carry a maximum prison sentence of twenty years and up to a $250,000 fine. If convicted, he may also be ordered to pay restitution to victims.

Gilliams, a former hip-hop promoter, is now an internet preacher, and maintains a page at StreamingFaith, a provider of internet broadcast services to faith-based corporations. According to a bio on the site, Gilliams formerly worked with "music mogul Sean Puffy Combs creating Bad Boy Sports. Tyrone was eventually called to collaborate with the ultimate mogul our Lord and Savior Jesus Christ."

According to a recently unsealed criminal complaint, Gilliams operated TL Gilliams, LLC, and held himself out as a successful investor in United States Treasury Strips. Treasury Strips are derivatives of Treasury bonds, and operate by separating each periodic interest payment and corresponding future return of principal into individual securities. During the spring of 2010, an individual investor made a $4 million investment with Gilliams' company with the stated purpose of obtaining income to operate a charitable foundation. Two contracts signed between the victim and an intermediary stated that the funds would be invested in "treasury strips, treasury bills [and] U.S government paper."

Instead, Gilliams is alleged to have misappropriated at least $2 million of the original $4 million investment, using over $1 million to fund a black-tie gala called the 'Joy to the World' festival at the Philadelphia Ritz-Carlton. Additionally, approximately $1.6 million was sent to Ghana in what Gilliams described as an investment in gold. Funds were also used to sustain a lavish lifestyle that included international travel. Gilliam represented himself in an earlier civil suit filed by the victim, and in a motion to dismiss, alleged that the original contract called for an investment in gold and commodities in West Africa, specifically Ghana.

Gilliams was arrested on October 5th, and was scheduled to be arraigned later that day.

A copy of the Justice Department's press release is here.

A copy of the unsealed criminal complaint is here.