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The U.S. District Court for the Eastern District of Texas ordered businessman George Hudgins to pay $71 million to victims of his Ponzi scheme investment fraud.

The business man was ordered to pay $15 million in civil penalties and was bared from the commodity industry.  From June 2001 to May 2008, Hudgins solicited people to invest about $88 million in a commodity pool that was purported to engage in commodity futures training. Investors were lured through group presentations, newsletters, and personal meetings from December 2003.

From the time the commodity pool was set up until April 30, 2008, the pool netted total losses of more than $8 million. The pool made a net loss each year, but Hudgins told investors the company, between 2000 and 2007, made net annual profits from 22.5 to 95 percent.

To placate investors, Hudgins sent them false account statements, reflecting profits. He reportedly paid older investors approximately $17 million from money solicited from newer investors in his scheme. According to court records, the remainder of the money was used for lavish personal expenses, including an antique sports car collection, jewelry, and an airplane.

In May 2008, a judge, on the request of the Commodity Futures Training Commission, froze all Hudgins’ assets and anxious investors began to consult securities attorneys.  A court-appointed receiver was able to recover approximately $24 million through the sale of assets and return of false profits that some investors had received. In March, the funds were distributed to some of the investors.

In September 2008, Hudgins pled guilty to wire fraud, money laundering, and was sentenced to 120 months in federal prison. Hudgins’ Ponzi scheme was one of the first in a series that has rocked the financial world. Since then, Ponzi schemes have continued to turn up at an alarming rate. In 2009 alone, the Securities and Exchange Commission (SEC) has brought enforcement action in at least 24 such schemes.

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Investors who lost money in the Ponzi scheme investment fraud perpetuated by Nacogdoches, Texas businessman George Hudgins can soon begin to look forward to payments.; Hudgins pleaded guilty in September on charges of wire fraud, embezzlement and money laundering. He is yet to be sentenced.

The scheme launched in 2004, had Hudgins soliciting funds from investors for the apparent purpose of investing in stock index futures and commodities.  Instead, under the scheme, potential investors were enticed with the promise of huge returns on their investment.  Hudgins was in reality operating what is known as a Ponzi scheme, where investments made by investors are used to pay "profits" to other investors.  By April 2008, Hudgins' scheme was incurring large losses, and in May, the federal government sued him for violations of commodities trading regulations. 

Now, a court in the Eastern District of Texas has offered some reprieve to investors whose claims have not been contested. They can expect to begin receiving payments by the end of this year.  However, there have been several investors whose claims have been denied because of their inability to produce evidence of their losses.  Most of those who were denied their claims apparently don’t have bank records to prove their investment, having deposited their funds in the scheme, in cash.    These investors are critical of the way Kelly Crawford, the receiver in the case, has denied their claims.  They insist that even in the case of cash investments, a written agreement between them and Hudgins should be sufficient grounds to prove losses.

Not all claims have been denied because of lack of evidence of losses. Others have been denied because they didn’t participate in the investment scheme that Hudgins ran, although he did owe them money.  Crawford's office has released a set of recommendations to investors whose claims have been denied, asking for additional information that could result in a reversal of the decision.  Even those whose papers are in perfect order may not receive every cent they lost in the fraud scheme.   A lot of the money invested was lost in Hudgins' trading activities, adding up to a total loss of close to $80 million dollars.

What is Ponzi Investment Fraud?

A Ponzi scheme is named for Charles Ponzi who in the early part of the 20th century defrauded thousands of people, using their investments to pay returns to other investors.  Since then, this scheme has surfaced time and again, in complicated cases involving large amounts of money.  Ponzi schemes tend to fall apart quickly because of the fact that promoters are required to solicit more and more investments in order to pay returns to older investors.  The more number of members a Ponzi investment fraud scheme has, the quicker it comes under the scanner of regulators.

Litigating Investment Fraud

When financial losses have resulted because of falsified investment advice, investors can claim compensation from these promoters.  Proving losses in a court requires a thorough understanding of complex business litigation law, and an ability to use these laws to prove your losses, and build your case.  An expert business litigation attorney who has years of experience handling investment fraud cases, can bring the kind of experience your case needs.  Contact a business litigation lawyer at Arnold & Itkin LLP for an evaluation of your case.

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