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Brothers found guilty in $18M real estate Ponzi Scheme

Posted: 12:12 PM, Aug 09, 2016
Updated: 2016-08-10 11:38:05-04

Two brothers were found guilty on 8 felonies each for the Ponzi Scheme they were running through their Lansing-based business, Mulholland Financial, the Michigan Attorney General’s Office states.

The brothers, James Mulholland, of St. Petersburg, Fla., and Thomas Mulholland, of Midland, both 59, were found guilty by a jury for their role in the scheme.

“These men got themselves in a financial bind and instead of owning up to their mistakes they chose to defraud Michigan residents of their hard earned savings, said Michigan Attorney General Bill Schuette. “I hope that this verdict will provide some closure and relief to the victims of these men.”

Each brother was convicted in Ingham County District Court on Friday to the following charges:

• One count of Criminal Enterprises - Conducting, a felony punishable by up to 20 years in prison and/or a $100,000 fine;

• One Count of Conspiracy to Commit Criminal Enterprise – Conducting, a felony punishable by up to 20 years in prison and/or $10,000 fine;

• One count of False Pretenses -$20,000 Or More But Less Than $50,000, a felony punishable by up to 15 years in prison and/or a fine of $15,000 or three times the value of the property that was involved, whichever is greater;

• False Pretenses - $1,000 Or More But Less Than $20,000, a felony punishable by up to 5 years in prison and/or a fine of $10,000 or three times the value of the property that was involved, whichever is greater;

• One count of Blue Sky Laws- Fraudulent Schemes/ Statements, a felony punishable by up to 10 years in prison and/or $25,000 fine;

• One Count of Securities Fraud, a felony punishable by up to 10 years in prison and or a $500,000 fine;

• One Count of Blue Sky Laws Offer/Sell Unregistered Securities, a felony punishable by up to 10 years in prison and/or $25,000 fine; and,

• One Count for Violation of the Securities Act, a felony punishable by up to 10 years in prison and or a $500,000 fine.

The Mulholland brothers started their business in 1987, and they bought real estate to be used as rental properties mostly in college towns. At the peak of their business, Mulholland Financial managed $22 million worth of highly leveraged real estate, however they were not prepared for the recession in 2008, states the release.

Starting in 2009, until they filed for bankruptcy in 2010, the brothers raised almost $2 million from investors. They made no mention that their business was in trouble and promised a 7-percent rate return form the real estate profits and that the principal and interest were guaranteed, and that it could be liquid within 30 days of making a written request, according to the release.

Almost every month from Jan. 2009 to Feb. 2010, the company lost money and new investor money was being used to pay off earlier investors. The brothers knew the business was losing money and consciously decided to purchase more property in attempt to get themselves through the crash.  To do so, they increased their attempts to procure investors, and towards the end of 2009 they reached out to previous investors and urged them to reinvest. They did not say to the investors of the financial problems they were facing, states the release.

More than 250 investors lost $18.3 million.

Schuette wants to warm Michiganders to use caution before investing with those who promise exorbitant returns.

"Do your homework before handing over your hard-earned money," said Schuette.  "Take your time, ask questions, and be sure to confirm your broker is in good standing before signing on the dotted line."

Here are some tips to avoid falling victim to a Ponzi Scheme or investment fraud:

• Check out your broker or adviser. Confirm that your broker or financial adviser is registered and in good standing. Contact the Bureau of Commercial Services with the Department of Licensing and Regulatory Affairs, at 517-241-6345, to check out your broker or adviser.

• Beware of strangers touting strange deals. Trusting strangers is a mistake anyone can make when it comes to their personal finances.  Almost anyone can sound nice or honest on the telephone.  Say "no" to any investment professional who presses you to make an immediate decision, giving you no opportunity to check out the salesperson, firm and the investment opportunity itself.  Beware of anyone who suggests investing your money into something you don't understand or who urges that you leave everything in his or her hands.

• Take your time - don't be rushed into investment decisions. Salespersons who use high-pressure tactics to force an investor into an immediate decision are almost always pitching frauds. They don't want you to think too carefully or find out too much because you may figure out that it's a scam.

• Keep tabs on your investments. Be wary when a financial planner says "leave everything to me," or "the plan is too complicated to tell you."  Everything should be clear and explainable to you.

• Monitor the activity on your account.  Insist on receiving regular statements.

• Ask Questions.  Never be embarrassed or apologetic about asking questions for trading activity that looks excessive or unauthorized.  It's your money, not your broker's.

• Keep Diligent Records.  Keep all of your records relating to your investments, including notes of conversations you have with brokers, salespeople, and financial advisers.

The Mulholland brothers are currently being held in the Ingham County Jail, and will return for sentencing on Aug. 31.