International Law

Rate Search Ponzi

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From the FBI Press Release on the Rate Search Ponzi

St. Louis, MO: Scott Luster, President of Rate Search, Inc., pled guilty to fraud and tax charges involving his scheme to divert customer funds, United States Attorney Catherine L. Hanaway announced today.

According to court documents filed at the time of his plea, Rate Search, Inc. was in the business of marketing, brokering and purchasing certificates of deposit ("CDs") at financial institutions throughout the United States with investment moneys of its customers, and operated out of several offices in the St. Louis area. Clayton Analytical Services, Inc. was a Missouri corporation established in 1998, and engaged in the business of assisting in the running of the operations of Rate Search. Clayton Analytical had business addresses in the St. Louis area.

Scott Luster, President of Rate Search, marketed and brokered CDs through Rate Search to its customers, and directed the day to day activities of Rate Search. Between January2000 and June 30, 2007, Luster and Rate Search participated in a scheme to defraud Rate Search customers of more than $4,500,000. Luster and Rate Search failed to purchase CDs for its customers, despite having received directions and funds from them to purchase CDs, and failed to advise them that their CDs had not been purchased. The customers' money and funds were used instead for unrelated business purposes and for personal use. Additionally, Luster and Rate Search failed to "roll over" customer

CDs when requested and failed to disburse funds received by Rate Search from the non "rolled over" CDs to the Rate Search customers. These funds were also used by Luster for unrelated business purposes and for personal use.

Additionally, for the taxable years 2002 through 2006, Luster failed to report funds he received through Rate Search and other sources of approximately $807,911.

"Mr. Luster engaged in a Ponzi scheme, in which customer monies were used for purposes other than what was intended by trusting investors," said First Assistant U.S. Attorney Michael W. Reap.

"Even though Mr. Luster will be required to pay restitution to these victims, many have lost hundreds of thousands of dollars of their retirement savings."

"Fraud schemes such as this prey upon the trust and hopes of the investing public. In these economic times the upheaval caused to the victims is significant. The FBI and our law enforcement partners will continue to investigate those whose schemes deceive and defraud the public," said John Gillies, Special Agent in Charge, FBI St. Louis.

Luster, 53, Belleville, IL, pled guilty to one felony count of mail fraud and one felony count of filing a false tax return. He appeared before United States District Judge E. Richard Webber.

Luster now faces a maximum penalty of 20 years in prison and/or fines up to $250,000 on the mail fraud charge; the tax charge carries a maximum penalty of three years in prison and/or fines up to $100,000. Restitution is mandatory on the mail fraud charge. Sentencing has been set for April 21, 2009.

"The Internal Revenue Code is specific, income derived from any source is subject to income tax," said Toni Weirauch, Special Agent in Charge of IRS Criminal Investigation. "The prosecution of individuals who intentionally file false income tax returns is a vital element in maintaining public confidence in our tax system."

Co-defendant Clark Schultz, President of Clayton Analytical Services, Inc., 42, of University City, MO, pled guilty to related charges last December and awaits sentencing on March 5, 2009. Schultz was an employee of Rate Search beginning in 1991, and incorporated Clayton Analytical in 1998.

Initially as an employee of Rate Search, and then later through Clayton Analytical, Schultz was responsible for finding the rates for the bank CDs and placing the CDs for the customers of Rate Search.

Hanaway commended the work on the case by Internal Revenue Service Criminal Investigation, the Federal Bureau of Investigation, the Postal Inspection Service; and Assistant United States Attorney Hal Goldsmith, who is handling the case for the U.S. Attorney's Office.

Full post as published by Misleading Advertising Law on February 05, 2009 (boomark / email).