Ponzi scheme mastermind to be sentenced in $311 million scam

By: GILLIAN FLACCUS - Associated Press | Friday, May 26, 2006 6:21 PM PDT ∞

SANTA ANA -- More than 50 former investors packed the courtroom Friday at the sentencing hearing for an Orange County man charged with running a $311-million fraud scheme over nearly two decades.

Many were expected to testify against James P. Lewis Jr., who faces up to 30 years in prison for defrauding about 1,600 investors.

Lewis, 59, pleaded guilty to one count of money laundering and one count of mail fraud last October after he was arrested in Houston in 2004 following a nationwide manhunt.

Prosecutors agreed to drop 12 of 14 counts in exchange for the pleas.

During the hearing, federal prosecutors and Lewis's attorney argued about the value of the net loss, which is a key element in deciding his sentence.

Brick Kane, the court-appointed receiver for Lewis's holdings, testified that Lewis took in $311 million between 1985 and 2003.

U.S. District Judge Cormac J. Carney asked how Lewis could keep up his scheme for nearly two decades.

"As long as you're able to raise money and keep paying the promised annual or monthly payments, you can keep going until you implode," Kane said. "And Mr. Lewis was about to implode when he was arrested."

Lewis, who wore a prison jumpsuit and was shackled at the wrist, was expressionless during the testimony.

Lewis told investors he was earning returns of 18 percent to 40 percent by leasing medical equipment, financing purchases of medical insurance, making commercial loans and buying distressed businesses that he reorganized and sold.

But prosecutors alleged that instead Lewis was using money from new investors to pay off the original ones -- something known as a Ponzi scheme.

Kane testified that some early investors did receive money back, leaving the total loss at $156 million.

Defense attorneys, however, have argued that the net loss to investors was much lower.

The company that is liquidating Lewis's property holdings issued a report last year that he lost $35.5 million in unprofitable businesses,$22 million in the foreign currency market and spent at least $15 million on his wife, two girlfriends and their families.

When he was arrested, Lewis was carrying $20,000 in cash, his passport, bags of clothing and maps of Mexico and Mexican cities and a note reminding him to disguise himself by wearing a hat and glasses, growing a goatee and losing 25 pounds, according to court documents.

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