Feds: Man's global Ponzi scheme 'massive,' mocking

http://www.stfmonitor.com/?a=details&lid=742

By JIM SUHR, AP Business Writer Jim Suhr, Ap Business Writer – Mon May 31, 4:10 pm ET

EAST ST. LOUIS, Ill. – A Canadian national who the U.S. government says swindled $70 million from 40,000 investors on six continents carried out the same kind of Ponzi scheme the one-time bank robber mocked on his website, federal investigators allege.

Nicholas Smirnow warned clients of his online business, "Pathway to Prosperity," to stay away from high-yield investment programs that often boast of unrealistic returns for little or no risk. Yet a federal criminal complaint alleges that he promised "outlandish" return rates — investigators say anywhere from 546 percent to 17,000 percent — with no explanation of his methodology or his identity.

Smirnow, 53, also hid an extensive criminal past that included convictions for burglary and drug trafficking in Canada, according to the documents.

"He warned: 'the bigger the return on offer, the louder the warning bells should sound,'" the complaint, dated Friday and obtained Monday by The Associated Press, alleged. "Investors, however, did not heed the 'warning bells' of Smirnow's ridiculous claims of unrealistic rates of return and instead invested by the thousands."

Smirnow, who prosecutors believe lives in the Philippines though his whereabouts Monday were unclear, was charged with conspiracy and securities, mail and wire fraud. Some of the charges carry up to 20 years in prison and $250,000 in fines.

Interpol, the Paris-based international police intelligence-sharing association, declined to disclose Monday whether it was involved and deferred questions to Filipino authorities.

The case is being handled by the U.S. Attorney for southern Illinois in part because the assigned prosecutor has expertise in such investment cases. Smirnow's alleged swindle also claimed victims in half of the 38 counties making up that jurisdiction's turf.

Smirnow lured investors despite keeping his identity hidden, suggesting through his online enterprise — also known as "P-2-P" and "P-2-P Network" — that other securities pitchmen did not share his "strong moral foundation," according to the complaint. He said keeping his identity masked protected his safety and ensured his program's success.

His website created "the false appearance that he was a sophisticated and legitimate international financier," the court documents said. His aliases included Nicoloy Smirnow, Alexander Judizcev, Nicholas Kachura and Jeff Prozorowiczm.

Smirnow never let on that he was a lookout during a Canadian bank robbery in 2000 and was sentenced to four years in prison, according to the complaint and newspaper accounts. At the time, he was a construction worker contracted to do sewer work, the Sarnia Observer in Ontario has reported.

Smirnow also has convictions, some dating to 1979, of burglary, drug trafficking and possessing stolen property in Canada, the complaint said.

He told an employee that he was involved in a double homicide in Ontario and had organized crime ties there, according to an affidavit written by Jacob Gholson, a U.S. Postal Inspection Service inspector who investigated Smirnow's alleged scheme leading to Friday's charges. The affidavit was filed with the federal complaint.

Using investors' funds, Smirnow at one point bought a $315,000 house in Ontario, Gholson wrote.

Prosecutors believe Smirnow concocted the scheme in 2007, initially running it out of his rental home Baysville, Ontario. By the time it unraveled last year, it had attracted victims from every U.S. state except Maine and Vermont, the U.S. government says.

Smirnow's investors were offered their choice of seven-, 15-, 30- and 60-day plans with varying rates of return, offering the average person investment opportunities generally only available to the very rich, prosecutors said. Some of Smirnow's earliest clients made substantial returns, but most investors lost everything, authorities said.

The complaint concluded: "Pathway to Prosperity was a massive Ponzi scheme."