A judge in U.S. District Court in San Jose sentenced two men to federal prison Monday for their part in diverting funds for personal use from an investment fraud scheme that targeted elderly investors, according to federal prosecutors.
Judge Ronald Whyte sentenced Melvin Russell “Rusty” Shields, 45, of Granite Falls, North Carolina, to 78 months in prison and Michael Sims, 60, of Gilroy, to a term of 30 months, according to U.S. Attorney Melinda Haag’s office.
On Dec. 23 of last year, a jury convicted Shields of 32 charges contained in an indictment, including conspiracy to commit wire fraud and bank fraud, wire fraud, bank fraud, making a false statement to a bank and securities fraud, prosecutors said.
The jury found Sims guilty of two counts of wire fraud. A third defendant, Sam Stafford, 57, of Campbell, pleaded guilty on Oct. 17, 2013, to conspiring with Shields and Sims to commit wire, mail and bank fraud, according to Haag’s office.
After an investigation by the FBI, prosecutors presented evidence at the trial last year that from 2006 to 2009, Shields, Sims and Stafford defrauded investors in Northern California over real estate development projects in a business called S3 Partners, prosecutors said.
Operating out of a variety of locations including San Jose, Campbell, Hickory, North Carolina, and Valrico, Florida, the three men together obtained more than $21 million from individual investors and banks, with Shields and Sims diverting portions of the funds for their personal use, for business ventures and other unauthorized purposes, prosecutors said.
Evidence at the trial showed that Shields engaged in an investment fraud aimed at elderly people and encouraged them to cash out their individual retirement accounts, home equity and other savings and wire the funds to S3 Partners in exchange for shares in a company controlled by the partners or to invest in other S3 Partners projects, such as the Stagecoach Retail Project near Phoenix, Arizona, according to Haag.
Shields would then divert the money to unauthorized uses and became responsible for more than $7.2 million in losses for more than two-dozen investors and two banks, prosecutors said.
Both Shields and Sims diverted millions in investor funds from banks by submitting forged and fraudulent invoices and loan closing documents, Haag said.
Sims defrauded two special education teachers by asking them to wire more than $411,000 from their individual retirement accounts for shares in S3 Partners, telling them it was a safe investment with returns of 10 percent to as high as 16 percent, but he diverted and personally spent $178,000 of the money, according to prosecutors.
Whyte ordered Shields and Sims to surrender to federal authorities by Jan. 13. Both men and Stafford have been out of custody on home electronic monitoring since they were arrested in May 2012.
The judge ordered Shields to pay restitution of $7,225,904.73 to investors and Sims to repay $411,460.92 to investors.
A sentencing hearing for Stafford is set for Jan. 26.
Copyright © 2014 by Bay City News, Inc. — Republication, Rebroadcast or any other Reuse without the express written consent of Bay City News, Inc. is prohibited.
Protect your Website and Computers
Call 855-DSX-DATA (855-379-3282)
Comment Advisement We welcome your thoughts, but for the sake of all readers, please refrain from the use of obscenities, personal attacks or racial slurs. All comments are subject to our terms of service and may be removed. Repeat offenders may lose commenting privileges.