State: Vancouver man ran Ponzi scheme

The Washington Department of Financial Institutions Securities Division has filed administrative charges against a Vancouver man accused of violating the state Securities Act by using funds from a pooled investment vehicle to make Ponzi payments to investors, among other violations.

The statement of charges was entered Dec. 17 against Charles Richard Burgess, who goes by the first name Dick.

Burgess can contest the alleged violations at a hearing, but if he doesn’t respond within 20 days of receipt, the division’s tentative findings and conclusions will become final.

The securities administrator intends to order Burgess to cease and desist and pay a $100,000 fine, as well as costs, fees and other expenses from the investigation totaling no less than $25,000, according to the statement of charges.

Burgess’ attorney — Todd Maybrown of the Seattle firm Allen, Hansen, Maybrown & Offenbecher — declined to comment on the pending litigation.

A family member of some of the alleged victims, who wished to remain anonymous, said Burgess used community organizations to develop relationships and build trust with investors. Burgess’ actions robbed investors of their life savings, the family member said, and they hope the Clark County Prosecuting Attorney’s Office will pursue criminal charges.

“It’s tragic that he owes victims over $9 million yet only has the $100,000, $125,000 fine. … It does not seem just,” the family member said. “Not only did he defraud people out of millions of dollars; he was an unskilled and completely incompetent investor.”

39 investors in Wash.

The total amount of investments in the pool Burgess offered and sold is unknown. According to the statement of charges, between October 2013 and April 2021, he offered and sold about $6.3 million of investments in the pool to 40 investors.

However, the Securities Division received records from Burgess and investors indicating he had sold participation in the pool since about 1994, but due to bank records-retention policies, the Securities Division could collect records only as far back as late 2013.

The Securities Division could not comment on whether there is a criminal investigation. A spokesman with the FBI’s Seattle office said the agency does not typically confirm or deny investigations. Nothing has been referred to the county prosecutor’s office.

As of March 2021, the pool had 43 investors, with 39 in Washington. Burgess often offered and sold participation in the pooled investment vehicle to family and friends or family and friends of participants, the statement of charges says.

He offered investments in the pool to new and existing investors as recently as May or June 2021. The offering has never been registered with the state, and Burgess is not a registered investment adviser, the department found.

Burgess provided limited information to potential investors and failed to discuss the risks, investment strategy, number of participants, products he buys and sells, whether the pool is diversified, and amount of funds in the pool or the total value, according to the statement of charges.

Burgess told investors their funds would be pooled with funds from other investors and that he uses the money to trade in stocks. However, he allegedly used some new investment funds to make payments to existing investors. In a Ponzi scheme, a person pays investors with proceeds from new investors, rather than money earned from investments, promising large returns at little to no risk.

Burgess is also accused of transferring some funds to his personal account before transferring them to a brokerage account. He used his personal account to pay insurance, student loans, a mortgage, utilities and credit cards. Sometimes he paid personal expenses directly from the pool’s account, according to the statement of charges.

For example, in March 2021, he received about $300,000 in new investment funds and later used it to pay three existing investors a total of $133,000. He had only enough funds in the pool’s account to make payments to existing investors after receiving the new investment funds, according to the division’s findings.

Burgess also sent investors monthly statements that falsely showed the pool was successful and that investors were making a consistent profit, the statement of charges says.

He told potential investors he pays himself a fee of 50 percent from the pool’s profit and takes money only if the investor makes money, and that he takes all of the trading losses while the pool keeps the gains. However, between January 2016 and June 2021, Burgess’ trading of pool funds resulted in an overall realized loss of about $708,000. He took more than 50 percent of the pool’s realized gains for 2017, 2019 and 2020, about five times more. And between 2016 and mid-2021, he transferred money to his personal account in an amount more than 10 times his fee, according to the statement of charges.

He also didn’t tell investors that he had contributed little, if anything, to the pool since 2014, and any contributions he made were insufficient to cover the losses realized by the pool. Since the end of 2015, Burgess has been unable to repay all of the principal he raised from the pool’s investors. By the end of 2020, he owed $3.3 million while the pool had a value of about $119,000, according to the division’s findings.

In mid-July 2021, Burgess reportedly told some investors the pool no longer had funds. He gave at least 17 investors a settlement agreement, or rescission offer, and release, as well as a repayment proposal and balance sheet showing the principal owed. However, he didn’t tell them the number of pool participants who are owed funds, the total amount of principal owed or that the pool hadn’t had sufficient funds to repay investors since at least 2015.

In all, the Securities Division alleges Burgess:

• offered and sold unregistered securities.
• acted as an investment adviser to a pool investment vehicle without being registered in Washington.
• managed a pooled investment vehicle in the manner of a Ponzi scheme and misrepresented its success to investors.
• made untrue statements or omitted to state material facts related to the investment in the pool and rescission offer.
• engaged in an act, practice or course of business which operates or would operate as a fraud or deceit upon another person.
• employed a device, scheme or artifice to defraud others.
• engaged in dishonest and unethical practices.
• deducted fees from the pooled investment vehicle without written authorization and without sending pool participants itemized invoices.
• had custody of client funds and managed the pool without engaging an independent party to approve withdrawals or sending audited financial statements to pool participants.