The former president of a Rhode Island investment company pleaded guilty to orchestrating a Ponzi scheme to defraud investors of $21 million and also for stealing $2.5 million of investors’ funds, which he used for the purchase a waterfront home, according to an announcement by United States Attorney Peter F. Neronha.
Patrick E. Churchville, 47, of Barrington, RI, who was the owner and president of ClearPath Wealth Management, LLC, formerly located in Providence and Barrington, appeared at a federal court in Providence where he pleaded guilty to five counts of wire fraud and one count of tax fraud before U.S. District Court Chief Judge William E. Smith.
According to court documents and information presented to the court, federal investigators found that for three years, starting from the spring of 2008 to October 2011, Churchville took about $18 million of client investors’ funds held by ClearPath, and invested the money in a company identified as JER Receivables, based in Maryland. In June 2010, Churchville discovered that the investment with JER was not yielding any returns and that ClearPath were in fact victims of fraudulent and misleading representations made by the executives at JER. But Churchville did not disclose to ClearPath’s investors that millions have been lost from their investment, instead he tried to cover it up.
Court documents state that Churchville took deliberate steps to conceal the lost of investors money through his dealings with JER, and he did this in order to continue his business operations and enjoy additional income that accrued from investment fees.
Churchville sustained the Ponzi scheme and diverted approximately $21 million dollars of investment money. In order to get this $21 million, Churchville misused investors’ money that were already under his control, while going further to attract new investors’ funds by giving them the false picture that his company was doing fine. He then used this money to pay back the investors whose funds were lost in his deal with JER, giving them the false report that the payments were returns obtained from their investments. He kept attracting new investors by telling them lies of how the investment with JER Receivables had been successful and was producing high rates of return.
The investigations further revealed that in 2011, Churchville was engaged in another scheme where he devised a means of fraudulently obtain $2.5 million from investors. He did this by using the investors’ funds as collateral without their knowledge, to secure funds used in the purchase of a personal waterfront residence located in Barrington. And in trying to conceal this fraudulent transaction, he knowingly left out the $2.5 million in his income report on personal taxes, and this led to losses of $820, 528 for the IRS.
This case is being prosecuted by Assistant U.S. Attorney Dulce Donovan, with collaborative investigation from the Boston Field Office of the FBI, IRS Criminal Investigation, and the United States Postal Inspection Service – Boston Division.
Judge Smith has ordered that Churchville be placed in home detention with GPS electronic monitoring, pending his scheduled sentencing date on October 25, 2016.
Churchville is also named as a defendant in a lawsuit filed by the U.S. Securities and Exchange Commission in May 2015, which alleged that Churchville and ClearPath used a variety of deceptive acts and misleading accounting tricks to conceal their fraud from auditors, accountants, fund administrators, and their own staff.
According to the SEC’s complaint, from at least December 2010, ClearPath and Churchville diverted deposits from new investors to pay prior investors, used proceeds from selling particular investments to pay unrelated investors. When many of ClearPath’s investors requested distributions of their investments in September 2013, Churchville prolonged the scheme by lying to investors about the status, worth, and disposition of those investments.
Four other entities – ClearPath Multi-Strategy Fund I, L.P., ClearPath Multi-Strategy Fund II, L.P., ClearPath Multi-Strategy Fund III, L.P., and HCR Value Fund, L.P. – are named in the Commission’s complaint as relief defendants based on their receipt of investor funds. The SEC is seeking an order requiring that these entities return all the proceeds obtained as a result of the scheme.
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