NC grand jury charges fund managers in $40M scam


CHARLOTTE, N.C. (AP) -- The U.S. Attorney's Office in Charlotte says four hedge fund managers have been indicted in connection with a Ponzi scheme that bilked investors out of $40 million.

Jonathan Davey, 47, of Newark, Ohio, Jeffrey Toft, 49, of Oviedo, Fla., Chad Sloat, 33, of Kansas City, Mo., and Michael Murphy, 51, of Deep Haven, Minn., were indicted on investment fraud conspiracy charges, U.S. Attorney Prosecutor Anne Tompkins. If convicted they face up to 50 years in prison and $1 million in fines.

It's the latest development in a case involving Black Diamond Capital Solutions.

The indictment says the defendants lied to get money from their victims by claiming they were operating legitimate hedge funds with significant safeguards.

But Tompkins says as Black Diamond began collapsing, the defendants diverted the money. The indictment said they used some of it to set up an account that used new victims' money to pay early investors. But some of the money went to the defendants' lifestyle.

The company's founder, Keith Simmons, was convicted of securities fraud, wire fraud and money laundering in Charlotte in 2010. He is facing up to 80 years in prison.

Six people also have already pleaded guilty to their roles in the investment fraud that took place between October 2007 and April 2010.

North Carolina based CommunityONE Bank also was drawn into the scheme.

Prosecutors say Simmons deposited more than $35 million in investor funds into a CommunityONE account, and withdrew more than $35 million from the same account over a 2 ½ year period.

According to court documents, the bank failed to detect and report the suspicious transactions, as required by the Bank Secrecy Act. Prosecutors said the bank did not file any reports on Simmons during this time period, despite hundreds of suspicious transactions

The bank last year agreed to pay $400,000 in restitution to victims and improve anti-money laundering programs.