United States Attorney
Western District of Washington
Friday, February 10, 2012
Seattle Investment Fund Founder Sentenced to 18 Years in Prison for Ponzi Scheme and Bankruptcy Fraud
Largest Financial Fraud Scheme Ever Prosecuted in Western Washington
SEATTLE – The founder of a group of investment funds was sentenced to 18 years in prison yesterday for operating a Ponzi scheme. Frederick Darren Berg, 49, of Mercer Island, Wash., pleaded guilty in August 2011 to wire fraud, money laundering and bankruptcy fraud. The amount of restitution, which will exceed $100 million, will be determined in April 2012. Berg is the founder of the Meridian Group of investment funds. The funds represented that $245 million in investor money was invested in real estate contracts and real estate; however, the funds were actually elaborate Ponzi schemes. Berg used investor money for a luxurious lifestyle. At sentencing, U.S. District Judge Richard A. Jones told Berg he had “reckless disregard for his victims… and had no moral compass.”
“The greed in this case is stunning,” said U.S. Attorney Jenny A. Durkan. “This defendant stole and squandered the dreams of hundreds: dreams of retirement, dreams of homeownership, dreams of a college education for their children and grandchildren. While we could not restore those dreams, today he was held accountable for his acts.”
According to records in the case, between 2001 and 2009, Berg used more than $100 million from over 800 investors for his own expenses and to keep his investment fraud going. Between 2003 and 2010, Berg diverted approximately $45 million from his investment funds, without his victims’ knowledge or permission, for the purchase of buses and the operation of MTR Western and several subsidiary bus companies. During the 10 years that Berg operated his investment funds, he used investor money for the purchase of: a $1.95 million condominium in Seattle; a $1.25 million house in La Quinta, Calif.; a $1.4 million condominium in San Francisco; and a $5.475 million waterfront home on Mercer Island. The forensic analysis of Berg’s bank accounts further showed that between 2001 and 2010, he spent at least $5.5 million on the purchase and operation of two Lear jets and at least $3.6 million on the purchase, operation and frequent modification of several yachts.
In 2010, Berg claimed he was cooperating with bankruptcy trustees in his personal and corporate bankruptcies in an effort to help unravel his fraud schemes. Federal investigators learned that he had concealed approximately $400,000 from the trustees and later lied about the source of these funds when confronted by the trustee in his personal bankruptcy.
“To feed his unadulterated greed, Mr. Berg took advantage of hopeful investors – many of them senior citizens, who depended on their carefully built savings to afford assisted living, medical care and higher educational opportunities for future generations,” said Steven M. Dean, Assistant Special Agent in Charge of the FBI Seattle office. “Although this sentencing doesn't change the fact that many lives are brutally impacted by Mr. Berg's actions, the FBI is pleased that, at least, Mr. Berg will serve significant time for his crimes. The FBI thanks all our state and federal agency partners for their contribution to a case that has significance for so many victims.”
“I have spoken with the victims of financial fraud schemes and can tell you that the emotional and financial pain they endure is beyond description,” said Kenneth J. Hines, the Internal Revenue Service (IRS) Special Agent in Charge of the Pacific Northwest. “Those who peddle false investments and prey on investors for their own personal financial benefit need to understand that law enforcement will not sit by and let it happen.”
The case was investigated by the FBI, the Washington State Department of Financial Institutions and the IRS-Criminal Investigation. The case was prosecuted by Assistant U.S. Attorney Norman Barbosa.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force, visit: www.stopfraud.gov .