U.S. Department of Justice

United States Attorney
District of Connecticut

July 26, 2011

Investment Advisor, Race Team Owner, Admits Operating $10 Million Fraud Scheme

NEW HAVEN, Conn. – Gregory P. Loles, 51, of Easton, Conn., pleaded guilty today before U.S. District Judge Mark R. Kravitz in New Haven, Conn., to mail fraud, wire fraud, securities fraud and money laundering offenses stemming from a scheme to defraud investors, including a Connecticut church, of millions of dollars, announced U.S. Attorney David B. Fein for the District of Connecticut

According to court documents and statements made in court, Loles owned Apeiron Capital Management Inc., which was an investment adviser and broker dealer registered with the U.S. Securities and Exchange Commission (SEC) from 1995 through 1998, at which point the registrations were cancelled.  However, Loloes continued to operate Apeiron as an unregistered investment adviser and falsely represented Apeiron to be a registered investment management firm.  Loles also was the majority owner and managing member of Farnbacher Loles Motor Sports, Farnbacher Loles Racing, Farnbacher Loles Street Performance and various other Farnbacher Loles businesses, which were based in Danbury, Conn.  Farnbacher Loles was engaged in the business of professional race team operations and servicing high-performance automobiles.

In pleading guilty, Loles admitted that he falsely represented to numerous victim-investors, including friends and fellow parishioners of a church in Orange, Conn., that he would act as their investment adviser and invest their funds through Apeiron in various securities including in what he described as “Arbitrage Bonds,” which Loles represented would provide investors with a safe and steady return.  LOLES also was selected to serve on the board of the church’s endowment fund and was entrusted to manage the Church’s investment funds, including the endowment fund and the Building Fund, by investing in, among other things, Arbitrage Bonds.  However, the Arbitrage Bonds did not exist.

Loles caused numerous victim-investors to invest more than $10 million with him and Apeiron.  Loles failed to invest the money as represented, and instead diverted investors’ funds for his own personal use and benefit, including to pay personal expenses such as credit card bills, and to distribute a large amount of the funds to Farnbacher Loles.

Some of the individual investors provided Loles with funds that had previously been invested in IRAs, 401(k)s, or were proceeds of life insurance payments. 

As part of the scheme to defraud, Loles provided investors with fraudulent account statements and also made periodic “lulling” payments to certain investors using a portion of other victim-investors’ funds.

Loles also defrauded clients of Farnbacher Loles.

The government estimates that victims have lost at least $8.7 million as a result of this scheme.

Today, Loles pleaded guilty to one count of mail fraud, one count of wire fraud, one count of securities fraud and one count of money laundering.  Judge Kravitz has scheduled sentencing for Oct. 14, 2011, at which time Loles faces a maximum prison term of 20 years, on each count, as well as an order of restitution.

Loles has been detained since his arrest by the FBI on Dec. 15, 2009.

This case is being investigated by the FBI, with the assistance of the SEC.  The case is being prosecuted by Assistant U.S. Attorney Michael S. McGarry and law student intern Ewelina Chrzan.

In December 2010, the U.S. Attorney’s Office and several law enforcement and regulatory partners announced the formation of the Connecticut Securities, Commodities and Investor Fraud Task Force, which is investigating matters relating to insider trading, market manipulation, Ponzi schemes, investor fraud, financial statement fraud, violations of the Foreign Corrupt Practices Act and embezzlement.  The task force includes representatives from the U.S. Attorney’s Office; FBI; Internal Revenue Service – Criminal Investigation; U.S. Secret Service; U.S. Postal Inspection Service; U.S. Department of Justice’s Criminal Division, Fraud Section and Antitrust Division; SEC; U.S. Commodity Futures Trading Commission; Office of the Special Inspector General for the Troubled Asset Relief Program; Office of the Chief State’s Attorney; state of Connecticut Department of Banking; Greenwich Police Department and Stamford Police Department.

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 working together to launch 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. The Special Inspector General for the Troubled Asset Relief Program co-chairs the task force’s Rescue Fraud Working Group.  For more information on the task force, visit www.StopFraud.gov

 

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Eric Holder, Attorney General, Chair
 
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What is Financial Fraud?

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