Four guilty of felonies in castle fraud
Vail, CO Colorado
DENVER ” Four men were convicted in Denver Tuesday on a total of 53 felony counts and acquitted on 57 others in connection with an international investment fraud scheme whose proceeds were used to buy the Redstone Castle near Carbondale.
One of them, Norman Eugene Schmidt of Denver, was convicted of 37 felony counts, including conspiracy, mail fraud, wire fraud, securities fraud and money laundering.
Tuesday’s convictions followed a trial in U.S. District Court that lasted about six weeks, including two weeks of jury deliberations, said John Harrison, a spokesperson for the Internal Revenue Service.
Also convicted were Charles Franklin Lewis, of Littleton, on 10 felony counts covering the same charges on which Schmidt was convicted; George Alan Weed of Benton, Ill. and Michael Duane Smith of Colbert, Wash.
Weed was convicted on one count each of mail, wire and securities fraud. Smith was convicted on three security fraud counts. Schmidt was acquitted on five counts, Lewis on 13 counts, Weed on 25 counts and Smith on 14 counts.
Seven people originally were indicted in the $56 million investment fraud, which resulted in more than 1,000 victims.
The IRS seized the castle in 2003 as part of its investigation into the alleged scam. It also seized 60 bank accounts, eight NASCAR race cars and other cash and property. Cash from forfeited assets is being returned to victims.
Built around the start of the 20th century by coal magnate John Osgood, the 42-room castle was sold at auction in 2005 for $4 million to Ralli Dimitrius, a part-time Aspen resident. The castle is scheduled to reopen to public tours on Friday.
The IRS contended that shell companies were used to launder funds from the investment scheme to buy the castle. Leon and Debbie Harte headed up the $6.5 million purchase. Leon Harte died before the 2004 indictments were handed down. Investigators believe Debbie Harte, who had been divorced from Leon before his death, was not a participant in the scheme.
Jannice Schmidt, Norman’s wife, pleaded guilty to securities fraud and last August was sentenced to nine years in federal prison. She also agreed to forfeit assets including a farm in Nebraska.
George Beros, of Shaker Heights, Ohio, pleaded guilty in March to one count of securities fraud. He is scheduled to be sentenced June 15.
Another man indicted in the case, Peter A.W. Moss of London, England, remains at large. Federal prosecutors have been seeking to extradite him.
Investigators say that from 1999-2003, those behind the investment scheme misrepresented it as being high-yield and low-risk, and used proceeds for purposes different from what had been promised to investors.
“I think this should hopefully send a clear warning to the public that there is no such thing as a risk-free investment; that if you can’t afford to lose it don’t invest it, and that’s it in a nutshell,” Harrison said.
He said the high-yield investment scheme has existed in various forms in the United States since the 1950s. It’s a variation of a Ponzi scheme, which relies on the money provided by later investors to pay off early ones. Harrison said the first red flag for prospective investors should be whether the represented possible return on investment sounds reasonable. Schmidt and others were promising annual yields of up to 400 percent.
“Nobody’s paying you 400 percent,” he said.
Money laundering carries a federal prison sentence of up to 20 years per count, and conspiracy and security fraud, up to five years. Mail fraud and wire fraud are punishable by up to five years if committed before July 30, 2002, and up to 20 years if committed after that. All of the charges also are punishable by fines, including amounts as high as $1 million for mail and wire fraud.
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