John G. Schmidt appeared to be someone you could really trust to advise you on financial matters. He had 35 years of experience as a registered broker-dealer representative. He had his Financial Industry Regulatory Authority (FINRA) Series 7, 24, 63 and 65 licenses. He was a certified financial planner. Since December 2006, he worked as a registered representative in an independent branch office of Wells Fargo in Dayton, Ohio. He brought to Wells Fargo most of his 325 customers, many of them having moved their accounts to Wells Fargo so they could continue their relationship with him. From 2003 to 2017, John G. Schmidt was also running a massive Ponzi scheme according to a complaint filed against him on September 25, 2018, by the United States Securities and Exchange Commission (SEC).1
What is a Ponzi Scheme?
A Ponzi Scheme is a form of investment fraud that promises quick returns to investors with money from subsequent investors, not from profits earned by the organization. Between February 2013, and October 2017, five of Schmidt’s long-time customers were experiencing shortfalls in their accounts. These customers thought they had enough assets to withdraw funds over the long term, but they were rapidly depleting their principal and were in danger of exhausting their assets. Schmidt chose not to tell these customers the truth about their dire financial situation. Instead, he developed and mailed them fictitious account statements, with inflated account balances and fictitious securities holdings. One customer’s account was less than $20,000, but the customer was withdrawing $11,700 a month to cover his living expenses in retirement. The account statement that Schmidt sent to this customer showed a balance between $1.5 and $1.7 million in securities holdings that the customer did not own. Schmidt developed and mailed similar statements to four other clients.
At least three of these clients received accurate account statements from Wells Fargo. Schmidt told them that they should ignore these statements, assuring them that the Wells Fargo statements showed a lower balance because “some of the customers’ securities were held by custodians other than Wells Fargo or were not reflected on the ‘official’ brokerage statements for tax reasons.”2
To cover shortfalls in the accounts of 10 customers, Schmidt, without his customer’s knowledge or authorization, sold over $1 million in securities of at least seven of his customers.3 He targeted his most vulnerable customers according to the SEC complaint. These customers were the least likely to notice money missing from their accounts and Schmidt knew that at least two of them had been diagnosed with dementia or Alzheimer’s disease. He even defrauded one customer after his death. Schmidt personally profited from the brokerage commissions on these sales to the tune of over $230,000.4
In the summer of 2017, the Ohio Department of Insurance launched an investigative inquiry which ultimately led to the SEC filing formal charges against Schmidt. He was terminated by Wells Fargo on October 24, 2017. On September 25, 2018, Schmidt was charged with 124 counts of forgery; two counts of theft from an elderly or disabled adult; one count of telecommunications fraud; and one count of fraud or deceit by an investment adviser according to a statement from the office of the prosecuting attorney of Montgomery County, Ohio, which was reported by InvestmentNews.com.5 “For years, this defendant defrauded a number of investors, many of them elderly or with dementia,” said the prosecuting attorney Mat Heck, Jr. in the statement. “He had to keep stealing from more investors in order to cover for the thefts from other investors.”
If you believe you have been a victim of investment fraud such as a Ponzi Scheme, it is important that you contact an experienced investment fraud attorney. With over 20 years’ experience in investment and securities fraud cases, the Law Offices of Peter C. Rageas can help. Contact us today for a case evaluation.
1, 2 U.S. District Court for the Southern District of Ohio, Case No. 18-cv-320, US SEC vs. John Gregory Schmidt, Complaint, Filed 9/25/2018
3, 4 SEC Charges Ohio Broker with Defrauding Senior Customers, Litigation Release No. 24287, September 25, 2018
5 Ex-Wells Fargo broker in Ohio charged with running $1 million Ponzi, Bruce Kelly, InvestmentNews.com, 1/2/2019