James Duncan was born in 1971 and went on to work in insurance and broking- his efforts there led to a cease and desist order from regulators in Iowa and Washington.
He then set up Sunburst Factor Fund with Hendrix Montecastro, later renamed Pacific Wealth Management, to give the appearances of an affinity with the well-known wealth-management company (which had nothing to do with the fund).
The duo approached investors in Orange County, California, with a real-estate scheme, which they claimed would make “infinite returns” so long as clients agreed to follow all their instructions for at least three years, without asking any questions.
What was the scam?
The scheme involved investors buying properties on Duncan’s recommendation and Montecastro by taking them out of new mortgages over the new houses’ value.
Pacific Wealth Management would then take the difference between the mortgage and the purchase price as a “concession fee”, promising to invest the money to cover the mortgage cost.
Most of the money was in reality diverted to Duncan and Montecastro, funding trips to Las Vegas casinos-$18,000 was spent on one holiday alone. The duo diverted cash from new investors to make payments, turning the fund into a Ponzi scheme.
What happened next?
By late 2006 the number of new investors willing to take part in the real-estate side of the business was drying up.
Duncan and Montecastro demanded existing investors take out credit cards or liquidate savings accounts, to give them additional money to invest, threatening to expel those who refused.
Enough complied briefly to keep the scheme running, but by 2007 even this source of money was drying up, so Pacific Wealth Management stopped making payments on its clients’ various loans. The scheme then collapsed, and both Duncan and Montecastro were eventually convicted of fraud.
Duncan was jailed for 19 years in 2009 and was ordered to pay $3.4 million to 33 victims of the scam.
Montecastro was jailed for a staggering 81 years for his role.
The SEC, the US regulator, estimated that more than $142m worth of loans were taken out by investors, with at least $30m of the money used to pay Duncan and Montecastro’s personal expenses.
Very little of the money has since been recovered; many investors lost their investment property and their main residence.
The pair employed a number of techniques common to scams, such as claims of high-level “connections” and large risk-free returns.
The biggest red flag was their demand that investors give them control over their financial affairs and not ask questions about how their investments were doing.
Kris Paterson is a writer for WhatJobs.com
Image Credits: The Press Enterprise