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, his next move was fraud.
He then set up Sunburst Factor Fund with Hendrix Montecastro, later renamed Pacific Wealth Management.
This was the same name as a 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.
They claimed the scheme would make “infinite returns” so long as clients agreed to follow all their instructions for at least three years, without asking any questions.
That on its own seems like a major alarm bell, but they were allowed to continue.
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What was the fraud?
The scheme involved investors buying properties on Duncan’s recommendation.
Montecastro then ensured they took out mortgages which were higher than the 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.
They used it to pay for trips to hotspots like Las Vegas.
One holiday cost $18,000.
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.
This gave them extra money to invest.
Anyone who refused was threatened with expulsion.
Enough people complied, but by 2007 this cash was drying up.
The two had stolen $142 million at this point.
In 2008, a potential customer became suspicious about the very strict rules, and subsequently found the two were misusing the name of a legitimate company.
She alerted the authorities and an investigation began.
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Massive jail sentences
The two, as well as Maurice E. McLeod, their accomplice, were arrested and found guilty of carrying out the fraud.
Montecastro was punished hugely.
He was found guilty of 304 felony charges, and given a colossal jail sentence of 81 years.
The charges related to 33 people, totaling £3.6 million between 2005 and 2007.
Duncan, Montecastro and McLeod were all ordered to repay portions of $29 million, plus interest.
Duncan, the mastermind behind the fraudulent scheme, was sentenced to serve 19 years and eight months in prison.
McLeod, who acted as the frontman in the scam, was sentenced to 10 years in prison.
Duncan was able to help himself by acting as a key witness in the case.
However, Montecastro refused to cooperate in any way, which did him no favors when it came to sentencing.
It is important to point out it was his massive criminality that was the biggest contributor to his massive jail sentence.