Prosecution Rests in $70 Million Ponzi Mortgage Case
Capital News Service
Friday, Feb. 4, 2011
GREENBELT, Md. - Warren Johnson Jr. sat in a Washington Plaza Hotel conference room in October 2007 and suddenly realized he had lost $100,000.
Johnson had taken out a second mortgage on his Mitchellville home to give money to a company called POS Dream Homes. The company promised to invest it for him and pay off both mortgages within five years. But after two months, the checks stopped coming.
In that hotel conference room that day the company's founder, Andrew Hamilton Williams Jr., was telling investors not to worry -- that the company was about to get a large loan and the checks would start appearing again.
Johnson walked out before Williams finished speaking.
"I knew at that point we were done," Johnson told a jury Jan. 20. "We were losing our money."
Federal prosecutors say Johnson is one of more than 1,000 investors scammed by Laurel-based Metropolitan Grapevine in a $70 million pyramid scheme conducted between 2005 and 2007. Williams' trial has been pushed to Nov. 1, but prosecutors rested their case this week against three other Metropolitan Grapevine employees in a jury trial before Judge Roger W. Titus in the U.S. District Court for the District of Maryland in Greenbelt.
Chief financial officer Michael Anthony Hickson, 46, of Commack, N.Y.; President Isaac Jerome Smith, 46, of Spotsylvania, Va.; and Vice President of operations Alvita Karen Gunn, 31, of Hanover, Md., each face 15 counts of wire fraud, one count of conspiracy to commit fraud and one count of conspiracy to commit money laundering. Each count carries up to 20 years of prison time. Smith also faces up to 30 years on one count of bank fraud and Hickson faces up to five years for making false statements to a grand jury.
Hickson, who is representing himself, began his defense Friday. The case is expected to last through February.
Pre-trial jury instructions proposed by Smith's lawyers stressed that jurors "may not infer that the defendant was guilty of participating in criminal conduct merely from the fact that he associated with other people who were guilty of wrongdoing," and that "Good faith is an absolute defense to the charges in this case. If the defendant believed in good faith that he was acting properly, even if he was mistaken in that belief, and even if others were injured by his conduct, there would be no crime."
During his cross-examination of Johnson, Hickson seemed determined to draw a distinction between POS Dream Homes and Metropolitan Grapevine's other ventures. Carole Nelson, the CFO of POS Dream Homes, already pleaded guilty to money laundering and is scheduled to be sentenced March 14.
Prosecutors say Williams' companies had different names -- "Metropolitan Grapevine LLC," "Metro Dream Homes," "POS Dream Homes," and "POS DH LLC" -- but played the same game from offices in Maryland, the District, Virginia, North Carolina, New York, Delaware, Florida, Georgia and California.
Investors kicked in a minimum of $50,000 to a "Dream Homes Program." The company promised to invest it in ATMs, electronic phone card kiosks and flat-screen televisions showing video ads at local businesses.
Those "point of sale," or POS, business ventures were supposed to provide enough money to pay investors' mortgages in 5 to 7 years. But prosecutors say they did not generate any meaningful revenue. Instead, they say Williams and company used funds from new investors to pay off old investors in a classic Ponzi scheme.
Robbie Mason, who invested $100,000 in the Dream Homes Program in 2007, testified that he called an 800 number to inquire about buying ads for his family's barber shop to run on the company's flat-screen TVs. When no one followed up, he became suspicious of the Dream Homes Program, which by then had received a cease-and-desist notice from the Maryland Securities Commissioner. Mason wrote for a refund, but said he didn't get his money back. He had to short-sell his house in Bowie, losing about $300,000.
Prosecutors say Gunn, Smith and Hickson used money from investors like Johnson and Mason to pay themselves salaries of up to $200,000, buy a fleet of luxury cars, hire 10 chauffeurs and spend approximately $60,000 on a trip to the 2007 Super Bowl.
In a pre-trial motion, Hickson said he received none of those luxuries.
Prosecutors said investors' money also went to fund information sessions at luxury hotels in Washington, D.C., Maryland and Beverly Hills, Calif., that outlined how new investors could make $20,500 a month on the ATMs, phone card kiosks and video ads.
The Washington Plaza Hotel at 10 Thomas Circle NW was a popular venue for the presentations. Federal prosecutor Jonathan Su presented documents that showed Metropolitan Grapevine spent almost $264,000 between Sept. 13, 2006, and Oct. 7, 2007, to host dozens of catered events for thousands of prospective investors there.
Those who invested in POS Dream Homes in the company's final months have little hope of getting more than a tiny fraction of their money back. The Prince George's County Circuit Court appointed Baltimore-based Invotex, Inc., to redistribute the company's assets, but Invotex released a memo last March that stated there would likely be no more than $100,000 to distribute against $58 million in claims. Invotex is still accepting claims.
Johnson, who has a history degree from Morgan State and works for the Department of Health and Human Services, told the jury he was skeptical when he first heard about the Dream Homes Program. But after attending two information sessions and talking to other investors, he bought in at the beginning of June 2007.
"I was just hearing good things all the way around," he testified, but two months later the operation began to crumble.
Johnson said he's still in his home, but his mortgage payment rose by $900 a month, forcing him to use credit cards to pay other bills.
He stormed out of that 2007 conference at the Washington Plaza Hotel frustrated and angry. Williams told investors they could speak to him about refunds, but Johnson didn't bother.
"I just knew that no one was going to get a dime," he told the jury. "I just knew that."