Foreign Currency Trading Firm Defrauds Investors with Promises of Stable Returns

The Securities and Exchange Commission (SEC) on July 14, 2011 filed fraud charges against the CEO of a purported foreign currency trading firm, alleging he scammed hundreds of investors with false promises of high, fixed-rate returns while secretly using their money to fund his start-up alternative newspaper.

First Capital Savings & Loan Ltd. Chief Executive Jeffery A. Lowrance, who had fled to Peru and was arrested there earlier this year, was arraigned today on criminal fraud charges in a 2010 indictment filed by the United States Attorney’s Office for the Northern District of Illinois. In addition, the Commodity Futures Trading Commission filed fraud charges Thursday against Lowrance and First Capital.

The SEC alleges that Lowrance raised approximately $21 million from investors in at least 26 states, including California, Oregon, Illinois and Utah by promising huge profits from a specialized foreign currency trading program. In reality, First Capital conducted little foreign currency trading, lost money on the little trading that it conducted, and never engaged in any profitable business operations. Lowrance targeted investors by purporting to share their Christian values and limited-government political views. He solicited investors through, among other things, ads in his start-up newspaper USA Tomorrow, which he distributed at a September 2, 2008 political rally in Minneapolis, Minnesota.

According to the SEC’s complaint, filed in federal district court in San Jose, California, Lowrance and First Capital promised investors a “predictable monthly income,” with monthly returns up to 7.15 percent through foreign currency trading. Some investors were told their investment was guaranteed, and were given bogus letters of credit. First Capital also published a spreadsheet purporting to show its multi-year history of profitable trades. In fact, the trades were fictitious. Instead of engaging in foreign currency trading as claimed, Lowrance and First Capital secretly diverted investor funds to pay fake returns to other, earlier investors, to pay Lowrance (despite his failure to earn a profit for the investors), and to fund his newspaper.

Lowrance’s scheme began to unravel in June 2008 and Lowrance and First Capital had lost all of the investors’ money by September 2008. Nevertheless, Lowrance solicited at least an additional $1 million from at least 36 investors between June 2008 and February 2009 by continuing to tout First Capital’s fictitious high returns, the SEC alleges.

Yet again innocent investors were abused by a charlatan who raised money with the classic promises of stable and guaranteed returns in an investment class that simply cannot back these types of promises. Clearly, this fraudster preyed on investors who did not possess even basic knowledge of financial markets. These investors were swayed merely by promises of hypothetical returns rather than conducting a real investigation into those promises. Perhaps most tragic is the fact that these investors could have prevented this harm by seeking the counsel of Wittenberg Law before they made their investment.