Stephen B. Blankenship, 64, of New Fairfield, was sentenced yesterday by United States District Judge Vanessa L. Bryant in Hartford to 41 months of imprisonment, followed by three years of supervised release.
Fein said Blankenship defrauded investors of approximately $600,000 in a long-running Ponzi scheme. Blankenship was also ordered to pay a $7,500 fine. Judge Bryant will issue a restitution order after further court proceedings.
“Over the course of a decade, this defendant convinced investors that their retirement funds were safe and growing at the same time he was using their money to pay business and personal expenses, and to pay other investors as part of a Ponzi scheme,” stated U.S. Attorney David B. Fein. “In order to protect the investing public, the Department of Justice and our law enforcement partners are committed to uncovering these schemes and prosecuting the fraudsters who perpetrate them."
Fein said this case was seamlessly investigated by the Danbury Police Department, the FBI, SEC, and Connecticut’s Department of Banking.
"I commend them for their collective efforts in bringing this unscrupulous investment advisor to justice,” Fein said.
According to court documents and statements made in court, Blankenship owned and operated Deer Hill Financial Group, LLC, in Danbury, which he represented to be an investment management firm in the business of managing client funds and buying and selling securities on behalf of clients. However, at no time was Deer Hill Financial Group registered with the Securities and Exchange Commission (“SEC”) as an investment company, investment adviser, broker-dealer, or in any other capacity.
From approximately 2002 to March 2012, Blankenship falsely represented to numerous individuals that he had investment opportunities that were safe and would pay a consistent return to investors. Blankenship had been affiliated with registered broker-dealers in California and New York, and many of his victims were his prior customers.
Blankenship's false representations to his victims included that Deer Hill was being operated as a legitimate investment management firm, that investors could obtain a greater rate of return by withdrawing money from their existing brokerage accounts and investing directly with him, and that funds would be invested in publicly-traded mutual funds or established securities. In fact, there were no actual investments or investment opportunities, the money was not invested in publicly traded mutual funds, nor was it invested in established securities.
Blankenship failed to invest the money as represented and instead used the victims’ funds to pay business expenses and personal expenses for travel, grocery shopping, credit card payments, mortgage payments, and improvements on his home.
In order to create the appearance of legitimacy, Blankenship sent investors fraudulent account statements reflecting fictitious holdings, fictitious transactions, fictitious prices for the securities, and phony balances, all of which were intended to convince investors that their money was secure and appreciating.
Blankenship also falsely represented to his victims that he could achieve – and was achieving – a consistent and positive return on the invested funds when, in fact, he was not achieving such returns. He also used a portion of the victim-investors’ funds to make fraudulent lulling payments to other victim-investors to create the appearance that there were actual investment returns.
Through this scheme, Blankenship defrauded at least eight investors of approximately $600,000.
In a parallel action, the SEC has filed a complaint alleging that Blankenship and Deer Hill violated the anti-fraud provisions of the federal securities laws and acted as unregistered brokers. The complaint seeks disgorgement of ill-gotten gains plus prejudgment interest, monetary penalties, and the entry of a permanent injunction against Blankenship.
On September 12, 2012, Blankenship pleaded guilty to one count of mail fraud and one count of securities fraud.