Sep 20 - 23 year old in Richmond Makes $8 million in 6 months

"If it sounds too good to be true, it probably is," said Charles J. Cunningham, special agent in charge of the FBI Richmond field office.

Tell that to more than 350 investors who say that since April, they handed over about $8 million after James E. Brown Jr. promised to double their money every six weeks by trading in foreign currency.

Cunningham spoke at a news conference yesterday at which U.S. Attorney Chuck Rosenberg and other law-enforcement officials announced Brown's indictment on charges of mail fraud and possession of a firearm by a felon. He was convicted in 2002 on a check-forgery charge.

Brown, 23, of Chesterfield County was arrested Friday morning. He remained in custody yesterday pending a detention hearing in U.S. District Court tomorrow.

He faces a maximum of 30 years on those charges if convicted. The multiagency federal investigation continues. Additional charges appear likely against Brown and some of the 10 employees of his Brown Investment Services, authorities said.

Brown allegedly used investment seminars held in the Richmond area and duped people with his presentation. He offered a written guarantee that he would double their investments every 30 business days by trading on the Foreign Currency Exchange Market, known as FOREX.

It was "a classic Ponzi scheme," Rosenberg said, a type of fraud in which money from new investors is used to pay earlier investors. "A Ponzi scheme works on the principle of robbing Peter to pay Paul," Rosenberg said. That makes things appear legitimate for a time, but eventually the pyramid collapses.

How much of the $8 million did Brown allegedly invest in FOREX? How much money did his investors make?

"The answers are not very much and nothing at all," Rosenberg said. "Mr. Brown lost money every month that he traded -- every month."

How much the alleged victims lost has not been determined. Some put in as much as $50,000, authorities said. Officials hope to make restitution after seizing known bank accounts and Brown possessions believed purchased with investors' money. About $1.1 million was in two bank accounts controlled by Brown last week, authorities said.

Court papers say Brown Investment Services opened three accounts at Wachovia Bank in April. One was in Brown's name, another in the name of the company; Brown alone controlled both. A third was in the names of Brown and a woman.

From April until this month, the $8 million flowed into the company account. Some, according to the indictment, may have gone into foreign-currency trading but much more went elsewhere -- to support the "increasingly lavish lifestyle" of Brown and his employees.

According to court papers, starting May 1 and as recently as Sept. 7, Brown bought $2.9 million worth of automobiles. Authorities described it as a luxury fleet of more than two dozen cars for Brown and employees of his company. One was a Mercedes-Benz SLR McLaren whose estimated value is about $450,000, authorities said.

Brown withdrew about $469,000 in cash and spent about $159,000 using a debit card, both in funds from investors, according to the indictment. He also bought more than $154,000 in jewelry and, from April until September, paid himself $640,000 in salary.

Salaries of the employees of Brown Investment Services averaged $115,000, the indictment says. One of them was a fashion consultant whose primary job was to choose Brown's clothes and set them out for him each morning.

Brown paid early investors a total of about $2.6 million in "lulling payments," according to the indictment.

In July and August, authorities said, people separately went to the FBI, the U.S. Postal Inspection Service and the criminal investigation unit of the Internal Revenue Service to inquire about the legitimacy of Brown's company. Investigators for the three agencies compared notes and went to work together.

One who complained became a confidential source for the investigation. The information gathered from the source, from bank records and from court-ordered wiretaps and surveillance led to Friday's arrest on a criminal complaint and yesterday's indictment.

Rosenberg said investigators worked fast on "a big complicated case" to stop the Ponzi scheme quickly and get as much money back for the victims as they could.