Lydia I. Cladek, St Augustine, FL ,was the president and sole shareholder of Lydia Cladek, Inc. ("LCI"). If you were among those contacted by Cladek, she may have represented to you that LCI was an investment company - and not just a run-of-the-mill one, at that, but a company that purchased high-interest motor vehicle retail installment contracts.
Sounds interesting? Wait …there's more.
This golden opportunity was not something that Cladek offered to any shlub. Oh no, you had be one of Cladek's personal friends or be referred to her by an existing investor. Moreover, many of Cladek's investors came from her and other social organizations. Watta lucky bunch.
In trying to convince you to part with your money and invest through LCI, Cladek told investors that their money would be used to purchase the high-interest notes at a guaranteed 15% to 20% return. And who was guaranteeing those fantabulous rates? Why none other than Ms. Cladek.
The hitch? Now, c'mon, you know there's a hitch here; otherwise, why the hell would I be spinning this yarn? The hitch here's a beaut!
After you invested with LCI, Cladek issued to you a promissory note secured by the vehicles and the car notes. Wonderful. Wonderful. Wonderful. You make an investment secured by a promissory note, which, in turn is secured by notes on Hondas, Fords, GMs, Toyotas, and who knows what other makes and models - maybe enough cars to fill up an AutoNation lot?
Ummm, Bill, that sounds like a fair deal. I thought that you said there was a hitch here?
If you have a fireplace, go ahead and use those notes as kindling. Although the notes that Cladek issued were, in fact, secured by car notes, there were a few teensy weensy little problems with that arrangement.
Some of the collateralizing car notes had previously been assigned to four or five investors; and, many of the notes were then assigned to new victim investors, sometimes in as little as a week. As early as 2003, LCI did not have sufficient car notes on hand to provide the promised collateral coverage. By 2005, Cladek had $58 million in outstanding investor notes but only about $38 million in collateralizing car notes. By March 31, 2010, when the FBI served a search warrant on LCI, the collateralizing car notes' value was under $4 million versus $90 million in investor loans.
Where did the shortfall of funds go? For starters, to three vacation homes in Captiva and Sanibel, FL and a very nice residence in St. Augustine Beach, FL. Not to be accused of going bargain basement, Cladek even used a household "manager," who testified that she purchased much of the custom furnishings and accessories in the home for Lydia Cladek, including a set of sheets costing $2,000.
In any event, as these thing often progress, on November 23, 2010, Cladek was indicted in federal court in the Middle District of Florida on 14 counts of wire fraud, mail fraud, and conspiracy to commit wire and mail fraud. She faced a maximum penalty of 20 years for each count and a $3.5 milliion fine. Additionally, the government is seeking a $113,235,968.02 money judgment representing the criminal proceeds plus, for good measure, a forfeiture of assets, among which are oceanfront property, jewelry, and artwork which are alleged to be traceable to proceeds of the offense.
On January 26, 2012, a federal jury found Cladek guilty on all 14 counts.
On September 20, 2012, Cladek, 67, was sentenced to 30 years and 4 months in federal prison; ordered to pay over $34 million in restitution.
First off, good luck to the feds in collecting that $34 million in restitution.
Given that we're told that Cladek was running this scam in as early as 2003, that means it took about 9 years to catch, charge, convict, and sentence her. So, just roughly doing the math here, you know all that mortgage stuff and the toxic investment products we read about a few years ago? The good news is that any day now, those responsible for any fraudulent financial offerings should just about be in line for a federal indictment; and, wow, in a few more years, we may even get around to sentencing some folks responsible for the Wall Street fraud of 2008 and 2009! Now that's progress.
Of course, permit me one more snarky shot here.
You know, it's nice that we're sending this 67-year-old lady to the big house for 30 years, during which time maybe she can make some license plates for some of the cars that she did or didn't collateralize (but I don't think they do that in a federal prison). On the other hand, when I think of the federal bail-out of the auto industry, and the banking industry, and the financial industry, and all the toxic and exotic crap that was dumped into the system and seized the engine of our economy, I'm sort of wondering how it is that we got around to hammering this one con artist in Florida while a lot of other characters seem to be sitting in a lot of palatial homes financed with the proceeds of fraud from too-big-to-fail financial institutions, failed brokerage firms, and dubious hedge funds. Of course, in many of those cases, the feds just let the firms pay a few hundred million out of the pockets of their public shareholders and no one went to jail.
Like I said, pardon my snark.
For a similar theme, READ:
Seven Years Of Smoke And Mirrors In $1 Million Hedge Fund Scam