• further violations of certain federal laws;
• soliciting/accepting additional funds; and 
• altering/destroying relevant documents. 

Civil Contempt

On August 7, 2012, the SEC filed a civil contempt motion against Waters, alleging that he had violated the court's preliminary injunction order by establishing an undisclosed bank account, transferring funds to that account, dissipating assets, and failing to disclose the account. From the time of the entry of the freeze in May 2012 through mid-July 2012, Waters had deposited approximately $172,000 in proceeds from his mail fraud and dissipated approximately $152,000.

Criminal Contempt

On August 9, 2012, the U.S. Attorney for the District of Massachusetts filed a separate criminal contempt action against Waters based on the same allegations. On October 2, 2012, Waters pleaded guilty to the criminal contempt charges, and he was ordered detained pending sentencing.

Criminal Case

On October 17, 2012, Waters was criminally charged in the District of Massachusetts with 16 counts:

• seven counts of securities fraud;
• six counts of mail fraud,
• two counts of money laundering, and 
• obstruction of justice. 

The investment partnerships

Federal prosecutors alleged that from 2007 through 2012, Waters fraudulently obtained at least $839,000 from various investors through misrepresenting that their funds would be place in investors units in investment partnerships - contrary to such assertions, most of the investors' funds were diverted to personal and business expenses. Apparently, ever the con artist, Waters convinced his victims that their investments had generated substantial profits, which would be returned to them in the near future. In furtherance of this fraud, during an April 2012 SEC examination of his securities business, Walters lied to examiners when he denied that there had been any investors in the subject partnerships.

The coin game

Alas, the investment partnership scam seems to have been merely one track upon which Walters ran his fraud trains. Prosecutors charged that between 2002 and 2012, Waters had convinced customers to buy coins at prices that, on average, represented a 600 percent mark-up above fair market value. After fleecing his victims into over-paying for their coins, thereafter, Waters also induced some purchasers to return coins to him on the false pretense that he would sell those coins on the customers' behalf. In the case of one unfortunate victim, who had paid Waters over $7 million for over-priced coins, Waters managed to extract in excess of another $500,000 in sales and storage fees. To make matters worse, it seems that Waters had already emptied the old piggy bank and rather than storing and re-selling any of his victims' coins, he merely took the assets and converted them to his own use.

If convicted, Waters, faces the following prison terms and fines:

• Securities Fraud: up to 20 years in prison, to be followed by three years of supervised release and a $5 million fine; 
• Mail Fraud: up to 20 years in prison, to be followed by three years of supervised release and a $250,000 fine; 
• Money Laundering: up to 10 years in prison, to be followed by three years of supervised release and a $250,000 fine; and
• Obstruction of Justice: up to 20 years in prison, to be followed by three years of supervised release and a $250,000 fine.

Guilty Pleas

On October 2, 2012, Waters pled guilty to two counts of criminal contempt. On November 29, 2012, he also pleaded guilty to all 16 criminal counts in the substantive case. Based upon his guilty plea in the criminal matter, on December 3, 2012, the SEC barred Walters from the securities industry. The SEC Bar extends to Waters association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.

Sentence

On April 25, 2013, Waters was sentenced to 17 years in federal prison, three years of supervised release, and restitution/forfeiture of over $9 million. 

READ:

• The SEC Complaint (May 7, 2012)
• The SEC Order Instituting Proceedings And Settlement (December 3, 2012)

As many BrokeAndBroker readers know, I often rail against the failure of too many victimized investors to undertake even the most basic of due diligence about investments and the folks associated with them. See, for example, Wall Street Eugenics: SEC Charges Microcap Fraud . . . again. Perhaps as classic a case as any, consider these disclosures, as noted in Paragraph 11 of the SEC's Complaint: