FBI Raids Firm for Evidence of Ponzi Scam

The FBI raided a Southern California investment company Monday, alleging that more than 1,800 clients who invested tens of millions of dollars were victims of a confidence scheme.

No charges have been filed, but the FBI is investigating Financial Advisory Consultants as a possible Ponzi scheme, in which early investors are paid with money from later investors, said FBI spokeswoman Laura Bosley.

James Lewis, who variously lists himself as the firm’s president or, more recently, its funds manager, told an investor in August that his “growth fund” alone had $62 million in assets, according to an FBI affidavit. Lewis also operated an income fund that clients said was worth tens of millions of dollars.

His firm had more than 1,800 clients across the nation, one of Lewis’ assistants told the FBI.

Lewis has not responded to multiple phone messages and letters sent to him by registered mail and overnight delivery.

Agents executed a search warrant at the Orange County company’s three-room El Toro office suite Monday, carting away boxes of documents, computers and other materials.

“They’ve got the place totally dismantled,” said a client who witnessed the raid and fears he will lose the $350,000 he invested.

Associated Press disclosed this month that Lewis, 57, has been investing millions of dollars for clients and claiming huge financial returns for 20 years, without being licensed or regulated as required.

Moreover, the firm has never provided clients with any details on how it invests their money. Since July, Lewis has been delaying withdrawal requests with the excuse that millions of dollars in investments have been frozen by the Department of Homeland Security -- a freeze that Associated Press reported does not exist.

Those details were confirmed in a sworn affidavit used to obtain the search warrant from a federal magistrate.

“There is probable cause to believe that FAC and Lewis, through the use of the mail, engaged in a scheme to defraud investors in FAC’s Income and Growth Funds by operating a Ponzi scheme,” FBI agent Brad Howard said in his affidavit. He further alleges that Lewis and the firm used the U.S. mail to sell securities without registering with the federal Securities and Exchange Commission.

Regulators are examining documents provided by Barry Minkow, a convicted felon turned anti-fraud investigator for San Diego-based Fraud Discovery Institute.

“The very substance and essence of this business did not exist,” Minkow said. Law enforcement officials acted quickly, he said, because “they saw the guy digging a deeper and deeper hole, and they pulled the shovel out of his hand.”

In a letter faxed to investors Friday, Lewis said his firm had “never charged for financial advice, nor have we ever sold any securities.” He said that meant he didn’t need to be registered with the SEC or the state Corporations Department.

But in its reports to investors, the firm says it charges a 5% “management fee” on any profits it earns for its clients.