The second of three defendants in an alleged $550 million ($845m) Ponzi scheme pleaded guilty in federal court in Baltimore after signing an agreement with federal prosecutors.
Kevin Merrill, 53, of Towson, Maryland, pleaded guilty to one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum prison sentence of 20 years and a maximum fine of US$500,000 or twice the gross gain. He pleaded not guilty to 13 other counts.
The plea agreement comes just six weeks after Cameron Jezierski, Merrill's Texas-based co-defendant, pleaded guilty to similar charges. The third co-defendant, Jay Ledford, also of Texas, is awaiting trial. All three still face Securities and Exchange Commission charges.
After Merrill's guilty plea, Assistant US Attorney Joyce McDonald told the courtroom that Merrill had at one point emailed Ledford and said, "Thanks, my shady friend!" in reference to a fake tax return Ledford allegedly prepared for Merrill. A lawyer for Ledford did not immediately respond to requests for comment.
According to the plea agreement, Merrill and Ledford met in 1999 through a customer of the radiology supply company where Merrill worked as a sales representative. The two became friends and gambling partners, federal attorneys said. Ledford, an accountant, prepared Merrill's taxes.
At a hearing last week, McDonald explained how the two men allegedly created fake tax returns and other financial documents to mislead investors.
"This relationship developed as they went after more sophisticated investors who demanded more due diligence," McDonald said.
According to federal prosecutors, the three men offered more than 400 investors in numerous states the chance to profit from consumer debt portfolios - mostly student loans or credit card debt that had been defaulted on - that were owned by Ledford.
Rather than invest the money given to them by investors, the three men pocketed much of it, prosecutors said, and used some to pay off earlier investors and keep the scheme going.
Prosecutors said the victims included "small-business owners, restaurateurs, construction contractors, retirees, doctors, lawyers, accountants, bankers, talent agents, professional athletes," at least five of whom experienced significant financial hardship that the defendants allegedly were aware of.
The three men allegedly used the proceeds of their fraud to sustain a lavish lifestyle across multiple states, purchasing expensive jewelelry, sports cars, mansions and an interest in a private jet. They spent millions gambling in Las Vegas, according to court documents.
The alleged scheme operated from 2013 through September 2018.
It was discovered when an undercover FBI agent was offered the opportunity to invest in one of the allegedly fraudulent debt portfolios.
Merrill and his wife also faced obstruction of justice charges after the pair allegedly conspired to hide funding from the Justice Department following Merrill's arrest.