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Businessman Pleads Guilty in Ponzi Scheme

LOS ANGELES

Fraud: He faces up to 57 months in prison for $21-million scam that victimized more than 200 people.

August 21, 2002|DAVID ROSENZWEIG | TIMES STAFF WRITER

A Los Angeles businessman has agreed to plead guilty to defrauding more than 200 friends, relatives and associates through a $21-million Ponzi scheme, federal prosecutors said Tuesday.

Gary A. Eisenberg, 64, who operated Advance Finance Inc. and Advance Finance Holding Inc. in Beverly Hills, was charged with four counts of securities and mail fraud.

His victims included his in-laws and a half-brother, as well as a large assortment of friends, acquaintances and business associates, according to Assistant U.S. Atty. Stephen A. Cazares.

"Mr. Eisenberg accepts responsibility for the mistakes he made that led to these charges, and he's sorry for the breach of trust he caused with investors," said his attorney, John Cotten.

Cotten said Eisenberg is cooperating with federal authorities in an effort to recover some of the missing money and locate others who may have been involved in the scam.

Eisenberg was in the business of advancing money to manufacturers while they awaited payments for accounts receivable, a practice known as factoring.

From 1994 through 2001, the government charged, he raised more than $21 million through the sale of partnerships in his factoring enterprise, promising investors returns of 9% to 18% a year.

He told investors that the partnerships were risk-free because the accounts receivable were from Fortune 500 companies such as Home Depot, Macy's and American Express, according to his written plea agreement.

In truth, prosecutors said, Eisenberg loaned the money to non-credit-worthy clients, some of whom paid kickbacks to his employees.

As early as 1996, prosecutors said, Eisenberg knew that Advance Finance and Advance Finance Holding were racking up huge losses.

As a cover-up, they said, he began making interest payments with proceeds from new investors.

In 2001, Eisenberg and his businesses filed for bankruptcy protection.

Under terms of the plea agreement, he faces a possible sentence of 46 to 57 months in prison and will be required to make full restitution to his victims.

The Securities and Exchange Commission filed a civil action against Eisenberg on Tuesday that mirrors the allegations in the criminal complaint. Eisenberg has agreed to settle that lawsuit as well.

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