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Alleged Architect of Scam Is Arrested

October 09, 2003|Kathy M. Kristof | Times Staff Writer

Federal law enforcement authorities on Wednesday arrested an Upland man suspected of masterminding a $250-million Ponzi scheme under the noses of regulators, who had banned him from participating in the securities business.

Larry Toshio Osaki, who had been convicted of felony grand theft in 1995, persuaded more than 7,000 investors from across the country to invest in promissory notes in the latest alleged scam, according to a criminal complaint filed in U.S. District Court in Los Angeles.

Investors were told their money was being used to support a business that bought receivables, law enforcement officials say, but the operation was merely a front for a massive Ponzi scheme in which money from new investors went to pay previous investors. The money invested also may have been used to pay Osaki's $78,000 restitution from his 1995 conviction.

In addition, the alleged Ponzi scheme had been uncovered by securities regulators nearly two years ago but continued under a new name at a different address, according to the complaint.

In January 2002, the Securities and Exchange Commission sued Osaki and eventually won a permanent restraining order, barring him from selling promissory notes through a Pasadena company called J.T. Wallenbrock & Associates.

Osaki and several business associates allegedly told investors that they would earn 20% returns every 90 days by financing his business engaged in factoring -- buying accounts receivable at a discount and then collecting on them. Wallenbrock employees told investors that the company bought the receivables of a latex glove manufacturing company in Malaysia, the complaint said.

Over a 10-year period, Wallenbrock took in more than $250 million from investors, but there was no Malaysian glove manufacturer or purchases of accounts receivable, government officials said.

Instead, they said, the money from new investors paid old investors and about $100 million was poured into Osaki's sister company, a venture finance firm called Citadel Capital Management Group.

A court-appointed receiver said he had found detailed handwritten ledgers titled "Larry's Black Books" that recorded investor deposits and payments when he took possession of Citadel's offices in Pasadena in 2002.

Osaki settled the SEC charges by signing a letter of consent, which prohibited him, his business and several of his associates from selling securities, making misleading statements or "engaging in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person," the complaint said.

Yet as the SEC was getting a restraining order on Osaki and Wallenbrock, Osaki was allegedly launching an identical business under a different name -- Village Capital Trust -- with an offshore address.

The complaint charges Osaki with two counts of securities fraud, one count of money laundering, one count of criminal contempt and one count of obstruction of justice. If convicted of all charges, he could face life in prison.

Prosecutors planned to ask that Osaki be held without bond, maintaining that he was both a flight risk and a continuing economic danger to society, said Assistant U.S. Atty. Shannon Wright.

Neither Osaki, who was scheduled to be arraigned Wednesday, nor his attorney could be reached for comment.

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