Judge John Harrah Sentences Ponzi Scheme Crook to 20 Years

The guy’s name this time is Frank Castaldi. The U.S. Attorney’s press release follows:


CHICAGO — A Ponzi scheme that spanned 22 years and resulted in losses totaling more than $30 million to hundreds of individuals had “a horrific impact” on the victims, including many elderly Italian immigrants, a federal judge declared today in imposing the maximum possible prison term on the defendant.

U.S. District Judge John Darrah nearly doubled advisory federal sentencing guidelines in imposing the maximum 23-year prison term for Frank A. Castaldi, a suburban accountant and businessman who promised hundreds of investors between 10 and 15 percent annual interest rates on promissory notes he sold them.  The fraud scheme caused many of the victims to lose their homes, retirement income, and life savings.

This Chicago Sun-Times headline and article on page 2 indicates a 23-year sentence is a big deal.

The sentence marked the second time in less than a week that Judge Darrah nearly doubled sentencing guidelines in imposing sentence against a defendant in a Ponzi scheme case.

Castaldi, 57, most recently of Prospect Heights, was ordered to begin serving his sentence on Nov. 15.  Judge Darrah imposed the sentence after a three-hour hearing in which he heard directly from more than a dozen victims of the fraud scheme, as well as considering victim impact letters from dozens of others, announced Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois; Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Alvin Patton, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago.

Castaldi was charged in January 2009 after self-reporting his criminal activity to federal law enforcement authorities.

He pleaded guilty in August 2009 to one count of mail fraud and one count of impeding the IRS in the collection of taxes.

Judge Darrah imposed the maximum terms of 20 years on the mail fraud count and 3 years on the tax offense and ordered the terms to be served consecutively.  Federal sentencing guidelines called for a sentencing range of 151 to 188 months in prison, but Judge Darrah said the guidelines “grossly understated the seriousness” of the crimes.

Judge Darrah deferred ordering mandatory restitution for 90 days to allow more time to calculate the correct amounts owed to victims.  The government contends that individual and group investors are owed approximately $31.6 million, in addition to more than $8.8 million that is owed to the IRS.

During the early to mid-1980s, Castaldi, his father, and a business partner started two businesses – CZ Travel and CZ Realty.  They later purchased ownership interests in First State Travel Service, Inc., Parkway Towers Insurance Agency, Inc., and Cumberland Realty, Inc., which later became known as Remax Cumberland Realty, all of which were located at 4501 North Cumberland in Norridge, with Castaldi acting as the president of each business.

Since at least 1986, Castaldi began offering and selling 6-month promissory notes to investors, the majority of whom were people who were referred to him by other investors, and included friends, family members and customers of his businesses.

While the vast majority of notes stated that the annual interest rate was zero percent, Castaldi orally guaranteed that he would pay investors annual returns between 10 and 15 percent.

Castaldi made false representations to most investors about investing their principal in his various businesses, as well as the source of the funds that he used to make their interest payments.

Approximately six years ago, Castaldi began falsely telling investors that he was placing their money with financial institutions with whom he had a special relationship and would guarantee their principal and high returns.

Instead, Castaldi obtained loans and used certain investors’ principal payments to make interest payments to other investors, without disclosing the true source of the interest payments.

In all, Castaldi raised more than $77 million from some 473 individual and group investors, of which he used approximately $59 million to make payments of principal and interest to earlier investors.  When the scheme collapsed in December 2008, Castaldi was left owing approximately $31.6 million to more than 300 individuals and investor groups.

In addition to using new investors’ principal to make interest payments and return principal to earlier investors, Castaldi also lost investors’ money by funding a failed banquet hall and other failing businesses, and to purchase some stocks.

The Financial Fraud Enforcement Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.

The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.  For more information on the task force, visit: www.StopFraud.gov.

The government is being represented by Assistant U.S. Attorneys Christopher Veatch and Sunil Harjani.

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