Investors in Sean Mueller’s Ponzi scheme, one of the highest-profile fraud cases to hit Colorado, soon could receive $10 million, according to a settlement request filed in Denver District Court.
“This case was quite difficult compared to other Ponzi schemes,” said receiver C. Randel Lewis.
That’s because several investors — known as “net winners” — received payouts and because Mueller Capital’s accountants, William Saetveit and William Schaefer, each had a 5 percent ownership interest in the company overseeing the scheme.
Mueller promised investors returns of 12 percent to 20 percent a year using a proprietary day-trading system and heavily courted them within his Cherry Hills Village social circle and on area golf courses.
But two years into a run that lasted from 2000 to early 2010, Mueller already was siphoning off new investor money to cover losses, pay out earlier investors and to enrich himself, court documents say.
Among the biggest losers is John Elway, general manager of the Denver Broncos, who is expected to get back $1.44 million of the $9 million he entrusted to Mueller late in the scheme.
Elway’s claim was one of more than 100 filed against the insolvent estate of Mueller Capital Management and related firms. The claims sought $117.6 million damages, of which $68.4 million was approved.
The proposed settlement works out to about 16 cents on the dollar, assuming parties with disallowed claims don’t object to the distribution, Lewis said.
Mueller heavily encrypted his computer files, but once those were cracked with some effort, the ins and outs of the scheme became evident, he said.
Between 2000 and 2010, 145 investors placed $147 million with Mueller, of which $86 million was returned in principal and phantom gains, according to the forensic accountant’s report.
Mueller Capital suffered $38 million of trading losses and paid out $6 million in expenses, including some directly to Mueller. Mueller took an additional $7 million of compensation, which allowed him to buy luxury homes and cars and create an image of success that drew in additional investors.
“People decided to invest based on the fact that they knew other smart business people who were investing with Mueller,” said Gerald Rome, the state’s securities commissioner. “Investors didn’t do their own verification.”
All client funds were pooled into one account rather than kept separate. Mueller frequently moved money around between accounts and falsified statements to hide his dwindling capital. He also refused to allow audits of the accounts or his accounting practices.
On Nov. 1, 2010, Mueller pleaded guilty to securities fraud and other charges and received a 40-year prison sentence. He also was ordered to pay $74 million restitution, an amount investors have almost no chance of seeing.
Accountants Saetveit and Schaefer were ordered to pay $1 million each in a judgment back in February 2013 but filed personal bankruptcies three months later.
When authorities shut Mueller Capital down in March 2010, the statements that were sent to investors showed $138 million — but between $9 million and $10 million is what was actually left.
What has some victims concerned is that the initial settlement amount of $10 million, which should rise a little as lingering claims are collected, isn’t that much more than what was available back in 2010.
“It seems that we would have done just as well if the distributions had been made right after the fund was shut down, and not incurred all of the legal expense associated with shaking down prior investors of income they thought they had legitimately earned,” said Annette Quintana, whose husband, Len Silverston, lost $1.5 million with Mueller.
Lewis “clawed” back $5.6 million from 34 net winners in the scheme — primarily earlier investors paid out using new investors’ money — and won another $1.14 million in settlements with brokers.
But winning those settlements contributed to $3.8 million of legal and other fees, including more than $500,000 of forensic accounting work needed to sort out what damage claims were legitimate.
Lewis defended the efforts to win back funds from those who profited from the fraudulent venture and to sort out what claims were allowable.
“I do think it was worth it,” he said. “I would always like the settlement to be more, but that is what we have been able to recover.”
Those opposed to the distribution plan will have until Aug. 18 to object.
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or twitter.com/aldosvaldi
Ponzi payout
Of $117.6 million in claims in Sean Mueller’s Ponzi scheme, $49 million was denied and $10 million will be returned in an initial distribution. Below are the individuals who will receive the most back in the first round, assuming court approval.
ClaimantsDamages claimedProjected interim distributionJohn Elway$9 million$1.44 millionJames J. Burke$5.8 million$903,301Kathleen H. Adkins$5.17 million$839,326Donald P. England$4.5 million$461,493Blaine Rollins$3.5 million$561,086Carol A. Walsh$3.1 million$185,663
Source: Receiver C. Randel Lewis’ Proposed Plan of Distribution
