Massachusetts Regulators Charge Company in $10 Million Ponzi Scheme That Targeted Employees

The Massachusetts Securities Division has charged a Rhode Island man with operating a Ponzi scheme which defrauded more than 40 investors out of more than $10 million. David Wagner of East Greenwich, Rhode Island and his company Downing Partners LLC and its subsidiaries are alleged to have required employees to invest in the company as a condition of employment, while using the invested funds to pay for operating expenses, including management fees and employee salaries.

“This case represents a classic Ponzi scheme, but unfortunately, in addition to costing these investors their savings, it has also cost them their livelihoods,” said Secretary of the Commonwealth William Galvin.

“My office is making every effort to get this money returned to the employees who were defrauded,” he added. “We have been working with the U.S. Attorney’s Office in the Southern District of New York on this case for several months and I intend to make sure that the Massachusetts victims get their fair share of the money from any victim assistance fund that is established.”

According to the administrative complaint, Wagner and the Downing companies engaged in an aggressive recruitment scheme which targeted potential employee investors. Recruited employees were promised six figure salaries and benefits but were first required to invest between $50,000-$250,000 in the company’s purported development of various medical products.

“In reality, the Downing Companies were experiencing significant financial difficulties and almost none of the funds raised from prospective investor-employees were used for the development and commercialization of products,” the complaint states. “Instead, the money raised was used to enrich Wagner and the management team as well as pay other investor-employees.”

The complaint alleges that “many of the affected employees who were lured into the company with fraudulent information about the company’s worth, promises of high salaries, and generous benefits left behind lucrative job opportunities and invested their retirement funds in the Downing Companies.”

Regulators claim that the majority of these employees never received the full salaries promised to them and saw their health insurance lapse when the company failed to make payments. Wagner was ultimately unable to further perpetuate the scheme, and as a result, the employees were never paid their full investments.

The Massachusetts Securities Division is seeking censure of those charged and an order that they cease and desist any violation of state securities laws. They are also asking for an administrative fine and restitution for the victims.

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