Mercer Island resident Stephen J. Klos pleaded not guilty this morning in King County Superior Court to 28 counts of Securities Fraud for allegedly running a Ponzi scheme that raised approximately $3.5 million from area residents.
The King County Prosecutor's Office said in court filings that and the Seattle area. Prosecutors allege that Klos met most of his victims at the and told them that he would invest their money but used most of the money for his personal benefit and to pay back other investors.
Co-defendant Robert A. Justice was also arraigned and pleaded not guilty to five counts of Securities Fraud for his alleged role. Investigators believe Klos began orchestrating the Ponzi scheme beginning in 2004.
A "Ponzi" scheme is a fraudulent monetary investment arrangment whereby the solicitor acts as a hub, attracting separate investors and paying them "returns" from their collective money — not from actual profit earned.
Klos, 84, could face 4 to 5 1/2 years in prison. Justice, 52, could be sentenced to 12 to 14 months as an accomplice. A case setting hearing is scheduled for May 18 for both defendants.