Former Covenant Church Usher Pleads Guilty to Ponzi Scheme Fraud

OUTSIDE SEATTLE, WA -- An 86-year-old local man has to ten counts of securities fraud on Thursday, accepting a deal from prosecutors to serve one year in jail and repay $2.3 million to families swindled in his Ponzi scheme.

Stephen Joseph Klos of Mercer Island entered an Alford plea before King County Superior Court Judge Chris Washington on July 26 on charges he had been running a Ponzi scheme that swindled investors — including several Mercer Island residents — out of at least $3.5 million. With such a plea, a defendant doesn't admit to the crime but acknowledges a jury likely would convict him given the information in the case.

Investigators believe Klos began orchestrating the Ponzi scheme beginning in 2004 and met most of his victims at the . Klos and his associate in the ponzi scheme, co-defendant Robert A. Justice, took mony from as many as 28 families from 2004 until 2009. They were in April 2011.

Prosecutors said he told the victims that he would invest their money but instead used most of the money for his personal benefit and to pay back other investors. Klos must pay the restitution of $2.3 million by the sentencing date of Dec. 28 or face a jail term of 68 months — nearly 6 years.

Klos had been stripped of his license to sell securities by the United States Securities and Exchange Commission (SEC) in a 1992 settlement after it determined Klos and two other individuals had run a Ponzi scheme. Under the terms of the settlement, Klos neither admitted nor denied the facts alleged in the complaint — a common method of settlement used by the SEC.

Co-defendant Robert Justice pleaded guilty earlier in February to four counts of Securities Fraud and received a one year sentence, work release eligible.

Klos faces a sentence range of 51 to 68 months and sentencing is set for Dec. 28 at 1 p.m. before Judge Bruce Heller at the King County Courthouse in Seattle.