Ex-Mercer Island Church Usher, 86, Sentenced to 4 Years in Prison for $3M Ponzi Scheme

MERCER ISLAND, WA -- An 86-year-old former local church usher will be in prison until he’s 90 as part of his sentence in a multimillion-dollar Ponzi scheme that stripped victims of their retirement savings and forced some out of their homes.

Stephen J. Klos accused of 10 counts of securities fraud against people he met at the Mercer Island Convenant Church, was also ordered to pay $2.3 million in restitution in King County Superior Court last month.

Age was a factor in the prosecuting attorney's recommendation to sentence Klos at the low end of the sentencing range; otherwise, prosecutors would have argued for more time, according to court documents.

The dozens of victims included a widow who lost all the insurance money from her husband's death, a woman who lost her home and had to move in with her daughter, and others who lost retirement savings and investments and went into debt, prosecutors said.

Klos, who entered an Alford plea last July, had accepted a deal from prosecutors to serve one year in jail and repay $2.3 million to families swindled in his Ponzi scheme, but the deadline to repay the families came and went.

The 51 months--or four years and three months--was on the low end of sentencing, as recommended by King County Deputy Prosecuting Attorney Scott A. Peterson, as "an attempt to balance the seriousness of his offenses with his age."

Otherwise, according to Peterson, if Klos had been found guilty at trial, the seriousness of his crime might have supported additional time above the standard sentencing range.

Investigators believe Klos began orchestrating the Ponzi scheme beginning in 2004 and met most of his victims at the Mercer Island Covenant Church, where he was a church usher.

According to prosecutors, Klos used his position to gain the victims' trust, and the victims were either elderly or unsophisticated investors.

Some of the victims had taken out second mortgages and lost homes or their retirement savings, or went into debt. One of the victims invested the money that insurance had paid to her after her husband committed suicide, and she had planned to use for her daughter's college education, prosecutors say. She lost all the money in the scheme, prosecutors say.

Klos and his associate in the Ponzi scheme, co-defendant Robert A. Justice, took about $3.5 million from as many as 23 families from 2004 until 2009. Justice and Klos were both arrested and charged in April 2011.

Klos entered an Alford plea before King County Superior Court Judge Chris Washington last year, which means a defendant doesn't admit to the crime but acknowledges a jury likely would convict him given the information in the case.

Klos had been stripped of his license to sell securities by the U.S. Securities and Exchange Commission in a previous 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.