In a Seattle courtroom packed with investors, family members and emotion, convicted Ponzi scheme operator Frederick Darren Berg was sentenced Thursday to 18 years in a federal prison.
"I'm not sure how you live with yourself, with the damage you caused," U.S. District Court Judge Richard A. Jones said after the court heard from two victims and 49-year-old Berg himself.
Jones sent Berg to federal prison for 18 years, accepting a plea agreement prosecutors arranged last August with the Mercer Island resident admitting guilt on three charges of wire fraud, money laundering and bankruptcy fraud (Click here for extensive coverage of Berg's Ponzi scheme on Mercer Island Patch).
According to a Feb. 3 affidavit from IRS agents, investors in the Ponzi scheme lost more than $123 million, making it the largest-ever fraud of its kind in the state.
“The greed in this case is stunning,” said U.S. Attorney Jenny A. Durkan. “This defendant stole and squandered the dreams of hundreds: dreams of retirement, dreams of homeownership, dreams of a college education for their children and grandchildren. While we could not restore those dreams, today he was held accountable for his acts.”
According to the Seattle Times, Berg disputed Assistant United States Attorney Norman Barbosa's account of when his business became a Ponzi scheme, but admitted he had willfully broken the law to "save the company."
"Did I run a 10-year Ponzi scheme and defraud you for 10 years, or did I run a legitimate business and then defraud you?" he asked.
He offered his apologies to several investors he called out by name, including Craig Edwards and Christine and David Bueckler — who, according to bankruptcy court documents, gave Berg an emergency loan of $450,000 in 2010 as his scheme unraveled. The loan was never repaid.
Jones said he accepted the recommended sentence in the plea deal as a balance between the unprecented magnitude of the fraud and personal circumstances surrounding Berg's upbringing as an abused child—detailed in letters from his mother and sister.
But Jones took the opportunity before sentencing to remind the defendent of the damage he had done to "real people."
"These were supposed to be their golden years," he said, "not a dark nightmare."
Berg founded investment fund Meridian Group, representing $280 million in investor money that was invested in real estate contracts. At one point late in 2009, Berg had promised investors returns from 12 percent to as high as 50 percent, according to the Puget Sound Business Journal. In doing so, he bilked more than 800 investors out of more than $245 million, according to court documents. Another $25 million in funds, according to the IRS, came from unknown sources.
Ponzi schemes are fraudulent investments where returns are actually paid to investors from their own money or from money of new investors, and sustains itself only through new investor money coming in.
Kenneth J. Hines, the IRS Special Agent in Charge of the Pacific Northwest said Ponzi schemes typically follow the latest invetment fad, like gold, oil and gas or — as in Berg's case, real estate. But in the end, Hines said — paraphrasing the Oliver Stone film Wall Street — the schemes are driven only by a single unifying factor: Greed.
"Greed is not good. Greed drives people to do things that they normally wouldn't do," he said. "Wanting to be successful is one thing. But that aspect of greed, when someone wants success at all costs, that's where greed becomes a bad thing."
In the 10 years he operated the investment fund, the Mercer Island businessman is said to have spent more than $30 million on his own lavish lifestyle, including a expensive waterfront home on the north end of Mercer Island, a luxury yacht, personal jets and lavish spending sprees.
He also diverted approximately $45 million from his investment funds without his victims' knowledge or permission for the purchase of buses and the operation of MTR Western and several subsidiary bus companies.
"Somewhere along the way, something got in the way of a lifestyle that can not be supported—except by fiction," Jones said. "You showed a reckless disregard for the truth and other individuals."
A hearing on restitution to his victims, most of whom are elderly, is scheduled in Jones' court for April 6 at 11 a.m.
Prosecutors believe victims will be owed as much as $130 million.
“To feed his unadulterated greed, Mr. Berg took advantage of hopeful investors--many of them senior citizens who depended on their carefully built savings to afford assisted living, medical care, and higher educational opportunities for future generations,” said Steven M. Dean, Assistant Special Agent in Charge of the FBI Seattle office.
“Although this sentencing doesn't change the fact that many lives are brutally impacted by Mr. Berg's actions, the FBI is pleased that, at least, Mr. Berg will serve significant time for his crimes. The FBI thanks all our state and federal agency partners for their contribution to a case that has significance for so many victims.”
Berg , and has been in federal custody ever since. He will likely serve time at a federal correctional facility in California.
(Ed Note: An earlier version of this story misattributed the direction of Wall Street. The 1987 film was directed by Oliver Stone. Patch regrets the error.)