FBI Announces Arrest in Gold Unit Ponzi Scheme

In New York, David Copeland Reed, was arrested and indicted on charges stemming from the operation of an internet based, international "gold unit" Ponzi scheme, according to a press release on the Federal Bureau of Investigation (FBI) website.

The announcement of the arrest was made by Acting United States Attorney for the Southern District of New York, Ev L. Dassin and the Assistant Director-in-Charge of the FBI Office in New York, Joseph M. Demarest, Jr.

David Copeland Reed founded OSGold in March, 2001, as an on-line bank providing internet banking services. The bank was supposedly partially back by gold bullion reserves that were stored in a vault off shore.

Customer opened their OSGold accounts by sending money through a wire transfer. Reed began to offer customers an opportunity to invest in an investment program offering high yields starting in around May, 2001. The investment, called OSOpps, which promised a 30% compounded return over three months, or a 45% rate of return when investments were left in the account for 12 months. The principal was fully guaranteed.

Reed lured customers into the investments by promising high returns, which he claimed were possible because the money was traded in the foreign exchange markets.

Accounts with OSGold and OSOpps were opened by about 66,000 individuals, amounting to about $12.8 million. OSOpps provided online statement to investors that showed the accounts were making the promised return rates on the investments.

Fund entrusted to OSGold and OSOpps were not exchanged in any foreign markets. The funds were laundered by Reed and/or associates through various bank accounts. The money was withdrawn from the bank accounts as used for various personal expenses for Reed and associates.

In around March 2002, the scheme began unraveling when an investor with OSOpps attempted to withdraw about $10 million. When unable to successfully in make a withdrawal, the investor complained, prompting other investors to also attempt to make a withdrawal.

OSGold and OSOpps ceased operating around June, 2002. Reed and his wife withdrew large amounts of cash from accounts and stashed the cash in clothing and duffle bags to smuggle into Mexico.

The millions of dollars from depositors and investors have never been returned. No gold bullion reserves, supposedly associated with OSGold have ever been located.

Reed lived in Mexico for years after fleeing the United States.

Reed, 28, was arrested in Columbia, South Carolina on February 24, 2009. He has been charged with wire fraud and conspiracy to commit money laundering. If convicted, Reed faces a maximum sentence of 40 years imprisonment.

The charges contained in the Indictment are merely accusations. The defendant is presumed innocent unless and until proven guilty.

Resources:

FBI Arrest in Multimillion-Dollar Internet "Gold-Unit" Ponzi scheme. Press release dated February 24, 2009

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