Multi-Million Dollar Investment Fraud Scheme
Why would 300 people invest $9.5 million over a five-year period in a company that sells water that is similar in color to oil? EarthWater, a Dallas (Addison) based operation had a great name, good story, and targeted elderly investors with promises of fast, high-yield returns.
Health and Wellness Product
“EarthWater manufactured and sold bottled water that it claimed was infused with special minerals mined from an 80-million-year-old deposit hidden in a secret location.” March 2019 Indictment This “magical tonic” had a “rich black color,” and was advertised as “a miracle remedy for HIV and cancer.” Kevin Krause, Dallas Morning News, June 15, 2020. In order to paint themselves as the good guys, Earth Water executives promised to deliver 1,000 bottles of their own Texas Tea to the Dallas Police Department in 2015. Kevin Krause, DMN.
Investors were not providing money to drill oil wells. And the Department of Justice did not mention a Ponzi scheme. Instead, people were tricked into buying inexpensive stocks on the eve of a company going public through an IPO. The IPO never came and was never filed. Often the stocks were sold for 10 to 50 cents/share with a promise that the stock would be valued at $5/share at the time of the impending IPO. Despite claiming they were not taking salaries, the CEO and others were not investing in the company, but instead were personally pocketing investors’ money. March 2019 Indictment
50% Sales Commissions (Placement Fees)
How do the bad guys entice others to join the program? Nine people have been named as the team of fraudsters, including the C-Suite and sales team. They are in various stages of being charged, indicted, and pleading guilty. Although the advertised placement fees were not to exceed 10% of the shares’ purchase price, two salespeople earned 50%, and another earned 30%. That kind of money can really stack up. DOJ June 2020 Press Release
Post Arrest and Still Operating
As of June, CEO, Cengiz Jan “CJ” Comu and COO, John Mervyn Price have pled guilty to mail fraud, wire fraud, and money laundering, but it took more than their arrests to stop the financial fraud. In fact, after the arrest of Harley Barnes of Plano in May, he and another player, Beth Degroot appeared to have been emptying bank accounts to purchase a home.
They “were separately charged by a federal grand jury in the Northern District of Texas with conspiracy to commit wire fraud and bank fraud and obstruction of justice relating to the ongoing investigation into EarthWater, …” Trial is set for October. The continuing scam included opening new bank accounts, increasing Degroot’s salary, paying a bonus to Degroot, and contacting investors in hopes of continuing the scam under a new company name. DOJ June 2020 Press Release
Despite the many different, unique, and convincing ways people have of divorcing investors from money, some themes remain constant.
- Prior bad acts. Scam artists usually have a background of crime or other fraudulent activities. CEO, Comu had been “personally barred from selling unregistered securities as a result of actions filed by state and federal security regulators.” However, Comu claimed he was a successful “Wall Street veteran.” March 2019 Indictment
- Unsolicited and recurring phone calls. Aggressive phone sales tactics and emails are generally commonplace in investment fraud. People with whom investors have no relationship are often the first contact. People selling stocks on behalf of EarthWater from Florida and Oklahoma kept calling the same investors for more money and pushed the impending IPO deadline to secure immediate investments.
Contact An Experienced Investment Fraud Attorney Today
Each year it seems as if the bad actors get better at developing fraudulent investment schemes that look real. We hope all your financial investments are safe and profitable. But if you find yourself searching for an experienced investment fraud lawyer, we are here to help.