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$5M Ponzi Schemer Gets 4 Years

by Paul Bass | Jan 28, 2014 5:45 pm

(2) Comments | Commenting has been closed | E-mail the Author

Posted to: Legal Writes

Paul Bass Photo Juan Jose Alvarez de Lugo robbed his victims with a sales pitch and a website, not a gun. His lawyer asked a judge Tuesday to free him from prison—arguing that white-collar criminals his age are more likely than drug-gang leaders to go straight in the face of public humiliation.

The judge wasn’t buying.

Instead, U.S. District Court Judge Warren Eginton sentenced Alvarez de Lugo to 48 months in federal prison.

He also ordered Alvarez de Lugo to pay back the money—at least $5.16 million—that he pocketed from at least 22 investors by claiming he was building homes for the poor and the elderly in New Haven.

“I’m very comfortable with this sentence,” Eginton said after weighing the white-collar crook-versus-gangbanger argument.

You may never have heard of Alvarez de Lugo. Unlike, say, New Haven street criminals who steal iPhones or coke dealers swept up in drug busts, he didn’t have his name or photo plastered in newspapers or on TV. But he stole a lot more money, in the name of helping the needy, than just about any other New Haven criminal arrested in years.

A native Venezuelan who once ran for Congress in his home country as an opponent of dictator Hugo Chavez, Alvarez de Lugo followed his brother-in-law Juan Miguel Salas-Romer in building up a real estate business in New Haven over the past decade, a time when foreign millions have flowed into town to snap up distressed properties in poor neighborhoods. Only Alvarez de Lugo didn’t actually buy his properties. He designed a sophisticated website and promotional materials, and returned home to pitch investors in person. He used his standing as a board member of Bank of Southern Connecticut and pretended to be working with then-Mayor John DeStefano and his government’s Livable City Initiative (LCI) to buy and rebuild and then resell “social housing projects” to help the poor. He also claimed to be constructing an elderly housing complex at the foot of West Rock. He convinced contacts back in Venezuela, including at least one childhood friend, to invest millions. He promised in return to pay them 20 percent interest a year, and return their principal in a year.

Marcia Chambers Photo In a classic Ponzi scheme, he made some initial interest payments to convince the investors and their friends to pony up more. Then he absconded with all the money, building a 12-room, 4,967 square-foot dream home (pictured) on Branford’s Huntington Drive, taking family vacations, sending his kids to Hamden Hall Country and the New School in New York. The feds caught up with him a year ago, and he pleaded guilty to wire fraud. Read an in-depth story about his New Haven escapades, and how an LCI staffer helped crack the case, here.

Few people outside the official participants in the proceeding showed up to Judge Eginton’s Bridgeport federal courtroom Tuesday for Alvarez do Lugo’s sentencing—just his daughter, surrounded by two young men who consoled her in the front row of otherwise six empty rows of benches. Dressed in prison khakis and sneakers, seated at the defense table between his attorney and a court translator, Alvarez several times looked back wistfully at his daughter.

Before Eginton handed down the sentence, he oversaw a debate on the criminal justice system’s treatment of white-collar crime, as well as how age should factor into a criminal’s punishment.

Alvarez de Lugo’s attorney, federal public defender Deirdre A. Murray, urged the judge to bypass federal sentencing guidelines calling for her client to serve between 41 and 51 months for his crime. She argued that the year he has spent already in federal prison will do the trick of preventing him from committing more crimes.

“Deterrence does work in white-collar offenses,” she argued. “There is no doubt in my mind that Mr. Alvarez de Lugo will never make this mistake again.”

That’s because unlike, say, leaders of drug gangs without much formal education or legitimate job prospects, Alvarez de Lugo has an engineering degree, Murray argued. He made a legitimate, good living to support his family before he launched his Ponzi scheme in New Haven seven years ago, she claimed. Unlike those blue-collar criminals, Alvarez de Lugo has suffered extra “humiliation” from his family and friends given the world he lives in, she argued.

The year in jail “has been sufficiently punitive,” she argued. “He has been sufficiently deterred.”

“He’s not a drug addict. He has a good education. He has a history of working,” she told the judge. “If he’s released, he will be able to get back to work. ... He recognizes the harm he has done to people.”

And the fact that he’s 54—and that he allegedly didn’t start committing crimes until after he turned 46—makes him less likely to go back to an ingrained life of crime, she said.

Paul Bass Photo Murray (pictured leaving court Tuesday) echoed points made in her sentencing memo (click here to read it) about how Alvarez de Lugo has already suffered greatly from his arrest and imprisonment. Here’s how Murray put it in the memo: “[H]e now has a felony criminal record; he has lost his good name and his reputation as a businessman; he has harmed the financial interests of people he knew and cared about; he has hurt his family members, making it impossible for his son to continue with his education and causing his wife to file for divorce; he is financially devastated; he faces the potential of deportation to Venezuela where he may be persecuted by the reigning political party; and he has deeply disappointed himself.”

“If someone’s willing to do this at 46, I don’t see at 53 or 54” he will necessarily change his ways, responded the federal prosecutor in the case, Assistant U.S. Attorney Michael S. McGarry.

A 53-year-old may have decades of active life ahead, McGarry argued—pointing out the experience of Judge Eginton, who is 89. (“Ellen and I are a year apart,” Eginton noted, referring to U.S. District Court Judge Ellen Bree Burns, who recently turned 90 and, like Eginton, still sits on the bench.)

“The zebra is not likely to change his spots,” McGarry argued.

McGarry argued for a “meaningful sentence” at the higher end of the 41 to 51-month range. “Meaningful sentences in white-collar cases can have deterrent effects.” He argued that the “higher status in life” for a white-collar criminal like Alvarez de Lugo in fact offers “more of a reason” for a strong sentence. “They have many advantages that those who committed street crimes didn’t have,” but they chose the criminal path nonetheless, McGarry argued. (Click here to read his sentencing memo.)

He read a statement from one of Alvarez de Lugo’s victims in Venezuela, who lost $270,000 to the Ponzi scheme. “We’ve been selling our clothes and paintings and everything we own” and preparing to move in with a relative, the letter read in part. “We are surviving. We are not living.”

Then a New Jersey lawyer named Roger A. Serruto spoke on behalf of his client, another victim in Venezuela, named Fancisco Carrasquero. He said Carrasquero grew up with Alvarez de Lugo; they were close family friends. He lost a whopping $2 million to the scheme, because he trusted his childhood pal not to cheat him.

Before Eginton ruled, Alvarez de Lugo made a brief statement in Spanish, which a court interpreter translated into English.

“I am really very ashamed of what I did. I accept all responsibility,” he said.

“And I’m very ashamed for what happened to the victims, for their losses ... and also the moral harm that came to them ...

“And I feel very ashamed before my children because I let them down. ...

“And I’m very ashamed before this society that opened its arms to me. ... I couldn’t protect my family against a very corrupt and violent” regime in Venezuela.

In the end, Eginton opted for the 48-month sentence. It includes the little more than a year that Alvarez de Lugo has already served.

Already, “these white-collar guidelines are fairly lenient compared” to those for criminals involved in the drug trade or street crime, the judge argued.

He added three years of supervised release to the sentence, though he said he doubts it will take effect: “I think he’s going to be deported” back to Venezuela.

Defender Murray stated for the record that she considers the 48-month sentence “unreasonable,” thus paving the way for a possible appeal.

Eginton chuckled in response. “The Second Circuit [Court of Appeals] may agree with you,” he said, “but I don’t think so.”

Asked afterwards if she indeed plans to file an appeal, Murray said she must first discuss the matter with her client.

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posted by: Gretchen Pritchard on January 29, 2014  9:02am

Vile.  Absolutely vile and shameless.  They’re right to throw the book at him.  He had NO excuse; he did it for thrills.

posted by: EastRocker on February 1, 2014  10:13am

Four years in a country club prison? That’s it?!?!? You can get 20 years hard time for shoplifting two tenths of one percent of the amount this guy stole. This guy should never see the light of day. White collar crime like this has far more of a long-term affect than other theft crimes and needs to be dealt with far more harshly.

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