|The world of credit unions is based on the philosophy of “people helping people,” but a new Ponzi scheme uncovered by the SEC did anything but. The fraud centered on a fake credit union that acted as the front to steal millions from investors, according to the Credit Union Times.
On Friday the SEC charged an Indianapolis man, Timothy J. Coughlin, 63, “with conducting an Internet offering fraud in which investors lost millions of dollars by investing funds in a fictitious credit union.” The fake credit union, named Oxford International Credit Union, was the front through which Coughlin allegedly collected funds from more than 5,000 investors from all 50 states and the District of Columbia.
The scheme took place between June 2007 to December 2009 and generated more than $12.8 million in investments, according to an SEC statement.
Credit Union Ponzi Scheme Promised 356% APY to Swindle Investors
According to the SEC’s complaint, Coughlin “misappropriated investor money to pay personal expenses, fund unrelated business expenses, and make distributions to other investors in a classic Ponzi-scheme fashion.”
Coughlin allegedly misappropriated at least $5.97 million from investments received by Oxford International Credit Union. The SEC alleges that $1.57 million was used for personal expenses. Over a third of the money, $4.4 million, was moved around among investors who had requested withdrawals.
This reshuffling of money allowed Oxford International Credit Union to maintain its appearance as a lucrative investment. To further this image, the faux credit union made false reports of huge returns to investors’ online accounts of 0.471% each trading day, equal to a 356% average annual rate of return.
That kind of interest rate sounds too good to be true — and that’s what it turned out to be. In late 2008 to 2009, Coughlin began denying investors’ request to withdraw money from their accounts with Oxford International Credit Union, falsely claiming that the IRS had frozen the accounts, according to the SEC. This action led to the SEC’s involvement and investigation, which is ongoing.