Santa Barbara man pleads guilty in $12 million Ponzi scheme

November 23, 2010

A Santa Barbara  man accused of defrauding more than 50 investors in a $12 million Ponzi scheme pleaded guilty Tuesday to charges related to federal mail and wire fraud charges.

Frommer faced a statutory maximum sentence of 233 years in prison if found guilty on the 17 counts in the indictment.

In exchange for today’s guilty plea, prosecutors agreed to not seek more than 33 years in federal prison when Peter Jerald Frommer, 35, is sentenced on March 10, 2011 by United States District Judge George H. Wu.

Frommer operated a bogus investment scheme under the names “Cap Exchange” and “Cap X” that purported to trade in surplus property of defunct companies. Frommer told numerous victims throughout the United States that he used commercial auction websites to purchase large lots of equipment for resale at higher prices.

From January 2004 until August 2006, Frommer solicited at least $12 million from victims by promising “guaranteed” returns of 8 percent to 15 percent during cycles as short as six weeks. Frommer claimed that he would use victims’ money to buy the distressed assets for Cap X, and then would share profits from the subsequent sales.

However, Frommer did not purchase distressed assets with the victims’ money. Instead, Frommer allegedly misappropriated this money to maintain his lavish personal lifestyle and to make Ponzi payments to victims, while falsifying Cap X account statements to lull victims into believing that their money was safe and earning high returns.

The investigation into Frommer was conducted by the Federal Bureau of Investigation and IRS-Criminal Investigation.