Police say a Bellingham financial adviser used a Ponzi scheme to steal more than $500,000 from Whatcom County residents, most of them elderly, and spent the money on gambling, hotels, restaurants, and other personal expenses.
Police arrested David P. Thomas, 56, of Alder Street on Wednesday afternoon to face 25 counts of theft in the first degree and 29 counts of securities fraud-related violations, according to a Bellingham Police Department news release.
Many alleged victims are from Bellingham and Whatcom County. Others lived in Spokane; San Antonio; Brigham City, Utah; and Ashland, Ore.
According to the news release, in April, a local victim reported her concerns about bonds she bought from Thomas. A detective worked with the Securities Division of the Washington State Department of Financial Institutions.
“During the course of this investigation, 16 additional victims were contacted, which show a consistent plan and scheme by Thomas to defraud victims of their personal funds,” Bellingham police Lt. Bob Vander Yacht said in the release. “The pattern and scheme has been consistent across victims and over several years.”
The investigation revealed Thomas presented himself to investors as an adviser for Thomas & Company Wealth Management as recently as October 2015 though the company had not been registered with the state for nearly five years. He had been licensed through his insurance company, originally Thomas & Company, now Insured Income Solutions on Magnolia Street.
Neither company appears to have significant assets, or a source of income for repaying investors, Vander Yacht said. According to its website, Insured Income Solutions is designed for “retirees and those within five years of retirement.”
Thomas brought in at least $545,000 from 17 investors between March 2012 and May 2016, police said. He gave clients certificates for debentures – an unsecured loan, backed by credit rather than collateral – though he told them they were secured, according to a probable cause statement read in court Thursday by prosecutor Dave McEachran.
Several investors had debenture certificates marked as Certificate No. 509, 519, and 521, when they were supposed to be unique, McEachran said. At a hearing before the Securities Division, he testified he created debentures form himself.
He then used the clients’ money to pay for gambling, hotels, and the scheme itself, according to police.
“Thomas was operating a Ponzi scheme, using funds from new investors to repay prior investors,” Vander Yacht said.
Often he would withdraw the money for himself as cash, police said. Bank records showed one client gave him $25,000 in September 2013, and two weeks later spent over $5,000 of that money at the Bellagio Hotel & Casino in Las Vegas, according to police.
Months later the same client gave him $15,000. With that money, he paid off investors – including the one who had just paid him. Thomas sent a check for $1,062.50, and wrote “note interest” on it. But there was no interest, police said, because the money hadn’t been invested at all. The same pattern followed with “each and every victim.”
“Not one victim had any indication of the actual use of the funds. Each have expressed devastation that their monies are not in bonds as told and promised by Thomas,” Vander Yacht said. “For many of the victims in this case, the monies given to Thomas consisted of their life savings, their retirement funds, all of the money they had.”
On the Better Business Bureau’s website, Thomas & Company holds a rating of A+, in spite of two negative reviews posted on the same date in June 2016.
“After accepting the $2,000, Mr. (Thomas) became almost impossible to reach,” one review states. “We notified him that since no services were rendered and we could never get a hold of him, we would like to cancel. He agreed to refund our money. We have not heard from him since. Our last course of action is court.”
Thomas did not disclose to clients that he filed for personal bankruptcy twice, and had four IRS tax liens against him, according to the statement read in court Thursday. Just before his arrest this week, Thomas was setting up a meeting with another elderly couple to talk about their retirement income, McEachran said.
The prosecutor asked for bail set at $500,000, to match the amount Thomas is accused of stealing. The defense attorney, Robert Butler, asked a Superior Court commissioner to release him without bail, pointing to his limited record, i.e., a few speeding tickets.
“He is presumed innocent as he stands here,” Butler said. “We have just heard an impressive litany of unproven statements by the state.”
Commissioner Leon Henley set bail at $100,000.
Tips about other possible victims can be directed to Detective Darla Wagner at 360-778-8767.