Nashville, Tennessee area resident, Barron A. Mathis, 30, who was the former Vice-President of J.C. Reed & Co., Inc., was sentenced on May 20, 2011, by United States District Court Judge Aleta Trauger to 72 months in prison, and ordered to pay $2,823,091.06 in restitution, according to a press release from Jerry E. Martin, United States Attorney for the Middle District of Tennessee. U.S. Attorney Martin said, "Mathis stole the hard-earned money of individuals without any consideration for the destruction caused to the lives of his victims. Mathis repeatedly encouraged people to invest by falsely promising security, growth and returns on their money, but instead the investors lost their savings as part of an elaborate Ponzi scheme."
The press release alleges that Mathis served at various times as a director, vice president, president, and portfolio manager of J.C. Reed, a financial services company located in Franklin, Tennessee. The company, J.C. Reed, operated a residential mortgage originating business and brokered a variety of marketable securities, including certificates of deposit, private placements, partnerships, and mutual funds. John C. Reed, who is now-deceased, was the founder of J.C. Reed. Prior to his death in 2008, Reed and Mathis conspired to devise a scheme to defraud investors who deposited funds with J .C. Reed by soliciting and obtaining money from clients, friends, and acquaintances and falsely promising to invest and manage the money in growth-oriented, traditional instruments, such as investments with fixed annual returns, or in established marketable securities.
The press release further states that customers were solicited by Mathis to purchase J.C. Reed stock. Mathis represented that the stock was a safe investment; however, Mathis was aware that the purchase of J.C. Reed stock was a high-risk investment and that J.C. Reed clients, who were mostly elderly and unsophisticated growth-oriented investors, would not have invested in the stock but for his false assurances. Mathis falsely assured customers that J.C. Reed was profitable and "making money." However, as Mathis well knew, J.C. Reed was not profitable, and virtually all of its operating capital was received from shareholder investments. Mathis also falsely represented to investors that a market existed for J.C. Reed stock and that their investment in J.C. Reed stock would increase in value and be readily redeemable. However, Mathis knew that no market existed for J .C. Reed stock and that no realistic possibility existed for the redemption of J.C. Reed stock other than redemption by family or friends of Reed.
Mathis was paid a commission for identifying and soliciting new clients for investment. Whenever he successfully solicited a new investor, Mathis would deposit the investor's funds into a "discretionary account" with J .C. Reed, thus enabling him to control purchases and sales within the account with few limitations. Mathis frequently used his discretionary authority to liquidate traditional investments from various client portfolios and used the funds to purchase shares of J.C. Reed stock, all without the knowledge or authorization of J.C. Reed clients. At various times, he also withdrew or liquidated assets from individual client accounts and used the funds to make investment purchases for the accounts of other clients or to open new client accounts. In order to disguise his unauthorized purchases and sales of client securities, Mathis created fraudulent invoices, forged client signatures on trading documents, and prepared fictitious account statements that falsely reported client investment holdings.