DOJ: Whiteville insurance execs plead guilty in multi-million dollar ‘Ponzi scheme’

Joseph W. Floyd IV and William F. Floyd Jr. each pleaded guilty Monday before U.S. District Judge Terrence W. Boyle in connection with a multi-year, multi-million-dollar Ponzi scheme. The Whiteville brothers had been charged with conspiracy to sell and deliver unregistered securities under the guise of an investment program, according to a Department of Justice news release Tuesday morning.

At sentencing, the Floyds each face a statutory maximum of 60 months' imprisonment, a $250,000 fine and three years of supervised release. The Floyds will also be required to make restitution to the victims of the offense.

"The Floyd brothers used their family insurance business to fleece dozens of Eastern North Carolina families of millions by promising low-risk investments with outsized returns," stated U.S. Attorney Michael Easley. "The U.S. Attorney's Office is turning up the heat on white-collar con men who use Ponzi schemes and securities fraud to defraud hardworking North Carolina families."

"The level of greed the Floyd brothers exhibited is difficult to comprehend," said Acting FBI Special Agent in Charge Michael C. Scherck. "Not only did they prey on members of their own community for profit, even relatives were also not off limits. While their guilty pleas won't reimburse those who lost money, we hope federal prison sentences will repay their victims in some way."

According to court documents and other information presented in court, the Floyds owned and operated Floyd's Insurance Agency (FIA), an insurance business based in Whiteville. The Floyds, through FIA, also offered a "loan program" in which more than 150 individuals and businesses in Southeastern North Carolina and elsewhere invested funds in exchange for interest-bearing promissory notes. The promissory notes were securities as defined by law and therefore required to be registered with the Securities Exchange Commission (SEC).

As part of the registration process, the SEC requires businesses to provide important financial information that allows investors to make informed investment decisions. The Floyds never registered their investment offering with the SEC at any time, according to the DOJ news release.

Prosecutors said the loan program offering was portrayed as a safe and conservative investment, comparable to a traditional money market account or certificate of deposit (CD) but offering higher interest rates that varied from 6% to 10%. The promissory notes, which were personally guaranteed by the Floyds, stated that investor principal was repayable within one year. The Floyds initially used the borrowed funds to extend credit to Monthly Payment Plan (MPP), a company they co-owned in Chapel Hill, North Carolina, that was in the business of financing insurance premiums for consumers.

"Investors were led to believe that FIA was earning sufficient profits from which to pay the promised rate of return and fund redemptions of principal upon demand," the DOJ news release stated. "In truth, by 2012, FIA had borrowed more than $20 million from investors and did not have the means to service the debt through any legitimate business source. In order to forestall bankruptcy, the Floyds operated the Loan Program as a Ponzi scheme in which principal and profits were paid to existing investors with funds raised from more recent investors. Investors were never advised of this fact. Instead, the Floyds concealed FIA's insolvency from investors and continued to accept additional investments."

In May 2020, FIA filed for Chapter 11 bankruptcy protection. In August 2020, the Floyds each filed for personal bankruptcy.

Easley, United States Attorney for the Eastern District of North Carolina, made the announcement after the arraignments were concluded. The Federal Bureau of Investigation, Charlotte Field Office, investigated the case. The Securities Exchange Commission, Atlanta Field Office, also provided valuable assistance. Assistant U.S. Attorney Adam F. Hulbig prosecuted the case for the government.

N.C. Commissioner of Insurance Mike Causey responded to the pleas in a Tuesday statement. "This case is another example of financial greed and insurance fraud going hand in hand," he said. "Whenever personal greed drives fraudulent behavior, it costs all of us in the form of higher insurance premiums."

Causey said he was "pleased that the perpetrators have been held accountable and the acts that harmed consumers have been exposed."

Causey's statement thanked the prosecutors for their persistence that led to the guilty pleas. "The Department of Insurance is committed to aggressively fighting insurance fraud and pursuing violators to the fullest extent of the law," the commissioner said.