Eileen J. O’Connor, Assistant Attorney General for the Tax Division, U.S. Department of Justice; Gregory A. White, United States Attorney for the Northern District of Ohio; and Gregory G. Lockhart, United States Attorney for the Southern District of Ohio, announced that the Honorable John R. Adams, United States District Judge, in Akron, Ohio, sentenced Derrick N. McKinney to 36 months incarceration, supervised release of 3 years, and ordered restitution of approximately $1 million to victims of the securities fraud scheme, $107,636 to a mortgage company in connection with the mail fraud charge, and $444,437 to the Internal Revenue Service for tax violations.

McKinney had entered guilty pleas to one count of conspiracy, and three counts of securities fraud in connection with his involvement in a securities fraud scheme with co-defendant Steven Thorn, and others. McKinney also entered guilty pleas to an information charging him with one count of mail fraud for defrauding a mortgage company, and one count of income tax evasion in failing to disclose over $1 million in taxable income, resulting in tax due and owing of over $440,000.

The indictment charged that Thorn, McKinney and others conspired to promote and sell fraudulent investment “trading programs” (also known as high-yield investment fraud, or prime bank fraud). The indictment charged that from in or about December 1997 through in or about April 2001, Thorn, through McKinney and others, raised approximately $75 million from hundreds of investors residing throughout the United States and a number of foreign countries through investment offerings. The indictment charges that Thorn and McKinney represented to potential investors that their money would be pooled with money from other investors to reach required minimum capital levels and then used to invest in, or finance the trading of, various investments or securities, including so-called medium-term notes, debt instruments issued by banks, and treasury securities. Thorn and McKinney represented to investors that they were investing their funds in different European “trading programs.” According to the indictment, the defendants told investors that there was little or no risk in the investment, and, in fact, led investors to believe that there was no risk because the money would remain in the bank and/or an instrument would not be purchased unless a contract to sell the instrument had already been executed. The defendants promised monthly rates of return ranging from 3 percent to 100 percent.

The indictment charged that instead of using the offering proceeds from investors to invest in, or to finance trading in, medium-term notes, or any other securities or investments which the defendants had described to their investors, Thorn and McKinney instead used the offering proceeds to pay their own extravagant living expenses, including mortgage payments, luxury car leases, cash withdrawals, leisure travel, and to conduct a massive Ponzi scheme where the defendants were paying investors purported “profits” or a return of principal with monies obtained from other investors.

The indictment further charged that in or about April 2002, the United States Securities and Exchange Commission (“SEC”) filed suit against Thorn, McKinney, and others, and was able to freeze what investor money was left in bank accounts at Bank One.

The defendant Steven Thorn pled guilty to one count of conspiracy, three counts of securities fraud, and one count of tax evasion. He is currently awaiting sentencing before the Honorable John R. Adams, United States District Judge. Co-defendants currently awaiting sentencing are Craig Morgan, having pled guilty to bank fraud; Rick R. Malizia, having pled guilty to securities fraud; and Kimberly Hockenhull-Edwards, having pled guilty to conspiracy.

Thorn, age 39,currently resides in West Virginia. McKinney, age 43, resides at 177 Pine Crest Drive, Delaware, Ohio. Morgan, age 51, resides at 16875 Winwood Court, Brookfield, Wisconsin. Hockenhull-Edwards resides in the Columbus, Ohio, area, and Malizia resides in Florida.

This case was prosecuted by Assistant United States Attorneys Richard H. Blake and Christian H. Stickan, and United States Department of Justice Tax Division Trial Attorney, Richard W. Rolwing, and was investigated by the Internal Revenue Service, Criminal Investigation Division, Cleveland, Ohio; United States Postal Inspection Service; and the Federal Bureau of Investigation, with the assistance of the United States Securities and Exchange Commission in Chicago, Illinois.