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The owners of a Boulder investment firm have been indicted by a grand jury on multiple counts of securities fraud and violation of the Colorado Organized Crime Control Act for allegedly running a Ponzi scheme that defrauded hundreds of investors of $18 million.
Bela A. Geczy and Michael B. Kass, who owned Dharma Investment Group, are accused of defrauding 272 investors, around half of whom are from Boulder County.
The indictments, released Wednesday, assert that Kass, 48, and Geczy, 57, guaranteed investors annual rates of return between 20 percent and 500 percent on investments that were high-risk and unpredictable. They did not let investors know in a timely manner about the difficulties some of their
"Most of (Dharma's) investors received partial or no interest payments on their investment and most of the investors lost a large portion or their entire original principal," the indictments state.
Kass, of Boulder, and Geczy, of Longmont, are also accused by the grand jury of paying early-round investors with money obtained from later-round investors and of using a false "testimonial" from an investor to advertise Dharma's investment products.
The alleged crimes happened between October 2005 and October 2007, according to the documents.
"Securities law puts the burden on the person offering the security to be up front about the risk," said Stan Garnett, Boulder County's district attorney.
Both men, who were arrested this week, are being held in the Boulder County Jail. Geczy is there in lieu of a $250,000 bond while Kass remains incarcerated in lieu of a $500,000 bond. They are scheduled to make a first appearance in court today.
Leigh Ann Zaharevich, of Lafayette, said she lost tens of thousands of dollars investing with Dharma.
Her relationship with the firm, especially Kass, started out positively, with her first investment with Dharma in 2006 netting her a 36 percent return that was paid on time as promised.
"I did a test run with them, and they succeeded," the 41-year-old real estate investor said Wednesday. "I saw a way to work toward financial freedom, and for some reason, I trusted Kass."
Kass is listed in the indictments as having a 70 percent to 80 percent interest in Dharma and is described as the "public face" of the company. Dharma offered investments in a local coffee company, offshore and domestic real estate developments, and investments in start-up companies.
Zaharevich said she placed her faith in Kass because he told her his own mother had invested with his company. She also believed in the business that she was helping fund, Dharma Coffee, which boasted the Emerald Sierra coffee shop in Louisville.
"I had coffee there a few times," she said. "I could touch and feel it."
Zaharevich rolled the principal from her first investment into a second round, and then a third. That's when she lost nearly all of her money, she said.
"These were the funds I had set aside for a new start in my life, and Kass took that away," she said.
Wednesday's indictments come after years of investigation by Boulder County and state officials.
Dharma Investment Group was the subject of a complaint filed by Colorado Securities Commissioner Fred J. Joseph in 2008, in which he accused the firm of raising millions of dollars from hundreds of investors but failing to register any securities. That same year, all of its bank accounts were closed and its books, records and computers seized.
A court-appointed receiver found that out of the $18 million invested with Dharma, only $100,000 remained, according to the indictments.
Garnett said his office has made it a point to pursue economic crimes, which he said have far more widespread effects on a community than the violent crimes that often get the most attention.
Contact Camera Staff Writer John Aguilar at 303-473-1389 or aguilarj@dailycamera.com.
