I’M A BELIEVER

GEORGE HUDGINS

released from Federal Prison

“I lied about the returns, misrepresented the returns in order to buy more time to make the money back. It wasn’t just because I was lying trying to get people to put money in so I could steal it. That never crossed my mind. I never in my wildest dreams thought I was stealing money. And I’ll show you in a little bit that I don’t think I was.”

Ponzimonium

On March 13, 2009, George Hudgins was sentenced to 121 months in prison and ordered to pay close to $71 million in restitution in connection with his operation of an $86 million  Ponzi scheme. He operated this scheme out of a two room office he built on his homestead in the small city of Nacogdoches, Texas.

https://www.cftc.gov/PressRoom/PressReleases/pr5641-09

 In addition to the restitution, all of Hudgins’ earnings will be monitored for decades in order to repay, as much as possible, the investors he defrauded. Hudgins won’t be able to earn any money in the markets. Following his prison sentence, the terms of his supervised release in effect bar him from all positions relating to financial investing, and the court order against him in the civil lawsuit brought by the CFTC permanently bars him from the commodity industry.  This will make it hard for Hudgins to pay the $15 million civil penalty assessed in the civil order against him.  Is he at all remorseful? Yes. Does he believe he did anything wrong? No

Hudgins distinguishes himself from traditional fraudsters, noting that the typical Ponzi operator sets up the scheme to steal money. He, on the other hand, claims to have worked 18-20 hours a day trading for his clients. But when faced with the question about the $71 million he took from clients to purchase everything from airplanes, antique autos, and Civil War era antiques to three carat diamonds for the women he was wooing, Hudgins relied on a recent diagnosis of bipolar disorder, maintaining that his misconduct can all be attributed to a “major manic episode” that put him in an alternate reality. However, even Hudgins acknowledged that it was ego that turned his legitimate business into a fraud. According to Hudgins, as soon as he moved back to his hometown of Nacogdoches in 2001, he was immediately “inundated by people with money” who hoped he would be as successful with their money as he was with his own. He claims he never tried to get folks to invest with him, but, not wanting to disappoint, Hudgins accepted everyone’s money.

Three years later, in 2004, Hudgins created a commodity pool to open trading accounts and trade futures through a registered futures commission merchant. However, Hudgins neglected to register the commodity pool or himself as its operator with the CFTC or any other regulatory body. 

HUDGINS’ 1962 CHEVROLET CORVETTE

Hudgins claims that friends and family were throwing money at him for reasons that “never came from me.” However, as early as June 2001 he used fraudulent solicitations, including promo packets, newsletters, and group presentations to persuade members of the community to keep their money in his commodity pool, which he claimed was wildly successful. How successful was it? In a 2005 promotional packet for prospective clients called “Hudg-Investments <Making Money in a Bull or Bear Market>,”

Hudgins reported gross returns for the commodity pool as follows: 99% for 2000; 55% for 2001; 57% for 2002; 46% for 2003; 47% for 2004; and 8.13% for January, 2005. Those returns were even more amazing, considering the commodity pool wasn’t even in existence for four of those years! In January 2007, Hudgins made a presentation during an annual meeting of investors and potential investors. Not only did he tout those big performance numbers for 2000-2004, but he added returns for 2005 and 2006 of 52.33% and 22.5%, respectively, in spite of the fact that the trading accounts suffered losses of close to $20 million during those years.

Hudgins admitted that he was not registered with the CFTC, but told his audience that this was because neither he nor the commodity pool was required to be registered. Hudgins also reported that the pool’s investment portfolio was approximately $80 million. At the time, however, the net value of Hudgins’ trading accounts—which had never appropriately been in the name of the commodity  pool—was negative $100,199.14  A lot of folks were lured into Hudgins’ fiction because he was a member of their community with a reputation for being religious, generous, and professional.

3.16CT ROUND DIAMOND PURCHASED BY HUDGINS

FOR A GIRLFRIEND

He was the golden boy who left home, passed his CPA exam, made some money and then returned to share his fortune. Hudgins reached out to his community, giving and lending money to folks so they could accomplish their own dreams of purchasing homes and attending school. He used his accounting background to create and distribute official-looking monthly and quarterly newsletters entitled The Hudg-Report, which showed the pool’s performance in charts and graphs, discussed trends in the markets, and urged investors to use the IRS Form 1099s he prepared for them to report their short-term earnings from the commodity pool. Because Hudgins was running a Ponzi scheme, some funds were paid out to investors as “profits” from his trading.  People believed him because those “profits” were documented by a CPA.  If it all appeared too good to be true,

Hudgins had that covered, too. In a high pressure sales tactic, Hudgins told some prospective investors that the pool was getting so big—$200 million big—that he was “fixing to shut [it] down” and “stop taking any more money . . . start paying out some profits,” rather than continuing to reinvest. But at least one prospective investor didn’t buy what Hudgins was selling. That investor called the CFTC to ask about George Hudgins and his wildly successful commodity pool. The CFTC brought an action to shut Hudgins down almost immediately and to try to recover funds for investors.

Of the $88 million invested with Hudgins, $17 million was paid out to investors as purported profits. Hudgins lost at least $28 million trading unsuccessfully in futures markets, but a larger portion of investor losses resulted from Hudgins use of their money to feed his self indulgent lifestyle.

Hudgins used his investors’ money to purchase a 269-acre ranch on the Angelina River outside of Nacogdoches, 13 acres of timber, mineral rights, a fleet of classic sports cars, and a Beechcraft Baron airplane. He had a King Air Turboprop on order and was building a hangar for it when his Ponzi scheme collapsed. Ladies in New York, St. Louis, and Toronto received diamonds—one topping 3.2 carats—and jewelry from Hudgins, who may have charmed them while wearing one of his twenty pairs of cowboy boots. The list of items located and seized by the receiver goes on (and on)

In February of 2009, the receiver made a partial distribution totaling $24,017,404 to the victims of Hudgins’ scheme, which represented 33.9% of approved claims. Thereafter, based on collection efforts following the first interim distribution, the receiver had cash on hand in the amount of $3,344,650. The receiver collected an additional payment of $618,526 from Rosenthal Collins Group, LLC (RCG), the futures commission merchant

1985 BEECHCRAFT BARON AIRPLANE BOUGHT WITH INVESTOR MONEY

that handled Hudgins’ accounts, which is the disgorgement RCG agreed to turn over to the receivership. The disgorgement was the result of a settlement between the CFTC and Rosenthal Collins, announced on October 4, 2010, following the Commission’s tenacious pursuit of all parties sharing responsibility for the investors’ losses. Thereafter on October 18, 2010, the receiver petitioned the court to approve a final distribution in the amount of $3,928,000, which the court

approved. The final distribution represents an additional 5.54% distribution for a total distributionto the victims of 39.4%.

In the end, by virtue of the CFTC’s quick action upon learning of Hudgins and the work of the receiver, the Department of Justice, the FBI, and the Texas Rangers, the victims of this Ponzi scheme will ultimately receive about 39.4¢ for every dollar they invested and lost with Hudgins. That 39.4¢ is a phenomenal return in the world of Ponzi schemes, since misappropriated funds are often squandered in ways that make

them impossible to recoup. Hudgins, who recently resided at the Federal Correctional Institution in Butner, North Carolina, maintains that had the CFTC never caught on to his scheme that he would have turned it all around and made all the money he had promised.  After all, according to Hudgins with regard to his newsletter, “Everything in there was true except the returns. Where is Hugdin now?

APPROX. AMOUNT COLLECTED

$88,000,000

LOST IN TRADING

>$28,000,000

PHANTOM PROFITS

$17,000,000

PRISON SENTENCE

121 MONTHS

RESTITUTION ORDERED

$71,000,000

FINAL DISTRIBUTION

39.4%