U.S. government officials say an Indiana company illegally steered as much as $4 million to several hemp companies while its president used more than $1.7 million in investor funds for personal benefit, in claims made public last week.
George S. Blankenbaker Jr., president at Indianapolis-based Stevia Corp., agreed to plead guilty to two counts of federal wire fraud and one count of money laundering in federal criminal court, and to pay almost $5.2 million in civil penalties in a separate preliminary settlement with the U.S. Securities & Exchange Commission (SEC).
Ponzi style
Both cases are related to what the agency said was a scheme that included “ponzi-style” payments in which new investor money was used to cover dividends owed existing shareholders, and other expenses.
Stevia Corp. is an over-the-counter “penny stock” company that develops products from the stevia plant, which produces a natural sweetner of the same name. The company began touting hemp as early as 2015, and Blankenbaker formed several entities in recent years related to hemp and CBD production.
Prosecutors said Blankenbaker ran the fraud scheme from August 2016 to May 2019 through StarGrower Commercial Bridge Loan Fund 1 LLC, StarGrower Asset Management LLC and Blankenbaker Investments Fund 17 LLC.
We ‘might’
Blankenbaker admitted to charges in the criminal case that he did not disclose to investors that their money in those three companies would be directed to entities in the hemp industry. While Blankenbaker in 2018 revised StarGrower Asset’s marketing pitch to suggest the company “might” use investor funds to provide financing to U.S. hemp companies, prosecutors said. “The disclosure . . . concealed that Blankenbaker’s companies had secretly been diverting investor funds to hemp companies for nearly two years,” according to the criminal complaint.
Blankenbaker had already sent more than $2.7 million of prior investors’ funds, and would ultimately divert $4 million to hemp companies. Also, payments Blankenbaker made to the hemp companies were not secured by any collateral, prosecutors noted.
The hussle
Blankenbaker and his companies falsely told investors their money would be used to make short-term loans to food exporters in Asia, and that the investments were secured by shipping containers holding the food products, according to prosecutors.
“Blankenbaker and his companies were initially able to make the promised interest payments to investors, often using the funds of new investors,” according to the charges filed in the U.S. District Court’s Southern District of Indiana. But “by 2019 the scheme began to collapse. Blankenbaker could no longer make the promised payments, resulting in heavy losses for the defrauded investors.”
Before the money dried up, Blankenbaker used at least $965,000 in new investor funds to make Ponzi-style payments to existing investors instead of using that money for investment projects he had promoted. SEC said Blankenbaker diverted investors’ money more than 300 times to fund unrelated businesses, pay personal expenses, make interest payments and dole out returns to investors.
Suckering seniors
SEC said its investigation in the civil case, which is continuing, so far shows Blankenbaker misused a total of at least $8.1 million of $11 million he raised from more than 109 investors, “many of whom were elderly,” according to the SEC. The criminal case in Indianapolis also said “Blankenbaker targeted older investors, and most of the investors in Blankenbaker’s companies were, in fact, senior citizens.”
Thirty-four investors lost nearly $1.5 million in the scheme, according to prosecutors, and are to receive full restitution. Blankenbaker was also barred from the securities industry.
Blankenbaker transferred funds by interstate wire communications between Indiana and other states, leading to the wire fraud charges. The charges state that he also laundered money through EDU Holding Trust, an investor in life insurance policies.
According to a filing last week in U.S. District Court, no agreement has yet been reached regarding specific sentencing recommendations on the criminal charges, but Blankenbaker could draw a total of 40 years on the wire fraud counts and 10 years for the money laundering charge, under sentencing guidelines.
READ: Full federal complaint
