Tennessee Man Convicted After Trial in $20 Million Investment Fraud Scheme

June 16, 2010 - RALEIGH—United States Attorney George E.B. Holding announced that a jury convicted JOHN KENT COLVIN, 54, of Nashville, Tennessee, of a conspiracy to commit mail fraud and five counts of mail fraud. The jury returned its verdict Friday following a two-week trial in federal court before Senior United States District Judge W. Earl Britt and United States District Judge James C. Dever, III.

COLVIN, a former insurance agent, met co-conspirator Scott Hollenbeck while both were working for Merchant Capital, LLC, in Brentwood, Tennessee. The two men thereafter began soliciting investments, primarily from unsophisticated individual investors in North Carolina, in various “funds” and “programs” called Webb Group, Franklin Asset Exchange, and Disciples Trust. In soliciting these investments, COLVIN and Hollenbeck falsely told victims their money would be invested in name-brand companies and was insured by a surety bond program. Hollenbeck and COLVIN collected a total of more than $20 million from victims during 2003 and 2004.

In fact, COLVIN arranged for most of the victims’ money—approximately $17 million—to be sent to BMP Investments, Inc., an entity involved in developing a coal mine in Montana. BMP failed to repay the money. COLVIN also helped arrange for a liability policy used by Hollenbeck to continue the false representations to victims concerning insurance.

COLVIN’S profits from the scheme came in large part from commissions based on the money provided to BMP. COLVIN retained approximately $1.5 million in commissions over a two-year period, and forwarded an additional $1 million to Hollenbeck. Evidence at trial also demonstrated that COLVIN expected a much larger pay-out upon a success of the mining venture.

“This sophisticated investment fraud scheme caused substantial harm to individuals in North Carolina and elsewhere—and this verdict is a just one,” said United States Attorney George E. B. Holding. “In order to guard against such schemes, citizens are reminded that, if an investment seems too good to be true, it almost certainly is.”

COLVIN was taken into custody following the jury’s verdict. Sentencing is set for September, 2010.

Investigation of the case was conducted by the United States Postal Inspection Service, the Federal Bureau of Investigation, and the Internal Revenue Service-Criminal Investigation. The case is being handled by the Economic Crimes Section of the U.S. Attorney’s Office, with Assistant United States Attorneys Clay C. Wheeler and David A. Bragdon prosecuting the case for the government.