Soon after charges that he had bilked hundreds of local investors out of millions of dollars began surfacing, Richard Muto fled Niagara County and moved his family into a plush estate in a gated community outside Las Vegas.
Looks like the erstwhile investment adviser will spend the next few years in far less comfortable surroundings.
Muto is scheduled to plead guilty to two felony counts stemming from the Sweetwater Development scam in State Supreme Court in Buffalo on Dec. 8, assistant New York State Attorney General Diane LaVallee told the Niagara Falls Reporter last week.
Judge Penny Wolfgang could sentence Muto to up to 15 years in state prison after he pleads guilty to grand larceny and participating in a scheme to defraud. While LaVallee declined comment on sentencing, sources close to the case said Muto will likely spend at least two to six years in prison.
Some of his alleged victims think he's getting off easy.
"Two to six years?" said one. "I'm going to be broke a lot longer than that."
Muto was charged with 15 felony counts in the original indictment.
"It's not a plea deal, because he's scheduled to plead guilty to the most serious charges included in the indictment," LaVallee said.
According to the indictment, Muto convinced friends, family members and a variety of other investors, including prominent local business people and disabled retirees, to invest thousands of dollars each -- in some cases, their life's savings -- in promissory notes issued by the Sweetwater Development Corp.
Muto, who was not licensed to sell securities in New York state, told investors their money would be loaned to a company building a housing subdivision for senior citizens called Spring Lake Village in Kissimmee, Fla. He also promised them returns on their investments as high as 20 percent.
Work began on the project, but was halted in early 2001 by state building inspectors citing shoddy workmanship and other problems.
By then, some of the earliest Sweetwater investors had been paid off, at least in part, with money swindled from newer targets. But, as in all such schemes, the payments ended altogether later that year.
A pair of offshore shell corporations not licensed to do business in either New York or Florida issued the promissory notes to investors. Investors and investigators believe up to $19 million traveled through a complex series of businesses and bank accounts, most now defunct, established by Muto and his wife, Deborah.
Muto has yet to provide an explanation of where all that money went, though some investors allege that it wound up in banks in Belize, a Caribbean nation notorious as a financial hiding place.
The 4,000-square-foot Nevada home, valued at $460,000, was purchased in Deborah Muto's name in 2002, even though she was unemployed at the time of the transaction, according to a lawsuit against the couple.
In settling that civil suit, Muto signed a document promising to pay restitution of $15 million.
The Florida property involved was sold last year during bankruptcy proceedings for about $1 million.
Since Muto will be barred from working as a financial adviser after serving his sentence and claims a back problem prevents him from doing any real work, his victims are unlikely to get their money back unless someone finds out where it was hidden.
LaVallee said others can avoid their fate by following a few simple guidelines.
"If it's too good to be true, it probably is," she said. "If a person is offering an investment product carrying a return substantially greater than what you can get elsewhere and says it's 'guaranteed,' 'risk-free' or 'absolutely safe,' then it's not true.
"In today's economy, CDs are only paying 2 or 3 percent. So if someone is saying you can get a 10 percent return, watch out. The higher the return, the greater the risk."
LaVallee recommended that investors be sure to get references from any financial adviser, and look into any companies they're connected with. The New York State Attorney General's office will also provide background information upon request, she said.
Muto's mentor, David Tedder, is serving a 5-year term in federal prison on money-laundering and conspiracy charges.
As well as showing Muto the benefits of offshore bank accounts, shell corporations and selling unregistered securities, Tedder helped Muto set up another "investment" company in Nevada, which promised investors a 21 percent return, after the Sweetwater scandal broke.
Last June, a Wisconsin jury found Tedder -- who had previously been forced to give up his membership in the state bars of California and Florida -- guilty of helping two clients launder $10 million they made through Gold Medal Sports, an Internet gambling venture.
"Tedder acted as their lawyer, helping Gold Medal get around a ban on gamblers sending money to it by Western Union, creating shell corporations to hide Gold Medal's ownership interest in other businesses, setting up offshore bank accounts and moving Gold Medal's profits from U.S. banks to offshore accounts," read a story in the Wisconsin State Journal.
Another Sweetwater principal, Jeffrey Klein, is scheduled to go on trial in New York State Supreme Court in January, LaVallee said. She declined to comment on whether Muto's plea agreement requires him to testify against his co-defendant, who was supposed to build Spring Lake Village. Klein was fined by the state of Florida after the inspection of the subdivision and barred from ever working as a contractor there again.
"Muto stole millions from his family and his friends," said one source close to the case. "What makes anybody think he wouldn't rat out another scam artist?"
| Niagara Falls Reporter | www.niagarafallsreporter.com | November 25 2003 |