Handcuffed man holding cash. (Photo: Thinkstock)

Two felons in Henderson, Nevada, have been running a sports betting scam that’s defrauded more than 600 investors nationwide out of $29.5 million so far, the Securities and Exchange Commission charged Friday in a suit filed in Nevada U.S. District Court.

Since Aug. 4, 2014, John F. Thomas, 74, and Thomas Becker, 72, along with accomplices, connived their victims into investing in six entities by promising them they would make 250%-600% returns from a pooled investor fund used to bet on sporting events, according to the suit. Those six entities, also named as defendants in the suit, were Einstein Sports Advisory, QSA, Vegas Basketball Club, Vegas Football Club, Wellington Sports Club and Welscorp.

The defendants claimed to own a proprietary handicapping system for sports betting and falsely told investors that investing with them was a “low-risk way to TRIPLE your funds in less than 6 months,” according to the SEC. Despite the defendants’ claims to investors, the six entities actually performed very little actual sports betting and the defendants “misappropriated the majority of the money raised from investors,” the suit said. To date, the defendants had used, “at most, only 15% of investor funds to bet on sporting events,” it said.

Thomas and Becker used the money they bilked out of investors to fund their lifestyles, pay commissions to brokers and agents or make Ponzi scheme payments, according to the suit. This wasn’t the first scam for either of them. In 1991, Thomas — who was known at the time as John Rodgers and has also gone by the names Jonathan West, John Frank and John Marshall — and Becker pleaded guilty to federal felony charges of money laundering and conspiracy related to a pyramid scheme they ran together, according to the suit.

The unlucky investors in the sports betting scam were solicited via a network of more than 150 brokers and agents, the largest contributors of whom were: Douglas Martin, 63, of Pembroke Pines, Florida, and his entity, defendant Executive Financial Services; Paul Hanson, 90, of Fairfax, California; and Damian Ostertag, 45, of American Canyon, California. All three men were named as defendants. None of the three were registered with the SEC, but Martin is a broker for Wellington who held a variable annuity license through the late 1990s, while Hanson is a broker for QSA who was barred by the National Association of Securities Dealers in 2004 after failing to respond to an information request about compliance with an arbitration award against him over fraud and misrepresentation. Ostertag is an agent for QSA, according to the SEC.

Each investor was given access to a personalized spreadsheet maintained on the website of the entity that person invested in, and those spreadsheets tracked each investor’s account balance, the SEC said. Those balances then increased or decreased, based — as far as the unwitting investors were told — on the results of sports betting they were told had taken place, according to the suit. Thomas, however, provided the bogus data that was shown on the spreadsheets and several investors reinvested because they were impressed with the supposed growth they were seeing, the SEC said.

The SEC accused the defendants of fraud and other securities violations, and is seeking preliminary and permanent injunctions against future securities violations by the defendants. It’s also looking for the defendants to pay civil penalties and “disgorge all funds received from their illegal conduct,” the suit said.

The SEC didn’t immediately respond to a request for comment on how long they had been investigating the sports betting scam and to provide details on who is representing the defendants.

The case is SEC v. Thomas et al, case number 2:19-cv-01515.

— Check out Actor Wants to Replace Sports Gambling With Investing on ThinkAdvisor.