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Two Whiteville men who bilked millions of dollars out of several dozen investors have been sentenced to federal prison.
Joseph W. Floyd IV and his brother William pleaded guilty earlier this year to conspiracy to sell and deliver unregistered securities.
Joseph Floyd was sentenced to serve 42 months in prison, and three years supervised probation on their release. William Floyd was sentenced to one year and one day in prison. They were also ordered to pay $10,646,504 in restitution.
The Floyds owned and operated Floyd’s Insurance Agency (FIA), an insurance business based in Whiteville. Through FIA, the Floyds offered a purported “Loan Program” in which more than 150 individuals and businesses in southeastern North Carolina and elsewhere invested funds in exchange for interest-bearing promissory notes.
The promissory notes were securities as defined by law and therefore required to be registered with the Securities Exchange Commission (SEC). As part of the registration process, the SEC requires businesses to provide important financial information that allows investors to make informed investment decisions. The Floyds never registered the investment offering with the SEC at any time.
U.S. District attorney Mike Easley Jr. said in a press release that the loan program was portrayed as a “safe and conservative investment,” comparable to a traditional money market account or certificate of deposit (CD) but offering higher interest rates that varied from six percent to 10 percent.
The promissory notes, which were personally guaranteed by the Floyds, stated that investor principal was repayable within one year. The Floyds initially used the borrowed funds to extend credit to Monthly Payment Plan (MPP), an affiliated company in Chapel Hill, a company that finances annual insurance premiums.
Investors were led to believe that FIA was earning sufficient profits from which to pay the promised rate of return and fund redemptions of principal upon demand.
“In truth,” the release said, “by 2012, FIA had borrowed more than $20 million from investors and did not have the means to service the debt through any legitimate business source.”
To forestall bankruptcy, the Floyds ran the loan program as a Ponzi scheme. Principal and profits were paid to existing investors with funds raised from more recent investors. Investors were never told of the scam, Easley said.
The Floyds hid FIA’s insolvency while continuing to accept additional investments. In May 2020, FIA filed for Chapter 11 bankruptcy protection. That bankruptcy is still pending, Easley said.
“At the conclusion of that proceeding, it is anticipated that assets will be available for distribution to the victims of the Floyds’ scheme.”
Court documents showed 49 individual debtors in Columbus, Brunswick and Bladen counties, as well as Myrtle Beach, Oxford, and elsewhere. Of the debtors, 24 are from Columbus County. Owed amounts range from several hundred dollars to more than a million, with many in the $15,000 to $150,000 range. The largest are Samuel and Lisa Varnum of Supply ($1 million) and Jeffrey and LeanneCrouch of Oak Island ($1.75 million).
