Feds snare six in fraud scheme | AspenTimes.com
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Feds snare six in fraud scheme

Janet Urquhart
Aspen Times Staff Writer

Federal agents arrested six people Tuesday for their alleged roles in a complex fraud scheme that ultimately led to the IRS seizure of the Redstone Castle south of Carbondale.

A federal grand jury in Denver has returned a 57-count indictment against seven individuals, charging them with conspiracy to commit mail, wire and securities fraud in connection with the case.

During the course of the investigation, authorities seized the Redstone Castle, eight NASCAR race cars and more than $17 million in cash from about 60 bank accounts. About $30 million has not yet been recovered.

Assets like the castle and the race cars were purchased with money the defendants obtained illegally or represent proceeds from the scheme. In all, more than 1,000 people were defrauded of about $56 million, according to the U.S. Department of Justice.

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Arrested on Tuesday were Norman and Jannice Schmidt of Denver, Charles Lewis of Littleton, George Beros of Ohio, George Weed of Illinois and Michael Smith of Washington. Authorities are seeking the extradition of Peter Moss of London, who was also indicted but was not in custody yesterday.

“We have let nobody escape the arm of the law,” said John Harrison, a special agent and public information officer for the Internal Revenue Service field office in Denver.

According to the indictment, between April 1999 and April 2003, the defendants engaged in a conspiracy to defraud investors through a “high-yield investment scheme.”

The defendants allegedly told bilked investors they would invest the victims’ money, promising rates of return from 2 percent to 400 percent a month. Investors were sent fraudulent monthly statements that falsely reflected the growth and earnings of their funds, according to the feds.

The victims’ money was allegedly diverted to loans or payments to the defendants, personal expenses, acquisitions, payments to other investors and other purposes. Some of it was used to purchase the Redstone Castle, for $6.5 million.

“This was a gigantic and complex fraud,” said Colorado Securities Commissioner Fred Joseph in a prepared statement. “Its only purpose was to separate investors from their money.”

The fate of the castle, seized by the IRS a year ago, remains undecided. The historic mansion, formally known as Cleveholm Manor, is an important tourist draw in tiny Redstone, and residents there hope public access to the castle can be maintained.

Preservation enthusiasts fear the stately castle could be sold at auction to the highest bidder and closed to the public, or its elegant furnishings sold off in piecemeal fashion.

The IRS allowed tours and weddings at the castle last summer and intends to do so again this year, said the IRS’ Harrison.

Its ultimate disposition is a pending matter in U.S. District Court, which could order that the castle be sold to help pay restitution to the victims.

“We have some people who have submitted written offers to purchase the property,” Harrison said.

The castle was named to Colorado’s 2004 Most Endangered Places list to publicize its uncertain future. Colorado Preservation Inc. compiles the list annually to call attention to historic sites that are in jeopardy.

Coal baron John Cleveland Osgood built the lavishly furnished, 42-room Tudor mansion between 1899 and 1902. It sits on a hill above what was his industrial town of Redstone. Osgood entertained such notables as John D. Rockefeller, J.P. Morgan and President Theodore Roosevelt at the castle.

[Janet Urquhart’s e-mail address is janet@aspentimes.com]


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