A federal grand jury has indicted a well-known pastor, as well as a financial planner, on charges of wire fraud, money laundering and conspiracy arising out of an alleged scheme to defraud elderly investors. Kirbyjon Caldwell, senior pastor at Windsor Village United Methodist Church in Houston, one of the largest Protestant churches in the country, and Gregory Alan Smith, the operator and manager of Smith Financial Group LLC in Shreveport, La., were charged yesterday with luring mostly elderly investors to invest in pre-revolutionary Chinese bonds. Some of these investors liquidated their annuities to invest in the bonds.

Each of the defendants faces 20 years in prison based on conspiracy to commit wire fraud and wire fraud counts. They also face 10 years in prison based on conspiracy to commit money laundering and money laundering counts. In addition, they face a $1 million fine, restitution, forfeiture and five years of supervised release.

The SEC also sued both men based on the same alleged scheme, charging that they violated the registration and anti-fraud  provisions of the federal securities laws. The SEC seeks civil penalties, disgorgement and other forms of relief.

According to the SEC complaint, between approximately April 2013 and August 2014, the defendants “raised at least $3,488,500 through a scheme to defraud approximately 29 investors through the fraudulent offer and sale of the bonds. … Both Smith and Caldwell told investors that the bonds were valuable and worth tens, if not hundreds, of millions of dollars. Neither disclosed that the bonds were in default and no liquid market for the bonds existed.”

Providing some historical context, the complaint explains that, “[p]rior to the 1949 communist takeover in China, the former republic issued billions of dollars' worth of government bonds. These bonds have been  in default since 1939 and the current Chinese government refuses to recognize the debt.”

The complaint alleges that Caldwell and Smith received approximately $760,000 and $1 million, respectively, of investor funds and that a company controlled by Caldwell received roughly an additional $1 million of investor funds, approximately $175,000 of which was transferred to Caldwell.

“Offshore third parties, at least one in Mexico, received most of the remainder of the investor funds,” alleges the complaint, which also states: “Investor funds were comingled with other funds in Caldwell's and Smith's bank accounts. Caldwell and Smith used these accounts in part to pay for personal expenses, including mortgage payments in the case of Caldwell and luxury automobiles in the case of  Smith. No investor to date has ever received any return on his or her investment.”