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Wednesday, February 21, 2024

Brothers sentenced in Ponzi scheme, ordered to pay back $10.6 million

A 76-year-old former insurance business owner in Whiteville was sentenced Thursday to 42 months in prison and ordered to pay $10.6 million in restitution in connection with a multi-million dollar Ponzi scheme.

Joseph W. Floyd IV, and his brother and co-defendant William Floyd, owned and operated Floyd’s Insurance Agency. Through the business, the Floyds also offered a purported “loan program” in which more than 150 people and businesses in southeastern North Carolina and elsewhere invested money in exchange for interest-bearing promissory notes.

William Floyd was sentenced in September to 12 months and a day in federal prison, and also ordered to pay $10.6 million in restitution for his role in the scheme.

The loan program offered by the Floyds was portrayed as a safe and conservative investment, comparable to a traditional money market account or certificate of deposit but offering higher interest rates that varied from 6% to 10%. The Floyds guaranteed the promissory notes and stated that investor principal was repayable within one year. The Floyds initially used the borrowed funds to extend credit to Monthly Payment Plan, an affiliated company in Chapel Hill that was in the business of financing annual insurance premiums for consumers.

Loan program investors were falsely led to believe that Floyd’s Insurance Agency was earning enough profits to pay the promised rate of return and fund redemptions of principal upon demand. In truth, by 2012, the agency had borrowed more than $20 million from investors and could not service the debt through a legitimate business source.

In order to forestall bankruptcy, the Floyds operated the loan program as a Ponzi scheme in which principal and profits were paid to existing investors with funds raised from more recent investors, according to the U.S. Attorney’s Office for the Eastern District of North Carolina.

The Floyds concealed Floyd’s Insurance Agency’s insolvency while continuing to accept additional investments. In May 2020, Floyd’s Insurance Agency filed for Ch. 11 bankruptcy protection. At the conclusion of that proceeding, it is anticipated that assets will be available for distribution to the victims of the Floyds’ scheme, according to the U.S. Attorney’s Office in Greenville.

The promissory notes offered by the Floyds would be considered securities and therefore required to be registered with the Securities and Exchange Commission. 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. 

The judge also ordered Joseph Floyd to serve three years under supervised release following the end of his prison sentence. Neither Floyd could be reached for comment.

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