U.S. lawsuit says Mooresville man , Shelby Dean Martin, raised $10 million over 10 years; he's also been named in 30-plus civil suits.

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Local man charged with Ponzi scheme

U.S. lawsuit says Mooresville man raised $10 million over 10 years; he's also been named in 30-plus civil suits.

By Kirsten Valle
kvalle@charlotteobserver.com
Posted: Saturday, Mar. 07, 2009

A Mooresville man raised $10 million from investors, telling some their money would help troubled companies – and then spent it on a boat dock and payments to other clients, according to a lawsuit filed Friday in federal court.

The U.S. Securities and Exchange Commission claims in its civil suit that Shelby Dean Martin, 71, and his companies promised soaring returns to about 185 investors during a 10-year Ponzi scheme.

State authorities arrested Martin on Friday afternoon and charged him with seven felony securities fraud counts. He was being taken to Iredell County jail Friday evening, said Liz Proctor, a spokeswoman from the N.C. Department of the Secretary of State.

A search of N.C. court records also turned up more than 30 civil suits, many claiming contract disputes and money owed. In one case, a judge ordered Martin to pay $1.7 million; in another, he was ordered to pay $233,000.

Martin, who lives in a home on Lake Norman valued at more than $800,000, did not return phone calls Friday.

“I don't know what's going to come of this, but he seems to be an awfully trustworthy person,” said one investor, who asked that his name not be used because he did not want to publicize his losses. “I believe in the man, believe he's honest, hope it's legitimate and that I made an investment in a business that just failed. If it turns out otherwise, I'd be upset and disappointed.”

In a Ponzi scheme, investors are paid dividends from their own money or from other investors, not from the profits of an investment. The schemes often advertise high returns to attract new investors, and they usually collapse once the flow of money from investors stops.

According to court documents, Martin used “a variety of false and misleading statements” to encourage clients to invest.

He told most investors he'd use the money to help private companies go public, which would greatly enhance investors' returns. Martin told others their money would provide capital to companies in financial trouble or buy stock in various businesses.

He promised investors their principal, plus interest rates of 15 to 50 percent, court papers say. By comparison, long-term investors can expect an average annual return rate of 10 percent on their stocks, up to 6 percent on bonds and up to 3 percent on cash.

Most clients, who met Martin through word of mouth, lived in North Carolina, but some were from South Carolina, Virginia and Colorado, the lawsuit says.

Martin and his companies, D. Martin Enterprises Inc. and DM Ventures LLC, are not licensed to sell securities.

One investor, whose experience was described in the court filings, wrote two checks to DM Ventures LLC for a total of $700,000. When he did not receive the promised returns, Martin agreed to give him a promissory note for $200,000. The note had a one-year term and promised a 25 percent return. The investor got just $88,000 back, the lawsuit says.

Another client invested $1,185,000 between 2000 and 2008 and has gotten nothing back, the lawsuit says.

State authorities began investigating Martin and his companies in October after investors complained to the N.C. secretary of state's office.

The SEC lawsuit says he pooled investor funds in his companies' bank accounts and used the money to pay returns he promised to earlier investors. He also used the money to finance his lifestyle, paying for the construction of a boat dock at his house and to fund an investment trust in his wife's name, court papers say.

The charges against Martin are Class C felonies, meaning he could face years in prison and fines if convicted. State officials said they did not know enough about Martin's case to speculate on a possible sentence.

The case is at least the second high-dollar fraud investigation in the region in recent months. In November, authorities arrested J.V. Huffman Jr. of Claremont in connection with a Ponzi scheme alleged to have bilked more than $25 million from investors across the country. The case is pending. State officials have cited a surge in investment fraud cases in recent years.

Staff researcher Maria David contributed.
Kirsten Valle: 704-358-5248