FORMER CAMBRIDGE BANK CEO PLEADS GUILTY TO WIRE FRAUD

SAN JOSE – United States Attorney Scott N. Schools announced that David Frank Rowe pleaded guilty yesterday afternoon to Wire Fraud. This guilty plea is the result of an investigation by the FBI.

In pleading guilty, Mr. Rowe admitted to defrauding an investor, identified in the plea agreement by his initials D.S., into transferring 13,200 shares of Intel to a trading company in New York. According to the plea agreement, Rowe admitted to the following conduct:

Entities Involved

In approximately 1998, Rowe became the founder and Chief Executive Officer (CEO) of Cambridge International Trust (CIT) and, on October 11, 1999, of Cambridge International Bank & Trust Company, Limited (CIBT). Both entities were based in ST. George’s, Grenada, and operated under the umbrella of Cambridge Corporate Services (Cambridge), of which Rowe was also the CEO. CIBT received its banking charter from Grenada on October 11, 1999.

Pines International Resorts, Inc., (“Pines International”) was a day-trading company based in New York. Waylon E. McMullen and Gerard Burns, co-defendants charged in the indictment, were principals in Pines International. McMullen was its President.

Cambridge Promises D.S. 100% Profit in Six Months

On June 19, 1999, Rowe met with a prospective investor (D.S.) at a home in Fallbrook, California. During this meeting, Rowe told D.S. that CIT was looking for investors to assist in purchasing a bank in Switzerland. Rowe told D.S. that there was only one opening left in the “Founders’ Club,” which would consist of the first ten investors in the project and whose members would receive a 100% profit in six months for an investment of $500,000 or more. As part of the sales pitch, Rowe told D.S. that his investment would be insured by Lloyd’s of London. On June 21, 1999, at Gerald Burns’ request, Waylon McMullen, who in addition to being the President of Pines International was also an attorney, sent D.S. a letter on his law office letterhead in which he advised D.S. that “accounts opened at Lines Overseas Management Limited (LOM)” carried “significant insurance through Lloyd’s of London” and that each account opened at LOM was insured “up to ten million dollars.” Rowe acknowledged in his plea agreement that this letter was misleading in that, whatever LOM’s insurance coverage may have been, the funds invested by D.S. were never invested with or held by LOM, nor were they intended to be.

Cambridge Fraudulently Promises to Hold Shares in Escrow

On June 26, 1999, Rowe and Burns met with D.S. in San Francisco. At this meeting, they again assured D.S. that his investment with CIT would be fully insured. Rowe and Burns also told D.S. that if he made his investment using shares of stock, the stock would be used solely as collateral to raise funds to buy the Royal Trust Bank of Zurich. Rowe and Burns assured D.S. that the shares would be held in a brokerage account in D.S.’s name and that they would not be sold.

Rowe acknowledged in his plea agreement that both representations were false. Rowe knew that there was no insurance in place that would protect D.S. in the event his funds were lost. As for the shares being held as collateral, Pines International liquidated them immediately upon receipt.

D.S. Wires Intel Shares to Canada and Receives $575,000 “CD”

On June 28, 1999, Rowe sent D.S. a fax instructing him to wire 13,200 Intel Shares to Union Securities, Ltd., in Vancouver, Canada, for the benefit of Pines International. On that same date, at D.S.’s direction, Charles Schwab transferred 13,200 shares of Intel stock, worth approximately $730,125, from San Francisco to Union Securities in Vancouver, Canada.

On July 6, 1999, D.S. received Certificate of Deposit from CIT for a face amount of $575,000. The term of the CD was to be from July 6, 1999 to January 5, 2000. The interest rate was a simple (non-compounded) rate of 100%. The terms also reiterated that the 13,200 Intel shares would be maintained on deposit and returned to D.S. at the end of the CD term.

$575,000 Certificate of Deposit Proves Worthless

At the end of the CD term, CIT – which had by then become CIBT, as Grenada had issued CIBT a banking charter in the interim – did not pay D.S. any interest. Cambridge also did not return the Intel shares. Those shares could not be returned as they had been sold on June 30, 1999, the day after they were received. Neither the shares nor any proceeds from their sale have ever been paid to D.S., nor has he received, as of the date of the plea agreement, any interest or return from his Certificate of Deposit.

Procedural Background/Status of Co-Defendants

Mr. Rowe, 59, of Brandon, Mississippi, was indicted by a federal Grand Jury on April 11, 2001. Charged with him were Gerald Burns, of Scottsdale, Arizona, and Waylon McMullen, of Plano, Texas. Each defendant was charged with Conspiracy to Commit Wire Fraud and one substantive count of Wire Fraud, in violation of United States Code Sections 371 and 1343, respectively. According to the indictment, Messrs. Rowe, Burns, and McMullen conspired to defraud investors who purchased Certificates of Deposit and promissory notes from CIT and CIBT. According to the indictment, the Cambridge entities raised over $30 million from over 300 investors in the United States and Canada between 1998 and March, 2000. The indictment alleged that Cambridge raised this money by promising investors exorbitant rates of interest and by assuring them that their principal would be insured by the International Deposit Indemnity Corporation, an offshore entity registered in the West Indies, Lloyd’s of London, or both.

Under the plea agreement, Mr. Rowe pled guilty to Count Two of the indictment (wire fraud). Although the count to which Mr. Rowe pleaded guilty involves only one investor, Mr. Rowe agreed to a restitution order naming 89 victims, all located in the United States, who suffered a total of $9,939,089 in losses. Mr. Rowe is out of custody pending sentencing.

Mr. Rowe is scheduled to be sentenced on March 17, 2008 before United States District Judge James Ware in San Jose. The maximum statutory penalty for the count of conviction is five years and a fine of $250,000 (or twice the gross gain or gross loss, whichever is greater), plus restitution. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

Gerard Burns. Gerard Michael Burns, 59, of Scottsdale, Arizona, pleaded guilty to Count One of the indictment, Conspiracy to Commit Wire Fraud, on April 2, 2004, before The Honorable Joanna Seybert, United States District Judge in and for the Eastern District of New York (Docket CR 04-281 JS). This plea was taken pursuant to Rule 20 of the Federal Rules of Criminal Procedure, which permits a defendant to plead guilty and be sentenced in a district other than where the offense was committed. On April 15, 2005, defendant Burns was sentenced to serve 54 months in federal prison. The sentence was ordered to run concurrently with a another sentence imposed by Judge Seybert for a separate case against Mr. Burns in New York (CR 03-63 JS).

Waylon McMullen. The case against Waylon Elwood McMullen, 61, an attorney in Plano, Texas, is scheduled to go to trial on February 12, 2008, in San Jose. Mr. McMullen is free on bond.

David Callaway is the Assistant U.S. Attorney who is prosecuting the case with the assistance of Legal Tech Tracey Andersen. The prosecution is the result of a one year investigation by the FBI.

Further Information:             

Case # CR 01-20059 JW

A copy of this press release may be found on the U.S. Attorney’s Office’s website at www.usdoj.gov/usao/can.

Electronic court filings and further procedural and docket information are available at https://ecf.cand.uscourts.gov/cgi-bin/login.pl.

Judges’ calendars with schedules for upcoming court hearings can be viewed on the court’s website at www.cand.uscourts.gov.

All press inquiries to the U.S. Attorney’s Office should be directed to Joshua Eaton at (415) 436-6958 or by email at Josh.Eaton@usdoj.gov.

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