Leader of Multi-Million-Dollar Investment Fraud Sentenced to 136 Months in Prison

NASHVILLE, TN—Sheila Kennedy, 59, of Clarksville, Tennessee, was sentenced on Friday, November 12, 2010 to 136 months in prison for her part in an elaborate investment fraud scheme, announced U.S. Attorney Jerry Martin.

Kennedy pleaded guilty in March 2009 to one count of wire fraud, one count of mail fraud, and two counts of money laundering. At the plea hearing, Kennedy provided extensive details of investment-fraud schemes spanning several years which included several co-conspirators and at least two separate schemes to defraud investors. Kennedy admitted that between 2005 and 2006, she and co-defendant Ann Scarborough solicited investors to invest in fraudulent real estate opportunities in, among other places, Nevada, Kentucky, and Indiana. The real estate scheme required that investors give Kennedy and Scarborough money—often in the form of checks payable to “ASK, LLC,” a company operated by Kennedy and Scarborough, and in return, receive so-called “promissory notes” or “time notes.” At the 2009 plea hearing, Kennedy admitted that, contrary to her representations to the investors, she never intended to invest the funds in real estate and, in fact, no such real estate opportunities had ever existed. She further admitted that, instead of investing the money she received from investors, she converted the funds to her own personal use and for the benefit of her co-conspirators.

Kennedy also admitted that, between 2005 and 2009, she and co-defendant Philip Russell solicited investors to invest in additional fraudulent real estate opportunities. Like the earlier investors, the new investors were induced to provide money based on the investors’ belief that the money would be used to invest in real estate, when in fact, no real estate opportunities ever existed and she never intended to invest any of the funds. Kennedy admitted that she used the funds received from these investors for her own and other’s benefit as well.

Kennedy also admitted that, as a further inducement, she falsely represented to investors that she was about to receive an extremely large inheritance from which she would guaranty each investor’s investment, thus encouraging investors to extend the deadline for receiving the return of their original real estate investment. In addition, Kennedy promised certain investors that if they made a new investment, their new funds would be used to facilitate Kennedy obtaining her purported inheritance, and that those investors would receive an additional return on their new investment from the inheritance funds. At the plea hearing, Kennedy admitted that she knew the funds she received from investors would not be used to facilitate obtaining the purported inheritance, that the funds were never used to help secure an inheritance, and that instead, she used the funds for her own personal use and the use of her co-conspirators.

In addition, Kennedy admitted using the fraudulently obtained investor funds to pay for hotels, gambling at casinos, spa services, clothing, and other personal purchases in New York, New Jersey, and elsewhere.

At the sentencing hearing, U.S. District Judge William J. Haynes commented about the length of Kennedy’s fraud and noted that her conduct had “ruined many lives.” The court also noted that Kennedy had continued to engage in criminal conduct while on pre-trial release after being arrested. Finally, the court refused to give Kennedy full credit for accepting responsibility because, in violation of her plea agreement, Kennedy refused to submit a financial statement to the court.

Upon learning of the sentence, U.S. Attorney Jerry E. Martin remarked: “Lengthy and elaborate frauds are among the crimes that have the largest number of victims and these victims often lose more than just money; they lose trust and faith. Moreover, these types of crimes are particularly time consuming for law enforcement to investigate and to prepare for prosecution. In light of those hurdles, the U.S. Attorney’s Office is gratified that the court has seen fit to treat this very serious crime with a commensurately serious sentence. This office will continue to work diligently with our federal law enforcement partners to prosecute complex frauds.”

Two of Kennedy’s co-defendants—her husband, Kenneth Kennedy, and her former business partner Ann Scarborough—were recently convicted after a jury trial of multiple counts of wire fraud, mail fraud, and money laundering. They await sentencing which is set for March 2011. third co-defendant, Philip Russell, who was scheduled to be tried with Kenneth Kennedy and Ann Scarborough, failed to appear and remains a fugitive from justice.

The investigation was conducted by agents from the FBI and IRS Criminal Investigation. Assistant U.S. Attorneys Ty Howard and Sandra G. Moses represented the government.