Local vacuum cleaner salesman ran $5 million Ponzi scheme
A Tigard-based vacuum cleaner salesman could face more than 17 years in prison after a modern-day Ponzi scheme netted him about $5 million from hundreds of investors' credit cards.
On May 11 a federal jury in Portland convicted Johnny "Mickey" Brown, 56, on 14 counts, including evading income taxes from 1993 through 1995, seven counts of wire fraud and six counts of making false statements to a bank.
According to prosecutors, Brown defraud investors and banks out of millions of dollars through his Kirby vacuum cleaner distributorship.
From 2001 to 2003, prosecutors said, Brown swindled millions from 114 investors.
Brown sold Kirby vacuum cleaners out of at least two offices in King City and Tigard.
Brown persuaded customers to let him charge their credit cards to their limits and said he would use the proceeds to buy vacuum cleaners, prosecutors stated.
In exchange, Brown would pay interest on the loans and make minimum credit card payments.
About 10 percent of money he collected did go to purchase more vacuum cleaners, prosecutors said. The rest was pocketed and used to cover ever-growing debt payments, prosecutors said.
According to the prosecution, Brown ran the investors' credit cards through a US Bank merchant point-of-sale terminal, disguising each transaction to the bank as a sale of goods, though no goods were ever sold.
Funds from the fake sales were then deposited into Brown's U.S. Bank business bank account.
The con meant that Brown had to continue to bring in investors to make the interest and credit card payments. Over the three-year period, prosecutors said Brown used 628 credit cards from 114 investors
One couple lost $105,000 to Brown.
U.S. Bank did eventually shut down Brown's account. Prosecutors said Brown then tried to refund money to creditors, adding back about $1 million in a single day until his company's credit card machine broke.
Brown also faxed fake credit slips to creditors to help credit-card companies dispute the debt on their cards, prosecutors said. U.S. Bank lost about $4 million in losses from the transactions.
Brown did not testify during the trial, but according to Brown's defense attorney, Matt Schindler, Brown's action of refunding money was a way of protecting his investors.
It was also his way of taking on the burden himself, according to Schindler.
Schindler also said that U.S. Bank was a willing partner, often calling Brown to ask if he had any new customers to have sign up for loans or credit cards.
Prosecutors also said Brown owed three years' worth of taxes totaling $130,000. Prosecutors said Brown evaded taxes by placing business assets and his personal home under other names, including em-ployees and investors.
Brown's wife, Lili Brown, was sentenced in 2009 to four months in prison for tax evasion.
Brown was originally scheduled to go to trial in 2009, but the trial has been delayed several times due to changes in Brown's legal representation.
Brown could face up to 17 ½ years in prison.
The jury convicted Brown on all counts for the scheme. Sentencing is scheduled for Sept. 12.
Brown is expected to appeal.