Lakeville Man Runs Ponzi Scheme on Banks

MINNEAPOLIS - A 40-year-old Lakeville man pleaded guilty Thursday in a Minneapolis Ferderal Court to operating a Ponzi scheme that defrauded at least 17 lenders in Minnesota, among other states.

Government investigators found the lenders suffered losses in excess of $79 million.

Corey N. Johnston appeared before United States District Court Judge and entered a plea of guilty to one count of bank fraud and one count of filing a false income tax return in connection to this crime. He was charged August 6.

In his plea agreement, Johnston admitted that from 2005 through March of 2009, he oversold participation in large commercial and personal loans arranged by him through his company, First United Funding.

Loan participation is a common banking practice in which a bank pays an original lender all or a portion of a particular loan and then assumes that loan, along with its associated risk.

From then on, the bank receives the loan payments from the borrower, as if the bank had made the loan in the first place. Johnston’s scheme involved selling more than 100-percent participation in at least ten different loans arranged through FUF. In other words, he purportedly sold loan participation to banks after already selling that same participation to other banks. In each instance, Johnston failed to disclose that the total participation exceeded 100 percent of the original loan, making it impossible for the participating bank to receive the money expected.

Johnston used some of the proceeds of the fraud to repay other loans and continue the scheme. He also diverted fraud proceeds for his personal use as well as for use by his family.

Furthermore, Johnston failed to report the fraudulent income on his 2005 federal income tax return. That failure resulted in an underpayment of taxes to the United States of approximately $508,905.

Johnston faces a potential maximum penalty of 30 years in prison on the bank fraud charge and three years on the charge of filing a false income tax return. The judge will determine his sentence at a future hearing, yet to be scheduled.