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Swissvale insurance firm owner pleads guilty to major Ponzi scheme

Swissvale insurance firm owner pleads guilty to major Ponzi scheme

The owner of an insurance company in Swissvale admitted Thursday that he ripped off 80 investors of $8.2 million over some two decades in what a federal prosecutor said was one of the largest Ponzi schemes in the history of Western Pennsylvania.

John Hogan, 77, who splits his time between Swissvale and Ligonier, pleaded guilty to five counts of mail fraud before U.S. District Judge Mark Hornak.

He had long been in plea negotiations with the U.S. attorney’s office following an investigation by the FBI and U.S. Postal Inspection Service that began in 2016 after agents noticed suspicious banking transactions involving his business, Hogan & Associates.

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Assistant U.S. Attorney Greg Melucci said Mr. Hogan, who ran the insurance company for many years, sold whole life policies but also held himself out to be a financial planner when he really wasn’t one.

Dating to 2002 and possibly even earlier, Mr. Hogan began encouraging clients to borrow against the accrued value of their insurance policies and invest in what he called a “promissory note” program that guaranteed a 10 percent return or higher.

Agents determined that the program amounted to what Mr. Melucci said was a “classic Ponzi scheme” in which much of the money from recent investors was used to pay off earlier ones. Mr. Hogan also used investor money to pay lenders who gave him loans for his business or to maintain his real estate holdings in several states.

Some investors gave him significant sums over the years.

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One, for example, wrote him 249 checks for a total of $1.7 million, which he deposited in checking accounts across the region in amounts less than $10,000 to avoid suspicion.

Those kinds of deposits are red flags for illegal activity and attracted the attention of federal investigators.

In typical Ponzi fashion, Mr. Melucci said, when investors wanted their money, he told them he was having problems with borrowers and persuaded clients to roll over their notes and keep their money in his program for additional years.

“It was the inevitable result of the Ponzi scheme that as fewer clients invested in the Promissory Note program, Hogan had inadequate money to make ‘interest’ payments to early investors, which resulted in the collapse of the Ponzi scheme,” Mr. Melucci wrote in the charging documents.

After Mr. Melucci read a long recitation of crimes, Judge Hornak asked if Mr. Hogan concurred with the government’s version of what he did.

“I agree,” he said.

The remaining question is what happened to the $8 million.

“Mr. Hogan,” asked Judge Hornak, “where’s the money?”

J. Alan Johnson, Mr. Hogan’s lawyer, said he had bought about 25 condos and other properties across the United States over the years, in locales ranging from Arizona to Florida and Hawaii. He sold some, and others are encumbered with heavy debt or liens; none of the properties is worth enough for prosecutors to seize.

Mr. Johnson said the value of Mr. Hogan’s real estate investments declined dramatically in 2008 when the housing bubble burst.

“He does not live a high life,” he said. “He doesn’t seem to be wealthy at all.”

Agents are still trying to track the money trail.

Mr. Melucci said prosecutors haven’t found any significant assets, but any they do locate will be used to pay restitution to the fleeced clients.

The government is seeking to send Mr. Hogan to prison for up to five years when he is sentenced in August.

Judge Hornak, noting Mr. Hogan’s age, the fact that he stole $8 million and had “properties all over the place,” was reluctant to release him because of the risk he might use hidden assets to flee before his court date.

But after assurances from his lawyer and from the prosecution that his money is gone and a promise to show up for his sentencing, the judge let him go on a $250,000 bond.

But he warned Mr. Hogan that the U.S. marshals are assigned to find people who try to disappear.

“And they always do,” he said.

Torsten Ove: tove@post-gazette.com or 412-944-6551.

First Published: April 27, 2017, 5:01 p.m.

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