Mennonite investors in Pennsylvania were scammed out of $60 million over a decade, say investigators with the Justice Department and the Securities and Exchange Commission.
According to court documents, Philip E. Riehl, 68, of Myerstown, Pa., sold false securities, used investor proceeds to prop up his failing dairy business and ran a Ponzi scheme that defrauded members of his religious community.
The US Attorney’s Office for the Eastern District of Pennsylvania charged Riehl with conspiracy, securities fraud, and wire fraud. The SEC charged him with violating the anti-fraud provisions of the Securities Exchange Act.
Riehl’s listed attorney, Christopher Sarno of Lancaster, Pa., did not return a phone call for comment.
According to the SEC complaint, Riehl began providing accounting services to Mennonite members in 1992. About three years later, Riehl sought to buy a farm in Berks County and approached church members for loans. He promised a repayment interest rate higher than offered by banks, the complaint reads.
Riehl eventually developed his own loan program, in which he pooled investor money to make loans to other members of the Mennonite community. Riehl provided each investor with a signed promissory note.
“Riehl knew that members of his religious community had a high level of trust and respect for one another, and he relied on this trust to secure investments,” the SEC complaint reads.
Likewise, Riehl had a stake in Trickling Springs Creamery in Chambersburg, Pa. Riehl initially loaned money to TSC, and in 2007, his loan was converted to equity, making Riehl a majority owner of TSC.
But the business continued to struggle. To address these financial issues, investigators say Riehl decided to raise money for the business by offering and selling notes issued by TSC, which were
structured almost identically to the Riehl notes, but with TSC as the sole obligor.
The TSC notes reflected the amount of the investment, the rate of interest, which varied between 4.5% and 5%, the investors’ names and addresses, and the redemption provisions. But Riehl did not disclose how badly the business was struggling financially, SEC documents say.
“For many of the TSC Notes that Riehl sold, rather than raising additional capital for TSC, Riehl merely issued new TSC Notes to his existing investors, replacing himself with TSC as the note’s payor and effectively eliminating his personal guarantee to repay the investors,” the complaint reads. “In so doing, Riehl burdened TSC with millions of dollars of additional debt without any corresponding infusion of capital, and TSC was insolvent for all or most of the time that Riehl sold TSC Notes.”
From at least 2015 to December 2018, Riehl offered and sold to approximately 110 investors at least 175 TSC Notes worth approximately $7.8 million, the complaint said.
The final investment of $150,000 was made against the investor’s wishes, the SEC said, and was never paid back, despite Riehl promising to do so within a few days.
By 2015, the SEC was concerned enough to begin asking questions.
“Riehl told the SEC staff he was not accepting new investments, was in the process of winding down his investment program, and always required two co-signers for loans made from his investment program,” the complaint reads. “These statements were not true.”
By January 2019, Riehl apologized to investors in a letter: “I am sorry for any form of dishonesty I am guilty of, and for my part in any false impressions. This includes stating repeatedly that I require two signatures for each loan. This gave a false sense of security, in that such a considerable percentage of funds invested were channeled into my personal projects.”
The dairy business closed its doors for good on Sept. 27, 2019 and its remaining assets are subject to liquidation. Investors in Riehl and TSC Notes are currently owed millions of dollars, with “little chance of full repayment,” the SEC said.
If convicted, Riehl reportedly faces a maximum sentence of 45 years in prison and a $5.5 million fine.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at firstname.lastname@example.org. Follow him on Twitter @INNJohnH.
© Entire contents copyright 2020 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.