Lone Tree man convicted of $16 million securities fraud
DENVER - (Nov. 1, 2018) - Kelly James Schnorenberg, 58, of Lone Tree, Colorado was convicted on October 22, 2018 following a four-week jury trial in Douglas County District Court. The Douglas County jury found Schnorenberg guilty on all 25 counts of securities fraud. Securities fraud is a class three felony that may be punished by up to 12 years in prison for each count.
The guilty verdict was the result of the prosecutorial work of the Colorado Attorney General’s Office, and the investigative efforts of the Colorado Division of Securities, part of the Department of Regulatory Agencies (DORA).
The evidence at trial showed that the Colorado Division of Securities had twice previously filed civil cases against Schnorenberg. He resolved each suit by agreeing to a binding permanent ban on his involvement in selling securities in Colorado. Nonetheless, Schnorenberg began soliciting investments in May of 2009 without disclosing those bans to new investors as required by the Colorado Securities Act’s anti-fraud provisions. Schnorenberg solicited many of these investments personally, but also directed agents to solicit investments for his companies. From 2009 to 2015, Schnorenberg helped found a series of insurance marketing organizations that he pitched to potential investors. The investors were promised high returns on the profits from these companies (usually 12 percent per year), but were not informed of the many prior investors who had not received their returns as promised.
Once investors had agreed to invest in one of the insurance marketing organizations, Schnorenberg substituted his personal marketing company KJS Marketing, Inc, or its successor company James Marketing, Inc, in place of the insurance marketing organization he had pitched. If questioned, he would assure investors that KJS or JMI held a profit interest in the insurance marketing organizations and that this arrangement was normal. Many investors had little prior experience with such investments and trusted Schnorenberg. Schnorenberg failed to disclose to these investors that KJS and JMI became loaded with many millions of dollars of unpaid investor debt between 2009 and 2015. He also failed to disclose that KJS and JMI were used to accrue millions of dollars in off-balance sheet marketing and recruiting expenses on behalf of the insurance marketing organizations, which inflated those companies’ apparent financial prospects.
When one of the insurance marketing organizations encountered problems, Schnorenberg would move on to the next one. He would roll over the prior investors into the new company, often without even consulting them. Over the course of six years, Schnorenberg was involved in founding insurance marketing organizations under the names Salus Marketing Enterprises, Premier Advantage Insurance Agency, Trinity Affiliated Group, Hegemon Holdings, Quantum Success Strategies, and most recently, WealthSmart America.
Schnorenberg continued to solicit investments for the insurance marketing organizations even when he knew they were having major problems. When Quantum Success Strategies was having management disputes, Schnorenberg took steps to abandon that company and registered the next company in line: WealthSmart America. Nonetheless, he continued to solicit investors for QS2 without disclosing the management disputes or his new company. When Schnorenberg testified at trial, he disclosed that during that time a wealthy friend of his was considering an investment of over a million dollars into Quantum Success Strategies, but that Schnorenberg warned him off the investment because the “money would have gone down the toilet.” Schnorenberg nonetheless continued to accept investments from retirees and hard-working Coloradoans, and did not warn them that their money would be lost.
“The Office of the Attorney General will not permit people to mislead and deceive Colorado’s investors,” stated Colorado Attorney General Cynthia Coffman. “We will fight to protect the life savings and retirements of Colorado’s hard working citizens.”
“This is a significant jury verdict for the State of Colorado involving a complex scheme that has victimized hundreds of people,” commented Colorado Securities Commissioner Gerald Rome. “The cooperation between my office, and the Colorado Attorney General is an important example of how various agencies can and should work together to protect Colorado citizens.
Sentencing for Mr. Schnorenberg has been set for December 17, 2018 in Douglas County District Court.