Mar 29
2016

Derek A. Nelson was sentenced to 19 years in prison on March 29, one day after he was convicted of securities fraud in Collin County State District Court.

Nelson operated a real-estate investment program that would supposedly buy and renovate distressed properties. Nelson sold approximately $37 million in promissory notes in the U.S. and Canada through Capital Mountain Holding Corp. of Garland and various limited liability corporations.  Most of the U.S. victims lived in the Dallas-Fort Worth area.

Nelson told investors he would use the proceeds from the sale of the promissory notes to buy distressed properties and renovate them for rent or sale, generating enough money to pay the rates of return he promised investors.

Instead, Nelson used at least $20 million of investors’ money to prop up a Ponzi scheme, paying investors their promised returns with money from other investors. Nelson also used $2.7 million of investor funds to pay for personal expenses and to contribute to his church.

Depending on when they were issued, the notes were supposed to pay improbably high rates of return. One series of promissory notes promised returns of 10% per month for three months. Others were supposed to pay an annualized return of 18% for two years and 21% for five years.

Nelson falsely represented to investors that their investments were secured by first liens on the properties he acquired. In fact, the first liens, and in some cases additional second liens, belonged to the banks that held mortgages on the properties.