Encinitas Man Sentenced to Five Years in 'Ponzi' Case

An Encinitas resident must serve five years in federal prison following his conviction on a wire fraud charge from what amounted to a "Ponzi" scheme that defrauded some 30 investors out of $6.8 million.

Scott Bottolfson, 56, received the sentence Friday in the downtown San Diego federal court of Jeffrey T. Miller.

During the sentencing hearing, Bottolfson read a brief written statement of apology and pledged to work to repay the money, but that did little to mollify investors in attendance. Several had asked the judge to sentence Bottolfson to the maximum 20-year term. One victim compared the five-year term to little more than a "sour lollipop" that would not deter other white collar criminals or suitably punish the defendant.

Defrauded investors ranged from the elderly living on fixed incomes to Bottolfson's close family and friends, prosecutors said.

Bottolfson admitted to one count of wire fraud in connection with the case on Nov. 30. Under sentencing guidelines, he will be eligible for parole after serving 51 months and must surrender to federal authorities within six weeks. Bottolfson remains free on $20,000 bond, Assistant United States Attorney Christopher Tenorio said.

Court records show that from September 2001 to July 2010, Bottolfson sought money from investors by promising guaranteed returns of 18 to 20 percent trading in commodities via Increase Investments Inc. According to one victim, Bottolfson promised investors their principal was safe.

The federal investigation found that Bottolfson used up to half of the money for such personal expenses as house and vehicle payments. Federal prosecutors say that because new investor funds were given to some previous investors and presented as investment returns, Bottolfson was in fact operating a "Ponzi" scheme.

While the judge ordered Bottolfson to repay the investors, they have little immediate hope of seeing much of the money. Bottolfson has no income and his Encinitas home is currently in foreclosure proceedings with little potential equity. Remaining stated assets include an account frozen by the National Futures Association valued at $230,000 and $149,000 in a trust account held by Bottolfson's attorney, Michael Lipman.

Bottolfson, described by his victims as a God-fearing, gregarious salesman before his scheme unraveled, read a statement in a monotone to the judge. Dressed in a black suit, he apologized to victims, family and friends  for the "pain and suffering I caused to so many people" and spoke of "constant feelings of regret and remorse."

He pledged to work the "rest of my life to repay" the lost money and said that he willingly accepts the consequences.

Tenorio, the federal prosecutor, said Bottolfson continued soliciting funds even as his little-understood investment strategy failed, exploiting relationships with his friends and family and encouraging some to cash out their pension and retirement savings to invest with him.

Many investors spoke of psychological damage based upon their loss of trust in people because of the fraud, Tenorio said, describing feelings of "foolishness, embarrassment, betrayal and devastation."

Jay Watson, a cancer survivor from Colorado, told the judge of experiencing a severe heart arrhythmia after learning of the fraud. Watson, Bottolfson's former business partner in a trucking firm, lost more than $3 million in the case, the largest amount of any of the victims.

In court, another victim, Jay Samuel, a photographer from Arizona, likened Bottolfson's acts to those of an arrogant alcoholic, convinced he can drive though he's had too much to drink.

"This time, after 30 people got in the car, it crashed," he said. He sought to publicize the case, hoping it would serve as a warning to others to be wary of investment promises, even if they are from friends.

Miller noted that such cases cause lingering psychological damage to the victims because of the trust issues, and that in some instances, the harm is greater than physical damage suffered by victims of violent crimes. While friends and family members wrote letters of support and appeared in court on Bottolfson's behalf, the judge said he found the defendant's behavior "aggravated, damaging and in some cases, fairly heinous."

Some of the goodwill generated by Bottolfson in fact was the fruit of "ill-gotten gain" over a 10-year period, he said, and the defendant was able to live a wealthy lifestyle because of it.