COLUMBIA -- A York County man who's been referred to as "the gold world's Bernie Madoff" was arrested this week on conspiracy and wire fraud charges.
David Copeland Reed, 38, is accused of operating an international, Internet-based Ponzi scheme that promised returns of up to 45 percent and ultimately bilked investors of nearly $13 million.
Reed and his wife stashed the money in duffel bags and clothes and fled to Mexico after the bank crumbled in 2002, federal investigators said.
The couple, who investigators said lived in Mexico for several years, and their children have been living in York County for the past few years, said Kevin McDonald, spokesman for the U.S. Attorney General's Office in South Carolina. He said they might have relatives in the area.
Reed is being held at an undisclosed S.C. prison on a $500,000 secured bond, awaiting transfer to New York, McDonald said.
A spokeswoman for the U.S. Attorney General's Office in New York would not say whether Reed lived in South Carolina when he allegedly ran the Internet scheme.
Reed's arrest caused a stir in the gold world, according to a report in MarketWatch, because "there's never been a brazen Ponzi scheme in the world of gold investing."
The article, which compared Reed to Madoff, said Reed was allegedly able to pull his scam in just a few months "using nothing more than a computer, some fast talking and, oh yes, the glitter of gold."
Here's how it worked, according to federal investigators:
Reed founded OSGold in March 2001 as an online bank backed, in part, by gold bullion reserves stored in an off-shore vault, according to information from the U.S. Attorney and Federal Bureau of Investigations. Customers opened accounts by wiring money to bank accounts controlled by Reed and others and tracked their account balances through the OSGold Web site. For the first few months, the bank operated reliably, investigators said.
By May 2001, Reed was offering customers 45 percent returns on their investments if they didn't touch them for 12 months, investigators said. He told investors the money was being traded on foreign exchange markets, investigators said.
But in reality, they said, he was using the money for personal expenses, such as buying airplane tickets to Mexico for his family and operating a night club, gymnasium and strip mall in Cancun, Mexico.
In all, customers throughout the world had opened an estimated 66,000 accounts with the bank, investigators said. They said about $12.8 million have not been returned to investors or account holders, and no gold bullion reserves associated with the company have ever been located.
Reed is charged with conspiracy to commit money laundering and wire fraud. If convicted, he could face up to 40 years in prison.