Convicted Ponzi schemer Doug Vaughan got the maximum sentence of 12 years in federal prison Wednesday, with a federal judge comparing him to some of New Mexico’s most notorious criminals.
“You have become the most infamous criminal in New Mexico history,” Chief Judge Bruce D. Black told Vaughan. “You’ve surpassed Billy the Kid, Black Jack Ketchum and a host of others.”
The disgraced former real estate executive, who scammed 600 investors out of $75 million, was freed after Wednesday’s sentencing hearing and told to report to the U.S. Marshal’s office by Friday afternoon to begin his incarceration. It was unclear whether he will start his sentence in a low or medium security facility.
The 12-year sentence, followed by six years of supervised probation, was at the high end of the 10-12-year range stipulated in a plea agreement reached in December between Vaughan’s lawyers and the U.S. Attorney’s Office. As a rule of thumb, Vaughan would serve 85 percent of the sentence or just over 10 years.
Unlike the other two outlaws named by Black, Vaughan won’t be shot like Billy the Kid or hanged like Ketchum, but reactions from a sampling of his victims indicate that they thought 12 years was too far in the other direction.
Victims: More time
“I would have loved to see him get more time, but I’m glad he’s going to start paying the price starting this weekend,” said Albuquerque retiree Charles Kruger, one of the victims. “I’m glad to see it’s over.”
“I think justice was a little shy of what it should be, but I’m glad it’s over,” said Donald Duke, one of four victims to address the court at the hearing attended by about 40 people.
“Twelve is better than 10,” said Mary Ellen Ortega- Saenz, another speaker who added that she had hoped the sentence would have been longer.
Vaughan turns 65 in late October, which means he will be just shy of 75 when he gets out of prison. Both Vaughan’s lawyers and prosecutors said his age could make a 12-year prison sentence a life sentence.
“No one could blame the victims if they wish he doesn’t survive it,” said Assistant U.S. Attorney Greg Fouratt.
“The name ‘Doug Vaughan’ will be synonymous with greed and theft for many of us in New Mexico,” said U.S Attorney Kenneth J. Gonzales. “This is one of the more egregious crimes we’ve seen.”
On his part, Vaughan apologized to his victims and said, “my remorse and sadness grows weekly. I pray daily for forgiveness.”
Vaughan also said, “I recently accepted Christ and was baptized.”
Vaughan will likely serve his sentence at the Federal Correctional Institution in Florence, Colo., where former state Senate President Pro Tem Manny Aragon was sent for his role in a scheme to defraud the state of $4.4 million in construction funds for the Metropolitan Court project.
After undergoing social, psychological and medical screenings, Vaughan will be issued the standard prison garb — khaki-colored clothing and black shoes — and assigned a job if cleared for duty. Then, he will enter a highly regimented world geared primarily to the young and able bodied.
“U.S. prisons are usually overcrowded warehouses that are hard places to live in, regardless of age,” says a January 2012 report titled “Old Behind Bars” by Human Rights Watch.
Tainting an industry
Vaughan’s criminal activities cast a pall over Albuquerque’s real estate community that still lingers, said John Lewinger, founder and principal of Grubb & Ellis New Mexico, a major commercial real estate services firm in Albuquerque.
“We are in the biggest trust business there is,” he told the Journal. “He violated the trust.”
Vaughan was in the real estate business for about 40 years, launching in 1973 what would later become his flagship residential real estate brokerage Vaughan Company Realtors. He rose to prominence in the real estate community during the 1980s, diversifying his pursuits beyond just the residential brokerage.
“I’ll tell you something he told me in 1985,” Lewinger said. “He had bought my company, Walter-Hinkle, and I went to work for him. He told me I didn’t think big enough.”
The savings and loan crisis of the late 1980s and related crash in commercial real estate, which has many similarities to today’s real estate downturn, forced Vaughan to downsize or close his business pursuits and lay off employees. He had difficulty with banks because of tightened lending standards.
How it began
In 1992, Vaughan began to issue promissory notes to private investors as a way to get around the constraints of dealing with banks, according to material Vaughan distributed to investors. A form of investment security, promissory notes are sometimes used as a way to raise money for legitimate real estate deals.
As early as 1993, but certainly by the 2000s, according to various official documents, Vaughan’s promissory note program had morphed into a Ponzi scheme, a scam in which money put up by later investors is used to pay fake profits to earlier ones.
The scheme began to unravel in mid 2009 when Vaughan couldn’t lure enough new investors to provide the cash flow to keep it going. Complaints by unpaid investors led to investigations by state and federal authorities.
The scheme ended in February 2010 when Vaughan and his flagship Vaughan Company Realtors filed parallel petitions for bankruptcy court protection. Vaughan was arrested and criminally charged a year later.