Real Estate Fraud: The Story of the Ponzi Scheme Widow

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The ultimate victim of a real estate Ponzi scheme mastermind, who allegedly defrauded millions of dollars from his clients, could turn out to be his own wife of 38 years. The lesson for homeowners is clear: Be careful who you're dealing with, even if it's your spouse.

David Colwell, a 57-year-old insurance salesman from Hamilton, Ohio, died in 2008 from what police believe was a self-inflicted gunshot wound. He killed himself right before federal prosecutors were about to charge him with a $9 million real estate fraud scheme that left some victims penniless.

Now the feds are going after his 59-year-old widow, Pam Colwell. Although she is not being charged with any crime, prosecutors want to seize her property and life insurance policies, valued at $2.5 million. Colwell is challenging the attempted seizure; and her lawyer denies that she had any knowledge of her husband's misdeeds.

Now prosecutors want to make at least partial restitution to the scheme's 90 victims. The government is legally entitled to the property under federal forfeiture laws, if they can link Pam Colwell's property and insurance to criminal activity.

"She didn't have anything to do with this," said her lawyer, Jack Grove. "Her life has unraveled."


The Ponzi scheme was first hatched in 2002 when David Colwell and James Powell, a Hamilton businessman, began recruiting new real estate investors; promising them "high rates of return on a on a portfolio of real estate investments." The men found many of their victims at a local church that they both attended, and also targeted the elderly. They are accused of inflating the value of their investment fund's real estate holdings and of listing properties that either they didn't own, or were on the verge of foreclosure.

As in the case of Bernie Madoff, though on a much smaller scale, most of David Colwell and Powell's profits were trickling in from new clients, rather than legitimate investments.

On Monday, Powell, 53, pleaded guilty in federal district court to one count of conspiracy to commit mail fraud and one count of wire fraud. The Hamilton resident could serve up to 20 years in prison on each charge.

"The conspirators took advantage of the trust developed through this common church affiliation and prior insurance agency relationship, as well as the lack of financial sophistication of many of the investors," says U.S. attorney for the southern district of Ohio, Carter Stewart.

After her Colwell's death in 2008, Pam Colwell was barraged by irate investors who said her husband had stolen their life savings. Her attorney says that his client sympathizes with the victims but that much of her property and holdings were accrued before 2002.

He also says that she is suffering physical maladies, a result of a childhood battle with polio, and that the home she owned with her husband was sold at a loss before it went into foreclosure.

Several other properties owned by her husband are also on the verge of foreclosure.

The Colwell case is a good reminder that you should independently check out any real estate professional you do business with, even if you meet them through a friend or through your church.

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