As the old saying goes, “If it seems too good to be true, it probably is.” For more then 200 investors — some of whom are Sedona residents — they experienced this the hard way.

On Sept. 5, federal charges were handed down against a former Sedona couple for allegedly defrauding investors of $5,001,559 over a 12-year span. A U.S. District Court grand jury indictment lists 16 fraud and conspiracy counts against Michael and Betsy Feinberg, who were arraigned on Friday, Sept. 21.

It states that between 2002 and 2014, the couple “willfully sold unregistered securities, and knowingly and with the intent to defraud, engaged in a scheme to defraud various investors.

The defendants also participated in the scheme to defraud such investors based on material false representations and the intentional concealment of material facts. The defendants knew that various statements made as part of their scheme to defraud were false.”

It states that between 2002 and 2013, the Feinbergs lived in Sedona and owned and operated a company called Catharon. In 2013, their Sedona home was foreclosed upon, at which time they moved to Tucson and continued running Catharon until 2015.

That year, the Arizona Corporation Commission filed a consent order requiring the Feinbergs to permanently cease and desist from violating the Securities Act and to pay restitution in the amount of $4,926,559 and administrative penalties in the amount of $250,000.

The indictment states the couple told investors their company owned patented computer language technology that would some day compete with Microsoft. The indictment states they told those same investors that the company would generate $2 billion in revenue within the first three years and that the investors would receive significant windfall on their investments — from 400 to 2,268 percent return.

According to the court documents, the following is a breakdown of the dollar amount and number of investors the Feinbergs are accused of defrauding:

• 2002: Defrauded six investors of $160,000.
• 2003: Defrauded 81 investors of $2,346,809.
• 2008: Defrauded 24 investors of $1,281,250.
• 2010: Defrauded 63 investors of $1,108,500.
• 2013: Defrauded seven investors of $105,000.

“At the time Michael Feinberg and Betsy Feinberg made these material false representations they knew such representations were false because Catharon never had the capability of launching its technology, nor the ability to generate these significant revenues or returns on investments,” the indictment states.

In a press release issued Feb. 3, 2015, the Arizona Corporation Commission stated:

Commission Halts $4.9 Million Investment Scam

Tucson Couple and their Company Admit to Defrauding Investors

The Arizona Corporation Commission today ordered Tucson residents Michael and Betsy Feinberg and their affiliated company, Catharon Software Corporation, to pay $4,926,559 in restitution and a $250,000 administrative penalty for defrauding investors with an unregistered investment program.

The Commission found that the Feinbergs, formerly of Sedona, represented that they had created and owned a patented computer language technology named “V∆Delta” that would enable Catharon to compete with Microsoft and other computer language systems manufacturers. While not registered to offer or sell securities in Arizona, the Feinbergs induced investors to purchase Catharon stock by repeatedly representing that Catharon would launch its technology within months of the investors’ investment, Catharon would generate $2 billion in revenue within three years and investors would receive returns of between 400 and 1,572 percent. The Commission found, however, that the Feinbergs never launched Catharon’s technology.

The Commission found, and the Feinbergs admitted, they did not have any reasonable factual basis for the projected launch dates, the projected $2 billion revenue figure and investment returns, or their representations that Catharon would compete with Microsoft and similar companies. Further, the Commission found that the Feinbergs failed to disclose their use of investor monies to pay for personal living expenses, including a bird-watching trip to Mexico, as well as the transfer of more than $891,000 to their personal bank account.

In settling this matter, the Feinbergs admitted to the Commission’s findings for the purposes of its administrative proceeding and any other proceeding in which the Commission is a party and consented to the entry of the consent order. For more details about this case, view the full text of the Commission’s order S-20905A-14-0061. The Commission’s final order against the named respondents will be posted online as soon as it is signed by all of the Commissioners. Please check the website:

http://www.azcc.gov/divisions/securities/enforcement/enforce-orders.asp

More caution for investors:

Even when selling a legitimate product, some promoters do not recognize the investment program they have created is a security. Determining whether an alternative investment program is a security is not always easy to determine and depends upon the unique facts and circumstances of the transaction and not on what a promoter calls the investment product. Even when investing with someone they know, investors should verify the registration of sellers and investment opportunities and investigate disciplinary histories by contacting the Arizona Corporation Commission’s Securities Division at 602-542-4242 or toll free in Arizona at 1-866-VERIFY-9 (837-4399). The