Suspect in Alleged Phony Fund Is Arrested in Oregon

A former Orange County man who allegedly ran a phony mutual fund that took in nearly $20 million from 250 investors nationwide has been arrested and charged with criminal securities fraud, federal authorities said Thursday.

William Madon, 66, was arrested by FBI agents late Wednesday in Portland, Ore., where he had moved early this year from Coto de Caza, a gated community in southern Orange County, prosecutors said. He is being held without bail and will be brought to federal court in Santa Ana for a hearing later this month, said Thom Mrozek, spokesman for the U.S. attorney’s office in Los Angeles.

Beginning in 1983, Madon allegedly solicited millions of dollars from investors for Capital Growth Group, a mutual fund that he claimed invested in stocks and whose performance he said ranked among those of high-profile funds such as Fidelity Investments’ Magellan Fund, according to prosecutors.

But instead of buying stocks, prosecutors say, Madon kept the money in accounts at Dean Witter, now Morgan Stanley Dean Witter, and at Charles Schwab. In what prosecutors called a Ponzi scheme, he allegedly used the money for personal expenses and for payments to investors who sought withdrawals.

The criminal case against Madon, filed late last month, comes more than two years after the Securities and Exchange Commission settled a separate civil suit against Madon. In December 1997, Madon agreed to a freeze on his assets, but neither admitted nor denied the allegations against him.

Madon agreed to sell assets worth about $100,000 to help compensate investors in a judgment approved Wednesday, the SEC said. Madon also agreed to sell assets worth as much as $6.8 million and give up the proceeds. But that still would leave investors millions of dollars in the hole.

News of Madon’s arrest pleased investors. “It’s about time,” said a Yorba Linda resident whose family gave Madon more than $1 million beginning in 1983 and who spoke on condition of anonymity. “It’s unbelievable the heartache this man has caused.”

Madon’s investors brought a case against Morgan Stanley Dean Witter in 1998 over the brokerage’s role in the scheme. That case was settled confidentially last summer.