He made headlines for shouldering the blame, pleading guilty and going tearfully off to prison—supposedly as penniless as he left some of his former clients.

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Crying foul

Convicted for fraud, Seattle's Craig Rhyne makes a bid for freedom.

He made headlines for shouldering the blame, pleading guilty and going tearfully off to prison—supposedly as penniless as he left some of his former clients. Now the repentant Craig Rhyne, 48, wants out of the deal. The onetime Pike Street precious-metals dealer, who turned a $19,000 insurance settlement from the loss of his leg into a gold-plated empire once worth millions, is quietly seeking an early release from an Oregon federal prison camp where he has served one year of a three-year sentence for fraud. He says he was unfairly sentenced because of bum legal advice.

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But at least one of his former customers thinks Rhyne is up to more sleight of hand. "In my opinion," says Seattle's Andrea Spignesi, who has become something of an amateur detective probing the case, "Rhyne is trying to get someone else to pay off his debt and get out of prison—to spend the money he's hidden." Spignesi is one of more than 300 investors still hoping to get back 30 cents on each dollar they entrusted to Rhyne Precious Metals. In debt by nearly $4 million when his coins-and-metals pyramid scheme crashed in 1996, Rhyne claimed he had miscalculated a falling market and lacked a cushion for setbacks. He began using customer funds to pay personal and business debts rather than buying the annuities, metals, and gold and silver coins the clients had ordered. With the IRS on his trail and his financial house of cards tumbling, Rhyne took the government's generous offer of a guilty plea to one count of mail fraud last year ("Das Rhyne-gold," SW 3/26/97). He also was ordered to pay back $3.6 million in missing funds, most of which investigators have been unable to trace.

Now Rhyne says his court-appointed defense attorney did a lousy job, and he blames his business advisers for never "squarely" telling him the Ponzi scheme was unlawful; had he realized that, he says today, he might have aborted his criminal actions. He maintains in an unusual sentencing appeal filed two months ago in federal court that those mitigating circumstances should merit a shortening of his sentence. No hearing date has been set.

Rhyne's appeal attorneys have also filed new documents about the business advisers' supposed role in the collapse. The documents show that the advisers, Seattle's LeSourd & Patten law firm, "never directly advised [Rhyne] that his conduct was unlawful," Rhyne attorney Jeffery Robinson claims. L&P "actively continued to assist him in his business, thereby contributing to his belief that his activities were lawful." Alan Zarky, another Rhyne attorney, argues it "was LeSourd & Patten's continued assistance that lulled Rhyne into continuing his self-delusion... had any disinterested party squarely informed him, 'Craig, you are breaking the law, you are stealing from your customers,' he would have ceased business promptly."

A 1992 document noting that at least one transaction might be a sham indicates that a LeSourd & Patten attorney knew of Rhyne's potential criminal troubles. Subsequent attorney documents outline Rhyne's growing troubles with the IRS: He had opened five Swiss bank accounts for customers, one note indicates, but "the IRS does not know this" (investigators, Spignesi, and other former customers suspected Rhyne had his own Swiss account, but could never prove it). LeSourd & Patten attorneys were worried in 1993 that the IRS might discover that "Craig is really short on his 'storage'" (the coin and metals inventory Rhyne was supposed to be holding for customers). Notes refer to "a Ponzi scheme" and suggest a case could be made that "in effect [Rhyne] embezzled funds from his customers." Scott Henrie, assigned by the court to recover funds for Rhyne's customers, also says in a declaration that "LeSourd & Patten was aware of the criminal nature of Rhyne's business activities well before July 1996," when Rhyne gave himself up to authorities. Henrie says he is pursuing claims against the firm and may file a lawsuit for damages. A spokesperson for LeSourd & Patten last week had no comment on the allegations.

Rhyne contends his federal defender provided ineffective counsel by failing to strongly argue the business advisers' alleged culpability for "lulling" Rhyne into continuing his criminal activities. Had the defender emphasized that supposed mitigation to the court, Rhyne says, his sentence could have been shorter. In white-collar criminal cases, he adds, that argument is often made "to show the defendant is not essentially bad, but rather made a series of poor choices that ultimately became inexcusable."

Spignesi, who has talked with dozens of other investors and studied reams of documents in the case, scoffs at Rhyne's claims. "In my view, he wants LeSourd & Patten to pay his bill," she says. "It wasn't part of his game plan to face restitution. I think he's got the missing money hidden overseas, in annuities, and he doesn't want to have to use that to pay us back when he gets out. Besides, he's supposed to be broke, and he's got all these private law firms working for him? The plot thickens."

Related Links:

Precious metals dealers, info. and trade groups

http://www.recycle.net/recycle/Metal-P/index.html

 
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