UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

STATE OF CONNECTICUT :
:
: December 14, 2009
:
COUNTY OF NEW HAVEN : FILED UNDER SEAL

AFFIDAVIT

I, Matthew J. McPhillips, being duly sworn, state as follows:

1. I am a Special Agent with the Federal Bureau of Investigation (FBI), where I have

been employed for the past 12 years. I am currently assigned to a white collar crime squad in

New Haven, Connecticut. I previously served in the New York division of the FBI, FBI

Headquarters in Washington D.C., and the Denver, Colorado division of the FBI. Throughout

my career, I have conducted and participated in physical surveillance, the execution of search

warrants, debriefings and interviews of cooperating witnesses, and reviews of documents and

evidence. Through my training, education, and experience, I have become familiar with a

variety of white collar fraud schemes and methods used to entice victims for such schemes.

2. I make this affidavit in support of an application for a criminal complaint,

charging GREGORY P. LOLES with a scheme to defraud in violation of Title 18, United States

Code, Sections 1341 and 1343.

3. The information contained in this affidavit is based on my personal knowledge

and involvement in the investigation; information obtained by other Agents and investigators

involved in this matter; as well as other information gathered during the course of this

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investigation. This affidavit is submitted for the limited purposes described above. Accordingly,

it does not include all of the information gathered in regard to this investigation, but rather

contains only that information necessary to establish probable cause for the requested complaint.

INVESTIGATION BACKGROUND

4. This case involves the investigation of GREGORY P. LOLES, born July 27,

1959, residing at 451 Judd Road, Easton, Connecticut 06612. LOLES is the owner of a company

named APEIRON CAPITAL MANAGEMENT INC. He also is a shareholder of a sports racing

car service dealership named FARNBACHER LOLES in Danbury, Connecticut. LOLES also

operated EASTON CAPITAL MANAGEMENT INC. LOLES is a parishioner at St. Barbara’s

Greek Orthodox Church in Orange, Connecticut (the “Church”) and served on the board of the

Church’s Endowment Fund. The evidence adduced to date establishes probable cause to believe

and I do believe that, beginning in approximately November of 2001, and continuing to the

present, LOLES engaged in a scheme to defraud and to obtain the money and property of

multiple investors. I have spoken with several victims of this scheme, members of the church,

other fact witnesses, and LOLES himself during the course of this investigation. In my interview

of LOLES he admitted to me that he made materially false representations to investors, including

the Church, that he did not invest the money they entrusted to him as represented and that he

used the victim’s funds for, among other things, fraudulent interest payments and for his own

purposes including his other business.

LOLES Prior Employment at A.G. Edwards

5. Prior to forming APEIRON CAPITAL MANAGEMENT INC., LOLES was

employed by A.G. Edwards in Hamden, Connecticut as a broker. LOLES did not like being

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compensated based strictly on commission, as he preferred a fee-based earning structure.

LOLES eventually left A.G. Edwards and started his own investment advisory company named

APEIRON CAPITAL MANAGEMENT INC. in approximately the mid-1990’s.

LOLES Affiliation with St. Barbara’s Greek Orthodox Church

6. Starting in approximately the mid-1990’s, LOLES became a member of the

Church. LOLES was later elected to serve on the board of the church’s Endowment Fund. The

Endowment Fund held a significant portion of the Church’s funds and the money in the fund was

intended to be managed in order to financially benefit the church in whatever manner the board

decided. Examples of benefits the Endowment Fund provided to the Church community

included scholarships, charitable acts and contributions, and community outreach services. As a

member of the board, LOLES used his expertise as a stock broker and his company APEIRON to

purchase and sell equity securities on behalf of the Church’s Endowment Fund and was to do so

only after the board collectively decided what securities to buy and/or sell. After a period of

time, LOLES was given the authority to “trade” on behalf of the Endowment fund, and began to

execute trades using the Church’s money purportedly for the benefit of the Church. LOLES

represented to the Church that through his trading activity, he began to make the Church

Endowment Fund money. Word spread throughout the Church community about LOLES’

purported investment success. In response to his purported success, individual Church

parishioners desired to reap the same investment benefits for themselves. Additionally, at some

point after he began managing the Church’s funds, LOLES represented to the Endowment Fund

Board and other members of the Church that he could achieve and represented that he was

achieving a steady rate of return through the investment in “Bonds” in which the principle would

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be safe and the bonds would pay a steady return of approximately 7% per annum, including

investment in a bond called Knightsbridge Holding ARB.

7. An investor referred to herein as “Investor-1” and his spouse, both parishioners of

the Church, invested approximately $100,000, with LOLES based on materially false and

fraudulent pretenses, representations, and promises. Their funds were purportedly invested in

bonds that paid a steady return, including the bond known as Knightsbridge Holding ARB, when

in truth and in fact the bonds, as represented, did not exist. Additional false and fraudulent

pretenses, representations, and promises made to Investor-1 included LOLES materially

misrepresenting the expected return from the bond funds, falsely representing the existence and

holding of various bond instruments including Knightsbridge Holding ARB, and falsely

representing that the rate of return on Knightsbridge Holding ARB bonds would be

approximately 7.5% annual return; when in truth and in fact, he had not achieved such results,

and had used the investment principal to falsely create the appearance of the consistent

investment returns that he was representing. By extending monies to LOLES and his funds

based on the materially false and fraudulent pretenses, representations, and promises, Investor-1

was defrauded. According to LOLES and confirmed by Citi-bank, there was “no money left.”

8. Starting in approximately December of 2002, Investor-1 began to invest with

LOLES at APEIRON CAPITAL MANAGEMENT INC. LOLES falsely represented to

Investor-1 that Investor-1 would earn an annualized rate of return on an investment in

Knightsbridge Holding ARB of approximately 7.5%. The rate of return later falsely grew to

what Investor-1 believed was 7.75%. By approximately the fall of 2009, Investor-1 believed he

held 100 shares ($100,000) of Knightsbridge Holdings ARB at purportedly a 7.75% annualized

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rate of return. Sometime after October 28, 2009, Investor-1 received a check in the mail from

APEIRON CAPITAL MANAGEMENT INC. in the amount of $678.72 which Investor-1

believed was the interest on his investment in Knightsbridge Holdings ARB. The check was

transmitted using Citi-Bank Online Bill Payment Operations, San Antonio, Texas 78245-9015.

Investor-1 deposited this check into his account believing it was an interest payment on his 100

shares of Knightsbridge Holding ARB bond. I spoke with an account supervisor at Citi Online

Bill Payment Operations who advised me the check was caused to be mailed after an online

request is made by their customer. Online bill payment checks are mailed from their office in

San Antonio, Texas. Investor-1 informed me that he did receive the check by U.S. Mail and that

he believed at the time that it was his interest payment on 100 shares of Knightsbridge ARB

Bonds. Based on my investigation, I have concluded that this payment, as well as other interest

payments like this one, was a lulling payment intended to further the scheme by causing

Investor-1 to believe his money was safely invested and that the promised interest rate was being

generated by the principle provided to LOLES. I therefore have concluded that the interstate

wires and U.S. Mails or common commercial carriers were used in furtherance of the scheme to

defraud Investor -1 and others. According to LOLES and confirmed by Citi-bank, there was “no

money left.”

9. An investor referred to herein as “Investor-2” and his spouse, both parishioners of

the Church, invested approximately $1 million with LOLES that were purportedly invested in

bonds that paid a steady return, including a bond known as Knightsbridge Holding ARB, and did

so based on materially false and fraudulent pretenses, representations, and promises. Those false

and fraudulent pretenses, representations, and promises included LOLES materially

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misrepresenting the expected return from the bond funds, falsely representing the existence and

holding of various bond instruments including Knightsbridge Holding ARB, and falsely

representing that the rate of return on Knightsbridge Holding ARB bonds would be

approximately 7.75% annual return, when in truth and in fact, the bonds did not exist, he had not

achieved such results, and he had used investment principal to falsely create the appearance of

the consistent investment returns that he was representing. By extending monies to LOLES and

his funds based on the materially false and fraudulent pretenses, representations, and promises,

Investor-2 was defrauded. Investor-2 also received monthly lulling payments that led him to

believe his money was safely invested and that the promised interest rate was being generated by

the principle provided to LOLES. According to LOLES and confirmed by Citi-bank, there was

“no money left.”

10. An investor referred to herein as “Investor-3” invested approximately $2 million

based on materially false and fraudulent pretenses, representations, and promises with LOLES

that were purportedly invested in bonds that paid a steady return, including a bond known as

Knightsbridge Holding ARB, based on materially false and fraudulent pretenses, representations,

and promises. Those false and fraudulent pretenses, representations, and promises included

LOLES materially misrepresenting the expected return from the bond funds, falsely representing

the existence and holding of various bond instruments including Knightsbridge Holding ARB,

and falsely representing that the rate of return on Knightsbridge Holding ARB bonds would be

7.75% annual return, when in truth and in fact, the bonds did not exist, he had not achieved such

results, and he had used investment principal to falsely create the appearance of the consistent

investment returns. By extending monies to LOLES and his funds based on the materially false

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and fraudulent pretenses, representations, and promises, Investor-3 was defrauded.

11. Beginning in approximately mid-2009, Investor-3 noticed that the regular wire

transfer payments to his bank on the interest in his total investment with LOLES through

APEIRON CAPITAL MANAGEMENT INC. were late. On October 29, 2009, at 1:02 pm,

Investor-3 e-mailed LOLES at his e-mail account of greg@farnbacherloles.com: “AS OF 1:00

PM ON OCTOBER 29TH THERE IS NO DIRECT DEPOSIT ARE WE TO EXPECT THE

DEVOLUTION OF KNIGHTSBRIDGE EFFECTIVE 12/31/2009? RSVP.” On October 29,

2009, LOLES responded by stating, “Wires have been hitting from yesterday. Check in the

morning and let me know. Best Regards, Greg.” The investor’s e-mail address reflects the fact

that it is a web based e-mail operated by a company located outside the district of Connecticut,

and thus I have concluded that the interstate wires were used to further the scheme by LOLES

communicating with Investor-3 and continuing the scheme.

12. I interviewed LOLES on December 9, 2009 in the presence of his attorney.

During that interview, LOLES was shown a statement that he prepared documenting investment

holdings purportedly held by the Church. Similar documents were prepared by LOLES for

individual investors documenting each investor’s purported individual account statements of

holdings they purportedly held with LOLES. During this interview, LOLES advised me that no

investor, including the Church, Investor-1, Investor-2, or Investor-3, actually held a bond at

Knightsbridge Holdings ARB. LOLES explained to me that he created false statements for

investors using a software program on his computer and provided it to investors. LOLES

advised me that the Church investors did not know they were “underwater,” and that there were

no individual accounts and no bonds generating the expected and promised returns.

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 13. Additionally, my investigation revealed that there is no Knightsbridge Holding

ARB bond as represented, nor do the holdings of the other bonds as listed on the statements

exist.

14. Additionally, my investigation revealed that LOLES used interstate wires in

furtherance of and in execution of the scheme to defraud, including using an on-line banking

system to transmit and cause to be transmitted wire transfers of funds to victims purportedly as

interest payments and to generate checks sent via the U.S. Mails as interest payments, when in

truth and in fact the funds were not invested and were not generating interest as represented.

15. Additionally, my investigation revealed that LOLES was also using a portion of

the invested funds for his own personal use, including diverting a portion of the funds to his car

racing business, operated and doing business as Farnbacher-Loles and Farnbacher-Loles Motor

Sports a high-performance car racing team.

Probable Cause to Arrest LOLES

16. Based on the above information, I respectfully submit that there is probable cause

to believe and I do believe that LOLES engaged in a scheme or artifice to defraud in violation of

18 U.S.C. §§ 1341 and 1343. Therefore, I would respectfully request that the attached Criminal

Complaint be issued charging GREGORY P. LOLES with fraud by wire.

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 Request to Seal This Affidavit

17. Finally, in my judgment and based on my training and experience, it is my belief

that the disclosure of this affidavit at this time will jeopardize the government’s ongoing

investigation in the District of Connecticut and elsewhere. Accordingly, it is requested that this

affidavit and be sealed until further order of the Court.

_________________________
Matthew J. McPhillips
Special Agent, FBI

Sworn to and subscribed before me

this 14th day of December, 2009

___________________________________
MARK R. KRAVITZ
UNITED STATES DISTRICT JUDGE

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