UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT STATE OF CONNECTICUT

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December 14, 2009 FILED UNDER SEAL

COUNTY OF NEW HAVEN

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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