Safe from Scams: Investment scam

FRESNO, Calif. (KFSN) -- Your energy bill accounts for up to 30-percent of your household bills. If you could find a way to cut that expense in half you might be willing to try anything. A wealthy investor who thought he was bankrolling a revolutionary product but instead, ended up in hot water.

"Telling people huge stories of how this water heater was going to conquer the world," said Warren Shumway, fraud victim.

Warren believed the idea of an instant hot water supply could revolutionize the home appliance business.

"I had gone on the internet to research the company, to see what the stock was selling at, see where they were at and everything seemed to be good," Warren said.

He decided to invest in the product still in the planning stages.

"I gave them almost everything I had, with the intent that it would be back in 90 days."

More than three months passed and Warren didn't get his money back-- and no progress was made on launching the water heater. He even told a friend he was becoming concerned.

"Something is wrong here Warren, these guys are driving big fancy cars, building big houses-- they're not using their money. Something is wrong," Warren said.

His friend was right. Instead of production the money was being used on expensive cars, dinners, and property.

"One of the defendants actually had a custom home built and his payment was over $10,000 a month just for that home," said Nicholas Klingerman, Asst. Attorney General.

Authorities say two executives from the company diverted investor money for their own personal use to the detriment of investors.

Daniel Grossenbach, US Postal Inspector, said, "They would be able to get shares themselves, and then, through a shell game of sorts with these shares, were able to artificially inflate the price, award themselves, even more, shares, then at the end of the day, when the music stopped, the investors were left without anything. While the fraudsters were able to enrich themselves from zero to $6.8 million in about three years."

There were more than 150 victims. Some advice for investors-- diversify your assets.

"Probably my biggest mistake was putting all of my ducks in one basket," Warren said.

Warren lost all of his $2 million investment.

As for the two men, accused of diverting funds to the detriment of investors, they face more than 150 charges and are still awaiting trial.