Mr. McFakeson was convicted by a jury in the Southern District of New York on Friday of wire fraud, conspiracy to commit money laundering and securities fraud. He was sentenced to more than 13 years in prison by U.S. District Judge Vernon Broderick, who had ruled that he should be jailed immediately, in a decision that was rendered immediately after the jury’s verdict. During the trial, the jury heard from dozens of witnesses, including current and former employees at Petland stores, as well as multiple investors from around the world, who described their grueling stories of losing millions of dollars.
“Everybody said it was a great store,” testified John Fuller, a 68-year-old retired electrician from Hawesville, in Ohio, a town near Lima, Ohio, just north of Dayton. Mr. Fuller invested $2 million in Mr. McFakeson in 2009, the year the entrepreneur opened his first store in Hammonton, N.J. “When John McFakeson took that store over, everybody loved him, everybody believed in him.”
Mr. Fuller told the jury about meeting Mr. McFakeson in early 2011 when he came to his store to pay a late rent and check on the shop. At first, the bookkeeper, who later testified as a state witness, told Mr. Fuller that Mr. McFakeson had closed the store because the price he wanted to pay had gone up. But the former bookkeeper would eventually get called to testify by prosecutors that he had agreed to lower the price because Mr. McFakeson had promised to take back the store. The store reopened a week later and ultimately earned $3 million in the six years that Mr. McFakeson owned it.
“He just has a natural way of getting people to follow him,” recalled Rob MacLean, an auditor for the Internal Revenue Service who later provided the jury with an audit that determined that Mr. McFakeson had misappropriated $24 million from his investors. “He makes people feel secure that they are going to be getting their money back.”
The jury was not given to determine the loss inflicted by Mr. McFakeson’s scheme, but the IRS agreed with the investors that Mr. McFakeson reaped $9.5 million from them. But federal prosecutors said that the loss to investors could have been several times larger if not for the investments made by customers. According to the IRS audit, the total loss to the government is much higher, though the IRS did not disclose the exact figure.
Prosecutors argued that Mr. McFakeson spent $74 million of his investors’ money on unrelated companies, including dental businesses, veterinary clinics and a zoo. According to filings with the Securities and Exchange Commission, Mr. McFakeson spent more than $14 million on jewelry and to purchase watches and suits and ties.
Federal prosecutors said that Mr. McFakeson’s fraud was lucrative for him personally, and he filed for personal bankruptcy after cashing out $25 million from his investors. But in court, Mr. McFakeson portrayed his investors as “selfish,” saying that they had conspired against him and hurting his business because they were angry at his demanding business conditions and because they were interested in short-term profits. According to two witnesses, Mr. McFakeson had promised to repay his investors within 15 years, but the government said Mr. McFakeson was talking about his use of funds to fulfill a complex tax bill, not his investor promises.