Michael Feinberg, 73, and Betsy Feinberg, 80, former Sedona residents now living in Tucson, were sentenced on Nov. 15, by U.S. District Judge James A. Soto, to five years in prison, followed by three years of supervised release, for defrauding 168 people, mainly Sedona area residents, of more than $5 million.
Between 2002 and 2014, the couple “willfully sold unregistered securities, and knowingly and with the intent to defraud, engaged in a scheme to defraud various investors. The defendants also participated in the scheme to defraud such investors based on material false representations and the intentional concealment of material facts. The defendants knew that various statements made as part of their scheme to defraud were false.”
The Feinbergs operated Catharon Software Corporation as husband and wife and claimed they had produced revolutionary software called V?Delta that would enable their company, Catharon Software, to compete with Microsoft and other computer language systems. They claimed the software would generate $2 billion in revenue within the first three years, promising between 400% and 2,268% returns on investment.
Their victims included friends and associates recruited through various community organizations in Sedona. In addition to paying themselves salaries, the Feinbergs used investor money for personal expenses, an RV, vacations and their mortgage.
Their home was foreclosed on in 2013. In 2015, the Arizona Corporation Commission determined that the Feinbergs broke state law and ordered them to pay $4,926,559 in restitution and $250,000 in administrative penalties.
On Sept. 5, 2018, the U.S. Attorney’s Office for the District of Arizona handed down federal charges against the Feinbergs for defrauding 168 investors of $5,001,559 over a span of 12 years. The U.S. District Court grand jury indictment listed 16 counts of fraud and conspiracy.
In April of this year, a jury found the Feinbergs guilty of multiple counts of securities and wire fraud.
A restitution hearing to address the approximately $5 million in victim losses is scheduled for Dec. 13, 2022.
One of the victims was Elizabeth Petta, a West Sedona barber shop owner, who first invested in May 2006.
“At the time, cell phones, smart phones and tablets were becoming available,” she said. “The software example we were allowed to see looked promising. We were constantly being told how profitable this software was. Also being told constantly that it was going to be released in the next few months.
“I was excited about the software and thought it looked like a good investment,” Petta said. “It was a private stock with limited stock available to purchase. I was asked if I knew people who would be interested in investing in their company and by doing so I would be rewarded with additional stocks. Unfortunately, I had a good friend invest and I also had another friend go work for the Feinbergs that helped write security for the software.”
“Everything looked believable until the ACC got involved and shut it down,” Petta said. “We were to be paid back; unfortunately I have not been paid back.”
“I am just so grateful that Judge Soto imposed prison time on these two people,” she said. “We were told that because of their age they could possibly only get probation. They had no remorse for what they have done.”
Other victims included Karen and Ernie Strauch, who served as a Sedona city councilman from 2002 to 2005 and as vice mayor from January to May 2006.
“We feel we were defrauded, scammed and the victims of a masterful charade,” the Strauchs stated in their pre-sentencing memorandum. “It was very well-played-out by gaining trust and credibility of recognized and respected community members first. Besides our feelings of betrayal, we are now more reticent to accept individuals as they appear to be. It now takes us significantly longer to develop trust in people.”
“To our knowledge the Feinbergs have not to this day exhibited any remorse for their use of investor funds for personal, non-business pleasures,” the Strauchs wrote. “In our opinion, this was an intentional criminal misappropriation of funds and a miscarriage of fiduciary responsibility.”
The Feinbergs must surrender themselves into federal custody on Dec. 15.
The FBI conducted the investigation in this case with assistance from the ACC. The Financial Crimes and Public Corruption Section of the U.S. Attorney’s Office, District of Arizona, Tucson, handled the prosecution.
