A New Jersey judge has sentenced two men to a combined nine years in jail for carrying out an advanced fee scam in which they stole some US$800,000 from the directors of a fledgling gold trading business by fraudulently claiming to have procured a standby letter of credit (SBLC).

Roy Johannes Gillar of Las Vegas was handed a six-year prison sentence and co-conspirator Harold Mignott, of New Jersey, a three-year sentence. Jerrid Douglas, also of New Jersey, is scheduled to be sentenced later this month.

In October last year, a jury found the trio guilty of wire fraud and transacting in criminal proceeds by extracting US$800,000 from the directors with a false promise to procure a €1bn SBLC from HSBC, backed by cash collateral or Mexican gold bonds, according to the US Attorney’s Office for the District of New Jersey and court documents.

“In order to cover up the scheme and convince the victims to approve the transfer of the funds, the defendants made numerous verbal and written misrepresentations,” the New Jersey Attorney’s office said in a statement.

The trio partly spent the proceeds on mortgage repayments and luxury lifestyle goods such as a car and watches. US District Judge John Michael Vazquez also ordered them to pay restitution of US$1.1mn and forfeiture of US$1mn.

A criminal complaint by the FBI says two unnamed businesspeople approached Douglas in 2016 for help raising financing for their plans to buy gold from African mines and sell it to refiners in Dubai.

Douglas said he could secure an SBLC through Grupo Mundial Balboa (GMB), a Panamanian investment firm controlled by the trio and a fourth co-conspirator.

Under a joint venture with GMB, the two businesspeople – who court documents refer to as victim A and victim B – formed a Dubai commodity trading business. Under the arrangement, the Dubai firm could use half the value of the SBLC to raise financing, and in return provide GMB with a slice of its gold trading profits.

Throughout April 2016 the Dubai firm placed US$800,000 in an escrow account, to pay the bank fee for the purported SBLC.

The victims held several meetings with Douglas, Gillar and Mignott in which they pressed for evidence that the SLBC had been obtained and was backed by the gold bonds, according to the indictment.

They were told to find a securities banker with access to Euroclear who could confirm that the SLBC had been issued, but the directors were unable to do so.

To convince the victims to release the funds from escrow, Douglas showed them a copy of a 2012 bank safekeeping record purportedly showing the bonds existed, promised that GMB would pay the final US$200,000 from its own funds, and said that the entire fee would be refunded if the SBLC was not procured.

After releasing the funds in May 2016, the victims grew worried that there was no evidence of the SBLC. After several calls with the fraudsters, GMB provided a letter on HSBC letterhead stating the bank was ready, willing and able to provide the €1bn SBLC. HSBC later told the FBI that the letter was fake.

“The defendants failed to provide an SBLC or anything of value,” the New Jersey District Attorney’s office says in a statement. “Instead, the defendants misappropriated the money for their personal use.”