Investors Unlikely To Be Able To Sleep This One Off

Kenneth A. Dachman has been indicted on federal charges for allegedly fraudulently obtaining approximately $4 million from more than 50 investors in a now-defunct sleep disorder businesses that he operated. Dachman was charged with 11 counts of wire fraud. He allegedly misappropriated at least $2 million of co-mingled funds from investors and the companies to benefit himself and his family. 

According to prosecutors, Dachman operated Central Sleep Diagnostics, LLC, which purported to treat sleep apnea and sleep-related illnesses by conducting diagnostic studies in a patient’s own home instead of a hospital or clinic, and Advanced Sleep Devices, LLC, which purported to sell equipment used to treat sleep disorders to patients. He also operated Key Partners, LLC, to handle marketing for both businesses.
 
Between June 2008 and September 2010, Dachman allegedly fraudulently obtained funds from investors by misrepresenting the use of the funds, the expected return on and risks involved in investments, his business background, the financial condition of Central Sleep and Advanced Sleep and the status of investments. Instead of using the funds to operate the businesses as he promised, prosecutors allege that Dachman used a significant amount of the investors’ funds to purchase a two acre mansion, to operate a tattoo parlor in Chicago that was co-owned by his son-in-law, to purchase vacations and cruises for himself and his family to Italy, Nevada, Florida and Alaska, to purchase a new sport utility vehicle, to fund personal gambling in Las Vegas and stock trading, and to purchase rare books and antiques.
 
The indictment seeks forfeiture of at least $4 million, as well as a 2008 Land Rover.
 
According to the indictment, Dachman and an individual he retained as director of investor relations offered and sold at least three forms of investments in Central Sleep and Advanced Sleep to the public: an “Assignment of Units” agreement which gave investors units or shares in Central Sleep or Advanced Sleep; a “Convertible Debt Agreement” in which Dachman personally guaranteed he would repay investors’ principal, as well as monthly payments equal to between five and 24 percent annually; and an agreement which enabled investors to purchase various sleep-related equipment and lease it back to Central Sleep Diagnostics. Dachman told prospective investors and investors that the funds he raised would be used to purchase sleep-related equipment, to rent office space, to set up the companies’ offices, to hire and pay administrative personnel, and to retain and pay physicians to review sleep diagnostic studies, prosecutors contend.
 
From July 2008 through January 2009, the indictment alleges that Dachman falsely represented to the first 15 investors in Central Sleep that their combined funds of approximately $1.4 million would be used to open and operate Central Sleep. In fact, he allegedly intended to and did use almost $1 million of these funds for his own use and benefit, including more than $200,000 for personal stock trading, more than $180,000 to operate the tattoo parlor, Windy City Ink, and more than $160,000 to fund checks made payable to himself and his wife, even though at the time, Central Sleep had not received any income from the operation of its business.
 
The charges allege that Dachman personally guaranteed to repay certain investors’ principal without disclosing that he had almost no assets to fund the guarantees and that he had declared personal bankruptcy on seven prior occasions. Dachman also allegedly falsely told victims that he had a Ph.D. from Northwestern University, and that he had invested his own funds in Central Sleep, knowing that he had not done so. To induce additional investments as late as March 2010, Dachman allegedly represented to investors that Central Sleep was a successful company and was “on pace to be the most important and largest sleep diagnostic firm in the world,” despite knowing that he was draining the financially-troubled business of previous investor funds.