"It is just egregious. It's a stinging loss. It's a betrayal of their trust," said assistant U.S. attorney Kerry O'Neil.
Rosi Ray, 56, also known as "Rose Ray" and "Gloria Lujan," was arrested at her store on Thursday and is accused of five counts of wire fraud.
According to federal investigators, Ray told investors she would use their money to buy court-ordered monetary settlement annuities from accident victims over a two-year period.
"The defendant lied to her investors, said she would purchase those annuities at a discount, and in turn, go to an insurance company and get the full amount of the settlement in a lump sum and hence make the profit from the difference, and investors believed her," O'Neil explained.
Federal prosecutors believe Ray, who lived in a Beverly Hills duplex, never made any investments but rather used the $10.9 million to pay personal and business expenses. She also allegedly purchased car racing equipment for her son, Keeter Ray.
"People were willing to give the defendant their money because they were promised really high rates of return anywhere from 10 to 200 percent over the course of two to 12 months," O'Neil said. "If it sounds too good to be true, it probably is. So, it is a warning to potential investors out there, that there are people who are willing to prey on you financially."
Ray's attorney said Friday that he couldn't comment on the allegations against his client because he was not aware of the evidence brought before the grand jury.
After her arrest, Ray was released on a $100,000 bond after pleading not guilty to the fraud counts. She faces a maximum of 100 years in federal prison if convicted of all five counts stemming from the alleged Ponzi scheme.
A Ponzi scheme usually works by enticing new investors with returns that are either abnormally high or unusually consistent. The perpetuation of the scheme requires an ever-increasing flow of money from new investors. Once the stream of new investors dries up, the scheme usually collapses.
City News Service contributed to this report.