The phoney philanthropists

They used to be high-rolling gamblers dealing in the newest, smartest stock on financial markets. They rode the dotcom boom, investing other people's wealth, living a millionaire's lifestyle and returning eye-watering profits for their clients.

But for the past seven weeks, Gary Tanaka and his old business partner Alberto Vilar have cut rather sorry figures: two men past retirement age whose routine has consisted of daily visits to the federal district courthouse in lower Manhattan to fight – unsuccessfully – fraud charges that could cost them up to 20 years in jail.

Tanaka, 65, who owns top-ranked racehorses, was born in a US internment camp in Idaho for people of Japanese ancestry. He has not seen his wife, Renata, or young son, who live in Coombe Hill, London, since he was arrested by the FBI three years ago – she dare not visit him in case she, too, lands in the dock.

On Wednesday, a jury found Tanaka and his music-loving co-defendant, Alberto Vilar – a philanthropist and patron of the arts renowned on both sides of the Atlantic – guilty of a scheme to steal $20m (£13.5m) from clients. The money was used, prosecutors said, to fund Vilar's personal expenses and to keep their investment firm, Amerindo, afloat after the value of its shareholdings in computer and internet firms plunged.

Vilar, 67, seemingly one of the world's top benefactors to opera, was convicted on 12 counts, including money laundering, wire fraud and lying to the US Securities and Exchange Commission; Tanaka, on three – conspiracy, securities fraud and investment adviser fraud. Raised voices could be heard coming from the jury room before the verdict, the jurors apparently calling each other names. No sentencing date was set.

After the verdict, Tanaka embraced his tearful 85-year-old mother, who attended most of the trial. His defence claimed that he had been having surgery to replace his lower jaw because of cancer when many of the criminal acts took place.

Tanaka's name is perpetuated by the Tanaka Building in Imperial College London, which was christened in his honour after he pledged to give the college £27m.

Vilar's arrest in May 2005 shocked the arts world, because of the scale of money he had donated – or, more to the point, pledged. In 2002, Forbes ranked Vilar 256th on its US rich list, with a fortune of about £570m. The previous year, The Daily Telegraph hailed him as the biggest benefactor in the history of the arts, after he reputedly gave more than £140m in four years to opera, ballet and orchestras.

Only he hadn't.

In London's Royal Opera House, the luxuriantly restored Floral Hall had been renamed Alberto Vilar Hall in 2000, in recognition of the £10m he had offered. By 2005, the house had received only £4.4m and as it became clear that no more would be forthcoming, the Royal Opera House hastily re-renamed the room – it is now the Paul Hamlyn Hall.

The Metropolitan Opera in New York, the Washington Opera and Denver's National Jewish Hospital are among the other institutions which said that Vilar hadn't made good on all of his pledges.

Tanaka's arrest meanwhile was a sensation in the elite environs of horse racing – he owned several horses. His racing interests have not been affected by the court case.

The jury was told that Vilar's money is all gone. Even his apartment is subject to an order because he allegedly owes Internal Revenue more than £15m. He languished in jail after his arrest, unable to raise the bail money. Tanaka, whose finances are evidently in better shape, was able to live in his Manhattan apartment but forbidden to travel.

The duo's high-flying careers came crashing down when Amerindo clients started asking where their money had gone. One family hired a private detective named Edward Adams to look into the company. He approached a former model named Lily Cates, who still cuts an imposing figure at the age of 70, and has since become the best known of Vilar's and Tanaka's accusers.

She is the mother of Phoebe Cates, who as a teenager enjoyed some fame for a topless scene in the 1981 film Fast Times at Ridgemont High. Lily Cates' first husband, Joseph Cates, was a Broadway producer and pioneer of popular television. After he died, she married Marshall Naify, a cinema-chain multimillionaire who died less than a year later, aged 80, leaving her more than £6m.

Ms Cates gave Vilar and Tanaka £3.4m in 1987, which they promised to put into a US government-backed investment programme. Unfortunately for her wallet, the two men's company was facing trouble, and they gambled her money on risky technology stocks. Tanaka and Vilar had sought new companies with high-growth potential ever since meeting in Kuwait and setting up Amerindo in London in 1980. Their high-risk strategy brought some astonishing rewards. In 1998, the Amerindo Technology Fund gained 85 per cent. The following year, after Amerindo had directed its clients' money into what would become household names such as eBay and Amazon, the fund posted an amazing 249 per cent gain.

Tanaka was the company's chief trader while Vilar brought in the investors, which included the World Bank and the New York City Employees' Retirement System. But in 2000, technology stocks crashed, with no sign that they would recover and the value of Amerindo's technology fund nose-dived. Ms Cates became anxious about her investment in 2004 after Mr Adams contacted her. She was sent about £25,000 of her money, but never saw the rest.

Prosecutors said that Amerindo used two-thirds of Ms Cates' £3.4m to pay off another investor and £440,000 to pay the firm's bills. Another £670,000 went to Vilar, who used it to fulfil a charitable pledge to his alma mater, Washington and Jefferson College in Pennsylvania, and for other personal expenses.

The jury saw taped testimony of Tanaka's assistant in London, Maxine Rye, who said that, at her boss's direction, she had cut out and taped Ms Cates' signature to a fax authorisation transferring an additional £170,000 from a brokerage account.

Many smaller investors have little hope of ever seeing the sums they entrusted to Vilar and Tanaka.

Another anxious client, Gary Cox, told the New York jury that he flew all the way to London to seek out Amerindo's head office, hoping to recover money his uncle had invested. The only person he found when he got there was the cleaning lady.