Edward James, 75, was convicted of fraudulent trading at Crown Currency Exchange, where he was a director.
He used new customer cash to pay off old clients for two years, Southwark Crown Court was told.
More than 12,000 people were left £20m out of pocket after the Cornwall-based firm collapsed in October 2010.
Three other people involved in the scam were jailed in June.
Crown Currency director Peter Benstead, 72, killed himself during the trial.
Benstead spent customer cash on a £900,000 luxury house in Penzance, a second home in the Dordogne and spent £36,000 on a seven week cruise.
Jurors were told James, who stood down as Tory chairman of Mendip District Council in the wake of the allegations, knew the dire state of the company.
Judge Michael Gledhill said James' public service to Glastonbury as mayor in 2009, "paled into insignificance" in comparison to his role in the frauds.
A former mayor of Glastonbury has been jailed for 42 months for his involvement in a foreign currency exchange scam.