Posted by Kathy Bazoian Phelps
Below is a summary of the activity reported for March 2015. The reported stories reflect: 4 guilty pleas or convictions in pending cases; over 54 years of newly imposed sentences for people involved in Ponzi schemes; a possible new massive Ponzi scheme involving $16 billion; and an average age of approximately 48 for the alleged Ponzi schemers. Please feel free to post comments about these or other Ponzi schemes that I may have missed. And please remember that I am just relaying what’s in the news, not writing or verifying it.
Bryan W. Anderson, 40, pleaded guilty to running a Ponzi scheme that lured in 18 investors who invested $8.4 million. It is believed that 12 investors ended up losing about $3.1 million. Anderson promised the investors that their investments were 100% risk-free and had a guaranteed rate of return of 5% to 20%. He solicited them to invest in stock options and to invest in his company, 360 Properties.
Charles A. Bennett, 56, is in plea talks relating to an alleged $5 million Ponzi scheme that Bennett confessed to in a note written before a failed suicide attempt. Bennett is an attorney who formerly worked at Skadden Arps Slate Meagher & Flom LLP before he engaged in his admitted Ponzi scheme in which he defrauded at least 30 investors.
Mary Faher, 57, was sentenced to prison for 23 months to 10 years in prison and ordered to pay about $2.6 million in restitution for her role in the Diversified Group Advisory Firm LLC Ponzi scheme. Faher had worked as a licensed investment advisor for Diversified, guaranteeing clients a 10% return on their investments and promising them their money would be safe. Shawn Dicken, 40, was previously convicted in connection with the scheme and sentenced to 11 years and 8 months to 20 years in prison.
Gregory W. Gray, Jr., 39, and his firms Archipel Capital LLC and BIM Management LP were the subject of an asset freeze in an action commenced by the SEC. Gray allegedly took more than $20 million from 140 investors, promising them Twitter stock before the company went public. Gray was also arrested on charges relating to the alleged scheme.
Jerry Lynn Helms, 50, was ordered to pay more than $1.5 million for defrauding at least 25 victims in a Ponzi scheme that he ran through his company, Prestige Pipeline. Prestige had been a profitable company before the economy crashed, but Helms began soliciting funds to invest in it.
Craig Hipp, 54, was found guilty for his role in a virtual concierge Ponzi scheme. The scheme was run through JCS Enterprises Virtual Concierge program which is believed to have defrauded 100 of victims out of tens of millions of dollars. The program promised annual returns of 80% to 120%. Joseph Signore, Laura Grande-Signore, and Paul Schumack are all awaiting trial in connection with the scheme.
Marguerite Martial Jean, 42, began her 8 year prison sentence in connection with her Ponzi scheme that she ran through her companies, MMJ’s Warehouse and VLM Enterprise. Jean targeted members of South Florida’s Haitian-American communities. She defrauded 293 victims by issuing them promissory notes for stakes in her businesses and guaranteeing them returns of up to 22%.
Mahmoud “Mike” Karkehabadi, 57, had his conviction and 27 year prison sentenced affirmed by an appellate court. People v. Karkehabadi, 2015 Cal. App. Unpub. LEXIS 1921 (Mar. 16, 2015). Karkehabadi was convicted of running a $3 million scheme that promised investors 18% to 25% on loans to back production of a series of independent films. He ran the scheme through Alliance Group Entertainment.
Michael Kratville, 54, was disbarred in Nebraska while awaiting sentencing for operating a Ponzi scheme in the Omaha area. The scheme defrauded about 100 victims out of about $4 million. Kratville had run the scheme with Jon Arrington and Michael Welke through companies called Elite Management Holdings Corp. and MJM Enterprises.
Robert E. Lee Jr., 51, was sentenced to 5 years and 3 months in prison in connection with a $1.1 million Ponzi scheme. Lee was ordered to pay full restitution and to forfeit $358,077 that he had in an online trading account.
Peter Madoff’s home sold for $3.5 million. Peter is the brother of Bernard Madoff, and the proceeds of the sale of the home will be contributed to the restitution amounts to be paid to victims. Peter Madoff is currently serving 10 years in prison for his role in the Ponzi scheme.
Dee Allen Randall, 63, was found to have been running a $72 million Ponzi scheme by a federal bankruptcy judge. A federal bankruptcy judge found that “since at least 1997, Randall operated the [companies] as a ‘Ponzi scheme,’ and engaged in a continuing fraud.”
Matthew John Ryan, 50, was ordered to pay his alleged victims $3.8 million in restitution. Ryan had pleaded guilty to running a Ponzi scheme through his company, Prime Rate and Return LLC, which sometimes did business as American Integrity.
Trendon T. Shavers, 33, the former operator of Bitcoin Savings & Trust, pleaded not guilty to running Ponzi scheme. The U.S. Attorney had stated in court papers, “Trendon Shavers managed to combine financial and cyber fraud into a Bitcoin Ponzi scheme that offered absurdly high interest payments, and ultimately cheated his investors out of their Bitcoin investments. This case, the first of its kind, should serve as a warning to those looking to make a quick buck with unsecured currency.”
Ricky Lynn Stokes, 54, was sentenced to 5 years in prison in connection with the Cay Clubs scheme. Barry J. Graham, 59, was also sentenced to 5 years in connection with the scheme.
Ephren Taylor II, 32, was sentenced to 19 years and 7 months in prison and ordered to pay restitution of more than $15.5 million in connection with a $16 million Ponzi scheme that defrauded more than 400 victims. Taylor had run the scheme through City Capital Corp., claiming that 20% of his investments’ profits went to charity. Wendy Connor, 46, was also sentenced to 5 years and ordered to pay back $5.8 million.
Deepal Wannakuwatte, 64, was ordered to pay $108 million in restitution. Wannakuwatte was sentenced to 20 years in prison last year in connection with an over $200 million scheme that involved investments into a medical supply company, International Manufacturing Group, selling latex gloves to veterans’ hospitals. He represented that he had $125 million worth of contracts when in reality they were only worth $25,000.
Joel Wilson, 32, was convicted in connection with his Ponzi scheme run through Diversified Group Advisory Fund LLC. The scheme defrauded about 120 investors out of about $6.4 million.
INTERNATIONAL PONZI SCHEME NEWS
Canada
Nicholas Smirnow, 57, was arrested in Canada and an extradition requested has been submitted to the government of Canada for his extradition to the U.S. Smirnow is accused of running a $70 million Ponzi scheme operating under the name “Pathway to Prosperity.”
China
Hong Kong police arrested 5 suspects in connection with the MyCoin alleged Bitcoin scam. MyCoin has been accused of operating a pyramid or Ponzi scheme, serving 3,000 clients who had invested as much as HK $1 million.
England
Phillip Boakes, 55, was sentenced to 10 years in jail for his Ponzi scheme run through CurrencyTrader Ltd. that defrauded at least 30 investors out of more than £3.5 million. Boakes engaged in Forex spread betting, promising guaranteed returns of 20%. This is the longest sentenced imposed as a result of an investigation by the Financial Conduct Authority.
Michael McIndoe, 35, is under investigation in connection with an alleged Ponzi-like scheme that defrauded hundreds of investors.
David Gerald Dixon, 49, pleaded guilty to charges in connection with a Ponzi scheme that he ran through Aboretum Sports (USA) Incorporated and Arboretum Sports (UK) Limited. Dixon promised investors their money would be put in a no-risk gambling syndicate. Investors were defrauded out of about £4 million.
India
Gautam Kundu was arrested in connection with the Rose Valley Ponzi scheme. Over 2,630 bank accounts were previously attached, and the corporate name was subsequently changed to Sun City Group and Chocolate Group.
Mauritus
Cobus Kellermann, the head of Belvedere Management, has denied that Belvedere was running a Ponzi scheme. Belvedere is a Mauritus-based fund manager which manages about $16 billion in funds. David Cosgrove and Kenneth Maillard also run the company. Offshore Alert claims that Belvedere has falsely inflated the value of funds and is running a Ponzi scheme.
South Africa
Investors in Defencex can now register claims for lost funds in scheme run by Chris Walker. Investors had purchased “points” that paid 2% per day in returns through the website trading as Net Income Solutions. Investors have 3 months to register their claims on the Repayment Administration Web Application website. The scheme is believed to have defrauded about 171,000 investors out of over R800 million.
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
The Montauk Fire Department agreed to pay back $81,000 of funds it received from Ponzi schemers Brian R. Callahan and Adam J. Manson. The amount agreed to be paid was based on the profit it had made from its investment into Distinctive Ventures LLC.
The Eighth Circuit overturned the lower court’s decision in dismissing the receiver’s lawsuit against Associated Bank in connection with the Trevor Cook $190 million Ponzi scheme. Zayed v. Associated Bank, N.A., 2015 U.S. App. LEXIS 3137 (8th Cir. March 2, 2015). The court found that the elements of the aiding and abetting claim were properly plead, including that the bank had actual knowledge that it was providing “substantial assistance” to Cook. An assistant vice president of the bank allegedly allowed Cook to set up accounts for bogus entities and approved $3 million in transfers to Cook’s personal accounts, among other things. The bank was allegedly involved in $79 million of the $190 million Ponzi scheme run by Crown Forex SA.
The trustee of Fair Finance Co. has agreed to settle lawsuits against Dan Laikin, the former head of National Lampoon, for about $3.5 million. Laikin is a former director of Fair Finance, which ran a $200 million Ponzi scheme. The trustee is also in settlement talks with National Lampoon.
Roger Corman, a movie director, and his wife Julie Corman, sued Citco Group Ltd. alleging that it tricked them into withdrawing millions of dollars from a successful fund and investing it into a Ponzi scheme, resulting in a $60 million loss. The Corman’s allege that their funds were then under the control of Alphonse “Buddy” Fletcher, whose bankruptcy trustee has noted that Fletcher’s program “had many characteristics of a Ponzi scheme.”
The father of Trent Francke, Edward Francke, is claiming ownership to $126,000 of collectible coins and silver that has been forfeited in connection with the David McQueen and Francke convictions for their $46.5 million Ponzi scheme. Edward Francke claims that the coins and silver belong to him, that he paid for them, and that he was unaware of any illegal conduct involving his son.
A court declined to allow Santander Bank NA to remove a lawsuit from bankruptcy court which accuses the bank of wrongful conduct in connection with the bankruptcy proceedings of Liberty State Benefits of Delaware Inc., founded by convicted attorney Michael W. Kwasnik.
The trustee of the Bernard Madoff Ponzi scheme case filed a petition for Supreme Court Review of a Second Circuit Decision allowing the safe harbor/stockbroker defense to bar some of the trustee’s avoidance power claims against investors.
The Supreme Court declined to hear two separate appeals of rulings that barred investors in foreign investment vehicles from suing Madoff’s banks, JPMorgan Chase and Bank of New York Mellon. The Second Circuit had dismissed the lawsuits on the grounds that they were barred under the Securities and Litigation Uniform Standards Act. The cases are Trezziova v. Kohn and Davis v. JPMorganChase.
A settlement was reached between a putative class of investors and law firm Astor Weiss Kaplan & Mandel LLP over allegations that the attorneys should have known that Mantria Corp. was running a Ponzi scheme. The $6 million settlement involved a series of defendants, including Astor Weiss, who agreed to pay $750,000. The settlement resolves all of the claims in the litigation.
A jury awarded damages of $491 million against PNC Bank, as successor to Allegiant Bank, which served as trustee for National Prearranged Services. The lawsuit was filed by state life and health guarantee associations and the receiver of National Prearranged Services. The company had defrauded about 100,000 customers before it was shut down in 2008. Six officers and employees have been sentenced to prison time in connection with the scheme.
In Ritche Capital Mgmt. LLC v. Stoebner, 2015 U.S. App. LEXIS 3735 (8th Cir. Mar. 10, 2015), the Eighth Circuit found actual fraudulent intent by rely on several badges of fraud in connection with the Thomas Petters Ponzi scheme, and did not rely on the Ponzi scheme presumption that was recently rejected by the Minnesota Supreme Court in Finn v. Alliance Bank, 2015 Minn. LEXIS 52 (Minn. Feb. 18, 2015).
A district court partially dismissed investors’ claims against Proskauer Rose LLP and Chadbourne & Parke LLP in connection with the Allen Stanford Ponzi scheme. The proposed class action alleged that the law firms aided the fraud, but those claims were dismissed. The court declined to dismiss many of the other claims in the lawsuit. Chadbourne & Park separately lost an effort to obtain from the Stanford receiver a list of the identities, residences and citizenship of the proposed class members.
Westport Insurance Corp. argued in court that the firm of Breazeale Sachse & Wilson LLP is not covered against two related class actions against it in connection with the Allen Stanford Ponzi scheme. Westport contends that the firm concealed the fact that it represented businesses that Stanford used to run his scheme and that one of the firm’s partners, Claude F. Reynaud Jr., was a director at the Stanford Trust for 10 years.
The Fifth Circuit reversed the lower court which had allowed The Golf Channel Inc. to avoid paying back $5.9 million that it had received as marketing revenue from Allen Stanford’s Ponzi scheme. See Janvey v. The Golf Channel, 2015 U.S. App. LEXIS 3818 (5th Cir. Mar. 11, 2015). The appellate court found that there was no showing by Golf Channel that its services preserved the value of Stanford’s estate or had “any utility from the creditors’ perspective.” The court found, "This was insufficient to satisfy its burden under TUFTA of proving value to the creditors. While Golf Channel's services may have been quite valuable to the creditors of a legitimate business, they have no value to the creditors of a Ponzi scheme."
The Eleventh Circuit dismissed a lawsuit filed by investors of the Allen Stanford Ponzi scheme against the SEC for negligence in not spotting the Ponzi scheme. The court found that the SEC enjoys sovereign immunity. Zelaya v. U.S., 2015 U.S. App. LEXIS 5041 (11th Cir. Mar. 30, 2015). Although the court did not reach any conclusions about the SEC’s conduct, it did describe the plaintiff’s allegations as follows: “According to Plaintiffs, notwithstanding its knowledge of Stanford’s likely nefarious dealings, the SEC dithered for twelve years, content not to call out Stanford and protect future investors from his fraud. And even though the SEC eventually roused itself to take action in 2009, by then, of course, the money was long gone, and many people lost most of their investments.”
The trustee of TelexFree LLC reported that the scheme took in nearly $1.8 billion worldwide over a two year period and may have had about 1.9 million participants. TelexFree supposedly sold Internet telephone services, and people paid TelexFree to become promoters for the company. In exchange for placing online advertisements, they received telephone service packages that they could redeem for cash.
The ZeekRewards receiver has sued alleged net winners with addresses in the United Kingdom. Last month he sued alleged winners who reside in Norway, and he had previously filed lawsuits against U.S. residents and residents of Australia, New Zealand, Canada and the British Virgin Islands.
The ZeekRewards receiver has also taken action to tie up property in the Cook Islands which appears to have been purchased a vacation home in the Turks and Caicos Islands. The funds were transferred using a Zeek vendor known as Preferred Merchants Solutions LLC.
The ZeekRewards received posted his Notice of Certification of Defendant Class Action on his website at: www.zeekrewardsreceivership.com. The court has certified the defendant class of alleged net winners. The receiver is suing more than 9,000 individuals who are alleged to have received more than $1,000 from the program.
Utah passed legislation to publish an online white collar crime database. The database will identify individuals convicted of certain white collar crimes, such as securities fraud, mortgage fraud, money laundering, and theft by deception. The database will include the offender’s name, physical description and a photograph.
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