Posted by Kathy Bazoian Phelps
Below is a summary of the activity reported for February 2016. The reported stories reflect: 10 guilty pleas or convictions in pending cases; over 108 years of newly imposed sentences for people involved in Ponzi schemes; at least 10 new Ponzi schemes worldwide involving more than $8.6 billion; and an average age of approximately 53 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.
Terina K. Carney aka Terina Humphey, 50, was sentenced to 3 years in prison for her role in a Ponzi scheme to which she plead guilty. Carney ran the scheme through her company, Riverside Lease LLC, and told investors that their money would go to a business as a short term loan while the business awaited funding from a bank. Carney took in about $700,000 and kept about $400,000 of that amount for herself.
Whileon Chay, 39, and his company, 4X Solutions, Inc., were ordered to pay about $10 million in penalties and disgorgement in connection with a commodities scheme. Chay and 4X solicited $4.8 million from at least 10 participants, promising them 24% to 36% returns per year.
Fred Davis Clark Jr., 57, was sentenced to 40 years in prison for his role in an alleged $300 million Ponzi scheme run through Cay Clubs Resorts and Marinas. The court also ordered Clark to forfeit $303.8 million for defrauding a bank and $3.3 million for obstructing the SEC’s investigation. The scheme, which took in more than $300 million from about 1,400 investors, offered returns for investments in the development of luxury resorts.
David Richard Dance, 64, was sentenced to 4 years in prison for a Ponzi scheme that defrauded 10 victims out of $3.2 million. Dance was an “exchange facilitator” who purportedly held money for people that had sold investment properties until they reinvested the money in other properties. Dance invested the money with a developer, Brett Amendola, who defrauded Dance.
Rebekah E. Fairchild, 53, and Rebekah L. Riddell, 30, pleaded guilty to charges relating to their role in a $30 million Ponzi scheme that defrauded more than 450 investors. Fairchild is the sister of William Apostelos, 54, and Riddell is her daughter. They were the receptionist and administrative assistant in Apostelos’ scheme. Apostelos and his wife, Connie Apostelos aka Connie Coleman, 50, are free on bond while they await their criminal trial. The Apostelos operated many companies, including WMA Enterprises LLC, Midwest Green Resources LLC, Roan Capital, Coleman Capital Inc., and Silver Bridle Racing LLC.
Sidney M. Field was ordered to pay up to $16 million in reimbursements and penalties for his role in the $1.76 billion Medical Capital Holdings Inc. Ponzi scheme. The scheme had involved the sale of promissory notes with a promise that the money would be used to fund the medical device business.
John Fox, owner of Premier Cru dba Fox Ortega Enterprises, filed for bankruptcy while the FBI continues to investigate the wine entrepreneur. Premier Cru filed bankruptcy last month listing $70 million in debts owed to more than 9,000 customers and only about $6.8 million in wine inventory. Fox filed for bankruptcy this month claiming zero to $50,000 in assets and $50 million to $100 million in debts. Premier Cru sold wine at very low prices to customers who were willing to wait for future delivery or would pay “pre-arrival” of the wine. The wines were supposedly rare wines that were still in the bottling process. The trustee in the Premier Cru has confirmed that there are about 35,000 bottles of wine and that American Express is the largest creditor since it refunded charges made by customers for wines they did not receive.
Robert Allen Helms and Janniece S. Kaelin were indicted on charges that they ran an $18 million Ponzi scheme through Vendetta Royalty Partners Ltd. and Iron Rock Royalty Partners LP. The alleged scheme defrauded at least 80 investors and involved oil and gas royalties which the companies had supposedly acquired, but which they had not. The indictment alleges that Vendetta transferred $2 million to Haley Oil Co., which Helms and Kaelin controlled. Haley Oil then transferred the money back to Vendetta.
Allen R. Hess, 51, was arrested on allegations that he ran an alleged Ponzi scheme by convincing investors to invest in oil overseas. Hess pretended to be a knowledgeable investor to convince the investors to invest in his scheme.
Jason Keryc, 38, was sentenced to 9 years in prison and ordered to pay $179 million in restitution for his role in the Agape World Inc. Ponzi scheme that defrauded about 5,000 investors. Keryc had been convicted by a jury and was found to have helped bring in more than $611 million from about 1,600 investors into the scheme. Keryc took about $9 million in commissions. The scheme, run by Nicholas Cosmo, defrauded more than 3,800 investors out of more than $370 million. Cosmo is currently serving his 25 year prison term.
Tanisha Melvin, Ambert Mathias, and Marcia Caulder pleaded guilty to charges in connection with a Ponzi scheme run through Smith Advertising run by Gary Truman Smith. The three woman admitted to creating false invoices which allowed Smith to bring in new investors to pay off investors who wanted to get out of the scheme.
Frederick E. Monroe Jr., 59, was sentenced to 5 1/3 to 16 years in prison for his involvement in $5 million Ponzi scheme that defrauded more than a dozen investors. Monroe was a vice president at Capital Financial Planning, where he had wealthy clients invest millions of dollars with him.
James E. Neilsen, 55, was sentenced to 8 years in prison for operating a Ponzi scheme through Neilsen Financial Services and Ulysses Partners, LLC. The scheme defrauded investors out of more than $1.6 million and had promised investors returns of 9% to 10.5%.
Gina Palasini, 54, who is awaiting sentencing in connection with a Ponzi scheme, was sentenced to 10 years in prison on a bad check charge. Palasini’s scheme involved her claims that her companies helped clients obtain veterans affairs and Medicaid benefits.
Robert Rocco, 48, was sentenced to 51 months in prison after pleading guilty to running a $5 million Ponzi scheme through his company Limestone Capital Services. Limestone purportedly provided wholesale financing of cigarette purchases for a tobacco shop on a Native American Reservation. The company also supposedly provided credit card services to retail users seeking to purchase cigarettes from the Reservation. Investors were promised returns of 15% to 18%. More than two dozen investors were defrauded in the scheme. Rocco also defrauded at least one victim through his other company, Advent Equity Partners.
Jonathan E. Rosenberg, 47, pleaded guilty to his involvement in a $148 million Ponzi scheme. Robert Feldman, 68, and Douglas A. Kuber, 55, previously pleaded guilty to their participation in the scheme. Richard Shusterman, 53, has pleaded not guilty. The scheme involved Rosenberg’s and Kuber’s company, Account Receivable Services LLC, which contracted with Feldman’s company, International Portfolio, Inc., to purchase and collect accounts receivable from hospitals. IPI acquired the accounts receivable, bundled them into investment portfolios, and then sold the portfolios to ARS at a discounted rate. Rosenberg owned three other companies that also recruited investors for medical accounts receivable portfolios - JER Receivables, LLC; International Portfolio Access, LLC; and Receivable Partners, LLC.
Michael Schmidt, 60, was sentenced to 3 years in prison for defrauding 30 victims out of more than $744,000. Schmidt told his investors that they were investing in Toner Depot, a business which had contracts with Tennessee Eastman Company.
Michael Skupin, 54, was charged with possession of child sexually abusive materials, larceny and racketeering in connection with a Ponzi scheme he was running as a gifting scheme called Pay It Forward. Victims would make $10,000 cash investments and would eventually be paid out of new investors’ money. Skupin’s computer was searched in connection with the investigation, which led to the child pornography charges. Skupin maintains his innocence in connection with the charges.
Jerry Stauffer, 67, was convicted in connection with a $1.8 million Ponzi scheme that defrauded about 15 investors. Stauffer promised investors 5% returns but instead used their money for personal expenses and to pay returns to investors.
United Development Funding was raided by the FBI on allegations that it was running a $1 billion Ponzi scheme. After the raid, the publicly traded shares of United Development Funding IV fell more than 50%. The allegation is that the company created new real estate investment funds to pay investors in old real estate investment funds.
Charles S. Wang, 53, and Qian Cathy Zhang, 53, were ordered to disgorge $2.019 million and pay civil penalties in connection with the eAdGear Holdings Limited and eAdGear Inc. scheme. Francis Y. Yuen, 54, and Laurata P. Chan, 55, were ordered to disgorge $1.571 million.
Sydney “Jack” Williams, 67, was sentenced to one year and one day in prison for evading bank reporting requirements. The sentence was the same given to his wife, Lorie Ann Williams, for trying to conceal assets in a bankruptcy case resulting from their involvement in the $930 million Nevin Shapiro Ponzi scheme. Williams had been paid $12 million in commissions and fees in connection with the scheme, but was not charged criminally in connection with that scheme. He had, however, previously received a one year sentence for failing to report $6.4 million in taxes. They withdrew just under $10,000 at a time to avoid reporting the cash withdrawals from their bank accounts.
INTERNATIONAL PONZI SCHEME NEWS
Australia
The alleged Ponzi scheme run by Gunter Lang, 75, has collapsed. Lang was an unlicensed financial trader who lost about $7 million of investor funds. It is believed that 32 investors invested with Lang, who used the online platform, IG Markets.
A judge found that Arena Capital, traded as BlackfortEx, was running a “simple Ponzi scheme.” Arena Capital, which has been in receivership since last May, has about 1110 clients who are owed about $7 million. Arena was run by Jimmie McNicholl, and the company was shut down last May.
Canada
Doris Elizabeth Nelson, 56, was fined $37 million for her Ponzi scheme run through Little Loan Shoppe. The scheme defrauded 121 investors who invested $19 million. The scheme promised investors returns of 40% to 60%. Nelson pleaded guilty in 2014 and was sentenced to 9 years in prison. Nelson was fined 8.5 million for the money lost by investors and another $18.5 million in penalties.
China
Chinese authorities accused Ezubao Ltd. and its parent, Yucheng International Holdings Group Ltd. of running a Ponzi scheme. Ezubo was an online peer-to-peer financing platform that pitched high-yield investments. Twenty-one executives, including founder Ding Ning, 34, and former Ezubao president Zhang Min, were arrested on suspicion of defrauding at least 900,000 investors out of $7.6 billion. Two excavators were used to uncover about 1,200 account books. Investors were promised annual returns, ranging from 9% to 14.6%.
England
CWM FX took in about $73 million from investors who had been promised monthly returns of 5%. CWM FX was an online foreign exchange trading partner of Chelsea Football Club. The defrauded victims consisted of about 450 Gurkhas and Nepalese community members.
Jolan Marc Saunders, 39, Michael Dean Strubel, 54, and Spencer Mitchell Steinberg, 46, were found guilty of conspiracy to defraud investors through Saunder’s company, Saunders Electrical Wholesale Ltd. Strubel was found guilty of abetting Saunders by soliciting investors. They represented that the company was supplying electrical goods to respected hotel chains and that it had a contract with the Olympic Village for the 2012 London Olympic Games. The scheme involved £45 million.
Peter Pimley, 67, and his wife Wendy Pimley, 60, were accused of running a Ponzi-like scheme that defrauded more than a dozen investors.
Geoffrey William Langdale, 64, who is already serving a 6 year prison sentence, was banned from the Insolvency Service when it was determined that he dishonestly obtained £2.3 million from clients. Langdale ran the fraud through his company, Langdale Accountants Limited, and told investors their funds would be invested in a high interest bearing savings account and could be withdrawn on 90 days’ notice.
India
Allegations were made that Freedom 251 smartphone is a Ponzi scheme. The phone, being sold for $3.67, is being touted as the world’s cheapest smartphone, causing some to say it is too good to be true.
Kamalakant Dhupati, the director of Adarsh Group, was arrested on charges that he ran a Rs 50 crore Ponzi scheme that defrauded investors.
Israel
Aviv Talmor, the controlling shareholder of Utrade, was arrested on charges that he defrauded 600 clients in an investment program. Utrade, which had no license for managing investment portfolios, allegedly made false presentations to persuade clients to invest. The investors were provided access to a virtual account that falsely represented the amount in the account. It is believed that there are about $12 million of losses.
Israel
Aviv Talmor, the controlling shareholder of Utrade, was arrested on charges that he defrauded 600 clients in an investment program. Utrade, which had no license for managing investment portfolios, allegedly made false presentations to persuade clients to invest. The investors were provided access to a virtual account that falsely represented the amount in the account. It is believed that there are about $12 million of losses.
Italy
Patrizio Benvenuti, an Argentine Vatican priest, was accused of running a $34 million Ponzi scheme along with Christian Ventisette. Benvenuti was put under house arrest in Italy earlier this month, and Ventisette was arrested in Madrid. Benvenuti held dinners, boasting of his Vatican connections, and persuaded about 300 million to put money in an investment fund and to donate to charity. The scheme was discovered when Benvenuti’s housekeeper started receiving paperwork at her home referring to a trust that had been set up in her name. Police have seized property, bank accounts and other items worth $11 million, including a luxurious Tuscan villa.
Singapore
Sim Tee Peng, 39, was sentenced to 7 years and 5 month in prison in connection with a Ponzi scheme that took about $1.8 million from 21 victims. Peng took money from individuals who believed they were paying conveyancing fees in connection with their purchase of properties.
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
The Seventh Circuit upheld the 50 year prison sentence of Timothy Durham. U.S. v. Durham, 2016 U.S. App. LEXIS 1780 (7th Cir. Feb. 3, 2016). Durham had been convicted in connection with his Fair Finance Co. Ponzi scheme that defrauded 5,000 investors out of $200 million. The Seventh Circuit had previously ordered the lower court to re-sentence Durham when it found that the government presented insufficient evidence to support $300,000 in alleged transfers. The lower court then found that this wouldn’t have made a difference in the length of the sentence.
The trustees of the Fairfield Sentry funds were denied their attempt to intervene in a proposed $55 million settlement between PricewaterhouseCoopers LLP and a class of investors relating to the Bernard Madoff scheme.
The trustee of the Bernard Madoff scheme sought to block a proposed $64 billion class action lawsuit against Jeffry Picower, asserting that the class action is barred by a 2011 settlement. The complaint had previously been dismissed as being derivative of the trustees claims, but the plaintiffs now contend they have direct claims.
The trustee in the Bernard Madoff case asked permission to amend his complaint against accountant Steven Mendelow so that he can add allegations that Mendelow knew that Madoff was not making stock trades. Rather, the trustee alleges that Mendelow received “special financial benefits,” including a 17% return on some of Mendelow’s accounts, in exchange for Mendelow referring new investors to Madoff.
Mizuho Bank filed a motion to dismiss a lawsuit by clients filed in Illinois accusing it of aiding the Mt. Gox scheme. The Japanese bank says there is no basis for the claims and that the case should be heard in Japan.
The Ninth Circuit upheld the lower court’s dismissal of claims against Stonefield Josephson Inc. in connection with the Private Equity Management Group, or PEMGroup, Ponzi scheme. Mosier v. Stonefield Josephson, Inc., 2016 U.S. App. LEXIS 3118 (9th Cir. Feb. 23, 2016). The appellate court agreed that the receiver could not sue on behalf of the defrauded investors regarding Stonefield’s audits because there had not been a showing of “reasonable reliance” and causation.
The Financial Crimes Enforcement Network (FinCEN) and the Office of the Comptroller of the Currency (OCC) issued a $4 million joint penalty against Gibraltar Private Bank and Trust for “substantial” anti-money laundering deficiencies. The bank was found, among other things, to have failed to file at least 120 suspicious activity reports involving about $558 million in transactions in connection with the Scott Rothstein Ponzi scheme. Rothstein was sentenced to 50 years in prison in connection with his Ponzi scheme.
The former CEO of Gibraltar Private Bank, Steven Hayworth, sued the bank, alleging fraud and breach of contract and seeking $40 million in damages. Hayworth alleges that he was used as a scapegoat by the bank’s board of directors and pressured into leaving after Gibraltar settled several of the lawsuits relating to the Scott Rothstein Ponzi scheme.
The receiver of the $7 billion Allen Stanford Ponzi scheme is seeking to distribute another $50 million to victims, bringing the total distribution to about 2.5% of the victims’ claims.
Chadbourne & Parke agreed to a settle claims by investors in the R. Allen Stanford Ponzi scheme. The terms of the settlement are confidential. The firm of Proskauer Rose and Stanford’s former lawyer, Thomas Sioblom remain as defendants in the case. Separately there are other class actions moving forward against Greenberg Traurig and Hunton & Williams.
Chadbourne & Parke agreed to a settle claims by investors in the R. Allen Stanford Ponzi scheme. The terms of the settlement are confidential. The firm of Proskauer Rose and Stanford’s former lawyer, Thomas Sioblom remain as defendants in the case. Separately there are other class actions moving forward against Greenberg Traurig and Hunton & Williams.
The assets of two promoters of the TelexFree scheme were frozen. A court froze the assets of Danill Shoyfer and Scott Miller, although neither has been charged by the SEC.
The ZeekRewards receiver is seeking to recover $13.2 million from payment processing companies, Payza and Payment World.
