Posted by Kathy Bazoian Phelps
Here is the September Ponzi scheme news as we head into fall. 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.
Anthony D’Agostino began his criminal trial on charges relating to an alleged Ponzi scheme that he ran through Commercial Mortgage & Finance. It is alleged that D’Agostino bought Commercial Mortgage in 1997 and brought in 1,400 investors who were owed more than $63 million at the time the company collapsed in 2008.
Douglas L. Bates, 54, and Christina M. Kitterman, 38, were indicted on charges relating to the $1.2 billion Ponzi scheme of Scott Rothstein. Both Bates and Kitterman are attorneys who allegedly assisted Rothstein in his scheme. Bates is said to have drafted false settlement and opinion letters, and Kitterman, as the head of a local office of the Florida Bar Association, is said to have disseminated information representing to investors that the reason payments hadn’t been made to them was because funds has been frozen in connection with a pending bar investigation of Rothstein.
Jack Brown, the Soddy-Daisy tax preparer who was accused of running a $10 million Ponzi scheme, died while his bankruptcy proceedings are still underway. Brown had been accused of using investor funds to buy lakefront property and large homes, among other things, instead of investing the money and paying the 15% returns he had promised investors.
Carmelita Del Rosario, 42, pleaded guilty to charges that she ran a $1.8 million Ponzi scheme that defrauded 49 people and was sentenced to 5 years in prison. Rosario used her data entry job at the Workers’ Compensation Board to defraud 49 victims, who were predominantly Filipinos, by telling them that she could invest money in an investment fund for relatives of WCB workers.
Tim Durham, and co-defendants Jim Cochran and Rick Snow, have filed an appeal with the Seventh Circuit relating to their 50, 25 and 10 year prison sentences, respectively, arguing that investigators should not have been allowed to conduct wiretaps without first showing that ordinary investigative techniques would not work. The co-defendants were convicted of running a $230 million Ponzi scheme through Ohio-based Fair Finance Company that defrauded more than 5,000 investors by promising investors returns of 18 to 24% in connection with the purchase of finance contracts. Durham and Cochran had used much of the investors’ funds on personal expenses, such as more than 40 classic and exotic cars, a private jet and a yacht.
Russell Erxleben, a former University of Texas football player, had his request to be released on bond taken under submission. At the close of a detention hearing, the court stated that it wanted to examine whether there was no combination of conditions that could keep Erxleben from breaking the law while under supervised release. The prosecutor had said that Erxleben “has no qualms about getting others do his bidding” and “he could be a danger to the community if out on bond.” In an earlier court hearing, a court had stated, “He manipulates people. He manipulates them with fear. He manipulates them with guilt. He manipulates them with promises.”
Richard Allen Freer, 67, was charged with running a $10 million Ponzi scheme that defrauded at least 82 victims. The scheme involved reverse mortgages and retirement and college education funds. Freer is a former bank president and was sent to prison in lieu of $10 million bail.
Anthony Fregenti, 41, pleaded guilty to charges of money laundering as part of a Ponzi scheme involving motorcycles and exotic sports cars. Fregenti is required to pay $300,000 to his victims before his sentencing hearing in March 2014 and will face up to 10 years in prison and 20 years of probation, which will be increased to 15 years in prison if he does not pay. Fregenti is also barred from making deals relating to securities, real estate, time shares and insurance policies. Devin Kolb, 32, and Michael Stevens, 46, were also arrested in connection with the scheme.
Edwin Fujinaga, 66, and his company, MRI International Ltd., were the subject of an asset freeze in an action brought by the SEC against them. The SEC alleges that Fujinaga ran an $800 million Ponzi scheme that defrauded over 8,000 people, mainly from Japan, for about 15 years. Fujinaga allegedly deceived Japanese investors and promised them they were buying safe investments with a steady return. He promised to buy accounts receivable from U.S. medical providers at a discount, to try to recover the full value from the insurers, and give investors profits of 6% to 10.3%. The SEC alleged that Fujinaga spent the investors’ funds on his lavish lifestyle, including luxury cars, credit card bills, alimony and child support, and various homes in Las Vegas, Beverly Hills and Hawaii.
C. Tate George, 44, former NBA basketball player and CEO of purported real estate development firm The George Group, was indicted and saw his trial start on charges relating to an alleged $2 million Ponzi scheme. George claimed to have more than $500 million in assets under management and advised investors, including former professional athletes, that he would invest their money in real estate development projects. George promised some investors that their funds would be held in an attorney trust account, and he personally guaranteed the return of their investment with interest.
Michael Anthony Gigante and Marc Stephen Sini, 37, were fined in connection with the settlement of disciplinary proceedings brought by FINRA. Gigante, working for MetLife Securities, referred to customers to Joseph Mazella, who it turns out was running a $14 million Ponzi scheme for which Mazella received a 10 years prison sentence. Sini pleaded guilty earlier this year of promoting gambling in connection with his position at J.P. Morgan Securities at which he accepted and placed bets on behalf of his co-workers.
Michael Anthony Gonzalez, 46, of California, was sentenced to 9 years in prison and ordered to pay $1.7 million in restitution. Gonzalez had operated a $2.5 million Ponzi scheme, claiming he was investing money in tax-free municipal bonds. He also claimed that investors were protected through a New York-based registered broker that he had no real association with.
Jenifer Hoffman and John C. Boschert, of Florida, were charged by the SEC in connection with an alleged $25 million Ponzi scheme that they ran though their company, Assured Capital Consultants, LLC. It is alleged that they misrepresented to investors that their money would be invested in a confidential offshore trading programs that would provide weekly returns up to 50%. Investors were also told that Bryan T. Zuzga was a licensed lawyer that controlled the escrow account at Assured Capital’s escrow agent.
James C. Howard III, 53, of Florida, pleaded guilty to charges relating to his role in the $21 million Ponzi scheme run through Commodities Online (COL) that defrauded over 700 investors. Howard is said to have conspired with co-defendants Patricia S. Saa, Louis N. Gallo, III, and Michael R. Casey by using false materials to solicit investors to invest to purchase ownership units in COL which was engaged in commodities transactions.
Yusaf Jawed settled with the SEC for $34 million in connection with the charges against him for running a Ponzi scheme through Grifphon Asset Management. It is unlikely that he will be able to pay any of that amount, or the $6.4 million he was ordered to pay in his criminal case, since he is broke. Jawed pleaded guilty to charges in April. The SEC alleged that he has defrauded more than 100 investors of $37 million.
Paul Konigsberg, 77, was arrested and pleaded not guilty to charges relating to the Bernard Madoff Ponzi scheme. Konigsberg was the accountant who helped Madoff open an office in London during the 1980s. It is alleged that Madoff steered important clients to Konigsberg, who was paid a monthly retainer of $15,000 to $20,000 and falsified books and trading records to cover up fraudulent transactions. Konigsberg was also sued by the SEC.
David Lewalski had his sentence upheld on appeal to the Eleventh Circuit. Lewalski had received a 20 year prison sentence for his $30 million Ponzi scheme run though Botfly LLC. Lewalski challenged the consideration at sentencing of a letter he had written to his girlfriend in which he “bragged about snookering the prosecutor and probation offer in order to receive a lighter sentence.” Lewalski also challenged the consideration of a $100,000 “getaway” fund that prosecutors had disclosed.
Tina Mangiardi, 50, was sentenced to 7 years in prison in connection with the operation of a Ponzi scheme run through TLM Design and Construction, Inc. Mangiardi had pleaded guilty early this year to charges in connection with her construction project scheme in which she promised returns on a “bid bond investment” where the construction projects never actually existed. It was alleged that she had obtained between $2.5 million and $7 million from investors.
Barry Minkow is facing a third financial charge. Minkow previously served time in connection with the ZZZZ Best investment scam in the 1980s, and is currently serving time for a second fraud case in which he admitted to conspiring to drive down the stock of Lennar Corp. Minkow is now facing charges that he misused funds and defrauded members of the San Diego church where he became head pastor after serving time for the ZZZZ Best scam.
Jimmy Morrisett, 53, of Texas, was sentenced to 9 years in prison and ordered to pay more than $6.8 million in restitution after pleading guilty to running a Ponzi scheme involving fraudulent oil and gas investments in Oklahoma. Morrisett ran his scheme through Red Earth Resources Inc. and Alpine Petroleum LLC and defrauded 238 investors, many of whom were elderly and lost their life savings.
Boyd L. Myers Jr., 52, pleaded guilty to 558 criminal charges in connection with a Ponzi scheme involving pre-arranged funeral services. Myers funeral home had been purchased by Bob Buhrig who is now in the process of trying to make them whole. Buhrig, who has no other connection to Myers or his fraud, has set up a $600,000 “rescue package” by giving them full credit for the principal amounts they had paid to Myers plus 2% interest, good for services at his new operation.
Robert Narvett, 48, has been sued by the SEC in connection with an alleged Ponzi scheme that he ran through Shield Management Group Inc., which purported to be a recruiting agency for placement of sales and marketing professionals. Narvett guaranteed the return of principal investments to his investors plus 20% returns at the end of a specified term. Narvett spent the money on his personal brokerage account, mortgage payments, shopping and dining.
Steven Palladino, 57, indicted earlier this year on charges he ran a Ponzi scheme through his company Viking Financial Group with this wife, Lori Palladino, 52, was indicted on new charges of usury for allegedly demanding 40% interest on a loan. Palladino allegedly ran a Ponzi scheme through Viking Financial and promised investors exorbitant interest rates. The new charges allege that Palladino had contracted a woman to seek a $30,000 payment for a $25,000 loan she had previously received from Viking, which would have resulted in payment of 40% annual interest which is more than double the legal 20% limit under Massachusetts law.
Malcolm Parker, 57, filed an appeal of his 55-month prison sentence which he received in connection with charges that he ran a $28 million movie funding Ponzi scheme. Parker had pleaded guilty to conspiracy to commit fraud and to filing false tax papers. Parker also to testified against Louis Soteriou, his spiritual mentor and partner in the movie “Birth of Innocence,” explaining how Soteriou had used a “mixture of inspiration and fear” to get Parker to raise money, $4 million of which was spent by Soteriou on an unsuccessful spiritual quest. At Parker’s sentencing, the court added 19 months to his sentence, stating, “I see you as being a very culpable participant in the crime.”
Jason Pascua, 39, of Hawaii was sentenced to 4 years in prison and ordered to pay restitution of $1,034,000 in connection with this $1.4 million Ponzi scheme. Pascua had previously pleaded guilty to charges relating to his scheme that defrauded over 30 investors. Pascua ran his scheme through J2 Marketing Solutions, which was supposed to be a concert and nightclub promotions program that would generate returns of 25 – 50%.
Paul D. Pomfret, 49, of Florida and a former member of Penn State’s 1986 national champion football team, was sentenced to 63 months in prison and ordered to pay $1,631,090 in restitution after pleading guilty to charges relating to a Ponzi-like scheme in which he stole $500,000 from an investor and used the money to pay off earlier investors in his hedge fund, PDP Capital Investments.
Craig Podosek, 61, pleaded guilty in the middle of his criminal trial to charges relating to an $800,000 Ponzi-like scheme which defrauded a church and elderly victims. Podosek and taken over $300,000 from the Three Steeples United Church and paid a $175,000 debt he owed to someone else. Podosek was also accused of abusing a power of attorney he had been granted in order to pay the church back and to renovate his office.
Richard Reynolds aka Richard Adkins, 52, is seeking dismissal of criminal charges against him related to allegations that he ran a multi-million Ponzi scheme and failed to register a security and failed to register as a securities salesperson. Reynolds’ defense team is arguing that his right to a fair and speedy trial was violated. Reynolds has been in jail for over 400 days, and Reynolds blames the delay in a trial on prosecutors, who he says that the prosecutors’ production of more than 15,000 documents was “discombobulated,” among other things. The hearing is scheduled for October 7, 2013.
Jonathan E. Rosenberg, 44, and Richard Shusterman, 50, were indicted as alleged co-conspirators in a $278 million Ponzi scheme. Rosenberg allegedly operated three companies involved in the scheme, one of which was Account Receivables LLC, in which the defendants represented that they had acquired at a steep discount billions of dollars worth of soured medical debts which were uncollectible by hospitals from their patients. Shusterman ran the scheme through International Portfolio Inc., which sold the fraudulent debt portfolios to hedge funds and other investors. Robert Feldman, 65, and Douglas A. Kuber, 53, pleaded guilty in 2012 and have not yet been sentenced.
Kim Rothstein, the wife of convicted Ponzi schemer Scott Rothstein, has asked for another sentence delay so she can testify against others in the case. Kim Rothstein hopes to get a reduced sentence in exchange for testimony against two men accused of assisting her in selling about $1 million worth of jewelry that was subject to forfeiture by the government in connection with Scott Rothstein’s Ponzi scheme. The court agreed to one more sentencing delay until November 12, 2013, but warned that this is the last one.
Ralph A. Saviano, 72, was sentenced to 27 months in prison and ordered to pay almost $700,000 in restitution for his Ponzi scheme that he ran through Centaurus Financial Inc. and Saviano Financial Group. Saviono defrauded about 300 clients, many of whom were between the ages of 60 and 85 and who he knew were about to receive significant amounts of cash. Saviano used the investors’ funds to make payments to other clients and on personal expenses, including $33,000 for granite countertops and other home improvements, jewelry, clothing and a family vacation to Aruba.
Jason Severs, 39, was sentenced to 25 years in prison for running a $1,000,000 Ponzi scheme that defrauded 30 people. Severs had pleaded guilty securities fraud involving a person over 60, selling unregistered securities and failing to register as a securities professional. He has indicated that he plans on appealing his sentence.
Lynn A. Simon has been accused of running a $1 million Ponzi scheme. Simon allegedly offered investors the opportunity to invest in his company and promised them a high rate of return that he never delivered. Simon allegedly defrauded at least 12 people when he offered them an opportunity to invest in his “special company.” He operated two companies, The Insurance Shoppe and Financial Security Planning.
David Tamman, 46, was sentenced to 7 years in prison for his role in obstructing two investigations into the $22 million Ponzi scheme run by John Farahi through his company New Point Financial Services. Tamman is a former Nixon Peabody attorney who was convicted of conspiring to obstruct justice, being an accessory after the fact to Farahi, and aiding and abetting Farahi’s false testimony before the SEC. Farahi had been previously sentenced to 10 years in prison and ordered to pay more than $24 million in restitution to 59 victims.
Kenneth Case Tebbs, 42, was sentenced to 6½ years in prison following his guilty plea to charges relating to his $49 million Ponzi scheme that defrauded 100 investors. Tebbs ran his scheme through two real estate investment companies called Twin Peaks Financial Inc. and MNK Investments Inc. He solicited investments to buy houses and undeveloped land in Utah and promised returns of up to 18%, plus an origination fee of up to 5%.
George Louis Theodule, 52, was indicted on charges relating to the operation of a $30 million Ponzi scheme that targeted investors in the Haitian-American community. Theodule, who was already the subject of an SEC action that resulted in a $5.5 million disgorgement order, was alleged to have raised more than $23 million from thousands of victims through fraudulent, unregistered offering securities. The indictment states that Theodule induced individuals to invest money with his companies, Creative Capital Consortium LLC and A Creative Capital Concepts LLC, and that he promised them he would double their money in 90 days.
Joseph Zada was indicted on charges relating to a Ponzi scheme that defrauded at least 26 victims. Zada represented that he was the illegitimate son of a Saudi oil billionaire to impress investors. One victim, former Detroit Red Wings forward Sergei Federov, lost about $43 million in the scheme.
INTERNATIONAL PONZI SCHEME NEWS
Canada
A class action suit was permitted to proceed against defendants Rashida Samji, Arvin Patel, Royal Bank of Canada, Toronto-Dominion Bank, Coast Capital Savings Credit Union, Vancouver City Savings and Worldsource Financial Management Inc., in connection with a Ponzi scheme operated by Rashida Samji through Mark Anthony Investment. The plaintiffs, Lawrence Brian Jer, Jun Jer and Janette Scott have alleged breach of trust, knowing assistance in breach of trust, fraud and negligence. The class claims are believed to be in the range of $30 to $40 million.
India
Abbas Haider Naqvi, Muhammad Arif Khan, Mohammad Sadiq Khan, Syed Haider Farosh Naqvi and Ahmed Rahman were each fined Rs400 million for their role in the Ponzi scheme run through Big Board. Big Board had promised returns to investors of 15%.
Saba Zaman, Faisal Nadeem and Sameen Jan were sentenced to prison for their role in a Ponzi scheme. Zaman was sentenced to 12 years and fined Rs50 million, Nadeem was sentenced to 10 years in prison and fined Rs30 million, and Jan was sentenced to 5 years in prison and fined Rs10 million.
Ireland
Eammon Kelly lost an appeal of his 6 year prison sentence in connection with his €1.6 million Ponzi scheme. Kelly defrauded 25 investors by promising them €15,000 in profit on a €50,000 investment within 6 months if they purchased valuable sites in the UK. Kelly forged letters from Ulster Bank and a solicitors firm in connection with the scheme.
New Zealand
The liquidators in the David Ross Ponzi scheme case posted information on their website which investors contend will impact their ability to recover money they lost in the scheme. It appears that the liquidators may not pursue clawbacks of profits to investors. The liquidators’ website can be found at: www.pwc.co.nz/ross-group/frequently-asked-questions/
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
In the Ponzi scheme bankruptcy case of Financial Resource Mortgage Inc., the New Hampshire Banking Department has filed about $100,000 in claims. Other claimants have expressed outrage at the claim, alleging that the Department assisted in the fraud by, among other things, failing to apply a law that would have required FRM to carry fidelity bond insurance against this kind of fraud.
R. Mark Hunter aka John Joseph Mark Marino, who was previously indicted on charges of running a Ponzi scheme, has been sued by Private Reserve. Hunter is a disbarred lawyer who was previously sentenced to prison for fraud. Private Reserve alleges that he assumed another attorney’s identify and ran another Ponzi scheme out of a law office in another state. Private Reserve, claiming losses of $300,000 has sued Marino White O'Farrell & Gonzalez, JM International Commercial Consultants, Abraham Borenstein, and Abraham Borenstein & Associates, and alleges: “that John Joseph Mark Marino affirmatively concealed and intentionally withheld from disclosure from plaintiffs the material fact that Marino previously changed his name legally in 2005, from R. Mark Hunter to John Joseph Mark Marino, and immediately thereafter surreptitiously and fraudulent acquired the identity of a licensed attorney admitted to practice law in the State of New York named John Joseph Marino, admitted 1966, New York State Bar Number 1025360, and materially misrepresented himself as an attorney to plaintiffs and others.” The complaint also alleges that “Hunter was previously charged, tried, convicted, and sentenced to four years’ incarceration in a Swiss penal institution for committing criminal offenses in connection with operating a Ponzi investment scheme.” It further alleges that Hunter was also indicted in 2010 for engaging in “a scheme to defraud victims through a series of Ponzi investment trading programs that in fact did not exist.”
A ruling in the case of Bernard Madoff’s Ponzi scheme was issued relating to whether victims are entitled to include “time-based damages” in their loss calculations. The court found that they were not. More than 1,000 claimants had argument that they should be compensated for the use of their money for the time that their funds were invested. See In re Bernard L. Madoff Investment Securities LLC, 2013 Bankr. LEXIS 3747 (Bankr. S.D.N.Y. Sept. 10, 2013). The court noted that the victims had not bargained for guaranteed rates of return or inflation protection and that it was impossible for the claims to reflect “market reality” because the final account statements were fabricated.
The special master, Richard Breeden, appointed to distribute $2.35 billion of forfeited assets in connection with the Bernard Madoff Ponzi scheme, announced that he will share his plan for distribution in a few weeks.
The court in the criminal trial of Annette Bongiorno, Joann Crupi, Daniel Bonventre, George Perez and Jerome O’Hara, each facing charges related to the Bernard Madoff Ponzi scheme, denied a motion by the prosecutors to bar jurors from hearing evidence that Madoff was involved in a love triangle with one of the defendants and of other office romances. The trial is scheduled to begin on October 7, 2013.
Investors’ claims arising from the Madoff scheme against JP Morgan Chase and Bank of Mellon were dismissed. The claims of investors Dana Trezziova and Neville Seymour against foreign investment feeder funds and the banks were dismissed. The Second Circuit dismissed the claims against the bank under SLUSA, The Securities Litigation Uniform Standards Act.
The court overseeing the Management Solutions Inc. case issued a lengthy opinion establishing some parameters for the use of the Ponzi scheme presumption. See SEC v. Management Solutions, Inc., 2013 U.S. Dist. LEXIS 120277 (D. Utah Aug. 22, 2103). The receiver in that case sought to establish a start date for the Ponzi scheme so that he could rely on the Ponzi scheme presumption to establish that the transfers were made with the actual intent to hinder, delay or defraud creditors. The court found that Management Solutions was not a classic Ponzi scheme because its business operations included substantial real estate business operations that generated substantial revenues. The court went on to conclude that it is not appropriate to use the presumption where the operations include legitimate business operations and that such a finding might actually penalize innocent conduct. The opinion ended with the court’s conclusions that the Ponzi presumption should be applied only in those cases “as blatant and as plain as the original Charles Ponzi case and the more recent Madoff case: assetless and fraudulent from day one.”
The claim of two investment funds called Genium was denied in the $350 million Ponzi scheme case of Arthur Nadel, when the court found that sophisticated institutional investors should have recognized red flags indicating that Nadel was operating a fraud. The red flags included things like the fact that Nadel had been disbarred as an attorney in New York, he had numerous judgments against him, and his hedge funds had an implausible track record of high profits that bore no correlation to the stock market. The Trustee objecting to the claim had argued that Genium had failed to perform its due diligence before investing.
A court postponed approval of a proposed $8.2 million settlement in a class action against Bank of America Corp in connection with the Ponzi scheme of Juan Rangel and Financial Plus Investments Inc. It had been alleged that Bank of America facilitated the $20 million real estate Ponzi scheme that targeted Latinos. The court was concerned about whether the $5,000 incentive awards to class representatives were justified.
A settlement has been reached regarding the interest of Scott Rothstein’s law firm, Rothstein Rosenfeldt Adler, in the former Versace mansion which will soon go to auction. The settlement establishes that Rothstein’s firm will have a 9.99% interest in the property, with a possible increase to 49.99%. The co-owner, Casa Casuarina LLC, filed its own bankruptcy case since the settlement was struck, so court approval is still required in both bankruptcy cases. Bids for the 10 bedroom 11 bathroom mansion and a pool lined with 24-karat gold, start at $25 million.
FINRA assessed a $37.5 million civil money penalty against TD Bank for failure to report suspicious activity in connection with the Scott Rothstein $1.2 billion Ponzi scheme. The SEC has alleged that TD Bank and its then regional vice president Frank A. Spinosa defrauded investors by producing false documents and making false statements about the accounts held by Rothstein at the bank. TD Bank also agreed to settle the SEC’s charges and pay $15 million. TD Bank has separately been hit with a jury verdict against it in the amount of $67 million in favor of an investor and has otherwise entered into settlements with other investors totaling in the hundreds of millions of dollars. Spinosa declined a settlement offer, claiming that he was a victim and that he is being “vilified” for the bank’s compliance deficiencies.
A new source of money will be distributed to investors in connection with the Scott Rothstein Ponzi scheme case. The trustee of the Banyon bankruptcy case requested permission to distribute $30 million to investors in the Rothstein Ponzi scheme. The Banyon bankruptcy recently received funds from the bankruptcy case of Rothstein’s firm, Rothstein Rosenfeldt Adler in connection with litigation settlements, mostly with TD Bank. The Rothstein trustee has separately distributed $95 million.
Shook, Hardy & Bacon, the law firm that had advised convicted Ponzi schemer Nevin Shapiro, agreed to pay $5 million to settle aiding and abetting claims that had been brought by bankruptcy trustee of Shapiro’s investment company. The lawsuit sought $110 million from the firm for its alleged role in the $930 million Ponzi scheme. The complaint had alleged that one of the lawyers at the firm grew suspicious that Shapiro’s investment company, Capitol Investments, was violating securities laws and asked another lawyer to investigate the matter. A memo was issued by the firm concluding that Shapiro was violating securities laws, but the lawyer failed to deliver it and thereafter learned of a criminal referral that had been made. Despite those two things, the firm continued to advise Shapiro on the issuance of millions of dollars in promissory notes to investors. The complaint alleged, “Levinson actually encouraged Shapiro’s additional borrowings, telling Shapiro that he needed to make sure to get more funds so Capitol could stay afloat as Levinson knew that if Capitol failed, Shapiro would likely be prosecuted for securities fraud.”
A case against CommunityOne Bancorp in North Carolina in connection with the Ponzi scheme run by Keith Franklin Simmons has been dismissed. Prosecutors had claimed that CommunityOne’s banking unit permitted the $40 million scheme to be operated through accounts at the bank and that the bank had failed to file suspicious activity reports on the customer’s transactions. The bank had entered into a deferred-prosecution agreement in 2011 and has paid $400,000 in restitution to the victims of the Ponzi scheme.
The receiver in the $7 billion Ponzi scheme case of R. Allen Stanford will be making the first distribution to investors of $1 million. The Receiver is holding about $55 million, which he has reportedly obtained approval to disburse, and he is expecting additional funds to be collected.
Investor Kent D. Smith was given leave to amend his complaint against attorney Jeffrey Tew and his firm, Tew Cardenas LLP, which alleged that the lawyer helped its client, Stephen Tashman, perpetrate a Ponzi scheme.
In connection with an alleged $1.2 million Ponzi scheme run by Tranen Capital and its founder Kenneth A. Landgaard, investor MC Wealth Management filed a lawsuit alleging fraud and alter ego. Tranen Capital was a purported life settlement investment fund based in the British Virgin Islands but operating out of the United States. Arthur L. Bowen, an attorney and director of Tranen, The Leo Group, who is the trust fund manager of the assets of Tranen, and Randy W. Bagley and Brock Bagley, who are managers of The Leo Group, were also named as defendants. It is alleged that Traven reported that it had acquired a beneficial interest in insurance policies when it had not actually done so. Tranen purchased life insurance policies during their contestability period, during which such policies have little to no resale value because they are not to be bought or sold during that time period. Torrey Pines Services LLC, who processed the transactions, is also named in the lawsuit.
The tally following the end of the period for victims to submit claims in the Zeek Rewards case, was 173,782 claims filed for more than $550 million. The receiver is holding assets of about $325 million.
Monday, September 30, 2013
Tuesday, September 24, 2013
Echo of Support for the Lifetime Achievement Award for Linda Rusch
Jeremy Telman over at the Contracts Prof Blog posted over there about the Lifetime Achievement Award that Linda Rusch will receive at the Ninth Annual International Conference on Contracts February 20-21, 2014 to be held at St. Thomas University in Miami, Florida. I must echo Jeremy's praise of Linda's accomplishments. Linda is a retired professor of law as of August 2012 and now is getting to enjoy the great outdoors. She was the inaugural holder of the Frederick N. and Barbara T. Curley Professor in Commercial Law at the Gonzaga University School fo Law from 2005-2010. She was also a co-director of the Law School’s Commercial Law Center. And, of course, Professor Rusch has been involved in the revision of the Uniform Commercial Code in many capacities and is the recent past Chair of the Business Law Section of the American Bar Association. It is great to see her contributions to contract and commercial law recognized! If you are considering presenting at the February Conference, the call for papers is currently OPEN.
Papers and works-in-progress are welcome from those who study Contracts from any perspective, whether doctrinal, pedagogical, theoretical, empirical, historical, economic, critical, comparative, or interdisciplinary. Works that take an international or civil law approach are also welcome. Junior scholars are particularly encouraged to participate. Those interested in proposing and organizing panels (3-5 presenters) on specific themes are especially encouraged to do so. Individual submissions should be made by a brief abstract (one page is sufficient) of the paper or WIP that includes contact information for the author(s). The deadline is Monday, December 16, 2013 with proposals submitted earlier will be accepted on a rolling basis. Proposals submitted after the deadline will be accepted on a space-available basis. Submissions should be directed to: Professor Jennifer S. Martin (me) at jmartin@ stu.edu.
-JSM
Friday, September 20, 2013
Keeping it simple: Financial Advice on an Index Card
I heard about the the 4X6 inch index card financial advice on NPR this week. This advice comes from University of Chicago Professor Harold Pollack. My first thought is that he would be a business school prof, but Professor Pollack does social services work. The simplicy of the program is good, but the last piece of advice is cut off in the picture (and gives away his true calling):
Promote social insurance programs to help people when things go wrong.
This, of course, brings to mind the current debate in Congress over spending and attempts to defund healthcare, food stamps and other programs. Perhaps the nation's finances would be in better order if Congress consulted Professor Pollack. Simple advice, yes, but probably sound in basics. Typically that is enough for ordinary people to keep up with and improve their finances.
-JSM
Thursday, September 12, 2013
KCon 2014 Call for Papers
Papers are invited for the 2014 Contracts Conference at St. Thomas University in Miami, Florida. The Conference website is up at http://www.contractsconference.com/kcon/KCON9__Miami.html and able to take registrations, including information about hotel registration. Here is the call for papers.
KCON9
The 9th Annual Conference on Contracts
The Call for Papers is OPEN.
For information,
contact Professor Jennifer S. Martin
February 21-22, 2014
CALL FOR PAPERS
Individual submissions should be made by a brief abstract (one page is sufficient) of the paper or WIP that includes contact information for the author(s). Individual submissions will be placed on panels with like submissions. Panel proposals should include the name and contact information of the moderator or organizer, and a summary of the proposed papers or works in progress. There is no publication commitment for the conference, but organizers of individual panels are free to arrange for publication on their own.
Submissions
Deadline is Monday, December 16, 2013.
Proposals submitted earlier will be accepted on a rolling basis. Proposals submitted after the deadline will be accepted on a space-available basis. Submissions should be directed to:
Professor Jennifer S. Martin
jmartin@ stu.eduWednesday, September 4, 2013
Saturday, August 31, 2013
August 2013 Ponzi Scheme Roundup
Posted by Kathy Bazoian Phelps
August was another busy month for Ponzi scheme news. 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.
Suzette Anguay, 50, pleaded guilty to charges in connection with an $800,000 Ponzi scheme and then was taken away from court in an ambulance on what was later described as a minor medical emergency. Anguay promised about 15 investors 15% to 30% per year on their investments, but instead of investing their money, she spent it on personal credit card payments, expenses and travel.
Lloyd Barriger pleaded guilty to charges relating to his $50 million Ponzi scheme run through the Gaffken & Barriger fund. Barriger promised investors 8% annual dividends, promising to invest their funds in real estate investments.
Donna Bello, 55, and Jill Platt pleaded not guilty during their arraignments on charges that they ran an illegal gifting club Ponzi scheme that defrauded participants out of more than $1 million. The scheme looked like a pyramid scheme, with four levels: "Appetizers," "Soup and Salads," "Entrees" and "Dessert." New members would contribute $5,000 to join at the “appetizer” level. The proceeds were referred to as “green beans.” Members were promised large tax-free financial gains, with some promised returns of $80,000 in one year on the $5,000 investment.
John Bertuca was sentenced in connection with a $46.5 million Ponzi scheme. Bertuca pleaded guilty and as part of his plea agreed to testify against David Wilson McQueen and Trend Edward Francke, who were also tied to the case. Bertuca will serve one year on supervised release and pay $115,000 in restitution.
Russell Samuel Biszantz, 43, pleaded guilty to his involvement in a Ponzi-like scheme that defrauded-investors of more than $2.44 million. Biszantz admitted that he knowingly operated an unlicensed escrow company that diverted bank loans for customers to pay his own company expenses.
Daniel Bonventre, Annette Bongiorno, Joann Crupi, Jerome O’Hara and George Perez, each former employees of Bernard Madoff, sought a two-month postponement of their trial on charges relating to assisting Madoff’s Ponzi scheme. Perez’s lawyer said that a revised indictment “contains a wholesale re-writing” of the previous one and includes additional allegations.
Brian R. Callahan, 43, and Adam J. Manson, 41, were arrested in New York and charged with running a $100 million Ponzi scheme that allegedly defrauded 40 investors. The investors were told that their money would be invested in mutual funds, hedge funds and other securities. About $118 million was raised, and investors were provided with account statements showing growth in the funds. Instead funds were spent on a beachfront resort and development, to buy expensive cars and homes and to pay returns to investors. Callahan, Manson and Callahan’s wife, Sheri Manson Callahan, were named in a 2012 SEC complaint related to the same scheme.
John Cameron, 48, was arrested on charges that he was running a Ponzi scheme by trading securities without a license and operating as a securities dealer without a license.
Razel Canedo, 44, was sentenced to 24 months in jail and 3 years of supervised release thereafter and ordered to pay $949,200 of restitution following a plea bargain. Canedo admitted that she was trying to set up and run a supposed “nanny service and nursing agency business” that would help bring Filipino nurses from the Philippines to work in the US. Canedo promised investors a return of up to 50%.
Fred David Clark Jr. and his wife, Cristal R. Coleman, are the subject of an amended complaint filed by the SEC in connection with an alleged $300 million Ponzi scheme based in Florida. The SEC accused Clark and Coleman of raising about $300 million from about 1,400 investors for the Cay Clubs Resorts and Marinas, which was marketed as a resort development, but which the SEC claims is a Ponzi scheme. The amended complaint also accuses Clark, Coleman and others of misappropriating more than $33 million as exorbitant salaries and commissions or to pay personal expenses.
Clayton Cohn and his company Marketaction Capital Management were the subject of an SEC motion accusing them of operating a Ponzi scheme. Clayton targeted fellow veterans, family members and friends, and directed him to his hedge fund using a fake charity that he operated called Veteran’s Financial Education Network. Cohn raised $1.78 million from 24 investors promising returns from his “multi-strategy hedge fund.” He had advised investors that the funds regularly audited by a reputable outside accounting firm, but neither Cohn nor his companies had retained the firm, and the firm advised it was unfamiliar with the defendants.
Anthony Davian and his company Davian Letter/Davian Capital Advisors have been charged by the SEC of operating a Ponzi scheme. Davian promoted his pump and dump day trading business in Twitter using the handle @hedgieguy.
Jim Donnan defeated claims brought by a creditor for nondischargeability in which the creditor sought to bar discharge of its claims on the grounds that the claim was incurred as a result of false pretenses, false representation or actual fraud (11 U.S.C. § 523(a)(2)(A)), embezzlement (§ 523(a)(4)) and willful and malicious injury § 523(a)(6)). Fennell v. Donnan, 2013 Bankr. LEXIS 3110 (Bankr. M.D. Ga. August 1, 2013). The court found that Donnan did not knowingly participate in the Global Liquidation Company Ponzi scheme. The court stated that “Plaintiff has not cited, nor has this Court found, any case where a court has held that proof of the existence of a Ponzi scheme is sufficient to supply the required fraudulent intent under section 523(a)(2)(A) where the debtor has not admitted, or been found by the court, to have knowingly participated in the scheme.” Donnan has already been indicted on charges related to the Global Liquidation scheme.
Mark Feathers was finally hit with a ruling that he has been battling for about a year. The court found that Feathers and his company, Small Business Capital Corp., had violated federal securities and exchange laws. In the scheme, about 400 investors lost about 25% of the $42 million that they had invested, and that Feathers had been “Ponzi-like payments.” SEC v. Small Bus. Capital Corp., 2013 U.S. Dist. LEXIS 116607 (N.D. Cal. Aug. 16, 2013).
Edward Lincoln Forehand, 68, of Alabama, was sentenced to 90 months in prison for his participation in a $3 million Ponzi scheme that defrauded 87 investors. Forehand used the business name “USA Marketing” and promised investors returns up to 700% on their investments with Elite Marketing, a company run by Vicky Yeager who sold cookware to colleges and universities.
Glen Galemmo of Ohio is being investigated by the IRS and is the subject of a civil forfeiture action in connection with his alleged $300 million Ponzi scheme run through Queen City Investments that defrauded about 165 investors. Galemmo promised returns of 432% in connection with what he represented was a hedge fund. It is alleged that Galemmo, along with his wife and business partner, Edward Blackledge, used investors’ money for their personal needs. Galemmo is also the subject of a criminal investigation along with multiple civil lawsuits. The government is attempting to seize his home, a condominium in Florida, five cars and a bank account.
Stephen K. Gilley lost his attempt to have his disgorgement judgment of almost $2 million owed to the SEC in connection with his Ponzi scheme discharged in his subsequent bankruptcy case. The SEC had obtained a judgment against Gilley in 2006, which Gilley sought to discharge in a Chapter 7 bankruptcy case filed in 2012. The bankruptcy court found that the debt was excepted from discharge under 11 U.S.C. § 523(a)(19).
Keelan Harris, 37, and Karen Starr were charged in connection with a $15.8 million Ponzi scheme that defrauded 408 investors. Harris’ brother, Kevin Harris, was sentenced in 2012 to 7 years and 3 months after he pleaded guilty to the same charges that have now been made against his brother. Karen Starr remains at large. The scheme was operated through Complete Developments LLC and Investments International and investors were promised rates of return of 7% to 12% per month and were told that 80% of their principal investment would be secure. Instead of investing the money in commercial real estate, bonds or foreign currency as promised, they purchased a vehicle and money was transferred to overseas bank accounts in Columbia, Panama and the United Arab Emirates.
Steven B. Heinz, 56, of New York, was accused of running a $4 million Ponzi scheme through his investment firm, S.B. Heinz & Associates, Inc., to get “loans” that he said would be put into a trading program. Heinz took money from about 15 investors and promised them tax free returns of 6% to 120% annually. Heinz used most of the money to support his lavish lifestyle. The SEC obtained a temporary restraining order and an order to freeze the assets of Heinz and his company.
Douglas Hollingsworth, 64, was sentenced to 5 years and ordered to pay $4.9 million in restitution for his role in a $7 million Ponzi scheme. Hollingsworth defrauded about 12 investors by telling them he had developed a sophisticated computer system that allowed him to identify market trends and generate substantial profits from trading activity. He operated his scheme through Baytree Investors, LLC and Capsule Partners LLC, promising investors monthly returns of 6%. Hollingsworth used investor funds to make payments to investors and to fund his lavish lifestyle, including purchase of fine jewelry, at least $14,000 in Best Buy purchases, and over $20,000 in dental care.
Terry Jones was indicted for tipping off Ponzi schemer John F. Holtsinger that a federal grand jury had indicted Holtsinger on charges related to a $1.1 million Ponzi scheme. Holtsinger later pleaded guilty and received a 7 year sentence. Following the grand jury proceedings, Jones had a chance meeting at Costco with one of the witnesses from the grand jury proceeding and advised the witness of the indictment while it was still sealed. The witness notified Holtsinger who fortunately did not make any attempt to flee.
Christina M. Kitterman and Douglas L. Bates were arrested by IRS agent in connection with the Scott Rothstein Ponzi scheme. Kitterman and Bates are both attorneys in Florida who were identified by Rothstein in a deposition as having assisted in parts of his fraud. Kitterman, who formerly worked at Rothstein’s firm, Rothstein Rosenfelt Adler, is alleged to have impersonated an official of the Florida Bar during discussions with an investor in Rothstein’s scheme. Rothstein testified that Bates agreed to sign his name to a letter threatening a discrimination action against a company Rothstein represented in order to inflate his legal bills.
Rick Koerber won a favorable ruling from the court in his criminal trial when the Court prohibited prosecutors from using as evidence certain interviews that Keorber had given to investigators before his indictment on charges relating to an alleged $100 million Ponzi scheme. The prosecutors had not attempted to contact lawyers who had represented Koerber in the past and the court noted that he felt that they did not do so because they would have been likely told there would be no interviews. “[T]he way it was approached at least allows an inference that they didn’t want to get that response, they wanted to be coy and say, can we justify saying that he’s not represented so we can interview him."
John Marcum, 49, of Indiana, was charged by the SEC with running a $6 million day-trading Ponzi scheme through Guaranty Reserves Trust LLC that defrauded at least 37 people into investing in promissory notes that promised double-digit annual returns with no risk. Marcum targeted investors with retirement funds and told some investors that he was waiting for a two year suicide clause to take effect and that after the two year waiting period he would kill himself to assure that investors were repaid. Marcum used the investors’ funds on personal expenses such as travel, luxury car payments, and to finance start-up businesses such as a bridal store, a bounty hunter reality television show and a soul food restaurant.
Timothy McCabe, 55, is the subject of a lawsuit filed against him along with TD Bank N.A. in connection with an alleged $1.2 million Ponzi scheme. McCabe was a partner in the law firm, McCabe and Samiljan, that advertised itself as a real estate and foreclosure defense law firm. McCabe was also the managing member of City Title LLC, and allegedly used his position at City Title and as a signatory on the law firm account located at TD Bank to commingle incoming funds. The complaint alleges RICO charges against McCabe and others, and also alleges that TD bank failed to exercise proper supervision of the trust account by allowing him to improperly deposit checks into the account that were payable to other people.
Greg McKnight, 53, of Michigan was sentenced to more than 15 years in prison and ordered to pay almost $49 million in restitution for his role in a Ponzi scheme that took in $72 million and has left investors out more than $45 million. The scheme involved 3,000 investors in all 50 states and 33 countries, and he had promised investors “outlandishly high interest rates” of at least 15% per month through his company, Legisi Holdings LLC. McKnight used $2.2 million of the funds for his own use. McKnight’s associate, Matthew J. Gagnon, was previously sentenced to 5 years in prison for his role in promoting Legisi. McKnight lost $3 million in trading losses and spent more than $2 million for personal expenses.
Robert Medhus was sentenced to 10 years in prison for his Ponzi scheme in which it stole $900,000 from 19 clients. Medhus had pleaded guilty to charges of fraudulent practices and offering to sell unregistered securities. Medhus’s attorney had asked for a reduced sentence to allow Medhus to repay some of the $900,000, but the court denied the request, noting that Medhus had not paid back one dollar since being charged. The court also sentenced Medhus to two more years in prison than the prosecution had requested.
Brian William McKye, 49, of Oklahoma, had his conviction overturned and 21 year prison sentence reversed by the Tenth Circuit. The court ruled that his conviction on charges related to running a $4.5 million Ponzi scheme that defrauded 115 investors could not stand because the lower court had improperly instructed jurors on what proof was required to convict him. McKye had run an investment business through Global West and had promised investors monthly returns of up to 19%. The lower court had refused a request of McKye’s lawyer to instruct the jury that they could decide whether the investment notes were securities and instead instructed the jurors that the term “security” includes a note. U.S. v. McKye, 2013 U.S. App. LEXIS 17297 (10th Cir. 2013).
Wayne Ogden, 49, of Utah, 3-time Ponzi schemer, was sentenced to 10 years in prison in connection with charges relating to a $4.8 million Ponzi scheme. While Ogden was awaiting trial on those charges, he was indicted in 2011 on charges relating to a $3.5 million Ponzi scheme. Ogden had previously been indicated for running a Ponzi scheme through his company, Paradigm Acceptance LLC, where he raised $29 million from investors and promised returns of 20% to 100%.
Gurudeo “Buddy” Persaud, 47, who pleaded guilty to charges that he was running a Ponzi scheme, was sentenced to 3 years in prison and ordered to pay about $1 million in restitution. Persaud had been indicted on charges relating to his Ponzi scheme run though his private equity firm, White Elephant Trading Company LLC, that 14 investors out of about $1 million. Persaud had promised investors between 6% and 18% returns, but lost money in the stock market when he used astrology and lunar cycles to make trade decisions. Persaud had neglected to mention to his investors that his trading strategy was based on lunar cycles and the gravitational pull between the moon and the Earth, which he believed affects human behavior. Persaud believed that when the moon is positioned in a manner that exerts a greater gravitational pull on human beings, they feel down and are therefore more inclined to sell securities in the markets.
Martin A. Pool of Georgia agreed to a settlement with the SEC over charges that he and his partner, Armand R. Franquelin, ran a $12 million Ponzi scheme through their company, Elva Group, that defrauded about 130 investors. They had promised investors that their money would be used to buy and develop real estate but instead, the money went to pay other investors and for personal expenses of Pool and Franquelin. Pool agreed to a settlement in which he is prohibited from further violations of federal securities laws and will have a penalty of about $1.4 million stayed unless he violates the agreement.
Curtis Wayne Ross of Hawaii was indicted in connection with a $167,000 scheme in which he promised investors returns of between 17% and 400% by telling them that he would invest in international gold and diamond transactions and a waste-to-energy company.
Bradley Schiller, 37, has been accused of running a $10 million commodities trading Ponzi scheme. Schiller used the investors’ money to pay for his personal expenses, including a Range Rover, jewelry, country club fees, and housing rental fees for his mother-in-law, and also to make Ponzi-like payments to victims. It is alleged that Schiller created and distributed phony documentation, including fictitious commodities brokerage and bank account statements, false financial statements and false tax forms.
Yaman Sencan and Stephen Merry pleaded not guilty to charges that they had run a $5 million Ponzi scheme. One of the companies used for the scheme was Ramco and Associates. The men had promised investors returns to be generated by taking advantage of temporary price differences between different stock markets using a computer algorithm. They promised profits from the quick buying and selling of stocks and the volume of trades, sometimes thousands of times per day. David Petersen and Timothy Durkin have also been charged in connection with the scheme.
Michael Shapira, 48, who had previously pleaded guilty to charges related to a $2 million Ponzi-scheme run through Keywest Leasing, defrauding 11 investors, avoided a 2-year prison sentence. Instead, Shapira was sentenced to a conditional sentenced to be served at his home under an absolute curfew under the rationale that the best way to punish Shapira is to let him work and pay back the money he stole. Shapira’s clients were told their money would be used to fund leases of used medical equipment that would then be leased again to medical organizations and government agencies. They were promised returns in the range of 20-30%.
Feisal Sharif, 43 pleaded guilty to charges relating to a $3.6 million Ponzi scheme that he ran through First Financial LLC. The scheme defrauded more than 50 investors in what Sharif said was a commodity pool to profit from trading in commodity futures.
Joseph Angelo Sivigliano had his appeal of his conviction arising from his operation of a Ponzi scheme denied. U.S. v. Sivigliano, 2013 U.S. App. LEXIS 15962 (10th Cir. Aug. 2, 2013). Sivigliano had operated his real estate flipping scheme through Helping Hearts and Hands, Inc., promising returns from the purchase of foreclosed properties in Oklahoma City that would be sold at a profit.
David Smith, 67, and Timothy McGinn, 64, of New York, were sentenced to 10 and 15 years, respectively, for their role in a $4 million Ponzi scheme that they had run through their securities firm. They were both ordered to pay about $6 million in restitution.
Ralph John Solis, 56, was sentenced to 15 years and ordered to pay $12.6 million in restitution in connection with a $12 million real estate Ponzi scheme to which he had previously pleaded guilty. Solis had sold forged first and second trust deeds to about 50 investors. Solis created fictitious deeds of trust by finding mortgages held by non-traditional lenders and private parties and obtaining copies of the documents and putting his name on them as the beneficiary. The fake deeds were then bundled and sold directly or through third parties.
John David Stroud of Alabama pleaded guilty to charges relating to a $5.2 million Ponzi scheme. Stroud ran a Ponzi scheme through TS Capital Partners. Stroud was the hedge-fund partner of college football coach Tommy Tuberville, who was sued by investors but not charged criminally.
George Louis Theodule, 53, of Florida, was indicted on charges relating to an alleged $30 million Ponzi scheme that defrauded fellow Haitians. Theodule ran his scheme through Creative Capital Concept, LLC and Creative Capital Consortium LLC and promised to double investors’ money in 30 to 90 days through “investment clubs." He claimed to have 17 years of successful stock trading experience but instead of investing, spent the money on expensive cars, motorcycles, jewelry, and trips to Las Vegas.
David R. Wulf, 60, was convicted on charges relating to the National Prearranged Services Inc. funeral Ponzi scheme. The scheme involved more than $150 million paid from customers supposedly purchasing prearranged funeral services.
Bernerd Young, Daniel Bogar, and Jason Green, each a former executive of Allen Stanford’s enterprise, were found liable for fraud and banned from the securities industry. They were each ordered to pay $260,000 in fines and forfeit ill-gotten profits. Young, a former regulator with what is now FINRA, said that he had taken due diligence steps in reviewing quarterly financial statements and reading annual reports about the bank, but that Antiguan privacy laws kept him from seeing more details about the investment portfolio.
INTERNATIONAL PONZI SCHEME NEWS
Australia
Ronald Morris Coles pleaded guilty to charges relating to a $6 million Ponzi-like scheme involving artwork. Coles had agreed to buy, sell and manage valuable works by famous Australian arts. Coles had been convicted of using a single painting as surety for multiple loans and selling single works several times over.
Canada
Robert Sellers, 76, was sentenced to 4 years in prison and ordered to pay $10 million in restitution after pleading guilty to charges in connection with a $27 million Ponzi scheme that promised returns of 15% to 18% to about 359 investors. Sellars told investors their money was going into ventures such as gold mining in Montana and European money markets, and many were told that their investments were guaranteed and insured.
Kevin Zietsoff, 41, has been charged with operating a $15 million Ponzi scheme. It is alleged that more than 50 investors lost money in what was a highly speculative futures and commodities trading scheme where investors were guaranteed a high rate of return.
China
Authorities arrested 35 suspects in a sting operation to shut down a fraud ring at the same time that authorities in Taiwan arrested 89 suspects for running a Ponzi scheme that defrauded about 1,000 investors. Authorities believe that more than NT$100 million was involved in the scheme in which investors and put their money in a “capital investment project” in Nanning, Guangxi province.
Shanghai FanXin Insurance Agency was accused of running a Ponzi scheme. Chen Yi, the general manager of Shanghai FanXin, who has fled with 500 million yuan ($81.6 million) was arrested in Fiji and taken back to China. The Shanghai branch of the China Insurance Regulatory Commission said that the company was selling unauthorized fixed-income financial agreements. The company employs about 800 brokers, and most of the customers of Shangia FanXin had bought insurance products of Happy Life Insurance and Kunlun Health Insurance through the agency. Happy Life has said that it was not aware that Shanghai FanXin was using their policies to sell wealth management products to its customers.
India
The assets of a more than $4 million Ponzi scheme run under the name Ek-ka-Teen, and its principal, Ashkok Jerambhai Jadeja, were frozen by Indian authorities. Jadeja told investors that a Hindu goddess, Vahnavati Sikotar Mata, had given him powers to triple their money in 3 days. As the numbers of investors grew, so did the number of days in which their money would grow. Jadeja raised Rs 25,25,68,000 and purchased gold and silver ornaments, vehicles and properties, and he stashed money in bank accounts in his name and in his family members’ names.
Manorama Haldar, 32, an agent of the Ponzi scheme Basil International Limited, hung herself, unable to bear the pressure from investors. Haldar had brought investors into the scheme, which promised redeemable shares with returns of 11% to 14%. The company had raised about $15 million, but has been barred from raising any money from the public.
New Zealand
David Ross, 63, pleaded guilty to running a $384.8 million Ponzi scheme through Ross Asset Management, which defrauded about 1,200 investors. Ross had been charged with providing a financial service when he was not registered to do so, making false or misleading statements to get authorization as a financial advisor, and supplying information to the authority that he knew to be false or misleading. He promised investors returns of up to about 40%
South Africa
The South Africa Reserve Bank appointed investigators to inspect Zantech Trading, an alleged Ponzi scheme promising returns of 25% per month. The scheme’s mastermind, Ntokozo Mayisela, had previously been arrested on charges of fraud related to his involvement with Larjent, a scheme that offered investors 30% monthly returns.
Thailand
Wachira Poonperm and Pimolpan Poonperm were arrested for conspiring to defraud 12 people out of 100 million baht. The couple convinced victims to invest in businesses including a book store a CD shop and a car service garage and promised returns of 10% per month.
United Kingdom
The assets of convicted Ponzi-schemer, Kankamol Albon, went up for sale. Albon was sentenced to 6 years in prison last year after she was convicted of running a £ 7.5 million scam that involved luxury cars including Ferraris, Bentleys, Bugattis and Maseratis.
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
Two Oregon banks, Umpqua Holdings and Pacific Continental, were sued by victims of an alleged Ponzi scheme run through Berjac of Oregon and Berjac of Portland. The investors claim that the banks helped perpetuate the Ponzi scheme by making loans to Berjac and involving other parties despite knowledge that the company was involved in speculative real estate investments and using investors’ money to pay back banks and other investors.
A court ruled that the SEC could pursue its Ponzi scheme case against Bitcoin Savings & Trust, run by Trendon Shavers. Shavers had claimed that the SEC had no jurisdiction since transactions regulated by the SEC must involve “an investment of money” — and the investors paid in Bitcoin instead. The court found that Bitcoin can be used as money and exchanged for conventional currencies so, therefore, “Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.”
The Senate Homeland Security and Government Affairs Committee sent letters to several federal agencies requesting that they disclose their virtual currency policies in light of the recent disclosure of the alleged Bitcoin Ponzi scheme. The committee is asking how such policies are developed and how agencies are coordinating, and what they plan to do going forward. The committee is prepared to scrutinize the four year old, $1.2 billion Bitcoin marketplace, which is a tempting locale for money laundering and tax evasion. New York Financial Services also sent subpoenas to 22 Bitcoin businesses and is considering whether to issue new regulatory guidelines for virtual currencies rather than applying existing rules for money transmission.
The Trustee of Bernard Madoff’s Ponzi scheme reached a $97.8 million settlement with Maxam Absolute Return Fund. Maxam agreed to return $97.8 million that the fund had withdrawn from Madoff’s firm and was allowed a claim of about $276.7 million against the estate in exchange.
Comstock Township, Michigan, has agreed to pay back another $190,000 to the bankruptcy trustee in the Ponzi scheme case of Dante DeMiro. Comstock Township had received over $1 million from DeMiro in connection with its &1.75 million investment with DeMiro and his company MuniVest Financial Group, and the trustee sought the return of that money. Comstock Township has already paid by $500,000, but will retain its right to participate in later distributions from the bankruptcy case to creditors.
One of the victims of the Marc Dreier Ponzi scheme will receive pieces of Dreier’s art collection. The victim had obtained a security interest in the art collection, which was valued at over $30 million, to secure payment to the victim on promissory notes that had a face value of more than $110 million. A district court agreed that the victim, Heathfield Capital Ltd., could get the art, but that the creditor will pay $1.65 million, which was a fee due to Dreier, to the estate that will go to Dreier’s other victims.
Investor Robert Melkesian was awarded $132,000 by a FINRA arbitration panel against his financial adviser at Raymond James in connection with the Grifphon Asset Management hedge fund. The founder of the scheme, Yusaf Jawed, pleaded guilty in April to charges stemming from the scheme. Melkesian’s lawyer said, “I think the key to the case was a failure of supervision,” and “Brokerage firms have an obligation to supervise their financial advisers, and if they fail to do so, there is usually a strong case to be made that they are responsible for the investors losses, even if the brokerage did not even know that the sales had occurred.”
About 50 investors have joined in a lawsuit against Sasquatch Capital Management seeking to recover $32 million in investments made in the company run by Lyman Bruhn and Yusaf Jawed. Bruhn founded Sasquatch in the late 1990s as a hedge fund trading in public securities. The SEC charged him with running a Ponzi scheme and reached a settlement with Bruhn barring him from working as a financial adviser. Jawed ran a scheme through Grifphon Asset Management and Gifphon Holdings, pleaded guilty in April and is awaiting sentencing.
A Washington appellate court overturned a lower court’s order dismissing the claims of an investor against Tremont Group Holdings for negligent misrepresentation. FutureSelect Portfolio Management claims that it lost $195 million in the Bernard Madoff Ponzi scheme. Tremont previously settled a lawsuit with the Madoff trustee for $1 billion, but FutureSelect opted out of that settlement.
The owners of the Bernie Madoff New York penthouse that they purchased for $8 million in 2010 put it on the market for $17.25 million. Madoff had bought the penthouse in 1984 and lived there under house arrest until he was sentenced to 150 years in prison in 2009.
A court has found that Management Solutions Inc. was not a Ponzi scheme as it has historically been defined, even though the real estate investment company may have engaged in some illegal transactions. The court declined to apply the Ponzi scheme presumption to all transactions, finding that the irregularities need to be dealt with “transaction by transaction.” SEC v. Management Solutions, 2013 U.S. Dist. LEXIS 120277 (D. Utah Aug. 22, 2013).
In the Medical Capital Holdings Inc. case, a court denied a good faith determination request in connection with a $105 million settlement with Wells Fargo Bank NA, declining to shield Wells Fargo from future claims over its alleged role in the $1 billion Ponzi scheme.
A bankruptcy court dismissed a lawsuit against Moss Adams filed by the trustee of the Meridian Mortgage Ponzi scheme, which sought as much as $150 million from the accounting firm relating to its audits of Meridian Mortgage. The court ruled that the case properly belongs in state court and not in the bankruptcy court. Moss Adams had audited about 10 Meridian Mortgage funds, which were created by Frederick Darren Berg, and also prepared Berg’s personal taxes. Berg pleaded guilty in 2011 to defrauding investors of more than $100 million and was sentenced to 18 years.
The former lawyer of Thomas Petters has filed papers seeking permission to question witnesses and present evidence at a hearing in which Petters is asking for a shorter prison sentence based on his accusations that his former lawyer, Jon Hopeman, supposedly did not advise him of a proposed 30 year prison sentence in connection with a plea deal.
The lawsuit against General Electric Capital Corp. brought by the liquidator of Palm Beach Finance Partners LP in the Thomas Petters case was allowed to move forward. The court dismissed 8 of 9 claims, but kept alive the claim for civil conspiracy to commit fraud. The plaintiff is seeking to recover losses of $1.1 billion in losses and over three times that in damages.
A court dismissed a claim of negligence against the SEC in connection with its conduct in connection with its investigation of Allen Stanford. Zelaya v. U.S., 2013 U.S. Dist. LEXIS 113369 (S.D. Fla. Aug. 12, 2013). Carlos Zelaya and George Glantz, said they lost a combined $1.65 million with Stanford, and sought class-action status on behalf of investors who were victims of his fraud. They claimed that the SEC considered Stanford’s business a fraud after 4 separate examinations but failed to advise the Securities Investor Protection Corp. The court had previously allowed the case to proceed for consideration of the issue of whether the SEC had breached a duty to report Stanford’s misconduct, but now dismissed the case, finding that the Federal Tort Claims Act exception barring claims of misrepresentation deprived him of jurisdiction.
Principal Financial Group Inc. agreed to pay $3.2 million to settle a class action that alleged that Principal Financial had let is retirement account holders invest in a Ponzi scheme run by Westgate Management LLC. The proposed settlement will pay back the retirees 5.5% of their estimated losses from the scheme.
August was another busy month for Ponzi scheme news. 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.
Suzette Anguay, 50, pleaded guilty to charges in connection with an $800,000 Ponzi scheme and then was taken away from court in an ambulance on what was later described as a minor medical emergency. Anguay promised about 15 investors 15% to 30% per year on their investments, but instead of investing their money, she spent it on personal credit card payments, expenses and travel.
Lloyd Barriger pleaded guilty to charges relating to his $50 million Ponzi scheme run through the Gaffken & Barriger fund. Barriger promised investors 8% annual dividends, promising to invest their funds in real estate investments.
Donna Bello, 55, and Jill Platt pleaded not guilty during their arraignments on charges that they ran an illegal gifting club Ponzi scheme that defrauded participants out of more than $1 million. The scheme looked like a pyramid scheme, with four levels: "Appetizers," "Soup and Salads," "Entrees" and "Dessert." New members would contribute $5,000 to join at the “appetizer” level. The proceeds were referred to as “green beans.” Members were promised large tax-free financial gains, with some promised returns of $80,000 in one year on the $5,000 investment.
John Bertuca was sentenced in connection with a $46.5 million Ponzi scheme. Bertuca pleaded guilty and as part of his plea agreed to testify against David Wilson McQueen and Trend Edward Francke, who were also tied to the case. Bertuca will serve one year on supervised release and pay $115,000 in restitution.
Russell Samuel Biszantz, 43, pleaded guilty to his involvement in a Ponzi-like scheme that defrauded-investors of more than $2.44 million. Biszantz admitted that he knowingly operated an unlicensed escrow company that diverted bank loans for customers to pay his own company expenses.
Daniel Bonventre, Annette Bongiorno, Joann Crupi, Jerome O’Hara and George Perez, each former employees of Bernard Madoff, sought a two-month postponement of their trial on charges relating to assisting Madoff’s Ponzi scheme. Perez’s lawyer said that a revised indictment “contains a wholesale re-writing” of the previous one and includes additional allegations.
Brian R. Callahan, 43, and Adam J. Manson, 41, were arrested in New York and charged with running a $100 million Ponzi scheme that allegedly defrauded 40 investors. The investors were told that their money would be invested in mutual funds, hedge funds and other securities. About $118 million was raised, and investors were provided with account statements showing growth in the funds. Instead funds were spent on a beachfront resort and development, to buy expensive cars and homes and to pay returns to investors. Callahan, Manson and Callahan’s wife, Sheri Manson Callahan, were named in a 2012 SEC complaint related to the same scheme.
John Cameron, 48, was arrested on charges that he was running a Ponzi scheme by trading securities without a license and operating as a securities dealer without a license.
Razel Canedo, 44, was sentenced to 24 months in jail and 3 years of supervised release thereafter and ordered to pay $949,200 of restitution following a plea bargain. Canedo admitted that she was trying to set up and run a supposed “nanny service and nursing agency business” that would help bring Filipino nurses from the Philippines to work in the US. Canedo promised investors a return of up to 50%.
Fred David Clark Jr. and his wife, Cristal R. Coleman, are the subject of an amended complaint filed by the SEC in connection with an alleged $300 million Ponzi scheme based in Florida. The SEC accused Clark and Coleman of raising about $300 million from about 1,400 investors for the Cay Clubs Resorts and Marinas, which was marketed as a resort development, but which the SEC claims is a Ponzi scheme. The amended complaint also accuses Clark, Coleman and others of misappropriating more than $33 million as exorbitant salaries and commissions or to pay personal expenses.
Clayton Cohn and his company Marketaction Capital Management were the subject of an SEC motion accusing them of operating a Ponzi scheme. Clayton targeted fellow veterans, family members and friends, and directed him to his hedge fund using a fake charity that he operated called Veteran’s Financial Education Network. Cohn raised $1.78 million from 24 investors promising returns from his “multi-strategy hedge fund.” He had advised investors that the funds regularly audited by a reputable outside accounting firm, but neither Cohn nor his companies had retained the firm, and the firm advised it was unfamiliar with the defendants.
Anthony Davian and his company Davian Letter/Davian Capital Advisors have been charged by the SEC of operating a Ponzi scheme. Davian promoted his pump and dump day trading business in Twitter using the handle @hedgieguy.
Jim Donnan defeated claims brought by a creditor for nondischargeability in which the creditor sought to bar discharge of its claims on the grounds that the claim was incurred as a result of false pretenses, false representation or actual fraud (11 U.S.C. § 523(a)(2)(A)), embezzlement (§ 523(a)(4)) and willful and malicious injury § 523(a)(6)). Fennell v. Donnan, 2013 Bankr. LEXIS 3110 (Bankr. M.D. Ga. August 1, 2013). The court found that Donnan did not knowingly participate in the Global Liquidation Company Ponzi scheme. The court stated that “Plaintiff has not cited, nor has this Court found, any case where a court has held that proof of the existence of a Ponzi scheme is sufficient to supply the required fraudulent intent under section 523(a)(2)(A) where the debtor has not admitted, or been found by the court, to have knowingly participated in the scheme.” Donnan has already been indicted on charges related to the Global Liquidation scheme.
Mark Feathers was finally hit with a ruling that he has been battling for about a year. The court found that Feathers and his company, Small Business Capital Corp., had violated federal securities and exchange laws. In the scheme, about 400 investors lost about 25% of the $42 million that they had invested, and that Feathers had been “Ponzi-like payments.” SEC v. Small Bus. Capital Corp., 2013 U.S. Dist. LEXIS 116607 (N.D. Cal. Aug. 16, 2013).
Edward Lincoln Forehand, 68, of Alabama, was sentenced to 90 months in prison for his participation in a $3 million Ponzi scheme that defrauded 87 investors. Forehand used the business name “USA Marketing” and promised investors returns up to 700% on their investments with Elite Marketing, a company run by Vicky Yeager who sold cookware to colleges and universities.
Glen Galemmo of Ohio is being investigated by the IRS and is the subject of a civil forfeiture action in connection with his alleged $300 million Ponzi scheme run through Queen City Investments that defrauded about 165 investors. Galemmo promised returns of 432% in connection with what he represented was a hedge fund. It is alleged that Galemmo, along with his wife and business partner, Edward Blackledge, used investors’ money for their personal needs. Galemmo is also the subject of a criminal investigation along with multiple civil lawsuits. The government is attempting to seize his home, a condominium in Florida, five cars and a bank account.
Stephen K. Gilley lost his attempt to have his disgorgement judgment of almost $2 million owed to the SEC in connection with his Ponzi scheme discharged in his subsequent bankruptcy case. The SEC had obtained a judgment against Gilley in 2006, which Gilley sought to discharge in a Chapter 7 bankruptcy case filed in 2012. The bankruptcy court found that the debt was excepted from discharge under 11 U.S.C. § 523(a)(19).
Keelan Harris, 37, and Karen Starr were charged in connection with a $15.8 million Ponzi scheme that defrauded 408 investors. Harris’ brother, Kevin Harris, was sentenced in 2012 to 7 years and 3 months after he pleaded guilty to the same charges that have now been made against his brother. Karen Starr remains at large. The scheme was operated through Complete Developments LLC and Investments International and investors were promised rates of return of 7% to 12% per month and were told that 80% of their principal investment would be secure. Instead of investing the money in commercial real estate, bonds or foreign currency as promised, they purchased a vehicle and money was transferred to overseas bank accounts in Columbia, Panama and the United Arab Emirates.
Steven B. Heinz, 56, of New York, was accused of running a $4 million Ponzi scheme through his investment firm, S.B. Heinz & Associates, Inc., to get “loans” that he said would be put into a trading program. Heinz took money from about 15 investors and promised them tax free returns of 6% to 120% annually. Heinz used most of the money to support his lavish lifestyle. The SEC obtained a temporary restraining order and an order to freeze the assets of Heinz and his company.
Douglas Hollingsworth, 64, was sentenced to 5 years and ordered to pay $4.9 million in restitution for his role in a $7 million Ponzi scheme. Hollingsworth defrauded about 12 investors by telling them he had developed a sophisticated computer system that allowed him to identify market trends and generate substantial profits from trading activity. He operated his scheme through Baytree Investors, LLC and Capsule Partners LLC, promising investors monthly returns of 6%. Hollingsworth used investor funds to make payments to investors and to fund his lavish lifestyle, including purchase of fine jewelry, at least $14,000 in Best Buy purchases, and over $20,000 in dental care.
Terry Jones was indicted for tipping off Ponzi schemer John F. Holtsinger that a federal grand jury had indicted Holtsinger on charges related to a $1.1 million Ponzi scheme. Holtsinger later pleaded guilty and received a 7 year sentence. Following the grand jury proceedings, Jones had a chance meeting at Costco with one of the witnesses from the grand jury proceeding and advised the witness of the indictment while it was still sealed. The witness notified Holtsinger who fortunately did not make any attempt to flee.
Christina M. Kitterman and Douglas L. Bates were arrested by IRS agent in connection with the Scott Rothstein Ponzi scheme. Kitterman and Bates are both attorneys in Florida who were identified by Rothstein in a deposition as having assisted in parts of his fraud. Kitterman, who formerly worked at Rothstein’s firm, Rothstein Rosenfelt Adler, is alleged to have impersonated an official of the Florida Bar during discussions with an investor in Rothstein’s scheme. Rothstein testified that Bates agreed to sign his name to a letter threatening a discrimination action against a company Rothstein represented in order to inflate his legal bills.
Rick Koerber won a favorable ruling from the court in his criminal trial when the Court prohibited prosecutors from using as evidence certain interviews that Keorber had given to investigators before his indictment on charges relating to an alleged $100 million Ponzi scheme. The prosecutors had not attempted to contact lawyers who had represented Koerber in the past and the court noted that he felt that they did not do so because they would have been likely told there would be no interviews. “[T]he way it was approached at least allows an inference that they didn’t want to get that response, they wanted to be coy and say, can we justify saying that he’s not represented so we can interview him."
John Marcum, 49, of Indiana, was charged by the SEC with running a $6 million day-trading Ponzi scheme through Guaranty Reserves Trust LLC that defrauded at least 37 people into investing in promissory notes that promised double-digit annual returns with no risk. Marcum targeted investors with retirement funds and told some investors that he was waiting for a two year suicide clause to take effect and that after the two year waiting period he would kill himself to assure that investors were repaid. Marcum used the investors’ funds on personal expenses such as travel, luxury car payments, and to finance start-up businesses such as a bridal store, a bounty hunter reality television show and a soul food restaurant.
Timothy McCabe, 55, is the subject of a lawsuit filed against him along with TD Bank N.A. in connection with an alleged $1.2 million Ponzi scheme. McCabe was a partner in the law firm, McCabe and Samiljan, that advertised itself as a real estate and foreclosure defense law firm. McCabe was also the managing member of City Title LLC, and allegedly used his position at City Title and as a signatory on the law firm account located at TD Bank to commingle incoming funds. The complaint alleges RICO charges against McCabe and others, and also alleges that TD bank failed to exercise proper supervision of the trust account by allowing him to improperly deposit checks into the account that were payable to other people.
Greg McKnight, 53, of Michigan was sentenced to more than 15 years in prison and ordered to pay almost $49 million in restitution for his role in a Ponzi scheme that took in $72 million and has left investors out more than $45 million. The scheme involved 3,000 investors in all 50 states and 33 countries, and he had promised investors “outlandishly high interest rates” of at least 15% per month through his company, Legisi Holdings LLC. McKnight used $2.2 million of the funds for his own use. McKnight’s associate, Matthew J. Gagnon, was previously sentenced to 5 years in prison for his role in promoting Legisi. McKnight lost $3 million in trading losses and spent more than $2 million for personal expenses.
Robert Medhus was sentenced to 10 years in prison for his Ponzi scheme in which it stole $900,000 from 19 clients. Medhus had pleaded guilty to charges of fraudulent practices and offering to sell unregistered securities. Medhus’s attorney had asked for a reduced sentence to allow Medhus to repay some of the $900,000, but the court denied the request, noting that Medhus had not paid back one dollar since being charged. The court also sentenced Medhus to two more years in prison than the prosecution had requested.
Brian William McKye, 49, of Oklahoma, had his conviction overturned and 21 year prison sentence reversed by the Tenth Circuit. The court ruled that his conviction on charges related to running a $4.5 million Ponzi scheme that defrauded 115 investors could not stand because the lower court had improperly instructed jurors on what proof was required to convict him. McKye had run an investment business through Global West and had promised investors monthly returns of up to 19%. The lower court had refused a request of McKye’s lawyer to instruct the jury that they could decide whether the investment notes were securities and instead instructed the jurors that the term “security” includes a note. U.S. v. McKye, 2013 U.S. App. LEXIS 17297 (10th Cir. 2013).
Wayne Ogden, 49, of Utah, 3-time Ponzi schemer, was sentenced to 10 years in prison in connection with charges relating to a $4.8 million Ponzi scheme. While Ogden was awaiting trial on those charges, he was indicted in 2011 on charges relating to a $3.5 million Ponzi scheme. Ogden had previously been indicated for running a Ponzi scheme through his company, Paradigm Acceptance LLC, where he raised $29 million from investors and promised returns of 20% to 100%.
Gurudeo “Buddy” Persaud, 47, who pleaded guilty to charges that he was running a Ponzi scheme, was sentenced to 3 years in prison and ordered to pay about $1 million in restitution. Persaud had been indicted on charges relating to his Ponzi scheme run though his private equity firm, White Elephant Trading Company LLC, that 14 investors out of about $1 million. Persaud had promised investors between 6% and 18% returns, but lost money in the stock market when he used astrology and lunar cycles to make trade decisions. Persaud had neglected to mention to his investors that his trading strategy was based on lunar cycles and the gravitational pull between the moon and the Earth, which he believed affects human behavior. Persaud believed that when the moon is positioned in a manner that exerts a greater gravitational pull on human beings, they feel down and are therefore more inclined to sell securities in the markets.
Martin A. Pool of Georgia agreed to a settlement with the SEC over charges that he and his partner, Armand R. Franquelin, ran a $12 million Ponzi scheme through their company, Elva Group, that defrauded about 130 investors. They had promised investors that their money would be used to buy and develop real estate but instead, the money went to pay other investors and for personal expenses of Pool and Franquelin. Pool agreed to a settlement in which he is prohibited from further violations of federal securities laws and will have a penalty of about $1.4 million stayed unless he violates the agreement.
Curtis Wayne Ross of Hawaii was indicted in connection with a $167,000 scheme in which he promised investors returns of between 17% and 400% by telling them that he would invest in international gold and diamond transactions and a waste-to-energy company.
Bradley Schiller, 37, has been accused of running a $10 million commodities trading Ponzi scheme. Schiller used the investors’ money to pay for his personal expenses, including a Range Rover, jewelry, country club fees, and housing rental fees for his mother-in-law, and also to make Ponzi-like payments to victims. It is alleged that Schiller created and distributed phony documentation, including fictitious commodities brokerage and bank account statements, false financial statements and false tax forms.
Yaman Sencan and Stephen Merry pleaded not guilty to charges that they had run a $5 million Ponzi scheme. One of the companies used for the scheme was Ramco and Associates. The men had promised investors returns to be generated by taking advantage of temporary price differences between different stock markets using a computer algorithm. They promised profits from the quick buying and selling of stocks and the volume of trades, sometimes thousands of times per day. David Petersen and Timothy Durkin have also been charged in connection with the scheme.
Michael Shapira, 48, who had previously pleaded guilty to charges related to a $2 million Ponzi-scheme run through Keywest Leasing, defrauding 11 investors, avoided a 2-year prison sentence. Instead, Shapira was sentenced to a conditional sentenced to be served at his home under an absolute curfew under the rationale that the best way to punish Shapira is to let him work and pay back the money he stole. Shapira’s clients were told their money would be used to fund leases of used medical equipment that would then be leased again to medical organizations and government agencies. They were promised returns in the range of 20-30%.
Feisal Sharif, 43 pleaded guilty to charges relating to a $3.6 million Ponzi scheme that he ran through First Financial LLC. The scheme defrauded more than 50 investors in what Sharif said was a commodity pool to profit from trading in commodity futures.
Joseph Angelo Sivigliano had his appeal of his conviction arising from his operation of a Ponzi scheme denied. U.S. v. Sivigliano, 2013 U.S. App. LEXIS 15962 (10th Cir. Aug. 2, 2013). Sivigliano had operated his real estate flipping scheme through Helping Hearts and Hands, Inc., promising returns from the purchase of foreclosed properties in Oklahoma City that would be sold at a profit.
David Smith, 67, and Timothy McGinn, 64, of New York, were sentenced to 10 and 15 years, respectively, for their role in a $4 million Ponzi scheme that they had run through their securities firm. They were both ordered to pay about $6 million in restitution.
Ralph John Solis, 56, was sentenced to 15 years and ordered to pay $12.6 million in restitution in connection with a $12 million real estate Ponzi scheme to which he had previously pleaded guilty. Solis had sold forged first and second trust deeds to about 50 investors. Solis created fictitious deeds of trust by finding mortgages held by non-traditional lenders and private parties and obtaining copies of the documents and putting his name on them as the beneficiary. The fake deeds were then bundled and sold directly or through third parties.
John David Stroud of Alabama pleaded guilty to charges relating to a $5.2 million Ponzi scheme. Stroud ran a Ponzi scheme through TS Capital Partners. Stroud was the hedge-fund partner of college football coach Tommy Tuberville, who was sued by investors but not charged criminally.
George Louis Theodule, 53, of Florida, was indicted on charges relating to an alleged $30 million Ponzi scheme that defrauded fellow Haitians. Theodule ran his scheme through Creative Capital Concept, LLC and Creative Capital Consortium LLC and promised to double investors’ money in 30 to 90 days through “investment clubs." He claimed to have 17 years of successful stock trading experience but instead of investing, spent the money on expensive cars, motorcycles, jewelry, and trips to Las Vegas.
David R. Wulf, 60, was convicted on charges relating to the National Prearranged Services Inc. funeral Ponzi scheme. The scheme involved more than $150 million paid from customers supposedly purchasing prearranged funeral services.
Bernerd Young, Daniel Bogar, and Jason Green, each a former executive of Allen Stanford’s enterprise, were found liable for fraud and banned from the securities industry. They were each ordered to pay $260,000 in fines and forfeit ill-gotten profits. Young, a former regulator with what is now FINRA, said that he had taken due diligence steps in reviewing quarterly financial statements and reading annual reports about the bank, but that Antiguan privacy laws kept him from seeing more details about the investment portfolio.
INTERNATIONAL PONZI SCHEME NEWS
Australia
Ronald Morris Coles pleaded guilty to charges relating to a $6 million Ponzi-like scheme involving artwork. Coles had agreed to buy, sell and manage valuable works by famous Australian arts. Coles had been convicted of using a single painting as surety for multiple loans and selling single works several times over.
Canada
Robert Sellers, 76, was sentenced to 4 years in prison and ordered to pay $10 million in restitution after pleading guilty to charges in connection with a $27 million Ponzi scheme that promised returns of 15% to 18% to about 359 investors. Sellars told investors their money was going into ventures such as gold mining in Montana and European money markets, and many were told that their investments were guaranteed and insured.
Kevin Zietsoff, 41, has been charged with operating a $15 million Ponzi scheme. It is alleged that more than 50 investors lost money in what was a highly speculative futures and commodities trading scheme where investors were guaranteed a high rate of return.
China
Authorities arrested 35 suspects in a sting operation to shut down a fraud ring at the same time that authorities in Taiwan arrested 89 suspects for running a Ponzi scheme that defrauded about 1,000 investors. Authorities believe that more than NT$100 million was involved in the scheme in which investors and put their money in a “capital investment project” in Nanning, Guangxi province.
Shanghai FanXin Insurance Agency was accused of running a Ponzi scheme. Chen Yi, the general manager of Shanghai FanXin, who has fled with 500 million yuan ($81.6 million) was arrested in Fiji and taken back to China. The Shanghai branch of the China Insurance Regulatory Commission said that the company was selling unauthorized fixed-income financial agreements. The company employs about 800 brokers, and most of the customers of Shangia FanXin had bought insurance products of Happy Life Insurance and Kunlun Health Insurance through the agency. Happy Life has said that it was not aware that Shanghai FanXin was using their policies to sell wealth management products to its customers.
India
The assets of a more than $4 million Ponzi scheme run under the name Ek-ka-Teen, and its principal, Ashkok Jerambhai Jadeja, were frozen by Indian authorities. Jadeja told investors that a Hindu goddess, Vahnavati Sikotar Mata, had given him powers to triple their money in 3 days. As the numbers of investors grew, so did the number of days in which their money would grow. Jadeja raised Rs 25,25,68,000 and purchased gold and silver ornaments, vehicles and properties, and he stashed money in bank accounts in his name and in his family members’ names.
Manorama Haldar, 32, an agent of the Ponzi scheme Basil International Limited, hung herself, unable to bear the pressure from investors. Haldar had brought investors into the scheme, which promised redeemable shares with returns of 11% to 14%. The company had raised about $15 million, but has been barred from raising any money from the public.
New Zealand
David Ross, 63, pleaded guilty to running a $384.8 million Ponzi scheme through Ross Asset Management, which defrauded about 1,200 investors. Ross had been charged with providing a financial service when he was not registered to do so, making false or misleading statements to get authorization as a financial advisor, and supplying information to the authority that he knew to be false or misleading. He promised investors returns of up to about 40%
South Africa
The South Africa Reserve Bank appointed investigators to inspect Zantech Trading, an alleged Ponzi scheme promising returns of 25% per month. The scheme’s mastermind, Ntokozo Mayisela, had previously been arrested on charges of fraud related to his involvement with Larjent, a scheme that offered investors 30% monthly returns.
Thailand
Wachira Poonperm and Pimolpan Poonperm were arrested for conspiring to defraud 12 people out of 100 million baht. The couple convinced victims to invest in businesses including a book store a CD shop and a car service garage and promised returns of 10% per month.
United Kingdom
The assets of convicted Ponzi-schemer, Kankamol Albon, went up for sale. Albon was sentenced to 6 years in prison last year after she was convicted of running a £ 7.5 million scam that involved luxury cars including Ferraris, Bentleys, Bugattis and Maseratis.
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
Two Oregon banks, Umpqua Holdings and Pacific Continental, were sued by victims of an alleged Ponzi scheme run through Berjac of Oregon and Berjac of Portland. The investors claim that the banks helped perpetuate the Ponzi scheme by making loans to Berjac and involving other parties despite knowledge that the company was involved in speculative real estate investments and using investors’ money to pay back banks and other investors.
A court ruled that the SEC could pursue its Ponzi scheme case against Bitcoin Savings & Trust, run by Trendon Shavers. Shavers had claimed that the SEC had no jurisdiction since transactions regulated by the SEC must involve “an investment of money” — and the investors paid in Bitcoin instead. The court found that Bitcoin can be used as money and exchanged for conventional currencies so, therefore, “Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.”
The Senate Homeland Security and Government Affairs Committee sent letters to several federal agencies requesting that they disclose their virtual currency policies in light of the recent disclosure of the alleged Bitcoin Ponzi scheme. The committee is asking how such policies are developed and how agencies are coordinating, and what they plan to do going forward. The committee is prepared to scrutinize the four year old, $1.2 billion Bitcoin marketplace, which is a tempting locale for money laundering and tax evasion. New York Financial Services also sent subpoenas to 22 Bitcoin businesses and is considering whether to issue new regulatory guidelines for virtual currencies rather than applying existing rules for money transmission.
The Trustee of Bernard Madoff’s Ponzi scheme reached a $97.8 million settlement with Maxam Absolute Return Fund. Maxam agreed to return $97.8 million that the fund had withdrawn from Madoff’s firm and was allowed a claim of about $276.7 million against the estate in exchange.
Comstock Township, Michigan, has agreed to pay back another $190,000 to the bankruptcy trustee in the Ponzi scheme case of Dante DeMiro. Comstock Township had received over $1 million from DeMiro in connection with its &1.75 million investment with DeMiro and his company MuniVest Financial Group, and the trustee sought the return of that money. Comstock Township has already paid by $500,000, but will retain its right to participate in later distributions from the bankruptcy case to creditors.
One of the victims of the Marc Dreier Ponzi scheme will receive pieces of Dreier’s art collection. The victim had obtained a security interest in the art collection, which was valued at over $30 million, to secure payment to the victim on promissory notes that had a face value of more than $110 million. A district court agreed that the victim, Heathfield Capital Ltd., could get the art, but that the creditor will pay $1.65 million, which was a fee due to Dreier, to the estate that will go to Dreier’s other victims.
Investor Robert Melkesian was awarded $132,000 by a FINRA arbitration panel against his financial adviser at Raymond James in connection with the Grifphon Asset Management hedge fund. The founder of the scheme, Yusaf Jawed, pleaded guilty in April to charges stemming from the scheme. Melkesian’s lawyer said, “I think the key to the case was a failure of supervision,” and “Brokerage firms have an obligation to supervise their financial advisers, and if they fail to do so, there is usually a strong case to be made that they are responsible for the investors losses, even if the brokerage did not even know that the sales had occurred.”
About 50 investors have joined in a lawsuit against Sasquatch Capital Management seeking to recover $32 million in investments made in the company run by Lyman Bruhn and Yusaf Jawed. Bruhn founded Sasquatch in the late 1990s as a hedge fund trading in public securities. The SEC charged him with running a Ponzi scheme and reached a settlement with Bruhn barring him from working as a financial adviser. Jawed ran a scheme through Grifphon Asset Management and Gifphon Holdings, pleaded guilty in April and is awaiting sentencing.
A Washington appellate court overturned a lower court’s order dismissing the claims of an investor against Tremont Group Holdings for negligent misrepresentation. FutureSelect Portfolio Management claims that it lost $195 million in the Bernard Madoff Ponzi scheme. Tremont previously settled a lawsuit with the Madoff trustee for $1 billion, but FutureSelect opted out of that settlement.
The owners of the Bernie Madoff New York penthouse that they purchased for $8 million in 2010 put it on the market for $17.25 million. Madoff had bought the penthouse in 1984 and lived there under house arrest until he was sentenced to 150 years in prison in 2009.
A court has found that Management Solutions Inc. was not a Ponzi scheme as it has historically been defined, even though the real estate investment company may have engaged in some illegal transactions. The court declined to apply the Ponzi scheme presumption to all transactions, finding that the irregularities need to be dealt with “transaction by transaction.” SEC v. Management Solutions, 2013 U.S. Dist. LEXIS 120277 (D. Utah Aug. 22, 2013).
In the Medical Capital Holdings Inc. case, a court denied a good faith determination request in connection with a $105 million settlement with Wells Fargo Bank NA, declining to shield Wells Fargo from future claims over its alleged role in the $1 billion Ponzi scheme.
A bankruptcy court dismissed a lawsuit against Moss Adams filed by the trustee of the Meridian Mortgage Ponzi scheme, which sought as much as $150 million from the accounting firm relating to its audits of Meridian Mortgage. The court ruled that the case properly belongs in state court and not in the bankruptcy court. Moss Adams had audited about 10 Meridian Mortgage funds, which were created by Frederick Darren Berg, and also prepared Berg’s personal taxes. Berg pleaded guilty in 2011 to defrauding investors of more than $100 million and was sentenced to 18 years.
The former lawyer of Thomas Petters has filed papers seeking permission to question witnesses and present evidence at a hearing in which Petters is asking for a shorter prison sentence based on his accusations that his former lawyer, Jon Hopeman, supposedly did not advise him of a proposed 30 year prison sentence in connection with a plea deal.
The lawsuit against General Electric Capital Corp. brought by the liquidator of Palm Beach Finance Partners LP in the Thomas Petters case was allowed to move forward. The court dismissed 8 of 9 claims, but kept alive the claim for civil conspiracy to commit fraud. The plaintiff is seeking to recover losses of $1.1 billion in losses and over three times that in damages.
A court dismissed a claim of negligence against the SEC in connection with its conduct in connection with its investigation of Allen Stanford. Zelaya v. U.S., 2013 U.S. Dist. LEXIS 113369 (S.D. Fla. Aug. 12, 2013). Carlos Zelaya and George Glantz, said they lost a combined $1.65 million with Stanford, and sought class-action status on behalf of investors who were victims of his fraud. They claimed that the SEC considered Stanford’s business a fraud after 4 separate examinations but failed to advise the Securities Investor Protection Corp. The court had previously allowed the case to proceed for consideration of the issue of whether the SEC had breached a duty to report Stanford’s misconduct, but now dismissed the case, finding that the Federal Tort Claims Act exception barring claims of misrepresentation deprived him of jurisdiction.
Principal Financial Group Inc. agreed to pay $3.2 million to settle a class action that alleged that Principal Financial had let is retirement account holders invest in a Ponzi scheme run by Westgate Management LLC. The proposed settlement will pay back the retirees 5.5% of their estimated losses from the scheme.
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