Kathy Bazoian Phelps
Senior Counsel in Ponzi Scheme Litigation
and Bankruptcy Matters

Kathy is a senior business trial attorney with more than 25 years experience prosecuting and defending claims for clients involved in Ponzi scheme matters and in bankruptcy proceedings. Kathy’s practice includes recovering assets for clients in complex fraud cases under standard fee and alternative fee arrangements. Kathy also serves as a mediator in bankruptcy matters, in complex business disputes, and in matters requiring an expert on fraud or Ponzi schemes.

Kathy’s Clients in Ponzi Scheme Cases and Bankruptcy Matters
Equity Receivers
Bankruptcy Trustees
High Net Worth Investors
Debtors in Bankruptcy
Secured and Unsecured Creditors

Friday, August 31, 2018

August 2018 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for August 2018. The reported stories reflect at least 7 new Ponzi schemes worldwide; about 20 years of newly imposed sentences for people involved in Ponzi schemes; 2 guilty pleas or convictions, and an average age of approximately 53 for the alleged Ponzi schemers. Please feel free to post comments about these or other Ponzi schemes that I may have missed. 

Arthur Lamar Adams and Madison Timber Properties LLC were the subject of an SEC complaint accusing them of running a multi-million dollar Ponzi scheme. Adams had previously pleaded guilty to charges brought in Mississippi. Investors were told their money would be used by MT Properties to acquire timber-harvesting rights from landowners. Investors were promised returns of 12% to 15%. More than $100 million was invested by more than 250 investors. Adams’ sentencing in his criminal case has been delayed until October.

Michael D’Alessio, 52, was arrested on charges relating to an alleged Ponzi scheme in New York. Alessio sold investments for real estate projects through his firm, Michael Paul Enterprises. Instead of generating promised returns, however, Alessio use the funds to pay his own debt, to gamble and for other personal expenses.

Jerome H. Cohen, 63, and his son, Shaun D. Cohen, 39, were sued by the SEC in connection with an alleged $135 million Ponzi scheme run through Equitybuild Inc. and Equity Build Finance. The scheme allegedly defrauded about 900 investors and promised returns of 12% to 20% from a real estate scheme that supposedly identified undervalued property. EquityBuild is a Florida corporation with an office in Chicago and solicited funds from investments in Chicago real estate projects. 

John “Jack” William Cranney, 77, of Texas was sentenced to 5 years in prison in Massachusetts and ordered to pay more than $5.5 million in restitution in connection with a $6 million scheme that defrauded 15 investors. Cranney created shell companies and convinced victims to transfer their IRA and 401k retirement funds to him, including Employee Stock Ownership Plan. He spent the money on personal expenses and to prop up his failing nutrition products distributorship.

Randall Alan Finer, 55, pleaded guilty to running a Ponzi scheme in Iowa. Finer raised $887,700 from investors for his day-trading operation but used more than half the money on personal expenses and to pay promised returns to earlier investors.

Gilbert Fluetsch, 52, was barred by the SEC from the securities industry. Fluetsch was the chief operating officer of California-based Hoplon Financial Group and was alleged to have assisted Daniel B. Vazquez Sr., the company’s owner, in creating the New Economic Opportunities Fund I, or NEON. The Fund was to pool investor funds to purchase and flip real estate. They sold membership units in the fund totaling $2.18 million to 27 investors. The funds were misused on unrelated business or personal expenses.

Michael James Frew, 70, was indicted in Nevada on charges that he ran a real-estate related Ponzi scheme. Investors understood that Frew would invest their funds in real estate in the United States and abroad, but Frew instead spent the money on personal expenses, to speculate in the stock market, and to repay earlier victims a portion of their investment.

Evan Greebel, 45, was sentenced to 18 months in prison and ordered to pay $10 million in restitution for his role in the scheme run by Martin “Pharma Bro” Shrekli. Shrekli was previously found guilty of securities fraud for running a Ponzi scheme involving his biotechnology company Retrophin Inc. Greebel was outside counsel for Retrophin and was found guilty of scheming with Shkreli to commit fraud.

Barry M. Kornfeld, Ferne Kornfeld, Lynette M. Robbins, Andrew G. Costa, Albert D. Klager and their companies, including Knowles Systems Inc., were sued by the SEC and accused of selling retail investors more than $243 million in unregistered securities in Woodbridge Group of Companies LLC to more than 1,600 investors. Woodbridge was allegedly running a $1.2 billion Ponzi scheme. Robbins was the highest-earning external agent of Woodbridge, receiving at least $8.1 million in commissions.

Hector May, 77, was accused of running a Ponzi scheme that stole millions of dollars from a company’s pension plans. May was a financial adviser whose advisory firm, Securities America, operated as Executive Compensation Planners.

Edward Lee Moody Jr., 47, and his Virginia-based company, CM Capital Management LLC, were sued by the SEC, claiming that Moody embezzled over $2 million and paid out $1.4 million in a Ponzi-like fashion. 

John K. Moore aka Kevin Moore was found guilty of running a Ponzi scheme in Montana. Moore had been charged with defrauding 36 investors out of $2.7 million through his mining company called Big Sky Mineral Resources and a fine art investment company called Glacier Gala. Moore had previously been convicted in the late 1980s for defrauding a victim out of $75,000 in a gold coin scheme.

Daniel Rivera, 48, was indicted in New Jersey on charges that he ran a scheme through a company called Robbins Lane Properties, Inc. Rivera, a financial advisor, misrepresented that the company employed real estate professionals who would use the investments to fund real estate ventures. The investors were promised monthly returns based on “secure real estate investments in the company’s portfolio.” Rivera spent the money on personal expenses and his child’s tuition and sorority fees.

Brandon Walton Stewart, 33, pleaded guilty to charges that he ran a $13.5 million Ponzi scheme. Stewart was arrested in Dallas and extradited back to Orange County, California. He had promised investors that he would invest their money in stocks such as Facebook, but he instead spent the money on himself.

Cory Ryan Williams, 40, of Arizona, was sentenced to 7 years in prison for running a Ponzi scheme that brought in about $13 million from about 50 victims. Williams promised investors returns of 5% weekly but he lost more than $8 million in trading stock futures. Williams and his company, Williams Advisory Group, were previously charged by the CFTC with running a commodity futures fraud, promising to invest funds using his expertise and based on his supposed profitable past.

INTERNATIONAL PONZI SCHEME NEWS 

Canada

Authorities have alleged that Todd Norman John Bezzasso, Bezzaz Holdings Group Ltd., Nexus Global Trading Ltd., Wei Kai Liao aka Kevin Liao, and Florino Corsi, were running a fraudulent investment scheme. Bezzasso was the sole director and officer of Bezzaz and Nexus, Liao was a finder for Bezzaz, and Corsi was a finder for Bezzaz and Nexus. About $5 million was raised from about 85 investors who were promised monthly returns in various investments. The returns promised ranged from 5% to 30% for periods of one to 6 months.

China

Linlijia Commerce and Trade wound up all of its stores when its sole investor, Shanlin Shanghai Financial Information Service, was busted for running a Ponzi scheme. Shanlin was running a peer-to-peer lending operation and when its accounts were frozen it was no longer able to inject cash into Linlijia’s accounts.

England

Freddy David, 49, was sentenced to 6 years in prison. He admitted to stealing about $19 million from about 55 people in a Ponzi scheme by selling them fake investments through HBFS Financial Services, a wealth management company. David targeted mostly Jewish victims from his synagogue. The rabbi of the congregation apologized for calling David up to read a blessing, not knowing that David had defrauded members of the congregation. David lost much of the money on gambling websites.

India

Ganesh Hazare, the director of Atharva4U Infra and Agro Pvt Ltd., and Shivaji Nikale, the managing director, were arrested in connection with an alleged Ponzi scheme run through the companies. The scheme promised investors that they would double their money in a period of 5 years, triple their money in 7 years, and make 4 times their money in 10 years. 

The Ponzi scheme run through GainBitcoin saw two more suspects arrested. The scheme defrauded victims out of $150 million. The individuals had close ties to Amit Bhardway, the individual who started GainBitcoin.

Divyesh Darji was arrested upon his arrival from Dubai for his role in the Bitconnect scheme. Darji is the Asia head of the scheme which was shut down by regulators in Texas and North Carolina.

Gardas Ramesh and four others were arrested at the premises of GRM Estates on charges that they defrauded over 1,200 investors out of $1.43 million in a Coinx Trading cryptocurrency scheme.

Taiwan

Thirteen executives and employees of Maxim Trader Group were found guilty of defrauding investors out of about $453 million. The firm was supposedly engaged in foreign exchange trading and other investment opportunities and promised investors between 3% and 8% per month, and as much as 98% per year. About 50,000 people from Taiwan, Southeast Asia, Hong Kong, China, Japan, South Korea and Australia invested with the company before it collapsed in 2015. Chang Chin-su, the chief executive, was sentenced to 11 years in prison, and Chia Hsiang-chieh, the chief assistant, was sentenced to 9 years. Chang’s sister, Chang Mu-tan, was sentenced to 5 years. Maxim had claimed that it was an affiliate of Royale Globe Holding, a NASDAQ-listed company. Malaysian authorities earlier this year indicted Andrew Lim Ann Hoe, the chief executive of Maxim Capital, and company executives Chin Ming Kam and Goh Seow Mooi on charges relating to a scheme known as the Maxim Trader Compensation Plan. Malaysian investigators estimated that 50,000 investors around Asia had lost a total of US $5 billion.

Thailand

Officials in Thailand are seeking the extradition of four Singapore citizens believed to be involved in the Eagle Gates Group Ponzi scheme. The scheme has resulted in losses of about $9.8 million and 250 Thai and foreign investors. U.S. national, Derrick Matthew Keller, has been detained as an alleged accomplice and has admitted that he was an actor that was hired by the CEO of Eagle Gates to deceive investors in China, Hong Kong, Macau, Malaysia and Thailand.

Uganda

Charles Nwabuikwu, 44, was arrested on charges that he ran a Ponzi scheme through Development Channel that defrauded Ugandans. The company described itself as “the world’s most comprehensive platform for increasing access to basis development needs between the developed and under developed countries and communities.” 

The Bank of Uganda released a statement cautioning the public against investing in businesses which sound too good to be true. The Bank stated that if a business guarantees high returns with little risks of losing the investment, it is false. 

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

City National Bank agreed to pay $33 million to settle claims that it aided and abetted a Ponzi scheme run by Nationwide Automated Systems Inc. The scheme involved the sale of ATM machines to investors who were promised $.50 from each ATM transaction.

About $16 million is being distributed in the Thomas Petters Ponzi scheme case.  The payments will go to about 360 investors.

Proskauer Rose LLP and the receiver in the R. Allen Stanford $7 billion Ponzi scheme reached a $63 million settlement of claims against the law firm in connection with the scheme. The firm admits no wrongdoing in the settlement.

A putative class of investors settled with United Development Funding IV to resolve claims that the company and covered up its “Ponzi-like” nature.  The settlement is for $13.5 million.

Tuesday, July 31, 2018

July 2018 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for July 2018. The reported stories reflect at least 10 new Ponzi schemes worldwide; over 40 years of newly imposed sentences for people involved in Ponzi schemes; 3 guilty pleas or convictions, and an average age of approximately 53 for the alleged Ponzi schemers. Please feel free to post comments about these or other Ponzi schemes that I may have missed.

Michael R. Casey, 71, faced charges in Texas that he defrauded 700 people through an online commodities business called Commodities Online LLC that allegedly ran a $19 million Ponzi scheme.  Casey had been on the run for 4 years. He had first worked as outside counsel for the business and later became its president. Investors were promised returns of 33% to 35%.

Dillon Dean, 26, was fined $1.9 million for defrauding about 600 investors in a Bitcoin scheme. A court in New York ordered a default judgment against Dean and his company, The Entrepreneurs Headquarters Limited, finding that they engaged in a fraudulent scheme involving Bitcoin. Dean, who has disappeared, claimed that investors could earn returns between 15% and 50%. Starting in August 2017, Dean claimed that his site had been hacked and he stopped paying returns. Meanwhile, Dean started another website called “Real Trade Profits,” which also solicited investments in Bitcoin.

Sergio Delmico and his companies MNV Energy LLC and MNV-K LLC were sued by a group of investors accusing the gas station operators of running a fraudulent scheme. Wellington Siqueira Vilela and Ricardo Botos da Silva Neves were also named in the lawsuit. The defendants are alleged to have been running a Ponzi scheme, which promised investors 1% returns per month from the gas station operations.

Francisco Plascencia Esparza, 46, was sentenced to 6½ years in prison in connection with a $12 million real estate Ponzi scheme. Esparza previously pleaded guilty to the scheme in which he told investors he would be acquiring real estate with their funds. About 70 investors were defrauded in the scheme.

Carolyn Grant, 63, was sentenced to 6½ years in prison in North Carolina and was ordered to pay restitution of $13.5 million for her role in a Ponzi scheme that defrauded more than 65 people out of $13 million.

Bobby Eugene Guess, 66, was sentenced to 12 years in prison for his role in a $6 million Ponzi scheme. The scheme defrauded investors by promising them returns from an internet advertising company. Guess hosted a radio show called “Dollars & Sense” and held investment seminars.

Cameron J. Hager, 42, pleaded guilty to charges in connection with a $4.7 million Ponzi scheme relating to the sale of cattle. The scheme, run in Missouri, defrauded 89 investors through a business called 5A Holdings, LLC. Investors understood that their funds would be used to purchase herds of cattle that Hager said he could sell for substantial profit. Investors were promised returns of 23% to 28%.

Michael Kwasnik, 48, formerly of Kwasnik & Associates, and his father, William Kwasnik, 69, were ordered to pay $36.88 million to the New Jersey Fund for Client Protection and the Pennsylvania Lawyers Fund for Client Security. Both men have been charged with operating a Ponzi scheme and diverting money to their business entities, including Liberty State Financial Holdings Corp., Liberty State Benefits of Delaware, Liberty State Insurance Services, Oxbridge Investors Fund, OPIS Management Fund and Capital Management of Delaware. About $13 million was taken from about 40 clients.

Luxe Vacation Homes and its owner, Justin Steubs, have been accused of running a rental Ponzi scheme, using current rental income to pay off future rentals. The company was an agency that rented out short-term rentals for homeowners in Palm Springs, California. Luxe was taking money from future rentals to pay off current rentals.

Edward Lee Moody, Jr., 47, and CM Capital Management LLC were charged with defrauding 60 investors in a $4.94 million Ponzi scheme in Virginia. The SEC is also seeking disgorgement from G.E. Holdings, a company allegedly controlled by Moody.

Vance Moore II, 64, was arrested in connection with an alleged Ponzi scheme run with co-defendant, Walter Netschi, 62. The scheme involved $80 million in an ATM scam in which investors believed they were buying automated teller machines to be placed in convenience stores, shopping centers, hotels and other locations. Investors believed that Moor and Netschi had 4,000 machines when in reality they only had about 400. Moore’s company, ATM Financial Services, would supposedly process, operate and maintain the machines.

Sergey Pevzner, 38, pleaded guilty to running a Ponzi scheme that involved 8 victims and $180,000.

Steven Pagartanis, 58, was arrested on charges that the he ran a real estate related Ponzi scheme for more than 18 years. The scheme allegedly defrauded at least 17 victims by promising them 4.5% to 8% annually. The victims, mostly elderly women, invested over $13 million and sustained losses of over $8 million. The money was supposed to be invested in Genesis Land Development, a publicly traded company based in Canada, but Pagartanis instead invested the money into a shell company that he controlled called Genesis I Holdings.

Daniel B. Rudden, 71, confessed to running a $55 million Ponzi scheme through his business, Financial Visions. The scheme promised returns of 12% from supposed funeral funding services to more than 600 funeral homes and cemeteries. About 150 investors were defrauded in the scheme. Rudden was subsequently arrested in Colorado. The SEC then froze the assets of a group of companies operating under the Financial Visions name.

Perry C. Santillo Jr., First Nationale Solution LLC, Christopher Parris, Paul Anthony Larocco, John Piccarreto, Thomas Brenner, Percipience Global Corporation, and United RL Capital Services were sued by the SEC and accused of running a Ponzi scheme that defrauded 637 investors. The scheme allegedly defrauded investors by falsely representing that their funds would be invested in in fields such as financial services, insurance, real estate development, and medical laboratories. Some of the assets frozen in connection with the alleged $102 million Ponzi scheme were unfrozen when found to be part of a separate business.

Sherman C. Vaughn Jr., 47, was ordered to forfeit $8 million generated by him and former Philadelphia Eagles linebacker Merrill Robertson Jr., 38, in a Ponzi scheme run through Cavalier Union Investments LLC.

Kevin Wanner, 56, was sentenced to more than 11 years in prison in connection with a Ponzi scheme he ran through Questar Capital Corporation dba Precision Financial. Wanner defrauded 66 investors in North Dakota by selling fictitious brokered certificates of deposits and unregistered interests in pooled investments.

INTERNATIONAL PONZI SCHEME NEWS

Canada

Timothy Ray Carruthers, 59, was charged with running a fraudulent scheme through Wakina Consulting Inc.  The scheme involved $5.5 million in what has been labeled as a mortgage Ponzi scheme. It is alleged that Carruthers facilitated 257 fraudulent loans, promising investors monthly interest payments and administration fees on the loans.

England

Freddy David was sentenced to 6 years in prison for defrauding 55 victims out of £14.5 million in a Ponzi scheme. David, a wealth manager, pleaded guilty to defrauding his victims by promising them 8% interest per year when their money was locked in a bank account for 3 months to 5 years. 

Germany

Jörg Biehl, 56, was sentenced to 8 years in prison in connection with a Ponzi scheme run through 22 companies known as the Infinus Group. Biehl was accused of defrauding 22,000 investors out of $375 million, although it is believed that the scheme involved more than 50,000 investors and €2 billion. Infinus started in 2001, buying life insurance policies and offering the owners improved surrender values. The money that was freed up as a result was then invested in other products offered by Infinus, such as fixed-interest bonds, registered bonds, and profit participation rights.

India

The offices of Pailan Group and the home of Apurba Saha were raided by authorities after the company was accused of running a Ponzi scheme.

Regulators claim that Heera Islamic Business Group, aka Heera Gold, were running a Ponzi scheme.  Heera Gold is headed by Dr. Aalima Shaikh Nowhera and the company claims to be a gold trading company with businesses all over the world. The company targeted the Muslim community, promising high returns and making references to “Allah” to convey a devout image to investors.

Amit Bhardwaj, the promoter of the GainBitcoin scheme who is currently in prison, has offered to pay investors back their principal investment. There are over 100,000 investors who were promised monthly returns of 10%. The victims have demanded that they be compensated in an amount equal to the value of the bitcoins today.

Charges were filed against the directors of Samruddha Jeevan Multi-State Multi Purpose Co-operative Society Ltd, Mahesh Kisan Motewar and Prasad Kishor Paraswar. The scheme promised to provide cattle and goats as well as high rates of return to investors.

New Zealand

Lance Jack Ryan aka Lance Jared Thompson, 44, and Jimmie Kevin McNicholl, 56, were convicted in connection with a Ponzi scheme that defrauded 900 investors. Ryan was sentenced to 7½ years in prison while McNicholl received 11 months’ home detention and community service. The scheme was run through BlackfortFX and promised returns from a “straight through processing” foreign exchange trading platform.

Thailand

Chinnawat Noiwan was arrested in connection with a scheme he operated through OD Capital. It is believed that 500,000 people may have been defrauded in connection with the scheme. 

Turkey

The founders of Turcoin, an alternative digital currency, were arrested. Sadun Kaya and Muhammed Satiroğlu were arrested after the scheme involving $211 million was revealed to be a Ponzi scheme. Turcoin was established by Hipper and stopped paying returns in June. Satiroğlu denies the claims and stated, “I have not fled with the money. I will return all the money to the members if authorities unblock my bank accounts. Actually they are the ones who are involved in serious corruption.”

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

A class action against JPMorgan Chase & Co. was settled for $4.6 million in connection with the Ponzi scheme run by William Wise. Almost 200 investors alleged that JPMorgan overlooked suspicious activity in connection with the scheme, accusing it of aiding and abetting the scheme run from Millennium Bank.

YouTube was added as a defendant to a class action lawsuit against BitConnect. Thousands of investors were reached through YouTube, and YouTube was accused of failing to protect its users from BitConnect-promoting content, by not delisting and demonetizing videos about it. Reports state that the scheme’s promoters posted over 70,000 hours of BitConnect-related content on YouTube, which received over 58 million views. Google, Facebook and Twitter have all banned crypto-currency-related ads.

JPMorgan Chase & Co. was accused by investors of aiding and abetting a Ponzi scheme run by Renwick Haddow. The investors in Bar Works Inc. claim that the bank turned a blind eye to the scheme. Haddow, who identified himself as Haddow, then used a fake alias, Jonathan Black, to raise funds from investors. Haddow solicited investments in start-up companies he created, including Bitcoin Store (a purported online platform for Bitcoin trading) and Bar Works (an entity that claims it was adapting former restaurants and bars into co-working spaces). The investments were solicited through InCrowd Equity, Inc., which claimed it was a crowdfunding portal through which investors could purchase shares. 

A proposed class of investors reached an $18.5 million settlement with the law firm Tonkton Torp LLP in connection with the scheme run through Aequitas Management LLC.