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

Thursday, February 28, 2019

February 2019 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for February 2019. The reported stories reflect at least 3 new Ponzi schemes worldwide; about 39 years of newly imposed sentences for people involved in Ponzi schemes; and an average age of approximately 54 for the alleged Ponzi schemers. Please feel free to post comments about these or other Ponzi schemes that I may have missed.

Donato Baca Jr., 36, Jonny Ngo, 32, and NL Technology LLC were charged by the SEC in connection with an alleged $61 million Ponzi scheme that defrauded over 350 investors. The scheme promised returns from NL Technology’s wholesale technology import business. Without admitting or denying the charges, Baca consented to judgment permanently enjoining him from any future securities violations and ordering him to pay $4.7 million in disgorgement along with interest and penalties of over $1 million.

Jeff Carpoff and his company, DC Solar Inc., were accused by the FBI of running a Ponzi scheme. DC Solar sold solar panels to supply emergency power to cell towers and to provide lights at sporting events. The FBI alleges that it was running an $800,000-plus Ponzi scheme. Carpoff and his wife, Paulette Carpoff, touted the tax benefits of investing in alternative energy in luring in investors. The company filed bankruptcy this month as well.

Homero Joshua Garza, 33 was sentenced to 21 months in prison for his involvement in the PayCoin cryptocurrency scheme that defrauded investors out of $9 million. 

Todd Hitt, 54, of Virginia pleaded guilty to charges related to a $20 million Ponzi scheme. Hitt falsely claimed that his firm, Kiddar Capital, managed $1.4 billion in assets. The scheme involved various real estate projects, but Hitt improperly commingled funds and used investors funds for personal expenses like vacations and sports tickets. 

Patrick Joseph Kiley, 80, lost his appeal of his 20-year sentence for his involvement in the Trevor Cook Ponzi scheme. The Eighth Circuit found that Kiley’s challenge based on ineffective assistance of counsel and alleged potential conflicts of interest of his counsel was not sufficient to reverse his sentence. Kiley, along with Cook ran a $193 million Ponzi scheme. 

Edward Lee Moody, 47, was sentenced to 13 years in prison and ordered to pay $4.8 million in restitution in connection with a Ponzi scheme run through CM Capital Management LLC. Moody solicited about $6.6 million from 55 investors, some of whom were elderly and liquidated the retirement accounts so they could invest. Moody did not actually buy and sell securities for the most part, but instead used the money for his personal benefit. 

James Nickels, 67, of Wisconsin, reached a plea agreement regarding charges that he ran a Ponzi scheme through The Fiscal Concierge. Nickels had collected more than $5 million from at least 35 investors to whom he had sold promissory notes. The investors’ losses totaled about $3 million, and Nickels was ordered to pay $3.6 million in restitution. 
  
Lynette Robbins, 73, and her company, Knowles Systems Inc., agreed to repay $1 million of the funds that they received in connection with the $1.2 billion Woodbridge Group of Companies LLC Ponzi scheme. Robbins raised about $147 million from investors by advising them that the investments in Woodbridge were “safe and secure.”

Niket Shah, 26, of New Jersey, and his company, Spark Trading Group LLC, who had been charged by the SEC in connection with an alleged Ponzi scheme that brought in $250,000, were the subject of a final judgment. The scheme involved a binary options trading account. The judgment permanently enjoins them from further violations of security laws and orders them to disgorge about $300,000.

Robert Shapiro, Jordan Goodman, Albert Klager, Ferne Kornfeld and Barry Kornfeld were permanently banned by the SEC from ever working as brokers or investment advisors due to their selling unregistered securities for Woodbridge Group of Companies. The $1.2 billion Ponzi scheme defrauded 8,400 investors by selling them unregistered promissory notes and securities in supposedly low-risk investments in luxury real estate. Shapiro alleged spent around $21 million of investor funds on personal expenses and luxuries, and the Kornfelds, Goodman and Klager netted a total of over $7.4 million in commissions. Floyd Powell was also barred by FINRA; he sold Woodbridge notes to 13 investors and consented to a settlement without admitting or denying the allegations.

Shawn Patrick Watkins, 48, was sentenced to 51 months in prison in connection with a Ponzi scheme that he ran with Angel Bronsgeest, 55, through The Equity Growth Group and Investors Workshop Inc. They promised investors returns from real estate deals but diverted funds for their own use. Watkins conducted monthly seminars in which he offered investments in bridge loans to acquire properties.

INTERNATIONAL PONZI SCHEME NEWS

Benin

Guy Aplogan and Ludovic Dohou, both senior directors of ICC Services, an investment firm, were jailed for 10 years for a scheme that may have defrauded more than 150,000 out of more than 150 billion CFA francs. The scheme promised returns of 150% to 200% per quarter. 

Canada

About $136 million worth of cryptocurrency supposedly held by QuadrigaCX is missing. Stockholders say that the holdings are stuck in an electronic vault because the company’s founder and sole employee died without sharing the password. Researchers say that publicly available transaction records suggest that the money may be gone.

Timothy Ray Carruthers, 59, pleaded guilty to running a $5.3 million Ponzi scheme. The scheme involved fake bridge mortgage loans. Only about $1.7 million of the funds were repaid.

Yan Zhu aka Rachel Zhu and Guan Qiang Zhang had their bank accounts seized in connection with an alleged Ponzi scheme that defrauded 464 people. The scheme was run through Bossteam E-Commerce Inc., which described itself as an online advertising business. About $4.8 million was used to pay administrative penalties in connection with the case.

Arnold Breitkreutz, 70, and Base Finance Ltd. were ordered to pay more than $4 million in penalties in connection with a Ponzi scheme that brought in $137 million from investors and left them with $122 million in losses. Office administrator Susan Elizabeth Way, 67, was ordered to pay an administrative penalty of $150,000 and to disgorge $362,000.

Ghana

Wealth Drive Ghana Limited, Global Coin Help Limited, and TCL Market Ghana Limited were allegedly operating a Ponzi scheme and had promised returns of between 10% and 30%. More than 9,000 Ghanians invested in the scheme. The companies have been arraigned for prosecution for operating without licenses.

Japan

Masato Doko, 41, and Keizo Adachi, 58, along with 8 others, were accused by the police of running a Ponzi scheme through Texsear Japan Holdings. The scheme brought in ¥46 billion from 13,000 investors. The company held seminars titled “The Assembly to Energize Japan” to solicit investors and promised returns from “businesses that are expected to grow rapidly.” Tokiji Nakamura, 66, and Teruhisa Miyoshi, 60, are among the eight in custody.

Nigeria

The SEC shut down Dantata Success and Profitable Company, which was carrying out capital market activities without proper registration. The company promised investors returns of between 25% and 50% from supposed returns in trading, oil and gas, transportation and import, export. Hajiya Basira Dantata started the business as a family business and the reported business was to solicit funds from investors.

The SEC shut down Growing Circle International Limited, an international advertising company with headquarters in the U.S. The company allegedly engaged in illegal fund management activities that are described as a Ponzi scheme.

South Africa

Jacques Magliolo was accused of running a Ponzi scheme through his business, Business Consultants International. Magliolo, who has published more than 17 books on investment advice, denies the charges.

Thailand

Thirty investors filed complaints against CryptoMining.Farm, a cryptocurrency cloud mining company. The scheme allegedly defrauded 140 victims out of more than $1.3 million. The company is believed to be operated by Lifetime Technology Co. Ltd. and is linked to possible owner, Pimongkol Tawpibarn. The scheme may have promised guaranteed returns of 70% per year.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

The receiver over ClearPath Wealth Management LLC filed a motion to include former employee, and former House Minority Leader, Patricia Morgan, as an insider. Morgan was an employee but has appealed the designation of her as an “insider.” Patrick E. Churchville, the owner and president of ClearPath, was sentenced to 84 months in prison for orchestrating the $21 million Ponzi scheme that defrauded more than 110 investors. 

The Second Circuit revived billions of dollars of lawsuits brought by the Trustee in the Bernard Madoff Ponzi scheme by permitting the lawsuits seeking to recover transfers of assets made overseas. The trustee had sued foreign investors for recovery of funds that had initially been paid to foreign feeder funds, and the court found that a foreign subsequent transferee could be sued to recover property that had been transferred to it by a foreign initial transferee. 

Wells Fargo was dismissed from multidistrict litigation brought against it by investors in the Telexfree Ponzi scheme. 

Investors in the scheme run by United Development Funding III filed a proposed class action to recover their losses in the failed real estate lending scheme.

The FBI is soliciting information from investors in Bitconnect, using a voluntary questionnaire to acquire information about their interaction with Bitconnect.

Thursday, January 31, 2019

January 2019 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for January 2019. The reported stories reflect at least 5 new Ponzi schemes worldwide; about 40 years of newly imposed sentences for people involved in Ponzi schemes; and an average age of approximately 54 for the alleged Ponzi schemers. Please feel free to post comments about these or other Ponzi schemes that I may have missed.

Phillip Michael Carter, 44, of Texas was accused by the SEC of running a Ponzi scheme that raised $45 million from investors. The alleged scheme was run with Bobby Eugene Guess and Richard Tilford and defrauded 270 investors. Investors were sold short-term, high-yield promissory notes issued by shell companies involving real estate transactions. Carter and Tilford were indicted last year and Guess is currently serving a 12-year prison sentence after pleading guilty to a similar but unrelated scheme.

Ford F. Graham, 55, and his wife Katherine B. Graham, of New Jersey, were sued by the New Jersey Bureau of Securities based on allegations that they were fraudulently selling investments in gas and oil projects. They raised more than $5 million through loans and sales of unregistered securities which they offered through their companies, Specialty Fuels Americas, LLC, Aries Energy Group Venture, LLC, CCC Holdings, LLC, and Rattler Partners, LLC. The lawsuit alleges that Graham represented that investor funds would be spent on specific oil and gas projects, but he instead transferred the funds among his companies and another company that he controlled, Vulcan Energy International LLC.

Jose Luis Leon, 56, Richard A. Renner, 56, and Natalie Marie Rogers, 53, all of Florida, were arrested and jailed on allegations that they stole about $7 million from more than 20 investors. They ran a purported investment fund company called Strategic Holdings Group in which they represented they could provide access to exclusive investments, such as “energy-related limited partnerships, real estate, tax liens, private equity, precious metals and other ‘alternative assets.’” They promised returns of about 8% annually. Instead, they used the investors’ funds on personal expenses.

Kevin Merrill, 53, was caught trying to give his wife, Amanda Merrill, instructions to “drink the good wine” and otherwise hide assets. A note with instructions to Amanda was found in his sock in prison when he was headed to a jailhouse visit with Amanda. Merrill has been charged with running a $364 million Ponzi scheme that defrauded more than 400 victims. He has pleaded not guilty to an alleged scheme run with Jay Ledford, 54, and Cameron Jezierski, 28.

John Kevin Moore, 62, of Montana was sentenced to 10 years and five months in prison and ordered to pay $2.2 million in restitution and $1.9 million in forfeiture in connection with a Ponzi scheme involving oil and gas leases. Moore ran the scheme through Big Sky Mineral Resources LLC and Glacier Gala, using the investors’ funds to supposedly buy oil and gas leases and to buy and sell lucrative art work. Prosecutors alleged that Moore collected $2.7 million from investors and spent $1.4 million on himself.

Ronald D. Morley and his wife, Diane Morley, were sanctioned in the amount of $4 million in connection with their sale of fraudulent securities through their companies, The New Wealth LLC, Main Street Estate Group, Inc., and Jenny DB Properties LLC. They defrauded 130 investors to invest $33 million in preferred stock in Nevada-based Summit Trust Company. They received $3 million in commissions through several Maryland-based businesses they operated in allegedly “fraudulent offerings of unregistered securities.”

James Mulholland and Thomas Mulholland had their prison sentences cut in half. The two brothers had been sentenced to 10 to 20 years in 2016 in connection with an $18.3 million Ponzi scheme that defrauded more than 250 investors. The judge cut the sentence to 3.75 to 20 years, noting that leaving them in prison would not help make the victims whole again. They owe approximately $208,000 in restitution.

William Rittenbaugh, 47, who is in custody for allegedly running a cattle Ponzi scheme, had his bond increased to $3.75 million. Additional charges were added relating to cattle and horse theft.

Daniel B. Rudden, 71, reached a plea agreement with prosecutors in connection with a $20 million Ponzi scheme that he ran through Financial Visions. The company took assignments of life insurance policies to pay funeral expenses and charged the surviving families 4% to 5% for the service. The scheme had about 200 investors and promised to pay them 12% to 15%.

Robert H. Shapiro and Woodbridge Group of Companies LLC were ordered to pay more than $1 billion to resolve the SEC’s claims that Woodbridge operated as a Ponzi scheme.

INTERNATIONAL PONZI SCHEME NEWS 

Australia

John Bigatton, a director of BitConnect, had his assets frozen in connection with the virtual currency scheme. Bigatton was the representative of BitConnect in Australia but was also the director of BitConnect International PLC in the United Kingdom. BitConnect was supposedly a crypto lending platform and promised returns as high as 40% per month. His wife, Madeline, disappeared at the time investigations of Bigatton started and is presumed dead. She was the director of JB’s Investment Management.

Canada

Renee Michelle Penko was jailed for 30 days for her failure to appear at a debtor examination hearing. She was found in contempt. Penko, along with Irene G. Beilstein and Susan Grace Nemeth, were finders for a Ponzi scheme run through Global Wealth Creation Opportunities that defrauded 123 people out of $11.7 million. Investors were promised returns of 2% to 6% per month. The scheme was masterminded by Thomas Arthur Williams, who owes $21.8 million in fines and disgorgement fees in connection with the scheme.

Ghana

Menzgold Ghana Limited was flagged as a Ponzi scheme, and the Securities and Exchange Commission ordered the company to stop unlicensed public gold trading activities. Menzgold would buy gold and pay interest to investors in the amount of 10% per month. The firm has been unable to pay premiums to investors because of the order to stop taking deposits from customers. The scheme is believed to have impacted over 1.8 million customers. There is a warrant for the arrest of Nana Appiah, the Menzgold CEO, who is believed to be hiding in Nigeria or South Africa.

Winchester Profits Capital, claiming to trade in currencies and commodities, was accused of running a Ponzi scheme. More than 2,000 Ghanaians have subscribed online, pursuing the promised interest of 12.5% weekly.

India

Nalini Chidambaram, the wife of former Finance Minister P Chidambaram, was charged in connection with the Saradha Group of Companies Ponzi scheme.

Shaik Ismail Amjad, 42, was charged in connection with a scheme run through Winzee Welfare Society. Amjad misrepresented that he was collecting money to provide financial assistance to poor people for marriage expenses, health problems and monthly rations.

Police arrested 57 people in a crackdown relating to the QNet scam. QNet is a multi-level marketing scheme, and the assets of the company have been frozen. Dilip Raj, the director of Vihaan Direct Selling Pvt Ltd., a sub-franchisee of QNet, was arrested for allegedly running a Ponzi scheme. Chandan Kumar Chowdary and Athul Kumar were also arrested in connection with the alleged scheme.

Brajamohan Patnaik and his wife Tridhara Mohanty were accused of defrauding investors in connection with an alleged scheme run through finance company Datum

I Ravindran, 55, his wife R Indhumathi, 47, and son R Vignesh, 27, were arrested in connection with a scheme that defrauded nearly 1,500 investors who deposited 2.9 crore. The scheme was run through All Shine Agro Farm India Ltd.

Tabrez Pasha and Tabrez-Ullah Shariff were arrested in connection with an alleged scheme run through the Ajmera Group that defrauded about 950 investors.

Nigeria

Giniko Obi, a bishop, was arrested for allegedly defrauding thousands of victims in a Ponzi scheme.  Obi is the founder of Beloved Gideon Foundation and said he was “doing the will of God by trying to help the people fight poverty.”

South Africa

Fakazile Mazibuko, 55, and Wilson Gazu, 55, were each sentenced to 15 years in jail in connection with their Trade For Life scheme that offered a get-rich-quick plan in more than 3,000 investors. They had previously been involved in another scheme operated through Travel Venture International.

Taiwan

Officials pressed charges against 7 individuals for allegedly running a bitcoin Ponzi scheme. The scheme allegedly defrauded more than 1,000 investors out of $51 million.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

A group of defrauded investors sued Zions Bank for allegedly aiding and abetting a fraudulent scheme run by Rust Rare Coin and its owner, Gaylen Rust.

The Fifth Circuit reversed the lower court’s ruling and found that one of Stanford International Bank’s largest investors cannot retain $79 million in fraudulent transfers that he received. Janvey v. GMAG LLC, 2019 U.S. App. LEXIS 759 (5th Cir. Jan. 9, 2019). The court found that an investor cannot successfully assert a good faith defense when on inquiry notice of the Ponzi scheme. Inquiry notice was defined in the jury instructions as follows: Inquiry notice was defined in the jury instructions as "knowledge of facts relating to the transaction at issue that would have excited the suspicions of a reasonable person and led that person to investigate."

A federal judge dismissed a series of cases asserting claims for aiding and abetting and unjust enrichment against Bank of America, TD Bank, and PricewaterhouseCoopers in connection with the Telexfree Ponzi scheme case. The court said that was not evidence that the defendants had participate in, or willfully ignored, the fraud. See, e.g., In re Telexfree Secs. Litig., 2019 U.S. Dist. LEXIS 13681 (D. Mass. Jan. 29, 2019).

The Eighth Circuit dismissed claims against Associated Bank for aiding and abetting in connection with the Trevor Cook Ponzi scheme. Cook was charged with running a $194 million Ponzi scheme. The court found that, “The record shows nothing beyond the provision of routine banking services or, at worst, sloppy banking. The bank provided nothing beyond its standard professional services to assist the scammers in perpetrating their Ponzi scheme. No reasonable factfinder could conclude that Associated Bank provided substantial assistance to the scammers’ tortious conduct.”