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

Sunday, March 11, 2018

The Nine Alternatives for Regulating Cryptocurrency

By Kathy Bazoian Phelps

To regulate or not?  That is the question. And there seems to be no consensus. The results of the Cryptocurrency Poll so far reveal a very clear divide on several important questions about virtual currencies. The public opinion is split nearly evenly on whether cryptocurrency should be considered a currency, a security, or a commodity. An equally wide split is evident in the very fundamental question about who, if anyone, should regulate cryptocurrency.

A recent decision on the question of who is in charge of regulation reveals nine possible alternatives of how to deal with cryptocurrency. Whether the SEC, CFTC or someone other agency should regulate cryptocurrency is an issue up for grabs. The CFTC obtained a ruling on March 6, 2018, that provides some guidance, although still leaves the door wide open.  CFTC v. McDonnell, 2018 WL 1175156 (E.D. N.Y. March 6, 2018). In answering the question of whether virtual currency may be regulated by the CFTC as a commodity, the court identified the following 9 possibilities:
  1.  No regulation.
  2.  Partial regulation through criminal law prosecutions of Ponzi-like schemes   by the Department of Justice, or state criminal agencies, or civil  substantive suits based on allegations of fraud.
  3.  Regulation by the Commodity Futures Trading Commission (CFTC).
  4.  Regulation by the Securities and Exchange Commission (SEC) as securities.
  5.  Regulation by the Treasury Department’s Financial Enforcement Network     (“FinCEN”).
  6.  Regulation by the Internal Revenue Service (IRS).
  7.  Regulation by private exchanges.
  8.  State regulations.
  9.  A combination of any of the above.

In the McDonnell case, since CFTC standing was at issue, the court concluded that the CFTC is “one of the federal administrative bodies currently exercising partial supervision of virtual currencies.” While not reaching a conclusive and exclusive finding, at least we know that someone is in charge, at least “partially.”

Please feel free to express your views on The Cryptocurrency Poll. In the meantime, here is the current split on what it is and how to regulate it:

1. Do you think cryptocurrency is a commodity, security, or currency?

        a. Commodity                 36.75%
        b. Security                  27.11%
        c. Currency                  25.90%
        d. Don’t know                 10.24%

2. Should cryptocurrency be regulated by the SEC, CFTC, or some other agency?

        a. SEC            42.55%
        b. CFTC            20.57%
        c. Some other agency    14.89%
        d. Should not be regulated 17.02%
        e. Don’t know     4.96%

Wednesday, February 28, 2018

February 2018 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for February 2018. The reported stories reflect at least 3 new Ponzi schemes worldwide: over 90 years of newly imposed sentences for people involved in Ponzi schemes; and an average age of approximately 50 for the alleged Ponzi schemers. Please feel free to post comments about these or other Ponzi schemes that I may have missed. And please remember that I am just relaying what’s in the news, not writing or verifying it. Check out the new cryptocurrency section at the end of the post.

Glenn Arcaro, a director of BitConnect, was sued along with Trevon Brown aka Trevon James, Ryan Hildreth, Craig Grant and Crytponick in a class action lawsuit alleging that Bitconnect guaranteed investors returns of up to 40% per month.  The lawsuit claims that founders of OneCoin were involved with BitConnect including Nigel Allen, Ruja Ignatova and Sebastian Greenwood

Richard Alan Bazzell, 42, was sentenced to 3½ years in prison and ordered to pay back about $2.5 million to 22 victims. Bazzell ran a Ponzi scheme through his company, Prosperitas Capital LLC, and he ran a side project known as TrailSteaks. Bazzell promised an 8% return.

Amrit Jaswant Singh Chahal, 30, was arrested on charges that he ran a Ponzi scheme through The Kane Capital Investment Group LLC. Chahal alleged promised returns of 28% to 34% annually. The criminal complaint alleges that Chahal falsified brokerage statements to conceal losses.

Peter E. Dahl was accused in a lawsuit of running a $2.8 million Ponzi scheme. Dahl is the founder and former CEO of Crown Bank who left the bank abruptly last year. Dahl is said to have engaged in a pattern of borrowing money from one individual or entity and repaying it from new money borrowed from someone else. The lawsuit also names Crown Bancshares which owns Crown Bank, alleging that the bank board knew or should have known of the fraud.

David deBerardinis, 56, pleaded not guilty to charges that he defrauded investors out of $96 million. Investors, mostly from Louisiana, believed they were buying into legitimate energy trades and were promised 17% returns. Prosecutors allege that deBerardinis was running a Ponzi scheme, that there were no actual trades, and that emails confirming trades were forged.

Ronald T. Dunn, 67, was sentenced to 25 years in prison for a Ponzi scheme that took $693,000 from 13 victims. Dunn was working for Prudential Financial when he committed the financial crimes. Prudential was not involved in the scheme but has offered restitution to the victims.

Anthony Fregenti, 46, is facing new charges after he was released from prison from a prior conviction in 2014 that led to a 5-year prison sentence. Fregenti was released but faced new charges for embezzling more than $500,000 from investors.

Jesse W. Harris was ordered by the Kansas Securities Commissioner to cease and desist operating his business, Harris Custom Projects LLC. The order alleges that Harris solicited more than $5 million in investments to supposedly be used to purchase and resell concrete in connection with construction jobs.

Michael Holcomb, 74, and Gary Holcomb,72, were each sentenced to 6 years in prison for the $40 million Berjac Ponzi scheme. The brothers had pleaded guilty last year to running the scheme. Michael was in charge of Berjac of Oregon and Gary was in charge of Berjac of Portland. They promised investors returns of 5% to 7% from offering loans to small businesses looking to pay insurance premiums. Instead, the Holcombs used the money for speculative real estate projects and their personal use. Michael’s daughters, Jennifer Chalmers, 46, and Kristen Van Breemen, 44, pleaded guilty to single counts of money laundering and were each sentenced to 5 years of probation and 250 hours of community service. 

Lee Loomis, 60, was sentenced to 12 years in prison for a Ponzi scheme that he ran through Loomis Wealth Solutions. Loomis defrauded investors out of more than $10 million to invest in a Naras Fund.

Jeremy Lundin was sentenced to 9 years in prison for running a $1 million Ponzi scheme through his company, Big Island Capital. Lundin’s wife, Alex Lundin, was charged in December for her role in the scheme.

Jason Nissen, 44, the former CEO of National Events Holdings LLC, is planning to enter a guilty plea in connection with a $70 million Ponzi scheme.

Saddle River Advisors and its affiliated investment funds were permanently barred from soliciting investments and were ordered to pay $44.9 million in disgorgement. The SEC had sued John Bivona, Saddle River and SRA Management Associates in March 2016, alleging that Bivona had raised more than $53 million from investors in a fraudulent scheme. Millions of dollars of the investor funds were diverted, and some of the funds went to Frank Mazzola, who had been barred from the securities industry in 2014 for running a similar scheme.

Sherman Carl Vaughn, Jr., 46,was sentenced to 12 years in prison in connection with a $10 million Ponzi scheme that he ran with Merrill Robertson. The scheme was run through Cavalier Union Investments LLC and defrauded more than 60 victims. Robertson was previously sentenced to 40 years in prison.

Tobin Senefeld was ordered to pay almost $845,000 in connection with an alleged Ponzi scheme run through Pin Financial LLC. The order also extended to Veros Farm Loan Holding LLC relating to the scheme that defrauded 80 farm loan investors out of $15 million. Pin Financial served as a placement agency for private offerings made to Veros’ clients, who understood that their investments were being used for farm operations. Senefeld was permanently banned by FINRA from associating with any FINRA member institution.

Robert Shapiro sought the release of a freeze against the assets of Woodbridge Group of Companies LLC. A day later, the SEC sought a contempt finding, accusing Shapiro of failing to comply with an order to disclose family trust assets and accounts under his control. Shapiro also filed a motion seeking to dismiss the SEC case against him, saying that the mortgage notes he sold were not securities.

Senator Carlos Uresti, 54, was found guilty on all 11 felony charges against his involvement in the Ponzi scheme run though FourWinds Logistics. Co-defendant Gary L. Cain, 61, was also convicted on all nine of his charges. The CEO for FourWinds, Stanley P. Bates, pleaded guilty in January. Prosecutors described Uresti as a politician who used his “well-known name” to steer investor funds into the scheme while hiding the true financial status from investors. Uresti is not giving up his senate seat and plans to appeal.

Carlos Wanzeler, 49, the co-founder of TelexFree Inc., was stripped of his Brazilian citizenship. Wanzeler had fled to Brazil after the fraudulent scheme was disclosed, but this could open the door for his extradition to the U.S.



A deal was reached between India’s financial regulator, SEBI, and the former owners of the Gold Coast Sheraton Mirage hotel relating to tens of millions of dollars that had been frozen. The Pearl Group and Nirmal Singh Bhangoo had moved at least $100 million of proceeds from the scheme to Australia where it was invested in a local subsidiary known as MiiGroup. The funds were then invested into the Sheraton Mirage and almost $90 million has been frozen. The funds had been frozen by a group of 37,000 investors who had filed a class action in Australia, but SEBI intervened in the action and has now taken the funds on behalf of all of the victims in India, which is believed to be as many as 50 million.


About 300 people protested regarding an alleged Ponzi scheme run through Empire Big Capital Limited. The government has received complaints from 7,430 people and it is believed that they have been defrauded out of nearly $60 million. Teng Saroeum and Teng Makara were arrested last June. Four people remain at large in connection with the scheme:  Malayasian Tan Tze Chin aka Sean Tan, and Cambodians Huot Sovann, Chi Gosaly, and Long Sambath.


Picam was subject to a series of raids in Germany and Switzerland on suspicion that it has been conducting a Ponzi scheme. Picam stopped standing statements and payments to customers last month. It is believed that between 2,000 and 3,000 investors have paid €300 million to the company.


The Finance Minister said that the government will take all measures to stop trading of Bitcoin and other cryptocurrencies in India.

Subhranshu Singh, the managing director of Sri Bhumi Group of Companies, was sentenced to 7 years in prison in connection with a scheme that defrauded investors by promising them the doubling of their money in 25 months.

Sampad Jogania and his son, Ajitesh, were arrested for their involvement in an alleged Ponzi scheme run through Creative Express Events and Promoters. The scheme allegedly defrauded investors out of nearly Rs 3 crore.

Kamal Vishnoi was arrested on charges that he set up a fake bitcoin trading platform. Vishnoi held seminars and events to lure investors and then vanished with their money. He promised 5% daily interest and a commission for referring new investors. Investors had to register at the site “Bittradingz.” When he couldn’t pay the promised returns, investors agreed to reduced interest of 2%. Meanwhile, Vishnoi launched a new website called “Softcointradingz” and a new digital currency called “Soft Coin.

Three individuals were arrested on allegations that they were running a foreign exchange scheme involving more than 70,000 victims and NZ $350 million. Investors were promised 12% returns monthly. The scheme was run through a New Zealand registered company, United Global Holdings Ltd. The mastermind of the operation, Pandeyan Maruthamuthu, 56, is believed to be hiding in Thailand.


Arriffin Chewing, 48, was sentenced to 13½ years in prison for running an $11.4 Ponzi scheme that defrauded 18 people out of $7.1 million. The scheme involved returns from supposedly advantageous rates for foreign currencies as a Hong Kong and Shanghai Banking Corporation (HSBC) employee. Chewing had actually been terminated from HSBC at the time he was soliciting investments. 


A group of investors gathered to call for help in connection with their losses of 6 million Baht in the alleged Srithai Network Ponzi scheme.


The Tax Cuts and Jobs Act eliminates the “theft tax loss” provisions of the Internal Revenue Code. This was a provision relied up by Ponzi scheme victims to attempt to mitigate their losses from Ponzi schemes.

In a lawsuit brought by a feeder fund in the Bernard Madoff scheme against a financial institution and others, the Second Circuit upheld the district court’s finding that the federal court had jurisdiction because it had “related to” jurisdiction with the Madoff bankruptcy case. The court found that “The gravamen of SPV's complaint is that defendants are joint tortfeasors with Madoff and BLMIS, which, if proven, would provide defendants with a putative contribution claim, to be asserted in the bankruptcy proceedings.” SPV OSUS Ltd. v. UBS AG, 2018 U.S. App. LEXIS 3088 (2d Cir. Feb. 9, 2018).

The Trustee in the Bernard Madoff Ponzi scheme reached a settlement with Alpha Prime Fund Ltd. where the Fund will return $76.45 million to the estate to settle the Trustee’s fraudulent transfer claims.


Bitfinex and Tether have been called a Ponzi scheme. Tether has been creating tokens to buy Bitcoin. Tether is supposedly backed by physical currency and is closely associated with Bitfinex. One analyst noted: “The idea that Tether is creating coins to buy bitcoin is straight out of satire. If bitcoin is a Ponzi scheme, then this is Ponzi squared; printing fake money to buy a different type of fake money in order to ramp up the price of the latter. If it weren’t likely to cause real-world losses for many investors it would be hilarious.”

Bitstrade was ordered to stop offering unregistered and fraudulent securities in the state of New Jersey. Bitstrade was guaranteeing returns of 10% or greater but failing to disclose “key material facts” to prospective investors, like the address of the business, the names of the executive officers, the risks to investors and how their money would be used.

DavorCoin was served with a cease and desist order by authorities in Texas. Authorities allege that DavorCoin has been engaged in fraudulent activities and tit has been using misleading and deceptive statements to lure in investors. The platform claims that users could earn as much as $513 per day by locking their funds for 120 days.
LoopX, a new crypto startup, vanished shortly after raising $4.5 million in its ICO token sale. 

Prodeum, a Lithuania-based company, exited the cryptocurrency scheme. 
Cryptocurrencies tracked by Coinmarketcap.com lost more than $500 billion of market value at one point in January.

JPMorgan Chase & Co, Bank of America Corp. and Citigroup Inc. stated that they will not allow purchases of Bitcoin and other cryptocurrencies on their credit cards.
The general manager of the Bank of International Settlements (BIS) slammed Bitcoin as “a bubble, a Ponzi scheme and an environmental disaster.” He further noted that “The volatility of Bitcoin renders it a poor means of payment and a crazy way to store value.”

THE SEC and CFTC addressed Congress in the midst of falling prices for Bitcoin. The SEC Chairman stated that he believes every initial coin offering is a securities sale and that the SEC already has the regulatory oversight needed for enforcement.

The head of Goldman Sach’s investment research warned that investors should prepare for values of cryptocurrencies to crash to zero.

Jim Yong Kim, the President of the World Bank Group, has compared cryptocurrencies to Ponzi schemes.