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 on 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

Tuesday, October 31, 2017

October 2017 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for October 2017. The reported stories reflect: 4 guilty pleas or convictions in pending cases; over 153 years of newly imposed sentences for people involved in Ponzi schemes; at least 3 new Ponzi schemes worldwide; and an average age of approximately 47 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.

Scott Allensworth, 64, and David Weddle were charged by the CFTC in an alleged Ponzi scheme. Allensworth runs Capital Growth Group Associates and E-Slate Inc. dba Cobra Development Group LLP, and Weddle is the majority owner of JustInfo LLC. Robert J. Fusco was also charged. Investors were solicited by JustInfo LLC and were allegedly lied to about a futures trading scheme. The scheme raised at least $2.84 million from at least 57 investors, and investors were promised 20% to 25% returns.

Steven Canady, 45, was sentenced to 6 to 18 years in prison in connection with a $7 million Ponzi scheme run through Alliance Warburg Capital Management. Canady had previously been accused of running a Ponzi scheme that promised 1000% returns in 30 days, which subject Canady and his company, Canady Holdings, to a cease and desist order and fines in 2006.

Marc A. Celello was sued by the SEC in connection with his role as general counsel for Credit Nation Capital LLC. Credit Nation and its CEO, James A. Torchia were accused of running a Ponzi scheme. Torchia consented to judgment in a related SEC civil lawsuit against him. The SEC alleges that Celello helped orchestrate the Ponzi scheme that involved unregistered promissory notes that falsely promised returns of 9%.

Chad Roger Deucher, 44, was sentenced to 7 years in prison and ordered to pay more than $16.5 million in restitution in connection with a Ponzi scheme run through Marquis Properties that defrauded investors out of $16 million. Deucher used direct solicitation, radio ads, a website and seminars to locate investors and promise them returns as high as 22%. He represented that the investors’ funds would be used to purchase and rehabilitate properties. 

Homero Josh Garza and his company, GAW Miners, were the subject of a final judgment in favor of the SEC in the amount of $9.2 million plus $743,000 in interest. Garza previously pleaded guilty to a charge relating to the running of a Ponzi scheme involving virtual currency. Garza formed GAW Miners, ZenMiner, and ZenCloud to engage in the mining of virtual currencies.

Pedro Jaramillo aka Enrique Jaramillo, 49, was sentenced to 12 years in prison for a Ponzi-like commodities scheme. The scheme defrauded more than two dozen investors in countries in Latin America out of more than $1.2 million.

Andrew D. Kelley, 41, was sentenced to 41 years in prison and ordered to pay about $8 million in restitution in connection with an investment scheme run though his company, Blackbird Capital Partners. Kelley told investors he was a faithful member of The Church of Jesus Christ Latter-day Saints and that he would invest in various security and futures instruments. Kelly lost investor funds, first blaming the loss on Brexit and then admitting to Ponzi-like activity. He said, “I am delusional. I am a compulsive liar” and he tried to convince investors that he could “trade his way out of it” if they wouldn’t report him to authorities.

Rick Koerber again escaped charges that he ran a Ponzi scheme as a jury deadlocked and the judge declared a mistrial over the prosecutors’ most recent attempt to find Koerber guilty of running a Ponzi scheme. In 2015, a court dismissed the prosecutors’ case, finding that Koerber’s right to a speedy trial was violated and that prosecutors acted unethically. On appeal the case was remanded and prosecutors were allowed to refile charges. Prosecutors accused him of running a $100 million Ponzi scheme, but Koerber maintains that he was making legitimate investments.

Newegg, Inc., a computer parts and accessories retailer, was sued by four South Korean banks which allege that Newegg is operating a Ponzi scheme. The complaint alleges that Newegg, along with computer wholesaler ASI Corp. made fraudulent orders for home theater personal computers from Moneual, a Korean hardware manufacturer. Moneual is accused of masterminding the scheme and using the phony orders to secure financing from the banks.

Bernard Parker, 57, was sentenced to 87 months in prison and ordered to pay $1.2 million in restitution in connection with a Ponzi scheme that he ran through Parker Financial Services. Parker promised investors returns from contracts in which they would buy tax lien certificates for real estate in Florida, Arizona and Colorado.

Cleber Rene Rizerio Rocha, 28, pleaded guilty to his role in attempting to transfer some of the proceeds of the TelexFree Inc. Ponzi scheme. Rocha was caught at a restaurant handing $2.2 million in cash to a witness who was cooperating with the government and then led agents to $17 million that was hidden under a mattress.

Michael Scronic, 46, was charged in connection with an alleged Ponzi scheme that defrauded at least 45 investors out of more than $19 million. He advised investors that he was investing n publicly traded options and cash so he could meet any redemption requests in 2 business days. Scronic invested in risky investments and lost 88% of the investors’ principal.

Steven Simmons, 48, pleaded guilty to charges stemming from a Ponzi-like scheme that he ran with Joseph Meli in a ticketing scam. The scheme was a ticket reselling scheme for popular shows like “Hamilton.” Simmons solicited more than $6 million for the hedge fund, Sentinel Growth Fund Management LLC. Sentinel’s founder, Mark Varacchi, pleaded guilty in February.

Michael Wright, 30, pleaded guilty to commodities fraud charges in connection with a scheme run through his company, Wright Time Capital Group. The scheme raised $400,000 from investors for foreign exchange trades.

INTERNATIONAL PONZI SCHEME NEWS 

Belgium

Regulators warned that Five Winds Asset Management and QW Lianora Swiss Consulting SA have been offering investment services in Belgium contrary to financial legislation and that the companies’ program resembles a Ponzi scheme. The companies seem to have ties with Questra World, Questra Holdings and Atlanta Global Asset Management, firms that have been the subject of public warnings.

Canada

Investors in the Virginia Tan Ponzi scheme sued HSBC Bank Canada in a class action lawsuit. Tan’s scheme defrauded victims out $30 million and promised them 12% to 24% returns.

Finland

Authorities continue to investigate OneCoin as an alleged Ponzi scheme.

New Zealand

Paul Clifford Hibbs, 49, pleaded guilty to charges that he ran a Ponzi scheme through Gladstone Investments Limited and Hansa Limited. Investors lost $17.5 million and many of them were elderly.

Shane Richard Scott, 60, pleaded guilty to charges that he ran a Ponzi scheme and he was sentenced to 4 years and 8 months in prison. Scott told investors he was investing in the diamond trade, deals brokered in Thailand, a chicken farm in New Caledonia, property developments, fertilizer export, importing and exporting heavy machinery, financing importers to pay duties or GST and credit provision.

Philippines

Regulators warned the public against investing in Pluggle Incorporated, which is an online advertising website that is not authorized to solicit investments. Pluggle promises a return of 30% to 100% in 12 days. Pluggle responded that it is not an investment company and that “maybe some members misrepresented Pluggle when talking to people.”

Russia

Officials compared Bitcoin to the MMM Ponzi scheme, largely based on the amount of unqualified investors buying into cryptocurrency.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

The Sixth Circuit affirmed the dismissal of a proposed class action brought against PNC Bank NA by investors in the William and Connie Apostelos Ponzi scheme. The scheme involved $70 million. Investors alleged that the bank should have known about the scheme and facilitated the scheme by allowing the perpetrators to use the bank’s infrastructure to sell promissory notes as part of the fraud.  Cruz v. PNC Bank N.A., 2017 U.S. App. LEXIS 19591 (6th Cir. Oct 4, 2017).

A New Jersey appellate court reversed a jury verdict of more than $600,000 in favor of a client against his financial planner, Brian Patrick Carr. Everett C. Miller, the founder of Carr Miller Capital Investments LLC, had been sentenced to 10 years in prison in connection with an admitted fraudulent scheme. Carr was not criminally charged but was the only remaining defendant in a civil suit brought by Oleg Shtutman in connection with the fraudulent scheme. The appellate court found that Carr’s statements that the investment had low or no risk were “a vague expression of corporate optimism and puffery upon which no reasonably investor would rely.” Shtutman v. Carr, 2017 NJ. Super. Unpub. LEXIS 2507 (Oct. 4, 2017).

A court approved a $9.8 million settlement of a malpractice lawsuit against Greenberg Traurig in connection with the Mortgages Ltd. Ponzi scheme.

City National Bank NA and its senior vice president Patrick Brian Fitzwilliam were hit with a putative class action accusing them of aiding the ATM investment Ponzi scheme run through Nationwide Automated System by Joel Gillis, 77, and Edward Wishner, 78. The lawsuit alleges that the bank and manager helped to cover negative bank balances and vouched for the integrity of the program.

Financial advisers who sought to force arbitration of disputes in connection with the R. Allen Stanford Ponzi scheme lost their bid to overturn a Fifth Circuit decision ruling against them. The Supreme Court denied their petition claiming that the receiver of the Stanford scheme should be bound by arbitration clauses in the employment contracts. 

Saturday, September 30, 2017

September 2017 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for September 2017. The reported stories reflect: 7 guilty pleas or convictions in pending cases; over 100 years plus one life sentence of newly imposed sentences for people involved in Ponzi schemes; at least 5 new Ponzi schemes worldwide; and an average age of approximately 58 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.

Nicholas Baratoff, 80, pleaded guilty and was sentenced to 5 years’ probation in connection with a Ponzi scheme in which he promised to invest money for others but instead used the money to fund his lavish lifestyle and to pay other clients with new funds.

Larry Bates, 73, was sentenced to 21 years and 10 months in prison and ordered to pay more than $21 million for operating a Ponzi scheme through First American Monetary Consultants that defrauded more than 400 victims. Bates told listeners of his Christian broadcast programs that they should buy gold and silver coins as financial protection from a supposedly imminent religious and economic collapse called “Mystery Babylon.” Investors paid $87 million into the scheme to buy precious metals, but Bates and his two sons, Chuck Bates and Robert Bates, and daughter-in-law, Kinsey Bates, kept the money for their personal use. Chuck and Robert were sentenced to more than 12 years and Kinsey received more than 5 years.

Brian R. Callahan, 47, was sentenced to 12 years in prison and ordered to pay almost $67.6 million in connection with a $118 million Ponzi scheme in which Callahan allegedly siphoned off $96 million. The scheme involved 40 investors whom he promised returns from investments in mutual funds, hedge funds and other securities. Instead, Callahan purchased Panoramic View, a struggling 117 unit beachfront resort and residence development that he owned with his brother-in-law and co-defendant Adam Manson.

Craig Carton, 48, was charged with running a Ponzi scheme involving the ticket-resale industry. Carton has hosted the WFAN radio show, Boomer and Carton in the Morning, with NFL quarterback Boomer Esiason since 2007, but Esiason is not accused of any wrongdoing. Michael Wright, 41, was also charged alongside Carton. Carton has also been sued for fraud by the SEC, which accused Carton and Joseph Meli, 43, of raising more than $5 million from investors claiming access to tickets for resale. Mark Varacchi has pleaded guilty to charges in connection with the scam. Carton allegedly used the money to repay a $2.5 million gambling debt. Carton resigned from the WFAN after his arrest for allegedly being part of a $5.6 million Ponzi scheme.

Bryan Coats and Jonathan Davey, 52, lost a partial summary judgment to the CFTC and a preliminary injunction was ordered against them in connection with a $40 million Ponzi scheme run through Black Diamond involving a currency trading platform which didn’t actually exist. Coats and Davey were previously sentenced to 21 years and 15 years, respectively, in connection with the scheme.

Nicholas Gelfman and his firm, Gelfman Blueprint Inc. (GBI) were sued by the CFTC and accused of running a $600,000 Bitcoin Ponzi scheme. The scheme promised 7% to 9% monthly increase in bitcoin from supposedly sponsoring a high-frequency bitcoin trading algorithm called “Jigsaw.” Gelfman allegedly tried to conceal the Ponzi scheme by claiming that the company had been hacked and that all customer funds had been stolen. The scheme took in $60,000 from 80 investors.

Robert Allen Helms and Janniece Kaelin were sentenced to 78 months in prison for a Ponzi scheme they ran through Vendetta Royal Properties. They had promised at least 80 investors that they would use their funds to acquire oil and gas royalty interests.
  
Michael S. Holcomb, 74, Gary L. Holcomb, 72, Jennifer L. Chalmers, and Kristen S. Van Breemen all pleaded guilty to charges that they operated a Ponzi scheme through their businesses, Berjac of Oregon and Berjac of Portland. Prosecutors alleged that the scheme defrauded more than 400 investors out of more than $40 million.

Jeremy R. Lundin, 30, was charged in connection with an alleged scheme run through his company, Big Island Capital. Lundin solicited more than $1 million from at least 51 investors and promised 67% to 97.8% returns through options trading. Lundin used the money to buy a Maserati and a boat and to pay off personal debts and take a trip to Paris. Lundin was previously booked for choking is wife and threatening to stab her with a broken lamp, and was convicted of assaulting a police officer after spitting on an officer’s arm during a traffic stop. Lundin pleaded guilty, acknowledging that he created phony account statements and provided investors online access to fictitious quarterly statements.

Hamlet Peralta, 38, was sentenced to 5 years in prison and ordered to pay $5 million in restitution in connection with a $12 million Ponzi scheme that he ran under the guise of a wholesale liquor business.

Stephen Peters and his company, VisionQuest Wealth Management, LLC, had their assets frozen in connection with allegations that Peters took millions of dollars from more than 70 investors. No charges have been filed, but a civil case that has been filed names Peters his companies and his wife, Amy Peters.

David Petersen lost his appeal of his conviction and 5 year sentence in connection with a Ponzi scheme run through Westover Energy Trading LLC and Ramco and Associates LLC. The Eleventh Circuit denied his appeal.  U.S. v. Petersen, 2017 U.S. App. LEXIS 17671 (Sept. 13, 2017).

Hasan Sarwar aka Alexander Sarwar dba Profit Management Int. and his spouse, Rachida Elfimi dba Profit Management, were charged by the CFTC with running an alleged $1.2 million Ponzi scheme through a futures commodity pool. The scheme allegedly defrauded more than 40 investors, promising them that they would double their money in less than 5 months.

Sen. Carlos Uresti, a Texas state senator under a fraud indictment, pleaded not guilty but acknowledged that the company FourWinds Logistics “might have been a Ponzi scheme.”

Leon Vaccarelli, 40, was charged with running an alleged Ponzi scheme. Vaccaerelli and his financial advisory firm, Lux Financial Services, allegedly defrauded at least nine victims in a scheme that lasted more than four years and took in more than $1 million.

James VanBlaricum, 78, was sentenced to 7 years in prison and ordered to pay $322 million in restitution in connection with a Ponzi scheme that he ran through Signal Oil and Gas Co. and Texas Energy Management. VanBlaricum previously pleaded guilty to defrauding investors into buying securities in his oil and gas companies.

INTERNATIONAL PONZI SCHEME NEWS 

Canada

James Harvey Cameron, 66, was sentenced to 11 years in prison, ordered to pay $1.8 million in restitution and a $550,000 fine for tax evasion in connection with a $9 million Ponzi scheme that he ran through Venture Trading Inc. About 160 people invested in the scheme.

Benoit Senecal, 61, was sentenced to 2 years and 10 months in prison in connection with a Ponzi scheme that defrauded more than 200 investors out of $19 million. Sophie Jolicoeur, 48, and Jean-Mark Lavallee, 69, have also been charged in connection with the scheme.

Harold Backer, 54, is facing disciplinary proceedings over an alleged Ponzi scheme involving about $1,230,000 taken from at least 6 clients and 2 individuals. Backer disappeared in 2015 after failing to cooperate with an investigation into his conduct, but turned himself in about 18 months later.

Yian “Ethan” Sun and Yulan “Amy” Hu have been sued by both employees and investors in Istuary Innovation Labs Ltd. who allege that the tech company is running a Ponzi scheme. The company has 400 workers in North America and 1100 in China and has now closed its Vancouver office. The company was started in 2013 with the goal of linking high tech start-up companies in Canada with potential customers in China.

China

Ding Ning, the founder of Ezubao and chairman of its holding company Anhui Yucheng Holdings Group, was sentenced to life imprisonment in connection with the $7.6 billion Ponzi scheme that defrauded about 900,000 investors. Ding Dian, brother of Ding Ning, was also sentenced to life imprisonment, and 24 others received sentences ranging from 3 to 15 years. 

India

Kamalakanta Pattnaik, the founder of Sai Pragati Assets and Properties Pvt Ltd. was arrested in connection with an alleged Ponzi scheme.

Sanjit Bhowmik and Mithun Chatterjee were arrested in connection with alleged Ponzi schemes run through Sagarika Realtors Projects India Ltd. and Sagarika Mutual Benefits Funds Ltd.

Mugundhan Gangam, Sellathrurai Bhaskar, Chella Dhuri, Amal Raj, Ram Krishna Murthy and Kamal K Bakshi were charged in connection with an alleged Ponzi scheme run through Unipay 2U Marketing Pvt Ltd and Unigateway 2U Trading Pvt Ltd.

New Zealand

Hamish McIntosh, a defrauded investor in the scheme run by Ross Asset Management, is liable for interest on the $454,047 judgment against him to return fictitious profits received from the scheme. The High Court ruled that not only must the fictitious profits be returned, but McIntosh is liable for interest at 5%. The McIntosh case is a test case and the liquidators of Ross Asset Management intend to pursue other investors as well.

Shane Richard Scott, 60, pleaded guilty to running a $5.4 million Ponzi scheme that promised investors high returns from property developments and overseas investments. Scott told investors he was investing their money in brokering deals in Thailand, the diamond trade, South African trade deals, and a chicken farm in New Caledonia.

South Africa

Sandile Mantsoe, 27, has been accused of running a Ponzi scheme through his company, Trillion Dollar Legacy. At least 124 people claim that Mantsoe scammed them through his forex trading company. Mantsoe was previously arrested for the murder of his girlfriend, Karabo Mokoena.

Graeme Minne, 54, and his wife, Carolina Minne, 52, were sentenced 15 years and three year house arrest, respectively, for a Ponzi scheme that promised high returns of up to 65% from forex trading. The scheme took in about R278,786,853 from about 934 investors.
  
Thailand

Officials raided the house of Pudit Kittihradilok, the managing director of The System Plug and Play Company and Innovation Holding Company. The scheme is alleged to have defrauded over 5,000 investors.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

The Eleventh Circuit affirmed a lower court order denying the motion of the United States to dismiss a complaint against it filed by a bankruptcy trustee seeking avoidance of the debtor’s federal tax payment.  The trustee alleges that the tax payments were fraudulent made by DBSI, Inc. Zazzali v. U.S. (In re DBSI, Inc.), 2017 U.S. App. LEXIS (9th Cir. Aug. 31, 2017).

Thema International Fund PLC, an Irish fund that sent investor money to Bernard Madoff, agreed to pay the trustee over the Madoff scheme $687 million to settle claims.

The receiver in the Arthur Nadel Ponzi scheme made an additional distribution of $5 million to about 400 victims who were defrauded in the scheme. This brought the investors’ total recovery to 52% of their losses. This was the seventh distribution, bringing the total to $68 million.

Ritchie Capital Management lost its request to terminate the receivership over the assets of Thomas Petters. U.S. v. Petters, 2017 U.S Dist. LEXIS 158769 (Sept. 27, 2017).

The liquidating trustee of Banyon 1030-32 LLC, one of the feeder funds in the Scott Rothstein $1.2 billion Ponzi scheme, filed a lawsuit against Harden & Associates, claiming that the insurance broker’s negligence caused the fund’s insurers to deny coverage. The firm had been hired to obtain $70 million in commercial crime insurance to protect the fund from theft by Rothstein.

Prosecutors withdrew a motion to shorten Scott Rothstein’s 50 year prison sentence, saying that he lied to the government and violated the terms of his plea deal. They had asked the judge to reduce Rothstein’s sentence because of his help in bringing down about 30 others in connection with the scheme. Rothstein intends to object to the prosecutors' decision.

Hunton & Williams LLP settled allegations that it aided Robert Allen Stanford in his $7 million Ponzi scheme. The settlement involves payment of $34 million that will go to benefit some of Stanford’s thousands of victims.

The receiver of the Stanford Financial Ponzi scheme was denied his post-verdict request to revive an $88 million fraudulent transfer claim against Gary Magness. The receiver, who believes that court gave improper jury instructions on the standard for a good faith defense, has vowed to appeal the ruling.