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

Thursday, November 30, 2017

November 2017 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for November 2017. The reported stories reflect at least 9 new Ponzi schemes worldwide and an average age of approximately 49 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.

William D. Allen, 38, had a $15.7 million final judgment entered against him in the SEC case accusing him and co-defendant Susan Daub, 56, of running a Ponzi scheme through Capital Financial Partners LLC, Capital Financial Partners Enterprises LLC and Capital Financial Holdings LLC. They allegedly raised nearly $32 million from investors who were promised profits from loans to professional athletes.

Carolyn Anderson, 44, was sued by the SEC on allegations that she, along with her deceased husband, Michael F. Anderson, had operated a Ponzi scheme through End of the Rainbow Partners. The scheme allegedly defrauded victims out of $2.3 million by advertising annual returns of 12% to 48%. The investors were told that a portion of the training profits were to be donated to a charitable organization founded by Anderson, called The End of the Rainbow Foundation, Inc. The charity was supposed to raise money for abused women and children, but instead Michael and Carolyn used the Rainbow Foundation as a fraudulent device to misappropriate investor funds. A total of $5.3 million had been raised from 18 investors. Michael Anderson had admitted some of the facts relating to the scheme in a confessional affidavit he signed shortly before he died in February 2017. SEC v. The End of the Rainbow Partners LLC, 2017 U.S. Dist. LEXIS 18734 (D. Colo. Nov. 14, 2017).

Golan Barak, 50, had his motion to withdraw his guilty plea denied. Barak had previously pleaded guilty to stealing millions from Israeli investors in a real estate Ponzi scheme that he ran through Ergo Management, but he sought to withdraw his plea.  Barak is scheduled to be sentenced next month.

Pedro Fort Berbel, 55, and his companies Fort Marketing Group LLC and Fort Investment Group LLC, were sued by the SEC in a civil enforcement action alleging that they were running a “paid to click” Ponzi scheme. The scheme allegedly involved $38 million that lured in more than 150,000 investors. The scheme raised money by selling investment products called “ad packs” that supposedly would generate revenues by boosting web traffic for other sites. Investors were promised returns as high as 120% for purchasing an ad pack for as little as $1 and clicking on four banner ads per day. Investor funds instead were used for private jets, cars, and cosmetic surgery, and more than $400,000 went to a jeweler as a “business investment.”

Craig Carton, 48, pleaded not guilty and stated that he is “unequivocally not guilty” in response to charges that he was involved in a Ponzi scheme involving the buying and selling of tickets to sporting and entertainment events. Carton was indicted along with alleged co-conspirator, Michael Wright.

Louise Dalli and Claire Gauci Borda, the daughters of John Dalli, along with Eloise Marie Corbin Klein, Charles Ray Jackson, Elizabeth Jean Jackson, and Robert Mitchell McIvor, were charged with fraud and money laundering in connection with an alleged Ponzi scheme that defrauded evangelical Christians. John Dalli is the former EU Commissioner and has separately been accused of wrongdoing in the past. John has accused journalist Daphne Caruana Galizia and Giovanni Kessler of fabricating the story leading to the charges. The alleged Ponzi scheme was run by Klein who used the aliases of Mary Swan and Lady Bird, and she posed as a missionary, convincing elderly Christians to invest in an African mining project. Instead, the money was sent to two Maltese companies – Tyre Ltd. and Corporate Group – which are owned by Louise Dalli and Borda.

Mark Feathers, 54, has reached a settlement in principal on a plea deal in connection with charges that he defrauded investors through his company, Small Business Capital Corp. Feathers is an investment manager facing securities fraud charges in connection with a $42 million scheme. The scheme allegedly raised over $50 million from over 250 investors and promise them profits from membership interests in mortgage loan portfolio-backed investment funds.

Paul Garceau Jr., 51, pleaded guilty to charges that he ran a Ponzi scheme through his wealth management firm, Apex Wealth Management. Garceau stole over $800,000 from at least a dozen victims, promising them high returns when they withdrew their money from legitimate investments and invested with him instead.

Daniel Glick, 64, was charged in connection with an alleged Ponzi scheme in which Glick is accused of stealing at least $5.2 million from clients in his businesses, Financial Management Strategies Inc., Glick Accounting Services Inc., and Glick & Associates Ltd. The firms purported to provide accounting, tax, investment and financial services, and he told clients he would invest their money and pay bills on their behalf. He is accused of using some of the money to buy a Mercedes-Benz, repay business loans and make payments on his mortgage.

Wayde McKelvey, 54, lost his appeal to trim the charges against him based on a statute of limitations argument. McKelvey was accused of participating in a $54 million Ponzi scheme that promised profits from green technology that would turn trash into fuel and “carbon-negative” housing developments. The scheme was run through Mantria Corp. Troy Wragg and Amanda Knorr, both of whom previously pleaded guilty. McKelvey had raised money for the scheme through his “Speed of Wealth” seminars, telling investors that Mantria was the next Microsoft and that it was “on the cusp of a revolutionary technology that’s going to change the world, and you guys can benefit from it by putting money in and getting stinkin’ wealthy.”

Joseph Meli, 43, accepted a plea bargain in which he pleaded guilty to one count of securities fraud. Meli was a ticket broker accused of running a Ponzi scheme in which he promised investors a 10% return and a share of profits from the resale of tickets to shows like “Hamilton” and other high profile entertainment events. The scheme allegedly defrauded more than 130 investors who invested more than $95 million.

INTERNATIONAL PONZI SCHEME NEWS

Australia

Tony Iervasi, 53, was accused of running a Ponzi scheme that defrauded investors out of $209 million. The scheme operated as Courtenay House and Courtenay House Capital Trading Group and defrauded about 780 investors. Investors were promised 25% returns from supposed investments in foreign currency exchange markets. David Sipina is a joint director of Courtenay House Capital Trading Group and is the sole director of Sipina Enterprizes whose assets have been frozen. The scheme is believed to be the largest ever in Australia.

Canada

Milowe Brost and Gary Sorenson were released from prison after spending only 2 of their 12 year prison sentences. More than 2,400 investors had lost between $100 million and $400 million in connection with their Ponzi scheme.
  
Brian Wilfred Clemens, 49, pleaded guilty and was sentenced to 3 years in prison for his role in a Ponzi scheme involving bridge financing for real estate clients. Clemens collected $1.2 million from nine investors.

A class action was file against HSBC accusing the bank of failing to investigate fraudulent activity by Virginia Tan. Tan solicited more than $30 million from investors in connection with her bridge loan company. One of the bank accounts at issue was in Tan’s name and one was in the name of a company she controlled, Letan Investments.

Lino P. Matteo, the former CEO of Mount Real Corp., was sentenced to 5 years in prison and fined $4.91 million. Matteo was found guilty in September for running a scheme that defrauded more than 1,200 investors out of $130 million. In 2016, Matteo was also sentenced to an 8 year terms for defrauding investors of Cinar Corp. by sending more than $120 million to offshore Bahamian accounts.

England

BitConnect has been given two months to prove “cause to the contrary” that it has been running a Ponzi scheme. The scheme promises up to 40% return on investment each months.  The notice does not identify the people behind the Bitcoin investment platform, but another filing reflects that BitConnect was registered by Ken Fitzsimmons, who holds 75% of the shares in the company.

India

Government agencies began investigating the alleged Pincon Ponzi scheme run by Manoranjan Roy that defrauded 25,000 investors. Roy was arrested along with Binary Singh, Raghu Shetty, and Hari Singh. They had set up multiple shall companies as part of the scheme such as: LRN Finances, ASK Financial Services, Greenage Food Products Ltd, Bengal Pincon Housing Infra Ltd, LRN Universe Private Ltd and Universal Multi-state Credit Co-operative SocietyMosumi Roy, the wife of Manoranjan Roy, was also arrested in connection with the scheme.

GainBitcoin, a cryptocurrency scheme that guaranteed 10% monthly returns, is accused of scamming investors. The scheme, run by Amit Bhardwaj, has left investors with crypto tokens called MCAP that are worth less than 20% of the value of the initial investment supposedly held in Bitcoins.  All investment contracts were terminated with a promise to issue fresh contracts by the start of next year.

Pradeep Sethy, the chief of Artha Tatwa Group, was sentenced to 5 years in prison following his guilty plea relating to the Ponzi scheme.

Charges were brought against the directors of Maitreya Pvt Ltd, including Varsha Satpalkar, Lakshmikant Navekar, Vijay Tavre, Nitin Chaudhary, Janardan Parulekar and Vijay Mistri, for allegedly running a Ponzi scheme that defrauded 7,000 investors. The scheme promised returns of 12.5%. Related companies were Maitrea Realtors, Maitreya Services, Matreya Plotters and Structures, and Maitreya Swarna Siddhi.

Narayan Karmi and his aid Munu Pradhan were arrested for allegedly running a Ponzi scheme through Go Life Trading Pvt Ltd.

Pranati Dash, 48, and her husband, Prasanna Kumar Dash, were arrested in connection with an alleged Ponzi scheme run through Flourish Development India Limited. Sriballabh Prasad Nayak was also arrested in connection with the scheme that collected over Rs crore from 40,000 investors. The scheme involved investments in real estate, production, music, tourism, and the hospitality business.

A case was file against Haldar Realty and Enterprise Ltd. and Halar Vikas Credit Cooperative Society Ltd. for operating an alleged Ponzi scheme. The complaint names, among others, Bhupatsinh Solanki, Arvindkumar Vakhtariya, Anita Vakhtariya, and Hemant Mandloi.

Nigeria

The MMM scheme has again left Nigerians stranded. Over 3 million Nigerians invested in MMM but the scheme announced a “restart” and blamed the fact that it can’t sustain operations on the government and media. MMM announced that “All transactions with old mavros (acquired before this announcement is posted) are frozen. We will gradually buy them back as the system develops. All transactions with new mavros (acquired after this announcement is posted) will be carried out on the usual terms with no restrictions.”

South Africa

Following a protest by almost 800 people demanding payment, David Cupido was given permission to distribute funds to investors that had been frozen when his offices were raided last year. The scheme, 4th Power Investment, had stopped paying investor last year, and authorities raided Cupido’s home, seizing computers and equipment, and also freezing bank accounts.

Singapore

Leong Lai Yee, 53, was charged with defrauding 60 investors out of about $60 million in a real estate Ponzi scheme. She promised investors returns of 10% to 48% from the purchase of distressed properties in Singapore.

South Korea

Police arrested 7 men accused of running a $38 million Ponzi scheme that defrauded more than 3,900 investors. The scheme targeted new investors in the cryptocurrency market and promised them 180% returns.

Taiwan

The Supreme Court upheld the guilty verdicts for Hung Pai-li and Lai Lung-ying, who operated a Ponzi scheme involving Lan Chin Technologies Co. The court also upheld the 5 year prison sentence for Hung and the 22 month sentence for Lai. They defrauded 2,320 investors out of $66.3 million by representing that sales of deep sea water would guarantee an 18.25% to 20% return. The court also upheld the convictions of Lee Ching-feng, and Chen Te-feng and their two year prison sentences for aiding and abetting fraud.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

A group of 27 Chinese investors in the Bar Works scheme sued JP Morgan Chase for $3 million for its alleged role in connection with the scheme run by Renwick Haddow. The lawsuit alleges that the bank knew Bar Works was a Ponzi scheme but still allowed the company to keep a bank account. Haddow has been accused of stealing $37 million from investors.

The Chief Information Officer, David Gledhill, at DBS Bank stated that the bank views bitcoin as a Ponzi scheme.

The Special Master appointed by the Department of Justice began distributing $772.5 million in funds to approximately 24,000 victims of the Bernard Madoff Ponzi scheme. The Department of Justice has collected more than $4 billion in forfeited funds to be distributed to victims.

A proposed class action lawsuit was filed against Chaitman LLP and Becker & Poliakoff LLP alleging misconduct by lawyers representing different classes of victims in the Bernard L. Madoff Investment Securities LLC case being administered in a SIPC proceeding. The lawsuit alleges that clients of the firms were not adequately represented in light of competing interests of the Madoff victims they represented and by allegedly lying to the victims about the trustee’s willingness to settle. In addition to “irreconcilable” conflict, the lawsuit also alleges that over billing took place for “unnecessary” and “often unproductive” work.

A federal judge dismissed a $5 billion class action lawsuit against Proskauer Rose LLP, filed by a group of investors in the $7 billion Robert Allen Stanford Ponzi scheme.

A class action was permitted to proceed against the Louisiana Office of Financial Institutions which alleges that the agency was negligent in turning a blind yet to the Robert Allen Stanford Ponzi scheme. The lawsuit also alleges that SEI Investments Co. aided Stanford Trust and Stanford Group Co. to perpetuate the fraud.

The Fifth Circuit held that American International Group Inc. is not obligated to provide coverage to a company that was a victim in the $554 million WG Trading Co. Ponzi scheme run by Paul Greenwood and Stephen Walsh. Cooper Industries Ltd. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 2017 U.S. App. LEXIS 23349 (5th Cir. Nov. 20, 2017). The court based its decision on the fact that the policyholder no longer owned the funds it had loaned the criminals. 

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.