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, 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.”

Monday, December 31, 2018

December 2018 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for December 2018. The reported stories reflect at least 9 new Ponzi schemes worldwide; about 144 years of newly imposed sentences for people involved in Ponzi schemes; 3 guilty pleas or convictions, and an average age of approximately 51 for the alleged Ponzi schemers. Please feel free to post comments about these or other Ponzi schemes that I may have missed.

Gershon Barkany, 34, was sentenced to 56 months in prison in connection with a $62 million Ponzi scheme that defrauded more than 10 victims. Barkany had pleaded guilty to wire fraud in 2013 in connection with the scheme that persuaded more than 10 people to invest in supposed “risk-free” deals to buy and resell real estate in New York and New Jersey. He fooled investors by creating false documents, including purchase agreements and escrow agreements.

Annette Bongiorno, 70, the former secretory for Bernard Madoff, is seeking an early release from prison. Bongiorno has served two-thirds of her 6-year prison sentence and is asserting that she should be released to home confinement. Bongiorno maintained that she was unaware of Madoff’s Ponzi scheme.

Vincent P. Falci, 59, of New Jersey, was convicted on charges in connection with a $10 million Ponzi scheme. The scheme stole money from the savings of policemen, firemen, and retirement funds for first responders. More than 200 victims were defrauded when Falci told them that their money was conservatively managed and would generate high returns with little risk. Falci controlled investment funds under the names Saber Funds and Vicor Tax Receivables LLP.

Jordan E. Goodman of New York was charged with securities fraud by the SEC in connection with his activities in soliciting investments into the real estate Ponzi scheme known as Woodbridge Group of Companies. The scheme, run by Robert Shapiro, brought in $1.2 billion, and Goodman’s 1,200 clients invested about $147 million of that amount. Goodman helped a company known as Knowles Systems, Inc., owned by Lynette M. Robbins, raise the funds. Robbins was charged by the SEC in connection with the scheme in August. Goodman did not disclose to his clients that he was receiving kickbacks for their investments. He received about $2.3 million in kickbacks. Goodman holds himself out as “America’s Money Answers Man,” and he advertised the Woodbridge investment in media appearances, calling the investments “safe” and “secure.” Alan H. New and David S. Knuth, co-owners of Synergy Investment Services, were also charged. The following additional 10 individuals were also charged: Robert S. "Lute" Davis, Donald Anthony Mackenzie, Aaron R. Andrew, Jeffrey L. Wendel, Randy T. Rondberg, Richard Fritts, Marcus Bradford Bray, Gregory W. Anderson, Claude Steven Mosley, and Gregory A. Koch.

Michelle Labra, 47, of Illinois was charged in connection with an alleged real estate Ponzi scheme that took more than $23 million from more than 25 investors. Labra is a suburban real estate broker who owned and operated Labra Group Realtors. She promised investors returns of more than 14% on short-term, high-interest mortgages to borrowers. However, prosecutors allege that Labra never actually underwrote any loans and told investors that the reason investors were not getting their money and returns was because the IRS had seized the funds.

Thomas Lanzana, 51, formerly of New Jersey and now of South Carolina, was accused of running a Ponzi scheme that defrauded at least 20 people out of about $900,000. Lanzana falsely claimed that he was a successful forex trader, delivered false account statements to his customers showing falsified balances, and sent false tax documents to customers reporting earnings that did not exist. Last year, the CFTC filed a civil enforcement action against Lanzana and Blackbox Pulse, LLC.

Juan Miguel Lopez, 54, of Texas, was sentenced to 79 years in prison for operating a Ponzi scheme that defrauded investors out of $4.9 million. Lopez fraudulently promised investors returns from the supposed financing of small business loans. He targeted Hispanics who were not otherwise able to obtain loans.

Hector May, 77, and his daughter, Vania May Bell, both of New York, were charged by the SEC with running a $7.9 million Ponzi scheme through Executive Compensation Planners Inc. They were accused of lying to investors by telling them their money was invested in bonds when in reality the money was spent to pay for personal and business expenses as well as luxury items such as jewelry, furs, vacations and a limousine driver. Criminal charges were also brought against May, who has pleaded guilty to the charges.

Steve Pagartanis, 59, of New York pleaded guilty to charges relating to a Ponzi scheme that spanned 18 years and scammed 17 victims. Over $13 million was invested in the scheme and there were actual losses of more than $9 million. Pagartanis solicited elderly victims to invest in real estate-related investments that were supposedly secure and earned fixed returns between 4.5% to 8%. Investors were told that their money was being invested in a publicly traded Canadian company called Genesis Land Development. Instead, he used the money to pay for his personal expenses and on luxury items such a jewelry, airline tickets, massages and cigars.

Priceville Partners LLC, a used car and title loan company, was labeled a Ponzi scheme by its bankruptcy trustee, calling it “really no different than a little Bernie Madoff.” Greg Steenson, 49, was the managing partner of Priceville Partners and is currently in jail awaiting trial on charges including theft, forgery, securities violations, and financial exploitation of the elderly.

Ernest Romer III, 57, of Michigan was sentenced to 7 to 20 years in prison for spending $3 million of his clients’ money. Romer worked for CoreCap Investments LLC and targeted senior citizens by convincing them to invest their funds with him. Instead, he used their money for high-risk investments and for personal expenses.

Denise Gunderson Rust and Joshua Daniel Rust were included in the CFTC complaint against Gaylen Dean Rust and Rust Rare Coin, Inc. in which the CFTC alleges that the defendants were running a precious metals Ponzi scheme. Denise and Joshua are accused of knowing that Silver Pool, a commodities pool, was a fraudulent scheme and that they signed checks issued to Silver Pool investors knowing that they were Ponzi payments. The amended complaint also alleges that the pool involves 430 individuals and at least $200 million, up from the 200 individuals and $170 million that was originally alleged.

Brian Thomas Sapp, 38, pleaded guilty to charges relating to his $1.4 million real estate Ponzi scheme that defrauded 20 investors. Sapp claims he was buying distressed properties in Virginia, Maryland and Washington D.C. and would sell them generating returns as high as 25%. Sapp used DocuSign to forge digital signatures on fraudulent contracts to prove to investors that he was supposedly selling houses and generating the returns he had promised.

John Gregory Schmidt, 67, was arrested on charges in connection with an alleged scheme run through Schmidt Investment Strategies Group. Schmidt created false financial statements and sold securities without the knowledge or approval of his investors. Prosecutors have alleged that, “For years, this defendant defrauded a number of investors, many of them elderly or with dementia. He had to keep stealing from more investors in order to cover for the thefts from other investors,” The SEC has also filed charges.

Gary Todd Smith, 49, was sentenced to 40 years in prison and ordered to pay $63.4 million in restitution in connection with a scheme run with his father, Gary Truman Smith, through Smith Advertising, a North Carolina agency that represented local tourism agencies. The Smiths borrowed money from more than 150 investors and the agency was worth negative $169.8 million when it collapsed in 2012.

Jeremy Spence was sued along with others in connection with an alleged Ponzi scheme run through Coin Signals. Spence allegedly held himself out as a successful crypto trader, offering “lucrative returns” supposedly generated through a series of crypto hedge funds including Alts Fund, Long Terms Fund, Evermarkets ICO, and Coin Signals Mex (CSM) Fund. The complaint alleges that the CSM Fund held as much as 1,300 Bitcoin valued at more than $10 million.

Christopher B. Warren, 50, of Florida, was charged in Tennessee with running a solar farm Ponzi scheme in Nashville. Warren founded Clean Energy Advisors, claiming to own solar farms in North Carolina which would be sold to Duke Power. Warren defrauded 60 investors and promised them returns from the supposed sale revenues. Warren pleaded guilty and admitted there was never going to be a sale and that he still owes investors at least $15 million.

INTERNATIONAL PONZI SCHEME NEWS

Australia

Aimee Ploi Pitman, 27, and her partner, Colin Voeuk, 32, were sentenced to seven years in jail in connection with an ATM Ponzi scheme that defrauded up to 17 investors out of $1.7 million. The pair pleaded guilty to benefit by deception. Pitman was a lifestyle blogger who was the face of the scheme.

Chris Marco, 60, has been accused of running a $240 million Ponzi scheme that defrauded 130 investors. The scheme, run through Coastline Group, allegedly promised investors large profits from complex financial deals in Europe.

Cambodia

Huot Sovann is the subject of extradition proceedings in connection with a $400 million Ponzi scheme that defrauded tens of thousands of Cambodians. The scheme was run through Empire Big Capital, Asian Investment Fun, and Investment Consultant Association. The scheme promised returns of 10% on minimum investments of $2,000.

China

Six people were arrested in connection with an alleged $173 million scheme run through financeofchina.com that claimed to be a peer-to-peer lending platform. The scheme allegedly promised annual returns of 14% but did not have a financial license.

England

Mark Starling, 57, was arrested in connection with an alleged £3 million Ponzi scheme. Starling claims to be running three funds – the Pilot Dax Fund, the Shadow Dax Fund, and the Pilot Eurostoxx Fund. He was a self-described “proprietary futures trader” and promised investors returns of 12% to 18% per year.

India

Methuku Ravinder, the chief executive officer of Sun Pariwar Group of companies, was arrested and assets of Rs 14 crore were frozen. Ravinder had been a government school teacher but, unhappy with his salary, he started as many as 8 businesses, such as Sun Mutually Aided Thrift and Credit Cooperative Society Ltd, Methuku Chit Funds, and Methuku Ventures, all operating under the umbrella of Sun Pariwar.

Premkumar aka Mukesh Katara was arrested for defrauding investors in connection with Dream Pacific Vision scheme. The scheme promised investors doubling of their money.

Police arrested 10 individuals in connection with an alleged Bitcoin-related Ponzi scheme called GB21. The scheme defrauded 8,000 investors and promised them 10% or more in monthly returns. Amit Bharadwaj and his brother Vivek had been arrested in connection with Gain Bitcoin earlier in the year. Akash Sancheti and Sahil Omprakash Bagla were also arrested in connection with the scheme.

Babita Ravat, 36, was accused of running a Ponzi scheme through her company, Jeevan Seva Company Pvt. Ltd. Ravat had 20,000 agents luring in investors into the scheme.  Co-owners of the company, Ravi Kadam and Sandeep Behravat, were arrested as was Mustaq Shaikh, who used to work at the company. Harish Labana and Indrajeet Prajapati are still on the run.

New Zealand

Kelvin Clive Wood, 69, pleaded not guilty to charges that he was running a $7 million Ponzi scheme as a foreign trader. The more than $7 million was taken from 18 investors.

Lance Jack Ryan aka Lance Thompson, who was sentenced last year to 7 ½ years in prison for his role in the BlackfortFZ Ponzi scheme that defrauded 900 people, had his sentenced reduced. The scheme had lured in approximately $8.3 million, and about $4.1 million of that was lost as no foreign exchange trading actually occurred. Jimmie McNicholl was convicted and also sentenced to 11 months home detention in connection with the scheme. Ryan had pleaded guilty and appealed his sentence as being too high relative to comparable sentences. Ryan was resentenced to 6 years imprisonment.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

The receiver appointed to administer the Arthur Lamar Adams and Madison Timber Properties LLC $100 million Ponzi scheme case filed a complaint against the law firms Butler Snow and Baker Donelson LLC and two employees of the firms. The receiver alleges that the firms and individuals acted recklessly in advising investors. Both firms and the individuals have denied any involvement or wrongdoing in the matters alleged. Separately, the University of Mississippi agreed to return about $310,000 that was donated to the University by Adams.

The Ninth Circuit upheld a lower court ruling that an investor who referred other investors into the Nationwide Automated Systems Inc. Ponzi scheme was forced to return about $750,000 in referral fees. The court found that the referral fees did not constitute “reasonably equivalent value. Hoffman v. Markowitz, 2018 U.S. App. LEXIS 36243 (9th Cir. Dec. 24, 2018).