The
Ponzi scheme news for the month of November was as strong and steady as ever. Here
is the summary of the stories that were reported this month. 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.
Mark Akins was
ordered to pay $340,000 restitution in connection with a Ponzi scheme that
defrauded 82 investors of more than $1 million. Akins was accused of being the
chief marketer of the fraud run by Frederick
H. K. Baker, in which investors were told their money was being invested in
foreign currency trading using a foolproof algorithm that paid 15% profits
every month. Akins was sentenced to 27 months in prison earlier this year.
Baker is serving a 41-month prison sentence and must pay $776,336 in
restitution.
Philip Barry,
previously convicted of operating a Ponzi scheme that defrauded investors of $27
million, saw his conviction affirmed on appeal. The Second Circuit concluded
that any evidentiary error was harmless in the face of the evidence of the
fraud, including a seized note on which Barry had written to himself, “I’m just
a crook running a Ponzi scheme.” United
States v. Barry, 2012 U.S. App. LEXIS 23275 (2d Cir. Nov. 13, 2012).
Jack Brown, the
owner of Brown’s Tax Service, has
been accused of running a Ponzi scheme. Brown’s Tax Service was closed, and a
sign was posted that read: “Due to health issues, Brown’s Tax Service is closed
as of November 6, 2012.” However, Brown’s Tax Service has been accused of
running a scheme in which nearly a thousand investors lost more than $4 million.
James R. Cruise Jr. was
charged in connection with a real estate Ponzi scheme that defrauded 25
investors of more than $1.2 million. An administrative complaint was filed
seeking a cease and desist order against Cruise and his company, The Austin Group.
Brad Demuzio of
Idaho was sentenced to prison after being charged by the CFTC with operating a
$1.8 million commodity pool and foreign currency exchange Ponzi scheme through
his company, Demuzio Capital Management.
Demuzio defrauded at least 16 investors and falsely represented that their
principal was safe and that they were earning profits.
Ramon Desage was
ordered to stop gambling while awaiting trial in connection with charges that
he ran a $75 million Ponzi scheme. DeSage is accused of running a Ponzi scheme
using his company Cadeau Express,
which described itself as a “unique company that caters to hotels and casinos
who roll out the red carpet for selective guests and high-end gamblers.”
Alex Dowlatshahi and Christopher Mills must disgorge more
than $766,000 in ill-gotten gains from the Ponzi scheme run by David Allen, the
co-founder of China Voice Holding.
The specific findings were: “Court finds Dowlatshahi jointly and severally
liable for disgorgement of ill-gotten gains with his entities: (1) Lucrative
[Enterprises Corp.] to disgorge ill-gotten gains of $300,454, (2) [Strategic
Capital] Synergetic [Solutions LLC] to disgorge ill-gotten gains of $24,091,
and (3) relief defendants Darius Assets to disgorge ill-gotten gains of
$305,989.” The court also found that Mills should disgorge ill-gotten gains of
$2,165 and found Mills jointly and severally liable for disgorgement of
ill-gotten gains with his entities: (1) Sleeping Bear [LLC] to disgorge
ill-gotten gains of $116,219 and (2) Silver Summit [Holdings LLC] to disgorge
ill-gotten gains of $18,025.”
Tim Durham, 50,
who was convicted of charges relating to his Ponzi scheme run through Fair Finance Co., was sentenced to 50
years in prison. Durham had objected to a
pre-sentencing report that recommended 225 years in prison and restitution of
$209 million. Durham has asked for a five year prison term. Durham’s
co-defendants, Jim Cochran and Rick Snow, are also scheduled to be
sentenced and face 145 years and 85 years, respectively. The defendants
misappropriated funds from Fair Finance, leaving the company without the
ability to repay about 5,000 investors who had purchased more than $200 million
unsecured investment certificates. Durham and Cochran used investor funds to
sustain their lavish lifestyles, which at one point included more than 40
classic and exotic cars worth over $7 million, a $3 million private jet, and a
$6 million yacht in Miami.
Jedidhah “Jed” Duarosan, of
Maui, Hawaii, was scheduled be sentenced in connection with charges relating to
the operation of a Ponzi scheme in which she collected approximately $882,000
from six Maui families. Duarosan fired her attorney at her sentencing hearing
and asked to be represented by David Miller, who Duarosan claimed to be a
federal judge. The court ordered Duarosan, who was free after posting a bond,
to be held in jail overnight pending a hearing to determine who represents
Duarosan.
James F. Ellis, 69, of
Florida was indicted in connection with an alleged $11 million Ponzi scheme
that targeted members of the Wilton Manors gay community. Ellis is accused of
being the front man for adviser George
Elia, who is accused of defrauding investors through his company, International Consultants & Investment
Group Limited Corp. Ellis allegedly pretended that Elia was a financial
whiz capable of generating large returns for investors. Elia had promised
investors quarterly returns of 40%. Ellis received monthly payments from Elia
that often totaled $20,000 - $25,000 which were “kickbacks” given in exchange
for Ellis’s recruitment of new investors to Elia’s scheme.
Robert E. Estupinian was
sentenced to 66 months in prison in connection with the Ponzi scheme run
through Vesta Strategies. Vesta
represented that it was a safe and financially secure Section 1031 exchange
company, that client deposits would be held by Vesta, and that client deposits
would be returned at the time of redemption. Vesta collapsed in 2008 with $25
million owed to depositors. Estupinian, along with John D. Terzakis and Peter
Ye, pleaded guilty to charges in connection with the scheme. Terzakis was
previously sentenced to 84 months.
Donald R. French, Jr. of
Florida is thought to be the youngest Ponzi schemer ever. He launched his $10
million scheme at the age of 21. French saw his arraignment postponed in connection
with charges that he ran a Ponzi scheme through his company, D3 Capital Management, which promised
investors returns of up to 50% per year with investments in foreign currencies,
emeralds and a solar energy project in Italy. He used investor funds to buy a
home in Rome and to travel to 30 countries. He was also a high roller in Las
Vegas. French was detained in South Africa and brought back to Las Vegas for
passing bad checks.
Joseph Greenblatt, 50, of
New York was sentenced to 6 to 18 years and ordered to pay more than $23
million in restitution for stealing more than $31 million through his Ponzi
scheme run through Maywood Capital,
a real estate investment company.
Robert Hague-Rogers, 76,
was sentenced to 10 years in federal prison and ordered to pay $9.34 in
restitution in connection with a Ponzi scheme that he ran through HR Financial Services and HR Sales and Marketing. Rogers made
unauthorized loans against employer-sponsored health plans to repay investors
holding promissory notes with interest rates of up to 15%. He used the funds for
personal expenses including leases of luxury vehicles, house payments and
taxes, and private life insurance policies.
Lawrence H. Heim, 72,
of Oregon, was sentenced to 51 months in prison and ordered to pay
$4,057,003.87, in connection with the $4 million Ponzi scheme he ran through U.S. Gold & Silver Investments, Inc.
Heim operated a website and hosted a radio program in which he advertised the
sale of gold and silver coins and calculated the future value of gold. Many of
Heim’s approximately 48 victims were elderly individuals who had purchased
coins with funds from their retirement savings.
Michael
Jenkins and Harbor Light
Asset Management were charged by the CFTC in connection with a Ponzi scheme
in which they allegedly solicited at least $1.79 million from about 377 people.
Jenkins allegedly used $748,827 of investors’ funds to trade gold and oil
futures, stock index futures, and E-mini futures in his personal accounts and
to pay for charges at department and discount stores and gasoline stations, and
for cellular phone bills and airline tickets. The CFTC complaint, filed on
November 20, 2012, alleges that HLAM’s investment agreement falsely represented
to investors that their investment was solely for investing in E-mini futures
and that investors’ funds would be immediately wired to a specific trading
account. However, according to the complaint, most of investors’ funds were
misappropriated by HLAM and Jenkins.
James F. Lagona was
arrested in connection with obstruction of justice charges, among others, that
he tried to use political influence to alter an upcoming sentence relating to a
$5.8 million Ponzi scheme. Lagona was found guilty in connection with a scheme
that defrauded 90 victims and that was run by Guy Gane and his company, Watermark
Financial Services.
Robert Roland Langguth of
Texas pleaded guilty to charges in connection with an alleged Ponzi-style
scheme that he ran through Capital
Finance, Paris Properties, and Paris RE Inc. in which he allegedly
sold ownership shares in real estate bridge loans, even though he was not
licensed to sell real estate or securities. The arrest warrant stated that
Langguth stole between $7 million and $20 million from up to 250 victims.
Irwin Lipkin, 74,
pleaded guilty to charges related to Bernard Madoff’s Ponzi scheme. Lipkin was
Madoff’s first employee in 1964 and retired in 1998, and has said that he was
not aware of the Ponzi scheme before he retired. Lipkin did plead guilty,
however, to falsifying the books on Madoff’s order in making accounting entries
in financial records that he knew were inaccurate. Lipkin and his wife
illegally remained on the Madoff payroll after his retirement in 1998 and
received benefits although they did not work. Lipkin’s son, Eric Lipkin, pleaded guilty in 2011 to
charges that he reported people were Madoff employees so they could receive
retirement benefits.
Gilbert Lopez, 70,
and Mark Kuhrt, 40, two former
accounting executives at Stanford
Financial Group Co., were convicted on criminal charges related to their
alleged assistance to R. Allen Stanford in concealing the Stanford Ponzi scheme
from investors. Prosecutors told jurors that Lopez and Kuhrt meticulously
tracked about $2 billion that Stanford “sucked out” of the bank to fund risky
private ventures including Caribbean airlines, resort developments and
international cricket tournaments. They further charged that the accountants
didn’t disclose these loans or additional funds that Stanford took to
underwrite a lavish personal lifestyle of private jets, yachts and waterfront
mansions. They face possible sentences of more than 20 years in prison.
Jeffery Lowrance, 51, a
United States citizen based in Panama, who operated a New Zealand registered
company, was sentenced to more than 14 years in prison and ordered to repay
more than $17 million. Lowrance had defrauded 452 investors of $31 million in
connection with his Ponzi scheme which he ran through Mentor Investing Group, Inc. and First Capital Savings & Loan, Ltd. Both businesses claimed to
buy and sell foreign currencies and to engage in FOREX trading. Lowrance
misrepresented to potential investors that they would be paid as much as 4 to
7% monthly interest.
Andrew
Mackey, 62, of New York, was sentenced to 27 years in prison and
ordered to pay $6,650,067 in restitution in connection with a Ponzi scheme that
defrauded more than 160 investors who invested almost $12.3 million in his
company, ASM Financial Funding Corp.
Mackey falsely promised investors monthly returns of 10-20% from allegedly
lucrative offshore deals. One of his investment programs was known as the Wealth Enhancement Club. Mackey also
used more than 30 salespeople as intermediaries, paying them $1.1 million in
commissions for recruiting new investors. Mackey’s common-law wife, Inger Jensen, 54, was also convicted
and received a 14 year sentence.
Syed
Qaisar Madad, 65, was charged in connection with a $50 million Ponzi
scheme. Madad was the CEO and co-owner of Technology
for Telecommunication and Multimedia, Inc. (“TTM”). TTM, which first
claimed to be in the business of securing large orders for the supply of
equipment to a video-conferencing company, later transitioned to investments
and trading. Madad stated that his investment strategy centered around both
beginning and ending the trading day with 100% cash. He claimed to achieve
extraordinary returns that regularly exceeded 30% and some years approached 65%
despite never investing more than 10% to 15% of his cash in the market at any
given point. Madad used millions of investor funds to pay his own personal
expenses and the expenses of his wife’s business.
Billy
W. McClintock, 70, and Dianne
Alexander aka Linda Dianne Alexander, 70, were charged with running a $15
million Ponzi scheme that defrauded at least 220 investors. The fraud was
allegedly a “prime bank” scheme that promised annual returns of 38% that was to
be generated by a secret, highly exclusive organization in Europe known as “The Trust.” McClintock and Alexander
told investors that the Trust was created after World War II by a group of
extremely wealthy families, that the Trust owned European banks, and that it had
the power to create money through fractional banking and the sale of bank
debentures. They also represented that access to the Trust was open only to
close friends and family members of current investors, and was subject to
strict secrecy rules. The Trust does not exist.
Paul R. Melbye, 47,
of Texas, pleaded guilty to charges related to the Ponzi scheme of Provident Royalties LLC that Melbye ran
with Joseph Blimline. It is alleged
that Melbye took money from more than 7,700 investors promising 18% annual
returns. Melbye, acting on behalf of Provident Royalties made omissions to
investors such as that Blimline had received millions of dollars in unsecured
loans; that Blimline had been previously charged with securities fraud
violations by the state of Michigan; and that funds from investors in later oil
and gas projects were used to pay individuals who invested in earlier oil and
gas projects.
Brian
Keith Miller, 47, was sentenced to 6 years and 8 months in prison for
running a Ponzi scheme which defrauded 32 victims of nearly $1 million. Miller
led some investors to believe he worked at the investment firm Anderson and
Strudwick after he had been fired. Miller used some of the proceeds to pay
about $2,000 per month on a $380,000 mortgage and other proceeds were used to
repay personal loans, buy vehicles and furniture, pay for travel and leisure
activities, and make home improvements.
Aaron Olson was
sued by his uncle, Eric Olson, in connection with a Ponzi scheme run by Aaron
Olson through his investment company, KMO
Associates. Aaron and Eric had previously been sued by Park Construction,
which alleged that Eric was engaged in a partnership with Aaron. Eric denied
the charges and had filed a complaint against Aaron alleging that Eric was a
defrauded investor and was not part of the fraudulent scheme. Eric has sought
to consolidate his case with the Park Construction lawsuit.
Anand Sekaran,
president and director of Wasson Capital
Ltd., pleaded guilty to running a $2.3 million Ponzi scheme that defrauded
more than 10 investors. As part of his plea agreement, Sekaran agreed to pay
$2.3 million in restitution and forfeit for the proceeds obtained as a result
of the offense.
Feisal Sharif of
Connecticut was charged by the CFTC of operating a $5.4 million Ponzi scheme
that defrauded at least 50 people. The
investors invested in a commodity pool named First Financial, LLC, and they were promised guaranteed monthly and
yearly returns of 1 to 15%. To falsely assure pool participants that their
funds were safe in the pool’s trading accounts, Sharif allegedly fabricated
trading account statements from First Financial and from futures commission
merchants.
Jason Snelling, 48,
was sentenced to a total of 40 years in prison by a court in Franklin County, Indiana
for running a $9 million Ponzi scheme. Snelling ran a bogus day trading
business through CityFund Advisory
and Dunill Investments by creating
fictitious trading statements and failing to do anything more than deposit
investor funds and then spend them to pay earlier investors and to pay personal
expenses. Snelling had previously been sentenced by other courts in Ohio on other
charges related to the scheme and is currently serving time in Ohio as a result
of a plea deal he signed with the United States Attorney for the Southern
District of Ohio. Snelling’s partner, Jerry
Smith, is currently awaiting two state court trials on related charges.
Robert Telthorst, 52,
of Topeka, pleaded guilty to charges in connection with a Ponzi scheme in which
he stole more than $460,000 from client trust funds. Telthorst admitted to
taking money from the account for himself and then covering up the theft by
taking money from other clients’ trust accounts.
Kaveh Vehedi, 51,
of California, has agreed to plead guilty to charges in connection with a Ponzi
scheme he ran through KGV Investments
in which he sold himself as a successful international broker, claiming
connections to projects in Dubai, China, and San Diego. The scheme promised 50%
returns within nine months to some investors, and he defrauded 31 people to
invest over $12 million. Vehedi allegedly used the proceeds to pay for luxury
vehicles, private school tuition and his own properties.
Joseph Weigel, 77,
a lawyer from Milwaukee, was the subject of a proceeding in the Wisconsin
Supreme Court over his license. It was alleged that Weigel ran hundreds of
millions of dollars through his firm’s trust accounts like a Ponzi scheme,
using money from new cases to pay off older clients.
Ron Wilson, 65, of
South Carolina was sentenced to nearly 20 years and ordered to pay $57,401,009
in restitution in connection with his $59 million Ponzi scheme that he ran
through his company, Atlantic Bullion
& Coin Inc. Wilson collected about $90 million from 798 investors in 25
different states by promising them profits from the purchase and appreciation
of silver which Wilson was to purchase and hold at a Delaware depository. The
losses were about $57.4 million. Wallace
Lindsey Howell has also been charged in connection with the scheme. In addition,
Joey Preston and Tracy Neily have also been accused of
fraud in connection with the scheme and the South Carolina Securities Division
is seeking a permanent bar on selling of securities of these two individuals.
Preston and Neily acted as securities agents, although they were not registered
and did not tell clients that neither they nor the investment was registered.
INTERNATIONAL PONZI SCHEME NEWS
Afghanistan
A
new report by Kroll Investigative Firm reveals that Kabul Bank, the largest
financial institution in Afghanistan, has turned out to be a Ponzi scheme.
According the audit, Kabul Bank was an institution linked to President Hamid
Karzai’s government and was siphoning money from the funds deposited at the
bank. The audit found that $861 million, which is around five percent of the
total economic output of the nation, had been spread around to 19 different
people and companies. In total, hundreds of millions of dollars is said to have
been sneaked out of Afghanistan, with some of it even in airplane food trays.
Australia
The
Australian Securities and Investments Commission (ASIC) began seeking large
fines and disqualification orders against the operators of a massive Ponzi
scheme that was run through the Integrity
Plus Unit Trust and the Super Save
Superannuation Trust. The scheme involved about 700 Australians who lost
more than NZ$60 million. The scheme was run through other countries as well,
such as the US, Hong Kong, Vanuatu, the Bahamas, Anguilla, Turks and the Caicos
Islands, though it was principally operated by David Hobbs of New Zealand. Investors were lured into subscribing
to so-called investment education packages and setting up personal offshore
companies. Hobbs made false representations such as that the offshore
investments were legal, that there was no risk of losing money because it was “capital
guaranteed” or “principal protected,” and that the returns would be “around 4%
per month.”
Canada
Milowe Brost was
freed from custody after a judge lowered his bail from $1 million to $2,000.
Brost faces charges in connection with an alleged Ponzi scheme that defrauded
investors of at least $100 million.
Ross Bayne and Lloyd Culham were found guilty of
illegally trading securities in a civil suit and were ordered to pay more than
$500,000. Bayne ran Arcadia Investments and, with Culham, persuaded investors
to invest in a scheme that involved a fake bank and a Danish lawyer, Eli Heckscher. Bayne was involved with
a fraudulent investment company, Morgan
European Holdings, which was not registered to trade in securities. Bayne
and Culham told investors that MEH had a special link to a global bank called
the World Trade Bank, though no such bank exists.
Germany
Eleven
conmen were indicted at Regional Court in Duesseldorf for running a Ponzi
scheme using Business Capital Investors,
a company located in New York and Panama. The fraudsters sold shares in BCI to
more than 1,700 customers promising an annual return of 15.5%. The annual
payments were made with the money of the investors joining later. The Ponzi
scheme was discovered one year ago when 120 policemen made a raid on the conmen
and seized, among other things, a yard on the Dutch Antilles which was acquired
with the money of the victims. The total damage is believed to BCI as high as
EUR 60 million.
Report
by Bernd H. Klose, www.raklose.de
Member of FraudNet, www.icc-ccs.org/home/fraudnet.
Stuttgart
Regional Court has sentenced a 79 year old investment adviser to two years
imprisonment. The investment adviser persuaded long time customers of his
investment advisory firm to invest with a US company promising a yield of 15%.
What makes the case so remarkable is the fact that the investment adviser had
consulted two well-known law firms to receive advice if the investments
introduced to him by the US company was safe. Both law firms denied and advised
not to invest any money into the US company. However, the investment adviser
persuaded eight long standing customers to investments in the amount of EUR 1.5
million. He himself invested EUR 145,000. None of the investors - including the
investment advisor – received any return.
Report
by Bernd H. Klose, www.raklose.de
Member of FraudNet, www.icc-ccs.org/home/fraudnet.
The
Public Prosecution Mannheim has indicted Ulrich
“Richie” Engler, who was extradited from the U.S. to Germany earlier this
year for running a massive Ponzi scheme. According to the indictment, Engler is
accused of having swindled 1,295 investors from Germany, Austria and
Switzerland of EUR 29,000,000.00. Engler offered an investment into US based
companies and promised interest up to 6% per year. According to the indictment,
Engler never intended to make any payments to the investors, but intended to
spend their money for his own lavish lifestyle and to sustain the fraud scheme.
It is unclear yet as to when Mannheim District Court will schedule the trial.
Report
by Bernd H. Klose, www.raklose.de
Member of FraudNet, www.icc-ccs.org/home/fraudnet.
India
Abhay Gandhi was
arrested in connection with a Ponzi scheme that he ran through AISE Capital Management. Gandhi was
wanted in four cases of cheating and breach of trust, and he is accused of
investing investor dollars overseas to avoid paying back investors. Gandhi had
promised investors 10% returns every month. Gandhi has been charged under
section 409 of the IPC, which carries with it the possibility for life
imprisonment. Gandhi has identified Janaksinh
Parmar as having a role in sheltering Gandhi and accepting a large fee for
providing Gandhi safe passage out of the country.
The Securities and Exchange
Board of India (Sebi) served show-cause notices to Beetal Livestock & Farm (P) Ltd, a company that had claimed to
have large goat-rearing farms in northern parts of the country and had solicited investments from the
public with a promise of 2% monthly returns, and doubling of money in three to
four years. The business model involved having investors pay a few thousand
rupees to become owner of a goat, to be reared by Beetal. Investors were told
that as each goat gives birth to four kids a year, the new goats would be sold
to other investors — giving up to four-fold appreciation in the first year
itself. Beetal told investors that the investments could give manifold returns
in subsequent years, with each of the four new goats giving birth to 3-4 kids
the following years.
Mohmamd
Shoeb Diwan was arrested in connection with a Ponzi scheme run through Aliya Enterprises, of which he was the
director. Qutubuddin Saiyed, the
owner of Ailya, was previously arrested in connection with the case. The scheme
promised investors double returns on their investments.
Israel
A
43 year old man from Bnei Brak was convicted in a Tel Aviv court in connection
with a Ponzi scheme that stole more than 5 million shekels from investors. The
man used the money to purchase an apartment building for himself and to buy
other personal things.
New Zealand
The
receivers of Ross Asset Management,
a Wellington fund manager, released a report stating that they have identified
$10.2 million of the $449.6 million that was believed to managed by Ross for
900 investors. The Financial Markets Authority had obtained a freezing order on
the assets of the company’s director, David
Ross, 62, and associated entities. The receivers, PricewaterhouseCoopers,
have noted characteristics of a Ponzi scheme in that investors’ money was
coming into accounts and those funds were being used to pay other investors.
Philippines
President Benigno S. C. Aquino
has ordered a fast-tracked investigation of a scheme run by Manuel Amalilio through the
Malaysian-owned Amman Future Trading.
It is believed that 15,000 investors were involved in the scheme that involved
12 billion peso ($290 million). Aman Futures supposedly promised profits of 20
to 30% in eight days and 50-86% in 18 to 20 days for investments made allegedly
on the company’s non-existent palm oil, mining and futures businesses. It is
reported that charges are being prepared against company chief executive
officer Manuel Amalilio, Mohammad
Suffian Saaid, and an associate, who are now in hiding. Anwar Alvin Zainal,
an insurance agent believed to be an incorporator of the Aman Futures Group
Phils. that operated the scheme, was kidnapped and murdered this week in
Zamboanga del Sur. Pagadian City Mayor Samuel Co and his wife were also officially
designated as accused in the scam.
South Africa
Giel
Mans, accused of masterminding a $5 million Ponzi scheme and of
faking his own kidnapping and trying to bribe a prosecutor, now claims he has a
secret stash of diamonds located in a safe deposit box in London that are worth
$10 million and will compensate his victims. Mans argued that he would only
reveal the secret if he is released from jail on bail. The court declined to
release him on bail after prosecutors expressed concern that Mans would likely
flee if released. Mans, known as a diamond dealer, solicited investors for his
diamond business, promising lucrative returns from his purchase of the best
diamonds and the resale of those diamonds at a huge profit abroad. Rather than
purchase expensive diamonds, Mans merely falsified receipts from various
diamond suppliers.
United Kingdom
Nicholas ‘Beano’ Levene, 48,
was sentenced to 13 years in connection with a Ponzi scheme that involved
between £32 million and £200 million. Levene had offered shares in blue-chip
companies, including HSBC, the Royal Bank of Scotland, Imperial Energy and Rio
Tinto. He claimed he had access to shares unavailable to ordinary investors,
which he would trade at a supposedly huge profit. In fact, he just invested and
lost the investors’ money in the stock market. Levene also spent more than £18
million funding his lavish lifestyle, including £588,000 for his son’s bar mitzvah.
David Bowerman, 35,
was sentenced to 8 years in prison in connection with his Ponzi scheme that
defrauded more than 250 investors, including terminally ill cancer patients,
out of up to £7.5 million. Bowerman sold fake bonds and offered loans under the
pretense that his experience as an FSA-approved financial advisor would help
boost their credit rating. He spent investors’ funds on three Caribbean cruises
and flashy cars including a £38k Audi sports car, a BMW and an Aston Martin,
and he is reported being seen lighting cigarettes with a £50 note. Bowerman
then set up an online bookmaker called Shearer
Hare and encouraged friends and family to invest heavily in it - using the
funds to give the impression of a profit-making business. The business
generated £4.85m but £3.8m soon disappeared through online betting by Bowerman
with an unknown amount blown on his increasingly lavish lifestyle.
NEWSWORTHY LEGAL ISSUES IN
PENDING PONZI SCHEME CASES
In connection with the Ponzi
scheme of John Farahi, which targeted
the Persian community in Beverly Hills California, David Tamman, 45, a former Nixon Peabody securities partner, was
found guilty on charges of conspiracy, obstruction of justice, alteration of
records, and accessory to mail fraud and securities violations. Farahi, through
his company New Point Financial Services
Inc., recruited investors through a daily Farsi-language radio show,
promising that their money would be used to buy low-risk corporate bonds backed
by the federal bank bailout initiative known as the Troubled Asset Relief
Program. Investors lost at least $7 million.
Fairfield Greenwich Group, one
of Madoff’s feeder funds, along with
other related entities, settled their part of a class action suit for as much
as $80.3 million. The settlement will be funded by founder Walter Noel and
other individuals associated with the firm. The settlement, which needs a judge’s
approval before taking effect, provides $50.3 million to the class, which will
get an additional $30 million if that money isn’t used to resolve other legal
claims. A provision in the agreement allows Fairfield Greenwich to cancel the
settlement if too many investors opt out of the deal to pursue individual
claims. The investors are
continuing to pursue claims in the case against Citco Group Ltd. and
PricewaterhouseCoopers LLP.
Fortress Credit purchased more
than $2 billion of claims from Rye Select Broad Market Fund in the Madoff case. Rye settled a lawsuit
brought by the Madoff trustee and assigned unspecified additional amounts of
each of the two claims to Fortress that it was granted under the settlement.
A Bank of New York Mellon Corp.
unit, Ivy Asset Management, agreed to pay $210 million to the state of New York
to resolve a number of lawsuits claiming that the bank concealed doubts about Madoff’s business. An additional $9
million will be contributed by other individual defendants in the cases. Ivy
had been paid more than $40 million to give advice and conduct due diligence
for clients invested in Madoff investments, and those clients lost more than
$236 million in the Madoff scheme. The New York Attorney General announced that
the settlement funds will be returned to investors. The Madoff trustee, Irving
Picard, also reached a settlement with Ivy for $24 million.
Appellate arguments were heard
in the cases filed by Irving Picard, the Madoff
trustee, against various financial institutions, including HSBC Holdings PLC,
JP Morgan Chase & Co, UBS AG, and Uni-Credit SpA. Picard’s lawsuits against
the banks were dismissed by the district court on standing and in pari delicto grounds. Picard argues
that he is not an ordinary bankruptcy trustee and has additional rights and
powers under the Securities Investor Protection Act. The banks answered
pointing to language in SIPA which they argue gives Picard the same rights and
powers as an ordinary bankruptcy trustee and thus is barred from suing.
In litigation pending in
connection with the Meridian Mortgage
Ponzi scheme, new evidence was presented to the court in the case of the
liquidating trustee against Moss Adams, the accounting firm for Meridian
Mortgage. The trustee told the court that Moss Adams had withheld “smoking-gun
emails” which demonstrated that Moss Adams knew that one of its employees had a
romantic relationship with Meridian founder Frederick Darren Berg. The lawyer for the trustee stated that “The
auditor cannot be, if you will, in bed figuratively or literally with the
client,” as such a relationship “would absolutely violate the most basic
premise of auditing.” The employee, Dan Matthias, said his relationship with
Berg lasted about 6 months and says that it is far-fetched to suggest that he
could have influenced the audit work of more senior people in a different part
of the firm.
The receiver of the Arthur Nadel Ponzi scheme obtained
approval to distribute another $22 million to about 340 defrauded investors.
This distribution, combined with an earlier distribution of $26 million, will
bring the total distributed to investors to almost 37%. Most of the latest
money comes from a settlement paid to the receiver by the law firm Holland
& Knight, which agreed to pay $25 million to settle a lawsuit accusing it
of failing to report illegal activities at the Scoop Management hedge funds
operated by Nadel.
The trustee of the bankruptcy
case of Thomas Petters lost his
claims to recover allegedly fraudulent transfers in the amount of $2 million
paid to College of St. Benedict. A federal judge has dismissed the Trustee’s
fraudulent transfer claims against the College of St.
Benedict, allowing the organization to keep $2 million that was
donated by Petters from Ponzi scheme proceeds. Petters, through the Thomas J.
Petters Family Foundation, had paid $2 million to get his parents‘ names on the
school’s auditorium.
The Petters trustee filed a lawsuit against BMO Harris Bank for aiding
and abetting the Petters fraud by ignoring Petters’ huge deposits. It is
alleged that M&I Bank, now owned by BMO Harris, was complicit in the Ponzi
scheme and ignored multiple red flags to protect its lucrative banking
relationship, where more than $35 billion flowed through the account. The
trustee alleged that none of the $35 billion in deposits were from retail
stores, which were supposedly a source of income for the Petters’ operation,
and nearly $70 million was transferred to personal accounts controlled by
Petters.
The
fraudulent claims of trustee of the bankruptcy of Scott Rothstein’s law firm, Rothstein, Rosenfeldt Adler against the
Dan Marino Foundation for $259,000 were dismissed. The court found that Marino
had provided value in exchange for the funds.
Jonathan Hullick, former chief
operating officer and executive vice-president of Gibraltar Private Bank and
Trust Co., has sued Gibraltar and Boston Private Financial Holdings for
wrongful termination in 2008 in relation to the Ponzi scheme of Scott Rothstein. Hullick claims that
while working for Gibraltar he spotted suspicious activity in the bank accounts
of Rothstein and Rothstein’s law firm, and reported it to Steven D. Hayworth
and other Gibraltar executives, who assured him the accounts were “taken care
of.” Hullick further alleges that he was asked to “relax regulatory
requirements” and when he refused, the bank fired him. The complaint further
alleges that Rothstein admitted this year that he had asked Hayworth to fire
Hullick, and that Hayworth promised he “would take care of it.”
A new group of 35 investors sued
TD Bank and Scott Rothstein seeking
$72 million in damages, alleging that the bank was “Rothstein’s key conspirator
in the Ponzi scheme.” It is alleged that the bank legitimized the illegal
enterprise, disregarded red flags that should have exposed the fraud, lied to
investors and covered up incriminating documents.
The
trustee in the Rothstein bankruptcy
case has hired GrayRobinson to help track down missing jewelry. GrayRobinson had
represented JR Dunn Jewelers, who had been sued by the trustee. That lawsuit
settled, and GrayRobinson will now help the trustee tracking the most valuable
diamond connected to the Rothstein fraud, which is an 8.91-carat unmounted gem
worth almost $700,000.
The
receiver of Stanford Financial,
along with several investors, filed a lawsuit for $1.8 billion against the law
firms, Greenberg Traurig and Hunton & Williams, for their role in designing
the “architecture” of the Ponzi scheme and “essentially hijacking the sovereign
island nation of Antigua through the use of political corruption, loans made
with funds stolen from Stanford’s investors, and even writing the laws that
governed Stanford International Bank’s operations.” Attorney Carlos Loumiet worked
at both law firms, but was not named as a defendant in the lawsuit. Yolanda
Suarez, a protégé of Loumiet, was named in the suit. The claims alleged in the
complaint are negligence, aiding and abetting breaches of fiduciary duty,
breach of fiduciary duty, fraudulent transfer, unjust enrichment, negligent
retention and negligent supervision.
In connection with the Ron Wilson Ponzi scheme, the South
Carolina Attorney General’s office filed a complaint requesting that Joey Preston be ordered to return approximately
$1 million that Preston allegedly made as commissions in connection with Wilson’s
silver-buying Ponzi scheme. It is alleged that Preston violated the South
Carolina Uniform Securities Act by bringing in investors without being properly
registered and without doing proper due diligence on the investment he was
recommending. The state’s complaint claims Preston held “silver parties” at his
home for Wilson, where guests received a seminar on silver investment.
The receiver in the ZeekRewards case posted a letter on his
website updating investors and expressing his intention to pursue fraudulent
transfer claims against those who had profited from the Ponzi scheme. The
receiver estimates that there are about 800,000 victims and total losses of $500
million to $600 million. The receiver has recovered about $300 million so far.
Paul Burk, 65, the owner of ZeekRewards.com’s parent company, Rex Venture Group, LLC, has denied that he operated a Ponzi scheme
in response to a class-action lawsuit filed against him and his companies.
Burks has said that said that plaintiffs “knowingly and voluntarily purchased
bids” to participate in ZeekRewards.com.
Kelsey
Grammer was dismissed from a lawsuit in which he had been named and accused of
receiving dirty money from a Ponzi scheme affiliated with the website Staropoly.com. TV actress Lydia Cornell
had sued Grammer, claiming that the website, which was billed as a new social
network, was nothing more than a Ponzi scheme that caused her to lose money.
The
quest for turnover of records from the FBI continues in the Ponzi scheme case
of Blue Mountain Consumer Discount Co.
Investors chose not to serve a subpoena for about 20 boxes of documents seized
by the FBI, even though those records are thought to be needed in connection
with lawsuits filed against Francis
Cinelli and the CEO of the company, Walter
“Buddy” Lambert. The court overseeing the matter had suggested that the
victims serve a subpoena to force the FBI to release the documents. The attorneys
for the victims stated at a hearing that they have not, and do not intend to,
file a subpoena out of concern that it will interfere with the FBI’s criminal
investigation.
The
government announced that it will return $9,000,000 in forfeited funds to the
victims of the Ponzi scheme that was run by the late Ashvin Zaveri of New York. More than 120 victims may be eligible to
receive a share of the forfeited funds. Zaveri was indicted in 2009 on charges
related to his scheme that defrauded investors of approximately $35,000,000 in
connection with “oil and natural gas exploration partnerships” available through
his company Zaveri Oil & Gas Ltd.
