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
High Net Worth Investors
Debtors in Bankruptcy
Secured and Unsecured Creditors
Sunday, June 30, 2013
June 2013 Ponzi Scheme Roundup
The month of June saw more Ponzi schemes revealed, more arrests, more guilty pleas, and more prison sentences. Here is a summary of 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.
Matthew James Addy, 34, of Pennsylvania was sentenced to more than 4 years in prison and ordered to pay $2.7 million in restitution in connection with his $3.4 million Ponzi scheme that defrauded more than 40 investors. Addy, a former youth pastor, ran his scheme through his company Edward J. & Co., which was supposedly a wholesaler that operated LaPorte Jewelers. Addy preyed upon members of religious groups with which he was associated. He had pleaded guilty to one count of securities fraud. It was alleged that he gave fictitious invoices and fake updates to investors and that he lied about industry and business connections.
Aldo Baccala, 72, had his preliminary hearing on charges relating to an alleged $20 million Ponzi scheme that defrauded 55 investors. Baccala allegedly promised investors double-digit returns for investments in a nursing home in the Carolinas, a Nevada car wash, and a mushroom farm in Colusa. The judge dismissed 17 felony charges but found sufficient evidence on 135 counts relating to grand theft, securities fraud and elder financial abuse in the alleged Ponzi scheme that targeted many retired people.
Gershon Barkany, 29, of New York, pleaded guilty to charges in connection with a $62 million real estate scheme. Barkany had defrauded investors by promising to invest their funds in "risk-free" properties in New York City and Atlantic City, and that he would then sell them at a profit. The deals were supposed to be risk-free because if Barkany was unable to find a buyer before closing, then the owner of the properties would refund their money. No such deals existed.
Craig Berkman, 71, pleaded guilty to a $13.2 million Ponzi scheme that defrauded more than 120 investors by promising them pre-IPO shares of Facebook, LinkedIn, Group and Zynga. Berkman allegedly used the money to pay off creditors in his bankruptcy case, to pay off investors from an earlier scheme, and for personal expenses. Berkman had served as Oregon’s Republican Party chairman from 1989 to 1993.
Steven Bingaman, 57, did not pay back any of the $1.1 million of restitution that he had agreed to pay in exchange for less prison time. At his sentencing hearing, prosecutors recommended 5 to 15 years, rather than the 2 to 6 years that was previously contemplated. Bingaman had defrauded victims out of $2 million and had promised to pay back $1.1 million over the past 11 months, which he failed to due. The announcement of the sentence was delayed to July.
Brian Bjork was sentenced to 4 years and ordered to pay $1.1 million in restitution after pleading guilty to running what federal prosecutors called a "scam within a scam." Bjork was accused of defrauding 8 investors of $1.4 million in connection with the $50 million Ponzi scheme run by David Salinas, who fatally shot himself 2 years ago. Salinas ran a corporate bond Ponzi scheme that defrauded many college basketball coaches. Bjork used his position as treasurer of the Houston Athletics Foundation to write checks disguised as bond investments, which he then used for his own personal expenses.
Julius Blackwelder, 59, was sentenced to 46 months in prison in connection with his $1.5 million Ponzi scheme that defrauded investors, mostly church members and associates of the Church of the Latter Day Saints, in which Blackwelder was known as Bishop Julius. Blackwelder lost money in commodities trading and has been restricted from future trading. He allegedly provided fraudulent account statements and false updates containing fictitious trades. He spent much of the investors’ funds on the construction of a 7,000 square foot mansion.
John Bravata lost his bid to block the auction of his assets, including his Maserati and Ferrari, which were to be sold at auction by the government following his conviction for running a $50 million Ponzi scheme that defrauded hundreds of investors. Luxury cars, boats and a motorcycle that previously belong to Bravata will be auctioned. Bravata ran his scheme through BBC Equities, LLC and Bravata Financial Group LLC, representing that he was running a successful real estate investment fund that would generate guaranteed returns of 12% annually. Over 400 investors invested $50 million in the scheme.
Ronald and Bonnie Brito pleaded guilty to charges related to their role in a $16 million Ponzi scheme that defrauded at least 250 investors. The scheme was run through GetMoni.com, where investors could supposedly earn profits by loaning money to building contractors at high rates of interest. Co-conspirator John Missitti previously pleaded guilty and is scheduled to be sentenced in September.
Emilee Peterson Buckley, 39, was sentenced to 5 years in prison and ordered to pay $11.3 million in restitution after pleading guilty to running a Ponzi scheme through her company, Calypso Financial. Buckley had misrepresented to investors that Calypso had a net worth of $60 million and was making money from Utah properties with valuable water rights, a precious metals mine, and foreign trading in Hong Kong and Europe. She had promised returns of up to 15% and had brought in more than $13 million in investor dollars.
Razel Canedo was accused of targeting Filipinos in a Ponzi scheme that promised to help the Filipino community by bringing Filipino nurses to the U.S. She sold promissory notes that offered returns of up to 50%. No nurses arrived from the Philippines, but it is alleged that Canedo was building a giant house in the Philippines and was sending money to her family.
Randy Carpenter, 55, pleaded guilty to charges relating to his role in a $100 million North Carolina real estate Ponzi scheme. The scheme related to the development of the Village of Penland, which was to be a complex of luxury homes with shops and boutiques in the Blue Ridge Mountains. Investors were told that they could borrow money from banks for the lots and that the company overseeing the projecting would repay the loans. Carpenter was the engineer and surveyor of the project and received $2 million in fees relating to the transactions. He failed to report all of the earnings on his tax returns.
David Connolly of New Jersey was sentenced to 9 years in prison and ordered to pay more than $18.7 million in restitution for his role in a $50 million real estate investment Ponzi scheme that defrauded about 200 victims. Connolly had pleaded guilty in February. He had promised victims that their money would buy specific properties that would generate monthly rental income, but he used the investors’ money for other purposes.
Richard Dalton, 65, and his wife, Marie Dalton, 60, were sentenced to 10 years and 5 years, respectively, after pleading guilty to charges relating to a $17 million Ponzi scheme they ran through Universal Consulting Resources LLC in which they guaranteed returns to more than 100 investors of 48% to 120%. They represented that they were trading in bank notes or diamonds and that investors would get a monthly profit-sharing check. The investors’ dollars were used to make Ponzi payments to investors and to pay for personal expenses such as $35,000 in custom dental work, the wedding of the Daltons’ daughter, and a house.
James Duncan and Maurice McLeod saw their sentencing postponed after they pleaded guilty to charges in connection with a Ponzi-type scheme that caused losses of $17 million along with mortgage fraud that caused losses of $124.5 million. Duncan and McLeod testified against co-conspirators Hendrix Montecastro and Helen Pedrino in a trial that led to their conviction. Other co-conspirators include Charlie Choi, Cindi Kelly and Thuan Du.
Charlotte Durante, 68, was sentenced to 7 years in prison for her role in a $1.8 million Ponzi scheme in which she promised investors, mostly Haitian investors, returns of up to 18% to front cash for her real estate clients. The money was actually used to benefit her daughter’s history museum, the Museum of Lifestyle & Fashion History.
George Elia, 69, was sentenced to 12 years in connection with his role in the Wilton Manors Ponzi scheme. Elia had pretended to be a successful investment advisor, but more than 40 people lost about $10 million in the scheme. Elia had used some investor money to buy a Rolls-Royce, two Bentleys and about $500,000 in jewelry. Elia and his wife had fled to Cypress in 2012 when investors had filed a lawsuit, but he was arrested a few months later during a visit to Las Vegas.
Donald R. French Jr., 26, was sentenced to a little more than 10 years in connection with charges that he ran a $10 million Ponzi scheme through D3 Capital Management LLC, promising investors returns of up to 50% by investing their funds in foreign currencies, emeralds and a solar-energy project in Italy. French pleaded guilty in March.
James Fry, 59, was found guilty following his trial in connection with his role in the Tom Petters Ponzi scheme. Informant Deanna Coleman testified at the trial and testified that Fry did not know about the Ponzi scheme. But on cross-examination, she testified that Fry’s firm, Arrowhead Capital Management, continued to invest in new transactions with Petters even though Petters was consistently paying obligations late. Fry was not accused of knowing about the Petters Ponzi scheme, but rather he was charged with lying to investors about how his fund worked. Fry had earned about $30 million in fees by bringing in investors.
Robert Hurd, 72, of Los Angeles, was charged by the SEC with defrauding investors out of $1.2 million through his company, Your Best Memories International, in which he sold unregistered securities to raise money for his memory-improvement company. Hurd claimed that one of his products had FDA approval to treat Alzheimer’s disease. The investor funds were funneled to Hurd’s other company, Smokey Canyon, and were used to pay for Hurd’s private car collection. The SEC also sued Kenneth Gross, 76, who worked for Hurd and Your Best Memories.
Francisco Illarramendi, 45, did not oppose the prosecutor’s request to hold a $2 million tax refund in escrow pending his September sentencing in connection with his $500 million Ponzi scheme to which he has previously pleaded guilty. The scheme, run through Michael Kenwood Capital Management Group, the Kenwood Short Term Liquidity, and Venezuela and Special Opportunties funds, may be the largest ever in Connecticut. The prosecutor requested that the tax refund be held because Illarramendi owes the government for his court-appointed lawyers and is subject to an "enormous mandatory restitution." His assets have been frozen in a civil suit commenced by the SEC. Illarramendi’s wife has asked that a portion of the check go to her for living expenses.
Wendell Jacobson and Allen Jacobson and their company Management Solutions Inc. of Utah were the subject of a hearing to determine whether they were operating a Ponzi scheme. Victims disagree with the SEC and the receiver that it was a Ponzi scheme and challenged the assessment of the insolvency of the company given by receiver’s accountant. The SEC alleged in 2011 that they were running a $200 million Ponzi scheme, and the distinction will make a difference in how much the investors receive back when the company is liquidated.
Yusaf Jawed had his sentencing postponed from June to September 9, 2013. His request was unopposed. Jawed ran a $37 million Ponzi scheme through Grifphon Asset Management that defrauded more than 100 investors. His guilty plea calls for a 6½ year prison sentence.
Michael W. Kwasnik, 44, of Philadelphia was sentenced to time served of 5 months and ordered to pay $1.2 million in restitution in connection with charges of misappropriating $1.1 million from a client. Kwasnik has been suspended from the practice of law and is still awaiting the civil and criminal consequences of an alleged Ponzi scheme that he ran which defrauded 73 investors who lost $8.5 million.
Duncan J. MacDonald III, 50, and Gloria Solomon, 71, were charged by the SEC with running a $10 million Ponzi scheme through their company, Global Corporate Alliance. Global was supposedly a health insurance company that had more than 100,000 premium-paying policy holders when in fact it never had more than 40 policyholders. MacDonald and Solomon allegedly manufactured enrollment numbers to induce investments from at least 80 investors who believed that the premium payments would be funding their returns.
Syed Qaisar Madad, 66, a Pakistani-American residing in California, was sentenced to 12½ years for his role in a $30 million Ponzi scheme that he ran though Telecommunication and Multimedia. Madad had pleaded guilty to charges relating to the scheme in which he promised to use a day-trading strategy to generate high returns. Instead, he lost about $9 million in trading and misappropriated over $15 million of investors’ money for personal expenses, such as a house for his daughter, jewelry for his wife and daughters, vehicles, about $6 million to pay personal credit card bills, and donations to charities in Pakistan, India, Egypt and the U.S.
Chris Mathis, 48, former Chief Magistrate in Floyd County, Georgia, faced some of his victims at his criminal trial relating to charges that he was running a Ponzi scheme. Mathis had purchased a cattle farm and took money from investors in connection with that business. It is alleged that he would take money from one investor and instead of buying cattle with it, he would make payments to earlier investors who expected returns.
Robert Medhus, 65, of North Dakota, pleaded guilty to 16 felony charges in connection with a Ponzi scheme that defrauded 19 investors out of at least $935,000. Medhus is said to have used fake account statements printed with his company’s name, Associated Financial, to defraud investors and used their money for his own use rather than investing it in securities.
Stephen Merry, Timothy Durkin, David Petersen and Yaman Sencan were indicted on charges relating to a multimillion scheme in which they promised a steady stream of profits at little or no risk by using a sophisticated computer program to take advantage of temporary price differences among different stock markets. The defendants ran the scheme through Westover Energy Trading Partners and Ramco & Associates.
Elaina Patterson, 53, was indicted on charges relating to a $6 million Ponzi scheme in which she allegedly defrauded 31 investors. Patterson used her position as a personal banker at Bank of America to push fake investment opportunities on her friends and family, promising 10% to 15% and issuing fake certificate of deposit receipts and Form 1099s. She then allegedly began to steal from customers so she could fund withdrawals from investors. She set up accounts in investors’ names without their knowledge, put her own address on the accounts, deposited the investors’ funds and used the money both to fund payments to other investors and to funnel money into her own accounts. She made Ponzi scheme payments of almost $3.8 million, for a net theft of more than $2.1 million.
Sharon Nekol Province, 69, of Missouri pleaded guilty to charges that she ran a $600 million Ponzi-like scheme selling pre-paid funeral services to about 150,000 customers. National Prearranged Services Inc. sold prearranged funeral contracts where customers paid an upfront sum for the contract. Related insurance companies, such as Lincoln Memorial Life Insurance Company and Memorial Service Life Insurance, issued life insurance policies related to the contracts and customers believed that their funds would be kept in trust or the insurance policy. Instead, their funds were used for unauthorized purposes and to make Ponzi-like payments. The company operated for about 16 years from 1992 to 2008.
Richard Reynolds, aka Richard F. Adkins, 52, had his temporary release from custody revoked. Reynolds is accused of running a $5.38 million Ponzi scheme and had been allowed to go home four days a week to work on his own defense, despite a $10 million bail. The prosecutor contends that Reynolds violated the conditions of release when he went to a building next door to his wife’s apartment. Reynolds is alleged to have stolen from at least 140 investors, using his relationships with various ministers, pastors and evangelists to solicit investors.
Jeff Ripley, 60, and Danny VanLiere, 61, were sentenced 6 to 20 years in connection with their Ponzi scheme that defrauded at least 140 investors of between $3,000 and $600,000 each for a total of over $9 million. VanLiere was ordered to pay $3.1 million in restitution, and Ripley was ordered to pay $5.3 million. Their company, API, was ordered to pay $7.6 million in restitution.
Scott Saidel, the lawyer who represented the wife of Ponzi schemer Scott Rothstein, consented to disbarment in Arizona after pleading guilty to helping Kim Rothstein plead guilty to hiding more than $1 million in jewelry. Saidel is also licensed to practice law in Florida.
Duane Hamblin Slade pleaded guilty after his earlier criminal trial resulted in a hung jury. Slade was accused of running a $160 million Ponzi scheme that targeted wealthy Mormons through his company Mathon Investments. Victims, who were largely from the Morman community, made loans to third-party borrowers at high interest rates and were promised rates as high as 120%. The trial for Guy Williams and his father Brent Williams, who have pleaded not guilty, is set to begin June 17.
Maxwell B. Smith, 73, was sentenced to 7 years in prison and 3 subsequent years of supervised release for his role in a Ponzi scheme run through Health Care Financial Partners that defrauded investors out of more than $9 million. Smith had pleaded guilty to selling securities in the form of sham bond offerings, promising them dividend interest of between 7.5% and 9% with tax-free returns. Smith used the investor funds on personal expenses such as gambling, entertainment, travel, and renting a villa in France.
Christopher Varlesi, of Chicago, was ordered to pay more than about $638,000 in restitution and $700,000 civil penalty in connection with allegations by the CFTC that he ran a Ponzi scheme through his company, Gold Coast Futures and Forex. The court also imposed a lifetime trading ban on Varlesi. Varlesi had purported to buy and sell securities and commodities but was not registered or licensed. He allegedly obtained at least $1.4 million from 15 investors, but spent the money on personal expenses, including his children’s tuition and spa treatments.
Anthony Vassallo, 34, of California, was sentenced to 16 years in connection with his $80 million Ponzi scheme that defrauded more than 300 investors. Vassallo had misrepresented that he had developed software that enabled him to make profits of about 3% per month, or 36% per year in securities trading that he did through his company, Equity Investments Management & Trading, with co-conspirator Kenneth Kenitzer. Kenitzer has pleaded guilty and is awaiting sentencing.
Eugene Wilson Sr., 56, of Indiana, was sentenced to 5 years in prison and 4 years of supervised release for his role in a $1.5 million Ponzi scheme. Wilson promised a high rate of return when taking investor funds and promised to keep the funds in an escrow account. Instead, he immediately wired the funds to third party accounts mostly in Europe.
Carl David Wright, 52, a former schoolteacher, agreed to plead guilty to his role in a $1 million Ponzi scheme that he ran through Commodity Investment Group. Wright allegedly promised false returns of 20% to 30% on investors’ money which he said he would invest in hedge funds, commodities, and Quick Trip convenience stores. The CFTC has also filed a civil enforcement action against Wright.
INTERNATIONAL PONZI SCHEME NEWS
Technocash, an Australian electronic transfer company, closed its accounts in advance being named by the SEC for having received funds from the Ponzi scheme known as Profitable Sunrise. Profitable Sunrise had offered investors returns of 1.6% and 2.7% per business day and allegedly defrauded about $100 million from investors as part of a $6 billion money laundering scheme allegedly run by Liberty Reserve. Technocash had acted as agent for cross-border payments for businesses and individuals working in multiple currencies.
Earl Jones, previously sentenced to 11 years in prison for operating a $50 million Ponzi scheme, waived his right to a parole hearing. Jones did not give any reason why he waived his right to a hearing, and his next review has been scheduled for September 2015.
Advanced Global Trading was accused of being either a boiler room scam or a Ponzi scheme. The company sells voluntary carbon credits to retail investors. While carbon credits can be sold or traded legitimately, investors are warned to be careful with this type of investment. There are allegations that Advanced Global Trading is artificially inflating the price of carbon credits that it trades by selling them to new customers. The company allegedly makes a commission on each transaction and will continue to make money as long as new investors continue to buy carbon credits from existing investors.
Kumiko Mikajiri, 69, Susumu Masubuchi, 59, and Katsuya Oishi, 74, were charged with operating a cow-raising Ponzi scheme through their company, Agura Bokujo. The scheme solicited investors to purchase "wagyu" cows with an initial investment of $35,000 to $58,000 per cow, and the cows would then yield returns from their calves. Returns were promised of up to 8% per year, and Agura Bokujo further promised that it would buy back the cow after a few years. Tens of thousands of investors lost about $4.2 billion in the scheme. The company filed bankruptcy in March 2011 after the major Tokyo earthquake, when many investors sought to cancel their contracts out of fear that the cows had consumed contaminated hay from a nuclear power plant. There were 71,000 investors at the time of the bankruptcy.
A new animal Ponzi scheme called "Cattles & Ghee" came under scrutiny by SEBI. The scheme, operated by HBN Dairies & Allied Ltd., raised money for the purchase of cattle and promised investors that their money would double through returns linked to the ghee produced by them.
Subhransu Lenka, the head of Astha International Limited, a money circulation company, was arrested in connection with a scheme that took about Rs 500 crore from investors.
Three Russian nationals and 13 Indians have been accused of wrongdoing in the alleged Ponzi scheme called Mavrodi Mondial Moneybox (MMMIndia), a scheme involving Russian national Sergey Mavrodi, Alexei Muratove, Michael Glukhov and Kilin Adery. Investors were promised returns of 30% per month, but the basis of the scheme was that it was for people "who want to help each other." The investment was called "providing help" and returns on investment were called "taking help." Over 70,000 people had invested in the scheme, which was operated as "a double-the-money-scheme." The Russians went on a hunger strike and were then hospitalized. A court has ruled that they be turned over to the Mumbai Economic Offences Wing.
Premchand Kamble was sentenced to 3 months in jail in connection with a Ponzi scheme that he ran through his company Unique Finance Corporation. About 300 investors were defrauded to invest their money in purchasing cars, and they were promised returns of Rs 7,000-8,000 per month to be generated from renting the cars to BPOs and call centers.
The Odisha Police seized 1,000 silver coins each weighing 100 grams worth Rs 44 lakh from the personal locker of Prashant Das, the chairman and managing director of Seashore Group, located at a private bank. Seashore Group has been accused of running a Ponzi scheme.
The Serious Fraud Office accused financial advisor David Ross, 63, of operating a $450 million Ponzi scheme through his firm, Ross Asset Management, that defrauded more than 900 investors. Ross was arrested and has been charged with false accounting and one charge of theft in what is believed to be New Zealand’s biggest Ponzi scheme. Ross had promised returns of 30% to 40% to investors and claimed to have invested money with a broker named Bevis Marks, but no such person actually existed.
The Russian government is considering amendments to the Criminal Code that establish preventive measures against Ponzi schemes. The amendments propose jail terms and fines for active participants and organizers of Ponzi schemes. The bill defines a Ponzi scheme, which is referred to as a "financial pyramid" in Russian, as "activities to attract monetary funds or other assets from physical persons with repayment of income from earlier attracted funds in cases when organizers are not engaged in investment or any other legal business." Existing laws only provide after Ponzi scheme organizers are charged with fraud, but the amendments provide for preventative measures.
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
The SEC and alleged Ponzi schemer Mark Feathers each filed motions to resolve the SEC’s claims that Feathers was running a $42 million Ponzi scheme through his company SB Capital Corp. The SEC is seeking more than $12.3 million from Feathers which is the approximate amount that the 400 investors lost, plus a $300,000 penalty. Feathers contends that documentation from SB Capital to investors fully disclosed the company’s operations and that the investors consented to borrowing so that he could continue to pay interest at the rate of 7.5%.
The trustee of Bernard Madoff’s company’s Ponzi scheme proceeding appealed a ruling that permits New York Attorney General Eric Schneiderman to proceed with a $410 million settlement with J. Ezra Merkin. The trustee also has claims against Merkin and sought a stay of the Attorney General’s litigation and settlement while the Trustee pursued his claims. The trustee contends that the district court abused its discretion and erred in holding that the Trustee had delayed and waited too long to assert his own claim as trustee.
The Madoff trustee lost an appeal to the Second Circuit regarding his claims against JP Morgan, HSBC Holdings PLC, UniCredit SpA and UBS AG. The Second Circuit affirmed the lower courts’ rulings that the trustee "stands in the shoes" of Bernard L. Madoff Investment Securities LLC and that he is barred by the doctrine of in pari delicto from pursing claims against the banks. As a result of the ruling, the trustee will be unable to pursue approximately $19 billion of claims against JP Morgan, $8.6 billion against HSBC and UniCredit, and $2 billion against UBS.
The liquidators of the U.K.-based Madoff Securities International Limited commenced a civil case in London’s High Court against defendants including Madoff’s brother, Peter Madoff, his son, Andrew Madoff, Stephen Raven and Bank Medici founder Sonja Kohn. The liquidators are seeking to recover $80 million in connection with loans between Madoff’s London and New York operations and payments to Kohn for research.
Bernard Madoff’s art, including drawings by Andy Warhol and Henri Matisse, will be sold to help raise money for victims.
The trustee in the Lou Pearlman bankruptcy case has filed a liquidation plan providing for a 4 cent distribution to creditors. The trustee has recovered about $35 million, much of which will go to secured creditors. Unsecured creditors lost at least $260 million. Pearlman was known as the creator of the bands ‘N Sync and the Backstreet Boys but also ran a classic Ponzi scheme in which he assured investors that their money was safe in FDIC-insured accounts. Pearlman is serving his 25 year prison sentence.
The CFTC sued U.S. Bank for alleged violations of the Commodity Exchange Act in its role in the Peregrine Financial Group, Inc. fraud run by Russell Wassendorf, Sr. The CFTC alleged that U.S. Bank knowingly transferred funds from Peregrine’s accounts which held customer funds, for such things as a divorce settlement payment, a restaurant and as security for a loan. U.S. Bank has denied responsibility. Peregrine and Wassendorf had defrauded more than 24,000 customers of about $215 million. Wassendorf is currently serving a 50 year sentence.
The dispute between Tom Petters and his former lawyer continues over whether Petters’ lawyers told him about a 30-year plea deal that would have been a better deal than the 50 years he received had he accepted it. Petters says his lawyer never conveyed the deal to him, and his lawyer has now responded saying that Petters knew of the potential plea deal offer and rejected it several times. The attorney-client privilege was waived, and the lawyers have filed paperwork including a handwritten note from Petters appearing to reflect that he was aware of the 30 year deal.
TD Bank entered into a $44 million settlement with investor Platinum Partners Value Arbitrage Fund, L.P. in connection with the Scott Rothstein Ponzi scheme. Platinum had alleged that TD bank played a role in helping Rothstein defraud investors by, among other things, telling investors that Rothstein’s accounts held "hundreds of millions of dollars" that didn’t actually exist. The settlement will be paid by a $18 million cash payment and then payment to satisfy Platinum’s approximately $26 million obligation to Rothstein’s law firm’s bankruptcy trustee in connection with an earlier settlement of a fraudulent transfer lawsuit brought by the trustee against Platinum. Platinum is also retaining its $54 million claim in the bankruptcy case.
The Eleventh Circuit handed a victory to the trustee of the law firm of Scott Rothstein - Rothstein Rosenfeldt and Adler - in a battle over assets that had been forfeited by the government. The court found that the government could not trace funds in the bank account of the law firm to proceeds of crime since the bank accounts contained both tainted and untainted funds. The court recommended that the government pursue forfeiture of substitute assets such as Rothstein’s shareholder interest in his law firm and that the government file a claim in the pending bankruptcy case of the law firm.
Defrauded victims of John Schurlknight filed a class-action against his estate seeking recovery of between $6 and $10 million that he allegedly stole from them. Schurlknight died in 2012, after he was accused of running a Ponzi scheme through his law firm, Schurlknight and Rivers Law Firm. The lawsuit names Schurlknight’s wife, his two college-aged children and Citizens Bank of Florence, accusing the family of living a lavish lifestyle using funds stolen from Schurlknight’s clients. As part of his scheme, Schurlknight would settle or otherwise resolve clients' personal injury claims without a client's knowledge, forge the client's name to a settlement check and steal 100% of the proceeds. The clients would believe that their cases were ongoing.
A putative class action against the SEC in connection with the R. Allen Stanford Ponzi scheme was dismissed. The action alleged that the SEC facilitated the $7 billion Stanford scheme, but the court found that the SEC was protected by a law that bars lawsuits over federal official’s discretionary decisions.