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
Monday, September 30, 2013
September 2013 Ponzi Scheme Roundup
Here is the September Ponzi scheme news as we head into fall. 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.
Anthony D’Agostino began his criminal trial on charges relating to an alleged Ponzi scheme that he ran through Commercial Mortgage & Finance. It is alleged that D’Agostino bought Commercial Mortgage in 1997 and brought in 1,400 investors who were owed more than $63 million at the time the company collapsed in 2008.
Douglas L. Bates, 54, and Christina M. Kitterman, 38, were indicted on charges relating to the $1.2 billion Ponzi scheme of Scott Rothstein. Both Bates and Kitterman are attorneys who allegedly assisted Rothstein in his scheme. Bates is said to have drafted false settlement and opinion letters, and Kitterman, as the head of a local office of the Florida Bar Association, is said to have disseminated information representing to investors that the reason payments hadn’t been made to them was because funds has been frozen in connection with a pending bar investigation of Rothstein.
Jack Brown, the Soddy-Daisy tax preparer who was accused of running a $10 million Ponzi scheme, died while his bankruptcy proceedings are still underway. Brown had been accused of using investor funds to buy lakefront property and large homes, among other things, instead of investing the money and paying the 15% returns he had promised investors.
Carmelita Del Rosario, 42, pleaded guilty to charges that she ran a $1.8 million Ponzi scheme that defrauded 49 people and was sentenced to 5 years in prison. Rosario used her data entry job at the Workers’ Compensation Board to defraud 49 victims, who were predominantly Filipinos, by telling them that she could invest money in an investment fund for relatives of WCB workers.
Tim Durham, and co-defendants Jim Cochran and Rick Snow, have filed an appeal with the Seventh Circuit relating to their 50, 25 and 10 year prison sentences, respectively, arguing that investigators should not have been allowed to conduct wiretaps without first showing that ordinary investigative techniques would not work. The co-defendants were convicted of running a $230 million Ponzi scheme through Ohio-based Fair Finance Company that defrauded more than 5,000 investors by promising investors returns of 18 to 24% in connection with the purchase of finance contracts. Durham and Cochran had used much of the investors’ funds on personal expenses, such as more than 40 classic and exotic cars, a private jet and a yacht.
Russell Erxleben, a former University of Texas football player, had his request to be released on bond taken under submission. At the close of a detention hearing, the court stated that it wanted to examine whether there was no combination of conditions that could keep Erxleben from breaking the law while under supervised release. The prosecutor had said that Erxleben “has no qualms about getting others do his bidding” and “he could be a danger to the community if out on bond.” In an earlier court hearing, a court had stated, “He manipulates people. He manipulates them with fear. He manipulates them with guilt. He manipulates them with promises.”
Richard Allen Freer, 67, was charged with running a $10 million Ponzi scheme that defrauded at least 82 victims. The scheme involved reverse mortgages and retirement and college education funds. Freer is a former bank president and was sent to prison in lieu of $10 million bail.
Anthony Fregenti, 41, pleaded guilty to charges of money laundering as part of a Ponzi scheme involving motorcycles and exotic sports cars. Fregenti is required to pay $300,000 to his victims before his sentencing hearing in March 2014 and will face up to 10 years in prison and 20 years of probation, which will be increased to 15 years in prison if he does not pay. Fregenti is also barred from making deals relating to securities, real estate, time shares and insurance policies. Devin Kolb, 32, and Michael Stevens, 46, were also arrested in connection with the scheme.
Edwin Fujinaga, 66, and his company, MRI International Ltd., were the subject of an asset freeze in an action brought by the SEC against them. The SEC alleges that Fujinaga ran an $800 million Ponzi scheme that defrauded over 8,000 people, mainly from Japan, for about 15 years. Fujinaga allegedly deceived Japanese investors and promised them they were buying safe investments with a steady return. He promised to buy accounts receivable from U.S. medical providers at a discount, to try to recover the full value from the insurers, and give investors profits of 6% to 10.3%. The SEC alleged that Fujinaga spent the investors’ funds on his lavish lifestyle, including luxury cars, credit card bills, alimony and child support, and various homes in Las Vegas, Beverly Hills and Hawaii.
C. Tate George, 44, former NBA basketball player and CEO of purported real estate development firm The George Group, was indicted and saw his trial start on charges relating to an alleged $2 million Ponzi scheme. George claimed to have more than $500 million in assets under management and advised investors, including former professional athletes, that he would invest their money in real estate development projects. George promised some investors that their funds would be held in an attorney trust account, and he personally guaranteed the return of their investment with interest.
Michael Anthony Gigante and Marc Stephen Sini, 37, were fined in connection with the settlement of disciplinary proceedings brought by FINRA. Gigante, working for MetLife Securities, referred to customers to Joseph Mazella, who it turns out was running a $14 million Ponzi scheme for which Mazella received a 10 years prison sentence. Sini pleaded guilty earlier this year of promoting gambling in connection with his position at J.P. Morgan Securities at which he accepted and placed bets on behalf of his co-workers.
Michael Anthony Gonzalez, 46, of California, was sentenced to 9 years in prison and ordered to pay $1.7 million in restitution. Gonzalez had operated a $2.5 million Ponzi scheme, claiming he was investing money in tax-free municipal bonds. He also claimed that investors were protected through a New York-based registered broker that he had no real association with.
Jenifer Hoffman and John C. Boschert, of Florida, were charged by the SEC in connection with an alleged $25 million Ponzi scheme that they ran though their company, Assured Capital Consultants, LLC. It is alleged that they misrepresented to investors that their money would be invested in a confidential offshore trading programs that would provide weekly returns up to 50%. Investors were also told that Bryan T. Zuzga was a licensed lawyer that controlled the escrow account at Assured Capital’s escrow agent.
James C. Howard III, 53, of Florida, pleaded guilty to charges relating to his role in the $21 million Ponzi scheme run through Commodities Online (COL) that defrauded over 700 investors. Howard is said to have conspired with co-defendants Patricia S. Saa, Louis N. Gallo, III, and Michael R. Casey by using false materials to solicit investors to invest to purchase ownership units in COL which was engaged in commodities transactions.
Yusaf Jawed settled with the SEC for $34 million in connection with the charges against him for running a Ponzi scheme through Grifphon Asset Management. It is unlikely that he will be able to pay any of that amount, or the $6.4 million he was ordered to pay in his criminal case, since he is broke. Jawed pleaded guilty to charges in April. The SEC alleged that he has defrauded more than 100 investors of $37 million.
Paul Konigsberg, 77, was arrested and pleaded not guilty to charges relating to the Bernard Madoff Ponzi scheme. Konigsberg was the accountant who helped Madoff open an office in London during the 1980s. It is alleged that Madoff steered important clients to Konigsberg, who was paid a monthly retainer of $15,000 to $20,000 and falsified books and trading records to cover up fraudulent transactions. Konigsberg was also sued by the SEC.
David Lewalski had his sentence upheld on appeal to the Eleventh Circuit. Lewalski had received a 20 year prison sentence for his $30 million Ponzi scheme run though Botfly LLC. Lewalski challenged the consideration at sentencing of a letter he had written to his girlfriend in which he “bragged about snookering the prosecutor and probation offer in order to receive a lighter sentence.” Lewalski also challenged the consideration of a $100,000 “getaway” fund that prosecutors had disclosed.
Tina Mangiardi, 50, was sentenced to 7 years in prison in connection with the operation of a Ponzi scheme run through TLM Design and Construction, Inc. Mangiardi had pleaded guilty early this year to charges in connection with her construction project scheme in which she promised returns on a “bid bond investment” where the construction projects never actually existed. It was alleged that she had obtained between $2.5 million and $7 million from investors.
Barry Minkow is facing a third financial charge. Minkow previously served time in connection with the ZZZZ Best investment scam in the 1980s, and is currently serving time for a second fraud case in which he admitted to conspiring to drive down the stock of Lennar Corp. Minkow is now facing charges that he misused funds and defrauded members of the San Diego church where he became head pastor after serving time for the ZZZZ Best scam.
Jimmy Morrisett, 53, of Texas, was sentenced to 9 years in prison and ordered to pay more than $6.8 million in restitution after pleading guilty to running a Ponzi scheme involving fraudulent oil and gas investments in Oklahoma. Morrisett ran his scheme through Red Earth Resources Inc. and Alpine Petroleum LLC and defrauded 238 investors, many of whom were elderly and lost their life savings.
Boyd L. Myers Jr., 52, pleaded guilty to 558 criminal charges in connection with a Ponzi scheme involving pre-arranged funeral services. Myers funeral home had been purchased by Bob Buhrig who is now in the process of trying to make them whole. Buhrig, who has no other connection to Myers or his fraud, has set up a $600,000 “rescue package” by giving them full credit for the principal amounts they had paid to Myers plus 2% interest, good for services at his new operation.
Robert Narvett, 48, has been sued by the SEC in connection with an alleged Ponzi scheme that he ran through Shield Management Group Inc., which purported to be a recruiting agency for placement of sales and marketing professionals. Narvett guaranteed the return of principal investments to his investors plus 20% returns at the end of a specified term. Narvett spent the money on his personal brokerage account, mortgage payments, shopping and dining.
Steven Palladino, 57, indicted earlier this year on charges he ran a Ponzi scheme through his company Viking Financial Group with this wife, Lori Palladino, 52, was indicted on new charges of usury for allegedly demanding 40% interest on a loan. Palladino allegedly ran a Ponzi scheme through Viking Financial and promised investors exorbitant interest rates. The new charges allege that Palladino had contracted a woman to seek a $30,000 payment for a $25,000 loan she had previously received from Viking, which would have resulted in payment of 40% annual interest which is more than double the legal 20% limit under Massachusetts law.
Malcolm Parker, 57, filed an appeal of his 55-month prison sentence which he received in connection with charges that he ran a $28 million movie funding Ponzi scheme. Parker had pleaded guilty to conspiracy to commit fraud and to filing false tax papers. Parker also to testified against Louis Soteriou, his spiritual mentor and partner in the movie “Birth of Innocence,” explaining how Soteriou had used a “mixture of inspiration and fear” to get Parker to raise money, $4 million of which was spent by Soteriou on an unsuccessful spiritual quest. At Parker’s sentencing, the court added 19 months to his sentence, stating, “I see you as being a very culpable participant in the crime.”
Jason Pascua, 39, of Hawaii was sentenced to 4 years in prison and ordered to pay restitution of $1,034,000 in connection with this $1.4 million Ponzi scheme. Pascua had previously pleaded guilty to charges relating to his scheme that defrauded over 30 investors. Pascua ran his scheme through J2 Marketing Solutions, which was supposed to be a concert and nightclub promotions program that would generate returns of 25 – 50%.
Paul D. Pomfret, 49, of Florida and a former member of Penn State’s 1986 national champion football team, was sentenced to 63 months in prison and ordered to pay $1,631,090 in restitution after pleading guilty to charges relating to a Ponzi-like scheme in which he stole $500,000 from an investor and used the money to pay off earlier investors in his hedge fund, PDP Capital Investments.
Craig Podosek, 61, pleaded guilty in the middle of his criminal trial to charges relating to an $800,000 Ponzi-like scheme which defrauded a church and elderly victims. Podosek and taken over $300,000 from the Three Steeples United Church and paid a $175,000 debt he owed to someone else. Podosek was also accused of abusing a power of attorney he had been granted in order to pay the church back and to renovate his office.
Richard Reynolds aka Richard Adkins, 52, is seeking dismissal of criminal charges against him related to allegations that he ran a multi-million Ponzi scheme and failed to register a security and failed to register as a securities salesperson. Reynolds’ defense team is arguing that his right to a fair and speedy trial was violated. Reynolds has been in jail for over 400 days, and Reynolds blames the delay in a trial on prosecutors, who he says that the prosecutors’ production of more than 15,000 documents was “discombobulated,” among other things. The hearing is scheduled for October 7, 2013.
Jonathan E. Rosenberg, 44, and Richard Shusterman, 50, were indicted as alleged co-conspirators in a $278 million Ponzi scheme. Rosenberg allegedly operated three companies involved in the scheme, one of which was Account Receivables LLC, in which the defendants represented that they had acquired at a steep discount billions of dollars worth of soured medical debts which were uncollectible by hospitals from their patients. Shusterman ran the scheme through International Portfolio Inc., which sold the fraudulent debt portfolios to hedge funds and other investors. Robert Feldman, 65, and Douglas A. Kuber, 53, pleaded guilty in 2012 and have not yet been sentenced.
Kim Rothstein, the wife of convicted Ponzi schemer Scott Rothstein, has asked for another sentence delay so she can testify against others in the case. Kim Rothstein hopes to get a reduced sentence in exchange for testimony against two men accused of assisting her in selling about $1 million worth of jewelry that was subject to forfeiture by the government in connection with Scott Rothstein’s Ponzi scheme. The court agreed to one more sentencing delay until November 12, 2013, but warned that this is the last one.
Ralph A. Saviano, 72, was sentenced to 27 months in prison and ordered to pay almost $700,000 in restitution for his Ponzi scheme that he ran through Centaurus Financial Inc. and Saviano Financial Group. Saviono defrauded about 300 clients, many of whom were between the ages of 60 and 85 and who he knew were about to receive significant amounts of cash. Saviano used the investors’ funds to make payments to other clients and on personal expenses, including $33,000 for granite countertops and other home improvements, jewelry, clothing and a family vacation to Aruba.
Jason Severs, 39, was sentenced to 25 years in prison for running a $1,000,000 Ponzi scheme that defrauded 30 people. Severs had pleaded guilty securities fraud involving a person over 60, selling unregistered securities and failing to register as a securities professional. He has indicated that he plans on appealing his sentence.
Lynn A. Simon has been accused of running a $1 million Ponzi scheme. Simon allegedly offered investors the opportunity to invest in his company and promised them a high rate of return that he never delivered. Simon allegedly defrauded at least 12 people when he offered them an opportunity to invest in his “special company.” He operated two companies, The Insurance Shoppe and Financial Security Planning.
David Tamman, 46, was sentenced to 7 years in prison for his role in obstructing two investigations into the $22 million Ponzi scheme run by John Farahi through his company New Point Financial Services. Tamman is a former Nixon Peabody attorney who was convicted of conspiring to obstruct justice, being an accessory after the fact to Farahi, and aiding and abetting Farahi’s false testimony before the SEC. Farahi had been previously sentenced to 10 years in prison and ordered to pay more than $24 million in restitution to 59 victims.
Kenneth Case Tebbs, 42, was sentenced to 6½ years in prison following his guilty plea to charges relating to his $49 million Ponzi scheme that defrauded 100 investors. Tebbs ran his scheme through two real estate investment companies called Twin Peaks Financial Inc. and MNK Investments Inc. He solicited investments to buy houses and undeveloped land in Utah and promised returns of up to 18%, plus an origination fee of up to 5%.
George Louis Theodule, 52, was indicted on charges relating to the operation of a $30 million Ponzi scheme that targeted investors in the Haitian-American community. Theodule, who was already the subject of an SEC action that resulted in a $5.5 million disgorgement order, was alleged to have raised more than $23 million from thousands of victims through fraudulent, unregistered offering securities. The indictment states that Theodule induced individuals to invest money with his companies, Creative Capital Consortium LLC and A Creative Capital Concepts LLC, and that he promised them he would double their money in 90 days.
Joseph Zada was indicted on charges relating to a Ponzi scheme that defrauded at least 26 victims. Zada represented that he was the illegitimate son of a Saudi oil billionaire to impress investors. One victim, former Detroit Red Wings forward Sergei Federov, lost about $43 million in the scheme.
INTERNATIONAL PONZI SCHEME NEWS
A class action suit was permitted to proceed against defendants Rashida Samji, Arvin Patel, Royal Bank of Canada, Toronto-Dominion Bank, Coast Capital Savings Credit Union, Vancouver City Savings and Worldsource Financial Management Inc., in connection with a Ponzi scheme operated by Rashida Samji through Mark Anthony Investment. The plaintiffs, Lawrence Brian Jer, Jun Jer and Janette Scott have alleged breach of trust, knowing assistance in breach of trust, fraud and negligence. The class claims are believed to be in the range of $30 to $40 million.
Abbas Haider Naqvi, Muhammad Arif Khan, Mohammad Sadiq Khan, Syed Haider Farosh Naqvi and Ahmed Rahman were each fined Rs400 million for their role in the Ponzi scheme run through Big Board. Big Board had promised returns to investors of 15%.
Saba Zaman, Faisal Nadeem and Sameen Jan were sentenced to prison for their role in a Ponzi scheme. Zaman was sentenced to 12 years and fined Rs50 million, Nadeem was sentenced to 10 years in prison and fined Rs30 million, and Jan was sentenced to 5 years in prison and fined Rs10 million.
Eammon Kelly lost an appeal of his 6 year prison sentence in connection with his €1.6 million Ponzi scheme. Kelly defrauded 25 investors by promising them €15,000 in profit on a €50,000 investment within 6 months if they purchased valuable sites in the UK. Kelly forged letters from Ulster Bank and a solicitors firm in connection with the scheme.
The liquidators in the David Ross Ponzi scheme case posted information on their website which investors contend will impact their ability to recover money they lost in the scheme. It appears that the liquidators may not pursue clawbacks of profits to investors. The liquidators’ website can be found at: www.pwc.co.nz/ross-group/frequently-asked-questions/
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
In the Ponzi scheme bankruptcy case of Financial Resource Mortgage Inc., the New Hampshire Banking Department has filed about $100,000 in claims. Other claimants have expressed outrage at the claim, alleging that the Department assisted in the fraud by, among other things, failing to apply a law that would have required FRM to carry fidelity bond insurance against this kind of fraud.
R. Mark Hunter aka John Joseph Mark Marino, who was previously indicted on charges of running a Ponzi scheme, has been sued by Private Reserve. Hunter is a disbarred lawyer who was previously sentenced to prison for fraud. Private Reserve alleges that he assumed another attorney’s identify and ran another Ponzi scheme out of a law office in another state. Private Reserve, claiming losses of $300,000 has sued Marino White O'Farrell & Gonzalez, JM International Commercial Consultants, Abraham Borenstein, and Abraham Borenstein & Associates, and alleges: “that John Joseph Mark Marino affirmatively concealed and intentionally withheld from disclosure from plaintiffs the material fact that Marino previously changed his name legally in 2005, from R. Mark Hunter to John Joseph Mark Marino, and immediately thereafter surreptitiously and fraudulent acquired the identity of a licensed attorney admitted to practice law in the State of New York named John Joseph Marino, admitted 1966, New York State Bar Number 1025360, and materially misrepresented himself as an attorney to plaintiffs and others.” The complaint also alleges that “Hunter was previously charged, tried, convicted, and sentenced to four years’ incarceration in a Swiss penal institution for committing criminal offenses in connection with operating a Ponzi investment scheme.” It further alleges that Hunter was also indicted in 2010 for engaging in “a scheme to defraud victims through a series of Ponzi investment trading programs that in fact did not exist.”
A ruling in the case of Bernard Madoff’s Ponzi scheme was issued relating to whether victims are entitled to include “time-based damages” in their loss calculations. The court found that they were not. More than 1,000 claimants had argument that they should be compensated for the use of their money for the time that their funds were invested. See In re Bernard L. Madoff Investment Securities LLC, 2013 Bankr. LEXIS 3747 (Bankr. S.D.N.Y. Sept. 10, 2013). The court noted that the victims had not bargained for guaranteed rates of return or inflation protection and that it was impossible for the claims to reflect “market reality” because the final account statements were fabricated.
The special master, Richard Breeden, appointed to distribute $2.35 billion of forfeited assets in connection with the Bernard Madoff Ponzi scheme, announced that he will share his plan for distribution in a few weeks.
The court in the criminal trial of Annette Bongiorno, Joann Crupi, Daniel Bonventre, George Perez and Jerome O’Hara, each facing charges related to the Bernard Madoff Ponzi scheme, denied a motion by the prosecutors to bar jurors from hearing evidence that Madoff was involved in a love triangle with one of the defendants and of other office romances. The trial is scheduled to begin on October 7, 2013.
Investors’ claims arising from the Madoff scheme against JP Morgan Chase and Bank of Mellon were dismissed. The claims of investors Dana Trezziova and Neville Seymour against foreign investment feeder funds and the banks were dismissed. The Second Circuit dismissed the claims against the bank under SLUSA, The Securities Litigation Uniform Standards Act.
The court overseeing the Management Solutions Inc. case issued a lengthy opinion establishing some parameters for the use of the Ponzi scheme presumption. See SEC v. Management Solutions, Inc., 2013 U.S. Dist. LEXIS 120277 (D. Utah Aug. 22, 2103). The receiver in that case sought to establish a start date for the Ponzi scheme so that he could rely on the Ponzi scheme presumption to establish that the transfers were made with the actual intent to hinder, delay or defraud creditors. The court found that Management Solutions was not a classic Ponzi scheme because its business operations included substantial real estate business operations that generated substantial revenues. The court went on to conclude that it is not appropriate to use the presumption where the operations include legitimate business operations and that such a finding might actually penalize innocent conduct. The opinion ended with the court’s conclusions that the Ponzi presumption should be applied only in those cases “as blatant and as plain as the original Charles Ponzi case and the more recent Madoff case: assetless and fraudulent from day one.”
The claim of two investment funds called Genium was denied in the $350 million Ponzi scheme case of Arthur Nadel, when the court found that sophisticated institutional investors should have recognized red flags indicating that Nadel was operating a fraud. The red flags included things like the fact that Nadel had been disbarred as an attorney in New York, he had numerous judgments against him, and his hedge funds had an implausible track record of high profits that bore no correlation to the stock market. The Trustee objecting to the claim had argued that Genium had failed to perform its due diligence before investing.
A court postponed approval of a proposed $8.2 million settlement in a class action against Bank of America Corp in connection with the Ponzi scheme of Juan Rangel and Financial Plus Investments Inc. It had been alleged that Bank of America facilitated the $20 million real estate Ponzi scheme that targeted Latinos. The court was concerned about whether the $5,000 incentive awards to class representatives were justified.
A settlement has been reached regarding the interest of Scott Rothstein’s law firm, Rothstein Rosenfeldt Adler, in the former Versace mansion which will soon go to auction. The settlement establishes that Rothstein’s firm will have a 9.99% interest in the property, with a possible increase to 49.99%. The co-owner, Casa Casuarina LLC, filed its own bankruptcy case since the settlement was struck, so court approval is still required in both bankruptcy cases. Bids for the 10 bedroom 11 bathroom mansion and a pool lined with 24-karat gold, start at $25 million.
FINRA assessed a $37.5 million civil money penalty against TD Bank for failure to report suspicious activity in connection with the Scott Rothstein $1.2 billion Ponzi scheme. The SEC has alleged that TD Bank and its then regional vice president Frank A. Spinosa defrauded investors by producing false documents and making false statements about the accounts held by Rothstein at the bank. TD Bank also agreed to settle the SEC’s charges and pay $15 million. TD Bank has separately been hit with a jury verdict against it in the amount of $67 million in favor of an investor and has otherwise entered into settlements with other investors totaling in the hundreds of millions of dollars. Spinosa declined a settlement offer, claiming that he was a victim and that he is being “vilified” for the bank’s compliance deficiencies.
A new source of money will be distributed to investors in connection with the Scott Rothstein Ponzi scheme case. The trustee of the Banyon bankruptcy case requested permission to distribute $30 million to investors in the Rothstein Ponzi scheme. The Banyon bankruptcy recently received funds from the bankruptcy case of Rothstein’s firm, Rothstein Rosenfeldt Adler in connection with litigation settlements, mostly with TD Bank. The Rothstein trustee has separately distributed $95 million.
Shook, Hardy & Bacon, the law firm that had advised convicted Ponzi schemer Nevin Shapiro, agreed to pay $5 million to settle aiding and abetting claims that had been brought by bankruptcy trustee of Shapiro’s investment company. The lawsuit sought $110 million from the firm for its alleged role in the $930 million Ponzi scheme. The complaint had alleged that one of the lawyers at the firm grew suspicious that Shapiro’s investment company, Capitol Investments, was violating securities laws and asked another lawyer to investigate the matter. A memo was issued by the firm concluding that Shapiro was violating securities laws, but the lawyer failed to deliver it and thereafter learned of a criminal referral that had been made. Despite those two things, the firm continued to advise Shapiro on the issuance of millions of dollars in promissory notes to investors. The complaint alleged, “Levinson actually encouraged Shapiro’s additional borrowings, telling Shapiro that he needed to make sure to get more funds so Capitol could stay afloat as Levinson knew that if Capitol failed, Shapiro would likely be prosecuted for securities fraud.”
A case against CommunityOne Bancorp in North Carolina in connection with the Ponzi scheme run by Keith Franklin Simmons has been dismissed. Prosecutors had claimed that CommunityOne’s banking unit permitted the $40 million scheme to be operated through accounts at the bank and that the bank had failed to file suspicious activity reports on the customer’s transactions. The bank had entered into a deferred-prosecution agreement in 2011 and has paid $400,000 in restitution to the victims of the Ponzi scheme.
The receiver in the $7 billion Ponzi scheme case of R. Allen Stanford will be making the first distribution to investors of $1 million. The Receiver is holding about $55 million, which he has reportedly obtained approval to disburse, and he is expecting additional funds to be collected.
Investor Kent D. Smith was given leave to amend his complaint against attorney Jeffrey Tew and his firm, Tew Cardenas LLP, which alleged that the lawyer helped its client, Stephen Tashman, perpetrate a Ponzi scheme.
In connection with an alleged $1.2 million Ponzi scheme run by Tranen Capital and its founder Kenneth A. Landgaard, investor MC Wealth Management filed a lawsuit alleging fraud and alter ego. Tranen Capital was a purported life settlement investment fund based in the British Virgin Islands but operating out of the United States. Arthur L. Bowen, an attorney and director of Tranen, The Leo Group, who is the trust fund manager of the assets of Tranen, and Randy W. Bagley and Brock Bagley, who are managers of The Leo Group, were also named as defendants. It is alleged that Traven reported that it had acquired a beneficial interest in insurance policies when it had not actually done so. Tranen purchased life insurance policies during their contestability period, during which such policies have little to no resale value because they are not to be bought or sold during that time period. Torrey Pines Services LLC, who processed the transactions, is also named in the lawsuit.
The tally following the end of the period for victims to submit claims in the Zeek Rewards case, was 173,782 claims filed for more than $550 million. The receiver is holding assets of about $325 million.