Kathy Bazoian Phelps
Senior Counsel in Ponzi Scheme Litigation
and Bankruptcy Matters

Kathy is a senior business trial attorney with more than 25 years experience prosecuting and defending claims for clients involved in Ponzi scheme matters and in bankruptcy proceedings. Kathy’s practice includes recovering assets for clients in complex fraud cases on under standard fee and alternative fee arrangements. Kathy also serves as a mediator in bankruptcy matters, in complex business disputes, and in matters requiring an expert on fraud or Ponzi schemes.

Kathy’s Clients in Ponzi Scheme Cases and Bankruptcy Matters
Equity Receivers
Bankruptcy Trustees
High Net Worth Investors
Debtors in Bankruptcy
Secured and Unsecured Creditors

Friday, October 31, 2014

October 2014 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for October 2014. The reported stories reflect: 8 guilty pleas or convictions in pending cases; over 158 years of newly imposed sentences for people involved in Ponzi schemes; at least 10 newly discovered schemes involving more $500 million in the aggregate; and an average age of approximately 55 for the alleged Ponzi schemers. Please feel free to post comments about these or other Ponzi schemes that I may have missed. And please remember that I am just relaying what’s in the news, not writing or verifying it.

    Ron Battistella was sentenced to 5 years in prison in connection with a Ponzi scheme that he ran through a car dealership known as Steven’s Creek Auto Mall. Funds from investors were solicited to supposedly purchase vehicles for the showroom, and investors received pink slips for the vehicles as collateral for their investments. The scheme involved more than $1.3 million.

    David Boden, 53, an attorney who worked at Scott Rothstein’s law firm, Rothstein, Rosenfeldt Adler, pleaded guilty to charges in connection with that scheme. Boden admitted that he worked with a broker, Richard L. Pearson, on some of the fictitious settlements that Rothstein was selling to investors and that the broker made false statements to one group of investors that lost about $2.4 million. Both Boden and Pearson received commissions on these sales. Pearson has also pleaded guilty to charges relating to his role as a broker in connection with the Scott Rothstein Ponzi scheme. Boden was named in a $37.8 million lawsuit filed by Rothstein investors and filed a personal Chapter 7 bankruptcy petition in 2012.

    Marie Maksche Bontiago, 43, was accused of running a $2 million Ponzi scheme through her franchise of EXIT Realty, Tri-State Group, and Tri-State Investment Holdings, Inc. Bontiago solicited funds for investments in real estate but instead used the money for business expenses. Bontiago promised investors interest of 10% to 40%.

    John C. Boschert, 43, pleaded guilty to charges that he ran a Ponzi scheme under the name Assured Capital Consultants. Boschert, along with Jennifer E. Hoffman and Bryan Zuzga, were accused of running the scheme that defrauded about 100 victims.

    John Bravata, 46, has asked to appeal the $8.2 million judgment obtained against him by the SEC. Bravata had been accused of collecting $53 million from more than 500 investors in a real estate investment scheme. Bravata is serving 20 years in prison and was ordered to pay $44.5 million in criminal restitution. His son, Antonio Bravata, was sentenced to 5 years in prison, and the company’s CEO, Richard Trabulsy, was sentenced to 45 months in prison in connection with the scheme.

    Paul Burks, 67, was indicted in connection with charges that he masterminded the $850 million ZeekRewards Ponzi scheme. The indictment alleges that Burks diverted more than $10 million to himself. Burks is the third person charged in connection with the scheme. Dawn Wright Olivares and Daniel Olivares pleaded guilty and are awaiting sentencing.

    Brian Caisse, 54, was sentenced to 1½ to 4½ years in prison in connection with a $1 million Ponzi scheme run through Huxley Capital Management. Caisse, who had fled to Colombia after police searched his apartment in 2013, pleaded guilty in August. Caisse had graduated from the U.S. Naval Academy in 1985 and the academy's Nuclear Power School in 1986. He later served as weapons officer on the nuclear submarine, USS John Marshall.

    Angela Dawn Campbell, 42, pleaded guilty to operating a Ponzi scheme in which she took $1.6 million from 27 people. Campbell guaranteed investors that they could double or triple their savings in the stock market through her day-trading business.

    Francis Cinelli Sr., 88, was charged with helping his son, Francis Cinelli Jr., file a false federal tax return. The father and son have also been sued in connection with an alleged Ponzi scheme run through Blue Mountain Consumer Discount. Victims allege in the suit that Walter “Buddy” Lambert, the company’s former CEO, defrauded them out of about $5 million and that the Cinellis either knew or should have known. Lambert pleaded guilty last month and Nicholas Sabatine pleaded guilty to related charges as well.

    James Ronald Donahoo II, 36, was sentenced to 4 years in prison and ordered to pay $2.7 million in restitution following his guilty plea in his Ponzi scheme case. Donahoo was known as “The Bamboo Cyclist” and sought funds to supposedly benefit storm-ravaged communities. Donahoo ran his scheme through Paradigm Investing, Inc. and promised monthly returns of 1% to 3%.

    EmGoldex MLM program was charged by the Massachusetts Securities Division with securities fraud in connection with a scheme that promised guaranteed returns of up to 1,105% for recruiting more individuals. Others named in the action are EmGoldEx Team USA Inc., Matthew Michael D’Agati, Joseph Zingales, James Vincent Piemonte, and Jonathan Herman Seigler. The Massachusetts entity was a recruiting arm for EMGX FS Ltd. EmGoldex raised about $500,000 from hundreds of investors.

    Armand Franquelin, 57, was sentenced to 57 months in prison and ordered to pay $5,560,000 in restitution in connection with a Ponzi scheme in which investors were promised 8% to 20% returns for investments in a real estate project called Haven Estates. Franquelin worked with Martin Pool who was previously sentenced to 78 months in prison.

    Edwin Fujinaga and MRI International Inc. were found liable for operating an $800 million Ponzi scheme. Fujinaga had operated a fraudulent investment scheme, promising mostly Japanese investors that their investment was guaranteed. The scheme defrauded more than 8,000 people.

    Ian Campbell Gent had his 8 year prison sentence vacated. Gent had been sentenced in connection with a $6 million Ponzi scheme run through Watermark Financial Services Group Inc. and M-One Financial Services LLC. The Second Circuit rejected James Lagona’s appeal that the sentence was procedurally and substantively unreasonable and upheld his 11 year sentence.

    Barry J. Graham, 59, was charged in connection with the Cay Clubs Resort and Marinas $300 million scheme. Graham is the third officer to be charged in connection with the program that stated that investors could “Retire Rich and Young in Paradise.” Cay Clubs founder Fred Davis Clark, 56, and his wife, Cristal Coleman Clark, 41, were previously charged in connection with the scheme that is believed to have defrauded 1,400 investors.


    Susanne Helbig, 50, pleaded guilty to charges relating to a Ponzi scheme that she ran through her construction company, Genesis Mansions. Helbig borrowed more than $17 million from financial institutions based on falsified loan applications.

    Charles Huggins, 68, was convicted on charges relating to a Ponzi scheme in which he solicited millions of dollars from investors and promised high returns from mining in Sierra Leone and Liberia. Huggins ran his scheme through his companies JYork Industries Inc. and Urogo Inc. The scheme raised more than $4 million from investors, but the funds were not used for mining in Africa. Instead, Huggins spent the money on personal expenditures including $7,200 monthly rent for an apartment and Mercedes car payments. Christopher Butchko and Ann Thomas were named as co-conspirators.

    IFreeX is the subject of an announcement in Massachusetts that the company is a fraudulent scheme like TelexFree but for mobile phones. The scheme is being promoted by Sanderley de Vasconcelos aka Sann Rodrigues, who was formerly a TelexFree promoter. The scheme targeted investors in Brazilian and other minority communities.

    Kevin James, 57, was sentenced to 10 years in prison and ordered to pay $1.3 million in restitution in connection with a $1.4 million Ponzi scheme. James defrauded victims into investment annuities into a fictitious fund called the Financial Security Program.

    Thomas Kimmel, 68, was sentenced to 22 years in prison and ordered to pay $16.5 million in restitution in connection with his Ponzi scheme that defrauded more than 300 investors out of at about $16 million. Kimmel held himself out as a financial adviser in the name of Jesus Christ and built a reputation on kindness and by hosting conferences such as “God’s Plan for His Money” conferences. He used his companies Sure Line Acceptance Corp. and Faithful Stewards to lure in investors, promising some of them returns of 1% per month. Three other officers of the company, James Willis Kirk Jr., Glen E. Smith Jr., and Carol April Graff, pleaded guilty earlier in the year and each received up to 5 years in prison.

    Robert E. Lee Jr., 50, was indicted for allegedly operating a Ponzi scheme. Lee was employed as a broker and financial advisor for various financial investment firms and defrauded clients by claiming that he was investing their funds when he was instead holding their funds in his personal bank account.

    Kevin Loux, 63, pleaded guilty to charges that he ran a Ponzi scheme that netted more than $450,000. Loux was a licensed life insurance and annuity broker in Hawaii and California and failed to invest money that he took from his clients.

    Bernard Madoff offered to put in a good word for five of his former employees who have been convicted and are awaiting sentencing on charges relating to the Madoff Ponzi scheme. The employees are Joann Crupi, George Perez, Jerome O’Hara, Annette Bongiorno, and Daniel Bonventre. Madoff sent a series of emails to the lawyers for the ex-Madoff employees offering to discredit the testimony of Frank DiPascali, the government’s star witness, who was also convicted in connection with the scheme.


    Sean F. Mescall, 35, was sentenced to 16 years in prison in connection with a Ponzi scheme that he ran through Capitalstreet Financial. The scheme defrauded 119 victims and promised them 60% to 80% returns on their investments.

    Frank Mete, 57, was sentenced to 41 months in prison for running a $1.2 million Ponzi scheme, and has also previously been charged with robbing and raping a prostitute while impersonating an officer.

    Roger Miller, 62, was sentenced to 20 years in prison in connection with a Ponzi scheme that defrauded more than 40 victims. Miller sought investments for a pre-construction condo project in Thailand.

    Nationwide Automated Systems, Inc. had its assets frozen after the SEC filed civil charges against the company and its principals, Joel Barry Gillis and Edward Wishner. The court also approved the appointment of a temporary receiver. The alleged Ponzi scheme involved phantom ATM machines and it is believed that the scheme involved $123 million and a few thousand investors. The SEC complaint states that the company records show that it was leasing back more than 31,000 ATMs, but the ATM servicers show that only 253 ATMS were being serviced. A website has been established at
http://www.nasi-nationwideatm.com/. An involuntary bankruptcy petition was also filed against the company but was then dismissed by stipulation between the receiver and the debtor.

    James Nicholson, 48, had his request to shorten his 40 year prison sentence turned down. Nicholson is serving time for running a $140 million Ponzi scheme.

    Luis Felipe Perez, 42, had his 10 year sentence cut in half for assisting in the prosecution of former Hialeah Mayor Julio Robaina. Perez had been convicted in connection with a $40 million jewelry investment scheme. Robaina and his wife were acquitted on tax evasion charges.

    David Prenatt rejected a plea deal to which he had previously agreed, admitting that he had engaged in a fraudulent securities scheme that involved about $13 million. Prenatt now states that he received “ineffective assistance of counsel.” Prenatt was then sentenced to 10 years in prison.

    Aubrey Lee Price, 48, was sentenced to 30 years in prison and ordered to forfeit $51 million in connection with a $46 million Ponzi scheme. Price ran his scheme through PFG, LLC and Montgomery Asset Management LLC fka PFG Asset Management LLC. Price used investor funds to acquire Montgomery Bank & Trust and transferred at least $10 million from the bank.

    Stuart Rosenfeldt, 59, was sentenced to nearly 3 years in prison after pleading guilty to charges for conspiracy that included campaign finance violations. Rosenfeldt had previously pleaded guilty in connection with charges stemming from conduct relating to the Scott Rothstein Ponzi scheme, although it was never alleged that Rosenfeldt was aware of or involved in the Ponzi scheme itself.

    Vincent Singh 
was sentenced to 15 years and 8 months in prison following a guilty plea in connection with a scheme that defrauded hundreds of victims. In sentencing Singh, the court said that Singh’s crimes were “the worst of their kind that I’ve seen in 12 years as a federal judge.”

    Frank Spinosa, 53, was charged with criminal conduct in his role as a former TD Bank officer in the Scott Rothstein Ponzi scheme case. Spinosa is accused of preparing false “lock letters” to give to investors to show that their investments were safe, among other things. The SEC also filed civil charges against Spinosa last year alleging that Spinosa made oral assurances to at least two investors that their money was held in trust accounts holding hundreds of millions of dollars when in reality those accounts held less than $100.

    R. Allen Stanford filed a 299-page appeal to try to reduce or reverse his 110 year sentence.  Stanford argues, among other things, that the U.S. lacked jurisdiction to bring charges against him because his bank, Stanford International Bank, was located in Antigua.

    James Staz and William Staz were charged on allegations that they stole $11 million from clients in a scheme run through Employee-Services.Net, Inc. The company supposedly processed payroll for companies, but the father and son kept the money for themselves.

    Joel Wilson, 32, will stand trial for charges arising from an alleged Ponzi scheme run in Michigan through the company, Diversified Group Advisory Fund LLC. Wilson was extradited from Germany after he was in Europe for over a year. It is alleged that he kept about $600,000 of investors funds after promising them returns supposedly generated from refurbishing and flipping distressed homes for a profit.

    Ron Wilson, 67, pleaded guilty to another charge relating to his $57 million Ponzi scheme run through Atlantic Bullion and Coin that defrauded about 800 victims. Wilson is currently serving a 19 year prison term after pleading guilty to other charges relating to the scheme. Wilson has not, however, pleaded guilty to conspiring to hide money from the federal government when it was alleged that he gave his wife and brother money after his initial arrest; they have been indicted for conspiring to obstruct justice.

    Carl David Wright, 54, was sentenced to 4 years in prison and ordered to pay $817,975 in restitution in connection with a scheme that defrauded victims out of more than $1 million. Wright promised investors returns of 20% to 30%, telling investors that he was putting the money into hedge funds, commodities, and Quick Trip service stores.

    Dennis Wright, 68, was accused by the SEC of running a $1.5 million Ponzi scheme through his company, Axa Advisors. Wright allegedly defrauded 28 customers by persuading them to withdraw funds from Axa variable annuity accounts to transfer to mutual funds with higher interest rates. Instead, Wright deposited the funds into his personal account to pay his expenses.

    Bryan Zuzga was arrested in connection with an alleged $25 million Ponzi scheme that defrauded 100 victims. The scheme was run through Assured Capital Consultants along with Jennifer E. Hoffman and John C. Boschert.

INTERNATIONAL PONZI SCHEME NEWS

Brazil

    Additional raids took place in Brazil to seize assets related to the TelexFree Ponzi scheme. Telexfree is known as Ympactus in Brazil

Canada

    Garth Bailey, 61, was sentenced to 9 years in prison for his role in assisting two others to run a Ponzi scheme by acting as their lawyer. Bailey participated in the scheme run by Robert Fyn and Harold Murray Stark through HMS Financial, which promised investors that their money was safe because it was backed by up to $40 million in bonds. Fyn and Stark had pleaded guilty and were sentenced to 8 and 6 year terms, respectively.

     Banners Broker and its masterminds, Christopher George Smith and Rajiv Dixit, were the subject of accusations that Banners Broker is a Ponzi scheme and an asset freeze. It was alleged that they were operating a pyramid scheme with 12,000 investors that evolved into a Ponzi scheme.


England

    Patrick Coppeard, 49, was sentenced to 6 years in connection with a £5.3 million Ponzi scheme that defrauded 61 victims.


Finland

    Finland’s Supreme Court ruled that 5 investors in the WinCapital Investment scheme must forfeit the proceeds that they earned from the scheme. The court ruled that financial gain from criminal activity must be forfeited not only by the criminals, but also by those who benefited from the criminal activity. The WinCapital scheme had raised more than 100 million euros from over 10,000 investors.

India

    The director of Green Ray International, Avub Shah, was arrested in connection with a scheme that is believed to have defrauded over Rs crore from about 1.5 lakh investors. Other insiders, Mir Sairuddin aka Gora and Abdul Khaliq have also been ordered to appear before the Security Exchange Board of India in connection with the matter.

Ireland

    Breifne O’Brien, 53, was sentenced to 7 years in jail in connection with a $10.8 million Ponzi scheme that involved fake shipping and insurance businesses.

Malaysia

    Manuel Amalilio aka Mohammad Kamal Said, the mastermind of a P12 billion Ponzi scheme run through Aman Futures Group Philippines Inc. in the Philippines, was freed after a Malaysian court declined to extradite Amalilio to the Philippines.

New Zealand

    John David Milne, 79, admitted to running a $2.8 million Ponzi scheme in which he defrauded 29 clients. Milne was a lawyer who had promised to invest his clients’ funds and pay them a return.

South Africa

    Prinasen Dhaver, 29, was accused of running a Ponzi scheme through his profit sharing company, Innovatech International Solutions.

South Korea

    Two men with surnames Kwon, 39, and Lee, 38, were arrested on charges that they defrauded 614 people of $6.4 million in connection with a scheme relating to the 2018 Winter Olympics. They promised investors high returns for investing in a land lot near the skating and hockey venue for the Olympics.

Thailand

    Song Migui aka Zhang Jiam, 37, a Chinese man, was arrested in Bangkok on charges that he engaged in a $277 million scheme. Geng Lian Bao and Wang Wen Fang were also arrested in connection with the scheme.

    Chong Mee Chew aka Supachai Rujathorn, Keng Lean Pao aka Surin Sophonsukson, and Wang Wen Fan were arrested in connection with a scheme run through Yun Shu Mao Co. Before the group arrived in Thailand, they allegedly defrauded Chinese people of 1.3 billion Yuan, and thereafter persuaded another 80,000 in Malaysia to invest.
 
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    Skye Bonow filed lawsuits against Bitcoin Savings & Trust and Project Investors Inc. dba Cryptsy for the handing of his Bitcoin accounts at those companies. Cryptsy is the subject of allegations that it violated Florida’s Deceptive and Unfair Trade Practices Act by failing to provide critical information regarding security risks and customer fund management protocols and that the plaintiff was deceived into transferring Bitcoin to the defendants.

    A settlement was reached in the Dreier LLP bankruptcy case for Westford Asset Management LLC to pay $32.2 million to settle claims that it received $137 million of Ponzi scheme proceeds. Marc Dreier is currently serving his prison sentence and will now not need to be called to court testify in connection with the matter. Dreier had been ordered to testify in person in connection with the proceeding, and Dreier had asked to appear by telephone or video, but the court had denied his request.

    The Madoff Victim Fund being run by Richard Breeden as special master reported that 63,553 claims have been asserted against the Fund in connection with the Bernard Madoff Ponzi scheme. The Fund further reported that the losses reported in those claims total $76.654 billion. However, those numbers have not yet been fully reviewed for duplicative, ineligible or overstated claims.

    Edward Blumenfeld, a real estate developer who invested with Madoff, settled with the Trustee and agreed to pay back $32.75 million and to surrender $29.35 million in claims.

    The Eleventh Circuit found that former officers of Quest Energy Management Group Inc. did not have standing to appeal a decision that gave the receiver of Arthur Nadel authority over the company. Nadel, now deceased, was sentenced to 14 years in prison in 2010 in connection with his Ponzi scheme. Nadel invested $5.1 million of his victim’s money in Quest Energy.

    The Backstreet Boys settled their claims against their creator, Lou Pearlman. The trustee in Pearlman’s bankruptcy case settled the Backstreet Boys’ claims for $3.5 million by agreeing to pay them $99,000 and giving them possession of recordings of their music.

    Two hedge funds that invested in the Thomas Petters scheme – the Westford and Epsilon funds - have agreed to a settlement that finds them liable for $322 million received as false profits. The settlement is subject to court approval, and the trustee is permitted to withdraw from the settlement if there are material changes in the financial condition of the defendants. The trustee had sought recovery of as much as $3.2 billion, which was the total amount of funds transferred between the funds and Petters.

    George Levin, an investment manager in the Banyon 1030-32 LLC, a feeder fund in the Scott Rothstein Ponzi scheme, agreed to settle claims against it on the eve of trial. Levin has entered into a tentative settlement with the SEC in connection with charges that Levin, along with investment manager Frank Preve, raised $157 million from 173 investors by selling the fictitious Rothstein settlements.

    Chadbourne & Park LLP filed a motion to dismiss a lawsuit brought by Stanford Financial’s receiver in which the receiver alleged that the firm aided and abetted the Ponzi scheme through its representation of Stanford.

    The Allen Stanford receiver was permitted to proceed with his fraudulent transfer lawsuit seeking to recover $500,000 from the Tiger Woods Foundation. The court denied the charity’s motion seeking to dismiss the complaint on statute of limitations grounds. The court found that the receiver should be afforded more time under the discovery rule, which gives the receiver an extra year to sue after he discovers or could have discovered the transfer. The court stated that it was “perfectly reasonable to surmise that the generally complex and obfuscated nature of the Stanford financial records made these particular transfers difficult to discover.”

    Mary Margaret Butler, wife of accused Ponzi schemer Steven Wessel, 56, filed a lawsuit against Wessel alleging that he defrauded her out of her money and property she had acquired before marriage. Wessel’s criminal indictment states that Wessel used his company, Steeplechase USA, LLC, to defraud victims.

    The Zeek Rewards receiver mailed checks to more than 90,000 claimants that equal about 40% of the allowed claims. The first interim distribution totals about $134.2 million. A law firm representing victims who filed claims, Patrick Miller LLC, filed a Notice of Attorney’s Charging Liens asserting a lien in the amount of about $134,000 for fees it says is owed to the firm as a contingency fee for assisting the claimants in filing their claims. The receiver is also hearing complaints that he should not have withheld taxes from the payments. The receiver’s website states that “For those claimants to whom checks were mailed that did not provide an IRS Form W-9 (for US residents) as requested on the claims portal, we withheld a certain percentage for tax purposes. For non-US claimants, a percentage was withheld whether or not an IRS Form W-9 was provided." The receiver could not get a definitive opinion from the IRS about whether withholdings were required so he aired on the side of caution and made the withholding.