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

Sunday, November 30, 2014

November 2014 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for November 2014. The reported stories reflect: 9 guilty pleas or convictions in pending cases; over 80 years of newly imposed sentences for people involved in Ponzi schemes; at least 5 newly discovered schemes involving more $100 million in the aggregate; and an average age of approximately 56 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.

    William M. Apostelos and his wife, Connie M. Apostelos aka Connie Coleman, along with Scott Doak and Rebekah Fairchild, are under investigation for an alleged Ponzi scheme that may have defrauded about 213 victims out of $50 million. The scheme involved the purchase of racehorses. No one has yet been charged in connection with the alleged scheme.

    Donald Ray Babb, 58, and Ralph Ruth, 61, pleaded guilty to running a Ponzi scheme. It is believed that at least 181 victims, mostly elderly, were defrauded and that the scheme raised nearly $19 million. They ran the scheme through several businesses, including Southeast Mutual Insurance and Investment LLC, Capstar Industries LLC, and First Merchant Capital LLC, and offered supposed risk-free certificates of deposit with high rates of return.

    James Berghuis, 42, was sentenced to 14 years in prison in connection with a Ponzi scheme that defrauded victims out of more than $2.7 million. Last year, a jury found Berghuis guilty on four counts in connection with the scheme run through his company, Berghius National Lending Inc., that persuaded investors to take out home-equity loans to make their investments.

    Angela Dawn Campbell, 42, was sentenced to 10 years in prison in connection with a $1.6 million Ponzi scheme. Campbell defrauded fellow churchgoers and members of art classes that she attended, promising them they could double or triple their investments from an online brokerage and investment business.

    Robert Cephas Brown Jr. and Duane Allen Eddings had their cases remanded by the Ninth Circuit for resentencing. The Ninth Circuit found that the district court had overreached in the use of sentencing enhancements. It states that the district court "erroneously imposed on both defendants an enhancement ... for endangering the solvency or financial security of 100 or more victims, where the government did not provide evidence of the impact of the crime on the requisite number of victims."

    Paul Burks, 67, pleaded not guilty in connection with the $850 million Ponzi scheme run through ZeekRewards. The scheme is believed to have brought in more than 1 million investors. Burks is alleged to have diverted $10 million to himself.

    Mark Feathers, 51, was charged with securities and mail fraud in connection with an alleged $50 million scheme that defrauded over 250 investors. Authorities allege that Feathers, through his business Small Business Capital Corp., promised investors returns of 7.5% in connection with their membership interest in investment funds. 

    C. Tate George, 44, was denied a new trial on his conviction relating to a $2 million Ponzi involving real estate investments. George sought a new trial based on his contention that he had ineffective counsel and there was prosecutorial misconduct that led to his convictions.

    Loren Holzhueter, 69, is being investigated by the IRS relating to a possible $7.5 million scheme. Holzhueter allegedly took investors money to invest in “legitimate investment accounts,” but used his business, Insurance Service Center, to divert payments to his business or in Ponzi scheme payments. Holzhueter denies any wrongdoing and has not been charged.

    Shervin Neman aka Shervin Davatgarzadeh, 33, had his sentencing hearing delayed. Neman was convicted in connection with a $3 million Ponzi scheme that defrauded Iranian Jews living in Southern California. Neman had represented that investor funds would be used to purchase foreclosed real estate and stocks, but instead use the money to repay other victims and on personal expenses. Neman ran the scheme through his company, Neman Financial Inc. A month after the SEC had sued Neman, he solicited $2 million from another victim falsely representing that he could obtain pre-IPO shares in Facebook. He used the new funds to repay victims and that had the victims send in letters that they had been repaid.

    John Packard, 64, pleaded guilty to a charge relating to a $110 million real estate Ponzi scheme. Packard, along with Michael J. Stewart, 67, ran the scheme through Pacific Property Assets. They purchased, refurbished and resold apartment complexes using investor funds but continued to raise money from investors when the real estate market crashed. Pacific Property had declared bankruptcy, listing $90 million owed to 647 investors and $100 million owed to banks. Stewart has pleaded not guilty and is scheduled to go to trial in April 2015.

    James M. Peister, 62, pleaded guilty to running a 10-year, $17.9 million Ponzi scheme. Peister defrauded at least 74 investors through his funds, Northstar International Group Inc., North America Globex Group, and North American Globex Fund LP. Victims believed that their money was invested in stocks, futures and fixed income instruments, but instead Peister used the money to pay existing investors, finance his business and pay for his home and a Hummer.

    Bruce Prevost had his 90 month sentence affirmed by the Eight Circuit. Prevost participated in the Thomas Petters Ponzi scheme and pleaded guilty to charges of aiding and abetting securities fraud in connection with his fundraising activities. Prevost had argued that the court had erroneously varied his sentence from another co-conspirator, David Harrold.

    Laurie Schneider, 39, was sentenced to 3 years in prison for running a $7 million Ponzi scheme. Schneider used two shell corporations to run the scheme – Janitorial Close-Out City Corporation and Eager Beaver Realty LLC. Janitorial Close-Out supposedly purchased and resold janitorial equipment and machinery at a profit margin of 15% to 60% in a short term so that she could promise investors up to 60% returns annually. Eager Beaver supposedly bought and sold real estate,  and investors were promised returns of up to 20%.

    Meir Marian Segal was sued by an investor and accused of running a Ponzi scheme through his company Las Vegas Perfect Stay LLC. Segal, a former professional soccer player, organizes soccer tournaments and buys blocks of rooms at Las Vegas hotel and casinos and selling them for soccer events. Segal allegedly took money from investors as loans to buy the hotel rooms. The lawsuit also names Perfect Stay officer Peter Michael.

    Luis Serna, 61, was sentenced to more than 10 years in prison and ordered to pay $4.6 million in restitution in connection with his $7 million Ponzi scheme that defrauded 82 people. Serna was a pastor at Zion Living Word Christian Center in California who used his position to defraud victims, mostly Spanish-speaking victims, out of $4.6 million. Serna promised investors returns of between 4% and 20% and used his company, Architects of the Future Investments, to convince investors that he was a successful investor in foreign currency.

    Trendon Shavers, 32, was arrested on allegations that he ran a Bitcoin-related Ponzi scheme through Bitcoin Savings and Trust. Shavers promised weekly returns of up to 7%, telling investors that he was involved in Bitcoin arbitrate activity. Shavers had taken in about 764,000 BTC and had returned about 500,000 BTC to investors. About 146,000 BTC, then worth $1 million, were transferred to his personal account. At least 48 of the 100 investors lost all or part of their investment with Shavers.

    Lynn Alan Simon, 64, was sentenced to 2 years in prison and ordered to pay $1.4 million in restitution in connection in connection with a Ponzi scheme that he ran through Financial Security Planning, Inc. Simon lured in his clients who he served by acting as their insurance agent and investment advisor. He promised a high rate of return

    Louis Spina, 57, pleaded guilty to charges in connection with a $20 million Ponzi scheme. Spina ran his scheme through LJS Trading LLC and promised dozens of investors returns ranging from 9% to 14% from trading stocks and equities. Instead of investing, however, Spina lost all of the $9.5 million that he invested and spent the rest to purchase expensive cars, real estate and to make a $400,000 donation.

    William P. Sullivan II, 68, was found to have engaged in “inherently deceptive acts in furtherance of a Ponzi scheme.” Sullivan assisted the scheme through Bridge Premium Finance, supposedly making short term loans to businesses so they could pay their annual commercial insurance premiums. The company was owned by Michael Turnock.

    Douglas L. Swenson, 66, was the subject of an administrative complaint filed by the SEC in connection with his conduct in the $100 million Ponzi-like scheme run through DBSI Inc. that defrauded 250 victims. Swenson was sentenced to 20 years and was barred from appearing or practicing before the commission. Swenson’s general counsel, Mark Ellison, had previously been sentenced to 5 years for his role in the scheme.

    Jeffrey M. Toft, 51, was sentenced to 66 month, Chad A. Sloat, 33, was sentenced to 70 months, and Michael J. Murphy, 51, was sentenced to 4 years in prison in connection with a $40 million Ponzi scheme run through Black Diamond Capital Solutions.

    Lambert Vandertuig, 56, pleaded guilty to running a $52 million Ponzi scheme that defrauded more than 1,000 investors. Vandertuig was immediately sentenced to 20 years in prison. His co-defendants, Scott Yard, Jonathan Carman, Soren Svendsen and Robert Waldmand are scheduled to go to trial in December. They ran the scheme through Carolina Development which was to acquire and develop luxury resorts. Some land was acquired but was not developed. Instead the defendants spent about $24 million on their own expenses.

    Robert Van Zandt, 70, pleaded guilty to running Ponzi scheme. It is believed that the scheme involved over 250 investors and $35 million. Van Zandt promised investors returns from investments in real estate, U.S. government backed securities and other investments, but instead he used the money for personal and business expenses.

    Deepal Wannakuwatte, 63, was sentenced to 20 years in prison after pleading guilty to running a $150 million Ponzi scheme. Wannakuwatte had misrepresented that he had $100 million in annual contracts with governmental agencies to provide latex gloves. He ran his business through International Manufacturing Group and RelyAid Global Healthcare Inc.

    Cassandra K. Wilson, 66, and Timothy L. Wilson, 60, pleaded guilty to hiding money from authorities investigating the Ronnie Gene Wilson’s Atlantic Bullion & Coin Ponzi scheme. Cassandra is Ronnie’s wife, and Timothy is Ronnie’s brother, and both were accused of hiding in an ammunition canister that had been received from Ronnie. Ronnie Wilson is serving a 19 year prison sentence for the scheme that defrauded 798 victims out of $57.4 million.

INTERNATIONAL PONZI SCHEME NEWS

Australia

    Maureen Gael Johnston, 58, and Douglas Gordon Johnston, 71, were charged with running a $1.5 million Ponzi scheme. They allegedly misled investors to invest into property developments in the United States and Australia through two companies, Investman Nominees (USA) and Small Business Management.

    Peter Foster, 52, was accused of running a Ponzi scheme through Sports Trading Club in which hundreds of investors deposited up to $10 million. The scheme was based on the supposed ability to predict sporting winners to make enormous profits. Foster’s niece, Arabella Foster, 28, is believed to be connected with a related company, Sports Trading Club Limited.

Canada

    Reginald Roskaft, 58, was arrested on allegations that he was running a half a million dollar Ponzi scheme through Trekant Group. Roskaft ran a tax preparation business called Corporate Receivables Agency.

    Quintin Earl Sponagle, 50, was extradited from Panama to be tried on charges relating to an alleged $4 million Ponzi scheme that defrauded 179 investors. Sponagle fled to Panama 8 years ago when he and his company, Jabez Financial Services Inc., were being investigated for fraud.

France

    Authorities raided Aristophil offices and museum founded by Gérard Lhétitier. Aristophil is suspected of running a Ponzi-like scheme in which investor dollars were brought in to acquire shares in lots of rare manuscripts and were promised returns of between 6% and 8%. Lhétitier has supposedly acquired a collection worth between €400 million and €500 million.

India

    Real property belonging to four companies allegedly running Ponzi schemes was seized by the government. The properties belong to Sai Pragati Group, Artha Tatwa Group, Shastra Group and Seashore Group.

    Carmol Distributors has been accused of running a Ponzi scheme. The firm allegedly took in about R450 million from more than 2,500 investors. Carmol has been offering returns of up to 8% per month, or 96% per year.

    Sukhdev Singh aka Sukha, 41, was arrested on charges that he allegedly ran a Ponzi scheme through the company he managed, Almandine Marketing Pvt. Ltd. The scheme had allegedly defrauded more than 300 investors and had raised Rs 6 crore.

    Shrawan Kumar Khetawat, and his son Deepak, have been held for allegedly running a Ponzi scheme through Progress Cultivation Ltd. Others named in the complaint are Souvik Mistry, Bikash Howalder, Ajoy Das and Gabbar Chowdhury.

    Sujata Das and her husband, Bharat Chandra Das, were arrested for allegedly running a Ponzi scheme though their agency, Sunray Advertisement. The couple promised investors that they could double their money in two years.

    Over 2,500 bank accounts containing Rs. 295 crore were attached in connection with the Rose Valley Ponzi scheme case.

New Zealand

    John David Milne, 79, was sentenced to more than 8 years in connection with a Ponzi scheme that defrauded 32 victims out of about $2 million.
 
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    A group of investors sued an attorney, Gregory G. Jones, for advising them to invest in Edwards Exploration LLC and Edwards Operating Co. LLC run by Spencer Edwards, which turned out to be a Ponzi scheme. The investors are seeking damages in the amount of $6.7 million which they say they would not have lost but for following his advice. The lawsuit also alleges that Jones was paid a finder’s fee in connection with their investments, which he did not disclose to them beforehand.

    A settlement was reached in a class action against Michael Willner in connection with the Glen Galemmo Ponzi scheme. Willner was a net winner in the scheme ad agreed to pay back some of the gains. The sum of $1.4 million will go to the 141 victims in the Galemmo scheme who lost at least $34.6 million.

    The recoveries for victims in the Bernard Madoff Ponzi scheme case topped $10.3 billion following two large settlements. Two hedge funds, Herald Fund SPC and Primeo Fund, agreed to return $497 million to the estate. In another settlement, Senator Fund SPC agreed to give up $95 million. The latest recoveries bring the distribution amount to about 60 cents on the dollar for the victims. The fees to administer the estate are approaching $1 billion.

    The trustee in the corporate case relating to the Ponzi scheme of Thomas Petters filed more than 60 summary judgment motions on his fraudulent transfer claims seeking the return of “false profits” totaling more than $85 million. The lawsuits seeking the return of false profits, i.e., did the recipients get more money out than they put in.

    Lawsuits filed by hedge funds Ritchie Capitals against JPMorgan Chase and other banks for $3.7 billion in connection with the Thomas Petters Ponzi scheme were kept in federal court after a federal judgment refused to move the cases to state court.

    OneAmerica Securities Inc. agreed to pay $805,000 to settle claims that it had failed to properly supervise Jerry Smith while he worked there as a registered representative. Smith, along with Jasen Snelling, ran a Ponzi scheme through CityFund Advisory and Dunhill Investments. The scheme had defrauded 72 victims out of more than $8.9 million.

    An arbitration panel held that Pershing LLC is not liable for $80 million in investor losses in connection with the Allen Stanford Ponzi scheme.

    A court issued a temporary restraining order and ordered Preferred Merchants Solutions LLC and its manager, Jaymes Meyer, to turnover over more than $4.85 million to the ZeekRewards receiver. The order was entered without notice out of concerns that the money would go missing. The receiver contends that Preferred transferred Zeek’s cash to itself when it learned about the imminent receivership in 2012, and Preferred contends that it is owed the $4.85 million at issue.

    The ZeekRewards receiver filed fraudulent transfer lawsuits seeking the return of “false profits” from Canadian investors who profited from the scheme. The receiver is seeking judgment in the amount of the net winnings.

    The court in the ZeekRewards case issued an order not permitting a charging lien by the lawyers for victims on hundreds of thousands of dollars of interim distributions to be made to them. The lawyers represented about 400 claimants in assisting them with the filing of claims and demanded that the receiver make the interim distributions payable to the firm so that it could be paid its fee. The receiver requested that the distributions be made directly to the victims. The court has now ordered the firm to “immediately and without further delay” provide the contact information for the claimants so that the receiver can make the distribution directly to them.