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

Wednesday, December 31, 2014

December 2014 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for December 2014. The reported stories reflect: 5 guilty pleas or convictions in pending cases; over 112 years of newly imposed sentences for people involved in Ponzi schemes; at least 9 new schemes involving more $200 million and over 32,000 victims in the aggregate; and an average age of approximately 54 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.

    Bryan W. Anderson, 40, was charged with running an alleged $8.4 million Ponzi scheme in which about 12 investors lost more than $3 million. Anderson has agreed to plead guilty. He was a registered financial broker and solicited funds from his clients to invest in stock options. He also solicited them to invest in his company, 360 Properties.

    Robert Andres, 63, was sentenced to 4 years and 4 months in prison and ordered to pay more than $3.2 million in restitution following his guilty plea. Andres ran a Ponzi scheme through Winsome Investment Trust where Andres raised more than $39 million by using misleading information to promise returns from a trading program that was mostly automated.
 
    Joseph Francis Bartholomew, 75, was arraigned on charges that he ran an $11 million Ponzi scheme along with Wendy King-Jackson, 54, that defrauded 27 investors. The scheme was allegedly run through MBP Insurance Services, and investors were promises 15% to 40% returns.

    Charles A. Bennett, 56, a New York-based attorney, was accused of running a $5 million Ponzi scheme. The SEC filed a complaint against Bennett, alleging that he had defrauded at least 30 friends and family members. Bennett had tried to kill himself and left a 16-page suicide note outlining the fraud. Bennett told investors that their money would be used to fund investments in European real estate mortgage-backed securities and promised them returns of 6% to 25%. Bennett was also criminally charged in connection with the scheme.

    Annette Bongiorno, 66, was sentenced to 6 years in prison for her role in the Bernard Madoff Ponzi scheme. Bongiorno was Madoff’s former secretary, and the court found that she was not “fundamentally corrupt” but that she should have recognized the fraud.

    Daniel Bonventre, 67, was sentenced to 10 years in prison for assisting Bernard Madoff in his scheme.

    Bonnie Brito, 68, was released from prison after serving 70% of her 18 month sentence for running a $16 million Ponzi scheme that defrauded 250 investors. The scheme was called GetMoni.Com. Brito was released for “extraordinary and compelling reasons” that relate to her health. Brito’s husband, Ronald Lee Brito was sentenced to 12 years, 7 months for his role in the case, and John Missitti was sentenced to 6 years.

    Whileon Chay, 52, used some of the money stolen from 19 victims of an alleged Ponzi scheme he was running through 4X Solutions to cryogenically freeze his deceased spouse. Chay has been a fugitive since 2011 when he learned that his scheme was under investigation. His scheme defrauded 19 investors out of about $5 million by promising them 36% returns from investments in currencies, gold and other markets.

    Joann Crupi, 53, was sentenced to 6 years in prison for assisting in the Madoff fraud. Crupi said that she “really believed the lies that Frank DiPascali and Bernie Madoff told” her.

    Trente Francke, was sentenced to 7 years in connection with a $46.5 million Ponzi scheme. Francke testified against the schene’s mastermind, David McQueen, 44, who was convicted at trial. McQueen had set up the Ponzi scheme after an investment company he had set up fell victim to a Ponzi scheme. McQueen was also sentenced this month to 30 years.

    Joel Barry Gillis, 74, and Edward Wishner, 76, were criminally charged in connection with an alleged $100 million Ponzi scheme run through Nationwide Automated Systems, Inc. The scheme brought in money from about 2,000 investors and promised them 20% returns for purchasing an ATM machine. The scheme allegedly lured investors to pay about $12,000 for an ATM machine, which would be leased back to the company in return for payment of $.50 for each transaction that the unit processed.

    Kenneth A. Grant, 66, was charged with operating a $17 million Ponzi scheme that defrauded 70 investors. Grant allegedly ran the scheme through his company, KGTA Petroleum Ltd., in which investors could earn returns from buying and selling crude oil and refined fuel products. Grant promised returns of 5% per month.

    Carlos Hernandez, Hileah mayor, is facing possible ethics fines for making false statements on disclosure forms about his loans to Luis Felipe Perez in connection with the Perez Ponzi scheme. Hernandez had charged 35% interest and collected $100,000 interest on loans totaling $180,000. The possible ethics violations stem from prior statements made by Hernandez denouncing a news report that he was paid $100,000 in interest by Perez. Hernandez later testified that he had in fact received that money.

    Robert L. Holloway, 57, was sentenced to 18 years and 9 months in prison after being found guilty of running a $33 million Ponzi scheme resulting in $15.2 million in losses to investors. Holloway recruited investors to his company, US Ventures LC, and promised them returns of .8% per trading day based on supposed proprietary trading software that was consistently profitable.

    Claude Roderick Koerber aka Rick Koerber, 45, may still be subject to allegations that he ran a Ponzi scheme. The government filed an appeal to the Tenth Circuit asking the court to overturn the lower court’s dismissal with prejudice of the case against Koerber. The dismissal was based on violations of the Speedy Trial Act, but the government blames most of the delays on Koerber and his attorney.

    Michael Kratville, 53, who was initially turned away by the court when he unsuccessfully tried to plead guilty, finally pleaded guilty to charges in connection with a Ponzi scheme. Kratville is one of 3 men indicted in connection with a $4 million alleged Ponzi scheme run through Elite Management Holdings Corp. and MJM Enterprises. Jon Arrington and Michael Welke have also been indicted. The scheme supposedly defrauded 100 people by promising returns from investments in commodities, metals and foreign currency.

    Levi Lindemann, 38, was charged by the SEC with running a $1 million Ponzi-like scheme. Lindemann allegedly defrauded 6 elderly investors by promising them returns from investments a real estate investment company, HomePath Financial. He also promised returns from life insurance policy-backed notes from GWG Life. He ran his schemes through his companies, Gershwin Financial Inc. and Alternative Wealth Solutions. Both HomePath and GWG Life deny any involvement with Lindemann. Instead, he actually used their money to fund his own lavish lifestyle.

    John K. Marcum, 50, was charged in connection with a $6 million Ponzi scheme that defrauded about 30 investors. Marcum ran his scheme through his companies, Guaranty Reserves Trust, LLC and  Marcum Companies LLC. He promised investors returns of more than 20% in day trading. Marcum managed the career of race car driver Arie Lyuendyk.

    Al Moriarty, 81, was ordered to pay investors $10.2 million in restitution in connection with his Ponzi scheme. Moriarty was previously sentenced to 5 years in prison.

    Jimmy Morrisett, 55, is back in custody after escaping from a low security prison where he was serving a 9 year prison sentence following a guilty plea relating to a $7 million Ponzi scheme that defrauded more than 200 investors. Morrisett was found hiding in the attic of an abandoned home and was returned to prison.

    Jerome O’Hara, 51, was sentenced to 2½ years in prison for his role in the Bernard Madoff Ponzi scheme. O’Hara was given a shorter sentence given his limited involvement and the shorter of time he knew about the fraud. O’Hara was a computer programmer who confronted Madoff in 2006 about the fraudulent computer programs.

    George Perez, 49, received a 2½ year sentence for his role in the Madoff scheme. Perez was found to have assisted in fabricating and backdating financial records and fooled customers, but the court found that his role in the fraud “was far more limited that most” of the other co-defendants.

    Robert Rocco, 49, pleaded guilty to running a $5 million Ponzi scheme in which he promised investors 18% returns. Rocco ran his scheme through Limestone Capital Services, Advent Merchant Services and Advent Equity Partners.

    Brian C. Rose aka John Hankins, 35, entered into an agreement to plead guilty to charges associated with a Ponzi scheme that allegedly defrauded more than 160 coal mine investors out of $15 million. Rose promised quarterly payments of 6%, 100% returns in the first year plus royalties of $4 per ton of coal produced. Rose is a former NASCAR driver who competed primarily in 2001 – 02.

    Jerry A. Smith was sentenced to 20 years in prison and 20 years on probation in connection with charges for the sale of unregistered securities. Smith is already serving a 5 year sentence for running a Ponzi scheme along with Jasen Snelling through City Fund Advisory and Dunhill Investment Advisories Ltd. The two had run a scheme promising investors between 10% and 30%. Smith had previously pleaded guilty.

    Sachin Uppal, 37, was sentenced to over 5 years for running a $3.8 million Ponzi scheme through his company, Jefferson Smith Trading Company LLC. Uppal represented that he was a day trader, promising returns of 18% to 20%. The scheme was an affinity scheme, targeting his friends and family.

    Jack Utsick, 72, was extradited back to Florida from Brazil to face charges that he ran a $300 million Ponzi scheme. The scheme allegedly defrauded 3,300 investors, promising returns between 15% and 25% through his businesses, Worldwide Entertainment Inc. and The Entertainment Group Fund Inc.

    Robert Waldman, 54, pleaded guilty to a $52 million Ponzi scheme that defrauded more than 1,000 people. Co-defendants Jonathan Carman, 51, and Scott Yard, 53, also pleaded guilty this month.

    Lambert Vandertuig, 56, and Mark Sostak pleaded guilty last month. The remaining defendant, Soren Svendsen, 49, is scheduled to be tried next month. The defendants sold $52 million innstock they said would be used to buy land develop luxury resorts. Some land was acquired, nothing was developed, and they spent about $24 million on themselves.

    Eilyahu Weinstein, 39, was charged and received 2 additional years in prison for a new scam, which were added to his 22 year prison sentence previously received for running a Ponzi scheme. Weinstein previously pleaded guilty to running a $200 million real estate Ponzi scheme. He filed a motion to dismiss the new charges relating to an alleged Facebook Inc. initial public offering scam on the grounds that the new charges violated the terms of his plea agreement. The court denied to the motion to dismiss, finding no violation because the charges were related to a separate alleged scheme.

    Cassandra K. Wilson, 66, and Timothy L. Wilson, 60, were sentenced to 9 months of house arrest following their guilty pleas of obstructing justice by hiding assets of convicted Ponzi schemer Ronnie Wilson, 67, who is serving more than 20 years in prison for his scheme. Ronnie Wilson’s scheme defrauded 798 investors out of $57.4 million.
 
INTERNATIONAL PONZI SCHEME NEWS

Australia

    Philip David Linacre, 62, was sentenced to 12 years in prison in connection with his $12 million Ponzi scheme that defrauded 17 victims.

Canada

    Quintin Earl Sponagle, 50, who was charged with running a $4 million Ponzi scheme that defrauded 179 investors, was first ordered to stay in jail but then later released following his bail hearing. He had been extradited from Panama last month. Sponagle was the general manager of Jabez Financial Services Inc., and investors were promised returns of up to 214%.

    The Nova Scotia Securities Commission has set a  hearing on an alleged $1.3 million Ponzi-like scheme to consider sanctions against Douglas G. Rudolph, Peter A.D. Mill, CFG*CN Ltd. aka CanGlobe Financial Group, and CanGlobe International Capital Inc.

    Nicholas Smirnow, 56, and Dianna Smirnow, 44, were arrested in Toronto in connection with an alleged $70 million Ponzi scheme that was run in Canada and the Philippines using a website called “Pathway to Prosperity.” Investors were offered returns of up to 17,000% in at least one instance.

Wade Robert Closson was accused of running a Ponzi scheme through his companies, Optam Holdings Inc. and Infinivest Mortgage Investment Corporation. The alleged scheme involved between $11 million and $24 million and between 75 to 125 investors.

England

    Alex Hope, 25, is in the midst of his trial for allegedly running a Ponzi scheme with Raj Von Badlo, 56. The scheme involved £5.5 million and supposedly involved foreign exchange and currency trading.

    Alok Dhanda faces a prison sentence in connection with a £2.6m Ponzi scheme. Dhanda told investors that he was investment in property in India but he actually used much of the money to pay off his gambling debts.

New Zealand


    A New Zealand woman, Denise Driver, 52, was arrested along with three local men, Mohammed Kurram Iqbal, 44, Kiran Jitendra Modi, 39, and Hithesh Modi, 42, in connection with a scheme that allegedly defrauded at least 32,000 investors. The scheme, YOBSN Social Media Network, promised high returns in U.S. dollars to the investors

South Africa


    Jasmine Ebrahim, 53, and Maksuud Ebrahim were arrested and charged with an alleged Ponzi scheme involving more than R7 million. The couple ran World Focus 899 CC, which was liquidated a few years ago. About 400 people invested in the scheme that promised returns of between 100% and 200%. The Ebrahims maintain their innocence.

    Yunus Moolla, the owner of Carmol Distributors (Pty) Ltd., is believed to have fled to Dubai in the midst of an investigation of what is believed may be one of South Africa’s largest alleged Ponzi schemes. Carmol was offering returns of up to 8% per month through “profit-share” agreements to supposedly fund the purchase of fuel. Carmol attracted more than R450 million, and possibly as much as R 1 billion, from about 2,500 investors.
 
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    A FINRA arbitration was commenced against Wells Fargo Advisors LLC by a group of 16 clients relating to an alleged Ponzi scheme run by Michael J. Frew, who was a Wells Fargo Advisors broker.

    Fidelity and Deposit Co. of Maryland lost its summary judgment motion against Integra Bank NA in a lawsuit in which Integra Bank was seeking coverage for losses for $29 million in loans made to Ponzi schemer Lou Pearlman.

    The trustee in the Bernard Madoff Ponzi scheme case lost his appeal to the Second Circuit seeking to overturn a ruling that prevents him from recovery payments from customers under section 546(e) of the bankruptcy code. See In re Bernard L. Madoff Investment Securities LLC, 2014 U.S. App. LEXIS 23032 (2d Cir. Dec. 8, 2014).

    The Madoff trustee sought permission to make a fifth distribution in the amount of $322 million to Madoff’s customers. There is about $3.5 billion remaining in a reserve account pending decisions in some cases. This latest payout will push the distribution percent to 50%, and claims of under $963,500 have already been paid in full.

    An investor has asked the Supreme Court to reverse a Second Circuit ruling that held that the Securities Litigation Uniform Standards Act (SLUSA) bars state-law claims accusing JP Morgan Chase & Co. and other banks for aiding the Madoff Ponzi scheme. The basis of the appeal is that the Second Circuit ruling conflicts with the Supreme Court’s ruling in Chadbourne & Park v. Troice.

    Bank of New York Mellon Corp. subsidiary Pershing LLC lost its motion to dismiss a lawsuit against it filed by victims of the Stanford Financial Ponzi scheme. The court found, “"An interest in the receipt of ordinary legal fees, while no doubt a pecuniary interest, is not an improper interest, and thus can not ordinarily support a claim for breach of fiduciary duty.”

    A class action brought by investors against Greenberg Traurig LLP and Hunton & Williams LLP for breach of fiduciary duty in connection with the Stanford Financial scheme was dismissed.

    The assets of Xiaomei Deng, the mother of WCM777 Ponzi schemer Ming Xu, were frozen at the request of the receiver of WCM777. Money of WCM777 was wired to Deng, who used the money to purchase real property.

    The receiver of ZeekRewards decided not to withhold taxes from the initial distributions being made to 58,000 former affiliates of ZeekRewards.
 
    The net winner defendants in ZeekRewards lost their motion to dismiss the receiver’s fraudulent transfer claims against them. The defendants sought to have the cases dismissed on jurisdictional grounds and that a constructive trust should not be imposed against them. The court disagreed finding among other things, that Defendants have received property which they “ought not, in equity and good conscience, hold and enjoy.” Bell v. Disner, 2014 U.S. Dist. LEXIS 170081 (W.D.N.C. Dec. 9, 2014).