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

Thursday, December 31, 2015

December 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for December 2015. The reported stories reflect: 6 guilty pleas or convictions in pending cases; over 14 years of newly imposed sentences for people involved in Ponzi schemes; at least 5 new Ponzi schemes worldwide; and an average age of approximately 47 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.

    Lori Ann Anderson, 53, was charged in connection with an alleged Ponzi scheme in which she solicited investments for the purpose of day trading. Anderson was the agent for SMTS Association, an investment business she ran out of her house.

    Fred Davis Clark Jr. aka Dave Clark, 56, the ex-CEO of Cay Clubs Resorts and Marinas, was found guilty of running a $300 million Ponzi scheme. The scheme promised nearly 1,400 investors returns from the refurbishment of properties into luxury homes, guaranteeing returns of 15% to 20%. Two other Cay Clubs executives, Barry Graham and Ricky Stokes, previously pleaded guilty and were sentenced to 5 years each.

    Homero Joshua Garza, 30, and his companies, GAW Miner, LLC and ZenMiner, LLC, were named by the SEC in an enforcement action charging them with fraud. The defendants were allegedly running a Ponzi scheme by selling Hashlets, which were advertised as the “world’s first digital cloud miner” of virtual currency. Over 10,000 investors invested at least $19 million over a four month period in mid-2014.

    Tracy Gilmond, 45, was charged by the SEC in connection with her role as a promoter of the ZeekRewards $850 million Ponzi scheme. Gilmond spoke at ZeekRewards’ events and solicited investors into the scheme for which she was paid more than $1.7 million in commissions.

    Alex Haxton, 27, pleaded guilty to charges that he ran a fraudulent Internet-based investment scheme that defrauded more than 100 victims.

    Vu H. Le aka Vinh H. Le, 39, and TeamVinh.com LLC was accused by the SEC of running a Ponzi scheme. The scheme allegedly involved the purchase of VPAKs and raised more than $3 million from at least 5,600 investors. Team Vinh was using the name ACCESS WEW, which stood for “A Crazy Cost Effective Self-Sustainable Wealth the Easier Way.” The scheme involved a commodities trading program over the internet, promising 5% weekly returns.

    Levi Lindemann, 39, was charged in connection with an alleged Ponzi scheme that defrauded about 50 investors out of about $2.5 million. Lindemann was a broker who operated an investment firm called Gershwin Financial Inc., which did business as Alternative Wealth Solutions. He had been sued by the SEC last year. Lindemann used over $2.5 million of the $4.3 million that he raised from investors for personal expenses and to pay promised returns to investors.

    Christopher Maguire, 33, pleaded not guilty to charges that he ran a $13.4 million Ponzi scheme.  Maguire is accused of defrauding people associated with several churches and religious organizations and promising them returns of 20% for a “proof of funds” loan business.

    Steven Andrew McKinlay, 58, and his wife, Krista B. McKinlay aka Kristi Kindred, 56, were arrested and charged with operating a $3 million Ponzi scheme through their company, God’s Sports Company. The company offered a prototype baseball bat that offered “leading performance and durability.” They are accused of defrauding more than 10 individuals and using much of the money on personal expenditures such as $10,000 per month rent for their home, their daughter’s wedding, and cars.

    Frederick Monroe, 59, pleaded guilty to charges that he defrauded at least 20 victims of more than $1 million. Monroe solicited funds from investors by promising that he would invest in bonds for their retirement.

    Paul Moore IV, 51, was sentenced to 5 years in prison in connection with a Ponzi scheme he ran through his alleged hedge fund, Coast Capital Management LLC.  Moore took in more than $2.8 million and spent about $1.7 million on himself.

    Wayne Palmer, 60, and his company, National Note of Utah LLC, lost the trial brought by the SEC against them in an enforcement action accusing them of running a Ponzi scheme. The court found that National Note had raised about $100 million from over 600 investors, promising them returns of 12% in a real estate scheme.

    Sann Rodrigues was found in contempt of court in connection with the TelexFree Ponzi scheme case. The SEC alleged that Rodrigues violated a freeze order and transferred more than $334,000 and real estate in violation of the asset freeze.

    Martin Shkreli, 32, was arrested for allegedly running a Ponzi scheme through his company, Retrophin. Shkreli has also been sharply criticized for raising the price of a live-saving drug more than fiftyfold through his other company, Turing Pharmaceuticals. Shkreli has pleaded not guilty. Shkreli resigned from Turing and was terminated as CEO of KaloBios Pharmaceuticals following his arrest.  Evan Greenbel, 42, a New York lawyer, is alleged to have helped Shkreli in his schemes. Both Shkreli and Greenbel pleaded not guilty.

    Joseph Signore, 51, his soon-to-be ex-wife, Laura Grand-Signore, 41, and his business partner, Paul Schumack, 57, were found guilty in connection with an $80 million Ponzi scheme that defrauded investors in a virtual concierge business run through JCS Enterprises. A fourth defendant, Craig Hipp, 54, was previously found guilty and is serving 7 years in prison. Investors would purchase a virtual concierge machine for a fee ranging from $2,600 to $4,500 and were promised returns ranging from 80% to 120% annually.

    Frank Spinosa, 54, was sentenced to 2½ years in prison for his role in the Scott Rothstein $1.2 billion Ponzi scheme. Spinosa used his position at TD Bank to falsely assure some of Rothstein’s investors that their money was safe.

    Marcello Trebitsch, 37, was sentenced to 2 years in prison and ordered to pay nearly $6 million in restitution for his role in defrauding 4 investors out of $5.9 million in a Ponzi scheme that he ran through Allese Capital LLC. The investment supposedly generated annual returns of 14% to 16% through a day trading of large cap stocks. Trebitsch is the son-in-law of Sheldon Silver, the former New York Assembly speaker, who was convicted recently in an unrelated corruption case.

    William Donnelly Yotty, 69, was sentenced to 4 years and 9 months in prison and ordered to pay more than $15 million in restitution to 240 investors who were defrauded in Yotty’s two Ponzi schemes. Yotty operated his schemes through companies including The Money People Inc. and Fortuno Millionaire Club. The schemes involved the purchase of debt instruments for a promise of 25% returns, and a real estate flipping scheme that promised returns of 200% to 300%.

INTERNATIONAL PONZI SCHEME NEWS

Australia

    Maureen Gael Johnston and Douglas Gordon Johnston were charged in connection with a fraudulent scheme run though Investman Nominees (USA) Pty Ltd. and Small Business Management Pty Ltd. Investors were defrauded into investing $1.5 million into property developments in the United States and Australia.

India

    M Srivivas, 63, and has wife, B G Pushpalatha, 55, were arrested in connection with an alleged scheme run through their financial company, Shreyas Groups. Shreyas Groups is an umbrella company associated with Shreyas Finance & Investments, Shreyas Chits, and Shreyas Souharda Co-operative Limited.

    Balasaheb Bhapkar, 56, was arrested in connection with an alleged scheme run through Sai Prasad Group of Companies. The company has interests in real estate, infrastructure, energy, food and films.

    Bijay Ketan Das, the director of High-tech Regional Cooperative Limited, was arrested for allegedly defrauded 5,000 investors.

    At least 18 different locations of Ramel Group of Industries were searched in connection with an alleged Ponzi scheme that raised over Rs 97 crore from investors.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    The SEC prevailed on its request to get emails of Steve H Karroum, the president of FX & Beyond Corp. Karroum had asserted that the Fourth Amendment and the marital privilege barred the production of his emails.

    The Trustee of the Bernard Madoff Ponzi scheme sent out checks in the sixth distribution made in the case. The distribution raises the recoveries to victims to $9.16 billion so far, which is about 57% of the cash that they lost.

    A federal judge denied the request of Kingate Global Fund for a quick appeal of a ruling that left intact most of a lawsuit of the Madoff trustee’s clawback lawsuit for $825 million against the feeder fund.

    The Second Circuit declined to reinstate a lawsuit by The R.W. Grand Lodge of Free and Accepted Masons of Pennsylvania against Meridian Capital Partners Inc. relating to losses suffered in the Madoff scheme.

    The Madoff trustee sought to block a lawsuit by investors against Madoff investor Jeffery Picower, whom the trustee had settled with in 2011 in a $7.2 billion settlement.

    The receiver in the Arthur Nadel Ponzi scheme made an additional distribution totaling $3 million to about 350 investors, which brings the recoveries to nearly 47% of their losses.

    Investors in the Martin Sigillito Ponzi scheme lost their claims against two banks in connection with the scheme. 56 victims had sued St. Louis Bank and 91 victims had sued PNC Bank, but the court found that neither bank knew about the fraud being committed in the bank accounts controlled by Sigillito.

    Kroll LLC has agreed to pay a $24 million settlement in connection with the Allen Stanford $7 billion Ponzi scheme. A lawsuit had alleged that Kroll was grossly negligent in submitting a falsely positive report about Stanford.

Monday, November 30, 2015

November 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for November 2015. The reported stories reflect: 3 guilty pleas or convictions in pending cases; over 77 years of newly imposed sentences for people involved in Ponzi schemes; at least 9 new Ponzi schemes worldwide; 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.

    Troy Barnes, 53, was indicted in connection with an alleged Ponzi scheme operated through Work with Troy Barnes Inc., which later changed its name to The Achieve CommunityKristine Louis Johnson, 60, pleaded guilty to charges in June 2015. The scheme defrauded over 10,000 investors who lost at least $7 million, having been promised returns of up to 700%. At the time the scheme shut down for the self-stated reason that it could not handle “the volume of money we’re paying our members,” the company owed promised returns of about $51 million.

    John Paul Baron, 55, was sentenced to 6 years in prison in connection with a $3 million Ponzi scheme. Baron had promised annual tax free returns of 15% to 28%. Terrence McGill, 57, was previously sentenced to 23 months of house arrest in connection with the scheme.

    Ian Parker Bick, 20, was convicted on charges that he ran a Ponzi scheme defrauding over 15 investors out of nearly $500,000. Bick is the owner of Tuxedo Junction, an all-ages night club/juice bar. Bick used his other entities such as This is Where It’s At Entertainment, Planet Youth Entertainment, W&B Wholesale and W&B Investments, to solicit investments. Bick represented that he was buying electronics and reselling them for a profit and that he was organizing and promoting concerts.

    Scott A. Doak was barred by the SEC from the financial services industry in connection with his involvement in a Ponzi scheme through his company, OVO Wealth Management LLC. Doak founded OVO with William Apostelos. Apostelos’ other companies involved in the scheme were WMA Enterprises and Midwest Green Resources LLC. They raised more than $66 million from about 350 investors. Doak wound down OVO and directed clients to Apostelos’ companies, failing to tell them that he and others were unsuccessful in withdrawing their money, among other things.

    Joel Barry Gillis, 75, and Edward Wishner, 77, were sentenced to 10 years and 9 years, respectively, in connection with a 13 year long Ponzi scheme run though Nationwide Automated System Inc. (NASI). The scheme defrauded more than 1,300 investors out of at least $123 million, promising the investors returns of at least 20% from the sale and operation of ATMs. Investors could purchase ATMs that were then leased back to NASI in exchange for rent based upon a set price for each ATM transaction. Corporate records reflected more than 31,000 leaseback arrangements, but in fact only 253 ATMs were being serviced.

    Jon Michael Harder, 50, the former Sunwest Management CEO, was sentenced to 15 years in prison. Sunwest operated assisted living homes and defrauded more than 1,000 investors out of at least $120 million.

    Michael Holcomb, 72, Gary Holcomb¸ 70, Kristin Van Breeman, 42, and Jennifer Chalmers, 44, were indicted on charges that their family-owned insurance financing businesses, Berjac of Oregon and Berjac of Portland, were a Ponzi scheme. The scheme is believed to involve $40 million and more than 400 investors.

    James A. MacCallum, 44, was charged in connection with running an alleged Ponzi scheme that targeted more than 6 investors out of about $3.4 million. MacCallum, now a disbarred lawyer, had solicited investors while he was a practicing attorney to invest in real estate and life insurance policies through his company, Andrew Mitchell Holdings LLC. Investors were issued promissory notes bearing annual interest rates of at least 15%.

    Bernard M. Parker, 54, was charged by the SEC with stealing $1.2 million in an alleged Ponzi-like scheme that he ran through his company, Parker Financial Services. Parker represented to investors that he was using their money to purchase tax lien certificates and promised them high rates of return. Parker was a broker at Edward D. Jones & Co. at the time, and was terminated following a customer complaint.

    Richard Roop was jailed following contempt proceedings for his violation of orders to stop selling securities. Roop and his company, Bottom Line Results, had been permanently barred from the securities industry, but Roop continued to sell promissory notes to investors as an unlicensed broker. The funds from these sales were used to purchase distressed real estate without proper disclosure of risk and to pay off earlier investors.

    Matthew John Ryan saw his 10 year prison sentence affirmed by the Second Circuit. Ryan had pleaded guilty to running a real estate Ponzi scheme through his firm Prime Rate and Return LLC aka American Integrity.

    Anthony Saumell, 45, was sentenced to 3 years and two months in prison in connection with a Ponzi scheme run through his company, Gear Management Corp. Saumell guaranteed returns of 10% within 30 days from the supposed resale of aircraft parts.

    David Miguel Nanes Schnitzer aka David Banes, 47, was arrested in Belize in connection with the Stanford Financial Ponzi scheme. Nanes Schnitzer headed the Mexican arm of Stanford's Ponzi scheme, which allegedly defrauded investors in Mexico of $42 million. Although there are no criminal charges pending against Nanes Schnitzer in the U.S., the Stanford receiver has filed a civil lawsuit against him for breach of fiduciary.

    Jerry Stauffer, 66, has been soliciting victims of his alleged $1.5 million Ponzi scheme to help pay for private counsel in lieu of his public defender. Stauffer has been accused of running a Ponzi scheme in foreign exchange trading to generate returns of up to 10% monthly.

    James A. Torchia, 56, and his companies, Credit Nation Capital and Credit National Acceptance, were the subject of an SEC complaint accusing them of running a Ponzi scheme involving the sale of bogus promissory notes and selling interests in life settlements. The SEC complaint alleges that Torchia promised 9% returns and approximately $30 million was owed to note holders. The complaint also alleges that two companies he controls, Spaghetti Junction LLC and Willie’s West LLC, transferred hundreds of thousands of dollars to Torchia and his wife.

    Scott Valente, 58, was sentenced to 20 years in prison and ordered to pay $8.3 million in restitution for operating a Ponzi scheme that defrauded more than 100 investors out of more than $10 million. Valente ran his scheme through his investment company, the ELIV Group LLC, claiming that he had annual investment returns of 36% to more than 48% when in fact he was losing money each year.

    Hector Vega, 40, pleaded guilty to charges accusing him of running a Ponzi scheme in which he promoted music concerts.

    Sydney “Jack” Williams, 66, pleaded guilty to charges that he made a series of bank withdrawals. His wife, Lori Ann Williams, pleaded guilty a few weeks earlier.

    Tropikgadget FZE, Tropikgadget Unipessoal LDA, Compasswinner LDA, and Happy SGPS SA, operating under the $23.5 million Wings Network Ponzi scheme, were ordered to pay $36 million as fines and restitution to thousands of mostly Latino investors.

INTERNATIONAL PONZI SCHEME NEWS

Canada

    Rashida Samji, 61, sought a stay of charges relating to an alleged $110 million Ponzi scheme, claiming that the charges would violate her constitutional right not to be tried twice for the same offense. Samji was previously fined $33 million by the BC Securities Commission for defrauding more than 200 investors, and she was banned from the B.C.’s capital markets. Samji’s investors were advised that they were investing in a winery that was expanding into South America and South Africa. About 90 of the investors came to her through Arvindbhai Bakaorbhai Patel, a financial planner at Coast Capital Savings. Patel was previously charged in connection with the scheme.

England

    Phillip Harold Boakes, 56, was sentenced to 10 years in prison following his conviction in March for defrauding investors of at least £3.5m ($5.3m, €5m). Boakes promised investors returns of 20% or more through a foreign exchange spread betting program in his company, CurrencyTrader.

    Richard Rufus, 40, was found to have operated a Ponzi scheme that defrauded almost 100 victims out of almost £9 million. Rufus had collected more than £16 million, but lost more than £5 million through currency exchange trading and used more than £3 for himself. Restrictions were imposed on Rufus’s ability to borrow money and work in business for the next 15 years. It is unclear whether he will face criminal charges.

Germany

    The trial got underway of Jorg Biehl and five other executives of Infinus, which is believed to have run a Ponzi scheme defrauding 22,000 investors out of €312 million, or $336 million.

India

    Four directors of ASSDA - Nabarun Dutta, Jasim Hossain, Jamir Hossain and Asgar Ali – were arrested for allegedly raising money from the public illegally and misappropriating funds.

    The Supreme Court dismissed the bail plea of Matang Sing, who had previously been arrested in connection with the Saradha Ponzi scheme.

    Omkar Singh was arrested in connection with an alleged Ponzi scheme involving more than 15 crore, through the companies, Ambitious Diversified Projects Management Ltd. and OAK India Multi-State Credit Cooperative Society.

    Davanidhi Mohapatra, the managing director of Tresty Securities Limited, was arrested for allegedly defrauding investors out of Rs 10 crore.

    Two directors of Akashdeep Projects, Pinak Ranjan Choudhary and Tapas Pramanik, were arrested and were alleged to be “involved in criminal conspiracy with other directors.”

    Nirmal Infra Home Corporations Limited was raided in connection with charges that it defrauded investors of about Rs 50 crore. Nirmal claimed to have operations in real estate and hospitality businesses and promised high returns.

Philippines

    The SEC alleged that EmGoldEx, which was renamed at Global Intergold, was a Ponzi scheme, and that Prosperous Infinite Philippines Holdings, Corp., was later incorporated. The SEC issued a warning in advanced of a promotional event at which 2,000 people were expected to attend. Individuals alleged to be associated with the scheme are Kevin Miranda, Ryan Manuit, Charles Juiz Padilla, Rabel Ymas, John Rafael Calicdan, and Paul Alviar. Weng Faye Cabreros Cabusas aka Rowena Faye Cabusas, Gavino Mariano Tan, and Romell Enriquez Tan of Goldxtream Trading Co. were charged in connection with an alleged Ponzi scheme that promised returns of P25,000 for an investment of P5,000 after 11 days.

Thailand

    Over 20 million baht worth of assets were seized from Wannachai Boonchu, who alleged defrauded victims into investing in gold futures through a China-based company. The scheme defrauded over 1,000 people.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    The trustee of Tim Durham’s Fair Finance Co. $208 million Ponzi scheme sought approval to distribute $18 million to investors. The distribution represents less than 9 cents on the dollar for the 5,000 investors. Fair Finance, founded in 1934 but acquired by Durham in 2002, bought finance contracts from fitness clubs, timeshare condominium developers and other firms that offered customers extended payment plans. Durham, who pulled out tens of millions of dollars for himself, is serving a 50 year prison sentence.

    Ernst & Young was found liable by a jury in a lawsuit filed by investment firm FutureSelect Portfolio Management Inc. for negligent audit reports of a Bernard Madoff feeder fund prepared by Ernst & Young. Ernst & Young had audited Rye Funds, which were managed by Tremont Group Holdings Inc., and contends that it followed generally accepted accounting principles in auditing the fund. The jury rendered a verdict of $20.3 million, with Ernst & Young liable for half of that amount, but the liability could reach nearly $25 million when prejudgment interest is added.

    A court declined to dismiss claims brought by investors in the Stanford Financial Ponzi scheme against Toronto-Dominion Bank, alleging that TD failed to conduct proper due diligence and was negligent in providing services to Stanford International Bank.

    A bankruptcy court has ruled that TelexFree LLC, TelexFree Inc. and TelexFree Financial Inc. were engaged in a Ponzi and pyramid scheme. The trustee had sought such a ruling as part of the proposed claims procedure process, but he will likely also use the ruling in connection with lawsuits to recover voidable transactions.

    The lawyer appointed by the court to defend thousands of net winners in the ZeekRewards case has established a website to communicate with the Net Winner Class in the case. The website can be found at http://www.zeeknetwinnerclass.com/index.

Saturday, October 31, 2015

October 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for October 2015. The reported stories reflect: 3 guilty pleas or convictions in pending cases; over 93 years of newly imposed sentences for people involved in Ponzi schemes; at least 4 new Ponzi schemes; 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.

    William Apostelos, 54, and Connie Apostelos aka Connie Coleman, 50, were indicted on charges relating to an alleged $70 million Ponzi scheme that defrauded over 480 investors. The Apostelos ran the scheme through their investment business, WMA Enterprises LLC, Midwest Green Resources LLC, and Roan Capital. Connie Apostelos also operated Coleman Capital Inc. and Silver Bridle Racing LLC. The investors are believed to have lost $30 million collectively.

    Eric Bartoli, 61, was extradited from Peru, after having been wanted by the FBI since 2003 for masterminding a $65 million Ponzi scheme. Bartoli had run his scheme through Cyprus Funds, Inc. and took money from more than 800 investors. It is believed that about $30 million was returned to investors by Bartoli, and the receiver over the scheme has made nearly $10 million in distributions to the victims.

    Chuckie Beaver, 52, was sentenced to 4 years and 9 months in prison for defrauded at least 30 victims out of about $2 million. Beaver owned Best Services Inc., which repaired industrial electronic equipment. He solicited investors to provide capital to supposedly buy materials to complete a large number of outstanding repair orders for major corporations. Beaver delivered fake documents to the investors, including bogus repair orders, and promised them returns of up to 100%.

    Charles A. Bennett, 57, pleaded guilty to running a $5 million Ponzi scheme that involved at least 30 investors. Bennett was once a lawyer at Skadden Arps Slate Meagher & Flom LLP, but later started soliciting investments in a supposed European real estate mortgage-backed securities scheme. The scheme first came to light after Bennett’s failed suicide attempt last year in which he revealed that “the bulk of the funds were used in classic Ponzi scheme fashion to pay off other supposed ‘investors’ and my absurd lifestyle.”

    John Steven Blount, 55, was sentenced to 19½ years in prison and was ordered to pay $4.3 million in restitution in connection with a $5.8 million Ponzi scheme through his company, Professional Consultants LLC. The scheme defrauded at least 73 investors by promising above-market returns from investments in fictitious companies, bonds and IRAs.

    Robert Cephas Brown Jr., 61, had his 10 year prison sentence reduced by about 5 ½ years as a result of his appeal to the Ninth Circuit. The appellate court found that the lower court had overreached in the use of the sentencing enhancements.

    John R. Bullar, 53, and his company Executive Management Advisors LLC, were permanently banned from future violations of the Commodity Exchange Act. They were also imposed with a restitution obligation in the amount of $31 million. Bullar was sentenced earlier in the year to 100 months in prison and ordered to pay about $6.2 million in restitution for running an $8.7 million Ponzi scheme. Bullar was also the sole owner and operator of Priapus Group, LLC.

    Steve Chen, and his companies, Gemcoin, its parent company, Alliance Financial Group, Inc., its subsidiary, US Fine Investment Arts, Inc., along with other related companies, Amauction, Inc., Aborell Mgmt I, LLC, Aborell Advisors I, LLC, Aborell REIT II, LLC, Ahome Real Estate, LLC, Alliance NGN, Inc., Apollo REIT I, Inc., Apollo REIT II, LLC, Amkey, Inc., US China Consultation Association, and Quail Ranch Golf Course, LLC, were the subject of an SEC complaint alleging that they were operating a fraudulent scheme. Investors were told that the companies owned amber mines in Argentina and Dominican Republic with assets of $50 billion. Chen and his companies allegedly raised at least $32 million from investors, claiming to have converted the holdings of the investors into “Gemcoins,” which was supposedly a digital currency secured by the amber holdings in the company. Chen told investors that the U.S government had purchased 705 of Gemcoins and that a 6,400% profit was guaranteed. An anonymous investor in Gemcoin filed a lawsuit making allegations against former Arcadia Mayor, John Wuo, who promptly resigned from his position stating “health and personal reasons.”

    Paul Sloane Davis, 74, was sentenced to 3 years in prison and ordered to pay $1.7 million in restitution in connection with a $2.4 million Ponzi scheme. The scheme was run with his partner Dianne Cobb, 58, through a company called DM Financial, and defrauded 21 investors.

    Gordon Driver, 58, was sentenced to 12½ years in prison and ordered to pay about $9.6 million in restitution in connection with his operation of a Ponzi scheme through Axcess Automation LLC and for his lying to the SEC under oath. The scheme took in about $17.4 million from about 150 people. Of those, 88 lost nearly $10 million. Driver had told investors that he was producing profits of 1% to 5% a week through a commodity futures trading program involving E-mini S&P 500 futures contracts.

    Jeffrey Heady, a former Phoenix policy officer, was sentenced to 5 years in prison and ordered to pay more than $1 million in restitution in connection with his Ponzi scheme that defrauded 15 victims out of more than $1 million.  Heady was selling bridge loan investments through his company, Investment Acquisition Group. He told investors he would use their money to buy and resell commercial properties, promising a return of 11% to 19% per year.

    Jenifer Hoffman, 51, was sentenced to 9 years in prison for defrauding more than 100 people out of more than $10 million. Hoffman used her company, Assured Capital Consultants, to solicit the investors into a scheme run with John Boschert, 43, and Bryan Zuzga, 37. Boschert and Zuzga both previously pleaded guilty and are serving prison terms of 9 years and 6 years, respectively.

    Michael William Kwasnik, 46, Joseph Michael Schifano, 49, and Daniel Francis McCorry, 59, were ordered to pay back $8.6 million to 73 elderly investors in a Ponzi scheme and an additional $5.4 million in penalties. They had promised 12% returns from the purchase of life insurance policies and interests in irrevocable life insurance trusts.

    Kurtis Keith Lowe, 63, and Robert Allen Blackburn, 49, were each sentenced to 5 years in prison and ordered to pay about $2.3 million in restitution, jointly and severally. Lowe and Blackburn pleaded guilty in July 2015 to charges relating to a scheme run through Omni Capital Management Trust. Lowe owned Omni and Blackburn recruited investors into the company, as well as two other bogus companies, Amwest Capital Management and National Fidelity Management. Lowe and Blackburn defrauded 21 investors out of more than $2.4 million.

    Patricia Maldonado was hit with a $50 million jury verdict in connection with her role as the former treasury manager of Stanford Financial. The receiver of Stanford Financial had alleged that Maldonado breached her fiduciary duties in connection with improper transfers from customer deposit accounts, including transfers of more than $200 million to a secret Swiss bank account that was used to pay bribes.

    James Hurst Miller, 67, was sentenced to 7 years in prison for his role in a Ponzi scheme run by developer Kelly Gearhart. Miller raised money for the scheme through his company, Hurst Financial Corp., acting as a middleman in recruiting investors.

    Jason A. Muskey, 39, was sentenced to 11 years in prison for his role in connection with a Ponzi scheme he ran through Muskey Financial Services that raised $2 million from 26 investors. He was also barred from the financial industry by the SEC.

    Dror Soref, 65, and Michelle Seward, 43, were charged with in connection with an alleged Ponzi scheme that defrauded nearly 140 investors to raise money for the film “Not Forgotten” through their company, Windsor Pictures LLC.

    Frank Spinosa, 54, pleaded guilty to charges that he provided false assurances to investors in the Scott Rothstein $1.2 billion Ponzi scheme. Spinosa was the regional vice president of TD Bank, which was found liable for $67 million to a group of investors who sued the bank for aiding and abetting Rothstein’s fraud. Spinosa had signed “lock letters” assuring the investors that their money was safe in TD bank accounts. More than two dozen people have been charged and convicted in connection with the Rothstein Ponzi scheme.

    R. Allen Stanford, 65, lost his appeal of his conviction and 110 year prison sentence. The Fifth Circuit rejected Stanford’s 10 arguments raised on appeal, including that: he was not competent to stand trial, the government did not prove its case; the sentence was too long; and the trial judge was biased toward the prosecutors. U.S. v. Stanford, 2015 U.S. App. LEXIS 18861 (5th Cir. Oct. 29, 2015).

    Michael Szafrankski, 37, was sentenced to 2½ years for his role in the Scott Rothstein Ponzi scheme. Szafrankski has been hired by several hedge funds to act as an “independent asset verifier” to vet the investments that Rothstein was promoting. Szafrankski became friends with Rothstein and then began soliciting investors for the scheme. It was alleged that Szafrankski brought over $200 million of new investments into the scheme.

    Alan James Watson, 50, and Michael S. Potts were ordered to pay more than $91.9 million in restitution and penalties in connection with a commodity pool Ponzi scheme run through Cash Flow Financial LLC. They also used Safevest LLC and Trade LLC as part of the scheme. The two were accused of soliciting at least $45 million from more than 600 investors.  Watson was previously sentenced to 12 years in prison.

    William J. Wells was arrested and also became the subject of a complaint filed by the SEC accusing him of running a Ponzi scheme through Promitor Capital Management LLC that defrauded more than 30 investors out of more than $1.5 million. Wells allegedly falsely told investors that he was a registered investment advisor and would invest their money in specific stocks. Instead, he invested in high risk options and had to bring in money from new investors to cover his losses. In response to an investors accusation that he was running a Ponzi scheme, Wells responded, “I’m an idiot and was trying to get some big trades to . . . make you more money.” Criminal charges were also filed against Wells.

    Lorie Ann Williams, 48, pleaded guilty to evading bank reporting requirements in connection with Ponzi scheme of Nevin Shapiro. Williams admitting to withdrawing $332,500 worth of cash in chunks of $9,500, intending to avoid the $10,000 threshold at which cash transactions must be reported. She withdrew the cash after lawsuits were filed against her husband, Sydney “Jack Williams, 66, the top recruiter in the Shapiro’s Capitol Investments Ponzi scheme, earning up to $18 million in interest and commissions. Sydney Williams had previously pleaded guilty to tax fraud for failing to report $6.4 million in income. Sydney and Lorie Ann Williams are now accused of conspiring to move funds shortly before Sydney filed bankruptcy in 2010.

    Daniel H. Williford, 57, was sentenced to 9 years and 2 months and ordered to pay $17.9 million in restitution in connection with a $44 million Ponzi scheme that took in money from more than 200 investors. Williford had promised investors that their funds would be invested in wireless internet equipment, internet towers and other facilities. Instead, Williford invested only $7.7 million of the victim’s money and used $32 million to make Ponzi scheme payments to earlier investors and to pay his personal expenses. More than 100 investors lost nearly $18 million in the scheme.

    Joseph Zada, 57, was found guilty last month for his role in a $50 million Ponzi scheme in which he told investors he was putting their money in oil and currency trading through a secret European board. Since then, and prior to his sentencing, evidence has come out that Zada has been receiving substantial financial assistance from Alex Molinaroli, the CEO of Johnson Controls Inc., in the form of housing and money. Prosecutors, in arguing that Zada may be a flight risk, say that Molinaroli has paid Zada’s legal fees, bought a mansion for Zada to live in, and offered to pay up to $20 million in restitution for Zada. Molinaroli says he gave money to Zada understanding that Zada was investing it and that he regrets ever meeting Zada.

INTERNATIONAL PONZI SCHEME NEWS

Canada

    Leanne Houle, 47, had charges against her dropped in connection with an alleged $3 million Ponzi scheme in which 22 investors had understood their money was being invested in high-return currency trading with tax-free returns of 15% to 28%. John Paul Baron, 55, had previously been convicted on charges relating to the scheme, and Terrence McGill, 57, had previously been sentenced to 23 months of house arrest.

China

    Fanya Metal Exchange is the subject of public protests, among other things, that it is a Ponzi scheme. It is estimated that thousands of Chinese investors have invested an estimated $6 billion into the company, believing that they were investing in a business that bought, sold and traded rare metals. China’s state banks had recommended Fanya to customers, national television stations tacitly endorsed the business, and local regulators approved it. Fanya has been in business since 2011, and it is reported that its prices were far disassociated from the global buying and selling of rare metals. Retail investors would lend money to buyers to pay for products and would get a “warehouse warrant” of the rare metals that their money had bought, pledging that the metals exist. The end buyers of the metal would pay investors daily interest of .003%, or 13.7% on an annual basis.

India

    The Central Bureau of Investigation arrested three directors of MPS Greenery Developers Ltd.: Shantanu Chowdhury, Prabir Kumar Chanda, and Madhusudan. They have been accused of conspiring with the managing director, P.N. Manna, to defraud poor investors in a Ponzi scheme and collecting Rs. 2,500 crore from the public with permission from any regulatory body.

South Africa

    The Reserve Bank applied to have the company Carmol be determined insolvent and to be liquidated. Carmol was allegedly a Ponzi scheme that promised returns of between 72% and 96% a year. Carmol claimed to be involved in the selling and distributing of Petrol and diesel products, but instead is alleged to have been running an unlawful deposit-taking scheme. Yunus Moola and Fathima Carawan are directors of Carmol.

Thailand

    The Department of Special Investigation seized assets exceeding 700 million baht from Digital Crown Holdings Limited, which is accused of running a Ponzi scheme that defrauded more than 8,000 people out of 900 million baht.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    Victims of Steve Blount’s Ponzi scheme filed a lawsuit against Blount’s companies and JD Bank, alleging that the bank aided and abetted the fraud and added unwarranted legitimacy to the business. Blount was sentenced to almost 20 years in prior for the scheme that defrauded more than 70 victims.

    John R. Merlino Jr. won an appeal of a malpractice lawsuit brought against him by a couple who had invested $3 million with Merlino’s client, Antoinette Hodgson, who was convicted of running a Ponzi scheme.

    The trustee of the Bernard Madoff Ponzi scheme had his lawsuits dismissed that were seeking to recover payments made to foreign investment companies. The court found that since the transfers did not take place on U.S. soil, the U.S. Bankruptcy Code does not apply to them.

    The United States Supreme Court denied a petition for writ of certiorari filed by a group of investors in the Madoff scheme seeking review of a Second Circuit decision denying them the ability to collect inflation or interest on their losses. The Court upheld that the finding that the Securities Investor Protection Act does not allow the liquidating trustee to adjust investors’ net equity claims for inflation or interest. The Madoff trustee is now free to disburse $1.249 billion that he has been holding in reserve while the litigation over time-based damages was pending. Any customer who invested up to $1,161,000 will be made completely whole in the latest round of distribution payments.

    FutureSelect Portfolio Management Inc. began its jury trial against Ernst & Young, alleging that E&Y certified $4.2 billion in fake assets that Bernard Madoff claimed to have. The FutureSelect investors say they never would have invested but for the certification of E&Y of the financials of Madoff.

    The Madoff trustee began a trial against Andrew Cohen, a former Madoff employee, to recover $1.1 million on a fraudulent transfer theory.

    A court granted a request by the liquidator of Fairfield Sentry Ltd. to disapprove the sale of a $230 million claim against Madoff to a hedge fund.

    Three brokers have agreed to pay $2.75 million to settle arbitration claims relating to their role in investments purchased by Gregory McKnight, who was found guilty for running a $72 million Ponzi scheme. McKnight was previously sentenced to 15 years in prison for the scheme that involved more than 3,000 investors. McKnight promoted his scheme in a pooled investment program called Legisi, which promised returns of 15% to 18%.

    Huntington Bank sought a stay of a $72 million judgment obtained against it in connection with the CyberNet and Cyberco Holdings Inc. Ponzi scheme run by Barton Watson. The scheme promised investors returns for the use of their money to purchase computer hardware from Teleservices Group, Inc., a company also controlled by Watson. Huntington Bank had provided banking services to Watson and his companies, including a $17 million credit line on which more than $73 million payments were made. The bank’s good faith defense was rejected, with the court noting examples of the bank turning a blind eye to obvious red flags. The court found that the bank is entitled to a stay if it posts a bond of $80 million to cover the judgment and the $9 million of interest. Huntington Bank says that that bond would cost the bank $800,000 to $1.6 million.

    The TelexFree trustee has filed a motion seeking to institute an electronic claims process to deal with the hundreds of thousands of potential claims. The trustee believes there are likely in excess of one million claimants and that an exclusive online portal is the most practical and cost-effective means of managing the claims process.

    The ZeekRewards receiver sued MLM attorney Gerald Nehra and his law firm, Nehra and Waak, along with his partner, Richard W. Waak. The receiver alleges damages of at least $100 million, contending that they encouraged investors to participate in the scheme by knowingly allowing their names to be used to provide “a false fa├žade of legality and legitimacy…”

Wednesday, September 30, 2015

September 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for September 2015. The reported stories reflect: 5 guilty pleas or convictions in pending cases; over 51 years of newly imposed sentences for people involved in Ponzi schemes; at least 3 new Ponzi schemes; and an average age of approximately 52 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.

    Roger Stanley Bliss, 57, pleaded guilty to charges relating to his attempt to hide a sailboat after he was accused of running a $25 million Ponzi scheme by representing that he was trading exclusively in the shares of Apple. Bliss is also facing charges that he operated an investment club that took in money from about 708 investors, promising returns of up to 300%.

    Charles L. Erickson, 72, was arrested and accused of running a $3.4 million Ponzi scheme that defrauded at least 8 victims. Erickson allegedly took money from fellow members of his Ashland church in Massachusetts, claiming that the Holy Spirit revealed an investment strategy to him.

    Gregory G. Jones resigned as a lawyer in lieu of discipline by the State Bar of Texas. Jones was the subject of a disciplinary proceeding for his role in advising clients to invest in Edwards Exploration LLC and Edwards Operating Co. LLC. Jones represented that he knew the principal of the companies, Spencer Edwards, and that he was familiar with the business ventures. But the businesses were actually running a Ponzi scheme.

    George Lindell, 67, and Holly Hoaeae, 40, were found guilty in connection with a Ponzi scheme called “The Parking Lot” in which 166 people invested over $26 million and lost a net amount of $8.9 million. The scheme was run in connection with the operation of their business, “The Mortgage Store.”

    Stafford S. Maxwell, 46, was sentenced to 3 years and 9 months in prison and ordered to pay about $1.4 in restitution in connection with the Millennium Capital Exchange Inc. Ponzi scheme. Maxwell was the former Chief Executive Officer and former owner of Millennium who defrauded victims out of more than $2 million. The company was supposedly engaged in foreign exchange trading and promised investors returns of 48% to 72%.

    James E. Neilsen, 55, pleaded guilty to charges relating to a Ponzi scheme that defrauded investors out of $1.6 million. Neilsen ran the scheme through Neilsen Financial Services and Ulysses Partners LLC. He promised 9% to 10.5% returns to investors from supposedly investing their money in business ventures, but instead used the money to pay back earlier investors or on himself.

    Gina Palasini was indicted in connection with an alleged Ponzi scheme that defrauded 6 investors out of over $1 million. Palasini is already serving a 10 year prison sentence on related state charges. Palasini continued to sell accident, life and death insurance even after her insurance license was revoked in 2006. Palasini also promised her clients assistance in obtaining Medicaid or Veterans Affairs benefits and encouraged them to invest in annuities, sometimes promising them that they would qualify for benefits and 10% interest.

    Gaeton “Guy” Della Penna, 62, was sentenced to 5 years in prison and ordered to pay $2.8 million in restitution for his role in a Ponzi scheme in which he promised investors a 5% return plus principal repayment after 18 months.

    James Peister, 63, was sentenced to 6 years in prison for running a $17.9 million Ponzi scheme that defrauded 74 investors. Peister had sent fictitious account statements to investors and false financial statements to an independent auditor.

    Trendon Shavers, 33, pleaded guilty to operating a Ponzi scheme that involved the virtual currency, Bitcoin. Shavers ran the scheme through his company, Bitcoin Savings & Trust and claimed that he would pay investors 1% interest on their investment every 3 days, or 7% per week. Shavers had more than 750,000 Bitcoins worth about $4.5 million when he shut down the company in 2012. The SEC charged Shavers and ordered him to pay back $40.7 million in a civil lawsuit.

    Sunil Sharma was sentenced to 33 months in prison for running a Ponzi scheme through his companies, Gold Coast Holding and Safe Harbor Tax Lien Acquisitions. Sharma raised $8.36 million from 32 companies and told investors he would invest in bonds in emerging markets in Brazil, Russia, India, and China. Instead, he engaged in day-trading stock options and spent the investors’ money on a home, a Mediterranean cruise and lease vehicles.

    Jerry Smith, 52, saw his 40 year prison sentenced dismissed by an appellate court. Smith had pleaded guilty to charges relating to the Ponzi scheme run with his business partner, Jasen Snelling. The appellate court concluded that Smith committed one single act of criminal conduct by failing to register as a broker-dealer and that the proper analysis was not the number of times Smith transacted business. The court remanded for the trial court to re-sentence Smith with the court’s calculation to find that the total term Smith may receive is 10 years.

    Dror Soref, 75, was arrested in connection with an alleged Ponzi scheme run through Not Forgotten LLC. Soref, CEO of Skyline Pictures, is a film director known for making Weird Al Yanovic music videos, but is now accused of working with Michelle Kenen Seward, 42, in defrauding investors out of at least $11 million, promising them returns of 10% to 18%. Such returns were also promised by another company run by the two of them called Windsor Pictures LLC. It is estimated that at least 140 victims invested over $21 million with Soref and Steward.
 
    Frank Spinosa, 54, is scheduled to plead guilty to charges relating to his relationship to Scott Rothstein while he was a vice president at TD Bank. Spinosa was accused of making oral assurances to at least two investors that certain accounts contained hundreds of millions of dollar when these “locked” accounts actually only held about $100. Spinosa was facing many years in prison if convicted on all charges, but may only face a maximum of 5 years for the single count of wire fraud conspiracy.

    Kaveh Vahedi, 53, who was convicted of running a Ponzi scheme through KGV Investments and Countrywide Financial, was sentenced to 18 years in prison. The 18 year sentence was imposed despite the fact that the government was asking for an 8 year sentence and the probation office recommended 10 years. The scheme defrauded 31 investors who invested more than $12 million in supposed development projects on promises of a profit of 50% of their principal investment within 9 months. The sentencing judge call the scheme the “most heartbreaking, vicious fraud ever,” because Vahedi had defrauded cancer victims, the elderly, and others already in financial trouble, convincing them to mortgage their homes in order to invest.

    Charles Wooden, 48, and Hendrickx Toussaint, 44, were sentenced to 7 years and 3 years 10 months in prison, respectively, for their $5 million real estate Ponzi scheme run through Aeon Capital Management LLC. They provided fake documents to investors to conceal that the money was not used to purchase real estate as promised and fake bank account statements to reflect that investors’ money was still in escrow.

    Troy Wragg, 34, Amanda Knorr, 32, and Wayde McKelvy, 52, were charged with running a $54 million green energy Ponzi scheme through Mantria Corp. The SEC had filed a civil action against them and each of them were ordered to pay $37 million in 2012. The scheme promised as returns high as 484% from a green energy technology called “biochar” that would turn trash into fuel and “carbon-negative” housing developments. The scheme raised $54.5 million. Before the Ponzi scheme was shut down, former President Bill Clinton’s Clinton Global Initiative had honored Mantria for its effort to “help mitigate global warming.”

    Joseph Zada, 57, was found guilty of charges relating to a $50 million Ponzi scheme. The SEC had previously obtained final judgments against Zada and his company, Zada Enterprises LLC, in connection with a $27.5 million Ponzi scheme that defrauded at least 60 investors. Zada had promised 7% to 12% interest rates and promised some investors 48% returns in connection with oil-related investments in the Middle East.

    Brian Zuzga, 39, was sentenced to 6 years in prison and ordered to pay $10.7 million in restitution for his role in a Ponzi scheme that defrauded more than 100 victims out of more than $11 million. Zuzga had previously pleaded guilty to running the scheme through Assured Capital Consultants, along with Jenifer E. Hoffman and John C. Boschert.

INTERNATIONAL PONZI SCHEME NEWS

England

    Spencer Mitchell Steinberg, 45, and Michael Strubel, 53, are on trial for allegedly using fake contracts with the London 2012 Olympics to defraud £40m from friends and family. The two defendants, along with Jolan Marc Saunders, 39, who has pleaded guilty, told investors that Saunders Electrical Wholesaters Limited supplied electricals including trouser presses and kettles to major hotel chains. It is alleged that instead they used the funds to purchase expensive homes and vehicles.

India

    Shibonoy Datta and Ashok Saha were arrested in connection with the Rose Valley Ltd. Ponzi scheme.

    Chittaranjan Mohanty, Bikram Pradham and Manas Kanungo were arrested in connection with allegations that they were running a Ponzi scheme through Unique SMCS, a cooperative society that used 700 local youths as agents to collect money from people. Unique SMCS ran 5 schemes and promised investors that they would double their money in 5 years and get 7 times their money in 10 years.

    The Securities and Exchange Board of India imposed a record penalty of 72.7 billion rupees ($1.1 billion) on real estate developer PACL Ltd.

South Africa

    The National Consumer Commission has launched preliminary investigations into the following nine alleged Ponzi schemes: WorldVentures, Kipi aka Mydeposit241, Make Believe, NMT Investments, Instant Wealth Club, MMM South Africa, DIPESA, Sikhese (Pty) Ltd., and the Wealth Creation Club.

Thailand

    Thirteen defendants appeared in Criminal Court in Bangkok in connection with the alleged scheme of the Ufun Store. The scheme allegedly defrauded about 120,000 people out of more than 20 billion baht. The company had been granted permission to sell herbal drinks, fruit drinks and cosmetics last year, but is believed to have been operating a scheme to bring in new members rather than sell products. The defendants are Apicharat Saenkla, 40, Ratthawit Thiti-arunwat, 34, Chaithorn Thonglorlert, 41, Ritthidej Warong, 39, Monpan Thanabundit, 41, Peeraya Kanphrom, 26, Chotipat Wuthipanpokin, 38, Nipaporn Lamee, 36, Theerawat Patcharasuyayai, 21, Natwaran Uttamakaeo, 24, Chaisong Wanasbodiwong, 36, Kevin Lai, 48, and Yang Yuan Zhao.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
 
    An appellate court upheld a $72 million judgment against Huntington Bancshares Inc. in connection with the Cyberco Holdings Inc. Ponzi scheme. The ruling upheld a bankruptcy court decision that found that Huntington ignored signs of wrongdoing and continued to allow a related company to move money in its accounts. Meoli v. Huntington Nat’l Bank, 2015 U.S. Dist. LEXIS 129909 (W.D. Mich. Sept. 28, 2015).
   
    The bankruptcy trustee of Fair Finance Company, a company run by Tim Durham, announced his intention to make a first distribution to victims of the Ponzi scheme. The distribution will be $18 million, or about 8% - 9% of the losses in the case. Nearly $230 million of claims were submitted in the bankruptcy case. Durham is serving his 50 year prison sentence and his co-conspirators Jim Cochran and Rick Snow were sentenced to 25 years and 10 years, respectively.

    Cleveland Cavaliers forward Mike Miller filed a lawsuit to recover the balance of his $1.7 million loss from the alleged Ponzi scheme run by Randy Hansen and Vincent Puma through RAHFCO Hedge Funds.

    A lawsuit was filed by about 30 investors against CommunityOne Bank in North Carolina in connection with the $40 million Ponzi scheme run by Keith Franklin Simmons, who was previously sentenced to 40 years in prison. Simmons was sentenced to 40 years after a jury trial last year in which he was found to have defrauded more than 400 investors who placed more than $35 million with Black Diamond.

    The Receiver in the R. Allen Stanford $7 billion Ponzi scheme won a summary judgment finding that 6 investors must return approximately $2 million in profits they received.

    A court approved a settlement between thousands of investors in the Allen Stanford scheme and BDO for the sum of $40 million.

    A class action attorney asked a federal court for permission to sue at least 20,000 net winners in the TelexFree Ponzi scheme. Daniil Shoyfer, a TelexFree promoter, would be the lead class-action defendant.

    3M, a multinational conglomerate ranked No. 101 on the Fortune 500 list, was denied its insurance claim seeking to recover funds in connection with its investment of its employee-benefit plan assets in the Ponzi scheme run by WG Trading Company. Even though 3M recovered all of its money invested through the receivership proceedings, it sought to be paid earning on those investments. A court ruled in favor of the insurance company, finding that 3M owned a limited partnership interest in WG Trading and that it did not own the earnings of WG Trading, so 3M’s insurers are not obligated to compensate 3M for a loss when it never possessed the earnings. 3M Co. v. Nat'l Union Fire Ins. Co., 2015 U.S. Dist. LEXIS 131197 (D. Minn. Sept. 28, 2015).

Monday, August 31, 2015

August 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for August 2015. The reported stories reflect: 3 guilty pleas or convictions in pending cases; over 39 years of newly imposed sentences for people involved in Ponzi schemes; at least 3 new Ponzi schemes involving over $143 million; and an average age of approximately 59 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 Anderson, 41, was sentenced to 7 years and 3 months in prison in connection with a Ponzi scheme to which he had previously pleaded guilty. Anderson defrauded a dozen investors out of more than $3 million. During most of the scheme, Anderson was a registered financial broker working with MetLife Securities and then Pruco Securities.

    Roland Barrera, a bar owner, was ordered to pay a $150,000 penalty for breaking federal regulations when he helped persuade a businessman to invest $3 million in a Ponzi scheme run by Robert Helms and Janniece Kaelin through their company, Vendetta Royalty Partners, Ltd., claiming to have royalties on 2,000 oil and gas wells. The scheme involved as many as 129 investors who invested at least $18 million. Helms and Kaelin were the subject of a summary judgment against them, stripping them of their ability to work in investment industry.

    John R. Burns III, 56, was sentenced to 7 years in prison in connection with a Ponzi scheme run through USA Retirement Management Services. Burns persuaded investors to invest in bogus Turkish bonds. His scheme was part of a large scheme run with Robert Pribilski, 57, and Mahmt Erhan Durmaz, 45, in which they defrauded 120 investors out of $28 million. Pribilski pleaded guilty last year, and Durmaz fled the U.S. in 2010 and is believed to be residing in Turkey.

    Terina Carney aka Teina Humphrey, 49, pleaded guilty to running a Ponzi scheme in which she stole more than $415,000. Carney ran her scheme through Riverside Lease LLC, and investors were promised returns of 10% to 30%.

    Cristal Clark, 41, was acquitted of charges of running a Ponzi scheme through Cay Clubs, and a mistrial was declared as to her husband, Fred “Dave” Clark. Cay Clubs had sold interests in luxury resorts that were to be developed nationwide, promising returns of 15% to 20%. They had raised more than $300 million from approximately 1,400 investors. An SEC action against the Clarks had previously been dismissed as being untimely. Two others involved with Cay Clubs, Barry Graham and Ricky Lynn Stokes, had previously pleaded guilty and received sentences of 5 years each.

    Carlos Garza and his brother, Josh Garza, were sued by the SEC in connection with GAW Miners. GAW is alleged to have violated securities laws through its sale of Hashlet miners and its cryptocurrency, Paycoin. Last year, GAW moved more toward its “Paybase” system of payments and formed strategic partnerships with Walmart and Amazon.

    Richard M. Higgins, was sentenced to 14 years in prison after pleading guilty to charges that he ran a Ponzi scheme through Higgins Capital Management and Higgins Equity Partners. Higgins defrauded investors out of more than $600,000 by assuring them that he was a registered advisor and reporting returns to them of between 18% and 174%. In fact, he experienced losses of between 80% and 91%.

    Irwin Lipkin, 77, was sentenced to 6 months in prison in connection with the Bernard Madoff Ponzi scheme. Lipkin had pleaded guilty to charges relating to the falsification of documents at a time when he was Controller for Madoff’s company. When he left the company, he instructed his successor on how to falsify the records and he also manipulated his own account to retain significant capital gains. Lipkin’s wife also remained on the payroll for many years, even when she was not performing any services.

    James H. Mason, 67, was sentenced to 8 years in prison and ordered to pay $4.3 million in restitution in connection with a $4.7 million Ponzi scheme that defrauded at least 500 investors. The scheme purported to be a foreign exchange investment program.

    Ron Earl McCullough and David Christopher Mayhew had a default judgment entered against them, which provides that they will have to pay $1,223,388.43 in restitution and 42,486,619.87 in civil monetary penalties for operating a foreign exchange Ponzi scheme. McCullough and Mayhew were accused by the CFTC of violating commodities laws in connection with a fraudulent scheme that solicited about $2.3 million from at least 11 victims.

    Steven Palladino, 58, was sentenced to 2 years in prison for violating an asset freeze and other court orders in a civil case brought by the SEC relating to a Ponzi scheme for which he is already serving a 10 to 12 year sentence. Palladino was sentenced last year after pleading guilty to stealing $10 million from investors through his company, Viking Financial Group.

    Wayne Palmer, 60, and his cousin Julieann Palmer Martin, 47, of Utah, were indicted on charges that they ran a Ponzi scheme which defrauded more than 600 investors out of $140 million. They ran the scheme through National Note of Utah, a company that supposedly extended real estate loans, engaged in other real estate activities, operated a mint, and extracted precious metals from mine tailings. The company promised investors consistent returns of 12% per annum.

    Albert Rossini, 67, Babajan Khoshabe, 74, and Anthony Khoshabe, 33, were indicted on allegations that they defrauded at least 15 victims out of $2.9 million. They represented that investors would receive rental income from purchasing purported mortgage notes on apartment buildings in foreclosure, and that they would get title following the foreclosure. Thomas Murray, 61, a licensed Illinois attorney, was also indicted for his alleged role in validating the sale of the mortgage notes through a phone “Guaranty Agreement” that he prepared and gave to Rossini to present to victims. Rossini and Babajan Khoshabe allegedly told prospective investors that Anthony Khoshabe managed the mortgaged properties through his position at Reliant Management, which shared office space with Devon Street Investments Ltd.

    Keith F. Simmons, 50, and Deanna Salazar received one of the largest fines ever handed out by the CFTC. They were fined $76 million for fraudulently soliciting and accepting $40 million from 240 individuals for their off-exchange forex trading program known as Black Diamond. Simmons was sentenced to 40 years in prison and Salazar was sentenced to 4.5 years, and both are currently serving their sentences. The court entered consent orders against Simmons and Salazar and her companies, Life Plus Group LLC and Black Diamond Holdings LLC. Also charged are Bryan Coats and his company, Genesis Wealth Management LLC, and Jonathan Davey, and his companies, Divine Circulation Services LLC, Divine Stewardship LLC, Safe Harbor Ventures Inc., Safe Harbor Wealth Investments Inc., and Safe Harbor Wealth Inc.

    Michael J. Stewart, 68, was convicted in connection with a Ponzi scheme that defrauded 647 investors out of $169 million. Stewart represented to investors that he would acquire distressed apartment buildings that he would flip for a profit. Stewart ran the scheme through Pacific Property Assets with John Packard. Pacific Property had filed for bankruptcy in 2009, listing 647 investors. Packard had pleaded guilty in 2014 and testified against Stewart at trial. Both are scheduled to be sentenced in November.

    Frederick Alan Voight, 58, was the subject of an SEC complaint alleging that Voight raised $114 million through his enterprises, DayStar, FAVA, Rhine, Topside, Intercore, and IRC, to fund a Ponzi scheme. Voight claimed that he was using the money to fund research for public companies and he promised up to 42% annual interest. One investment opportunity supposedly funded a technology called “DADS”, a Driver Alertness Detection System that would warn sleepy drivers.

    William Donnelly Yotty, 69, pleaded guilty to charges in connection with his operation of a $16 million Ponzi scheme through companies he operated under the names Global Capital Associates, Inc., Infostar Systems, Inc., Pacific Financial Solutions, Inc., and The Money People, Inc. The schemes defrauded about 240 investors. Yotty offered investments in corporate debt obligations and in distressed real estate, offering investors annual returns as high as 25%. In a separate scheme that he operated under the name Fortuno, Yotty offered victims the opportunity to purchase foreclosed real estate at below-market prices so that they could supposedly flip the properties at two or three time the purchase price.

INTERNATIONAL PONZI SCHEME NEWS

Canada

    Keith Henry Alexander admitted to engaging in the illegal distribution of securities and unregistered trading in connection with the Ponzi scheme run through The Little Loan Shoppe by Doris Nelson. Alexander raised $14 million from 13 investors.

    Milowe Brost, 61, filed an appeal following his conviction for running a $400 million Ponzi scheme along with Gary Sorenson, 71. The scheme defrauded more than 3,000 investors and was run through their company, Syndicated Gold Depository S.A. They formed an agreement to lend money to Merendon Mining, promising a high rate of return. Victims invested in offshore shell companies marketed by Brost's firms, Capital Alternatives Inc. and Institute for Financial Learning Group of Companies Inc. Both men were sentenced to 12 years in prison.

    Christopher Steeves and his brother, Jeremy Steeves, lost an arbitration in which they were ordered to pay about $658,000 for their role in a Ponzi scheme. The brothers received unlawful referral commissions for recruiting investors into Golden Oaks Enterprises, a company owned by J.C. Lacasse. The brothers also received more than 60% annually on their own investments and secured second mortgages on 18 properties owned by Lacasse’s Rent 2 Own Canada.

Cayman

    Brighton SPC Fund was taken over by the Cayman Islands Monetary Authority. The fund, believed to be worth $130 million, belonged to Belvedere Group.

China

    Lu Kuan-wei and Chen Yun-fei were arrested in Taiwan in connection with the alleged Ponzi scheme targeting bitcoin users through a company called MyCoin. Investors were convinced to invest 90 bitcoins ($49,600), and they were to receive a return of .63 BTC per day. They were to receive back their principal after 4 1/2 months, which would be an annual return of 255%.

India

    Manoj Kumar Sahu, Pintu Saha, and Adhis Haldar were arrested for alleged involvement in Ponzi scheme activities of MPA Agro Animal Projects.

South Africa

    The Financial Services Board provisionally withdrew the license of Ntinga Health and Financial Services following allegations that Ntinga was running a Ponzi scheme. The company promised guaranteed returns of 98% per year. The FSB identified Armstrong Luthando Mazizi as the individual running Ntinga, as well as Geinisiko Mantashe as a signatory on the company’s bank accounts.

    The Financial Services Board provisionally withdrew the license of a foreign exchange brokerage firm called ACM Gold and Trading for its links to a Ponzi scheme. ACM held short-term investment accounts for Platinum Forex, whose assets were frozen last month. Platinum Forex was run by pastor Colin Davids, who promised returns of up to 84% by trading funds on the forex market.

    Sergey Mavrodi, previously convicted of fraud in Russia, has launched a new online allegedly fraudulent scheme in South Africa. The scheme, called MMM like his predecessor scheme, offers returns of 30% per month. The website contains the following message: “This is the first sprout of something new in the modern soulless and ruthless world of greed and hard cash. The goal here is not the money. The goal is to destroy the world's unjust financial system.” The website also describes the system as a “technical basic program, which helps millions of participants worldwide to find those who need help, and those who are ready to provide help for free.”

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    The motion of Associated Bank to dismiss the complaint of the receiver of Trevor Cook was denied. The lawsuit alleges that the Bank is liable in connection with Cook’s $194 million scheme. The bank had tried, unsuccessfully, to dismiss the receiver’s suit on in pari delicto and res judicata grounds. Cook had promised risk-free returns to over 700 investors in commodities and futures trading, raising more than $200 million.

    Federal prosecutors have challenged a court order directing them to turnover the tax returns of wealthy investors who were defrauded in the alleged $190 million Ponzi scheme of Ramon DeSage, 64, that he ran through his company, Cadeau Express. DeSage contends that the investors failed to report to the IRS the cash that he paid back to investors. He wants to use the tax returns to attack their credibility. Prosecutors say that the court order “order authorizes a rank fishing expedition that puts the victims' sensitive financial data in the hands of the defendant, effectively victimizing them a second time.”

    Henry J. Haff and Diane M. Lis Haff were not permitted to take an additional $731,000 tax deduction relating to funds they claimed were owing to them from a Ponzi scheme called GSH Development LLC. They argued that the funds were never included in income.

    A settlement was documented in connection with the Bernard Madoff Ponzi scheme in which Citco Group Ltd. agreed to pay $125 million to settle claims brought by Fairfield Greenwich Ltd., one of the Madoff feeder funds. Fairfield alleged that Citco had failed to properly administer funds that ended up being invested in the Madoff scheme. About 3,000 investors claim an interest through Fairfield.

    California Polytechnic State University has agreed to pay $480,000 to have the name of Al Moriarty removed from a 53-foot advertisement on the scoreboard in the school’s football stadium. Moriarty was previously convicted or running a $22 million Ponzi scheme. Moriarty used his company, Moriarty Enterprises, to solicit investor into his scheme promising 10% returns from a program that provided home loans to educators. Moriarty was known for his philanthropy and had donated $625,000 to Cal Poly in exchange for the advertisement in Cal Poly’s football stadium.

    A court dismissed a lawsuit against GE Capital Corp. that arose from the Tom Petters Ponzi scheme. The trustee of Ark Discovery, a lender to Petters, had sued GE Capital alleging that it had aided and abetted Petters’ fraud.

    FSC Securities Corp. was found liable for $1.28 million in an arbitration brought by investors who were defrauded in the Ponzi scheme run by Aubrey Lee Price. FSC was one of the broker dealers involved in the scheme, and investors had alleged that FSC failed to supervise brokers who sold the investors “unspecified fraudulent securities as part of a Ponzi scheme.”

    About 14,000 victims in the TelexFree Ponzi scheme received a distribution from a $3.5 million fund that was set up as a result of a settlement between the Massachusetts Securities Division and Fidelity Co-Operative Bank.

    The ZeekRewards receiver made a third distribution to victims of the scheme for 489.2 million. The raises the total amount distributed to $24605 million. The scheme is believed to have raised money from at least 2.2 million customers.