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

Saturday, January 31, 2015

January 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for January 2015. The reported stories reflect: 6 guilty pleas or convictions in pending cases; over 118 years of newly imposed sentences for people involved in Ponzi schemes; at least 11 newly discovered schemes involving more $180 million; 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.

    Allied Markets LLC and its principals, Joshua Gilliland and Chawalit Wongkhiao, were charged by the CFTC in connection with an alleged $1 million foreign exchange Ponzi scheme. A court ordered an asset freeze of Allied Markets’ assets.

    Leonard Ansill, 79, pleaded guilty to charges relating to a $1.1 million Ponzi scheme. Ansill had led investors to believe he held mortgages on Comfort Inn & Suites along with other properties.

    Donald Ray Babb and Ralph Ruth were sentenced to 10 years and one month each in connection with a Ponzi scheme that defrauded 181 investors out of $18 million. They did business as Southeast Mutual Insurance and Investment LLC and Capstar Industries LLC and First Merchant Capital LLC, holding themselves out as licensed financial institutions whose deposits were insured by the FDIC.

    Ian Bick, 19, was charged with running a $500,000 Ponzi scheme that defrauded at least 15 investors. Bick owns the Tuxedo Junction nightclub in Danbury Connecticut, along with other entities known as This is Where It’s At Entertainment, Planet Youth Entertainment, W&B Wholesale, and W&B Investments. Bick solicited funds from family and friends, promising them returns for various investments, including the purchase and resale of electronics at a profit, and the organization and promotion of concerts. Bick denies that he was running a Ponzi scheme or engaged in any criminal activity.

    Steven Canady, 42, was charged with running a $2 million Ponzi scheme through his company, Alliance Warburg Capital Management. Canady has pleaded not guilty to the charges that he solicited various companies to assist them in securing funding after they paid a fully refundable due diligence fee or pre-paid interest.

    Jonathan Davey, 50, was sentenced to 21 years in prison in connection with the Black Diamond Ponzi scheme. The scheme defrauded more than 400 victims who lost more than $40 million. There were 10 other defendants who have already been sentenced in connection with the scheme. Black Diamond founder Keith Simmons received a sentence of 40 years in December.

    Derek Elliott, 44, pleaded guilty to charges relating to his role in a $70 million Ponzi scheme involving vacation resorts in the Dominican Republic. The scheme allegedly defrauded more than 1,000 investors, who were promised annual returns of 7% to 10%. Elliott is expected to provide evidence against James Catledge who was also charged in connection with the same scheme.

    Frederic Elm, 45, was accused by the SEC of running a $17 million Ponzi scheme through his firm, Elm Tree Investment Advisers LLC. Elm’s wife, Amanda Elm fka Amanda Elmaleh, was also named as a relief defendant. Elm’s company acted as fund manager for three funds called The Investment Fund, The e’Conomy Fund, and The Motion Opportunity Fund. Over 50 investors were involved and were promised guaranteed annual returns ranging from 2% to 11%.

    Michael Enea, 59, pleaded guilty to charges relating to a $2.1 million Ponzi scheme in which at least 10 investors lost more than $750,000. Enea had persuaded family and friends annual returns ranging from 20% to 35% for investments in fictitious portfolios.

    Edwin Fujinaga and his company, MRI International Inc., were ordered to disgorge $584 million in connection with a scheme that the SEC alleged raised more than $813 million from mostly Japanese investors. The scheme promised investors returns between 6% and 10.32% from investments in account receivable from medical companies purchased at a discount. SEC v. Fujinaga, 2015 U.S. Dist. LEXIS 9840 (D.C. Nev. Jan. 27, 2015).

    Joel Barry Gillis, 74, and Edward Wishner, 76, pleaded guilty to charges that they ran a 13 year long Ponzi scheme through Nationwide Automated Systems Inc. The scheme brought in several hundreds of millions of dollars from approximately 2,000 investors, who were told that their money would be used to purchase profitable automated teller machines and that the company would lease back the ATMS, guaranteeing returns of 20% on each ATM. While the company claimed it operated about 31,000 ATMs, it actually owned no more than 250 machines.

    Loren Holzhueter, 69, was the subject of an SEC complaint that he and his insurance brokerage firm, Insurance Service Center Inc., raised at least $10.4 million from at least 122 investors in what was allegedly a Ponzi scheme. The SEC obtained an asset freeze and a temporary restraining order. The complaint also names Holzhueter’s other company, Honefi Inc., as a relief defendant.

    Francisco Illarramendi, 57, was sentenced to 13 years in prison in connection with a Ponzi scheme that ranged between $200 million and $723 million. Illarramendi had operated numerous hedge funds including Michael Kenwood Asset Management, Michael Kenwood Energy and Infrastructure, Michael Kenwood EI Solar, Michael Kenwood Venezuela Fund and Short Term Liquidity Fund and Highview Point Partners.

    Charles D. Jones was charged with running a $8 million Ponzi-like scheme through his company, Charles D. Jones Capital Management Inc. Jones waived indictment and is expected to plead guilty.

    Leone Alfano Lacava, Victoriva Johnson, and Rasul Atakov were charged with running a Ponzi scheme under the business names Orlando Trust Properties and Golden Investments Inc. The scheme sold fake investments in Orlando real estate to investors in Italy. The scheme allegedly involved $40 million and at least 100 people.

    Walter “Buddy” Lambert, 73, was sentenced to 2 years in prison in connection with a Ponzi scheme that he ran through Blue Mountain Consumer Discount Co. Investors would loan money to the company that would supposedly be loaned to consumers who would pay between 23% and 26%.

    Lawrence “Lee” Loomis was ordered to disgorge $12.5 million in ill-gotten gains and interest. Loomis was sued by the SEC and accused of running a $7 million Ponzi scheme through his company, Loomis Wealth Solutions. John Hagenar and Lismar Financial Services were also sued in connection with the scheme that defrauded more than 100 people.

    Christopher Luck, 58, was sentenced to 10 years, 8 months in prison for his role in a $60 million Ponzi scheme. The scheme was run with John Geringer and Keith Everts Rode through GLR Growth Fund. All three pleaded guilty.

    Geoffrey Nehrenz, 36, was indicted in connection with an alleged $5.5 million hedge fund Ponzi scheme. The scheme allegedly defrauded 19 investors to invest through Keystone Capital Management.

    Richard L. Pearson, 57, was sentenced to 2 years in prison for his role in the Scott Rothstein Ponzi scheme. Pearson acted as a broker and received commissions on the litigation settlements that Rothstein sold to investors.

    Kim Rothstein, the former wife of Ponzi schemer Scott Rothstein, was released from prison and ordered to a halfway house. Kim Rothstein had pleaded guilty to charges that she had tried to hide about $1 million of jewelry from the government and was sentenced to 18 months in prison.

    Perry Sawano, 51, was indicted in connection with a $4.8 million Ponzi scheme, run through Sawano’s company, Integrity Financial Consulting, previously known as Providence Financial Services.

    David Smith was released from his Turks & Caicos Islands prison sentence, and the U.S. is now actively seeking to extradite him to the U.S. to serve out his 30 year federal sentence in Florida. Smith was a Jamaican financier when he pleaded guilty to charges that he was running a scheme instead of pooling money for currency trading.

    Frank Spinosa, the former TD Bank executive who was indicted as a co-conspirator in the Scott Rothstein Ponzi scheme, consented to judgment in the SEC action against him which bars him from the financial industry.

    Daniel Spitzer, 55, was sentenced to 25 years in prison for operating a $34 million Ponzi scheme that defrauded 270 victims. Spitzer had had his bond revoked when authorities learned that Spitzer may have assets hidden overseas. Spitzer had pleaded guilty to running a large foreign currency trading Ponzi scheme. His co-defendant, Alfred Gerebizza, was convicted at trial last year but has not yet been sentenced.

    John P. “Jack” Utsick, 72, was denied bail at a hearing in which he was determined to be a flight risk. Utsick is a former top-name music promoter and was accused of operating his company, Worldwide Entertainment Inc. as a Ponzi scheme that defrauded an estimated 3,300 investors out of $300 million. Utsick was extradited last month from Brazil where he had fled.

    Jeffrey Watts, 41, was sentenced to more than 78 months and was ordered to repay $4.6 million in connection with a $5.8 million Ponzi scheme run through Blue Alpha Energy that defrauded approximately 45 investors. Watts had misrepresented that he had invested in oil and gas wells in Texas and his company was owned and operated by a legitimate Fort Worth company.

    Paul White, 56, was convicted in connection with a $3.2 million real estate Ponzi scheme in North Carolina.

    Robert Van Zandt, 70, was sentenced to 11 years in prison in connection with a Ponzi scheme to which he pleaded guilty last year. Van Zandt admitted to stealing $4.8 million from 29 clients. Van Zandt had prepared tax returns for his clients through is New York firm was called Van Zandt Agency. Van Zandt built his clients’ trust over the years so was able to convince them to invest their retirement funds by promising them guaranteed returns.

INTERNATIONAL PONZI SCHEME NEWS

Canada

    The parole of Robert (Colonel) Fyn, 67, was recently revoked after he lied about filing for bankruptcy, which violated a condition of requiring him to disclose financial information to authorities. Fyn was serving an 8 year sentence in connection with the $37 million scheme that was run through HMS Financial. Fyn had promised his investors 8% to 12% per month, and it is estimated that the scheme defrauded 150 people.

    David Pitcher, 47, was sentenced to 6 years in prison in connection with a scheme run through his company, Community Endowment Fund. Pitcher obtained about $13 million from investors, promising them significant returns.

    Salim Damji aka Sal Palermo, Sal Darsee, Santos Palermo, Rico Palermo and Santos Salvatore, 45, and Tatiana Krainova, 39, were arrested in connection with an alleged Ponzi scheme that defrauded at least 8 victims out of about $400,000. Damji targeted female investors on online dating websites or at local bars. Damji had previously been sentenced in connection with a $77 million tooth-whitening scheme through his company, Strategic Trading System, that defrauded 4,000 victims.

    Rockwell Partners SA became the subject of a warning from the Ontario Securities Commission. The company, which was purportedly based in Costa Rica, promised a daily payout of between 1% and 3.5%.

    Rashida Samji, a former notary accused of running a $110 million Ponzi scheme that defrauded at least 200 investors, was fined $33 million, ordered to pay $11 million to compensate investors, and permanently banned from the B.C. capital markets. Samji was known as the “Magic lady” and investors were promised high returns from their supposed investments in a profitable winery.

    David Burns Holden, 52, Rita Holden, 57, Anthony Mario Cosentino, 67, Andres Gaudet, 43, and Edmond Chin Ho So, 37, were charged in connection with an alleged $92 million Ponzi scheme run through Seaquest Corp. and Seaquest Capital Corp. The scheme allegedly promised investors returns of up to 36% and defrauded approximately 70 investors.

India

    Pranati Das was arrested in connection with the Flourish India alleged Ponzi scheme. Pranati is the wife of the firm’s former chairman, and she is the fifth and last member of the Board of Directors to be arrested.

    Assets worth Rs 84 crore belong to Seashore Group were attached in connection with the ongoing investigation of a Ponzi scheme being run by the company.

New Zealand

    Rene Alan Chalmers, who sentenced last year to 4 years and 3 months after pleading guilty to charges relating to a Ponzi scheme, was censured and deregistered by the Teachers Disciplinary Tribunal. Chalmers obtained loans by showing banks the bank account statements from his company, Chalmers Cameron Investments, passing off the balance as his own money and not that of investors.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    A class certification bid by 212 investors in Diversified Lending Group was rejected. The investors sued Metropolitan Life Insurance Co. for its negligent supervisions of agent, Tony Russon, for having sold them unregistered securities in a Ponzi scheme. The court found that the class members are not readily ascertainable.

    Four victims in the Bernard Madoff Ponzi scheme are seeking to question Madoff under oath to preserve his testimony in connection with claims they want to assert against the estate of Jeffry Picower and others. The investors, Susanne Stone Marshall, Adele Fox, Marsha Peshkin and Russell Oasis claim that, “"Madoff is the only person alive with detailed knowledge" of Picower's role in the scheme, and a deposition would, for legal purposes, be ‘icing on a very rich cake.’"

    Federal prosecutors have appealed the sentences of the five former Bernard Madoff employees who were found guilty of aiding the Madoff Ponzi scheme. The five employees are: Daniel Bonventre, Madoff's former operations manager; Annette Bongiorno, who was Madoff’s longtime assistant; JoAnn Crupi, who oversaw the company's main bank account; and computer programmers Jerome O'Hara and George Perez.

    Five current and former professional athletes filed a motion seeking an order to enforce a $8.53 million arbitration award against their former financial adviser, William Crafton of Martin Kelly Capital Management LLC.

    News of a new Ponzi scheme allegedly run by Michael McIndoe, 35, appears to have involved many soccer players. The scheme may have brought in over €38 million from a number of players, including Robbie Keane from the LA Galaxy.

    Gregg Amerman has filed an appeal to the Eleventh Circuit asking for review of a lower court ruling against him and in favor of the CFTC relating to Tech Traders Inc. Amerman has said that he did not know that the CEO of Tech Traders Inc., Coyt Murray, was operating a Ponzi scheme when Amerman recommended his friends to invest in the scheme. The CFTC had filed a complaint against Amerman in 2007 alleging that he solicited at least $1,169,999 from about 22 individuals.

    The Stanford Financial receiver added allegations to his complaint against Peter Romero who served as a consultant and sat on the advisory board for Allen Stanford’s businesses. The receiver had sued Romero, who is the former U.S. Ambassador to Ecuador and former Assistant Secretary of State for the Western Hemisphere. Stanford hired Romero after Romero left the State Department in 2001. The trial on the receiver’s claims to recover nearly $1 million in compensation paid to Romero is scheduled to begin in February. The receiver’s new allegations are that Romero willfully destroyed potential evidence by terminating the email account he used to communicate with Stanford the day after the fraud became public in 2009.

    Paul Simon was sued by the trustee in the bankruptcy case of Kenneth Ira Starr for an unpaid bill. Star was sentenced to 7½ years in prison in connection with a Ponzi scheme in which he defrauded multiple star while he was purportedly acting as a money manager for them. The scheme was estimated to have involved around $35 million. Starr filed bankruptcy just before his sentencing.

    Defrauded victims and creditors in the WexTrust Capital Ponzi scheme will receive a distribution of $22.1 million. The nearly 1,400 investors and creditors had lost about $238 million so the amount to be paid is only a fraction of their losses. 

    The receiver in the Atlantic Bullion and Coin Inc. case sued ex-Anderson County administrator, Joey Preston, for $1.2 million. The receiver is suing Preston to recover a severance package that was given to him in 2008. Separately, the receiver has previously sued Preston for acting in concert with Ronnie Gene Wilson and Atlantic Bullion in offering and selling unregistered securities.

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