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, February 28, 2015

February 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for February 2015. The reported stories reflect: 2 guilty pleas or convictions in pending cases; over 64 years of newly imposed sentences for people involved in Ponzi schemes; at least 5 newly discovered schemes involving more $138 million; 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.

    Kenneth Brewington, 50, was charged with running an alleged $2.5 million Ponzi scheme through a financial services marketing company called Compass Financial Solutions. The indictment alleges that Brewington and other co-conspirators falsely represented to investors that they held millions of Euros in overseas bank accounts and that investor funds would be used to obtain the release of the funds.

    John A. Geringer, 48, of GLR Advisors and GLR Capital Management was barred by the SEC from the securities industry. The SEC charged Geringer with running a $60 million Ponzi scheme which GLR advertised as “SEC approved” and represented that it had returns of 17% to 25% during every year of its operation. Geringer’s partner, Chris Luck, was recently sentenced to 10 years in prison in connection with the scheme.

    Stephen Goodrich, 57, was sentenced to 5 years in prison in connection with a Ponzi scheme that defrauded more than 10 investors out of more than $1.8 million. Goodrich ran the scheme using the name Goodrich Financial and falsely represented that he was licensed to conduct an investment business.

    Susanne Helbig, 49, was sentenced to 8 years in prison in connection with a Ponzi scheme that defrauded banks and mortgage lenders out of nearly $11 million. She ran the $7 million scheme through Genesis Mansion, a construction company. Helbig would buy lots and sell them at much higher prices to straw buyers, which inflated sales prices of undeveloped lots to help secure larger loans.

    Kristine L. Johnson, 60, and Troy A. Barns, 52, were accused of running a Ponzi scheme and were the subject of a court ordered injunction against their business called “The Achieve Community,” preventing the company from accessing its bank accounts. The SEC had filed civil lawsuit against the individuals and the company, alleging that they had raised more than $3.8 million of dollars by promising investors returns of 700%. Each $50 position would bring a $400 return. Money was sent to Achieve International, who was named as a relief defendant.

    Charles D. Jones, 61, pleaded guilty to charges relating to a Ponzi-type investment scheme in which he stole at least $8 million from his clients. Jones was the owner of Charles D. Jones Capital Management Inc., a financial planning and investment management firm.

    Gabriel Joseph was again indicted in connection with an alleged Ponzi scheme run by Rick Koerber who has previously been charged with allegedly operating a real estate Ponzi scheme. Previously charges against Joseph and Koerber were dismissed last year because of violations of the Speedy Trial Act.

    Mark Levinson, the former jeweler for convicted Ponzi schemer Scott Rothstein, was found dead of a self-inflicted gunshot wound to the head. Levinson had been sued for $10 million of funds received from Rothstein, but had settled for a fraction of that. Rothstein had testified that he bought millions of diamonds from Levinson and that they would turn off the cameras for those transactions. Levinson was 60.

    Jason A. Muskey pleaded guilty to stealing more than $2 million from 26 clients of his financial planning business. Muskey ran he scheme through his firm, Muskey Financial Services.

    Shervin Neman aka Shervin Davatgarzadeh, 33, was sentenced to 11 years in prison in connection with a $3 million Ponzi scheme in southern California that primarily targeted Iranian Jews. Neman ran the scheme through his company, Neman Financial Inc., falsely promising investors that their money would be used to purchase foreclosed real estate and stocks.

    Bich Quyen Nguyen, 60, was sentenced to about 12½ years in prison in connection with her Ponzi scheme that defrauded over 200 victims out of more than $24 million. Nguyen had represented to investors that she was the chief executive officer of Sun Investment Savings and Loan, and she guaranteed annual returns off more than 30% on one year certificate of deposits involving at least $1 million. Nguyen was found guilty at trial. Johnny Edward Johnson, 70, previously pleaded guilty to conspiracy charges related to the scheme and is awaiting sentencing.

    John Reid Perkins, 45, was sentenced to 5 years and 4 months in prison and ordered to pay $800,000 in restitution in connection with a real estate Ponzi scheme. Perkins’ co-defendant, Terry Wayne Grady, 51, was sentenced to more than 5 years last December.

    Frank Preve, 71, was sentenced to 42 months in prison for his role in the Scott Rothstein Ponzi scheme case. Preve worked with the Banyon Group, which invested in Rothstein’s bogus legal settlement program. Preve did not advise investors of problems before the scheme collapsed.

    Michael Szafranski, 36, was charged in connection with his role in the Scott Rothstein Ponzi scheme. Szafranski is accused of luring investors into the scheme by telling investors that he had reviewed confidential legal settlements in which they were investing, but the settlements did not actually exist. Szafranski is expected to plead not guilty.

    Germain Theodore, 34, was indicted in connection with what is alleged to be a $250,000 Ponzi scheme. He recruited investors to invest in his business, TGC Movement Inc. Theodore promised his clients that he could reduce their monthly bills by 35% and if they paid 65% of their bills, plus a fee, to TGC, then TGC would arrange for their bills to be paid in full.

    Gedrey Thompson, 42, and GFT Enterprises were the subject of a civil penalties aware in connection with a Ponzi scheme that involved at least $800,000 and 17 investors.  Thompson was ordered to pay $130,000 and GTF was ordered to pay $650,000. SEC v GTF Enterprises, 2015 U.S. Dist LEXIS 20355 (S.D.N.Y. Feb 19, 2015). Final judgments had previously been awarded against Gedrey, Thompson, Dean Lewis and Sezzie Goodluck in connection with the scheme.

    Sydney “Jack” Williams, 65, was indicted on new charges relating to the $930 million Ponzi scheme of Nevin Shapiro. Williams was a top recruiter for scheme and had previously pleaded guilty. He has now been indicted, along with his wife, on charges that they conspired to move more than $300,000 in cash.

    Wings Network and its operations were accused of running a $23.5 million Ponzi scheme in the Boston area that targeted Latino immigrants. The company claimed to sell digital marketing tools, apps and cloud storage services, but actual revenues appear to have come from selling memberships to investors. Related entities that were also charged are Tropikgadget Unipessoal LDA, and Tropikgadget FZE. Executives who were charged include Sergio Henrique Tanaka, 40, Carlos Luis da Silveira Barbosa, and Claudio de Oliveira Pereira Campos. Promoters who were charged include Yinicius Romulo Aguiar, 42, Thais Aguiar, 34, Andrew Elliot Arrambide, 47, Julio G. Cruz, 34, Wesley Brandao Rodrigues, 28, Dennis Arthur Somaio, 35, Elaine Amaral Somaio, 35, Pablo Andres Garcia, 38, Viviane Amaral Rodrigues, 37, Simonia De Cassia Silva, 43, Geovani Nascimento Bento, 41, and Priscila Bento, 36. Named relief defendants as the alleged recipients of ill-gotten gains are Uninvest Financial Services Corp., Compasswinner LDA, and Happy SGPS SA.

    William Wise, 63, was sentenced to more than 21 years in prison in connection with a $75 million Ponzi scheme run through Millennium Bank along with Jacqueline Hoegel. Wise had promised investors 16% returns on certificates of deposits. More than $129.5 million worth of fictitious CDs were sold to more than 1,200 investors.

INTERNATIONAL PONZI SCHEME NEWS

Australia

    Melinda Scott, was sentenced to 6 years in connection with a $6 million Ponzi scheme that defrauded more than 150 investors. The scheme was run through her financial planning and advisory business, Roach Graham Scott, which was an authorized representative of Millennium 3 Financial Services, a wholly-owned subsidiary of ANZ Bank.

Canada

    Gary Sorenson, 71, and Milowe Brost, 61, were found guilty following their jury trial in what may be the largest Ponzi scheme in Canadian history. Sorenson and Brost ran a $400 million Ponzi scheme that allegedly defrauded more than 2,000 investors. Sorenson and Brost had both pleaded not guilty to charges that they had run the scheme, which involved companies named Syndicated Gold Depository SA, Base Metals Corporation LLC, Bahama Resource Alliance Ltd., Merendon Mining Corporation Ltd. and Strategic Metals Corp. The scheme promised investors 34% annual returns on investments of $99,000, and the investors were told that the business involved selling gold for refining. The jury returned a guilty verdict for both Sorenson and Brost after three days of deliberation following the five month long trial.

    Arvindbhai Bakorbhai Patel, 60, was charged with securities violations in connection with a $110 million Ponzi scheme operated by Rashida Samji. Patel is accused of advising about 90 investors to invest about $29 million in the scheme. Samji was fined $33 million last month for running a Ponzi scheme. She faces criminal charges relating to $17 million she allegedly stole from 14 victims.

    James “Jay” Macleod, 47, was charged in connection with a Ponzi scheme involving more than $1 million. The scheme promised high yields and low risk.

Hong Kong

    MyCoin, a bitcoin exchange, shut its doors with as much as $386 million of investor funds missing. MyCoin offered clients investment opportunities to invest in a contract that would provide a HK$1 million return on a HK$400,000 investment, and additional prizes of Mercedes-Benz cars or cash if investors recruited others. It is reported that as many as 3,000 investors may have invested as much as $129,000 each.

New Zealand

    A ruling from the Supreme Court limits a liquidator’s ability to claim back payments made by a failed company for goods and services up to two years before its collapse. However, this ruling may not have a significant impact on Ponzi scheme cases such as Ross Asset Management. The receiver of Ross Asset Management responded by noting that the receivers are using the Companies Act to go back two years from the date of their appointment to claw back funds from investors who withdrew money from the Ponzi scheme, but that they are using Section 297, which was not addressed by the Supreme Court ruling that impacted Section 292.

Philippines

    The conviction of “pyramiding scam queen” Rosario Baladjay was affirmed in connection with a Ponzi scheme that was run through Multinational Telecom Investors Corporation.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    An investor lawsuit against JPMorgan Chase was dismissed by a federal court as being bared by the Securities Litigation Uniform Standards Act. The suit had alleged that JPMorgan and others enabled a $40 million Ponzi scheme run by Philip Barry.

    A district court refused to reconsider a ruling that American International Group Inc. is liable for breach of contract and bad faith insurance coverage in connection with a dispute with Fidelity National Financial Inc. over losses and claims tied to a real estate Ponzi scheme.

    Santa Cruz County Bank and 3 investment advisors, John Geringer, Christopher A. Luck and Keith E. Rode, were sued by investors defrauded in a Ponzi scheme. The lawsuit alleges that the bank lent its "name and prestige to the GLR Fund's operations in GLR Fund marketing materials." Although the lawsuit does not name the then-vice-president Chuck Maffia, it alleges that the bank and Maffia "knowingly participated in and substantially assisted the Ponzi scheme" by serving as a banking reference for the GLR Fund and soliciting investors.

    Investors of convicted Ponzi schemers Kevin James and Rudolf “Rudi” Pameijer will be receiving over $150,000 of restitution through the Indiana Securities Restitution Fund. About 14 investors were defrauded out of $1.5 million. James was sentenced to 10 years in prison and ordered to pay $1.4 million in restitution. Pameijer was sentenced to 18 years and ordered to pay $1.8 million.

    In connection with the Bernard Madoff case, the Sixth Circuit affirmed the lower court ruling that no inflation or interest should be paid in connection with customers’ claims against the estate. In re Bernard L. Madoff Investment Securities LLC, 2015 U.S. App. LEXIS 2724 (2d Cir. Feb. 20, 2015). The Madoff trustee may be able to distribute an additional $1 billion if no further appeals are taken in connection with this matter.

    A court dismissed claims against Wells Fargo Bank brought by the receiver of the Arthur Nadel estate for failing to properly monitor the account activities of Nadel. The court found that there was no evidence that the bank knew about Nadel’s $168 million Ponzi scheme. Following the court's ruling, Wells Fargo said that it will seek $4 million in attorney's fees and expenses from the receiver.

    The Eleventh Circuit affirmed a district court decision denying the Arthur Nadel receiver’s motion to vacate an arbitration award in favor of an investor sued in a clawback action. The receiver had sued Herbert Schneidrman seeking to recover $164,000 of “false profits” as a fraudulent transfer, but the court found that arbitration was appropriate and that the arbitration award would stand.

    Four lawsuits were filed against BMO Financial Group by investor groups in connection with the Tom Petters Ponzi scheme. The investors allege that a bank acquired by BMO, Marshall & Ilsley Corp., was complicit in the scheme.

    JPMorgan Chase moved to dismiss a complaint filed by Ritchie Capital Management LLC and other hedge funds in connection with the Tom Petters scheme on the grounds that it was time-barred.

    The Eleventh Circuit denied TD Bank NA’s motion for a stay pending its appeal of a district court’s order that it pay the $74 million against it to a group of investors who were defrauded in the Scott Rothstein Ponzi scheme case.

    A court found that former U.S. Ambassador to Ecuador, Peter Romero, must return $758,000 of fees, expenses and interest that he earned while advising Ponzi schemer, Allen Stanford. Romero recruited new investors into Stanford's scheme.

    The trustee of TelexFree filed a status report in the case, stating that the company and its affiliated company in Brazil, Ympactus Comercial Ltda., raised as much as $1.8 billion from over 1 million participants worldwide. The company collected at least $58 million per month at the end of 2013 and the beginning of 2014. The trustee has recovered over $17 million since his appointment.

    A court granted the motion filed by the receiver of Zeek Rewards to certify a class of 9,400 alleged net winners of more than $1,000. The receiver had “asked that the Court appoint one or more of the largest net winners sued by name as class representatives because they will, by virtue of their own defense to the same claims, be adequate and appropriate representatives for the rest of the Net Winner Class.” The court found that “If the Receiver herein was forced to file separate actions against the 9,400 Defendants, he would certainly be risking inconsistent and varying adjudications.”

    The Zeek Rewards receiver filed lawsuits against more than a dozen net winners in Norway. The receiver has previously sued residents of the U.S., Australia, New Zealand, Canada and the British Virgin Islands.

    The Minnesota Supreme Court ruled that the state’s fraudulent transfer act does not include a Ponzi scheme presumption. Finn v. Alliance Bank, 2015 Minn. LEXIS 52 (Sup. Minn. Feb. 18, 2015).

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