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, April 30, 2015

April 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for April 2015. The reported stories reflect: 10 guilty pleas or convictions in pending cases; over 105 years of newly imposed sentences for people involved in Ponzi schemes; at least 11 new Ponzi schemes involving nearly $100 million; and an average age of approximately 49 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.


    Achieve Community aka TAC was the subject of a cease-and-desist order issued by the Colorado Division of Securities which accused the company and others of running a Ponzi and pyramid scheme. The order apples to Achieve, Achieve International LLC, Work with Troy of Barnes Inc., Troy Barnes, and Kristine “Kristi” Johnson. The company’s website had promised 800% returns based on funds of others who were brought into the scheme. The company did not sell a product.

    Joyce Elaine Allen, 67, was sentenced to 30 years in prison and ordered to pay more than $20 million in restitution in connection with the Benchmark Capital Investments Ponzi scheme. Allen used her company, J. Allen & Associates, in which she was an accountant. Tiffiny Thompson, 34, pleaded guilty last June and was also sentenced this month to 21 months in prison. The scheme involved 358 victims and about $20 million. Dona Rector and Paulynn Wright were previously sentenced to 2 years of probation and 4 months, respectively.

    William D. “Will” Allen, 36, was charged by the SEC with running a $31.7 million Ponzi scheme through his investment businesses, Capital Financial Partners LLC, Capital Financial Holdings LLC, and Capital Financial Partners Enterprises LLC. Allen was an NFL cornerback, and he played for the New York Giants and the Miami Dolphins. Allen started his business to make loans to professional athletes and sold investors on the idea of lending money to professional athletes. Allen and his associate, Susan C. Daub, 54, allegedly raised nearly $32 million from at least 40 investors, but failed to loan all of the money. The SEC has alleged that they made $18 million worth of loans but also took $7 million for themselves. Their website stated that they charged interest rates of 9% to 18% on the loans and that investors could make investments in the minimum amount of $75,000 from which a 3% origination fee would be deducted.

    William Apostelos and Connie Apostelos are the subject of an amended forfeiture complaint seeking to recover certain assets, including two race horses, racing proceeds and bank accounts, which are believed to be the proceeds of a Ponzi-type scheme. The scheme allegedly defrauded 450 victims who invested $84 million and lost more than $30 million.

    Brenda Ashcroft, 45, pleaded guilty to charges that she ran a $15 million Ponzi scheme. She admitted to running a fraudulent investment scheme to purchase and sell real estate through trusts in her company, French Manor Properties.

    Charles Blackwelder, 70, was sentenced to 15 years in prison after pleading guilty to running a Ponzi scheme. His daughter, Cara Grumme, 42, received a 3 year suspended sentence in connection with the scheme and together they were ordered to pay $19.4 million in restitution. Their company, CFS LLC, defrauded over 300 elderly investors to invest in real estate investment opportunities that included undivided ownership interests in rental properties owned by CFS.

    Charles J. Boyer III and James A. Wilson were ordered to pay $1 million in civil penalties in connection with a scheme run through Access Capital Co. fka Access Capital Education and Services Co. that New Jersey investigators say was a Ponzi scheme. Boyer and James told investors that their company was managed by a financial genius and that they could earn returns up to 120%. The scheme raised at least $342,000 from 10 investors.

    Leroy Brown Jr., 32, and his company, LB Stocks and Trades Advice LLC, were charged by the SEC with running a scheme that targeted military personnel at Fort Hood in Texas. Brown, a member of the Army between 2001 and 2013, promised investors guaranteed returns and an ability to double or triple their money in 120 days. He represented that he traded stocks, mutual funds, exchange traded funds, commodities, and foreign exchange currencies. Brown claimed to have 65,000 investment clients, but it is not yet known how many clients or money was involved.

    Jerry Cicolani Jr., 51, and Kelly Hood, 36, husband and wife, were charged in connection with an alleged Ponzi scheme run though KGTA Petroleum Ltd. KGTA promised investors high returns for purchasing fuel products at discounted prices and then the resale of those products. It is believed that a plea agreement is being discussed. Cicolani and Hood are two of seven people named in an SEC lawsuit to stop the investment program that allegedly defrauded 70 investors out of $17 million.

    Abbe Edelman, 51, was sentenced to 11 years and 3 months in prison for running a $5 million Ponzi scheme that defrauded investors into purchasing foreclosed properties that did not exist. Edelman promised returns as high as 25%, but he never purchased any foreclosed properties.

    James A. Evans Jr., 33, was accused by the SEC of running an alleged Ponzi scheme that raised $1.15 million from investors through an Internet-based investment called CashFlow Bot or Dollar Monster. The SEC alleged that investors deposited funds into their Solid Trust accounts and then the funds were transferred to a Solid Trust account owned by Evans, who would transfer a portion of those funds to his account and then redistribute funds to investors.

    Dorian A. Garcia, 30, and his companies, DG Wealth Management, Macroquantum Capital LLC, and UKUSA Currency Fund LP, had their assets frozen by the CFTC who alleged that they were running a Ponzi scheme and had misappropriated approximately $2.5 million. The scheme allegedly involved $4.7 million taken from at least 80 customers.

    Gregory Gray, Jr., 39, was charged in connection with an alleged $5 million Ponzi scheme run while working at Archipel Capital LLC. Gray told investors that their money would be invested in shares of Uber Technologies or in Twitter.

    Steve Gordon was charged with running a $4 million Ponzi scheme. Gordon, a former NBA assistant, falsely claimed a relationship with Los Angeles Clippers owner Steve Ballmer and told investors different stories about Balmer’s supposed business ties to Gordon.

    Matthew Haab, 43, along with Jeffrey Risinger, 59, and Tobin Senefeld, 48, were sued by the SEC upon allegations that they were running a $15 million Ponzi-like scheme that defrauded more than 80 investors. Their company, Veros Partners, was also named in the lawsuit and became the subject of an asset freeze. Other named defendants are Veros Farm Loan Holding and FarmGrowCap. The scheme involved representations to investors that their money would be used to make short-term loans to farmers.

    Loren Holzhueter, who was under investigation for running an alleged $10 million Ponzi scheme, died at his home at the age of 69. Holzhueter had denied running a scheme and had said that the source of the money he handled through his insurance company, Insurance Service Center, Inc. aka ISC, Inc., was loans given to him by friends, family and customers to help expand his business. It is unknown whether the SEC will continue its action against his estate.

    Diane Kaylor, 39, and Jason Keryc, 39, former employees of Agape World Inc., were convicted for their role in the Ponzi scheme. The scheme defrauded about 3,800 investors out of about $147 million. Keryc had made more than $9 million off the scheme, and Kaylor made about $3.4 million. The founder of Agape, Nicholas Cosmo, is serving his 25 year prison sentence.

    Christina Kitterman, previously sentenced to 5 years in prison for her role in the Scott Rothstein Ponzi scheme, appealed her prison sentence before the Eleventh Circuit. Kitterman had impersonated someone from the Florida State Bar to try to persuade a hedge fund to invest in the scheme.

    George C. Levin, 74, was found liable for fraud in an action brought by the SEC relating to about $157 million of funds that Levin funneled into the Scott Rothstein Ponzi scheme through his feeder fund, Banyon 1030-32 LLC. Levin has maintained that he was not aware of the fraud and that he himself was a victim.  The SEC has also asked for $180 million in disgorgement and civil penalties.

    Christopher Shawn Linton lost his appeal challenging his prison sentence. U.S. v. Linton, 2015 U.S. App. LEXIS 6711 (11th Cir. Apr. 23, 2015). Linton had pleaded guilty to running a Ponzi scheme through Integrity Capital Corp. The scheme defrauded 12 investors out of about $2.5 million. The Eleventh Circuit affirmed the lower court’s finding that Linton had failed to show that he was suffering from bipolar disorder or that he had ineffective assistance of counsel.

    Linda Livolsi aka Linda Grogg, 46, and her husband William Livolsi, 55, were sentenced to 45 months and 24 months in prison, respectively, in connection with a Ponzi scheme they ran through RGM Enterprises. The couple promised investors high returns from what they said was a hedge fund. The money was never invested but was used by the couple or to make payments to investors.

    Anthony J. Lupas Jr. died at the age of 80 years old. Lupas had been at a nursing home since a judge decided he was incompetent to stand trial last year in connection charged with defrauded investors of $6 million in a Ponzi scheme. Lupas had promised investors 7% tax free returns. About 50 victims are sharing $3.35 million from a state compensation fund in Pennsylvania.


    James H. Mason agreed to pay $5.5 million to settle allegations that he violated that Commodity Exchange Act in fraudulently soliciting contributions from investors for two foreign currency trading pools. The scheme involved JHM Forex Only Pool and Forex Trading at Home Association. Mason raised $5.3 million from investors by promising 500% returns each year with no risk to their principal.

    Stafford S. Maxwell, 46, the former owner of Millennium Capital Exchange, Inc., was arraigned and indicted on charges that he allegedly ran a foreign exchange Ponzi scheme through accounts in Switzerland. Maxwell raised at least $1 million from investors and promised returns of 48% to 72% and represented that he had special techniques to ensure large gains and reserve funds to cover any trading losses.

    Scott Stone Mehler was disbarred by the California Supreme Court in connection with the theft of at least $800,000 while he was the California attorney for Plastic Cash International. Plastic Cash has been sued by the receiver of Zeek Rewards for the return of millions of dollars alleged to be Zeek assets. It is presently unclear whether criminal charges will be filed against Mehler.

    Patricia S. Miller, 68, was sentenced to 6 years in prison for running a $4.1 million Ponzi scheme that defrauded over 80 victims. Miller was a trusted financial adviser, and she used her position to obtain money from clients for purported investments that she never made.

    Brian C. Rose aka  John Hankins, 36, Jason Bryant Smith, 39, Dallas McRae, 44, and Hugh Sackett, 83, pleaded guilty to charges relating to an alleged $15 million Ponzi scheme that defrauded 160 investors. The scheme was run through New Century Coal, and investors were told that the company was running several coal mines. Other defendants named in the original indictment were Robert McGregor aka Jim Robinson III, 36, James Robinson, 55, Brent Loveall, 30, and Ray Spears aka Brock Hamilton, 44, and Jennifer L. Key, 36. Three additional defendants were also added to the original indictment, Thomas L. Berry, Johnny D. Phillips, 64, and David G. Rose.

    David Smith, 46, and Timothy McGinn, 67, were ordered to pay back $99 million to the defrauded investors in the Ponzi scheme run through McGinn Smith & Co. The SEC obtained a judgment against the two defendants, who are both in prison following their criminal convictions in 2013.

    Michael Stevens, 57, pleaded guilty and was sentenced to 24 months in connection with a Ponzi scheme that defrauded 7 victims out of $4 million. Stevens’ accomplice, Anthony Fregenti, 43, was sentenced in 2014 to 5 years in prison.

    David Tamman had his conviction and sentence upheld by the Ninth Circuit. Tamman was an attorney who performed services for NewPoint Financial Services Inc., a company owned by John Farahi which ran a Ponzi scheme. U.S. v. Tamman, 2015 U.S. App. LEXIS 5393 (9th Cir. Apr. 3, 2015).

    Marcello Trebitsch aka Yair Trebitsch, 37, was charged and arrested in connection with an alleged $7 million Ponzi scheme. Trebitsch is the son-in-law of former New York Assembly Speaker Sheldon Silver, who was indicted on corruption charges in January. Trebitsch had promised investors that he would use their money to trade in securities through his investment firm, Allese Capital LLC.  He owns the company with his wife, Michelle Trebitsch, who has not been charged.  He delivered false account statements and tax forms showing annual returns of 15% to 19%.


    Frank Vennes was denied his request to withdraw his guilty plea. U.S. v. Vennes, 2015 U.S. Dist. LEXIS 56041 (D. Minn. Apr. 29, 2015). Vennes had pleaded guilty to charges in connection with the Tom Petters Ponzi scheme. Vennes had argued that the government did not honor its promises and that he had ineffective assistance of counsel, among other things.

    Stuart Alan Voigt, 66, a former Minnesota Vikings tight end, was indicted on charges of conspiracy and fraud in an alleged real estate Ponzi scheme that he and Jeffrey Allen Gardner, 61, allegedly ran through Hennessey Financial LLC. Investors were promised returns between 10% and 20% and were told that their funds would be invested in commercial real estate financing and related projects.

    Steven Wessel aka Wes Wessels, 56, pleaded guilty to defrauding two investors in a Ponzi-like scheme that involved $750,000. Wessel had used a shell investment bank, Windsor Capital Investments Ltd., and a personal investment company, Steeplechase USA LLC, to solicit funds.

    Joel Wilson, 32, was sentenced to nine to 20 years in prison and order to pay $6.5 million to investors for his Ponzi scheme run through Diversified Group Advisory Firm LLC. Diversified was in the business of buying and rehabilitating homes. The scheme involved $6.4 million and about 125 investors. At his sentencing, Wilson acknowledged that he made mistakes, but stated that he had never intentionally defrauded anyone.

INTERNATIONAL PONZI SCHEME NEWS

Canada

    Gordon Driver, 58, pleaded guilty to charges in California relating to a Ponzi scheme that took in at least $15 million and in which an estimated 250 investors lost at least $9 million. The scheme was run through Driver’s companies, including Axcess Automation LLC, and he promised investors profits of 1% to 5% per week. Driver has already been banned for life from trading securities by the Ontario Securities Commission.

    Anthony Pittarelli, 46, was sentenced to 5 years in prison in connection with a $1.3 million Ponzi scheme that he ran with his mother, Marisa Pittarelli, 66, through their company, Front Row Tickets. Marisa was sentenced to two years in prison. Investors were promised returns based on sales of bulk tickets which did not take place.

England

    David Dixon, 49, was sentenced to 3 years and 10 months after pleading guilty to running a Ponzi scheme through Arboretum Sports (UK) and Arboretum Sports (USA). The Ponzi scheme involved £4m and 650 victims in what was represented to be a no-risk gambling syndicate.

India

    Harpal Singh was arrested in connection with the scheme involving Mahadev Mutual Fund. The Mahadev fraud was revealed in 2013, in which investors were defrauded out of Rs 150 crore. Two other company directors, Rajesh Kumar and Yogesh Yadav, were also recently arrested in connection with the scheme.

    Kamal Kant Kaushik, 51, was taken into custody in connection with an alleged scheme that defrauded 90 investors out of Rs 15 crore. The scheme was run under the name Indus Mutual Growth Plans through the company, M/s Indus Car and Air Rentals.
 
Mauritius

    Bramer Banking Corp Ltd. (BBCL) was accused of running a Ponzi scheme. The Bank of Mauritius appointed a conservator over the bank based on allegations that the scheme involved 25 billion rupees ($693 million). Mauritius will create a new company, National Commercial Bank, to take over the company.

Thailand

    Namonphan Tharabundit, a suspect in the alleged Ponzi scheme involving at least 100,000 investors out of 20 billion baht, has been arrested while she was trying to flee to Laos. Some reports reflect that the amount involved could rise to 38 billion baht, or more than $1.17 billion. The scheme involves Ufun Store Co, which was running a direct sales business and was legally registered, but which transferred money to other companies. Thai police are searching for other individuals affiliated with the scheme, including “Datuk Daniel,” the 40 year old executive chairman. Other reports identify former Colorado resident, Michael Jamison Palmer, as a purported UFunClub “VIP” and that he was promoting a digital currency known as “UToken.” Palmer has not been accused of wrongdoing.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    A California Court of Appeal affirmed summary judgment in favor of the insurer on defense regarding the application of Crown Capital Securities LP for a professional liability insurance policy in which it failed to disclose facts application facts relating to a Ponzi scheme that was known to the investment firm applicant. Crown was a securities firm that had recommended o clients that they invest in real estate companies that were eventually determined to be part of the DBSI, Inc. Ponzi scheme.

    The bankruptcy trustee for Lancelot Investors Fund Ltd. argued to the Seventh Circuit that his malpractice lawsuit against Katten Muchin & Rosenman LLP should be allowed to proceed. Lancelot was one of the hedge funds that pumped billions of dollars into the Thomas Petters Ponzi scheme. The trustee has alleged that Katten Muchin ignored red flags that should have made them aware of the fraud.

    The trustee of the Bernard Madoff Ponzi scheme case requested court approval of a sixth interim pro rata distribution which would bring the aggregate payout to customers to about $8.224 billion. The trustee is asking to release $1.249 billion of the reserved $1.449 billion following a Second Circuit ruling affirming a decision that investors were not entitled to time-based damages in connection with their claims. The trustee has already returned $7.2 billion to Madoff’s customers in five other distributions previously made.

    The Second Circuit overturned a lower court’s ruling dismissing an entire complaint brought by a class in connection with the Madoff Ponzi scheme against Kingate Management Ltd., PricewaterhouseCoopers LLP and Tremont Group Holdings Inc., among others. In re Kingate Management Limited Litig. v. Tremont (Bermuda) Ltd., 2015 U.S. App. LEXIS 6725 (2d Cir. Apr. 23, 2015). The lower court had dismissed all 28 class action claims, finding that some of them were precluded by the Securities Litigation Uniform Standards Act. The Second Circuit found that the district court should only have dismissed the specific fraud claim precluded by SLUSA.

    The court approved a plan in the case of Management Solutions Inc. and Wendell and Allen Jacobson that could result in a 100% return for investors in the real estate Ponzi scheme. About $100 million will be returned to investors in a first distribution, with about $31 million being held back as a contingency to cover claims still under investigation. The scheme had involved promises to investors that their money was invested in apartment complexes.

    The U.S. Attorney has asked Resurrection Life Church to return $300,000 paid to it from proceeds of the David McQueen Ponzi scheme. The Church responded that it did not have the money to return, but has set up an account and invited parishioners to donate to the fund to help the victims of the Ponzi scheme. The church was initially upset that the government identified the church in a letter to the victims of the scheme and has been fielding calls from the victims asking for restitution.

    TD Bank has made another appeal to the Eleventh Circuit to avoid the $67 million in liability to Coquina Investments that TD Bank has already paid over. TD Bank was found liable by a jury for that amount in connection with the Scott Rothstein Ponzi scheme. TD Bank says that Coquina really only suffered out of pocket damages of $7.5 million and that it has already paid money into the Rothstein bankruptcy case from which investors can get paid.

    Peter Romero, the former ambassador to Ecuador, was denied his post-trial request for judgment as a matter of law and was ordered to pay more than $950,000 to the receiver in the Allen Stanford Ponzi scheme in connection with the receiver’s fraudulent transfer claims.

    A New York state appeals court upheld a lower court ruling dismissing a $2.1 million legal malpractice claim brought by an investor in the Ponzi scheme of Laurie Schneider against McLaughlin & Stern LLP. The lawsuit was brought by an ex-client of the firm who alleged legal malpractice for advice relating to investment into two companies, Eager Beaver Realty and All Cleaning Supplies LLC, that were part of the Ponzi scheme. The retainer agreement had excluded due diligence from the scope of its representation, and the investor had declined advice to conduct due diligence, stating that none was needed because he trusted Schneider.

    A district court judge allowed most of the claims in a lawsuit filed by victims in the Stanford Financial scheme against five banks accused of playing a role in the Ponzi scheme. The court dismissed some of the claims brought pursuant to Texas state law, but permitted other claims to proceed in federal court. The banks involved are HSBC, Societe Generale, Toronto Dominion Bank, Trustmark National Bank and the Bank of Houston.

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