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

Sunday, May 31, 2015

May 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for May 2015. The reported stories reflect: 7 guilty pleas or convictions in pending cases; over 62 years of newly imposed sentences for people involved in Ponzi schemes; at least 16 new Ponzi schemes involving over $130 million; and an average age of approximately 50 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.
 
    Joyce Allen, 67, was sentenced to 3 years in prison and ordered to pay $20.7 million in restitution for defrauding hundreds of investors out of $40 million. Allen was associated with Benchmark Capital which was owned by Charles D. Candler. Allen would represent that they would refinance the investor’s property and put them into a program that would pay the mortgage payments.

    Douglas Bates, 56, had his 5 year prison term reduced by nearly two years due to the assistance that he provided to federal prosecutors in convicting three other individuals in connection with the Scott Rothstein Ponzi scheme. Rothstein himself has such a request pending to shorten his 50 year prison sentence, but no decision has yet been reached on his request.

    Jason Bo-Alan Beckman, Gerald Durand, and Patrick Kiley, all had their convictions and sentences upheld on appeal to the Eighth Circuit. United States v. Beckman, 2015 U.S. App. LEXIS 7805 (8th Cir. May 12, 2015). The court was not persuaded by their various arguments seeking to overturn their sentences in connection with the Trevor Cook Ponzi scheme that involved over $193 million. The dissent argued that the conviction and sentence of Kiley should be overturned because his counsel at the time of trial was “laboring under a conflict of interest that adversely affected his representation of Kiley.”

    Ian Bick, a 19 year old who was arrested earlier this year on charges that he was running a $500,000 Ponzi scheme, must now close his club, Tuxedo Junction, due to alcohol violations because the club does not have a license to serve alcohol. He is due to go to trial in the fall on the Ponzi scheme charges.

    Adam Jay Boskovich, 45, pleaded guilty to charges relating to a $200 million Ponzi scheme that was run primarily by Gerard Frank Cellette, 50. The scheme defrauded 80 investors who were told that Cellette had printing contracts with major corporations through his company, Minnesota Printing Services Inc., and needed money upfront to get a 20% discount on purchasing paper. Boskovich recruited about $17 million of the investor funds. Boskovich’s felony conviction was reduced to a misdemeanor, and he was sentenced to one day in jail.

    Patrick Churchville, 46, was charged with running an $11 million Ponzi scheme through his company, ClearPath Wealth Management. Churchville took investors dollars for his own use and lost some of it in a separate $23 million Ponzi scheme.

    Enrica Cotellessa-Pitz, 56, was sentenced to time served in connection with her role as a former employee of Bernard Madoff’s firm. Cotellessa-Pitz had faced up to 50 years in prison, but the judge cited her extensive cooperation with prosecutors which helped lead to the conviction of 5 other people.

    Frank DiPascali died at the age of 58 of lung cancer. DiPascali was one of Bernard Madoff’s top aids and had testified for the government against several other Madoff employees. DiPascali had admitted that he had made bogus trades with Madoff for 30 years but always thought that Madoff had enough assets to cover everything. DiPascali was set to be sentenced in September.

    David Fili Jr., 45, was charged with running a Ponzi scheme that allegedly defrauded several mortgage lending banks, including PNC Bank and Wells Fargo Bank, out of $9.7 million. Fili is the former co-owner of Capital Financial Mortgage Corp. and allegedly deceived numerous lenders into purchasing mortgages issued by his company that were represented to be first mortgages but were really worthless second mortgages.

    Daniel Fodiman, 51, was charged with running a multi-million dollar Ponzi scheme where he represented to investors that he was buying merchandise that he was reselling to TJ Maxx for a profit. Fodiman is accused of presenting investors with falsified TJ Maxx purchase orders and altered bank statements. Fodiman pleaded not guilty and was ordered held on $1 million bail.

    David G. Friehling, 55, was sentenced to a year of home detention after pleading guilty and cooperating with prosecutors in connection with the Bernard Madoff Ponzi scheme. Friehling was Madoff’s firm’s auditor and was also the personal account for Madoff and his sons. Friehling assisted the government in getting convictions for 5 former employees of Madoff. He has said that he was not aware of the fraud at the firm but that “I did not question what I should have questioned.” Friehling could have been sentenced to more than 100 years in prison for his role in the Ponzi scheme. Craig Kugel, 41, who worked in human resources for Madoff, was sentenced to time served, and his father, David Kugel, was sentenced to 10 months of home confinement for his role in helping create fake, backdated trading records.

    FX & Beyond Corp. and Steve H. Karroum were the subject of a motion by the SEC to enforce a subpoena again them in connection with an investigation of an alleged Ponzi scheme.

    Eduardo Galan, 64, pleaded guilty to charges that he defrauded 38 investors in a Ponzi scheme. Galan was once a licensed securities broker but was barred by FINRA in 2008 from selling securities. Galan admitted that he took more than $800,000 from investors and misrepresented to them that their money would be loaned out in private mortgages.

    Robert Gavin and Daniel Hogan, along with their company, North Dakota Developments LLC, were sued by the SEC who accused them of running a Ponzi scheme that allegedly raised more than $62 million from about 980 investors. The defendants represented to investors that they were selling stakes in four short-term housing projects known as “man camps” for workers in the Bakken oil field region of North Dakota and Montana. The investors were promised returns of 42% in the first year or a guaranteed annual return of up to 25%. The scheme allegedly raised money from investors in 66 countries, including the U.S., Australia, France, Great Britain and Spain. The North Dakota Securities Commissioner also issued a cease-and-desist order against the three defendants.

    Tyrone Herman, 56, was sentenced to 10 years in prison for operating a $20 million Ponzi scheme. Herman defrauded 51 victims by promising them investment returns as much as 30%. He told his victims that he purchased small appliances at below retail prices and then sold them with a 35% markup.


    Charles Huggins, 68, was sentenced to 10 years in prison in connection with a Ponzi scheme that defrauded investors out of more than $8 million. Huggins is a former music producer who helped launch Kenny G and Whitney Houston. He diverted investor dollars to one of his record labels and used funds to pay for his personal expenses.

    Michael Anthony Jenkins, 57, was sentenced to up to 13 years in prison following his guilty plea to charges relating to a Ponzi scheme that he ran through Harbor Light Asset Management. The scheme allegedly defrauded more than 435 victims out of $1.79 million in a commodities futures scam.

    Herbert Kay, 58, was sentenced to 5 years in prison in connection with a Ponzi-style operation that he ran through several companies, including Taxon LLC. Kay defrauded more than 30 people. He had initially pleaded guilty but then withdrew his guilty plea. 

    Shaine Joseph LaVoie, 46, was convicted on charges related to a Ponzi-like scheme that defrauded 12 victims. The scheme involved the supposed purchase of over-produced and out-of-season clothing for re-sale in a deal that was to involve a shipment of designer jeans being sold to a Japanese buyer. LaVoie promised investors a 100% profit.


    George Lindell and Holly Hoaeae were found guilty by a jury on charges relating to the running of a Ponzi scheme through their mortgage and insurance business, The Mortgage Store. The scheme defrauded 166 people, who invested $26 million and who lost a net amount of $8.9 million.

    Eric Lipkin, 41, was sentenced to nine months of home detention for his role in the Bernard Madoff Ponzi scheme. Lipkin had pleaded guilty to his role in helping to prepare fraudulent documents. Lipkin was also ordered to forfeit $1.4 million.

    Randy Miland, 61, lost his chiropractor license due renewed allegations that he defrauded patients and other investors. Miland’s license had previously been suspended but was reinstated in 2011, with the condition that he not engage in personal or business relationships with patients or their families. Instead of paying back old debt, Miland took on new debt involving patients, which violated conditions of his license.

    Brian J. Polito, 34, pleaded guilty to charges relating to an $11.8 million Ponzi scheme in which he sold phony oil and gas interests. Polito ran the scheme through GC Resources LLC. Prosecutors have recovered more than $664,000 by selling Polito’s cars, including a 2014 Rolls-Royce Wraith, a 2015 McLaren 650S Coupe, a 2014 Lamborghini, a Lamborghini Aventador Anniversary Coupe, a 2015 BMW M4 Coupe, a 2014 Mercedes E63 Wagon and a 2014 Ferrari 458 Speciale.

    Giuseppe Porcaro, 53, was sentenced to 8½ years in prison in connection with a $4 million Ponzi scheme. Porcaro put much of the money into his businesses, including the Australian Motor Finance Company. Porcaro had pleaded guilty to a number of charges relating to the scheme.

    Frank Preve challenged a request by the SEC that he pay a $1 million penalty for his role in running the largest feed funds for Scott Rothstein’s $1.2 billion Ponzi scheme. Preve, scheduled to begin his 3½ year prison sentence next month, says that he is destitute, in poor health, and they he has already suffered enough. He argued that he was an independent contractor for George Levin, who owned the funds.

    Devasc Sanderley Rodrigues aka Sann Rodrigues, 43, was arrested in connection with the TelexFree scheme. Rodrigues is a native of Brazil but has been living in the U.S. Rodrigues was one of the 8 TelexFree figures charged civilly by the SEC. James Merill and Carlos Wanzeler have also been charged criminally. A court has required Rodrigues to surrender his driver’s license as a condition of his release on a charge of immigration fraud.

    Perry Sawano, 51, pleaded guilty to charges in connection with a $4.8 million Ponzi scheme that he ran through Integrity Financial Consulting. Sawano offered investment opportunities to his investors but would move funds into “alternative investments” without notification to the investors. Sawano would take the money himself or use investors’ money to pay other investors.

    John Sposato, 64, was charged with wire fraud and accused of running a Ponzi scheme. Sposato allegedly defrauded 48 people who invested a total of about $810,000 in his companies that included Pegasus Investment & Development Corp.; Pegasus Investments; Oil Eaters; Organic Miracle Incorporation; Pegasus Truck Lines; and Pegasus Demolition & Debris Removal Service.

    Brandon Walton Stewart, 30, was accused of running a $13 million Ponzi scheme. Walton allegedly told investor that their money would be added to an investment fund with corporate stocks, including Facebook, and foreign investments.

    Barry C. Taylor, along with his companies OTC Investments LLC and Foreign Currency Trade Advisors, LLC, were charged by the CFTC with operating a foreign exchange Ponzi scheme. The scheme allegedly involved about $2.5 million and at least two dozen investors. The CFTC complaint alleges that Taylor promised investors 2% returns per month from foreign exchange trading.

    Garfield M. Taylor, 56, was sentenced to 13 years in prison and ordered to pay $28.6 million in restitution in connection with a $28.6 million Ponzi scheme that defrauded more than 170 investors. Taylor operated two companies, Garfield Taylor Incorporated and Gibraltar Asset Management Group, which traded in extremely risky options. Taylor had promised substantial returns to investors based on a sophisticated trading strategy that supposedly protected against loss. Taylor had pleaded guilty but has now filed a motion to withdraw the plea.

    Germaine Theodore, 35, was indicted on charges that defrauded clients through his purported bill payment and debt consolidation business, Save My Future, in which he promised to cut customers’ bills by 35% but instead was running a Ponzi scheme. Theodore had been indicted in February for stealing $250,000 through his company, TGC Movement, but had posted bail. He began the Save My Future scheme while out on bail.

    Jack Utsick, who had pleaded not guilty to running a $300 million Ponzi scheme through his company, Worldwide Entertainment Inc., had his case set for trial in November. Utsick’s scheme allegedly defrauded about 3,300 investors.

    Veros Partners and its executives, Matthew D. Haab and Adam Decker, were named in a lawsuit filed by the SEC, along with associates Jeffrey B. Risinger and Tobin J. Senefeld, accusing them of running a $15 million Ponzi scheme that defrauded approximately 80 investors. The scheme was run through Veros Farm Loan Holding LLC and FarmGrowCap LLC. Investors were told that they money would be used for short-term operating loans to farmers.

    Stu Voigt, 66, pleaded not guilty to charges that he and Jeffrey Gardner, 61, ran a real estate Ponzi scheme through Gardner’s business, Hennessey Financial. Gardner had previously pleaded not guilty.

INTERNATIONAL PONZI SCHEME NEWS

Australia

    An investor couple who lost $450,000 in the Ponzi scheme of Neovest had their judgment upheld against Wealthsure, the financial advisers who advised the couple to invest. The judgment is for over $1.7 million. The High Court upheld the trial judge’s ruling that Wealthsure was 100% liable for the loss despite that finding that others were also responsible.

    Michael Samra was charged in connection with an alleged $12 million Ponzi scheme run through his company, ALC Company Pty Ltd. Samra represented that investor funds would be lent to unnamed builders and property developers on a short-term basis and that investors would receive 30% to 48% returns annually.

Canada

    The British Columbia Securities Commission issued an Investor Alert on DFRF Enterprises LLC, DFF Enterprises Ltd., and other companies associated with Daniel Fernandez Rojo Filho. The Commission alerted investors to the scheme that it said was characteristic of investment fraud, noting that the scheme is offering returns of up to 15% per month and stating that DFRF will soon be listed on the public stock exchange after which investments will triple within 30 days.

    Shabnam Shafi, 41, and Shafi Shauaid, 27, were charged with running a Ponzi scheme that defrauded 24 investors out of $4 million.

    An arrest warrant was issued for John Paul Baron after he failed to appear in court for his sentencing. Baron had been convicted on 28 charges in a $3 million Ponzi scheme that defrauded 22 investors. Terrence McGill, 57, was sentenced in March to 23 months, and Leeanne Houle, 46, is scheduled to go to trial in November in connection with the scheme.

England

    Joe Lewis, 60, was arrested in connection with an alleged £130m Ponzi scheme. It is believed that more than 370 victims were defrauded by Lewis’ company, JL Trading.

    Peter Bernstead, 72, killed himself in the middle of his trial on charges that he was running a Ponzi scheme. Bernstead was on trial for defrauded 12,500 people out of £19.5 million through Crown Currency Ltd.

    Four suspects, Sal Palermo, Sal Darsee, Santos Palermo, and Santos Salvatore, were arrested in York for allegedly operating a romance-based Ponzi scheme that defrauded at least 20 victims out of $1.2 million. Yiaoming Liang, 47, and Ansari Farhan, 32, also face charges in connection with the scheme, and Tatiana Krainova, 39, was charged in January.

India

    Dandapani Sethi, the principal of Zodiac Foundation, was arrested on charges that he was running a Ponzi scheme.

    Deba Kumar Panda, of Vista Management Services Limited, was arrested on charges that he defrauded investors out of more than Rs 50 crore. Bijay Swain, the director of the company, was also arrested.

    Arindam Das aka Bumba was arrested in connection with the Saradha Group Ponzi scheme. Das is alleged to be mentoring the operation of the scheme.


    Subhransu Singh, the managing director of Sree Bhumi Construction, was arrested in connection with an alleged Ponzi scheme that defrauded victims out of Rs 50 crore.

Singapore

    Leong Lai Yee may have defrauded over 100 investors by promising them 30% returns from a deal involving the buying and selling of properties in Singapore. Leong has been reported missing, and it is believed that she owes investors more than $60 million.

Thailand

    The Department of Special Investigation warned consumers not to get involved with Virgin Gold Mining Corporation, which it described as a “money game.” Investigators have also found that a claims subsidiary of Virgin Gold, Asia Pacific Gold Mining Investments Ltd. in Toronto is not registered for gold futures trading.

    Police raided a Bangkok apartment complex in connection with an investigation of the UFUN alleged Ponzi scheme. It has been estimated that 120,000 people invested in the scheme. Losses could be as much as $1.13 billion.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    The receiver in the Ponzi scheme run by Donald Ray Babb and Ralph Ruth obtained permissions to sue recipients of payments from nearly 100 victims of the Ponzi scheme that received in excess of 46.7% of their investments. The receiver is seeking to use the rising tide method of distribution.

    The trustee in the Fair Finance Co. bankruptcy case reached a $35 million settlement with Fortress Credit Corp. in connection with the scheme run by Tim Durham. The trustee had alleged that Fortress had turned a blind eye to the Ponzi scheme because it was making millions of dollars at the lender and held first priority liens on the assets with value.

    A District Court dismissed a lawsuit filed by investors in the Ponzi scheme run by 3 investment advisors, John Geringer, Christopher A. Luck and Keith E. Rode, through their company GLR Fund. The lawsuit against Santa Cruz Country Bank was not allowed to proceed because the court found that the investors did not show how the bank profited from the fraud. The lawsuit had alleged that the then-vice-president Chuck Maffia "knowingly participated in and substantially assisted the Ponzi scheme" by serving as a banking reference for the GLR Fund and soliciting investors.

    A receiver was appointed in the $800 million Ponzi scheme case of MRI International and Edwin Fujinaga. Fujinaga had told investors he could buy medical accounts receivable at a discount from medical providers and recover the full amounts from insurers.

    The Eighth Circuit upheld the dismissal of an investor’s legal malpractice lawsuit against Martin Sigillito based on procedural grounds because the investor, Phil Rosemann, had failed to name an expert during discovery to testify as to whether Sigillito was negligent.

    The receiver in the Stanford Financial case reached settlements with two law firms and some individuals that will result in payment of $5 million. The receiver had sued Adams & Reese and Breazeale Sachse & Wilson, along with some of the lawyers involved, for negligence, breach of fiduciary duty and aiding and abetting, alleging that they referred clients into Stanford’s $7 billion Ponzi scheme.

    The Allen Stanford receiver sued the State Department, demanding documents relating to $16.4 million in fraudulent transfers to former Stanford insiders, David Miguel Nanes and Hasibe Elizabeth Ancona. The receiver believes that those two individuals have possession and knowledge relating to millions of dollars of transfers. In fact, the receiver already has a judgment against Nanes’ company, Wealth Management Services, Ltd. for over $9.8 million. The Receiver says that Nanes’ has taken steps to make sure he is not found and Nanes’ lawyer says he does not know of his whereabouts. The State Department has objected to the Receiver’s subpoena on the following grounds: (1) disclosure is prohibited under the Privacy Act, (2) disclosure is prohibited under the Immigration and Nationality Act, (3) disclosure would expend Department resources for purposes other than the conduct of official business, and (4) disclosure would reveal information protected by privileges available under federal or state statutory, constitutional, or common law."

    A settlement was reached in the George Theodule $68 million Ponzi scheme case between the receiver administering the Theodule case an Wells Fargo Bank. Wells Fargo will pay $3.175 million to settle a lawsuit that has been pending for several years. The receiver had alleged that Wells Fargo’s predecessor, Wachovia Bank, had turned a blind eye to Theodule’s fraudulent scheme. This settlement, along with several others reached by the receiver (Bank of America for $2.75 million and TD Ameritrade for $1.25 million), will allow the receiver to begin making distributions to the approximately 2,500 Haitian-Americans who were defrauded in the scheme.

    The receiver of Zeek Rewards filed a new set of fraudulent transfer lawsuits against net winners in Brazil, Denmark, France, Germany, Israel, Ireland, Netherlands and Sweden.

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