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

Tuesday, June 30, 2015

June 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for June 2015. The reported stories reflect: 3 guilty pleas or convictions in pending cases; over 140 years of newly imposed sentences for people involved in Ponzi schemes; at least 7 new Ponzi schemes involving over $240 million; and an average age of approximately 51 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.

    Thomas Abdallah, 51, and Mark George, 58, of Ohio, pleaded not guilty to charges that they ran a Ponzi scheme, along with Jeffrey Gainer, 51, through KGTA Petroleum Ltd. The three allegedly defrauded 70 investors out of $17 million. They promised investors returns of up to 5% per month, or 60% per year, for investments in oil and fuel.

    William D. Allen, 36, and his business partner, Susan C. Daub, 55, were criminally charged in connection with an alleged $32 million Ponzi scheme. Allen played for three NFL teams over his 12 year career, including the Giants, Dolphins and Patriots. Allen and Daub are accused of running a Ponzi scheme through their company, Capital Financial Partners Enterprises LLC, which was making high-interest, short-term loans to professional athletes. The company loaned out only $18 million of the $32 million it collected from investors. The FBI has said that $4.1 million went to Allen personally and $61,080 to Allen’s casino accounts.

    Jonathan Arrington, Michael Kratville, and Michael Welke were sentenced to 5 years, 4 years and 3 years, respectively, in connection with a $4 million Ponzi scheme involving 114 investors. The 3 men had pleaded guilty earlier in the year. The scheme involved commodities and foreign exchange.

    Charles B. Blackwelder, 70, had his attorney license suspended by the Indiana Supreme Court. Blackwelder is serving a four year prison sentence for running a $19 million Ponzi scheme through his firm CFS LLC in which he defrauded elderly victims. Blackwelder and his daughter, Cara Grumme, were accused of defrauding more than 300 elderly victims.

    John R. Bullar, 53, was sentenced to 8 years and four months in prison and ordered to pay $6.2 million in restitution in connection with a Ponzi scheme that he ran through Executive Management Advisors LLC. The scheme defrauded more than 46 victims, who were promised high returns and told their money was safe. Bullar claimed to invest in precious metals, bonds and foreign currency but actually “invested virtually nothing,” prosecutors said. Bullar also told investors he had devised a computer system that monitored the market for potential losses and, prosecutors said, claimed he "had been offered millions of dollars" for it.

    Tim Durham was resentenced after two of the charges against him were dismissed on appeal. Durham had appealed his original sentence of 50 years for running a Ponzi scheme through his company, Fair Finance Co. The scheme defrauded 5,200 victims out of $200 million. The appellate court found that the prosecution had failed to enter key documents. At his re-sentencing, Durham was again handed a 50 year sentence.

    Charles L. Erickson was charged with running a Ponzi scheme that defrauded at least 25 investors out of about $3.5 million. Erickson, who recruited from his church, claimed that the Holy Spirit had given him a proprietary day-trading system for a volatile type of futures contract. He guaranteed returns of over 96% to be paid over two years.

    Joseph Greenblatt, 53, was sentenced to 10 years in prison for writing bad checks to his victims. Greenblatt is already serving 18 years in prison in connection with a $31 million Ponzi scheme through Maywood Capital Corp. Greenblatt promised investors high returns on investments in inner-city commercial properties.

    Scott Anderson Hall, 50, was sentenced to 10 years in prison in connection with a $3 million Ponzi scheme that defrauded 48 victims. Hall promised investors large returns, sometimes over 12% from investments in his company, Abaco Securities International. He set up the company, which was a sham offshore investment company, in the Turks and Caicos Islands.

    Christina Hernandez, 43, was sentenced to 3 years of probation for her role in a Ponzi scheme that took in more than $100 million. Hernandez posed as a JP Morgan employee to assist Michael Goldberg in a scheme that defrauded investors out of more than $30 million. Goldberg misrepresented to investors that Chase had granted him a contractual right to purchase foreclosed and seized business assets from a Chase Foreclosure Manifest, which he would then supposedly resell at a profit, from which he would guarantee returns of up to 20% in about 90 days. Goldberg further represented that Chase would refund the purchase price of any asset that couldn’t be resold so there was no risk to the investor. Goldberg pleaded guilty in 2010 and was later sentenced to 10 years in prison.

    Wendell A. Jacobson, 61, and Allen R. Jacobson, 36, were charged in connection with an alleged Ponzi scheme run through the real estate investment firm called Management Solutions. The father and son used their membership in The Church of Jesus Christ of Latter-day Saints to lure in 400 investors and raise more than $200 million. They promised investors that they would buy apartment complexes at discounted prices, then renovate and sell them within five years.

    Kristine Louise Johnson, 60, was charged in connection with an alleged $7 million Ponzi scheme that defrauded more than 10,000 victims. The alleged scheme, run through a sham internet company called “The Achieve Community,” promised investors a 700% return in a 3 to 6 month period of time. Investors were paid back about $2 million during the scheme. Troy A. Barnes, 52, of Michigan was also charged in connection with the scheme. The scheme was previously operated under the name “Work with Troy Barnes Inc.” Johnson pleaded guilty to the charges.

    Herbert Ivan Kay, 57, was sentenced to 5 years in prison after being convicted on charges relating to a Ponzi scheme in which he marketed and sold investments in residential and commercial developments in Mexico. Kay was also ordered to pay $8 million of restitution to his victims.

    Stafford S. Maxwell, 46, pleaded guilty to charges relating to a multimillion Ponzi scheme that he ran through Millennium Capital Exchange, Inc. The scheme was a foreign exchange market trading program in which he promised his victims high fixed rates of return.

    Everett C. Miller, 45, was sentenced to 10 years in prison for a Ponzi scheme to which he pleaded guilty in 2013. The scheme, run through Miller’s company, Carr Miller Capital LLC, defrauded investors out of $5 million. He promised investors 7% to 20% returns through the sale of unregistered securities.

    Frederick E. Monroe Jr., 59, was charged with running an over $1 million Ponzi scheme through Capital Financial Planning. Monroe allegedly solicited money from clients to invest in bonds but never invested the money. Monroe pleaded not guilty.

    Randy Poulson, 44, pleaded guilty to charges that he ran a Ponzi scheme through his companies, Equity Capital Investments LLC and Poulson-Russo LLC. Poulson promised to pay the mortgages of distressed homeowners facing foreclosure if they sold their homes to him. He obtained deeds to more than 25 homes, put renters in the homes, and then stopped making the monthly mortgage payments. Poulson also brought in investors, promising then 10% to 20% returns, for investments in properties that Poulson claimed he would rehabilitate, rent out and then sell.

    Daniel Christian Stanley Powell, 33, was sentenced to 10 years in prison in connection with his $5.2 million Ponzi scheme. Powell centered his scheme around a sham “reverse life insurance” company. Powell represented to investors that his company, Christian Stanley Inc., owned policies worth $1.9 billion, but in fact did not own a single insurance policy.

    Premier Asset Management and its principals and employees, Gerald Lawler, Nicola Lawler, Mariam Williams, Claude L. Collins Sr., and Patrik Granec, were the subject of a temporary cease and desist order by the Massachusetts Securities Division and the Alabama Securities Commission. Premier solicited investments funds through Craig’s List and, at least in one instance, promised a 100% return in as little as 48 hours. One investor was assured that the account was 100% secure.

    William Allen Risinger was indicted on charges relating to an alleged $4.5 million oil and gas Ponzi scheme. Risinger allegedly sold fraudulent royalty interests relating to oil and gas wells through his entity known as RHM Exploration. Investors were invited to invest in ventures, such as the RHM-Sinton Joint Venture.

    Steven B. Rodd, 49, who previously served time for soliciting investors into Lou Pearlman’s $300 million Ponzi scheme, was arrested for drowning a rabbit. Rodd was observed tossing a rabbit into a hotel pool and watching it down, so has been charged with animal cruelty. Rodd’s involvement with the Pearlman Ponzi scheme related to his solicitation of over $32 million in investments to hundreds of Florida investors, for which he served a 3 year prison term.

    Keith Michael Rogers was accused by the Alabama state security commission of running a Ponzi scheme. Rogers is a financial advisor who is accused of defrauding investors out of millions of dollars and using $2.5 million for his personal expenses.

    Sunil Sharma, 68, pleaded guilty to running a Ponzi scheme that started as a risky day-trading strategy. Sharma set up Gold Coast Holding LLC to trade options and then later set up Safe Harbor Tax Lien Acquisitions. Sharma raised $8.36 million from 32 investors and paid $2.12 million in returns to earlier investors.

    Louis J. Spina, 58, was sentenced to 79 months in prison in connection with his $20 million Ponzi scheme. The scheme defrauded 42 investors through his company, LJS Trading LLC, and promised returns of 9% to 14%. Spina had been sentenced to 3 years and 5 months in prison for a bank robbery to which he had pleaded guilty in 2014. The judge in the Ponzi scheme criminal matter ordered that the two sentences be served consecutively, that Spina pay back $12.7 million, and that he forfeit over $800,000.

    Paul Sullivan, 50, was sentenced to 4 years and 7 months in prison and ordered to pay $1.9 million in restitution for a Ponzi scheme that defrauded investors out of about $1.9 million. Sullivan made investments for his clients that result in losses. In order to repay them, he solicited new investments with promises of high rates of return.

    Phil Donnahue Williamson, 48, of Florida, was charged by both the SEC and criminally in connection with an alleged Ponzi scheme run through Sterling Investment Fund LLC and Sterling Financial Partners. The scheme targeted retired teachers and police officers and promised investors returns of 8% to 12% for investments in distressed real estate. It is alleged that the scheme defrauded at least 17 investors. Williamson voluntarily surrendered and agreed to settle the SEC charges by paying about $750,000 in disgorgement of ill-gotten gains.

    Bryan Zuzga entered into a plea agreement in connection with a $25 million Ponzi scheme he was accused of running along with Jenifer E. Hoffman and John Boschert. The scheme was run through Assured Capital Consultants and defrauded about 100 victims. Zuzga was accused of impersonating a Florida attorney and assuring investors that their money was safe in an escrow account. Boschert pleaded guilty last year.
 
INTERNATIONAL PONZI SCHEME NEWS

Cambodia

    Seven more people believed to be involved with the Empire Big Capital alleged scheme were arrested, bringing the total to 14. The company was registered in Hong Kong, but had vacated its offices a few months ago. The individuals have been charged with fraud in Cambodia.

Canada

    More than 600 victims have sent in letters in connection with the sentencing of Gary Sorenson, 71, and Milowe Brost, 61. The two men were both found guilty of defrauding more than 2,400 investors out of $100-$200 million between 1999 and 2008.

England

    Geoffrey Langdale, who is currently serving a 6 year prison term for running a Ponzi scheme, was told that he must repay £272,729.86 or face a further three years behind bars.

India

    Five suspects were arrested in connection with the Win Realcon scheme that allegedly defrauded investors. The suspects are Mahitosh Ganguly, Joy Bhowmick, Rajib Debnath, Partha Pratim Roy and Raju Dey.

    Leena Maria Paul and her partner Sekar Chandrashekhar, along with Adil Akhtar Jaipuri, Akhtar Hussain Jaipuri, Salman Rizvi and Nasir Jaipuri, were arrested on charges that they defrauded over 1,000 investors by promising them 300% returns on their investments.

    Authorities located 180 bank accounts of Rose Valley and recovered Rs. 36.91 crore. Earlier this year, the company’s chairman, Gautum Kundu, was arrested in what is alleged to be a Ponzi scheme. Amit Banerjee was arrested in connection with the scheme as well.

Indonesia

    Kamal Tarachand was arrested in an alleged Ponzi scheme involving a fraudulent tissue paper business. Investors were promised between Rp 50,000 and Rp 200,000 ($3.7 - $15) per day in return for every Rp 1 million ($75) invested in the company. Tarachand represented that his company was making money by selling advertising space on the back of the tissue paper packets that his company produces.

New Zealand

    A court of appeal found that an investor in the David Ross Ponzi scheme was required to return fictitious profits received from the Ross Asset Management Ponzi scheme. The investor had invested $500,000 but had received back $954,000 so was required to pay back $454,000. There are almost 200 investors who received about $30 million of fictitious profits who are now facing claims to return those profits

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    About 30 victims of the Philip G. Barry Ponzi scheme filed a lawsuit against JP Morgan, TD Bank, HSBC, and M&T Bank, seeking $11.1 million plus $25 million in punitive damages for the banks’ alleged failure to detect the fraud in the face of over 1,000 bounced checks and large repetitive transactions. Barry was convicted in connection with his $40 million Ponzi scheme that he ran through Leverage Group, Leverage Option Management Co. Inc., and North American Financial Services. The scheme defrauded about 800 victims.

    The Seventh Circuit ruled that liquidators in the British Virgin Islands cannot lift an injunction to disburse funds from the Nikolai Simon Battoo $340 million Ponzi scheme that had defrauded 800 investors. Battoo had defied an injunction issued in an SEC action against him and BC Capital Group in 2012 by transferring assets to the control of the liquidators.

    The trustee of Bernard Madoff’s business entered into a settlement with feeder funds, Ariel Fund Ltd. and Gabriel Capital LP, once run by J. Ezra Merkin. The settlements will free up $35.4 million for distribution to Madoff’s customers, and the funds will receive about $145 million in payments to catch with distributions made to other customers. The settlements do not resolve the trustee’s claims against Merkin himself or his related entities, Ascot Funds and Gabriel Capital Corp.

    The Bernard Madoff trustee announced a settlement with Plaza Investments International that will result in recovery of $140 million. The settlement will bring the total available to repay customers $10.874 billion. The trustee had sought $235 million from Plaza and its investment manager, Notz, Stucki Management (Bermuda) Ltd. Plaza will also be allowed its $405 million claim.

    The United States Supreme Court rejected the Bernard Madoff trustee’s appeal of a decision that blocked the trustee from recovering nearly $2 billion in direct recoveries. The Second Circuit had affirmed lower rulings finding that Section 546(e) applied to bar the trustee from seeking recovery of transfers made to Madoff’s customers.

    A district court declined to dismiss the claims of the receiver of Stanford Financial against two law firms, Chadbourne & Parke and Proskauer Rose. The receiver claims that Thomas Sjoblom, a lawyer who worked at both firms, obstructed investigations by the SEC and other regulators. The receiver may pursue negligence, aiding and abetting fraud, negligent supervision and civil conspiracy claims.

    Equity Trust Company, a company that offers self-directed IRAs, was charged by the SEC for its involvement with the $5 million Ponzi scheme run by Ephren Taylor and Randy Poulson. Equity Trust is alleged to have ignored red flags in connection with the investments. The scheme defrauded more than 100 investors out of $5 million that was invested through accounts at Equity Trust.

    The TelexFree trustee reported to the court on the status of his administration of the case. He reported that he has identified over 900,000 accounts that were registered with TelexFree, approximately 68,000 of them which appear to have profited from the scheme. The trustee believes that they may have profited an average of over $20,000 each, meaning over $1 billion in potential recoveries to be sought. The trustee has recovered approximately $16 million to date in the case.

    The court presiding over the Zeek Rewards receivership case ordered NxSystems to turnover $9 million to the receiver. NxSystems is an “e-wallet” account company. An e-wallet allows Internet users the ability to make electronic transactions, such as PayPal.

    The Zeek Rewards receiver settled with attorney Kevin Grimes, the Grimes & Reese law firm and a Grimes-related entity, MLM Compliance VT LLC, for $1.175 million. The receiver had alleged that they had received $843,000 from the sale of a “bogus compliance course” and that Grimes had received $342,510 less than a week before Zeek Rewards shut down. Grimes and the entities did not admit any wrongdoing in connection with the settlement.

    The Zeek Rewards receiver announced that he will be making a second partial interim distribution to the affiliates who hold allowed claims. Combined with the first partial interim distribution, the receiver believes this will return 60% of the allowed claim losses. The receiver is using the rising tide methodology of distribution which he described as follows: “two investors put $10,000 into the scheme and each will receive $6,000 total, whether it was received from the scheme itself, or from distributions from the receivership, or a combination of both.”
 

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