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, October 31, 2015

October 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for October 2015. The reported stories reflect: 3 guilty pleas or convictions in pending cases; over 93 years of newly imposed sentences for people involved in Ponzi schemes; at least 4 new Ponzi schemes; 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.

    William Apostelos, 54, and Connie Apostelos aka Connie Coleman, 50, were indicted on charges relating to an alleged $70 million Ponzi scheme that defrauded over 480 investors. The Apostelos ran the scheme through their investment business, WMA Enterprises LLC, Midwest Green Resources LLC, and Roan Capital. Connie Apostelos also operated Coleman Capital Inc. and Silver Bridle Racing LLC. The investors are believed to have lost $30 million collectively.

    Eric Bartoli, 61, was extradited from Peru, after having been wanted by the FBI since 2003 for masterminding a $65 million Ponzi scheme. Bartoli had run his scheme through Cyprus Funds, Inc. and took money from more than 800 investors. It is believed that about $30 million was returned to investors by Bartoli, and the receiver over the scheme has made nearly $10 million in distributions to the victims.

    Chuckie Beaver, 52, was sentenced to 4 years and 9 months in prison for defrauded at least 30 victims out of about $2 million. Beaver owned Best Services Inc., which repaired industrial electronic equipment. He solicited investors to provide capital to supposedly buy materials to complete a large number of outstanding repair orders for major corporations. Beaver delivered fake documents to the investors, including bogus repair orders, and promised them returns of up to 100%.

    Charles A. Bennett, 57, pleaded guilty to running a $5 million Ponzi scheme that involved at least 30 investors. Bennett was once a lawyer at Skadden Arps Slate Meagher & Flom LLP, but later started soliciting investments in a supposed European real estate mortgage-backed securities scheme. The scheme first came to light after Bennett’s failed suicide attempt last year in which he revealed that “the bulk of the funds were used in classic Ponzi scheme fashion to pay off other supposed ‘investors’ and my absurd lifestyle.”

    John Steven Blount, 55, was sentenced to 19½ years in prison and was ordered to pay $4.3 million in restitution in connection with a $5.8 million Ponzi scheme through his company, Professional Consultants LLC. The scheme defrauded at least 73 investors by promising above-market returns from investments in fictitious companies, bonds and IRAs.

    Robert Cephas Brown Jr., 61, had his 10 year prison sentence reduced by about 5 ½ years as a result of his appeal to the Ninth Circuit. The appellate court found that the lower court had overreached in the use of the sentencing enhancements.

    John R. Bullar, 53, and his company Executive Management Advisors LLC, were permanently banned from future violations of the Commodity Exchange Act. They were also imposed with a restitution obligation in the amount of $31 million. Bullar was sentenced earlier in the year to 100 months in prison and ordered to pay about $6.2 million in restitution for running an $8.7 million Ponzi scheme. Bullar was also the sole owner and operator of Priapus Group, LLC.

    Steve Chen, and his companies, Gemcoin, its parent company, Alliance Financial Group, Inc., its subsidiary, US Fine Investment Arts, Inc., along with other related companies, Amauction, Inc., Aborell Mgmt I, LLC, Aborell Advisors I, LLC, Aborell REIT II, LLC, Ahome Real Estate, LLC, Alliance NGN, Inc., Apollo REIT I, Inc., Apollo REIT II, LLC, Amkey, Inc., US China Consultation Association, and Quail Ranch Golf Course, LLC, were the subject of an SEC complaint alleging that they were operating a fraudulent scheme. Investors were told that the companies owned amber mines in Argentina and Dominican Republic with assets of $50 billion. Chen and his companies allegedly raised at least $32 million from investors, claiming to have converted the holdings of the investors into “Gemcoins,” which was supposedly a digital currency secured by the amber holdings in the company. Chen told investors that the U.S government had purchased 705 of Gemcoins and that a 6,400% profit was guaranteed. An anonymous investor in Gemcoin filed a lawsuit making allegations against former Arcadia Mayor, John Wuo, who promptly resigned from his position stating “health and personal reasons.”

    Paul Sloane Davis, 74, was sentenced to 3 years in prison and ordered to pay $1.7 million in restitution in connection with a $2.4 million Ponzi scheme. The scheme was run with his partner Dianne Cobb, 58, through a company called DM Financial, and defrauded 21 investors.

    Gordon Driver, 58, was sentenced to 12½ years in prison and ordered to pay about $9.6 million in restitution in connection with his operation of a Ponzi scheme through Axcess Automation LLC and for his lying to the SEC under oath. The scheme took in about $17.4 million from about 150 people. Of those, 88 lost nearly $10 million. Driver had told investors that he was producing profits of 1% to 5% a week through a commodity futures trading program involving E-mini S&P 500 futures contracts.

    Jeffrey Heady, a former Phoenix policy officer, was sentenced to 5 years in prison and ordered to pay more than $1 million in restitution in connection with his Ponzi scheme that defrauded 15 victims out of more than $1 million.  Heady was selling bridge loan investments through his company, Investment Acquisition Group. He told investors he would use their money to buy and resell commercial properties, promising a return of 11% to 19% per year.

    Jenifer Hoffman, 51, was sentenced to 9 years in prison for defrauding more than 100 people out of more than $10 million. Hoffman used her company, Assured Capital Consultants, to solicit the investors into a scheme run with John Boschert, 43, and Bryan Zuzga, 37. Boschert and Zuzga both previously pleaded guilty and are serving prison terms of 9 years and 6 years, respectively.

    Michael William Kwasnik, 46, Joseph Michael Schifano, 49, and Daniel Francis McCorry, 59, were ordered to pay back $8.6 million to 73 elderly investors in a Ponzi scheme and an additional $5.4 million in penalties. They had promised 12% returns from the purchase of life insurance policies and interests in irrevocable life insurance trusts.

    Kurtis Keith Lowe, 63, and Robert Allen Blackburn, 49, were each sentenced to 5 years in prison and ordered to pay about $2.3 million in restitution, jointly and severally. Lowe and Blackburn pleaded guilty in July 2015 to charges relating to a scheme run through Omni Capital Management Trust. Lowe owned Omni and Blackburn recruited investors into the company, as well as two other bogus companies, Amwest Capital Management and National Fidelity Management. Lowe and Blackburn defrauded 21 investors out of more than $2.4 million.

    Patricia Maldonado was hit with a $50 million jury verdict in connection with her role as the former treasury manager of Stanford Financial. The receiver of Stanford Financial had alleged that Maldonado breached her fiduciary duties in connection with improper transfers from customer deposit accounts, including transfers of more than $200 million to a secret Swiss bank account that was used to pay bribes.

    James Hurst Miller, 67, was sentenced to 7 years in prison for his role in a Ponzi scheme run by developer Kelly Gearhart. Miller raised money for the scheme through his company, Hurst Financial Corp., acting as a middleman in recruiting investors.

    Jason A. Muskey, 39, was sentenced to 11 years in prison for his role in connection with a Ponzi scheme he ran through Muskey Financial Services that raised $2 million from 26 investors. He was also barred from the financial industry by the SEC.

    Dror Soref, 65, and Michelle Seward, 43, were charged with in connection with an alleged Ponzi scheme that defrauded nearly 140 investors to raise money for the film “Not Forgotten” through their company, Windsor Pictures LLC.

    Frank Spinosa, 54, pleaded guilty to charges that he provided false assurances to investors in the Scott Rothstein $1.2 billion Ponzi scheme. Spinosa was the regional vice president of TD Bank, which was found liable for $67 million to a group of investors who sued the bank for aiding and abetting Rothstein’s fraud. Spinosa had signed “lock letters” assuring the investors that their money was safe in TD bank accounts. More than two dozen people have been charged and convicted in connection with the Rothstein Ponzi scheme.

    R. Allen Stanford, 65, lost his appeal of his conviction and 110 year prison sentence. The Fifth Circuit rejected Stanford’s 10 arguments raised on appeal, including that: he was not competent to stand trial, the government did not prove its case; the sentence was too long; and the trial judge was biased toward the prosecutors. U.S. v. Stanford, 2015 U.S. App. LEXIS 18861 (5th Cir. Oct. 29, 2015).

    Michael Szafrankski, 37, was sentenced to 2½ years for his role in the Scott Rothstein Ponzi scheme. Szafrankski has been hired by several hedge funds to act as an “independent asset verifier” to vet the investments that Rothstein was promoting. Szafrankski became friends with Rothstein and then began soliciting investors for the scheme. It was alleged that Szafrankski brought over $200 million of new investments into the scheme.

    Alan James Watson, 50, and Michael S. Potts were ordered to pay more than $91.9 million in restitution and penalties in connection with a commodity pool Ponzi scheme run through Cash Flow Financial LLC. They also used Safevest LLC and Trade LLC as part of the scheme. The two were accused of soliciting at least $45 million from more than 600 investors.  Watson was previously sentenced to 12 years in prison.

    William J. Wells was arrested and also became the subject of a complaint filed by the SEC accusing him of running a Ponzi scheme through Promitor Capital Management LLC that defrauded more than 30 investors out of more than $1.5 million. Wells allegedly falsely told investors that he was a registered investment advisor and would invest their money in specific stocks. Instead, he invested in high risk options and had to bring in money from new investors to cover his losses. In response to an investors accusation that he was running a Ponzi scheme, Wells responded, “I’m an idiot and was trying to get some big trades to . . . make you more money.” Criminal charges were also filed against Wells.

    Lorie Ann Williams, 48, pleaded guilty to evading bank reporting requirements in connection with Ponzi scheme of Nevin Shapiro. Williams admitting to withdrawing $332,500 worth of cash in chunks of $9,500, intending to avoid the $10,000 threshold at which cash transactions must be reported. She withdrew the cash after lawsuits were filed against her husband, Sydney “Jack Williams, 66, the top recruiter in the Shapiro’s Capitol Investments Ponzi scheme, earning up to $18 million in interest and commissions. Sydney Williams had previously pleaded guilty to tax fraud for failing to report $6.4 million in income. Sydney and Lorie Ann Williams are now accused of conspiring to move funds shortly before Sydney filed bankruptcy in 2010.

    Daniel H. Williford, 57, was sentenced to 9 years and 2 months and ordered to pay $17.9 million in restitution in connection with a $44 million Ponzi scheme that took in money from more than 200 investors. Williford had promised investors that their funds would be invested in wireless internet equipment, internet towers and other facilities. Instead, Williford invested only $7.7 million of the victim’s money and used $32 million to make Ponzi scheme payments to earlier investors and to pay his personal expenses. More than 100 investors lost nearly $18 million in the scheme.

    Joseph Zada, 57, was found guilty last month for his role in a $50 million Ponzi scheme in which he told investors he was putting their money in oil and currency trading through a secret European board. Since then, and prior to his sentencing, evidence has come out that Zada has been receiving substantial financial assistance from Alex Molinaroli, the CEO of Johnson Controls Inc., in the form of housing and money. Prosecutors, in arguing that Zada may be a flight risk, say that Molinaroli has paid Zada’s legal fees, bought a mansion for Zada to live in, and offered to pay up to $20 million in restitution for Zada. Molinaroli says he gave money to Zada understanding that Zada was investing it and that he regrets ever meeting Zada.

INTERNATIONAL PONZI SCHEME NEWS

Canada

    Leanne Houle, 47, had charges against her dropped in connection with an alleged $3 million Ponzi scheme in which 22 investors had understood their money was being invested in high-return currency trading with tax-free returns of 15% to 28%. John Paul Baron, 55, had previously been convicted on charges relating to the scheme, and Terrence McGill, 57, had previously been sentenced to 23 months of house arrest.

China

    Fanya Metal Exchange is the subject of public protests, among other things, that it is a Ponzi scheme. It is estimated that thousands of Chinese investors have invested an estimated $6 billion into the company, believing that they were investing in a business that bought, sold and traded rare metals. China’s state banks had recommended Fanya to customers, national television stations tacitly endorsed the business, and local regulators approved it. Fanya has been in business since 2011, and it is reported that its prices were far disassociated from the global buying and selling of rare metals. Retail investors would lend money to buyers to pay for products and would get a “warehouse warrant” of the rare metals that their money had bought, pledging that the metals exist. The end buyers of the metal would pay investors daily interest of .003%, or 13.7% on an annual basis.

India

    The Central Bureau of Investigation arrested three directors of MPS Greenery Developers Ltd.: Shantanu Chowdhury, Prabir Kumar Chanda, and Madhusudan. They have been accused of conspiring with the managing director, P.N. Manna, to defraud poor investors in a Ponzi scheme and collecting Rs. 2,500 crore from the public with permission from any regulatory body.

South Africa

    The Reserve Bank applied to have the company Carmol be determined insolvent and to be liquidated. Carmol was allegedly a Ponzi scheme that promised returns of between 72% and 96% a year. Carmol claimed to be involved in the selling and distributing of Petrol and diesel products, but instead is alleged to have been running an unlawful deposit-taking scheme. Yunus Moola and Fathima Carawan are directors of Carmol.

Thailand

    The Department of Special Investigation seized assets exceeding 700 million baht from Digital Crown Holdings Limited, which is accused of running a Ponzi scheme that defrauded more than 8,000 people out of 900 million baht.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    Victims of Steve Blount’s Ponzi scheme filed a lawsuit against Blount’s companies and JD Bank, alleging that the bank aided and abetted the fraud and added unwarranted legitimacy to the business. Blount was sentenced to almost 20 years in prior for the scheme that defrauded more than 70 victims.

    John R. Merlino Jr. won an appeal of a malpractice lawsuit brought against him by a couple who had invested $3 million with Merlino’s client, Antoinette Hodgson, who was convicted of running a Ponzi scheme.

    The trustee of the Bernard Madoff Ponzi scheme had his lawsuits dismissed that were seeking to recover payments made to foreign investment companies. The court found that since the transfers did not take place on U.S. soil, the U.S. Bankruptcy Code does not apply to them.

    The United States Supreme Court denied a petition for writ of certiorari filed by a group of investors in the Madoff scheme seeking review of a Second Circuit decision denying them the ability to collect inflation or interest on their losses. The Court upheld that the finding that the Securities Investor Protection Act does not allow the liquidating trustee to adjust investors’ net equity claims for inflation or interest. The Madoff trustee is now free to disburse $1.249 billion that he has been holding in reserve while the litigation over time-based damages was pending. Any customer who invested up to $1,161,000 will be made completely whole in the latest round of distribution payments.

    FutureSelect Portfolio Management Inc. began its jury trial against Ernst & Young, alleging that E&Y certified $4.2 billion in fake assets that Bernard Madoff claimed to have. The FutureSelect investors say they never would have invested but for the certification of E&Y of the financials of Madoff.

    The Madoff trustee began a trial against Andrew Cohen, a former Madoff employee, to recover $1.1 million on a fraudulent transfer theory.

    A court granted a request by the liquidator of Fairfield Sentry Ltd. to disapprove the sale of a $230 million claim against Madoff to a hedge fund.

    Three brokers have agreed to pay $2.75 million to settle arbitration claims relating to their role in investments purchased by Gregory McKnight, who was found guilty for running a $72 million Ponzi scheme. McKnight was previously sentenced to 15 years in prison for the scheme that involved more than 3,000 investors. McKnight promoted his scheme in a pooled investment program called Legisi, which promised returns of 15% to 18%.

    Huntington Bank sought a stay of a $72 million judgment obtained against it in connection with the CyberNet and Cyberco Holdings Inc. Ponzi scheme run by Barton Watson. The scheme promised investors returns for the use of their money to purchase computer hardware from Teleservices Group, Inc., a company also controlled by Watson. Huntington Bank had provided banking services to Watson and his companies, including a $17 million credit line on which more than $73 million payments were made. The bank’s good faith defense was rejected, with the court noting examples of the bank turning a blind eye to obvious red flags. The court found that the bank is entitled to a stay if it posts a bond of $80 million to cover the judgment and the $9 million of interest. Huntington Bank says that that bond would cost the bank $800,000 to $1.6 million.

    The TelexFree trustee has filed a motion seeking to institute an electronic claims process to deal with the hundreds of thousands of potential claims. The trustee believes there are likely in excess of one million claimants and that an exclusive online portal is the most practical and cost-effective means of managing the claims process.

    The ZeekRewards receiver sued MLM attorney Gerald Nehra and his law firm, Nehra and Waak, along with his partner, Richard W. Waak. The receiver alleges damages of at least $100 million, contending that they encouraged investors to participate in the scheme by knowingly allowing their names to be used to provide “a false fa├žade of legality and legitimacy…”

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