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

Wednesday, September 30, 2015

September 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for September 2015. The reported stories reflect: 5 guilty pleas or convictions in pending cases; over 51 years of newly imposed sentences for people involved in Ponzi schemes; at least 3 new Ponzi schemes; and an average age of approximately 52 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.

    Roger Stanley Bliss, 57, pleaded guilty to charges relating to his attempt to hide a sailboat after he was accused of running a $25 million Ponzi scheme by representing that he was trading exclusively in the shares of Apple. Bliss is also facing charges that he operated an investment club that took in money from about 708 investors, promising returns of up to 300%.

    Charles L. Erickson, 72, was arrested and accused of running a $3.4 million Ponzi scheme that defrauded at least 8 victims. Erickson allegedly took money from fellow members of his Ashland church in Massachusetts, claiming that the Holy Spirit revealed an investment strategy to him.

    Gregory G. Jones resigned as a lawyer in lieu of discipline by the State Bar of Texas. Jones was the subject of a disciplinary proceeding for his role in advising clients to invest in Edwards Exploration LLC and Edwards Operating Co. LLC. Jones represented that he knew the principal of the companies, Spencer Edwards, and that he was familiar with the business ventures. But the businesses were actually running a Ponzi scheme.

    George Lindell, 67, and Holly Hoaeae, 40, were found guilty in connection with a Ponzi scheme called “The Parking Lot” in which 166 people invested over $26 million and lost a net amount of $8.9 million. The scheme was run in connection with the operation of their business, “The Mortgage Store.”

    Stafford S. Maxwell, 46, was sentenced to 3 years and 9 months in prison and ordered to pay about $1.4 in restitution in connection with the Millennium Capital Exchange Inc. Ponzi scheme. Maxwell was the former Chief Executive Officer and former owner of Millennium who defrauded victims out of more than $2 million. The company was supposedly engaged in foreign exchange trading and promised investors returns of 48% to 72%.

    James E. Neilsen, 55, pleaded guilty to charges relating to a Ponzi scheme that defrauded investors out of $1.6 million. Neilsen ran the scheme through Neilsen Financial Services and Ulysses Partners LLC. He promised 9% to 10.5% returns to investors from supposedly investing their money in business ventures, but instead used the money to pay back earlier investors or on himself.

    Gina Palasini was indicted in connection with an alleged Ponzi scheme that defrauded 6 investors out of over $1 million. Palasini is already serving a 10 year prison sentence on related state charges. Palasini continued to sell accident, life and death insurance even after her insurance license was revoked in 2006. Palasini also promised her clients assistance in obtaining Medicaid or Veterans Affairs benefits and encouraged them to invest in annuities, sometimes promising them that they would qualify for benefits and 10% interest.

    Gaeton “Guy” Della Penna, 62, was sentenced to 5 years in prison and ordered to pay $2.8 million in restitution for his role in a Ponzi scheme in which he promised investors a 5% return plus principal repayment after 18 months.

    James Peister, 63, was sentenced to 6 years in prison for running a $17.9 million Ponzi scheme that defrauded 74 investors. Peister had sent fictitious account statements to investors and false financial statements to an independent auditor.

    Trendon Shavers, 33, pleaded guilty to operating a Ponzi scheme that involved the virtual currency, Bitcoin. Shavers ran the scheme through his company, Bitcoin Savings & Trust and claimed that he would pay investors 1% interest on their investment every 3 days, or 7% per week. Shavers had more than 750,000 Bitcoins worth about $4.5 million when he shut down the company in 2012. The SEC charged Shavers and ordered him to pay back $40.7 million in a civil lawsuit.

    Sunil Sharma was sentenced to 33 months in prison for running a Ponzi scheme through his companies, Gold Coast Holding and Safe Harbor Tax Lien Acquisitions. Sharma raised $8.36 million from 32 companies and told investors he would invest in bonds in emerging markets in Brazil, Russia, India, and China. Instead, he engaged in day-trading stock options and spent the investors’ money on a home, a Mediterranean cruise and lease vehicles.

    Jerry Smith, 52, saw his 40 year prison sentenced dismissed by an appellate court. Smith had pleaded guilty to charges relating to the Ponzi scheme run with his business partner, Jasen Snelling. The appellate court concluded that Smith committed one single act of criminal conduct by failing to register as a broker-dealer and that the proper analysis was not the number of times Smith transacted business. The court remanded for the trial court to re-sentence Smith with the court’s calculation to find that the total term Smith may receive is 10 years.

    Dror Soref, 75, was arrested in connection with an alleged Ponzi scheme run through Not Forgotten LLC. Soref, CEO of Skyline Pictures, is a film director known for making Weird Al Yanovic music videos, but is now accused of working with Michelle Kenen Seward, 42, in defrauding investors out of at least $11 million, promising them returns of 10% to 18%. Such returns were also promised by another company run by the two of them called Windsor Pictures LLC. It is estimated that at least 140 victims invested over $21 million with Soref and Steward.
 
    Frank Spinosa, 54, is scheduled to plead guilty to charges relating to his relationship to Scott Rothstein while he was a vice president at TD Bank. Spinosa was accused of making oral assurances to at least two investors that certain accounts contained hundreds of millions of dollar when these “locked” accounts actually only held about $100. Spinosa was facing many years in prison if convicted on all charges, but may only face a maximum of 5 years for the single count of wire fraud conspiracy.

    Kaveh Vahedi, 53, who was convicted of running a Ponzi scheme through KGV Investments and Countrywide Financial, was sentenced to 18 years in prison. The 18 year sentence was imposed despite the fact that the government was asking for an 8 year sentence and the probation office recommended 10 years. The scheme defrauded 31 investors who invested more than $12 million in supposed development projects on promises of a profit of 50% of their principal investment within 9 months. The sentencing judge call the scheme the “most heartbreaking, vicious fraud ever,” because Vahedi had defrauded cancer victims, the elderly, and others already in financial trouble, convincing them to mortgage their homes in order to invest.

    Charles Wooden, 48, and Hendrickx Toussaint, 44, were sentenced to 7 years and 3 years 10 months in prison, respectively, for their $5 million real estate Ponzi scheme run through Aeon Capital Management LLC. They provided fake documents to investors to conceal that the money was not used to purchase real estate as promised and fake bank account statements to reflect that investors’ money was still in escrow.

    Troy Wragg, 34, Amanda Knorr, 32, and Wayde McKelvy, 52, were charged with running a $54 million green energy Ponzi scheme through Mantria Corp. The SEC had filed a civil action against them and each of them were ordered to pay $37 million in 2012. The scheme promised as returns high as 484% from a green energy technology called “biochar” that would turn trash into fuel and “carbon-negative” housing developments. The scheme raised $54.5 million. Before the Ponzi scheme was shut down, former President Bill Clinton’s Clinton Global Initiative had honored Mantria for its effort to “help mitigate global warming.”

    Joseph Zada, 57, was found guilty of charges relating to a $50 million Ponzi scheme. The SEC had previously obtained final judgments against Zada and his company, Zada Enterprises LLC, in connection with a $27.5 million Ponzi scheme that defrauded at least 60 investors. Zada had promised 7% to 12% interest rates and promised some investors 48% returns in connection with oil-related investments in the Middle East.

    Brian Zuzga, 39, was sentenced to 6 years in prison and ordered to pay $10.7 million in restitution for his role in a Ponzi scheme that defrauded more than 100 victims out of more than $11 million. Zuzga had previously pleaded guilty to running the scheme through Assured Capital Consultants, along with Jenifer E. Hoffman and John C. Boschert.

INTERNATIONAL PONZI SCHEME NEWS

England

    Spencer Mitchell Steinberg, 45, and Michael Strubel, 53, are on trial for allegedly using fake contracts with the London 2012 Olympics to defraud £40m from friends and family. The two defendants, along with Jolan Marc Saunders, 39, who has pleaded guilty, told investors that Saunders Electrical Wholesaters Limited supplied electricals including trouser presses and kettles to major hotel chains. It is alleged that instead they used the funds to purchase expensive homes and vehicles.

India

    Shibonoy Datta and Ashok Saha were arrested in connection with the Rose Valley Ltd. Ponzi scheme.

    Chittaranjan Mohanty, Bikram Pradham and Manas Kanungo were arrested in connection with allegations that they were running a Ponzi scheme through Unique SMCS, a cooperative society that used 700 local youths as agents to collect money from people. Unique SMCS ran 5 schemes and promised investors that they would double their money in 5 years and get 7 times their money in 10 years.

    The Securities and Exchange Board of India imposed a record penalty of 72.7 billion rupees ($1.1 billion) on real estate developer PACL Ltd.

South Africa

    The National Consumer Commission has launched preliminary investigations into the following nine alleged Ponzi schemes: WorldVentures, Kipi aka Mydeposit241, Make Believe, NMT Investments, Instant Wealth Club, MMM South Africa, DIPESA, Sikhese (Pty) Ltd., and the Wealth Creation Club.

Thailand

    Thirteen defendants appeared in Criminal Court in Bangkok in connection with the alleged scheme of the Ufun Store. The scheme allegedly defrauded about 120,000 people out of more than 20 billion baht. The company had been granted permission to sell herbal drinks, fruit drinks and cosmetics last year, but is believed to have been operating a scheme to bring in new members rather than sell products. The defendants are Apicharat Saenkla, 40, Ratthawit Thiti-arunwat, 34, Chaithorn Thonglorlert, 41, Ritthidej Warong, 39, Monpan Thanabundit, 41, Peeraya Kanphrom, 26, Chotipat Wuthipanpokin, 38, Nipaporn Lamee, 36, Theerawat Patcharasuyayai, 21, Natwaran Uttamakaeo, 24, Chaisong Wanasbodiwong, 36, Kevin Lai, 48, and Yang Yuan Zhao.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
 
    An appellate court upheld a $72 million judgment against Huntington Bancshares Inc. in connection with the Cyberco Holdings Inc. Ponzi scheme. The ruling upheld a bankruptcy court decision that found that Huntington ignored signs of wrongdoing and continued to allow a related company to move money in its accounts. Meoli v. Huntington Nat’l Bank, 2015 U.S. Dist. LEXIS 129909 (W.D. Mich. Sept. 28, 2015).
   
    The bankruptcy trustee of Fair Finance Company, a company run by Tim Durham, announced his intention to make a first distribution to victims of the Ponzi scheme. The distribution will be $18 million, or about 8% - 9% of the losses in the case. Nearly $230 million of claims were submitted in the bankruptcy case. Durham is serving his 50 year prison sentence and his co-conspirators Jim Cochran and Rick Snow were sentenced to 25 years and 10 years, respectively.

    Cleveland Cavaliers forward Mike Miller filed a lawsuit to recover the balance of his $1.7 million loss from the alleged Ponzi scheme run by Randy Hansen and Vincent Puma through RAHFCO Hedge Funds.

    A lawsuit was filed by about 30 investors against CommunityOne Bank in North Carolina in connection with the $40 million Ponzi scheme run by Keith Franklin Simmons, who was previously sentenced to 40 years in prison. Simmons was sentenced to 40 years after a jury trial last year in which he was found to have defrauded more than 400 investors who placed more than $35 million with Black Diamond.

    The Receiver in the R. Allen Stanford $7 billion Ponzi scheme won a summary judgment finding that 6 investors must return approximately $2 million in profits they received.

    A court approved a settlement between thousands of investors in the Allen Stanford scheme and BDO for the sum of $40 million.

    A class action attorney asked a federal court for permission to sue at least 20,000 net winners in the TelexFree Ponzi scheme. Daniil Shoyfer, a TelexFree promoter, would be the lead class-action defendant.

    3M, a multinational conglomerate ranked No. 101 on the Fortune 500 list, was denied its insurance claim seeking to recover funds in connection with its investment of its employee-benefit plan assets in the Ponzi scheme run by WG Trading Company. Even though 3M recovered all of its money invested through the receivership proceedings, it sought to be paid earning on those investments. A court ruled in favor of the insurance company, finding that 3M owned a limited partnership interest in WG Trading and that it did not own the earnings of WG Trading, so 3M’s insurers are not obligated to compensate 3M for a loss when it never possessed the earnings. 3M Co. v. Nat'l Union Fire Ins. Co., 2015 U.S. Dist. LEXIS 131197 (D. Minn. Sept. 28, 2015).