April 2016 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for April 2016. The reported stories reflect: 3 guilty pleas or convictions in pending cases; over 26 years of newly imposed sentences for people involved in Ponzi schemes; at least 10 new Ponzi schemes worldwide; 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.

    Alisa Adler, 55, was indicted on a wire charge relating to an alleged Ponzi scheme run through ASG Real Estate Services Group. The indictment alleged that Adler took about $740,000 from 3 investors, promising them returns through real estate transactions. The wire charge was added to other charges brought against Adler last year.

    Aequitas Capital Management and its founder and CEO, Robert J. Jesenik, 56, executive vice president, Brian A. Oliver, 51, and chief operating officer, N. Scott Gillis, 62, were the subject of SEC charges that they were running a “Ponzi-like” scheme. The company agreed to the appointment of a receiver about one month after it had announced layoffs and hired a consulting firm to help it wind down the business. Aequitas stopped making payments on over $300 million in private notes that it sold to investors. Aequitas had entered into an agreement to buy hundreds of millions of dollars’ worth of student loans from Corinthian Colleges, which itself ended up in bankruptcy. The Corinthian notes may have accounted for 74% of Aequitas’ debt-buying business and had been paying $4 million to $7 million to Aequitas prior to defaulting on the obligations to Aequitas. Aequitas promised interest to investors of 5% to 15% on the $350 million it brought in from investors from January 2014 to January 2016.

    Scott A. Beatty was criminally charged in connection with an alleged Ponzi scheme run through Peak Capital Management Group Inc. and Peak Capital Group Inc. Beatty solicited funds into his companies which were supposedly engaged in foreign exchange trading, and he promised returns as high as 43.9%. A total of $825,000 was raised from 49 investors.

    Daniel Bonventre, 68, Annette Bongiorno, 67, Joann Crupi, 54, Jerome O’Hara, 53, and George Perez, 50, lost the appeal of their criminal judgments. United States v. Bonventre, et al., 2016 U.S. App. LEXIS 7097 (2d Cir. April 20, 2016). They were each convicted and sentenced in connection with the Bernard Madoff Ponzi scheme.

    Joseph Castellano, 58, was charged in connection with an alleged scheme that defrauded 10 people out of more than $1.5 million. Castellano, a certified public accountant who owns Castellano & Company, LLC, operated several business such as Casbo Investments, Wallingford Investors Limited Partnership, AIM Realty Investors, and Castellano & Co. LLC. He solicited funds from investors by promising them returns of 6% to 8% and by telling them that he had clients who needed capital for business or real estate projects but who could not get funding from financial institutions.

    James A. Catipay, 39, David Aldridge, 43, and their company, PLCMGMT LLC aka Prometheus Law, were charged by the SEC with running a Ponzi scheme. Catipay, a Michigan tax attorney, and Aldridge, a Washington state legal marketer, took money from investors to allegedly fund personal injury and mass tort cases, promising that the funds were “never at risk” and promising returns of 100% to 300%. The SEC alleges that 250 investors were defrauded out of $11.7 million. The defendants offered what they called “forward contracts” that would pay off after a certain amount of time and that stated that the mass tort cases “had settlement funds just waiting in escrow to be claimed.” The SEC alleged that it is illegal for an attorney and a non-lawyer to share to share legal fees and that fee splitting agreements are unenforceable.

    Cheong Wha “Heywood” Chang, 48, and his wife, Toni Chen, 47, pleaded to charges that they were running a scheme through CKB168, a company that supposedly sold children’s educational courses. They represented that with each $1,380 investment, investors would receive “Profit Reward Points” with a purported value of $750. Others facing charges in connection with the scheme are Wen Chen “Wendy” Lee, Daliang “David” Guo and Chih Hsuan “Kiki” Lin.

    Anthony Ciccone, 43, was sentenced to 7 years in prison for his role as a broker in the Agape World Ponzi scheme. Ciccone had made nearly $15 million in commissions from selling bogus investments in Agape World. He was ordered to pay more than $179 million in restitution, which is the same amount that Nicholas Cosmo and Jason Keryc were ordered to pay. Keryc was previously sentenced to 9 years and Cosmo was sentenced to 25 years in connection with the scheme the defrauded more than 4,000 victims and took in $179 million. Others who have previously pleaded guilty in connection with the scheme are Shamika Luciano, Hugo Arias, Bryan Arias, Richard Barry, and Anthony Massaro.

    John Scott Clark, 62, was charged by the SEC with soliciting about $1.7 million from investors, including investors from an earlier Ponzi scheme that brought in $47 million. Clark targeted members of his church and promised them 3,000% returns per year. He represented that the investment risk was low and that the returns “were too good to be true.” He also said that “[all] you have to do for that [return] is not talk about it.” The victims believed that Clark had access to a top secret U.S. military and government program that enabled them to invest in “top secret” Iraqi dinar and oil contracts with foreign governments and large oil companies. Clark blamed President Obama when he stopped making payments because Obama had supposedly signed an executive order halting the investment payout.

    Fred Elm, 46, and Ahmed Naqvi, 47, were charged in connection with an alleged $17 million Ponzi scheme run through Elm Tree Investment Advisors. They allegedly defrauded more than 50 investors in promising returns from their purported access to private companies when they were pre –IPO, such as Twitter, Alibaba and Uber. Elm and Naqvi promised investors a 2% management fee and they would take 20% of any profit, but the fund did not make any profit.

    Evolution Market Group dba Finanzas Forex was the subject of a forfeiture judgment, and the government seized about $40 million in funds and $138 million worth of gold and silver. The funds will be distributed to victims of Evolution and Finanzas through the remission process. www.emg-ffxremission.com.

    Charles Caleb Fackrell, 36, pleaded guilty to charges that he solicited more than $1.4 million from customers of Fackrell Trivette Wealth Management through his position as a registered securities representative. He solicited investors into his companies, Robin Hood, LLC, Robinhood LLC, Robin Hood Holdings, LLC, Robinhood Holdings, LLC, and related entities. His scheme defrauded about 20 investors by promising them 5% to 7% returns, but he used the majority of the money for his personal expenses.

    Roy Fluker, III, lost his motion to vacate his conviction and sentence. Fluker III v. United States, 2016 U.S. Dist. LEXIS 53823 (N.D. Ill. April 22, 2016). Fluker ran a Ponzi scheme, along with his father, Roy Fluker Jr. and his sister, Ronnaita Fluker, through their companies, All Things in Common LLC dba More than Enough, Inc., and Locust International LLC. They operated two investment programs, the Spend and Redeem program and the Housing program, in which they guaranteed investments would triple after one year. 

    Robert B. Hahn was sentenced to 3 years in prison for a Ponzi scheme that he operated claiming to represent a collection of physicians hoping to raise capital for construction and other expenses related to a medical center. Hahn promised 94 investors returns of 20% annually. He brought in more than $5,474,000 and returned more than $4 million to 31 of the participants.

    Evan Kochav, 34, was sentenced to 8 years in connection with a $500,000 Ponzi scheme that he ran through White Cedar Group LLC. Kochav, a poker player, solicited investors to invest in businesses and investment vehicles in the fields of real estate, manufacturing, building development, oil drilling and mineral rights.

    Stuart Millner, 76, pleaded not guilty to charges that he was running a multi-million Ponzi scheme through his company, Stuart Millner and Associates. The business auctioned off manufacturing machinery for major corporations.

    MMM Global announced that it is closing its Republic of Bitcoin website that promised up to 100% returns on donations, calling it an experiment that has failed. Participants donated funds to acquire “Mavro” – a point system – which have now been transferred to MMM-structures in participants’ countries. China and South Africa have both warned that MMM Global, run by Sergey Mavrodi, is a Ponzi scheme. 

   Aaron E. Olson, 42, was sentenced to 5 years in prison in connection with a $28 million Ponzi scheme he ran through AEO Associates and KMO Associates LLC. The judge had extended the sentencing date by months to give Olson the opportunity to sell a gravel pit, but was unwilling to further extend the date to allow him to meet with a buyer for some granite.

  Christopher Pedras aka Antone Thomas Pedras was the subject of an extradition motion to face charges in connection with an alleged $8 million Ponzi scheme. Pedras, a former Auckland, New Zealand resident, is residing in Tonga and is accused of defrauding investors through his company, FMP Medical Services, which was supposedly setting up dialysis clinics. The SEC named Pedras, FMP and other U.S. companies in a complaint accusing them of luring investors into investing into a profitable trading platform in which Pedras’ company served as an intermediary between global banks. Pedras promised investors returns of 4% to 8% per month, and then steered investors into a program that would purportedly increase the value of their investment by 80%. A default judgment was entered against Pedras in 2014 for $3.2 million.

    Hamlet Peralta, 36, who owned the now closed Hudson River Café, was accused of soliciting investors for a fake wholesale liquor business through West 125th Street Liquors which he represented had exclusive distribution rights for wine to a national restaurant supply company. In reality, he did not own the business and had not been approved as the wine distributor. He brought in more than $12 million from 12 investors and promised investors short term rates of return from 2% to 4%.

    Ariel Quiros, 58, and William Stenger, 66, were charged by the SEC with running an alleged Ponzi scheme through a government immigration program in connection with the Jay Peak Ski Resort owned by Q Resorts Inc. and Q Burke Mountain Resort in northern Vermont. The scheme took in $200 million, promising foreigners the benefit of the EB-5 Immigration Investor Program, which allows foreigners who invest in U.S. companies to obtain green cards. The investors’ money was supposed to fund seven projects, including the resort’s expansion, an indoor water park, an ice rink, hotels, golf courses and a $200 million biotechnology plant. Quiros allegedly took $50 million of the funds to pay his income taxes and buy a luxury condominium in Trump Place in Manhattan. A receiver was appointed over the related corporations and the receiver has established a website at jaypeakreceivership.com where investors can find information about the receivership.

    Charles Sanders, the former chief compliance and chief risk officer of Gibraltar Private Bank & Trust, entered into a consent order with the Office of the Comptroller of the Currency, without admitting or denying the OCC’s findings. The OCC had alleged that Sanders had failed to “file suspicious activity reports on a set of accounts for a customer that was later convicted of crime related to an illegal Ponzi scheme.” The customer was Scott Rothstein, who was running a $1.2 billion Ponzi scheme. Sanders agreed to a $2,500 fine and to present a copy of the order to any depository institution from which he seeks employment in the future.

    Malcolm Segal, 70, settled with the SEC after he was charged with selling $8.1 million in fake CDs through his company National CD Sales. Segal told investor that he was purchasing CDs for them that paid annual interest of up to12% but instead used the funds for personal expenses and to make payments to other investors. Segal agreed to be barred from the securities industry.

    Jim Torchia was the subject of preliminary injunction sought by the SEC order, and a receiver was appointed over his companies, including Credit Nation. The SEC accused Torchia of misleading investors, and the court found that there was a “reasonable likelihood of future securities violations.”

INTERNATIONAL PONZI SCHEME NEWS

Albania

    Vehbi Alimuca was sentenced to 3 years and 8 months in jail for hiding $328,000 worth of stolen money from a failed pyramid investment scheme he had operated from 1997 to 2016. Alimuca already served 8 years in prison for the scheme run through Vefa Company in which he stole $325 million from 58,000 people.

China

    A suspected Ponzi scheme being run through Zhongjin Capital Management was raided and its owner, Xu Qin, was apprehended at an airport as he attempted to flee the country. More than 20 people were taken into custody for questioning. The scheme is believed to have raised more than 30 billion yuan (HK $35.9 million) and is under investigation for the unauthorized acceptance of public deposits and fraud. Zhongjin promised interest rates of up to 2% per month for online promotions and sponsorship deals for blockbuster television programs.

    Authorities are investigating Yiqian Funding aka Easy Richness as a possible Ponzi scheme. Yiqian is the parent company in China of Founders Group International (FGI) and is behind the purchases of 22 Grand Strand golf courses and other golf-related businesses and properties in Myrtle Beach. Dan Liu is the president of Yiqian Funding and Xian “Nick” Dou, is the president of FGI.

    Police in Hangzhou are searching for Yang Weiguo, the chairman of Wangzhou Group, which is the parent company of Wangzhou Fortune. Weiguo disappeared with about 1 billion yuan (£106.55 million) of investor funds. More than 20,000 people had invested about 2.2 billion yuan in Wangzhou Fortune which has dozens of branches around China. Wangzhou Group has more than 200 subsidiaries in commerce, automobiles, health and wealth management. Weiguo showed himself in a video stating “Don’t worry, I’ll be right back.”

England

    The City of London Police seized £30 million in banker’s drafts following the arrest of a 58 year old South Wales man who has not yet been identified by name. The funds are suspected to have been obtained from a foreign exchange Ponzi scheme on the foreign market and from money laundering activity.

India

    The CBI raided four premises of Astha International Limited, an alleged Ponzi scheme that defrauded investors out of about Rs 100 crore.

    The government moved to attach property of A B Realtech, a firm accused of running a Rs 5 crore Ponzi scheme.

    The CBI arrested Mahesh Kishan Motewar, who is the managing director of Samruddh Jeevan Foods India Limited. Motewar is alleged to have collected over Rs 1,500 crore.

Jamaica

    Amidst allegations that it was running a Ponzi scheme, the president of Jamaica Promotions Corporation (JAMPRO), Diane Edwards, denied any wrongdoing and demanded a retraction. JAMPRO is a government-funded agency to promote investment and export opportunities in the country to attract foreign investment and to increase the export of Jamaican products. It is alleged that JAMPRO operated a $10 million Ponzi scheme, claiming to generate profits from bridge loans to businesses in Jamaica. Last month, Mark Jones was charged by the SEC for allegedly running a Ponzi scheme claiming to generate profits from bridge loans to businesses in Jamaica. Jones owns 49% of Global Gateway Solutions (GGS), and Jacqueline Sutherland owns 51%. GGS was promoted by JAMPRO as one of its success stories.

New Zealand

    Gavin Clifford Bennett was freed from jail after serving less than half of his 8 year sentence. Bennett ran a $103 million fraud through his company, DataSouth, in which he supposedly arranged loans to finance computer systems for clients through Canterbury Finance.

South Africa

    Representatives of Triple M, an alleged Ponzi scheme, refuted reports that the scheme has collapsed. The headquarters of Triple M are in Russia, but thousands of South Africans are believed to have invested in the scheme, which initially promised 100% returns on investments in 30 days but later changed that to 30%.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    Deloitte & Touche was sued by investors of Aequitas Capital Management in connection with the alleged $350 million Ponzi scheme. Deloitte prepared the 2014 and 2015 audited financial statements for Aequitas. Accounting firm EisnerAmper, and law firms Sidley Austin LLP and Tonkon Torp were also named in the suit. 

    The victims of the Ponzi scheme of the Ron Wilson scheme that he ran through Atlantic Bullion & Coin, Inc., are scheduled to receive a pro rata distribution of $7 million to be distributed by the receiver in that case. The initial distribution will result in a 19.22% recovery on claims in the $60 million Ponzi scheme. Wilson had defrauded over 1,000 investors promising them profits from ownership of silver without taking possession of the silver.

    The receiver over the Atlantic Bullion & Coin Ponzi scheme is in a legal battle with NCUA over whether NCUA should be allowed to recover its entire $100,000 investment because the funds were embezzled from the Taupa Lithuanian Credit Union by John Struna and invested into the scheme. The NCUA is seeking to recover money wrongfully obtained and fraudulent transferred by Struna. The receiver has responded that Taupa had unclean hands and that NCUA stands in the shoes of Taupa, arguing that NCUA would be unjustly enriched if it call all of the money back ahead of other victims.

    The IRS denies the DBSI Inc. trustee’s claims that it ought to surrender funds paid to the IRS in connection with transactions run through DBSI. The trustee seeks the return of taxes paid on fictitious profits generated by DBSI’s 1031 tax exchange business. The trustee won an $18.6 million default judgment against the firm’s former president Douglas Swenson in connection with the operation of the scheme run through its investment company, FOR 1031 LLC.

    A lawsuit was filed by 69 victims of the alleged Ponzi scheme allegedly run by Jeffrey Mottern. The lawsuit seeks more than $11 million from Ameriprise Financial Services, Fulton Bank National Association and Riverview Bank for allegedly turning a blind eye to suspicious transactions and ignoring red flags of a Ponzi scheme.

    Barry Switzer, former Oklahoma football coach, prevailed in a lawsuit filed by the trustee of the GLC, Ltd’s bankruptcy estate. The trustee sued Switzer for monies paid on a $250,000 loan that a company owned by Switzer, Barry Switzer Family, LLC, had made to GLC Ltd, which had been later purchased by Jim Donnan, former Georgia coach, from Switzer. Donnan had invested in GLC and had personally guaranteed the loan. Donnan had previously been acquitted by a jury in connection with the alleged $80 million Ponzi scheme. Donnan’s business partner, Gregory Crabtree, had pleaded guilty in connection with the scheme. 

    The trustee in the Bernard Madoff case is seeking approval of a settlement with Dorado Investment Company, its general partners, and the Phileona Foundation in which they agreed to give back $30.2 million in proceeds they received from the Madoff scheme.

    Bernard Madoff will be deposed in connection with litigation pending between former investors of Madoff and the Madoff trustee. The investors want to question Madoff about how he kept records of the customers’ transactions. The questions will be limited to the meaning of more than 91,000 transactions that were recorded as “profit withdrawal” on the books of Bernard L. Madoff Investment Securities LLC.

    Meridian Capital Partners Inc. and related entities will pay $6.15 million to resolve litigation bought by Pension Trust Fund for Operating Engineers in connection with the Bernard Madoff scheme.

    JPMorgan’s motion to dismiss a complaint against it that it aided and abetted Millennium Bank’s scheme was denied. The court found that the plaintiffs had supported claims that the manager of the JPMorgan Napa branch had offered “substantial assistance” to the scheme by helping Millennium keep its account open despite signs that it was engaged in suspicious activity.

    The Ponzi scheme run by Fidentia has been linked to offshore asset concealment in the Panama Papers. The Panama Papers consist of 11.5 million documents leaked from the law firm of Mossack Fonesca and have implicated many world leaders and other high profile individuals to the use of secret offshore shell companies to conceal assets. Two convicted members of Fidentia who ran a Ponzi scheme, accountant Maddock and ex-broker Steven Goodwin, used the law firm to create offshore companies when Fidentia’s Ponzi scheme was exposed.

    Robert Miracle, 55, who was sentenced in 2011 to 13 years in prison in connection with a $65 million Ponzi scheme, has also been linked to offshore dealings by the Panama Papers. One of Miracle’s companies, Mccube Petroleum, was a shareholder in offshore companies created by Mossack Fonesca.

    A court approved a plan to pay more $172 million to the victims of Tom Petters. Victims lost about $1.9 billion in the scheme. The scheme involved 150 corporations, including Poloraid, Sun Country Airlines, and an interest in the Fingerhut catalog company. Petter is currently serving a 50 year prison sentence.

    CPA Mutual Insurance Company sued Raggi & Weinstein LLP, which has now dissolved, seeking a ruling that it does not have to indemnify the firm for a $2.4 million negligence jury verdict that stemmed from work the firm did for convicted Ponzi schemer Ira J. Pressman and his company, PJI Distribution Corp.

    The liquidating trustees of Rothstein Rosenfeldt Adler PA and Banyon Income Fund LP urged the Eleventh Circuit to find that National Union Fire Insurance Co. of Pittsburgh, Pa. and Twin Cities Fire Insurance Co. should be liable for enabling the scheme to flourish and should cover a $50 million judgment.

    In connection with the Stanford Financial Ponzi scheme, the Texas Supreme Court ruled on a questioned certified to it by the Fifth Circuit in Janvey v. The Golf Channel Inc. The court held that a business who receives a transfer in a Ponzi scheme need not return the money as a fraudulent transfer if it (1) fully performed under a lawful, arm’s-length contract for fair market value, (2) provided consideration that had objective value at the time of the transaction, and (3) made the exchange in the ordinary course of the transferee’s business.” Janvey v. The Golf Channel Inc., 2016 Tex. LEXIS 241 (April 1, 2016). 

    St. Anselm Exploration filed for chapter 7 bankruptcy 3 years after it was charged by the SEC with running a Ponzi scheme. The bankruptcy lists $65 million in debtor and about $1.2 million in assets. The SEC alleged that the scheme had defrauded 200 investors.

    The court in the George Theodule receivership case approved the distribution plan of the receiver where he proposes to distribute more than $5 million to the victims on account of their estimated $41 million in losses. Theodule had promised follow Haitian-Americans 100% returns on their money within 90 days if they joined his investment club, Creative Capital Consortium LLC and Creative Capital Concepts$, LLC. There were 3,000 to 6,000 victims in the scheme that involved more than $68 million. A bar date for filing claims has been set for August 16, 2016. Claim forms can be downloaded from www.creativecapitalreceivership.com. 

    The receiver of Vesta Strategies LLC obtained permission from the Ninth Circuit to revive his lawsuit against Continental Casualty Co. The receiver seeks to require the company to cover the losses of Vesta, arguing that recovery under the insurance policy would go the scheme victims and not to the perpetrators. The Ninth Circuit ruled that the policy called for coverage, even though the principal’s bad acts caused the losses.