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, August 31, 2016

August 2016 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for August 2016. The reported stories reflect: 4 guilty pleas or convictions in pending cases; over 40years of newly imposed sentences for people involved in Ponzi schemes; at least 4 new Ponzi schemes worldwide; and an average age of approximately 53 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.

    Brian Arias, 43, was sentenced to 2½ years in prison and ordered to pay $1.9 million in restitution for his role in the Agape World Ponzi scheme that defrauded more than 4,000 victims. Arias had entered into a plea agreement for his role in the $400 million fraud and is the fifth person to be sentenced in connection with the scheme. Arias and his brother, Hugo Arias, 46, were 2 of the 14 sales agents involved in the scheme, earning more than $52 million in commissions. Hugo Arias is awaiting sentencing. Other former Agape World brokers who have been sentenced are Anthony Ciccone who received 7 years, Diane Kaylor who received 6½ years, and Jason Keryc who was sentenced to 9 years. The founder, Nicholas Cosmo, is serving a 25 year term.

    Annette Bongiorno, 67, a former Bernard L. Madoff Investment Securities LLC employee, has reached a settlement with the trustee of the Madoff scheme and has agreed to assist the trustee in locating customer property that was involved in the scheme. Provided that Bongiorno cooperates with the trustee, he will dismiss his lawsuit against her to recover the more than $22 million paid to her and her husband from their investments with Madoff. 

    William Brian Candler and his firm Ari Financial Services Inc. have agreed to pay fines in connection with an investment program in Bridgeport Oaks Fund that FINRA alleges was a Ponzi scheme. The settlement did not admit or deny FINRA’s claims.

    Patrick Churchville, 47, pleaded guilty to running a $21 million Ponzi scheme. Churchville was the owner of ClearPath Wealth Management and used investor funds to buy a waterfront home and pay personal income taxes.

    Michael Anthony Collins, 42, was sentenced to 15 years in prison and ordered to pay $3 million in restitution in connection with a $5 million Ponzi scheme that promised investors returns in a few months from the trading of stocks. Collins ran the scheme through Collins Financial Group of Alice and had misrepresented to investors that he was licensed to sell securities even though his registration had expired.

    Daniel J. Flynn III, 52, who is set to begin his criminal trial based on allegations that he ran a Ponzi scheme, is seeking an extension due to new evidence that there are as many as 150 victims. 

    John Fox, 66, pleaded guilty to charges in connection with the alleged Ponzi scheme run through Premier Cru. Premier Cru filed bankruptcy in January, claiming $7 million in assets and $70 million in debt, most of which was unfulfilled orders of wine purchases for almost 9,000 customers. Premier Cru sold wine futures, selling in advance high quality vintages. As part of the plea argument, Fox’s maximum possible sentence has been reduced from 20 years to 6 ½ years, and he agreed to pay restitution of at least $45 million.

    Bobby Eugene Guess, 64, was ordered by the Texas Securities Board to stop selling investments through his firm, Texas First Financial LLC. Guess sold promissory notes in internet advertising firm Stamedia Inc., and investors also bought securities from Guess in North-Forty Development LLC. Guess has previously been embroiled in alleged securities violations when the SEC sued Credit Nation and James Torchia, a company in which Guess was an owner and vice-president, for running an alleged Ponzi scheme dealing with life settlement contracts. A recent search warrant setting forth detailed allegations is available at https://www.scribd.com/document/321692039/Search-Warrant-Affidavit-for-Texas-First-Financial-Bobby-Eugene-Guess#fullscreen=1.

    Paul J. Jackson, 59, was barred by the SEC from the securities industry after he was found to have taken more than $1.3 million from his clients at his firm, Paul J. Jackson & Associates. Jackson had promised his clients access to investments in initial public offerings of high profile companies like Twitter, Facebook and Alibaba. Jackson was also sentenced to 33 months in prison.

    Claude Roderick Koerber aka Rick Koerber, 43, had the dismissal of the criminal case against him changed from a dismissal with prejudice to a dismissal without prejudice. U.S. v. Koerber, 2016 U.S. Dist. LEXIS 114299 (D. Utah Aug. 25, 2016). The court concluded that, due to violates of the Speedy Trial Act, the case should appropriately be dismissed, but the dismissal should be without prejudice because Mr. Koerber’s constitutional right to a speedy trial was not violated under the Sixth Amendment.

    Robert S. Leben and Amy L. Leben lost a summary judgment motion against them by the CFTC and were found liable for more than $10 million in restitution, civil penalties and disgorgement of ill-gotten gains. The Lebens had been accused of running a more than $3.2 million Ponzi scheme through their company, Structured Financial Group LLC. They solicited at least 12 investors through a pool to trade commodity futures contracts. At least $2 million of the funds were used for their personal expenses, including a house, vacations, a pool, a car and cosmetic surgery. Robert Leben pleaded guilty to criminal charges in 2015 and was sentenced to 40 months in prison in April of this year.

    Christopher Maguire, 34, was sentenced to 10 years in prison and ordered to pay $4.9 million in restitution in connection with a scheme that he ran through Vivid Funding, IQ Options, and M Development. Maguire represented that he had a “proof of funds” loan business and promised 20% returns to investors. More than 150 investors lost money. A federal court also found that Maguire’s multi-million home that was purchased with proceeds of the scheme could be forfeited to the federal government. Maguire has filed a notice of appeal of his sentence, although no grounds for the appeal were set forth in the notice.

    Everett C. Miller, 46, lost his appeal of his 10 year prison sentence. U.S v. Miller, 2016 U.S. App. LEXIS 14847 (3rd Cir. Aug. 12, 2016). Miller had sold more than $1 million in phony promissory notes to more than 190 investors, promising annual returns of 7% to 20%. Miller ran the scheme through Carr Miller Capital LLC.

    Thomas Mullholland, 59, and James Mullholland, 59, were found guilty of running an $18.3 million Ponzi scheme that defrauded more than 200 investors. The twin brothers ran the real estate scheme through Mullholland Financial and promised more than 250 investors returns of 7%.

    Gina Palasini, 54, was sentenced to 6½ years in prison for her role in a Ponzi scheme that defrauded investors out of more than $2 million. Palasini is already serving a 10 year sentence for stolen funds.

    Lou Pearlman died at the age of 62 while serving his 25 year sentence for his $300 million Ponzi scheme. Pearlman was the creator of ‘NSync and Backstreet Boys, but ran a Ponzi scheme through his Trans Continental companies that defrauded 1,700 investors.

    Merrill Robertson Jr., 36, and Sherman C. Vaughn Jr., along with their company, Cavalier Union Investments, were charged by the SEC with defrauding investors through Cavalier. Robertson, a former pro American football player, allegedly used $6 million of the $10 million invested for personal expenses. The scheme provided promissory notes with fixed rates of return between 10% and 20% annually. Criminal charges have also been filed against Robertson which allege that the scheme caused over $8 million of losses to the investors.

    Paying Nothing-Profit for Life received an F rating from the Better Business Bureau. The company had claimed that investors could turn a one-time payment of $95 into $5,000 monthly. The BBB warned that it had received a number of inquiries and that it learned that the company is not registered with the Ohio Secretary of State.

    James E. Vanblaricum, 77, was arrested on allegations that he ran an oil and gas Ponzi scheme. The scheme allegedly defrauded 53 victims who had invested more than $2.6 million in Vanblaricum’s company, Signal Oil and Gas Company.

    Edward Frank Usewick III, 36, was sentenced to 2 years and 4 months in prison for his Ponzi scheme run through used car dealerships. Usewick created fraudulent titles for vehicles that the dealership did not purchase which then caused the financial institution offering a line of credit to release money to a bank account operated by Usewick. It is estimated that the fraud involved $510,000.

    Eliyahu Weinstein was not permitted to withdraw his guilty plea, the Third Circuit held, upholding the lower court’s decision. U.S. v. Weinstein, 2016 U.S. App. LEXIS 14845 (3d Cir. Aug.12, 2016). The court found that “Weinstein has neither ‘meaningfully reasserted his innocence,’ nor demonstrated that the withdrawal would not prejudice the Government.” Weinstein was sentenced to 22 years in prison in 2014 in connection with a $200 million Ponzi scheme in which he misrepresented that he had an inside track on the Facebook public offering.

INTERNATIONAL PONZI SCHEME NEWS

Australia

    It was discovered that Steve Halgryn, 52, was running a Ponzi scheme. His body washed up on shore and investors are starting to unravel the $100 million Ponzi scheme. Halgryn was a financial advisor at Buderim-based companies, Suncoast Financial Solutions and SFSGlobal Group and allegedly defrauded at least 600 investors by promising them returns of 24% per year.

Canada

    Gerrard Mok, 68, was arrested and charged on allegations that he was running a $2 million Ponzi scheme. Mok, in his capacity as a financial advisor, solicited money from at least 20 investors in what appears to have been a mortgage investment scam with no real estate behind it.

    Roberto Castano was sentenced to 27 months and ordered to pay $1.5 million in restitution in connection with a Ponzi scheme that he ran through Skyline Communications. Castano promised investors 5% per month returns on their investments through stock market trading.

    Thomas Arthur Williams was ordered to pay a $15 million fine in connection with a Ponzi scheme in which he defrauded 123 people of at least $11.7 million. Williams used finders to lure in investors into Global Group of Companies, which consisted of Global Wealth Creation Opportunities Inc., Global Wealth Creation Opportunities Inc. (Belize), Global Wealth Financial Inc., Global Wealth Creation Strategies Inc., CDN Global Wealth Creation Club RW-TW, and 2002 Concepts Inc. The investors were promised at least 2% returns per month, and Williams produced fictitious monthly statements to them showing return of up to 4%.

India

    A complaint was filed against Jagruti Agro Foods India Private Limited as well as against Sriranga, son of Satyawan Patil, in connection with an alleged sheep Ponzi scheme. Patil, along with Raj Gayakwad, lured residents of a village to invest in Jagruti, promising quadruple returns from the sheep scheme as well as new jobs from the sheep farm that would be established. The scheme took in Rs 10,30,000 from about 500 villagers.

    Jagdish Mishra, the promoter of the Rajgodson Pvt Ltd. scheme, was arrested on charges that he had defrauded investors by promising them returns from investments in the move “Mu Pherile Tumara.”

    The Securities and Exchange Board of India told the Supreme Court that banned Ponzi schemes do not fall under its regulatory purview and that only state governments can control them.

New Zealand

    Duncan and Nora Priest won their court battle with the liquidator of the Ross Asset Management Ponzi scheme over $2 million. The Priests argued that their $2 million was never part of the Ponzi scheme and should be returned to them rather than shared with all of the victims. The court agreed and found that the Priests had never given David Ross discretion to manage investments on their behalf.

    The liquidator of Arena Capital, trading as BlackfortFX, recovered $2.8 million and settled with the company’s director, Jimmie McNicoll. Arena had taken in about $25 million from about 95 investors in a Ponzi scheme.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    The Sixth Circuit revived most of the claims of the trustee of Fair Finance Company against Textron Financial Corporation, reversing the lower court’s dismissal of the trustee’s claims based on in pari delicto. Bash v. Textron Financial Corp. (In re Fair Finance Company), 2016 U.S. App. LEXIS 15432 (6th Cir. Aug. 23, 2016). The Fair Finance scheme was run by Timothy Durham, James Cochran and Rick Snow. They represented that Fair Finance was primarily in the business of purchasing consumer receivable contracts from businesses. More than 5,000 investors lost about $215 million.

    A number of farmers defrauded by Cathy Gieseker, 52, over a decade ago have settled their lawsuit against Archer-Daniels-Midland Co.  The farmers alleged that Gieseker couldn’t have defrauded them without the assistance of ADM. The lawsuit alleged that “Giesker defrauded approximately 180 farmers out of at least $27 million in proceeds from grain sales she made on their behalf.” That lawsuit further alleged that “Gieseker was acting as an agent of ADM and the company is ‘vicariously liable’ for their losses.” Gieseker is presently serving a 9 year term.

    A final judgment was entered against Medical Capital Holdings, which ran a nearly $1 billion Ponzi scheme. The judgment concludes the SEC action against the company and resulted in an $831 million disgorgement order. About 9,000 investors were owed approximately $1.08 billion. The investors have recovered about 40% of their losses through the receivership.

    The bankruptcy court in the case of Steven and Lori Palladino found that tuition payments made to Sacred Heart University from the Palladino’s Ponzi scheme for their daughter’s education are not recoverable as fraudulent transfers. Degiacomo v. Sacred Heart University, Inc. (In re Palladino), 2016 Bankr. LEXIS 2938 (D. Mass. Aug. 10, 2016). The court found that the parents too received a benefit: “A parent can reasonably assume that paying for a child to obtain an undergraduate degree will enhance the financial well-being of the child which in turn will confer an economic benefit on the parent.”

    A Florida appeals court reinstated a legal malpractice lawsuit brought by Banyon Capital LLC against its former counsel, Hutchinson & Steffen. Banyon was the largest feeder fund in the Scott Rothstein Ponzi scheme.

    Maria Elena Perez was recommended for a 91 day suspension from practicing law due to her use of her representation of Nevin Shapiro to aid a National Collegiate Athletic Association investigation.

    The Fifth Circuit affirmed the dismissal of the lawsuit filed by the receiver of Stanford Financial against The Golf Channel for recovery of $5.9 million paid by Stanford Bank International to Golf Channel. Janvey v. The Golf Channel, 2016 U.S. App. LEXIS 15407 (5th Cir. Aug. 22, 2016). The court found that Golf Channel had provided value in exchange for the transfers under the Texas Uniform Fraudulent Transfer Act.

    The distribution plan was approved in the Doug Vaughan bankruptcy case, which will result in an 18.6% return to the victims of Vaughan’s Ponzi scheme. The scheme defrauded 600 investors out of $75 million, and Vaughan was sentenced to 12 years in prison following his guilty plea.

    The ZeekRewards receiver has posted an announcement on is website inviting victims to share their stories so they can be heard at the sentencing hearings for Dawn Wright-Olivares and Daniel Olivares. The receiver’s announcement states, “If a victim would like to have a letter describing the impact that ZeekRewards had on them submitted to the Court please send an email to HearingLetter@zeekrewardsreceivership.com. I will be attending the hearings on behalf of all ZeekRewards victims and will present your letters to the Court.”

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