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

Friday, September 30, 2016

September 2016 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for September 2016. The reported stories reflect: 4 guilty pleas or convictions in pending cases; over 56 years of newly imposed sentences for people involved in Ponzi schemes; at least 4 new Ponzi schemes worldwide; 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.

    Eric Aronson, 48, was sentenced to 10 years and 4 months in prison in connection with a $19 million Ponzi scheme that defrauded more than 200 people. Aronson founded Permapave Industries and Permapave USA Corp. and promised returns of up to 400% for buying promissory notes that paid for the importation of stones.

    Ian Bick, 21, previously convicted for running a Ponzi scheme, is seeking probation, saying that he is a victim of overzealous prosecutors and greedy investors. Bick maintains his innocence and wants probation, while prosecutors are seeking an 8 year prison sentence.

    Jason “Jay” Borromei, a key figure in the TelexFree Ponzi scheme, filed for bankruptcy, seeking a stay of the TelexFree trustee’s lawsuit against him. The trustee has accused Borromei and his company, Opt 3 Solutions Inc., of aiding and abetting the Ponzi scheme.

   Steven Edward Branstetter, 60, was arrested on allegations that he is operating a Ponzi scheme that defrauded victims out of more than $2 million. Branstetter allegedly offered fake annuities and insurance policies by creating fake account statements and contracts.

    Joseph Castellano, 59, pleaded guilty to charges that he operated a $1.45 million Ponzi scheme that defrauded 10 people. Castellano ran his scheme using the following companies: Casbo Investments, Wallingford Investors Limited Partnership, AIM Realty Investors and Castellano & Co. LLCCastellano said he had clients who needed capital for business or real estate projects, and he promised investors returns of 6% to 8%.

   Christopher Donrick Daley, 33, was convicted of running a $1.4 million crude oil futures Ponzi scheme that defrauded at least 55 investors. Daley promised investors returns of at least 20% per month in his scheme which he was operating beginning in 2010.

   Chad Roger Deucher, 43, declined to plead guilty as was expected in response to allegations that he ran a $28 million Ponzi scheme. About 170 investors lost about $16 million in Deucher’s real estate investment company, Marquis Properties. Investors were promised returns of up to 22% and monthly interest rates as high as 12%. Deucher sent $376,000 of investor funds to an account controlled by his wife and used other funds to pay for a mortgage on his residence.

    Carl Ferrell was indicted on charges related to an alleged fraudulent scheme that he ran through his company, Wholesale Properties International. The scheme involved real estate, and Ferrell allegedly provided false information to induce investors to invest.

  Catharine Ann (“Cathy”) Finberg pleaded not guilty to charges in connection with an alleged Ponzi scheme that took $1.5 million from 28 investors. The investors believed that Finberg was investing money on their behalf. Finberg was charged with failure to register as a securities broker, dealer or salesperson, among other things.

   Eugene Grathwohl aka Scott Wolas aka Frank Amolsch aka Drew Prescott aka Allen Lee Hengst aka Robert Francis McDowell, 67, is wanted in connection with an alleged Ponzi scheme in which 16 victims lost $1.65 million. Grathwohl raised money from investors to supposedly buy and reform a bar but he disappeared with the money. A warrant has been issued for Grathwohl’s arrest in Massachusetts. He is also wanted on a warrant in Alabama, and another in New York where he worked as a lawyer for Hunton & Williams and was investigated by the SEC in connection with a $20 million fraud case. 

    Jeff Guinn is being sued by investors in connection with his alleged Ponzi scheme run through Aspen Financial Services. The investors are seeking $6.9 million. Guinn is the son of the late Kenny Guinn, Nevada’s governor from 1999 to 2007. Guinn filed bankruptcy for himself and Aspen Financial in 2013. Guinn refutes the allegations that he was running a Ponzi scheme.

   Mark Anderson Jones, 64, pleaded guilty to charges in connection with charges that he ran a $10 million Ponzi scheme through the Jamaica Bridge Loan Fund. Jones had misrepresented that investors funds would be used for bridge loans to Jamaican businesses o awaiting funds from approved commercial bank loans. He promised investors returns of 15% to 20%. About 21 investors were defrauded.

    George Lindell, 68, and Holly Hoaeae, 41, were sentenced to 210 months and 10 years, respectively, and each ordered to pay $8.9 million restitution, for the investment scheme run through The Mortgage Store. The scheme involved 166 investors who invested over $26 million, and a jury found them guilty in 2015. They issued promissory notes to investors guaranteeing returns of 7%, and they taught seminars on how to use the equity in homes for investment purposes. They advertised “The Parking Lot” as a safe place to “park” their money and earn guaranteed rates of interest. 

   James M. Merrill and Carlos N. Wanzeler, already under indictment for their role in the TelexFree scheme, were the subject of a superseding indictment that added 8 new counts, including a money-laundering forfeiture allegation. Wanzeler fled the U.S. in 2014 and is an international fugitive.

    Randy Scott Miland, 62, pleaded guilty to running a Ponzi scheme in which he solicited about $575,000 from his chiropractic clients. Miland has two previous convictions for Ponzi schemes. The first, in 1999, led to an order that he pay $1.5 million in restitution. In 2006, he was convicted for another scheme and ordered to pay more than $250,000 in restitution. 

   John Kevin Moore and his company, Big Sky Mineral Resources, are being investigated for running an alleged Ponzi scheme that defrauded 36 investors. The scheme involved more than $2.7 million in investments in oil leases in Montana.

 Dawn Wright-Olivares aka Dawn deBrantes, 48, was sentenced to 7½ years in prison for her role in the ZeekRewards Ponzi scheme. Her stepson, Daniel Olivares, 34, was sentenced to 2 years in prison. Both defendants had pleaded guilty in 2014. Paul Burks, 69, the operator of the scheme, was convicted by a jury in July. ZeekRewards ran penny auctions that promised investors up to 125% returns. There were about 900,000 participants in the program worldwide.

    Platinum Partners Value Arbitrage Fund (International) Limited had a liquidator appointed over it by a Cayman Islands judge. Investors in that company, as well as in Platinum Partners LP Funds and Platinum Partners Credit Opportunities Fund, are investigating the Funds and what is alleged to be a Ponzi scheme. The investigation also focuses on the related entities: Platinum Credit Holdings LLC managing member, Mark Nordlicht; Platinum Credit Management LP; Platinum Partners Value Corp.; Platinum Management (NY) LLC.

    Sanderly Rodrigues De Vasconcelos aka Sann Rodrigues has agreed to plead guilty to a charge of immigration fraud. Rodriguez was charged civilly by the SEC in 2014 in connection with the TelexFree Ponzi scheme.

   Simonia De Cassia Silva, 44, consented to judgment against her in a lawsuit filed by the SEC for her role as a promoter of Tropikgadget FZE and Tropikgadget LDA, both of which operated under the name Wings Network. Silva promoted the scheme, along with Vinicius Romulo Aguiar, by selling Wings Network membership packs. Others involved in the scheme were Thais Utino Aguiar and Dennis and Elaine Somaio.

    William Stenger, 66, reached a settlement with the SEC in relation to the Jay Peak Ski Resort Ponzi scheme in which he agreed not to engage in any securities transactions. Stenger and Ariel Quiros, 58, allegedly ran a 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.

    Shawn Patrick Watkins, 46, was indicted on charges that he ran a $43.5 million real estate Ponzi scheme in California that defrauded about 50 investors. Watkins claimed to be a former law enforcement officer to lend credibility to his program that he ran through The Equity Growth Group Inc. Watkins and his company are also defendants in at least two cases in Utah in which investors say they were defrauded. Watkins and his business partner, Angel Bronsgeest, have also been embroiled in litigation in the past.

    William J. Wells, 43, was sentenced to 46 months in prison in connection with a $1.5 million scheme described as “Ponzi-like.” Wells defrauded more than 30 investors through his investment firm, Promitor Capital LLC, by misrepresenting that he had consistent positive returns in the stock market.

INTERNATIONAL PONZI SCHEME NEWS 

Australia

   Veronica Macpherson, the head of Macro Realty Developments, has been accused of running a Ponzi scheme. Macpherson took in about $190 million from investors and promised them returns from a mining boom. It is alleged that Macpherson has access to bank accounts across the globe and that she spent more than $2 million on first-class travel for herself and for the staff of Macro Realty Developments.

Canada

    Rashida Samji, 63, was sentenced to 6 years in prison for masterminding a $110 million scheme that defrauded 284 investors. Her scheme was the largest Ponzi scheme in B.C. history. Investors were promised secure 12% returns and were led to believe that their money was being invested in a winery, the Mark Anthony Group, that was expanding into South Africa and South America.

China

    Hundreds of angry investors staged a protest in Shanghai demanding action in connection with an alleged Ponzi scheme run through Dada Group. The company had promised 7% returns. It is believed that 29,300 people invested a total of $38.7 million (190 million yuan). Ma Shenke, the controller of Dada’s parent company, Shanghai Shentong Group, was detained in connection with an investigation. Shanghai Shentong Group is estimated to have raised between 4 and 6 billion yuan from investors, and Shenke is now under investigation because the company stopped paying investors back last December. 

Finland

   About 1,000 victims in the WinCapita scheme will soon receive compensation from about 8 million euros set aside by the Ministry of Justice for their losses. The scheme, run by Hannu Kailajärvi, promised four-fold returns for participation in a foreign exchange investment club. Kailajärvi was found guilty and sentenced to 5 years in prison in 2013.

India

    Police arrested Prabhat Ranja Mallik, the chairman and managing director of Kalinga Co-operative Society Limited. Prabhat had been ensuring investors that he had been investing their money for four years but failed to return their money.

    Officials arrested the directors of Infinity Realcon, Pranab Mukerjee and Prabir Kumar Mukherjee, in connection with an alleged Ponzi scheme that involved Rs 565 crore.

   Sankar Saha, the director of PAFL Industries Ltd., was arrested for allegedly illegally collecting Rs 60 crore from investors.

New Zealand

    The Asset and Forfeiture Unit is seeking a full forfeiture order against Colin Davids, 49, in connection with an alleged Ponzi scheme that he ran through Platinum Forex Group. An auditor’s report recently filed reflects receipts by Davids of R329 from thousands of investors. Davids is the pastor of the New Direction Church and owns two multimillion rand homes and luxury cars. Davids has denied the charges.

Nigeria

   The Securities and Exchange Commission in Nigeria has warned that the online investment program “MMM Federal Republic of Nigeria” is a Ponzi scheme. “MMM” stands for Mavrodi Mondial Moneybox which is named after Sergei Panteleevish Mavrodi of Russia who founded MMM in 1989. Mavrodi has previously been found guilty by a Russian court for defrauding over 10,000 investors out of more than $4.3 million. He was sentenced to 4½ years but has since launched schemes in multiple other countries including Nigeria, South Africa, Zimbabwe, and some east African countries.

Taiwan

    Hsu Ssu-wei, a fugitive of Taiwan, was brought back from Malaysia to face charges that he and The Maxim Trade Group were running a Ponzi scheme. The Maxim Trade Group was accused of fraudulently taking more than NT$13.9 billion from investors in Taiwan, Malaysia, South Korea, China and Hong Kong. The Bureau of Investigation raided 16 locations used by the company last year and seized about NT$60 million in cash, luxury cars and bank accounts.

Philippines

   Criminal charges were filed against Gary and Margarita Huang, alleging that the married couple operated a P148 million Ponzi scheme that defrauded 46 investors. The couple capitalized on their connection with Commonwealth Foods Inc. (Comfoods) by allegedly enticing investors to invest in “Comfoods Lending Program,” promising 4% returns and the return of principal in 6 months. Comfoods has denied any involvement in the scheme.

South Africa

   The South African Reserve Bank has launched a national campaign called “Easy Come Easy Go” to warn the public about Ponzi and pyramid schemes.

Zimbabwe

   The Ponzi scheme, MMM Zimbabwe, collapsed leaving thousands of people having lost thousands of dollars. The same scheme has recently been found in Nigeria and South Africa as well.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    A court approved a sale by the receiver of Aequitas Management LLC of membership interests in CCM Capital Opportunities Fund LP fka Aequitas Capital Opportunities Fund LP for $12.2 million. The SEC had filed a complaint against Aequitas earlier in the year, alleging that Aequitas was engaged in a $350 million Ponzi-like scheme.

    Berkshire Hathaway was sued by a New York City biker courier company, Breakaway Courier, for allegedly scheming to steal insurance premiums in a “reverse Ponzi scheme.” The lawsuit alleges that the victims are led to believe that their capital is protected and will be returned to them, but that Berkshire Hathaway “illegally siphons off premiums through an unlicensed, unregistered and under collateralized Hawaiian entity, leaving New York employer and injured workers without the funds that New York State requires to be available to cover losses due to worker injuries.”

   A victim in the Diversified Lending Group Ponzi scheme was awarded $15.6 million by a jury against MetLife. Christie Ramirez, who had invested $280,000 in the scheme, sued MetLife, saying that the insurer had ignored or failed to see signs that its agents were selling the investments that guaranteed returns as high as 12%. Ms. Ramirez’s case is the first in seven cases that involve 98 victims.  

    TD Bank NA was sued by investors of Michael Kwasnik who ran an $8.5 million Ponzi scheme. The lawsuit accuses TD Bank of negligence for failing to detect the fraudulent activity of Kwasnik. The lawsuit also names Kwasnik and his father, William Kwasnik.

    A proposed class action by Bernie Madoff investors against HSBC Bank was dismissed on the basis that the claims either lacked jurisdiction or were barred by securities law. Hill v. HSBC Bank PLC, 2016 U.S. Dist. LEXIS 125921 (S.D.N.Y. Sept. 15, 2016).

    A court dismissed a class action by investors in the Bernard Madoff Ponzi scheme against two of the feeder funds, Tremont Group Holdings and Kingate Management. In re Kingate Management Ltd. Litig., 2016 U.S. Dist. LEXIS 129882 (S.D.N.Y. Sept. 21, 2016).

  The Stanford Financial receiver sought approval of a $120 million settlement with Willis Towers Watson Public Ltd. Co. Willis had been accused of assisting the Stanford Ponzi scheme by vouching for Allen Stanford and leading investors to believe that the investments were insured by Lloyd’s of London. If approved, this will be the largest single recovery from litigation in the Stanford case. Some of the other significant settlements in the case are: $40 million from accounting firm BDO USA LLP; $35 million from New York law firm Chadbourne & Parke LLP; and $24 million from security consulting firm Kroll Inc.

    A court denied the Stanford Financial receiver’s motion to dismiss the bankruptcy of Peter Romero, the former U.S Ambassador to Ecuador. In re Romero, 2016 Bankr. LEXIS 3408 (D. Md. Sept. 16, 2016). The receiver had obtained a $1.25 million judgment against Romero which Romero is seeking to discharge in his bankruptcy case. The court declined to find any bad faith in Romero’s bankruptcy filing.

    The TelexFree clams deadline has been extended to December 31, 2016, from the previously set deadline of September 26, 2016. The trustee, who has already received 80,000 claims, requested the extension due to the large number of participants in the program, the geographical location of the claimants all over the world, language barriers and the difficulty for some in gathering the necessary documentation. Claims must be filed through TelexFreeClaims.com.

    Traffic Monsoon, which has been alleged to be a Ponzi scheme by the SEC, promoted a new campaign on Facebook called “Revenue Shares Matter.” The campaign began a few days after civil unrest in Charlotte, N.C. and some believe that the new Revenue Shares Matter campaign appears to be trading on the “Black Lives Matter” movement. The new campaign, announced through a Facebook account in the name of Jose Nunes, includes a flame-filled graphic that appears to urge members of similar revenue sharing programs to “RIOT.” At least one person posted in response: “Jose, I think you may well that some people will find this post and caption is in bad taste and may be deemed highly offensive to many people who support and believe in the BLM movement.”

    Two civil lawsuits were filed against Traffic Monsoon and Charles Scoville. The complaints are the first civil suits against the defendants following the complaint filed by the SEC against them in July alleging that securities fraud and that they were running a Ponzi scheme. One complaint seeks not only the return of the investment but also damages for “emotional distress, anxiety, depression, insomnia, guilt and frustration caused to him by the Defendants.”