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

Monday, October 31, 2016

October 2016 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for October 2016. The reported stories reflect: 2 guilty pleas or convictions in pending cases; over 66 years of newly imposed sentences for people involved in Ponzi schemes; at least 5 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.

Golan M. Barak, 49, was indicted on allegations that he ran a $2 million real estate Ponzi scheme. Barak told investors that they would be in partnership with him to buy and manage properties that would generate rental income or make a profit when the properties were renovated and flipped.

Ian Bick, 21, was sentenced to 3 years in prison following his conviction last year for running a Ponzi scheme that defrauded more than 15 investors out of almost $500,000. Bick ran the scheme through several companies, including This is Where It’s At Entertainment, LLC, Planet Youth Entertainment, W&B Wholesale LLC, and W&B Investments LLC. He had promised investors that he could generate large returns by purchasing electronic devices and reselling them at a profit on the Internet.

Steven Edward Branstetter, 60, pleaded not guilty to charges that he was 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. The alleged scheme involved at least 18 victims over a 9 year period.

Donna S. Brown, 65, was charged in connection with an alleged $25 million Ponzi scheme that defrauded at least 200 investors. Brown ran Budget Finance Co., promising returns between 8% and 12%. Brown issued false quarterly investment statements to clients along with IRS 1099 forms that she did not submit to the IRS. Brown has agreed to plead guilty.

Changes Trading, Changes Worldwide, Timothy Baggett, Kimball Parker, and Parker’s company, MakeYourFuture LLC, were charged by the CFTC for fraud and commodities violations. According to the complaint, the Defendants allegedly took more than $850,000 from at least 289 customers. They allegedly promised investors 300% annualized returns and represented that their trading system “never had a losing month.”

Stuart G. Dickinson was barred by FINRA from the securities industry after he recommended that his customers invest in a Ponzi scheme run by ATM Financial Services and ATM Alliance. Dickinson sold more than $1 million in limited partnership interests in ATMA.

Kenneth Grant, 68, and Thomas Abdallah, 52, were sentenced to 92 months and 82 months, respectively, in connection with the Ponzi scheme run through KGTA Petroleum Ltd. Additionally, Jerry Cicolani, 52, was sentenced to 57 months, Jeffrey Gainer, 52, was sentenced to 52 months, Mark George, 59, was sentenced to 21 months, and Kelly Hood, Cicolani’s wife, was placed on home confinement. The scheme promised investors 60% returns from the sale of fuel products.

Christopher Hanson, 54, was sentenced to 2 years and 9 months in prison for a $1.1 million Ponzi scheme that he ran through Hanson Holdings LLC. Hanson defrauded 3 investors by representing that he would use their invested funds to purchase a collateralized mortgage obligation, against which a line of credit would be obtained, allegedly providing substantial dividends within months. He promised up to 250% returns. Instead, Hanson moved the money into his personal bank account and paid earlier investors when they wanted their money back.

Maria Guadalupe Hernandez, 59, the former president and CEO of El Paso Federal Credit Union, was sentenced to 15½ years in prison for running an $18 million Ponzi scheme out of the credit union. Her assistant, Hilda Simental Mendoza, 53, was sentenced to 10 years last month. They sold non-members share certificates in the credit union but concealed the list from other employees and the board.

Francisco “Frank” Hobson, 39, pleaded guilty to charges relating to a $2.3 million Ponzi scheme. Hobson was a licensed real estate agent who promised investors that their funds would be used to purchase properties, but the properties were not actually for sale or did not exist.

James Merrill, 55, pleaded guilty to charges for his role in the TelexFree Ponzi scheme. Merrill had previously pleaded not guilty and was scheduled to go to trial next month. The scheme involved over $3 billion taken from nearly 1 million investors in more than 240 countries.

Terry Wayne Millender, 52, and his wife, Brenda Millender, 56, were charged with running a $1.2 million Ponzi scheme that targeted church members of the church in which Terry Millender was the head pastor. The Millenders operated a company called Micro-Enterprise Management Group, along with Grenetta Wells, 55, who was also charged in connection with the scheme. They promised investors profits from short-term loans to poor business owners in small countries. Instead, they used the money for personal expenses, including the purchase of the Millenders’ $1.75 million home.

David Schwarz, 60, was indicted for his role in the Cay Clubs Resorts and Marinas Ponzi scheme. Schwarz was vice president of Cay Clubs and is accused of creating numerous bank accounts for Cay Club using family members as straw borrowers for loans to purchase condo units. Fred Davis Clark Jr. was sentenced in February to 40 years in prison for masterminding the $300 million scheme that promised 20% returns.

Dror Soref and Michelle Seward continued with their preliminary hearing based on charges that they were running a Ponzi scheme. The defendants allegedly defrauded investors out of $21 million, promising returns between 10% and 18%.

Jack Utsick, 73, was sentenced to 18 years in prison in connection with his $207 million Ponzi scheme. Utsick defrauded nearly 3,000 investors through his company, Worldwide Entertainment, Inc., promising investors returns from his promotion of tours of concerts for artists such as The Rolling Stones, Rod Stewart, Aerosmith, David Bowe, Elton John and Britney Spears.

Stuart Alan Voigt, 67, was sentenced to 6 months in prison for his involvement in a Ponzi scheme. Voigt, while serving as a bank board chairman, approved a loan to Jeffrey Gardner, whose business, Hennessey Financial, was accused of running a Ponzi scheme. Voigt, who knew of Gardner’s poor financial condition and who knew that Gardner owed him millions of dollars, did not disclose the financial issues.

Shawn Patrick Watkins’ trial was rescheduled to next year to give the defense more time to investigate the allegations that Watkins was running a Ponzi scheme. Prosecutors allege that Watkins defrauded investors out of $3.5 million in connection with a real estate Ponzi scheme.

Herbert Weinstein was barred by FINRA from the securities industry. A $3.1 million judgment had been entered against him in a civil lawsuit stemming from a Ponzi scheme. Weinstein was not barred because of the judgment but because of his refusal to appear to give testimony. His lawyer claims that Weinstein had no involvement in the Ponzi scheme involving 20 investors and $6 million that was run by Ira J. Pressman, who was sentenced to 8 years in connection with the scheme. The scheme was run through PJI Distribution which supposedly bought and sold closeout and overstock merchandise.

INTERNATIONAL PONZI SCHEME NEWS 

Australia

Veronica Macpherson, who has been accused of running an alleged $190 million Ponzi scheme through her company, Macro Realty Development, continued to solicit investors for her property development program. Macpherson charged investors $180 to attend a function updating investors on the business. Macpherson’s assets were frozen in August by authorities, but her scheduled dinner event promised to “provide a complete history of projects you have been involved in and the proposed solutions.” The Australian Securities and Investments Commission extended its prior order against Macpherson and her companies and expressly cancelled the financial services license of Macro All State Investments & Securities Limited. The alleged scheme promised returns of up to 20%.

Canada

Nicholas Smirnow, 59, the operator of the Pathway To Prosperity Ponzi scheme, pleaded guilty to one count of fraud for a scheme that defrauded numerous victims in Canada and the U.S. He received a 7 year prison sentence for the scheme that netted him close to $6 million. Investors are believed to have lost about $70 million. Smirnow has also been charged in the U.S., and his wife, Dianna Rose Smirnow, received a 6 day sentence last year and was required to pay $16,000 in restitution.

India

Police arrested Subhashmohan Chadda, 47, along with employees, Amol Nirvani, 30, Poornima Salve, 35, and Chirag Arora, 28, for allegedly running a Ponzi scheme that had defrauded more than 500 people over 10 years.

Gurmitsingh Kundansingh Bhatti, 37, has been sentenced to 2 years in jail in connection with a Ponzi scheme that defrauded over 300 investors. Bhatti worked for Shreehari Enterprises and promised investors that they could double their money in three months.

New Zealand

Jimmie McNicholl was charged in connection with an alleged $8.3 million Ponzi scheme run through Arena Capital, trading as BlackfortFX.

Nigeria

Converged Dynamic International Limited was labeled a Ponzi scheme by the Nigerian SEC. The scheme offers a product called “Resources Investment Account.” The SEC issued a warning: “The general public is hereby advised to desist from investing in products marketed by the company.”

Switzerland

Switzerland is raising the pressure on Malaysia to cooperate with a probe into the company 1 Malaysian Development Berhad (1 MDB), which allegedly involves billions of dollars. About $800 million appears to have been misappropriated, and billions appear to have passed through Swiss banks. Switzerland is investigating and seeks the assistance of Malaysia.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

The trustee of Bernard L. Madoff Investment Securities LLC was not permitted to reargue the issue of whether the trustee could seek to avoid transfers made by Bernie Madoff individually. Securities Investor Protection Corporation v. Bernard L. Madoff Investment Securities, LLC, 2016 Bankr. LEXIS 3757 (S.D.N.Y. Oct. 18, 2016). The court held that the issue had already been decided that the BLMIS trustee could only pursue transfers made by BLMIS, and not by Madoff individually. The lawsuit relates to transfers made to Frank Avellino and Michael Bienes.

A New York state court of appeals refused to overturn the dismissal of claims brought by successors to feeder funds of the Bernard Madoff scheme against Citco Group Ltd. and PricewaterhouseCoopers LLP. New Greenwich Litigation Trustee, LLC v. Citco Fund Services (Europe), 2016 N.Y. App. Div. LEXIS 6702 (N.Y. Sup. Oct. 18, 2016). The court found that New York law applied and that the in pari delicto doctrine barred the claims.

The trustee in the Bernard Madoff scheme filed a motion seeking court approval of a settlement with Stanley Chais and other defendants that resolves litigation in California. The settlement will pay about $277 million, of which more than $262 million will go to the trustee of the Madoff scheme to distribute to customers and another $15 million to California’s attorney general to resolve a related class action lawsuit.

In the trial of the Post-Confirmation Committee for Small Loans, Inc. against Derek Martin and his companies, including Money Tree, Inc., the court disallowed the use of the reference to Money Tree or any of the other entities as a Ponzi scheme.

Liquidators for two Cayman Islands-based funds of Platinum Partners filed a bankruptcy petition in New York. The bankruptcy court froze more than $118 million in assets after the trustee of Black Elk Energy Offshore Operations LLC accused the fund manager of siphoning $200 million in proceeds from an asset sale.

The receiver of the WCM777 Ponzi scheme case has recommended to the Court that about 84% of the submitted claims be disallowed.

The ZeekRewards receiver announced that more than 41,000 claimants have not filed the required certification and release necessary to receive distributions on account of their claims and that they run the risk that their claims may be forfeited.

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