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

Thursday, March 31, 2016

March 2016 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for March 2016. The reported stories reflect: 7 guilty pleas or convictions in pending cases; over 120 years of newly imposed sentences for people involved in Ponzi schemes; at least 11 new Ponzi schemes worldwide involving more than $400 million; 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.

    Aequitas Capital Management and its founder and CEO, Robert Jesenik, executive vice president, Brian Oliver, and chief operating officer, N. Scott Gillis, 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.

    Robert Arrowood and his company, 2001 Trinity Fund LLC, were banned from the securities industry in Oklahoma. Arrowood operated an oil and gas lease firm, Trinity Resources Inc., in what is alleged to be a Ponzi scheme. Arrowood is alleged to have spent investors’ money on vacations and a motorcycle. The scheme defrauded about 30 victims, who were promised that their investments would mature in less than 60 days with a return rate of 90 percent.

    John Bivona, 75, and Frank Gregory Mazzola, 49 were charged by the SEC with running a Ponzi-like fraud through the firms Saddle River Advisors LLC and SRA Management Associates LLC. The SEC alleges that Bivona raised $53.4 million from investors by promising to invest in early- to late-stage technology companies that had not yet conducted initial public offerings. The SEC alleges that Bivona diverted $5.7 million for his personal use and that substantial sums were transferred to his nephew, Mazzola.

    Darrlye Douglas was arrested in California in connection with an order for civil contempt of court. Douglas allegedly had access to ZeekRewards database but has not returned it as ordered. Douglas may also be involved with a new scheme known as Auction Attics.

    Charles Leif Erickson pleaded guilty to charges that he stole about $3.5 million for a church congregation in a Ponzi scheme. Erickson said that the “Holy Spirit” guided him in a unique method for day trading in which he sold unregistered investments in trading futures to at least 25 people, promising them 4% per month, or 96% over two years.

    Daniel Fodiman, 52, was sentenced to up to 6 years in prison for his TJ Maxx Ponzi scheme. Fodiman told investors that he was purchasing merchandise to resell to TJ Maxx, but he in fact never sold anything to TJ Maxx.

    Claus C. Foerster, 55, was indicted on charges that he was running a Ponzi scheme through SG Investment Management. It is alleged that the company was “totally fictitious” and that he defrauded clients out of about $2.8 million while acting as a financial advisor.

    Charles Caleb Fackrell, 35, was charged in connection with an alleged Ponzi scheme that defrauded 20 people into investing $1.4 million. Fackrell ran his scheme through entities he controlled under the name “Robin Hood,” promising investors guaranteed returns.

    Dorian Garcia, 31, was sentenced to 6½ years in prison in connection with a Ponzi scheme that defrauded 111 investors. The scheme took in about $8.5 million, and about $5 million is still owed to the investors. Garcia at one point promised an investor a return of 300% to 600%. He spent investors’ funds on a lavish lifestyle including luxury cars, an expensive home and a personal chef. 

    Ian C. Gent, 73, was sentenced to 6 years in prison for conspiracy in assisting Guy W. Gane and Watermark Financial Services in running a Ponzi scheme. The scheme promised investors 10% returns in real estate investments, but Watermark never actually bought any property. Joseph F. Lagona was also convicted in connection with the scheme and was sentenced to 11 years in prison.

    Allen R. Hess, 51, pleaded not guilty to charges that he was running a Ponzi scheme that defrauded over 30 victims out of more than $700,000. The alleged scheme involved foreign currency and overseas oil.

    Francisco Illarremendi, 46, had his appeal of his sentence upheld by the Second Circuit. U.S. v. Illarramendi, 2016 U.S. App. LEXIS 4840 (2d Cir. Mar. 15, 2016). The court found that despite evidence showing investor losses exceeding 200 million, the district court had cautiously focused on Illarramendi’s gains, which totaled over $20 million, in calculating the sentence.

    Mark A. Jones, 63, was charged by the SEC with running a $10 million Ponzi scheme that supposedly generated profits from bridge loans to businesses in Jamaica. Jones is the former chairman and VP of Global Gateway Solutions Inc. and was charged with defrauding retirees in his “bridge loan” Ponzi scheme. He promised investors 15% to 20% interest per year and raised about $10 million from at least 21 investors. His assets were frozen and he was arrested on related criminal charges. Jones owns 49% of Global Gateway and his partner, Jacqueline Sutherland, owns the other 51% and is the current president of the company.

    Levi David Lindemann, 40, pleaded guilty to running a Ponzi scheme that defrauded approximately 50 investors out of more than $2.5 million. Lindemann ran the scheme through Alternative Wealth Solutions and provided counterfeit secured notes to investors as proof of their investments.

    David Christopher Mayhew, 43, was sentenced to 26 years in prison in connection with a Ponzi scheme that defrauded at least 11 people out of more than $2 million. Mayhew posed as a Christian who targeted churchgoers. Mayhew’s partner, Ronald Earl McCullough, 44, is at large and authorities continue to try to locate him. They called their enterprise “God’s Business Empire,” “GB Empire,” and “Empire Investments.”

    Jaymes Meyer, 47, pleaded guilty to charges related to the ZeekRewards and Rex Ventures LLC Ponzi scheme. Meyer was the CEO of Preferred Merchants LLC, a financial services firm that controlled about $17.4 million of Rex Ventures’ assets. Meyers originally told the SEC that he did not control any Rex Ventures’ assets, but has now admitted that he wired about $4.8 million from a Rex Ventures’ trust account into an account under his control within an hour of learning about the SEC investigation. Meyer used the money to purchase homes for himself and for other expenses.

    Daniel Nase and his company, BIC Real Estate Development Corp., were charged by the SEC for fraud for running an alleged Ponzi scheme. Nase, who was not registered with the SEC or state regulators, sold investments in real estate and promissory notes and then placed title to properties in his name, his wife’s name, or a family trust. He also used investor funds for personal expenses. When Nase learned of the SEC investigation, he placed stolen assets back into the company to make it appear that he was increasing his equity stake in the company.

    Derek A. Nelson was sentenced to 19 years in prison a day after being convicted of running a $37 million Ponzi scheme through Capital Mountain Holding Corp

    Aaron E. Olson filed a motion asking to delay the start of his prison sentence so he can finalize a $100,000 granite sale. At least $50,000 is to go to the victims of his alleged scheme that he ran through AEO Associates and KMO Associates. Olson is to be soon sentenced on tax evasion charges.  

    Gina Palasini, 54, pleaded guilty to one charge in connection with an alleged Ponzi scheme that she ran. Palasini, who was indicted on 19 federal counts last year, admitted to defrauding a man, Joseph Babb, through the U.S. Mail by sending him a withdrawal form and a supposed interest payment of about $3,300. Her scheme claimed to help citizens obtain Veterans Affairs of Medicaid benefits, and the total victim losses in the scheme are believed to be $2 million. Palasini is currently serving 10 years on a felony charge of false pretense and has received another 10 year sentence for another false pretense charge, as well as a 3 year sentence for a bad check charge.

    Daniel Rivera and his brother, Matthew Rivera, were charged by the SEC with running Ponzi scheme through a real estate venture called Robbins Lane. The Robbins Lane website recommended that investors sell their retirement assets to invest in the venture as the opportunity would give “the senior investor a guaranteed monthly income.” The scheme involved $2.7 million and targeted unsophisticated elderly investors.

    Keith Michael Rogers, 42, pleaded guilty to charges that he ran a Ponzi scheme that took in more than $2.5 million from investors. Rogers was an investment advisor who was accused of misleading investors by misrepresenting that their investment funds would be used to lawfully generate a return.

    Yamila Salvia, 38, was charged with running a Ponzi scheme that involved plane-ticket sales to Cuba. Salvia solicited investments in her purported business to buy discounted bulk airline tickets to Cuba and then reselling them at a profit. She promised investors returns of 12% to 20%.

    Steven C. Scudder, an attorney, was charged with aiding and abetting the alleged Ponzi scheme run by William Apostelos with the assistance of Apostelos’ sister and her daughter, Rebekah E. Fairchild and Rebekah L. Riddell.

    Joseph Signore, 51, was sentenced to 20 years in prison for running an $80 million Ponzi scheme. Signore’s ex-wife, Laura Grande, 42 was sentenced to 7 years. Paul Schumack, 58, was sentenced to 12 years in connection with the scheme. The scheme was run through JCS Enterprises in which 1,800 investors were promised returns from the supposed sale of video concierge machines. A fourth defendant in connection with the scheme, Craig Hipp, 55, went on trial last year and is serving 7 years in prison.

    Shirley Sooy, 65, pleaded guilty to running a Ponzi scheme through her group of companies known as TransVantage Solutions of Somerville, which were freight payment, logistics and shipping businesses. TransVantage, which Sooy took over from her late husband, would take in billions of advance payments from shipping companies. TransVantage was to audit the transactions and then release the funds to the carriers that delivered the goods. Sooy spent millions of dollars on personal expenses, and the companies were left with $42 million in losses.

    Michael J. Stewart, 68, was sentenced to 14 years in prison and ordered to pay about $9.2 million in restitution in connection with a Ponzi scheme that he ran through Pacific Property Assets. The scheme caused losses of $169 million for hundreds of investors. Stewart ran the scheme with John J. Packard, 65, who pleaded guilty in 2014. They refinanced mortgages and sold properties but were unable to do so at a profit so began using money from new investors to pay earlier investors.

    Michael Szafranski, 37, had his prison sentenced reduced from 30 months to 20 months due to his “substantial assistance” in the prosecution of Frank Spinosa in connection with the Scott Rothstein Ponzi scheme.

    William J. Wells, 42, pleaded guilty to charges that he defrauded 30 victims out of more than $1.5 million. Wells had misrepresented that he was successfully trading stocks and options though his company, Promitor Capital LLC. Wells lost a lot of money in unsuccessful trades and used the rest to fund his personal lifestyle, including payment of credit cards and private school tuition.

INTERNATIONAL PONZI SCHEME NEWS

Chile

    IM Forex, which is affiliated with the massive Ponzi scheme run by AC Inversiones, was charged for allegedly defrauding over 1,500 investors. The firm promised investors returns of 6% per month if they invested over $15,000 and did not withdraw the funds for over a year. The principal of IM Forex, Rodrigo Gonzalez, asserts that the case is a “witch hunt” against investment companies. Allegations were also made that AC Inversiones had misappropriated over $75 million. AC Inversiones filed bankruptcy.

China

    A court has sentenced Jiang Hongwei, 32, to life imprisonment for his role as the head of Guangdong Bangiia Leasing, which ran a scheme that defrauded 230,000 victims out of about HK 11.86 billion. The scheme lured elderly investors in more than 60 cities to buy memberships and to fund phantom loans. The investors were offered returns as high as 47%. Twenty-three others were sentenced in connection with the scheme to terms ranging from 3 to 14 years.

England

    Phillip Boakes had 2 years added to his 10 year sentence due to his failure to pay a confiscation order made at the time of his sentencing. Boakes was sentenced last year following conviction for defrauding at least 30 investors of £3.5 million. Boakes had offered investors returns of 20% on foreign exchange investments in his company, CurrencyTrader.

    Alan Smith, 57, was sentenced to 4 years in connection with a Ponzi scheme that defrauded 40 investors out of £500,000. Smith defrauded women that he met on a dating website into investing in his telecommunications company. He promised them 70% returns.

France

    The alleged Ponzi scheme run by Gerard Lheritier was shut down on allegations that he defrauded 18,000 people in France. Lheritier sold shares in rare manuscripts and letters with a supposed value of nearly 1 billion euros through his company, Aristophil. The company employed hundreds of sales staff and offered returns of 40% over 5 years, or 8% per year. 

India

    Police have alleged that Ramesh Jena has ties to Green India, a Ponzi scheme.

    Sanjay Das Burma was accused of having links to Artha Tatwa (AT) Group, a company accused of running a Ponzi scheme. Das Burma is said to be holding a vehicle for the head of AT, Pradeep Sethy.

    Firoz Khan, the managing director of Safex Infra India Pvt Ltd, was arrested on allegations that he defrauded investors out of more than Rs 15 crore.

    Amit Soni, 34, Ashok Sharma, 33, Rakesh M., 33, Nikunj Kumar, 29, Avinash Shah, 32, and Ankit Kandel, 34, were arrested in connection an alleged scheme through the company Onet.

Poland

    The trial of Marcin and Katarzyna P. began in which they are accused of running a $225 million Ponzi scheme through their investment firm, Amber Gold. They had promised clients rates of up to 16% per year for investments in gold or other precious metals. On the first day of trial, there was a false bomb alarm, and Marcin refused to answer all questions, including his own lawyer’s.

Russia

    Russian President Vladimir Putin signed into law a government bill introducing criminal punishment of up to 6 years of prison for organizing Ponzi schemes. The law provides for criminal liability for Ponzi scheme organizers for obtaining more than 1.5 million rubles ($21,800) in assets belonging to individuals and companies.

South Africa

    Prinasen Dhaver, 29, his parents Dr. Jay Dhaver and Dhanalutchmee Dhaver, his brother Deshan Dhaver, and his estranged wife, Selena Dahver, 26, were all charged in connection with a Ponzi scheme involving R28 million. Aaron Chetty, 27, Hareshmann Baboolal, 31, and Gonicela Rayvan Pillay, 44, were also charged in connection with the scheme. It is alleged that Dhaver, Chetty Baboolal and Pillay solicited investors to invest in entities and trusts they created and that the funds would be used in the trade of diesel and petroleum products by Innovatech International Solutions. Investors were promised returns of 2% to 8%. Innovatech invested some of the money in Carmol Distributors, which is in a liquidation proceeding.

Taiwan

    A couple known as “Shi” are accused of defrauding over 1,000 investors in a high-yield investment scheme that promised a 250% return on Bitcoin invested.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    The Fourth Circuit affirmed the lower court’s ruling that Florida Congressman Alan M. Grayson, and his trust, AMG Trust, cannot sue Cyprus-based Vision International People Group PL because the company did not have sufficient contacts with the U.S. Grayson sought to bring claims against Vision International for its involvement in the Derivium Capital LLC Ponzi scheme.

    Many of the claims brought by the trustee of the Bernard Madoff Ponzi scheme were dismissed in a ruling that narrowed the scope of his complaint to recover $220 million in transfers made to Legacy Capital and Khronos LLC. Picard v. Legacy Capital Ltd. (In re Bernard L. Madoff Securities LLC), 2016 Bankr. LEXIS 777 (S.D.N.Y. Mar. 14, 2016).

    A district court certified a class of investors who seek to pursue claims against MRI International, Inc., Edwin J. Fujinaga, Junzo Suzuki, Paul Musashi Suzuki, LVT, Inc. dba Sterling Escrow. Takiguchi v. MRI International Inc., 2016 U.S. Dist. LEXIS 36129 (Mar. 21, 2016). The case is brought on behalf of 8,700 investors who invested with MRI International.

    A court denied the motion of Mizuho Bank Ltd. to dismiss claims brought by a proposed class of investors accusing the bank of defrauding clients of Mt. Gox, a now defunct bitcoin exchange. The lawsuit alleges that the bank contributed to the fraud by refusing to process outgoing transfers of investors’ funds while continuing to accept deposits.

    The Eighth Circuit ruled that Marlon Quan, a hedge fund manager, must pay back $81 million in profit he received for aiding Thomas Petter’s Ponzi scheme. SEC v. Quan, 2016 U.S. App. LEXIS 5202 (8th Cir. Mar. 22, 2016). Quan had sought a new trial, but the SEC sought a disgorgement order. The appellate court found that the jury instructions in the lower court were sufficient and that the district court was authorized to order disgorgement. Quan’s companies, Acorn Capital Group LLC, ACG II, LLC, and Stewardship Investment Advisors LLC, were co-defendants in the action.

    A jury verdict was issued in the case of Feldman v. Raggi & Weinstein LLP CPAs & Consultants in connection with the Ponzi scheme run by Ira Pressman and PJI Distribution Corporation. The bankruptcy trustee of Pressman and PJI had alleged that the accounting firm was “willfully blind” to evidence of their clients’ wrongdoing, which allowed the Ponzi scheme to grow. The trustee alleged that the firm prepared tax returns and financial statements that they knew were misleading, and then Pressman used this false financial information to obtain bank financing and solicit investments into the scheme. Pressman is currently serving an 8 year sentence.

    The Supreme Court denied the petitions for certiorari seeking to overturn the convictions of two former Stanford Financial Group executives for their role in the Stanford Ponzi scheme. Gilbert Lopez Jr. was the former chief accounting officer for Stanford Financial Group and Mark Kurht was a former executive as well. 

    The Fifth Circuit dismissed investor claims against law firms Proskauer Rose LLP and Chadbourne & Parke LLP in connection with the Allen Stanford scheme.  Troice v. Proskauer Rose LLP, 2016 U.S. App. LEXIS 4480 (5th Cir. Mar. 10, 2016). The court found that the lawsuit was barred by attorney immunity. About 18,000 investors claimed that the law firms knew that Stanford was selling fraudulent certificates of deposits.

    Former U.S. Ambassador to Ecuador, Peter Romero, was ordered to return $788,655 to the receiver of the R. Allen Stanford Ponzi scheme. Janvey v. Romero, 2016 U.S. App. LEXIS 4835 (5th Cir. Mar. 16, 2016). Stanford had paid Romero to be his international adviser for 8 years. The Fifth Circuit rejected Romero’s claims that the receiver did not timely file the complaint.

    The trustee of TelexFree reached a settlement with PricewaterhouseCoopers for repayment of $115,000 that was paid by TelexFree to Pricewaterhouse prior to the filing of the TelexFree bankruptcy case.