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

Saturday, December 31, 2016

December 2016 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for December 2016. The reported stories reflect: 2 guilty pleas or convictions in pending cases; over 59 years of newly imposed sentences for people involved in Ponzi schemes; at least 10 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.

Brenda Ashcraft, 46, was sentenced to 8 years in prison for operating a Ponzi scheme that defrauded 34 people out of more than $4.2 million. Ashcraft had represented to investors that she had exclusive access to properties in foreclosure and could generate positive returns. She operated the scheme through her company, French Manor Properties, but did not use investment funds to buy any properties. Rather, she used the money for vacations to Cancun, spa treatments and Cincinnati Reds season tickets.

Joseph Francis Bartholomew, 77, pleaded guilty and was immediately sentenced to 10 years in prison for operating an $11.3 million Ponzi scheme through MBP Insurance Services Inc. The scheme targeted seniors and defrauded 27 victims. Co-defendant Wendy King-Jackson, 56, also pleaded guilty for her role in defrauding two victims in her capacity as Bartholomew’s office manager. The scheme involved selling life insurance policies on third parties, and it promised 15% to 24% annual returns.

Richard I. Booy, 48, was accused of running a $1 million Ponzi scheme that defrauded at least 15 clients. Booy ran the alleged scheme through Principal Financial Strategies LLC and the now defunct Safe Financial Strategies Inc. He claimed to be affiliated with Principal Financial Group, but had no actual relationship with that widely known investment firm. Instead of investing his clients’ funds, Booy spent the money on personal expenses, including credit card debt and purchases at Best Buy.

Richard Wyatt Davis, Jr., 40, was indicted on allegations that he defrauded more than 100 investors out of more than $19 million. Davis allegedly targeted clients who were “wary of the government and banking systems” and induced them to invest in his investment funds, DCG Commercial Fund I and DCG Real Assets. Davis falsely represented that his funds averaged a net rate of return of 32%.

Charles Caleb Fackrell, 37, was sentenced to 5 years and 3 months in prison for operating a Ponzi scheme that defrauded at least 20 investors out of about $1.4 million. Fackrell did business as Fackrell Trivette Wealth Management LLC and was a stockbroker who sold his clients into purported investors with Robin Hood, LLC, Robinhood LLC, Robin Hood Holdings, LLC, Robinhood Holdings, LLC, and related entities, all of which he owned. He guaranteed returns of 5% to 7% and represented that the investments were very safe. Fackrell spent most of the money on his personal expenses and used part of it to make Ponzi scheme payments to induce further investors.

Vincent P. Falci, 57, was charged on accusations that he was running a $5.3 million Ponzi scheme through Vicor Fund, which he controlled though his management entity, Vidon Capital Partners LLC. Most of the $5.3 million taken from investors was used to repay prior investors in The Saber Fund. Falci had previously been ordered to pay $6.7 million in restitution to 182 investors connection with that prior fraud. Falci lost investors’ money in risky ventures like day trading and real estate and promised investors 7% returns.

John Fox, 66, was sentenced to 6½ years in prison in connection with his wine Ponzi scheme that he ran through Premier Cru. Fox previously pleaded guilty to defrauding more than 4,500 customers out of between $20 million and $45 million. Fox falsified purchase orders for about $20 million worth of wine, and then sold that “phantom wine” to customers. He also used money from new customers to buy wine promised to earlier customers.

Bobby Eugene Guess was arrested on charges in connection with an alleged $6 million Ponzi scheme run through Texas First Financial LLC. Guess promoted himself through radio advertising and financial seminars and supposedly sold notes, stock certificates and investment contracts in internet company, StaMedia Inc. Funds raised from investors in StaMedia were used to repay investors in TenList, Inc., a company owned by two Guess associates, Timothy Booth and Shawn Sandifer. Guess is the author of “Robbed with a Pen Again: A Guide to Protecting Your Assets,” which is a book to supposedly help investors.

Pedro Jaramillo aka Enrique Jaramillo, 47, was arrested on charges that he defrauded more than 2 dozen investors from Peru and countries in Latin America, out of more than $1.2 million. Jaramillo represented that he was an accomplished commodities trader who partnered with well-known international investment bank, Global Investment Bank, to earn returns of 25% every 90 days. Jaramillo diverted more than $700,000 to his own use, including 3 vacations to Disney World for family and friends.

Andrew D. Kelley, 41, and Paul H. Shumway, 47, were the subject of a complaint filed by the SEC accusing them and their company, Blackbird Capital Partners, of running a $3.1 million investment scheme. Kelley was quoted as telling an investor, “I am delusional. I am a compulsive liar” and that he could “trade his way out of it” to repay the investor if the investor would not report him to authorities. Kelly represented that he had developed an algorithmic software program for Blackbird to invest its own funds to profit the company and investors and that the program made up to 300% returns.

George R. McKown, 65, and Richard E. Gearhart, 66, were charged in connection with an alleged Ponzi-like scheme that defrauded investors out of their retirement savings. The convinced investors to transfer their retirement accounts, pensions, annuities and 401(k)s to Asset Preservation Specialists Inc., a company owned by Gearhart.

Patricia Means, 70, was sentenced to 5 years in prison in connection with a Ponzi scheme she ran to purportedly develop a product called “Savvy Bag.” Means embezzled $1.1 million from more than a dozen investors and spent over $900,000 on housing, casino trips, vehicles and other personal items.

James A. Nickels was ordered to pay $3.6 million in restitution to investors for running a Ponzi scheme in which he sold promissory notes. Nickels ran the scheme through Fiscal Concierge LLC. At least 35 investors were defrauded out of the $4 million they spent to purchase promissory notes that were to pay 8% per year.

Mark Nordlicht, 48, David Levy, 31, and Uri Landesman, 55, were accused of running a Ponzi scheme through Platinum Partners. Landesman is the president of the $1.3 billion hedge fund. They are accused of falsely reporting the value of Platinum’s assets and using high-interest loans to move money between funds to pay some investors ahead of others. One example of misrepresentation relates to the value of Black Elk Energy, an oil and gas company controlled by Platinum, which was valued at $283 million after there had been an explosion on a Black Elk platform in the Gulf of Mexico that caused the death of 3 workers, other injuries and an oil spill. The alleged fraudulent activity also involves the funds dealings with Lafitte Energy Corp. and Golden Gate Oil LLC. Others charged in connection with the matter are Joseph Mann, 24, Daniel Small, 47, Jeffrey Schulse, 44, and Joseph Sanfilippo, 38. The Platinum Partners executives collected $100 million in fees as they offered investors annual returns of up to 17%.

Scott Richard Rookus, 45, pleaded no contest to charges that he was running a $1.5 million Ponzi scheme through his company, New Haven Holdings. He promised returns to investors from profits from his companies, but instead used their money to pay for his children’s private school and tax liens, and used some money to pay old investors. Many of Rookus’ victims were seniors on a fixed income.

Tobin Joseph Senefeld was banned by FINRA from the broker industry. This related to a 2015 civil suit filed by the SEC claiming that Senefeld, along with Matthew D. Haab and Jeffrey B. Risinger, had operated a Ponzi scheme through his company, Pin Financial LLC. The civil suit alleged that the trio had raised $15 million from 80 investors.

Richard Shusterman, 53, was sentenced to 18 years in prison and ordered to pay about $171 million in connection with a $242 million Ponzi scheme. Shusterman was the president and shareholder of International Portfolio, Inc., and co-conspirator Robert Feldman, 69, was a part owner of International Portfolio and also president of United Consulting, Inc. Together, they misrepresented that they were paying returns based on the purchase of medical accounts receivable. Jonathan Rosenberg, 48, and Douglas Kuber, 56, were also involved through their operations of Account Receivables LLC, through which they received in excess of $8 million in kickbacks. Feldman, Rosenberg, and Kuber each previously pleaded guilty and were sentenced to 46 months, 5 years, and 4 years in prison, respectively.

Michael Skupin, 54, was sentenced to one to four years in prison following his conviction in November for possessing child pornography. Skupin was also ordered to serve probation for financial crimes relating to a Ponzi scheme investigation, which is what led to the child pornography charges when investigators searched his laptop.

John Sposato, 64, was sentenced to 7 years in prison and ordered to pay nearly $2.6 million in restitution in connection with a Ponzi scheme that he ran through his companies, Pegasus Investment & Development Corporation, LLC; Pegasus Investments; Oil Eaters, LLC; Organic Miracle Incorporation; S&J Corporate Properties, LLC; Pegasus Demolition & Debris Removal Service, LLC; and Pegasus Truck Lines, Inc. He represented to potential investors that the companies were all investment entities that offered participants the chance to invest in various low-risk, high-reward investment vehicles, including international bank instruments, cutting edge oil remediation and recovery products, and real estate transactions. About 48 people invested about $800,000 with Sposato and his companies, but Sposato used the money to, among other things, buy his girlfriend a car and breast augmentation.

Derek Springfield, 53, was accused by the CFTC of running a Ponzi scheme through his company, Draven LLC. Springfield provided false account statement to commodity pool participants. The alleged scheme involved $1.46 million, and investors were told their funds were being invested in futures, foreign exchange and options markets. 

Alvin Guy Wilkinson and his entities, Chicago Index Partners and Wilkinson Financial Opportunity Fund, were hit with a $21.8 million default judgment in an action commenced by the CFTC. The commodity pool fraud defrauded 30 investors and involved over $11 million. Instead of trading financial instruments on their behalf as promised, he misused most if not all of the investor funds in a Ponzi scheme fashion. Wilkinson promised investors 10% to 30% returns.

INTERNATIONAL PONZI SCHEME NEWS

China

Wang Baoqiang, 32, has been linked to a peer-to-peer lending scheme run through Jingjinlian. Wang is a celebrity in China, and there was a tacit understanding that Wang was directing a film project that was part of Jingjinlian’s investment portfolio. The film’s official account denied any involvement, stating they never raised any funds from any financial platform.

India

Prakash Chandra Panda was sentenced to 5 years in prison in connection with a Ponzi scheme he ran through Shirdi Sai Estate Private Limited. The company had defrauded over 100 investors by promising them land plots at cheap prices.

Siba Narayan Das, Jugal Gupta and Tushar Jana, the three directors of Silicon Project, were charged with running a Ponzi scheme.

Dipankar Ghosh, Malay Halder, Prasenjit Sil, Tirtha Halder and Malay Kumar Guha, who are directors of Real Tulip India Limited, were arrested on allegations that they are running a Ponzi scheme. 

Nigeria

The MMM scheme that has been flourishing in Nigeria suspended business. The scheme in Nigeria is believed to be operated by Pastor Ernest Chigozie Mbanefo, who is based in South Africa. Mbanefo registered the website, and it is now believed that MMM Nigeria is not affiliated with MMM Global, a Russian company run by Sergei Mavrodi. Mbanefo denies owning the MMM franchise in Nigeria. The MMM Nigeria scheme offered 30% returns annually. Access Bank warned its customer not to invest in the MMM scheme. Following its suspension in Nigeria, the MMM scheme was launched in Kenya and Ghana.

A new doubling scheme called NNN Nigeria appeared a few days after MMM froze the accounts of over 3 million members. NNN appears to be a copycat of MMM in almost every way.

An alleged Ponzi scheme call Ultimate Cycler that was also gaining popularity shut down. The website stated earlier in the month that is was being “worked on.” The website was relaunched and Peter Wolfing, the CEO of the scheme, announced that 50,000 Nigerians registered within 24 hours of the relaunch. It is believed that there are about 2 million users. Wolfing also runs anther scheme called “Easy 1 up.”

Givers Forum is reported to be another Ponzi scheme gaining popularity in Nigeria.

Nigeria was also hit with another alleged Ponzi scheme called I-Charity whose website was registered in October. It is already the 47th most visited site in Nigeria. Another alleged scheme, Zar Fund, is the 57th most visited website in Nigeria.

It is reported that internet usage increased from 95.37 million in August 2016 to 97.21 million by September 2016 due to the flood of internet users investing in the MMM, Ultimate Cycler, Givers Forum, I-Charity, Get Worldwide Help, and Zar Fund schemes.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

The receiver over Creative Capital Consortium that was run by George Theodule obtained approval of a distribution plan that will distribute more than $4.6 million to 1,474 defrauded investors and creditors. Theodule had collected more than $68 million from more than 100 investment clubs formed by relative and friends. Theodule pleaded guilty and was sentenced to 12½ years in 2014.

The Second Circuit declined to revive an ERISA lawsuit by the pension fund for a New York engineers’ union seeking to obtain damages from Ivy Investment Management and Bank of New York Mellon Corp. The lawsuit sought damages for the alleged breach of fiduciary duties in failing to advise the fund to fully withdraw from investments with Bernard Madoff. Trustees of Upstate New York Engineers Pension Fund v. Ivy Asset Management, 2016 U.S. App. LEXIS 21823 (2nd Cir. Dec. 8, 2016).

The TelexFree trustee has asked the court to extend the deadline for filing claims. The deadline is set for December 31, 2016, and about 121,000 claims have already been filed. The trustee believes that the sentencing of James Merrill scheduled for next March and Merrill’s agreement to forfeit tens of millions of dollars might spur additional claimants to file claims.

The ZeekRewards receiver obtained judgments against the largest net winner investors. He is also working on a procedure to fix the amount of money owed from the members of a defendant class of net winners