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 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

Sunday, December 31, 2017

December 2017 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for December 2017. The reported stories reflect at least 10 new Ponzi schemes worldwide; over 130 years of newly imposed sentences for people involved in Ponzi schemes; and an average age of approximately 52 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 Barak, 50, was sentenced to 33 months in prison for stealing  more than $2 million in a real estate Ponzi scheme. Barak promised investors returns from 50-50 partnerships in buying houses and then selling them or managing them for rental income.

Bar Works Capital had a $1.6 million default judgment entered against it by the SEC in connection with a Bitcoin scam. Bar Works was operated by Renwick Haddow, and the court imposed a constructive trust on property owned by Bar Works. The SEC sued Bar Works and Renwick, in addition to Bitcoin Store, Inc., and Bar Works 7th Avenue, Inc.  Haddow, who is sitting in Moroccan jail, agreed to be extradited to the U.S. Haddow is accused of stealing $37 million from investors.

Frederick Darren Berg, 55, was found missing from prison where he was serving an 18-year prison sentence for defrauding more than 800 investors out of more than $100 million. Berg was the founder of Meridian Group which operated a Ponzi scheme. Berg is the third inmate to escape from Atwater prison this year.

Bitcoin dominated the news this month. Bitcoin and other cryptocurrencies have been referred to as the first decentralized Ponzi scheme. However, both fans and naysayers are speaking out for and against cryptocurrency. For those riding the bitcoin wave, be cautious and vet the investment program you are considering.

John V. Bivona, 76, and his company, Saddle River Advisors LLC, agreed to disgorge nearly $50 million to settle charges brought by the SEC. The scheme defrauded investors in a Ponzi scheme to invest in Twitter and startups before their initial public offerings.

BTC Cloud Services Ltd. was sued by an investor in a $9.1 million lawsuit alleging that the company was running a virtual currency Ponzi scheme. Investors understood that BTC was providing bitcoin mining services, but the company never mined even a single bitcoin.

William P. Carlson Jr., 54, who previously pleaded guilty to charges relating to a scheme run through RIA Forum Financial Management, was sentence to four and half years in prison. Carlson carried out the scheme by drawing checks from a client’s accounts and then intercepting them in mail when the client was not home.

Steve Down and Steve Down Companies have been accused of running a Ponzi scheme. Complaints have been made to the SEC relative to activity in Oregon and Oklahoma. Certain real estate projects are on hold amidst the investigation.

Mark Feathers, 54, pleaded guilty to one count relating to a scheme that he ran through Small Business Capital Corp. The SEC had accused him of running a $50 million Ponzi-like scheme that defrauded 250 investors.

Paul Garceau Jr., 51, was sentenced to up to 20 years in prison for running a Ponzi scheme that defrauded 12 of his clients out of more than $800,000. Garceau was an insurance agent who defrauded his mostly senior clients in this company, Apex Wealth Management, convincing investors to take money out of legitimate investments to re-invest in other opportunities that would supposedly earn them more money.

Evan Greebel, 44, was found guilty of wire fraud and securities fraud for his conduct as the former lawyer for companies run by Martin Shkreli. Shrekli was found guilty of securities fraud in August for running a Ponzi scheme involving his biotechnology company Retrophin Inc. Greebel was outside counsel for Retrophin and was found guilty of scheming with Shkreli to commit fraud.

John Zane Jeppesen, 57, was sentenced to 30 days in jail following his guilty plea to one felony count. Jeppesen raised about $8 million from 134 Utah investors to invest in Beverly Hills Development Corporation, a real estate development enterprise. Investors were told that their investment would be fully secured by a trust deed against real property and that they could pull their money out at any time. The scheme was run with Charles Fitzgerald.

Alex Reaves Lundin, 25, was charged with conspiracy to commit mail fraud for her role in the Ponzi scheme run by her husband, Jeremy Lundin, 30. Jeremy pleaded guilty to the scheme run through Big Island Capital, last year. The scheme defrauded 51 investors by promising reutrns from options trading. Although Jeremy did not guaranty an exact percent, he said he would “shoot for” returns of between 40% and 80%. Alex assisted the scheme by lying to investors, telling them that their money was safe.

Bradley C. Mascho was added as a defendant in the SEC against Dawn J. Bennett for an alleged Ponzi scheme run through DJBennett. The scheme raised more than $20 million through the sale of company notes, and Mascho targeted his brokerage customers to invest in the scheme. Bennett was previously barred by the SEC from working as an investment advisor for misstatements and omissions run through her advisory firm, Bennett Group Financial Services. Bennett entered a plea of not guilty.

Sergei Mavrodi launched a new cryptocurrency called Mavro. Mavrodi has previously been convicted in Russia and other countries for running scams, including MMM (Mavrodi Mondial Moneybox) in Russia, which launched subsidiaries in Asia, Africa and South America. Mavrodi also launched MMM Global which was a bitcoin-based High Yield Investment program. Mavrodi’s latest scheme is advertised on the MMM website which says that the Mavro will act as “a conventional unit for measurement of provided [sic] help to other participants in MMM.” The Initial Coin Offering claims that it is the “first decentralized and absolutely transparent platform for Multi-Level Marketing structures based on Blockchain Ethereum.”

Jason Todd Mogler, 49, was sentenced to 24 years in connection with a Ponzi scheme that defrauded 225 investors. The scheme involved purported investments in land deals in Mexico, recycling companies in Las Vegas and Chicago and distressed real estate in Phoenix. The SEC accused Mogler of stealing close to $10 million for strip club outings, vacations to Hawaii and Disneyland, and personal expenses such as mortgage payments.

John Bryan Murphy, 44, was arrested on charges that he ran a Ponzi-style investment scheme. Murphy solicited investments and promised the investors that their money would be professionally invested. Instead, he used the funds to support his personal lifestyle, to speculate on the stock market and to repay earlier victims some of their investments.

Steven Condon Peters, 44, was charged in connection with a scheme run through VisionQuest Weatlh Management that defrauded investors out of $15.3 million by promising them 8% to 9% returns. Peters’ assets, including a home in Costa Rica, a horse farm, jewelry, artwork and a dozen guns, have been seized.

Nathan Pyles and his company, Shiloh Management Services Inc., were accused of running a Ponzi scheme. Bankruptcy cases were filed listing about $13 million in creditor claims. Pyles was arrested on four felony count of writing checks with insufficient funds.

Merrill Robertson, 37, was sentenced to 40 years in prison for his role in a $10 million Ponzi scheme that he ran with his business partner, Sherman Carl Vaughn. Robertson and Vaughn had said that their firm, Cavalier Union Investments LLC, involved businesses such as restaurants, real estate, alternative energy and natural resource assets.

Robert H. Shapiro and the Woodbridge Group of Companies LLC first filed bankruptcy in Delaware and were then sued by the SEC on Florida in connection with an alleged real estate Ponzi scheme that defrauded more than 8,400 investors out of $1.22 billion. Investors were told that they would be “repaid from high rates of interest” that Shapiro’s companies were earning on loans to third-party borrowers. The borrowers were companies owned and operated by Shapiro. Returns of 5% to 10% were promised to investors.

Gary Truman Smith, 72, offered a plea deal to settle charges relating to an alleged Ponzi scheme that he ran through Smith Advertising. Smith’s son and business partner, Gary Todd Smith, 47, pleaded guilty earlier this year to the scheme that borrowed money from more than 150 investors. The total losses exceed $55 million.

Paul W. Smith, 63, was charged by the SEC in connection with an alleged scheme that defrauded about 30 investors out of $2.35 million. The alleged scheme was run through The Haverford Group and involved trading of securities.

Kevin Wanner pleaded guilty in connection with an investment fraud scheme that defrauded 66 investors. Woodbury Financial Services Inc. has agreed to pay nearly $600,000 to investors who were victimized by Wanner when he worked there as a registered securities agent. Questar Capital Corporation had previously agreed to pay $2.4 million to investors.

INTERNATIONAL PONZI SCHEME NEWS 

Canada

Rashida Samji, 64, had her appeal of her conviction and 6-year prison sentence dismissed. Samji was convicted on charges that she ran a $110 million Ponzi scheme. 

Joshua James Tenhove, 45, was charged in connection with a scheme run through Silvertip Energy, Inc. involving mobile light towers. The schemed defrauded investors out of $10 million by selling or renting the same equipment multiple times on paper, and by offering devices that had never been manufactured.

China

Authorities cracked down on 107 forms of knock-off altcoins in 2017, claiming they were Ponzi schemes in disguise. These include scams such as Five Elements Coin, Asia-Euro Coin, Onecoin and Ticcoin.

Zhang Xiaolei surrendered to police after Ponzi scheme allegations were made against Qbao.com aka Qianboa. Xiaolei owns 95% of the company.

India

Sashibhusan Das was arrested in connection with an alleged Ponzi scheme run through Tresty Securities Limited. Dayanidhi Mohapatra, Hari Arjun Panda and Rasmi Ranjan Mohapatra were arrested in 2015 in connection with the scheme.

A judgment was entered attaching assets for Citrus Holidays and Royal Twinkle Star Club Ltd., which are alleged to have been running a Ponzi scheme. The companies were operating out of 52 collection centers and promising returns of 13% to 15% for buying into holiday packages. 

Ayushi Aggarwal, the wife of Anubhav Mittal, was arrested in connection with the scheme run through Ablaze Info Solutions Pvt Ltd.

India’s Finance Ministry cautioned investors about the risks of trading in cryptocurrencies such as bitcoin, saying that investments in digital currencies are like Ponzi schemes. The statement said “There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes.”

Singapore

James Phang Wah, 58, was sentenced to 9 years in prison in connection with the Sunshine Empire. The scheme involved $190 million in a type of Ponzi scheme. Wah was the self-proclaimed Warrant Buffet of Singapore.

South Korea

New regulations for cryptocurrency were proposed by the government in light of the rapidly increasing number of fraudulent cryptocurrency exchanges. Several fake exchanges were exposed including BitKRXBithumb, and Mining Max.

Thailand

A group of investors filed a complaint with the consumer protection police against Luxury Delight and the owner, Nattapong Pohsukarn. The company allegedly tricked people into joining the business by selling collagen supplements. Nuttapong denied the allegations and said that the business had about 30,000 members and he could not control their behavior. 

Phudit Kittitradilok was sentenced to 13,275 years in prison for a scheme that defrauded 2,600 out of 574 million baht. However, he will likely only serve 20 years due to limitations in the Penal Code. The scheme was run through The System Plug and Play, and Innovision Holding. Investors were invited to invest in businesses involving beauty care, used cars, export, property development and foreign exchange. Investors were promised 1% weekly returns plus 5% of new investment money for those who recruited new members.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

LPL Financial lost a $462,000 arbitration, being found liable for failure to supervise its broker, Charles Fackrell. Fackrell was sentenced to more than 5 years in prison for running a $1.4 million Ponzi scheme that operated under the name Robin Hood. 

Ritchie Capital Management LLC’s lawsuit against JPMorgan for aiding and abetting Thomas Petters in his $3.7 billion Ponzi scheme was dismissed. The court found that Ritchie Capital had not established that the court had personal jurisdiction and that the case was barred by statute of limitations.

The receiver of Stanford International Bank was denied his request to overturn a jury decision denying his claim to recover $88 million from billionaire Gary Magness.

Thursday, November 30, 2017

November 2017 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for November 2017. The reported stories reflect at least 9 new Ponzi schemes worldwide and an average age of approximately 49 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.

William D. Allen, 38, had a $15.7 million final judgment entered against him in the SEC case accusing him and co-defendant Susan Daub, 56, of running a Ponzi scheme through Capital Financial Partners LLC, Capital Financial Partners Enterprises LLC and Capital Financial Holdings LLC. They allegedly raised nearly $32 million from investors who were promised profits from loans to professional athletes.

Carolyn Anderson, 44, was sued by the SEC on allegations that she, along with her deceased husband, Michael F. Anderson, had operated a Ponzi scheme through End of the Rainbow Partners. The scheme allegedly defrauded victims out of $2.3 million by advertising annual returns of 12% to 48%. The investors were told that a portion of the training profits were to be donated to a charitable organization founded by Anderson, called The End of the Rainbow Foundation, Inc. The charity was supposed to raise money for abused women and children, but instead Michael and Carolyn used the Rainbow Foundation as a fraudulent device to misappropriate investor funds. A total of $5.3 million had been raised from 18 investors. Michael Anderson had admitted some of the facts relating to the scheme in a confessional affidavit he signed shortly before he died in February 2017. SEC v. The End of the Rainbow Partners LLC, 2017 U.S. Dist. LEXIS 18734 (D. Colo. Nov. 14, 2017).

Golan Barak, 50, had his motion to withdraw his guilty plea denied. Barak had previously pleaded guilty to stealing millions from Israeli investors in a real estate Ponzi scheme that he ran through Ergo Management, but he sought to withdraw his plea.  Barak is scheduled to be sentenced next month.

Pedro Fort Berbel, 55, and his companies Fort Marketing Group LLC and Fort Investment Group LLC, were sued by the SEC in a civil enforcement action alleging that they were running a “paid to click” Ponzi scheme. The scheme allegedly involved $38 million that lured in more than 150,000 investors. The scheme raised money by selling investment products called “ad packs” that supposedly would generate revenues by boosting web traffic for other sites. Investors were promised returns as high as 120% for purchasing an ad pack for as little as $1 and clicking on four banner ads per day. Investor funds instead were used for private jets, cars, and cosmetic surgery, and more than $400,000 went to a jeweler as a “business investment.”

Craig Carton, 48, pleaded not guilty and stated that he is “unequivocally not guilty” in response to charges that he was involved in a Ponzi scheme involving the buying and selling of tickets to sporting and entertainment events. Carton was indicted along with alleged co-conspirator, Michael Wright.

Louise Dalli and Claire Gauci Borda, the daughters of John Dalli, along with Eloise Marie Corbin Klein, Charles Ray Jackson, Elizabeth Jean Jackson, and Robert Mitchell McIvor, were charged with fraud and money laundering in connection with an alleged Ponzi scheme that defrauded evangelical Christians. John Dalli is the former EU Commissioner and has separately been accused of wrongdoing in the past. John has accused journalist Daphne Caruana Galizia and Giovanni Kessler of fabricating the story leading to the charges. The alleged Ponzi scheme was run by Klein who used the aliases of Mary Swan and Lady Bird, and she posed as a missionary, convincing elderly Christians to invest in an African mining project. Instead, the money was sent to two Maltese companies – Tyre Ltd. and Corporate Group – which are owned by Louise Dalli and Borda.

Mark Feathers, 54, has reached a settlement in principal on a plea deal in connection with charges that he defrauded investors through his company, Small Business Capital Corp. Feathers is an investment manager facing securities fraud charges in connection with a $42 million scheme. The scheme allegedly raised over $50 million from over 250 investors and promise them profits from membership interests in mortgage loan portfolio-backed investment funds.

Paul Garceau Jr., 51, pleaded guilty to charges that he ran a Ponzi scheme through his wealth management firm, Apex Wealth Management. Garceau stole over $800,000 from at least a dozen victims, promising them high returns when they withdrew their money from legitimate investments and invested with him instead.

Daniel Glick, 64, was charged in connection with an alleged Ponzi scheme in which Glick is accused of stealing at least $5.2 million from clients in his businesses, Financial Management Strategies Inc., Glick Accounting Services Inc., and Glick & Associates Ltd. The firms purported to provide accounting, tax, investment and financial services, and he told clients he would invest their money and pay bills on their behalf. He is accused of using some of the money to buy a Mercedes-Benz, repay business loans and make payments on his mortgage.

Wayde McKelvey, 54, lost his appeal to trim the charges against him based on a statute of limitations argument. McKelvey was accused of participating in a $54 million Ponzi scheme that promised profits from green technology that would turn trash into fuel and “carbon-negative” housing developments. The scheme was run through Mantria Corp. Troy Wragg and Amanda Knorr, both of whom previously pleaded guilty. McKelvey had raised money for the scheme through his “Speed of Wealth” seminars, telling investors that Mantria was the next Microsoft and that it was “on the cusp of a revolutionary technology that’s going to change the world, and you guys can benefit from it by putting money in and getting stinkin’ wealthy.”

Joseph Meli, 43, accepted a plea bargain in which he pleaded guilty to one count of securities fraud. Meli was a ticket broker accused of running a Ponzi scheme in which he promised investors a 10% return and a share of profits from the resale of tickets to shows like “Hamilton” and other high profile entertainment events. The scheme allegedly defrauded more than 130 investors who invested more than $95 million.

INTERNATIONAL PONZI SCHEME NEWS

Australia

Tony Iervasi, 53, was accused of running a Ponzi scheme that defrauded investors out of $209 million. The scheme operated as Courtenay House and Courtenay House Capital Trading Group and defrauded about 780 investors. Investors were promised 25% returns from supposed investments in foreign currency exchange markets. David Sipina is a joint director of Courtenay House Capital Trading Group and is the sole director of Sipina Enterprizes whose assets have been frozen. The scheme is believed to be the largest ever in Australia.

Canada

Milowe Brost and Gary Sorenson were released from prison after spending only 2 of their 12 year prison sentences. More than 2,400 investors had lost between $100 million and $400 million in connection with their Ponzi scheme.
  
Brian Wilfred Clemens, 49, pleaded guilty and was sentenced to 3 years in prison for his role in a Ponzi scheme involving bridge financing for real estate clients. Clemens collected $1.2 million from nine investors.

A class action was file against HSBC accusing the bank of failing to investigate fraudulent activity by Virginia Tan. Tan solicited more than $30 million from investors in connection with her bridge loan company. One of the bank accounts at issue was in Tan’s name and one was in the name of a company she controlled, Letan Investments.

Lino P. Matteo, the former CEO of Mount Real Corp., was sentenced to 5 years in prison and fined $4.91 million. Matteo was found guilty in September for running a scheme that defrauded more than 1,200 investors out of $130 million. In 2016, Matteo was also sentenced to an 8 year terms for defrauding investors of Cinar Corp. by sending more than $120 million to offshore Bahamian accounts.

England

BitConnect has been given two months to prove “cause to the contrary” that it has been running a Ponzi scheme. The scheme promises up to 40% return on investment each months.  The notice does not identify the people behind the Bitcoin investment platform, but another filing reflects that BitConnect was registered by Ken Fitzsimmons, who holds 75% of the shares in the company.

India

Government agencies began investigating the alleged Pincon Ponzi scheme run by Manoranjan Roy that defrauded 25,000 investors. Roy was arrested along with Binary Singh, Raghu Shetty, and Hari Singh. They had set up multiple shall companies as part of the scheme such as: LRN Finances, ASK Financial Services, Greenage Food Products Ltd, Bengal Pincon Housing Infra Ltd, LRN Universe Private Ltd and Universal Multi-state Credit Co-operative SocietyMosumi Roy, the wife of Manoranjan Roy, was also arrested in connection with the scheme.

GainBitcoin, a cryptocurrency scheme that guaranteed 10% monthly returns, is accused of scamming investors. The scheme, run by Amit Bhardwaj, has left investors with crypto tokens called MCAP that are worth less than 20% of the value of the initial investment supposedly held in Bitcoins.  All investment contracts were terminated with a promise to issue fresh contracts by the start of next year.

Pradeep Sethy, the chief of Artha Tatwa Group, was sentenced to 5 years in prison following his guilty plea relating to the Ponzi scheme.

Charges were brought against the directors of Maitreya Pvt Ltd, including Varsha Satpalkar, Lakshmikant Navekar, Vijay Tavre, Nitin Chaudhary, Janardan Parulekar and Vijay Mistri, for allegedly running a Ponzi scheme that defrauded 7,000 investors. The scheme promised returns of 12.5%. Related companies were Maitrea Realtors, Maitreya Services, Matreya Plotters and Structures, and Maitreya Swarna Siddhi.

Narayan Karmi and his aid Munu Pradhan were arrested for allegedly running a Ponzi scheme through Go Life Trading Pvt Ltd.

Pranati Dash, 48, and her husband, Prasanna Kumar Dash, were arrested in connection with an alleged Ponzi scheme run through Flourish Development India Limited. Sriballabh Prasad Nayak was also arrested in connection with the scheme that collected over Rs crore from 40,000 investors. The scheme involved investments in real estate, production, music, tourism, and the hospitality business.

A case was file against Haldar Realty and Enterprise Ltd. and Halar Vikas Credit Cooperative Society Ltd. for operating an alleged Ponzi scheme. The complaint names, among others, Bhupatsinh Solanki, Arvindkumar Vakhtariya, Anita Vakhtariya, and Hemant Mandloi.

Nigeria

The MMM scheme has again left Nigerians stranded. Over 3 million Nigerians invested in MMM but the scheme announced a “restart” and blamed the fact that it can’t sustain operations on the government and media. MMM announced that “All transactions with old mavros (acquired before this announcement is posted) are frozen. We will gradually buy them back as the system develops. All transactions with new mavros (acquired after this announcement is posted) will be carried out on the usual terms with no restrictions.”

South Africa

Following a protest by almost 800 people demanding payment, David Cupido was given permission to distribute funds to investors that had been frozen when his offices were raided last year. The scheme, 4th Power Investment, had stopped paying investor last year, and authorities raided Cupido’s home, seizing computers and equipment, and also freezing bank accounts.

Singapore

Leong Lai Yee, 53, was charged with defrauding 60 investors out of about $60 million in a real estate Ponzi scheme. She promised investors returns of 10% to 48% from the purchase of distressed properties in Singapore.

South Korea

Police arrested 7 men accused of running a $38 million Ponzi scheme that defrauded more than 3,900 investors. The scheme targeted new investors in the cryptocurrency market and promised them 180% returns.

Taiwan

The Supreme Court upheld the guilty verdicts for Hung Pai-li and Lai Lung-ying, who operated a Ponzi scheme involving Lan Chin Technologies Co. The court also upheld the 5 year prison sentence for Hung and the 22 month sentence for Lai. They defrauded 2,320 investors out of $66.3 million by representing that sales of deep sea water would guarantee an 18.25% to 20% return. The court also upheld the convictions of Lee Ching-feng, and Chen Te-feng and their two year prison sentences for aiding and abetting fraud.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

A group of 27 Chinese investors in the Bar Works scheme sued JP Morgan Chase for $3 million for its alleged role in connection with the scheme run by Renwick Haddow. The lawsuit alleges that the bank knew Bar Works was a Ponzi scheme but still allowed the company to keep a bank account. Haddow has been accused of stealing $37 million from investors.

The Chief Information Officer, David Gledhill, at DBS Bank stated that the bank views bitcoin as a Ponzi scheme.

The Special Master appointed by the Department of Justice began distributing $772.5 million in funds to approximately 24,000 victims of the Bernard Madoff Ponzi scheme. The Department of Justice has collected more than $4 billion in forfeited funds to be distributed to victims.

A proposed class action lawsuit was filed against Chaitman LLP and Becker & Poliakoff LLP alleging misconduct by lawyers representing different classes of victims in the Bernard L. Madoff Investment Securities LLC case being administered in a SIPC proceeding. The lawsuit alleges that clients of the firms were not adequately represented in light of competing interests of the Madoff victims they represented and by allegedly lying to the victims about the trustee’s willingness to settle. In addition to “irreconcilable” conflict, the lawsuit also alleges that over billing took place for “unnecessary” and “often unproductive” work.

A federal judge dismissed a $5 billion class action lawsuit against Proskauer Rose LLP, filed by a group of investors in the $7 billion Robert Allen Stanford Ponzi scheme.

A class action was permitted to proceed against the Louisiana Office of Financial Institutions which alleges that the agency was negligent in turning a blind yet to the Robert Allen Stanford Ponzi scheme. The lawsuit also alleges that SEI Investments Co. aided Stanford Trust and Stanford Group Co. to perpetuate the fraud.

The Fifth Circuit held that American International Group Inc. is not obligated to provide coverage to a company that was a victim in the $554 million WG Trading Co. Ponzi scheme run by Paul Greenwood and Stephen Walsh. Cooper Industries Ltd. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 2017 U.S. App. LEXIS 23349 (5th Cir. Nov. 20, 2017). The court based its decision on the fact that the policyholder no longer owned the funds it had loaned the criminals. 

Tuesday, October 31, 2017

October 2017 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for October 2017. The reported stories reflect: 4 guilty pleas or convictions in pending cases; over 153 years of newly imposed sentences for people involved in Ponzi schemes; at least 3 new Ponzi schemes worldwide; and an average age of approximately 47 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.

Scott Allensworth, 64, and David Weddle were charged by the CFTC in an alleged Ponzi scheme. Allensworth runs Capital Growth Group Associates and E-Slate Inc. dba Cobra Development Group LLP, and Weddle is the majority owner of JustInfo LLC. Robert J. Fusco was also charged. Investors were solicited by JustInfo LLC and were allegedly lied to about a futures trading scheme. The scheme raised at least $2.84 million from at least 57 investors, and investors were promised 20% to 25% returns.

Steven Canady, 45, was sentenced to 6 to 18 years in prison in connection with a $7 million Ponzi scheme run through Alliance Warburg Capital Management. Canady had previously been accused of running a Ponzi scheme that promised 1000% returns in 30 days, which subject Canady and his company, Canady Holdings, to a cease and desist order and fines in 2006.

Marc A. Celello was sued by the SEC in connection with his role as general counsel for Credit Nation Capital LLC. Credit Nation and its CEO, James A. Torchia were accused of running a Ponzi scheme. Torchia consented to judgment in a related SEC civil lawsuit against him. The SEC alleges that Celello helped orchestrate the Ponzi scheme that involved unregistered promissory notes that falsely promised returns of 9%.

Chad Roger Deucher, 44, was sentenced to 7 years in prison and ordered to pay more than $16.5 million in restitution in connection with a Ponzi scheme run through Marquis Properties that defrauded investors out of $16 million. Deucher used direct solicitation, radio ads, a website and seminars to locate investors and promise them returns as high as 22%. He represented that the investors’ funds would be used to purchase and rehabilitate properties. 

Homero Josh Garza and his company, GAW Miners, were the subject of a final judgment in favor of the SEC in the amount of $9.2 million plus $743,000 in interest. Garza previously pleaded guilty to a charge relating to the running of a Ponzi scheme involving virtual currency. Garza formed GAW Miners, ZenMiner, and ZenCloud to engage in the mining of virtual currencies.

Pedro Jaramillo aka Enrique Jaramillo, 49, was sentenced to 12 years in prison for a Ponzi-like commodities scheme. The scheme defrauded more than two dozen investors in countries in Latin America out of more than $1.2 million.

Andrew D. Kelley, 41, was sentenced to 41 years in prison and ordered to pay about $8 million in restitution in connection with an investment scheme run though his company, Blackbird Capital Partners. Kelley told investors he was a faithful member of The Church of Jesus Christ Latter-day Saints and that he would invest in various security and futures instruments. Kelly lost investor funds, first blaming the loss on Brexit and then admitting to Ponzi-like activity. He said, “I am delusional. I am a compulsive liar” and he tried to convince investors that he could “trade his way out of it” if they wouldn’t report him to authorities.

Rick Koerber again escaped charges that he ran a Ponzi scheme as a jury deadlocked and the judge declared a mistrial over the prosecutors’ most recent attempt to find Koerber guilty of running a Ponzi scheme. In 2015, a court dismissed the prosecutors’ case, finding that Koerber’s right to a speedy trial was violated and that prosecutors acted unethically. On appeal the case was remanded and prosecutors were allowed to refile charges. Prosecutors accused him of running a $100 million Ponzi scheme, but Koerber maintains that he was making legitimate investments.

Newegg, Inc., a computer parts and accessories retailer, was sued by four South Korean banks which allege that Newegg is operating a Ponzi scheme. The complaint alleges that Newegg, along with computer wholesaler ASI Corp. made fraudulent orders for home theater personal computers from Moneual, a Korean hardware manufacturer. Moneual is accused of masterminding the scheme and using the phony orders to secure financing from the banks.

Bernard Parker, 57, was sentenced to 87 months in prison and ordered to pay $1.2 million in restitution in connection with a Ponzi scheme that he ran through Parker Financial Services. Parker promised investors returns from contracts in which they would buy tax lien certificates for real estate in Florida, Arizona and Colorado.

Cleber Rene Rizerio Rocha, 28, pleaded guilty to his role in attempting to transfer some of the proceeds of the TelexFree Inc. Ponzi scheme. Rocha was caught at a restaurant handing $2.2 million in cash to a witness who was cooperating with the government and then led agents to $17 million that was hidden under a mattress.

Michael Scronic, 46, was charged in connection with an alleged Ponzi scheme that defrauded at least 45 investors out of more than $19 million. He advised investors that he was investing n publicly traded options and cash so he could meet any redemption requests in 2 business days. Scronic invested in risky investments and lost 88% of the investors’ principal.

Steven Simmons, 48, pleaded guilty to charges stemming from a Ponzi-like scheme that he ran with Joseph Meli in a ticketing scam. The scheme was a ticket reselling scheme for popular shows like “Hamilton.” Simmons solicited more than $6 million for the hedge fund, Sentinel Growth Fund Management LLC. Sentinel’s founder, Mark Varacchi, pleaded guilty in February.

Michael Wright, 30, pleaded guilty to commodities fraud charges in connection with a scheme run through his company, Wright Time Capital Group. The scheme raised $400,000 from investors for foreign exchange trades.

INTERNATIONAL PONZI SCHEME NEWS 

Belgium

Regulators warned that Five Winds Asset Management and QW Lianora Swiss Consulting SA have been offering investment services in Belgium contrary to financial legislation and that the companies’ program resembles a Ponzi scheme. The companies seem to have ties with Questra World, Questra Holdings and Atlanta Global Asset Management, firms that have been the subject of public warnings.

Canada

Investors in the Virginia Tan Ponzi scheme sued HSBC Bank Canada in a class action lawsuit. Tan’s scheme defrauded victims out $30 million and promised them 12% to 24% returns.

Finland

Authorities continue to investigate OneCoin as an alleged Ponzi scheme.

New Zealand

Paul Clifford Hibbs, 49, pleaded guilty to charges that he ran a Ponzi scheme through Gladstone Investments Limited and Hansa Limited. Investors lost $17.5 million and many of them were elderly.

Shane Richard Scott, 60, pleaded guilty to charges that he ran a Ponzi scheme and he was sentenced to 4 years and 8 months in prison. Scott told investors he was investing in the diamond trade, deals brokered in Thailand, a chicken farm in New Caledonia, property developments, fertilizer export, importing and exporting heavy machinery, financing importers to pay duties or GST and credit provision.

Philippines

Regulators warned the public against investing in Pluggle Incorporated, which is an online advertising website that is not authorized to solicit investments. Pluggle promises a return of 30% to 100% in 12 days. Pluggle responded that it is not an investment company and that “maybe some members misrepresented Pluggle when talking to people.”

Russia

Officials compared Bitcoin to the MMM Ponzi scheme, largely based on the amount of unqualified investors buying into cryptocurrency.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

The Sixth Circuit affirmed the dismissal of a proposed class action brought against PNC Bank NA by investors in the William and Connie Apostelos Ponzi scheme. The scheme involved $70 million. Investors alleged that the bank should have known about the scheme and facilitated the scheme by allowing the perpetrators to use the bank’s infrastructure to sell promissory notes as part of the fraud.  Cruz v. PNC Bank N.A., 2017 U.S. App. LEXIS 19591 (6th Cir. Oct 4, 2017).

A New Jersey appellate court reversed a jury verdict of more than $600,000 in favor of a client against his financial planner, Brian Patrick Carr. Everett C. Miller, the founder of Carr Miller Capital Investments LLC, had been sentenced to 10 years in prison in connection with an admitted fraudulent scheme. Carr was not criminally charged but was the only remaining defendant in a civil suit brought by Oleg Shtutman in connection with the fraudulent scheme. The appellate court found that Carr’s statements that the investment had low or no risk were “a vague expression of corporate optimism and puffery upon which no reasonably investor would rely.” Shtutman v. Carr, 2017 NJ. Super. Unpub. LEXIS 2507 (Oct. 4, 2017).

A court approved a $9.8 million settlement of a malpractice lawsuit against Greenberg Traurig in connection with the Mortgages Ltd. Ponzi scheme.

City National Bank NA and its senior vice president Patrick Brian Fitzwilliam were hit with a putative class action accusing them of aiding the ATM investment Ponzi scheme run through Nationwide Automated System by Joel Gillis, 77, and Edward Wishner, 78. The lawsuit alleges that the bank and manager helped to cover negative bank balances and vouched for the integrity of the program.

Financial advisers who sought to force arbitration of disputes in connection with the R. Allen Stanford Ponzi scheme lost their bid to overturn a Fifth Circuit decision ruling against them. The Supreme Court denied their petition claiming that the receiver of the Stanford scheme should be bound by arbitration clauses in the employment contracts. 

Saturday, September 30, 2017

September 2017 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for September 2017. The reported stories reflect: 7 guilty pleas or convictions in pending cases; over 100 years plus one life sentence of newly imposed sentences for people involved in Ponzi schemes; at least 5 new Ponzi schemes worldwide; and an average age of approximately 58 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.

Nicholas Baratoff, 80, pleaded guilty and was sentenced to 5 years’ probation in connection with a Ponzi scheme in which he promised to invest money for others but instead used the money to fund his lavish lifestyle and to pay other clients with new funds.

Larry Bates, 73, was sentenced to 21 years and 10 months in prison and ordered to pay more than $21 million for operating a Ponzi scheme through First American Monetary Consultants that defrauded more than 400 victims. Bates told listeners of his Christian broadcast programs that they should buy gold and silver coins as financial protection from a supposedly imminent religious and economic collapse called “Mystery Babylon.” Investors paid $87 million into the scheme to buy precious metals, but Bates and his two sons, Chuck Bates and Robert Bates, and daughter-in-law, Kinsey Bates, kept the money for their personal use. Chuck and Robert were sentenced to more than 12 years and Kinsey received more than 5 years.

Brian R. Callahan, 47, was sentenced to 12 years in prison and ordered to pay almost $67.6 million in connection with a $118 million Ponzi scheme in which Callahan allegedly siphoned off $96 million. The scheme involved 40 investors whom he promised returns from investments in mutual funds, hedge funds and other securities. Instead, Callahan purchased Panoramic View, a struggling 117 unit beachfront resort and residence development that he owned with his brother-in-law and co-defendant Adam Manson.

Craig Carton, 48, was charged with running a Ponzi scheme involving the ticket-resale industry. Carton has hosted the WFAN radio show, Boomer and Carton in the Morning, with NFL quarterback Boomer Esiason since 2007, but Esiason is not accused of any wrongdoing. Michael Wright, 41, was also charged alongside Carton. Carton has also been sued for fraud by the SEC, which accused Carton and Joseph Meli, 43, of raising more than $5 million from investors claiming access to tickets for resale. Mark Varacchi has pleaded guilty to charges in connection with the scam. Carton allegedly used the money to repay a $2.5 million gambling debt. Carton resigned from the WFAN after his arrest for allegedly being part of a $5.6 million Ponzi scheme.

Bryan Coats and Jonathan Davey, 52, lost a partial summary judgment to the CFTC and a preliminary injunction was ordered against them in connection with a $40 million Ponzi scheme run through Black Diamond involving a currency trading platform which didn’t actually exist. Coats and Davey were previously sentenced to 21 years and 15 years, respectively, in connection with the scheme.

Nicholas Gelfman and his firm, Gelfman Blueprint Inc. (GBI) were sued by the CFTC and accused of running a $600,000 Bitcoin Ponzi scheme. The scheme promised 7% to 9% monthly increase in bitcoin from supposedly sponsoring a high-frequency bitcoin trading algorithm called “Jigsaw.” Gelfman allegedly tried to conceal the Ponzi scheme by claiming that the company had been hacked and that all customer funds had been stolen. The scheme took in $60,000 from 80 investors.

Robert Allen Helms and Janniece Kaelin were sentenced to 78 months in prison for a Ponzi scheme they ran through Vendetta Royal Properties. They had promised at least 80 investors that they would use their funds to acquire oil and gas royalty interests.
  
Michael S. Holcomb, 74, Gary L. Holcomb, 72, Jennifer L. Chalmers, and Kristen S. Van Breemen all pleaded guilty to charges that they operated a Ponzi scheme through their businesses, Berjac of Oregon and Berjac of Portland. Prosecutors alleged that the scheme defrauded more than 400 investors out of more than $40 million.

Jeremy R. Lundin, 30, was charged in connection with an alleged scheme run through his company, Big Island Capital. Lundin solicited more than $1 million from at least 51 investors and promised 67% to 97.8% returns through options trading. Lundin used the money to buy a Maserati and a boat and to pay off personal debts and take a trip to Paris. Lundin was previously booked for choking is wife and threatening to stab her with a broken lamp, and was convicted of assaulting a police officer after spitting on an officer’s arm during a traffic stop. Lundin pleaded guilty, acknowledging that he created phony account statements and provided investors online access to fictitious quarterly statements.

Hamlet Peralta, 38, was sentenced to 5 years in prison and ordered to pay $5 million in restitution in connection with a $12 million Ponzi scheme that he ran under the guise of a wholesale liquor business.

Stephen Peters and his company, VisionQuest Wealth Management, LLC, had their assets frozen in connection with allegations that Peters took millions of dollars from more than 70 investors. No charges have been filed, but a civil case that has been filed names Peters his companies and his wife, Amy Peters.

David Petersen lost his appeal of his conviction and 5 year sentence in connection with a Ponzi scheme run through Westover Energy Trading LLC and Ramco and Associates LLC. The Eleventh Circuit denied his appeal.  U.S. v. Petersen, 2017 U.S. App. LEXIS 17671 (Sept. 13, 2017).

Hasan Sarwar aka Alexander Sarwar dba Profit Management Int. and his spouse, Rachida Elfimi dba Profit Management, were charged by the CFTC with running an alleged $1.2 million Ponzi scheme through a futures commodity pool. The scheme allegedly defrauded more than 40 investors, promising them that they would double their money in less than 5 months.

Sen. Carlos Uresti, a Texas state senator under a fraud indictment, pleaded not guilty but acknowledged that the company FourWinds Logistics “might have been a Ponzi scheme.”

Leon Vaccarelli, 40, was charged with running an alleged Ponzi scheme. Vaccaerelli and his financial advisory firm, Lux Financial Services, allegedly defrauded at least nine victims in a scheme that lasted more than four years and took in more than $1 million.

James VanBlaricum, 78, was sentenced to 7 years in prison and ordered to pay $322 million in restitution in connection with a Ponzi scheme that he ran through Signal Oil and Gas Co. and Texas Energy Management. VanBlaricum previously pleaded guilty to defrauding investors into buying securities in his oil and gas companies.

INTERNATIONAL PONZI SCHEME NEWS 

Canada

James Harvey Cameron, 66, was sentenced to 11 years in prison, ordered to pay $1.8 million in restitution and a $550,000 fine for tax evasion in connection with a $9 million Ponzi scheme that he ran through Venture Trading Inc. About 160 people invested in the scheme.

Benoit Senecal, 61, was sentenced to 2 years and 10 months in prison in connection with a Ponzi scheme that defrauded more than 200 investors out of $19 million. Sophie Jolicoeur, 48, and Jean-Mark Lavallee, 69, have also been charged in connection with the scheme.

Harold Backer, 54, is facing disciplinary proceedings over an alleged Ponzi scheme involving about $1,230,000 taken from at least 6 clients and 2 individuals. Backer disappeared in 2015 after failing to cooperate with an investigation into his conduct, but turned himself in about 18 months later.

Yian “Ethan” Sun and Yulan “Amy” Hu have been sued by both employees and investors in Istuary Innovation Labs Ltd. who allege that the tech company is running a Ponzi scheme. The company has 400 workers in North America and 1100 in China and has now closed its Vancouver office. The company was started in 2013 with the goal of linking high tech start-up companies in Canada with potential customers in China.

China

Ding Ning, the founder of Ezubao and chairman of its holding company Anhui Yucheng Holdings Group, was sentenced to life imprisonment in connection with the $7.6 billion Ponzi scheme that defrauded about 900,000 investors. Ding Dian, brother of Ding Ning, was also sentenced to life imprisonment, and 24 others received sentences ranging from 3 to 15 years. 

India

Kamalakanta Pattnaik, the founder of Sai Pragati Assets and Properties Pvt Ltd. was arrested in connection with an alleged Ponzi scheme.

Sanjit Bhowmik and Mithun Chatterjee were arrested in connection with alleged Ponzi schemes run through Sagarika Realtors Projects India Ltd. and Sagarika Mutual Benefits Funds Ltd.

Mugundhan Gangam, Sellathrurai Bhaskar, Chella Dhuri, Amal Raj, Ram Krishna Murthy and Kamal K Bakshi were charged in connection with an alleged Ponzi scheme run through Unipay 2U Marketing Pvt Ltd and Unigateway 2U Trading Pvt Ltd.

New Zealand

Hamish McIntosh, a defrauded investor in the scheme run by Ross Asset Management, is liable for interest on the $454,047 judgment against him to return fictitious profits received from the scheme. The High Court ruled that not only must the fictitious profits be returned, but McIntosh is liable for interest at 5%. The McIntosh case is a test case and the liquidators of Ross Asset Management intend to pursue other investors as well.

Shane Richard Scott, 60, pleaded guilty to running a $5.4 million Ponzi scheme that promised investors high returns from property developments and overseas investments. Scott told investors he was investing their money in brokering deals in Thailand, the diamond trade, South African trade deals, and a chicken farm in New Caledonia.

South Africa

Sandile Mantsoe, 27, has been accused of running a Ponzi scheme through his company, Trillion Dollar Legacy. At least 124 people claim that Mantsoe scammed them through his forex trading company. Mantsoe was previously arrested for the murder of his girlfriend, Karabo Mokoena.

Graeme Minne, 54, and his wife, Carolina Minne, 52, were sentenced 15 years and three year house arrest, respectively, for a Ponzi scheme that promised high returns of up to 65% from forex trading. The scheme took in about R278,786,853 from about 934 investors.
  
Thailand

Officials raided the house of Pudit Kittihradilok, the managing director of The System Plug and Play Company and Innovation Holding Company. The scheme is alleged to have defrauded over 5,000 investors.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

The Eleventh Circuit affirmed a lower court order denying the motion of the United States to dismiss a complaint against it filed by a bankruptcy trustee seeking avoidance of the debtor’s federal tax payment.  The trustee alleges that the tax payments were fraudulent made by DBSI, Inc. Zazzali v. U.S. (In re DBSI, Inc.), 2017 U.S. App. LEXIS (9th Cir. Aug. 31, 2017).

Thema International Fund PLC, an Irish fund that sent investor money to Bernard Madoff, agreed to pay the trustee over the Madoff scheme $687 million to settle claims.

The receiver in the Arthur Nadel Ponzi scheme made an additional distribution of $5 million to about 400 victims who were defrauded in the scheme. This brought the investors’ total recovery to 52% of their losses. This was the seventh distribution, bringing the total to $68 million.

Ritchie Capital Management lost its request to terminate the receivership over the assets of Thomas Petters. U.S. v. Petters, 2017 U.S Dist. LEXIS 158769 (Sept. 27, 2017).

The liquidating trustee of Banyon 1030-32 LLC, one of the feeder funds in the Scott Rothstein $1.2 billion Ponzi scheme, filed a lawsuit against Harden & Associates, claiming that the insurance broker’s negligence caused the fund’s insurers to deny coverage. The firm had been hired to obtain $70 million in commercial crime insurance to protect the fund from theft by Rothstein.

Prosecutors withdrew a motion to shorten Scott Rothstein’s 50 year prison sentence, saying that he lied to the government and violated the terms of his plea deal. They had asked the judge to reduce Rothstein’s sentence because of his help in bringing down about 30 others in connection with the scheme. Rothstein intends to object to the prosecutors' decision.

Hunton & Williams LLP settled allegations that it aided Robert Allen Stanford in his $7 million Ponzi scheme. The settlement involves payment of $34 million that will go to benefit some of Stanford’s thousands of victims.

The receiver of the Stanford Financial Ponzi scheme was denied his post-verdict request to revive an $88 million fraudulent transfer claim against Gary Magness. The receiver, who believes that court gave improper jury instructions on the standard for a good faith defense, has vowed to appeal the ruling.