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

Tuesday, January 31, 2017

January 2017 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for January 2017. The reported stories reflect: 5 guilty pleas or convictions in pending cases; over 58 years of newly imposed sentences for people involved in Ponzi schemes; at least 4 new Ponzi schemes worldwide; 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.

Gino F. Accettola, 49, signed a consent agreement in a civil lawsuit and agreed to repay $12 million, which includes treble damages, although he appears to have no ability to do so. In an alleged Ponzi scheme, Accettola stole $3.8 million from 9 companies and 2 individuals after he induce them to invest in commercial construction jobs in Michigan. Accettola has not been criminally charged.

David Boden, 55, was disbarred by the Florida State Bar for his role in the Scott Rothstein Ponzi scheme. Boden was a non-equity shareholder in Rothstein’s law firm and had engaged in a conspiracy to broker the sale of purported settlement agreements to investors. Boden had pleaded guilty to wire fraud in connection with the scheme in 2014.

Christopher K. Brenner and Jay Mac Rust lost their attempt to dismiss the SEC lawsuit against them accusing them of running an investment scheme. The two lawyers acted as escrow agents and collected $13.8 million from clients. The SEC alleged that they collected funds from 29 small business owners representing that the funds would be used by a company they worked for, Atlantic Rim Funding, to purchase government-backed securities that would then be leveraged to obtain large loans.

Angel Brongsgeest, 55, pleaded guilty to her role in a $3.5 million Ponzi scheme run through her company, The Equity Growth Group aka TEGG. Brongsgeest made false promises in the scheme run with Shawn Patrick Watkins, 46, who solicited investors during seminars offered by Investororkshops, Inc. At least 50 investors were defrauded.

Donna S. Brown, 66, was sentenced to 10 years and one month in prison for a Ponzi scheme in which she defrauded 200 to 800 or more investors out of at least $31 million. Brown had pleaded guilty to running the scheme of Budget Finance Co., which was licensed as a consumer lender.

Clayton Cohn, 30, was sentenced to 4 years and 4 months in prison and ordered to pay more than $1.55 million in restitution in connection with his investment fraud scheme. Cohn ran the scheme through Marketaction, which promised returns “in a variety of financial instruments.” He promised returns of 180% and said he had “skin in the game” with $1.5 million of his own money invested. Instead, about $1.8 million of investor funds came in, and Cohn used much of the money on himself to pay credit cards, to purchase homes, and to spend at nightclubs and casinos.

David deBarardinis, 55, was named in a lawsuit accusing him of running a Ponzi scheme that may have involved $80 million. The lawsuit also names Todd Muslow, the chief financial officer of one of deBerardinis’ companies and his father, Richard Muslow. deBarardinis is also currently under criminal investigation.

Donald Dodge, 74, who was previously sentenced to 6 years for running a Ponzi scheme with Scott Farah, was released from prison. They ran the scheme through Financial Resources Mortgage, Inc. and CL&M, Inc., a private mortgage brokerage. FRM brought in the borrowers and investors, and CL&M served as the bank where the funds were deposited. The scheme brought in at least $82 million, and Farah withdrew more than $20 million from CL&M. Farah is still serving his 15 year sentence.

Catherine Ann Finberg pleading guilty to operating a Ponzi scheme that took more than $1.5 million from 28 investors. Finberg is the assistant coach of a high school’s girls’ basketball team, but defrauded mostly elderly people who expected Finberg to invest their funds on their behalf. 

Gregory Gray, 41, agreed to pay $8 million in disgorgement to the SEC in a settlement with the SEC over allegations that he operated a $5 million Ponzi scheme involving fake purchases of Twitter and Uber shares. Gray was sentenced to 2 years in prison last October but did not admit or deny the SEC’s allegations.

Francisco “Frank” Hobson, 40, was sentenced to 6½ years in prison and ordered to pay about $1.6 million in restitution in connection with a real estate Ponzi scheme that took in more than $2.3 million. Hobson used the funds for travel, cosmetic surgery and to make payment to investors. Hobson advertised that investor funds would be used to purchase properties, but the properties were not actually for sale or did not exist.

Rick Koerber was re-indicted on charges that he operated $100 million Ponzi scheme. Charges against Koerber had previously been dropped because of government misconduct found by a court, but new charges were filed against the real estate investment guru. Koerber ran the scheme through Franklin Squires Cos. and Founders Capital, promising 2% to 5% returns per month. 

Leone Alfano La Cava was arrested on charges that he was running a $4 million fraud, and his indictment was unsealed. La Cava allegedly created fake deeds that falsely stated that investors owned real estate and that they were receiving rent payments. Most of the victims appear to be Italian, although some may also be Venezuelan. Victims allege that the scheme involves at least 100 victims and $40 million. 

LegendBit launched and was immediately alleged to be a new Bitcoin Ponzi scheme. The company offers 15% returns every day for the life of the account. The website does not mention how the company will make money and makes reference to Bitcoin Rocket Limited, which has been alleged to be another cryptocurrency Ponzi scheme run by the same people. 

Joseph Meli, 42, and Steve Simmons, 48, the head of Sideris Capital Partners, were arrested on allegations of securities fraud.  Meli and Matthew Harriton, 52, were separately accused by the SEC of orchestrating an $81 million Ponzi scheme by using investor funds to buy and resell tickets for popular shows, including the Broadway musical “Hamilton.” The scheme was run through Advance Entertainment LLC and involved 125 investors.

Yasuna Murakami was accused of running three hedge funds that operated as a Ponzi scheme taking in $15.3 million from 47 investors. The funds were MC2 Capital Partners Fund, MC2 Capital Value Partners Fund, and MC2 Capital Canadian Opportunities Fund.

Bryan Oulton and Thomas “Sandy” Swartzbaugh were named in a civil lawsuit alleging that they were operating a Ponzi scheme through Players Poker Championship (PPC Poker Tour). They were named in a complaint accusing them of operating “a complex international Ponzi scheme involving poker tournaments at myriad casinos inside – and outside – the United States . . .”

Cleber Rene Rizerio Rocha, 28, was arrested in connection with the TelexFree Ponzi scheme. Rocha not only has ties to a nephew of TelexFree figure Carlos Wanzeler, but he was found with $20 million cash in a box spring in an apartment in Massachusetts. Acting as a courier of cash for Wanzeler’s nephew, Rocha flew from Brazil to New York City to allegedly assist in the laundering of TelexFree cash through Hong Kong to Brazilian accounts.

Scott Rookus, 45, was sentenced to 7 – 20 years in prison and ordered to pay $4.3 million in restitution in connection with a Ponzi scheme he ran through New Haven Holdings. Many of the victims were senior citizens, and Rookus used their money to pay for his children’s private school tuition and tax liens against him. He pleaded guilty in December.

Rick Siskey took his own life at the age of 58 a week after a court issued on order that his house may be subject to forfeiture by the government. Siskey allegedly ran a $31 million Ponzi scheme through his company, TSI Holdings, in which he defrauded over 100 investors. Many of the investors were elderly and unsophisticated and were told that they investments were “safe” in a “guaranteed fixed rate of return investment.” Investor funds were used to pay for his home, two Bentleys, a Ferrari, two Mercedes, a Corvette and a Harley Davidson.

Steven Scudder, 62, pleaded guilty to charges relating to the $70 million Ponzi scheme run by William and Connie Apostelos. Scudder had served as the trustee of the WMA Trust, a land trust that supposedly was to secure investments that investors had made with William Apostelos. Scudder had resigned from the Trust, but continued to tell people he was trustee, during which time about 10 people invested more than $1 million.

Germaine Theodore, 36, pleaded guilty to one of two charges relating to a Ponzi scheme in which he stole approximately $298,000 from over 200 customers of his two debt relief businesses – TGC Movement and Save My Future. Theodore claimed he could reduce customers’ monthly bills by 35%, they could submit their bills to his companies along with 65% of the amount due, and a government grant program or private investors would pay the remaining 35%.

Navin Shankar Subramaniam Xavier, 44, pleaded guilty to charges in connection with a $29 million Ponzi scheme relating to sugar transportation and iron ore mining in Chile and a second scheme to illegally obtain economic development funds from the State of South Carolina. Xavier operated Essex Holdings Inc. and raised more than $29 million from nearly 100 investors. Xavier used much of the money to support his lavish lifestyle, including expensive jewelry.

INTERNATIONAL PONZI SCHEME NEWS 

Australia

It was disclosed that the federal government agency, Austrade, had recommended a Ponzi scheme to Australian businesses. Austrade had promoted the Pearls Group Ponzi scheme despite the fact that it was being investigated by Indian authorities.

Pastor Colin Davids of the New Direction Church, was charged with running a Ponzi scheme that involved R330 million.

Pastor David Cupido is being investigated for running a Ponzi scheme.

Belize

Two Italian foreign investors, Domenico Giannini and Fabio de La Rosa, who were supposedly developing an ultra-luxury, 8 star resort to be called Puerto Azul, were arrested on allegations that they were using the project as part of a Ponzi scheme that defrauded over 200 investors out of over 20 million euros. John Travolta and Andrea Bocelli have been photographed in connection with the launch of the project and are believed to be investors. The resort was to have been built between 2013 and 2017, but the environmental impact assessment needed to start the project was never submitted.

Canada
Quintin Earl Sponagle, 51, pleaded guilty to one charge relating to a Ponzi scheme that defrauded Nova Scotia churchgoers out of millions of dollars through his company Jabez Financial Services. A total of 189 investors were defrauded out of $4.1 million. Sponagle had fled to Panama but was arrested there in 2013 at the request of Canada in 2013. He spent a year in prison in Panama, pleaded not guilty when he returned, but recently changed his plea to guilty. His sentencing was delayed so that 200 victims can be contacted to see whether they want to make victim impact statements.

Dubai

Sydney Lemos, who was arrested in December on charges that his company, Exential Group, defrauded nearly 7,000 investors, has launched a new firm called Pinnacle Asset & Investment Management, which is trading under the Exential banner. Exential promised profits of 100 to 150%.

England

Stephen Greig, 73, was sentenced to 6 years in prison in connection with a £1.2m Ponzi scheme. Greig offered returns of 7.5% through fictional investments such as Charles Stanley Capital Bond.

India

Sudip Bandvopadhvav, a Trinamool Congress Parliamentary party leader, was arrested in connection with the Rose Valley fraud. Another Trinamool Congress MP, Tapas Paul, was also interrogated and arrested in connection with the scam.

Gainbitcoin, which is related to GBMiners through Amit Bhardwaj, is alleged to be a Ponzi scheme. Gainbitcoin guarantees a 10% return per month on investments. Indian bitcoin exchange Zebpay warned customers against the cloud mining schemes. Bhardwaj is also associated with bitcoin wallet, Coinbank, which is reported to soon offer a 1.5% monthly interest rate on fixed deposits.

New Zealand

Paul Clifford Hibbs and his company, Hansa, have been accused of running a Ponzi scheme in which investors say at least $20m is missing. Liquidators believe that related entities such as Cameron Gladstone Investments are also involved in the fraud. The assets of Hibbs have been frozen by the liquidators.

Nigeria

The MMM Nigeria scheme tweeted that investor funds would be unfrozen on January 14. The accounts were actually unfrozen a day early on January 13. MMM also announced that it would start accepting Bitcoin and that it will have “30% growth” through the Bitcoin system. A poll taken after MMM came back show that 40% of Nigerians polled say they will invest a lot of money in MMM Nigeria.

Chuddy Anayo Ugorji, who was alleged to be the brains behind the MMM Nigeria scheme, denied having anything to do with Naija Helps Givers. Ugorji denies bringing MMM to Nigeria, stating that he is one of the administrators of it, not the creator. Ugorji then allegedly fled the country with his wife and went to the Philippines.

Isima Odeh aka Tunde allegedly defrauded Nigerians out of N600,000 from a WhatsApp group he created called Togetherness.

A new scheme called Twinkas emerged, promising to pay 200% returns to investors. The website reflects that the scheme was supposedly created “to promote the greatest good, with a particular emphasis on helping man and the environment.” The scheme requires that investors “donate” a set sum and then Twinkas will assign referrals to pay the investor. The website promises that any amount invested in each of the categories will double after one month of maturity.

Singapore

Kalimahton Md Samuri, 55, was sentenced to 12 years in prison for defrauding 15 victims out of more than $3.85 million. Known as the “Pawnshop Princess,” she posed as a member of the Brunei family, calling herself Datin Sharinah, and defrauded a jeweler into giving her jewelry that she then sold at a pawn shop.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

A court dismissed a lawsuit against PNC Bank that alleged the Bank aided the $70 million Ponzi scheme run by William and Connie Apostelos. Cruz v. PNC Bank, N.A., 2017 U.S. Dist. LEXIS 3531(S.D. Ohio Jan. 10, 2017).

The Sixth Circuit found that David Keith Freeman must still pay a $1.5 million settlement to the receiver of Cash Flow Financial LLC, a Ponzi scheme operated by Freeman and Dale W. Toler, even though Toler committed suicide. Stenger v. Freeman, 2017 U.S. App. LEXIS 105 (6th Cir. Jan 18, 2017). Toler, Freeman and Stenger had signed a settlement agreement that resolved the transfer of $1.5 million by Cash Flow Financial to C.I. Solar Solutions Inc., an entity controlled by Toler and Freeman. Freeman was the president of Jedburgh Group International Inc., which acted as the escrow agent for the Cash Flow Financial investments.

A bankruptcy court declined to apply the Ponzi scheme presumption in Perkins v. Lehman Brothers (In re International Management Associates, LLC), 2017 Bankr. LEXIS 59 (N.D. Ga. Jan 10, 2017). The trustee of International Management Associates, LLC sought recovery transfers of $6,640,000 made to a brokerage account as part of its alleged Ponzi scheme. The court granted summary judgment in favor of defendant Oppenheimer, additionally finding that the transfers did not diminish the IMA estate or otherwise harm IMA’s creditors, and also that section 548(c) of the Bankruptcy Code provided a complete defense to Oppenheimer & Co., who provide value in good faith.

A district court held that victims of the Bernard Madoff Ponzi scheme could not pursue litigation claims to try to recover $11 billion from the estate of Jeffry Picower because it would interfere with the Madoff’s administration of his case. The trustee had previously entered into a $7.2 billion settlement with the Picower estate. The trustee had one a permanent injunction in 2011 barring competing claims against the Picower estate, but the investors argued their claims were different from the trustee’s claims.

J. Ezra Merkin lost his attempt to prevail in the lawsuit filed by the trustee of the Bernard Madoff Ponzi scheme, who is seeking to recover hundreds of millions of dollars. The court found that Merkin was willfully blind to the Ponzi scheme and refused to grant summary judgment in his favor. Picard v Merkin (Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC), 2017 Bankr. LEXIS 245 (Bankr. S.D. Jan. 30, 2017).

The Eleventh Circuit upheld the dismissal of a lawsuit by the receiver of the Arthur Nadel $168 million Ponzi scheme against Wells Fargo Bank. Wiand v. Wells Fargo Bank, N.A., Inc., 2017 U.S. App. LEXIS 1397 (Jan. 26, 2017). The receiver had alleged that the bank was negligent in failing to stop the Ponzi scheme that Nadel ran through six hedge funds: Scoop Real Estate, L.P., Valhalla Investment Partners, L.P., Victory Fund, Ltd., Victory IRA Fund, Ltd., Viking Fund, LLC, and Viking IRA Fund, LLC.

The State of Indiana reached a settlement with NYLife Securities LLC over the activities of Richard Schwartz who operated RAS & Associates. Schwartz, who killed himself in 2013 while being investigated for operating a Ponzi scheme, had sold investments through RAS totaling $16.3 million to 53 Indiana investors. NYLife had conducted required audits of Schwartz but failed to look into what he was selling through RAS. NYLife agreed to pay $250,000 in penalties and costs and to pay $25,000 to the Investor Protection Trust on Indiana’s behalf.

A district court affirmed a bankruptcy’s court’s refusal to dismiss the Chapter 7 bankruptcy of Peter Romero sought by the receiver in the Stanford Financial Ponzi scheme case. Romero had been ordered to pay the receiver $1.2 million in a fraudulent transfer case, but Romero then filed bankruptcy and the receiver had sought to have the bankruptcy case dismissed. Janvey v. Romero, 2017 U.S. Dist. LEXIS 12068 (D. Md Jan. 30, 2017).

The ZeekRewards receiver announced that a third distribution to victims will be made, which will bring the distribution to about 75% of the losses.

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