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, February 28, 2017

February 2017 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for February 2017. The reported stories reflect: 8 guilty pleas or convictions in pending cases; over 63 years of newly imposed sentences for people involved in Ponzi schemes; at least 6 new Ponzi schemes worldwide; and an average age of approximately 55 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 Apostelos, 55, pleaded guilty to two of 27 charges against him in connection with a $70 million Ponzi scheme that defrauded nearly 480 investors out of $20 million. His wife, Connie Apostelos, is still scheduled for trial but is negotiating a plea agreement. They operated purported investment and asset management companies including WMA Enterprises LLC, Midwest Green Resources LLC and Roan Capital.

Sarah Francis Bolhuis, 70, was sentenced to 5 years and 10 months in prison and ordered to pay $5.2 million in restitution for a $7.5 million Ponzi scheme that defrauded over 50 people. Bolhius falsely represented that she provided financial services and investment loan opportunities.

Paul Burks, 70, was sentenced to 14 years and 10 months in prison and ordered to pay $244 million in restitution for his role in masterminding the ZeekRewards Ponzi scheme. The scheme involved about $939 million and defrauded hundreds of thousands of victims. Burks profited by at least $10.1 million from the scheme.

Brian R. Callahan, 46, and Adam Manson, 44, two brothers-in-law, were ordered to pay $68 million in restitution in connection with a $118 million Ponzi scheme that defrauded 40 investors. They have plead guilty to the scheme and Callahan has been barred by FINRA from participating in the securities industry.

Clarence Counterman, 59, and Robert Loya, 52, were sentenced to 12 years and 10 years, respectively, in prison. They had been found guilty in November 2016 of running a Ponzi scheme that convinced more than 50 investors to invest $2.1 million into solar energy related companies including Renewable Energy Consultant Inc., EP Solar Technologies, Inc. and Eco Global Corporation. A third defendant, Leopoldo Parra, 54, was sentenced to 30 months in prison following his conviction last year.

Randall Finer, 53, was arrested on charges that he solicited more than $800,000 from investors and diverted more than half of that for his personal benefit. Finer allegedly represented to investors that profits were made on well-performing stocks when in reality the investments were losing money.

Daniel J. Flynn III, 53, pleaded guilty to defrauding 10 victims out of $9.5 million. Prosecutors believe that Flynn actually defrauded 150 victims out of $21 million but they agreed to the plea deal in which he only admitted to 10. Flynn solicited funds to buy a building that he already owed and use the money to pay off past loans.

Matthew Harriton, 53, and Joseph Meli, 42, had their assets frozen in connection with an SEC lawsuit alleging that they were running a Ponzi scheme. They allegedly defrauded about 125 investors out of at least $81 million. They approached investors seeking to pool money to buy tickets to “Hamilton” and other in-demand shows, and offered to pay investors 10% profits. Meli told at least one investor that he had 35,000 tickets for “Hamilton” and could sell them at a markup. A group of investors filed a lawsuit against Meli and Harriton and their four purported ticket reselling businesses – Advance Entertainment, Advance Entertainment II, 875 Holdings, and 127 Holdings.

Kristine Louise “Kristi” Johnson, 60, was sentenced to 21 months in prison in connection with “The Achieve Community” Ponzi scheme. Troy A. Barnes, 52, was also charged in connection with the scheme that owed investors more than $51 million at the time of its collapse.

Steve H. Karroum aka Mustapha Karroum was accused by the SEC of running a scheme that defrauded investors out of $1.7 million through his company, FX & Beyond Corp. Karroum represented that his computer program would generate high returns on foreign exchange trades.

Michael Kwasnik, 47, and his father William Kwasnik, 68, were indicted on allegations that they ran a $13 million Ponzi scheme. They owned and operated an insurance company, Abby Grant, and allegedly carried out a scheme to defraud clients of Michael Kwasnik’s law firm, Kwasnik, Rodio, Kanowitz & Buckley and its successor, Kwasnik, Kanowitz & Associates. Funds were diverted from over 40 clients’ trust accounts to accounts controlled by the Kwasniks. The Kwasniks are also accused of laundering money through Abby Grant and Liberty State Benefits of Pennsylvania. Michael Kwasnik’s law license has been suspended in Pennsylvania and New Jersey. He previously pleaded guilty to defrauding a 96 year old widow out of $1.1 million and served 5 months in prison.

Anthony Massaro, 45, was sentenced to 18 months in prison for his role in a $400 million Ponzi scheme run by Nicholas Cosmo. Massaro personally kept $6 million in connection with the scheme. Cosmo and his associates ran the scheme through Agape World and Agape Merchant Advance, and they defrauded 4,000 investors. Cosmo has been sentenced to 25 years in prison.

Wayne LeMar Palmer, 60, and Julieann Palmer Martin, 47, pleaded guilty in connection with a Ponzi scheme they ran through National Note of Utah. Palmer admitted to falsely representing to investors that their investments in National Note of Utah’s business of loaning funds to real estate based companies were safe and guaranteed. He also admitted that he failed to inform investors that new investor funds were being used, in part, to pay prior investors’ return of principal or the promised returns of 12%. The scheme raised more than $140 million from 600 investors.

Dee Allen Randall, 66, was sentenced to 9 to 30 years in prison in connection with the Ponzi scheme that defrauded about 700 people. The scheme took in more than $72 million. Some of Randall’s businesses were Horizon Mortgage & Investment, Horizon Financial & Insurance Group, Horizon Auto Funding and Horizon Financial Center.

Javier Ramirez, Gold Chasers, Inc., and Royal Leisure International, Inc., were the subject of a new CFTC complaint alleging that they were engaged in the fraudulent sales solicitations for the purported purchase of physical gold. They allegedly offered contracts to sell gold to at least 20 customers and fraudulently obtained at least $4.1 million. They promised to sell customers gold at a discount which was supposedly possible because they purchased gold at discount mines in Central and South America.

Richard Reynolds, 55, had his conviction affirmed on appeal, after he argued that he was denied his right to a speedy trial. Reynolds had been found guilty of stealing more than $44 million from 140 investors in a Ponzi scheme.

Robert Schroeder, 56, pleaded guilty to charges that he stole nearly $1.9 million in a Ponzi scheme. He was sentenced to 8 years in prison and ordered to pay more than $5.3 million in restitution. Schroeder’s company, All Points International Distributors, Inc., sold tents and prefabricated buildings to the U.S. military. As business declined when government contracts dropped off, Schroeder sought short-terms loans and promised high rates of return. Schroeder also issued bad check from his other companies, Hercules Global Logistics, LLC, RS Consultants, LLC and RGS Bergen, LLC.

Anthony G. Sciarra, 53, pleaded guilty to charges that he falsely promoted himself as an insurance agent and financial advisor. He solicited investors through AGS Financial and then through an entity he owned, Westport Enterprises, promising annual returns of 4% to 12%.

Hugh Lappe Scott Jr. was sentenced to 6 months in prison and ordered to pay a $1.2 million fine in connection with allegations that he ran a Ponzi-like scheme. Scott is a Texas attorney who was accused of defrauding insurance plan managers, and he plead guilty to a single charge that he hindered investigators examining the alleged scam.

Dror Soref, 66, had all but two counts in the criminal complaint against him dismissed as being filed outside of the statute of limitations. Soref and Michelle Seward were accused of persuading elderly investors to invest in the Soref-directed thriller “Not Forgotten” and a musical called “Twist.” Soref faced up to 75 years in prison but now faces a maximum of 6 years. 

James E. VanBlaricum, 77, pleaded guilty to charges relating to an oil and gas fraud scheme that defrauded 53 investors out of $2.6 million. VanBlaricum operated the scheme through Signal Oil and Gas Co. and Texas Energy Management, which later became Texas Energy Mutual.

Mark Varacchi, 47, founder of Sentinel Growth Fund Management LLC, pleaded guilty to charges relating to the alleged $81 million Ponzi scheme being run by Matthew Harriton and Joseph Meli. The SEC filed a civil lawsuit against Varacchi the next day, accusing Sentinel of stealing $3.95 million from investors.

7A Capital was the subject of a new lawsuit alleging that it was running a Ponzi scheme. The lawsuit, filed by an investor, alleges that 7A Capital was acting as a financial consultant for real estate companies and promoted a “private investment opportunity” in a construction company called Almarse. The lawsuit additionally names the following defendants: Alejandro Rotundo, 7A Capital’s managing director; Almarse; and Alfonso Garcia-Gallo, Almarse’s CEO.

INTERNATIONAL PONZI SCHEME NEWS 

Australia

David St. Pierre, 46, was sentenced to 6 months in prison for his role in a $4 million Ponzi scheme that defrauded 11 clients. The scheme promised investors 12% to 20% returns.

England

David Smith sought the stay of an extradition order that would send him to the U.S. to serve a 20 year sentence for running a Ponzi scheme that defrauded victims out of $220 million.

India

Anurag Garg and Sandes Verma were taken into custody on allegations that they were running a Ponzi scheme through Webworks Trade Links Pvt Ltd.

Anubhav Mittal, the managing director of Ablaze Info Solutions Private Limited, was arrested on allegations that he was running a Ponzi scheme along with Sreedhar Prasad and Mahesh Dayal. It is alleged that they were running an online trading scam under the cover of software development and project management services through a social media exchange called SocialTrade.biz.

Mir Sahiruddin, the managing director of Green Ray International Limited, was arrested on allegations that he was running a Ponzi scheme. Sahiruddin had been on the run for nearly 3 years, but had been arrested in Nigeria in 2015 and then released on bail on charges of suspected money laundering.

Daulat Singh Shekwawat, 32, Bharat Kumar, 27, Rujkumar Sharma, 31, and Ajay, 39, were arrested in connection with an alleged Ponzi scheme run though a company called Profit Network Company. The scheme defrauded approximately 4,800 people who were promised large returns for clicking ‘likes’ on designated social media.

New Zealand

Shane Richard Scott, 60, pleaded not guilty to charges that he was operating a Ponzi scheme. The investors understood that their money was being used in brokering deals in Thailand, in diamond trade in South African, and an investment in a chicken farm in New Caledonia. It is believed that approximately $6 million was invested.

Nigeria

A new scheme emerged in Nigeria following the crash of MMM and Ultimate Cycler. The scheme is called Naracle.

Peter Wolfing, the founder of Ultimate Cycler, used social media to deny claims that his scheme had crashed. He continued to encourage members to invest, promising they would get their profits. The scheme is 4 years old and has over 1.6 million members.

It has been reported that NairaCash, which was called a Ponzi scheme, has crashed. Investors have reported that they can no longer access their accounts.

The operations of Yuan Dong were shut down by government agencies. Yuan Dong claims to be part of Yuan Dong A Mart, a Far Eastern group. The company claims to have 60 years of business experience in that claims to be involved in  textiles, petrochemicals and energy, polyester and synthetic fibre, cement and building materials, retail and department stores, financial services, sea/land transportation, communications and Internet, construction, hotels and philanthropies.

Romania

Sorin Ovidiu Vintu was sentenced to 8 years in prison in connection with a Ponzi scheme related to the National Investments Fund.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

The lawsuit filed by the receiver of Oxford Global Partners, LLC, Universal Brokerage, FX, against Associated Bank, N.A. was dismissed when the court granted the defendant’s motion for summary judgment. Zayed v. Associated Bank, N.A., 2017 U.S. Dist. LEXIS 13824 (D. Minn. Jan. 31, 2017). The receiver sought to recover funds for the nearly 700 defrauded investors in the scheme run by Trevor Cook and Patrick Kiley, contending that the bank had knowingly assisted the $194 million Ponzi scheme.

A lawyer sued Arthur Gofman and Yehuda Belsky for defrauding him into investing $30,000 into a fraudulent scheme. The lawyer met Gofman near the court clerk’s office in Brooklyn Criminal Court where they struck up a conversation and Gofman solicited the lawyer to invest. The lawyer then met with Belsky, who promised the lawyer a 10% return each month on a $10,000 loan and that the principal would be returned in 6 months. The lawyer invested, missing several red flags, including that Belsky and his company, Innovative Capital, had been banned by the CFTC from trading commodities in 2008, and that Gofman had been arrested in September for misdemeanor criminal mischief after he broke his mother’s bedroom door frame when she tried to ration his Xanax prescription.

The Second Circuit refused to quash an order that Francisco Illarramendi, who was convicted of running a Ponzi scheme, pay $370.4 million in restitution. U.S. v. Illarramendi, 2017 U.S. App. LEXIS 3103 (Feb. 22, 2017 2d Cir.).

Investors of Glen Galemmo won an $865,000 judgment against Steven Schuholz, a net winner investor in the Galemmo scheme. The scheme had involved about 150 investors who lost $34.5 million.

An eighth distribution was made by the trustee of the Bernard L. Madoff Investment Securities, LLC bringing the total distributed to $9.72 million. With this distribution, 1,335 Madoff accounts with allowed claims will be fully paid off, including all claims of $1.25 million or less.

The Court of Appeals in Colorado reversed and remanded a decision involving the avoidability of transfers made to a net winner investor under the Colorado Uniform Fraudulent Transfer Act. The court concluded that an innocent investor may be entitled to keep some of the funds exceeding the amount of his principal. Lewis v. Taylor, 2017 Colo. App. LEXIS 124 (Colo. Feb. 9, 2017). In a Ponzi scheme run by Sean Mueller, the investor received a profit of $487,000. The court found that the investor could have given reasonably equivalent value for at least some of the profits by considering the value in the use of money for a period of time, and remanded with instructions to determine the issue of reasonably equivalent value.

The Second Circuit denied, for the second time, a motion for bail brought by Herman Peralta, 36, seeking to be released on bail pending trial on charges that he defrauded investors out of more than $12 million. Peralta promised high rates of return for their investments in a wholesale liquor distribution business. The court affirmed the district court’s decision that the native of the Dominican Republic was not only a flight risk, but also an economic danger to the community.

A bankruptcy court held that the liquidating trustee for the Tom Petters Ponzi scheme was not barred by the doctrine of in pari delicto from pursuing claims against BMO Harris Bank as successor to M&I Marshall and Ilsley Bank. Kelley v. BMO Harris Bank N.A. (In re Petters Company, Inc.), 2017 Bankr. LEXIS 535 (Bankr. D. Minn. Feb. 24, 2017). The court noted that the doctrine does not apply to receivers, that the liquidation trustee is also the receiver, and that “[t]he appointment of Kelley as receiver provides a compelling reason not to apply in pari delicto at this time.” The court also found that it is a fact-bound inquiry that is not appropriately decided on a motion to dismiss.

The Eleventh Circuit reversed a summary judgment ruling against George Levin, a fund manager who placed investor funds in the Scott Rothstein Ponzi scheme.  SEC v. Levin, 2017 U.S. App. LEXIS 3270 (11th Cir. Feb. 23, 2017). The court ruled that Levin should have been permitted to assert a safe harbor defense.

The Eighth Circuit upheld the lower court’s decision dismissing a complaint against PNC Bank, N.A. as successor to Allegiant Bank, filed by a group of investors in the Ponzi scheme run by Martin Sigillito through the British Lending Program. Aguilar v. PNC Bank, N.A., 2017 U.S. App. LEXIS 2150 (8th Cir. Feb. 7, 2017). The court agreed, among other things, that the Bank did not have actual knowledge of the scheme to satisfy the elements of an aiding and abetting claim and that it had not breached fiduciary duties. The court dismissed the claims for: (1) violations of Missouri's Uniform Fiduciaries Law (UFL); (2) aiding and abetting the breach of fiduciary duties; (3) conspiracy to breach fiduciary duties; and (4) conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(d).

Diane Siskey, the widow of Rick Siskey, who took his own life last December, has agreed to set aside $37.5 million in life insurance proceeds for the investors in a fund that her husband had run. An FBI affidavit alleged that Siskey was operating a Ponzi scheme that defrauded more than 100 investors out of about $19 million. Diane Siskey has received $46.94 million as the beneficiary of four life insurance policies taken out by her husband.

The Sixth Circuit reversed in part and remanded for further proceedings the trustee of Teleservices Group, Inc. claims against Huntington National Bank. Meoli v. Huntington National Bank, 2017 U.S. App. LEXIS 2248 (6th Cir. Feb. 8, 2017). The trustee sought to avoid the following 3 types of transfers from the bank: (1) direct loan repayments; (2) indirect loan repayments which were shuttled between bank accounts of Teleservices and the related entity Cyberco Holdings, Inc.; and (3) excess deposits which Huntington sent to Cyberco and then Cyberco withdrew or the government seized. The Sixth Circuit found that, in the scheme run by Barton Watson, the banks were not transferees of ordinary bank deposits and had not exerted dominion or control over the funds, so the trustee could not recover the excess deposits. However, the bank was the transferee of the direct and indirect loan payments, and the Sixth Circuit upheld the lower court’s finding that the Bank’s good faith ended on a date certain so all transfers made after that date were recoverable. Finally, the court remanded the issue of prejudgment interest, stating: “Once Huntington received that money, Huntington was free to invest that money however it wished. Doing so, Huntington may have profited more during this litigation than it will be ordered to pay under the statutory rate. The district court may therefore exercise its discretion to choose a different prejudgment interest rate, should it deem appropriate.”

The ZeekRewards receiver has established a “Net Winnings Determination Response Portal” through which the net winners from the Ponzi scheme are “required to provide a response stating whether he or she accepts or disagrees with that amount within 60 days of the notification.”

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