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

Friday, March 31, 2017

March 2017 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for March 2017. The reported stories reflect: 6 guilty pleas or convictions in pending cases; over 100 years of newly imposed sentences for people involved in Ponzi schemes; at least 7 new Ponzi schemes worldwide; 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.

Gino Accettola, 49, was charged on allegations that he was running a $4 million Ponzi scheme. Accettola operated five Miami Tan locations. He and other defendants were sued last year by 11 plaintiffs who accused him of inducing them to loan him about $4.7 million for “various commercial construction jobs and related transactions in Michigan.”

Will D. Allen, 38, a former NFL player, was sentenced to 6 years in prison for his operation of a Ponzi scheme with Susan Daub through Capital Financial Partners. Daub also received a 6 year sentence. The scheme defrauded professional athletes and took in more than $35 million, with losses to investors of about $17 million.

Richard Brandt was convicted of operating a Ponzi scheme that exploited elderly investors. Brandt deceived 18 people into investing more than $1.9 million into his “house flipping” company.

Wes Brown, 54, was sentenced to 7.5 years in prison following his conviction in January for defrauding members of his former church and others in a $2 million Ponzi scheme. The scheme was run through Maverick International Inc., in which Brown’s brother-in-law, Edward Rubin, was president. Brown was the pastor of the church, and the Assistant State Attorney noted that “He used his position of power, used his position of friendship, to steal and lie from people in his church.”

John T. Burns III, 58, had his prison sentence reduced from 84 months to 72 months following remand from the Seventh Circuit that was asked to re-examine whether Burns knew that the $33 million he solicited from investors in the USA Retirement Management Services scheme was going to be stolen by the principals of the company, Robert C. Pribilski, 59, and Mahmut Erhan Durmaz aka  Francois E. Durmaz, 47. Pribilski and Durmaz were accused of stealing over $28 million in investor money through failed restaurant and real estate ventures. Pribilski died before his sentencing and Durmaz fled the country in 2010.

George Bussanich Sr., 57, his wife, Wilma Bussanich, and their son, George Bussanich Jr., 36, were indicted on allegations that they stole more than $7 million from elderly investors “in classic Ponzi-scheme fashion.” The scheme sold unregistered investment notes for a bogus surgical center. Others indicted in connection with the scheme are Heidi Francavilla, 58; attorney Bryan Nazor, 45; Robert G. Schooley, 65; Brendan M. Byrne, 45; and Christopher Hanna, 35. George Jr.’s wife, Cheryl Bussanich, was also indicted on lesser tax fraud charges.

Joseph Castellano, 59, was sentenced to 5 years and 8 months in prison for his role in defrauding 18 investors out of $1.5 million. Through is company, Casbo Investments, Castellano had represented that he would use investor funds to provide capital to fund businesses or real estate projects where those businesses were unable to secure funding from traditional sources. He promised investors annual returns of 6% to 8%.

Patrick Churchville, 48, was sentenced to 7 years in prison after pleading guilty to a scheme that he ran through ClearPath Wealth Management. Churchville used $2.5 million of the $21 million from investors to buy a waterfront home in Barrington, Rhode Island. The scheme involved more than 100 investors and promised returns of 30% over 16 months. Churchville was an adviser for 16 years, having worked at Oppenheimer & Co. and Morgan Stanley, before going independent in 2009.

Mark Feathers, 53, had his bail revoked after sending a threatening email to officers of the court involved in his case. Feathers is accused of defrauding investors out of approximately $50 million through his company, Small Business Capital, but strenuously objects to the use of the word “Ponzi” in connection with this matter. Feathers is not scheduled to go to trial until January 2018 so will spend the next 10 months in prison while awaiting trial.

Catherine Ann Finberg was sentenced to 40 years in prison with 30 years suspended for her role in operating a Ponzi scheme that defrauded 28 people out of more than $1.5 million. She previously pleaded guilty to the scheme. 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. 

Roberto Trinidad Del Carpio Frescas, 40, was sentenced to 19 years and 7 months in prison in connection with a $14 million Ponzi scheme that defrauded more than 100 investors. Del Carpio ran SMI aka (Stock Market Investments) International Institute Corp. and Del Carpio Trading Institute LLC. He also set up Del Carpio Holdings in the Cayman Islands. David Brian Binder, 61, pleaded guilty this month to one count relating to his assistance in helping Del Carpi keep the profits from the scam.

Edwin Yoshirhiro Fujinaga, 69, lost his request to dismiss the charges against him relating to the Ponzi scheme run through MRI International Inc. The scheme involved $1.5 billion and defrauded thousands of Japanese investors. They were told that their investments would be held by a third party escrow agent in Nevada. Investors were promised that their money would be used to purchase medical accounts receivable.

Daniel H. Glick, 64, and is unregistered investment advisory firm, Financial Management Strategies, were the subject of an asset freeze and restraining order at the request of the SEC. Glick raised over $6 million from investors, mostly elderly clients, promising them he would pay their bills, handle their taxes and invest on their behalf. Instead, he diverted funds for his personal use and used new funds to repay other investors. The SEC complaint also names Glick Accounting Services, Glick’s business partner David B. Slagter, and Edward H. Forte as relief defendants, seeking to recover more than $1.5 million paid to them.

David Gray, Joseph Vitale, and LottoNet Operating Corp., were the subject of an emergency order at the request of the SEC to freeze their assets. The SEC alleged that LottoNet had raised about $4.8 million in a “Ponzi-like fashion” and used at least 13 unregistered sales agents to place cold calls to potential investors nationwide. It is believed that at least 35% of investor proceeds were paid to boiler room sales agents as commissions.

David William Johnson, 57, has been sentenced to up to 20 years in prison and ordered to repay more than $330,000 that he took from 7 people who trusted him because he was supposedly a man of faith. He convinced clients that he had access to a safe high-yielding foreign bank investment that would yield returns. Instead, however, he used the investors’ money to support his wife and 10 children.

Keith B. Laggos was sued by the SEC in connection with his role as an alleged promoter of the ZeekRewards Ponzi scheme. The SEC alleges that Laggos committed securities fraud when he continued to serve as a consultant for ZeekRewards after the company failed to act on legal compliance requirements. Laggos allegedly told Paul Burks, the owner of ZeekRewards, to change the wording on the website to dodge regulatory attention, including removal of any reference to “investment.” Laggos agreed to pay $79,190.68 to settle the SEC’s claims for at least $64,000 that he had received for publishing several editorials that helped to publicize the ZeekRewards’ scheme.

Lee Loomis, 59, was not permitted to withdraw a guilty plea that he entered a year ago. Loomis was accused of defrauding investors out of as much as $100 million through his company, Loomis Wealth Solutions. He promised investors returns of 12% and that he would cover the investors’ mortgages, taxes, and insurance. Loomis argued that he did not believe he was guilty saying, “This was an act of capitulation, not one of confession.”

James MacCallum, 46, was convicted in connection with a $3.4 million scheme that defrauded investors. MacCallum, a former New York attorney, claimed that his investments were secured by real estate and life insurance policies. 

Anna Meli, the mother of Joe Meli, 42, was named as a co-defendant in the case involving the alleged Ponzi scheme run by Joe Meli and Matthew Harriton, 52. The scheme involved 497 million, and it is alleged that Joe Meli and Harriton stole $75 million. Joe Meli, his mother, his wife, Jessica Ingber Meli, and Harriton are all being sued by the SEC. It is believed that Anna Meli received money from the scheme in the amount of at least $405,000 through transfers from Advance Entertainment and 127 Holdings.

James Merrill, 55, was sentenced to 6 years in prison in connection with the TelexFree Ponzi scheme. Fifteen others were linked to the scheme: Carlos Nathaniel Wanzeler; Carlos Roberto Costa; Katia Helia Wanzeler, wife of Carlos Wanzeler; Jozélia Miriam Sangali, wife of Carlos Costa; Danny Fabricio Cabral Gomes; Febe Wanzeler de Almeida e Souza, sister of Carlos Wanzeler; Marisa Machado Wanzeler Salgado, sister of Carlos Wanzeler; Roberta Rosa de Jesus;  Draco Vaz de Oliveira; Alex Gomes; Diorgeney William of Assisi; Lelio Celso Ramires Farias; Rhalff Junio de Almeida Coutinho; Leide Januaria de Araújo; and Elizabeth Cerqueira Costa Alves, sister of Carlos Costa. Merrill pleaded guilty in 2016 and has agreed to forfeit about $140 million and other assets. It is believed that the scheme stole more than $3 billion from investors in more than 240 countries.

Mark Moskowitz, 48, pleaded guilty to charges relating to his operation of a $675,000 Ponzi scheme. Moskowitz ran the scheme through his companies, Edge Trading LLC and Edge Trading Partners, L.P., representing that he was investing in equities and contracts.

Aaron R. Parthemer reached an agreement with the SEC that he is barred indefinitely from acting as an investment advisor or participating in penny stock offerings. He did not admit or deny the SEC’s claims that he participated in selling more than $5 million in unregistered, illiquid securities.

John Quadrino, 51, was charged with running a Ponzi scheme that allegedly defrauded investors out of $6.3 million. The indictment alleges that Quadrino promised 84 investors profits on their investments from his precious metal businesses, Princess Cut Industries, Inc., and Golden Glitter Trading, Inc. Quadrino is also one of three partners in Sassy Jewelry Buyer Inc. The companies collected a total of $13.1 million from investors. 

Randall Rye, 26, was accused of defrauding investors out of $1.5 million. Rye owns the brokerage firm Faster Than Light Trading and “falsely represented to investors that their investment would be traded using his proprietary trading program and invested in options and futures and contracts.” He allegedly would fake account statements to look like the investments were paying off. More than 63,000 accounts follow Rye on Twitter for his takes on futures and options trading.

David W. Schwarz, 60, was found guilty for conspiracy to commit bank fraud in connection with the Cay Clubs Resorts and Marinas scheme. The alleged Ponzi scheme involved $300 million and about 1,400 investors. The owner of the scheme, Fred “Dave” Clark Davis, was previously sentenced to 40 years in prison and his wife Cristal Clark Coleman was acquitted. Barry J. Graham, 59, and Ricky Lynn Stokes, 54, previously pleaded guilty and were sentenced to 60 months and 30 months, respectively. Both defendants were former executives in Cay Clubs Resorts and Marinas, which ran a $300 million scheme involving sales of vacation rental units. 

James VanBlaricum, 77, got his plea agreement approved, which resulted in a 7 year prison sentence. His scheme defrauded investors out of more than $2 million in an oil and gas scheme.

Roger Harvey Wagner, 52, and Rodney Lee Wagner, 52, who are twin brothers, were sentenced to four years each in prison and ordered to pay nearly $1.9 million in restitution for operating a Ponzi scheme. Investors understood that they money was being used in foreign currency trading and that they would be paid a fixed rate of return plus their principal.

Roger Williams was given 14 days to consider whether he wants to withdraw his guilty plea after the court rejected the proposed plea agreement. Williams was accused of misrepresenting the earnings on his clients’ investments with Dash Holdings and Open Door Investment. Nearly 100 people invested with Williams, who was the pastor of a church and lost $1 million.

Troy Wragg, 35, pleaded guilty to running a $54 million Ponzi scheme through his company, Mantria Corp. The company was supposedly building a revolutionary real estate and energy firm. Wragg’s college girlfriend and Mantria co-founder, Amanda Knorr, 33, pleaded guilty last year. Co-defendant, Wayde McKelvy, 54, is scheduled to stand trial later this year. Wragg held seminars called “Speed of Wealth” clubs promising yields as high as 484%.

Chris Young Yoo, 44, was charged in connection with accusations that he ran a Ponzi scheme when he was head of the wealth management firm Summit Asset Strategies. He pleaded guilty to the charges which include allegations that he defrauded investors out of $3.6 million. He previously reached a $1 million settlement with the SEC related to the fraud. 

INTERNATIONAL PONZI SCHEME NEWS 

Australia

Six companies affiliated with real estate developer Veronica Macpherson were put into liquidation in connection with an alleged $200 million Ponzi scheme. The companies include: Macro Realty Developments Pty Ltd; Macro Realty Developments AFSL Pty Ltd; Macro All State Investments and Securities Ltd; Pilbara Property Developments Pty Ltd; Macro Realty Pty Ltd; and 511 GTN Pty Ltd. The scheme has taken in funds from investors in Australia, Malaysia, Singapore and the UK.

Quintis, an Australian sandalwood grower, has been accused of having a “Ponzi-like structure.” Quintis was previously known as TFS Corporation and says that it is the world’s biggest manager of commercial sandalwood plantations. Critics note that sandalwood trees take between 15 and 20 years to grow, so generating cash flow takes a long time. However, Quintis promises investors cash dividends within two years of investing as well as full repayment of the principal within 7 years.

Michael Christopher Samra, 57, pleaded guilty to charges relating to a $2 million Ponzi scheme. Samra was initially charged with defrauding investors out of $12 million but he admitted to crimes totaling $1,902,000. Samra persuaded victims to loan him cash which he would then lend to fake property developers. He also misrepresented that he would use investor funds to provide to clients who needed finance bridging or to buy a block of land.

Canada

The trustee is the bankruptcy case of Rashida Samji, who was sentenced to 6 years in prison, has filed a claim against Samji’s “romantic partner” Rajesh Gajjar. Samji operated a Ponzi scheme that defrauded more than 200 investors in a $100 million scheme. Gajjar received approximately $600,000.

England

Peter Plimley, 68, was accused of running a Ponzi-style betting scheme that defrauded victims out of £230,000. Plimley used spread betting to place bets on the currency markets on conversion rates of the US dollar against the Euro, saying that had a trading strategy which allowed him to predict fluctuations in the market.

Germany

Stephan Christoph Schaefer and Jonas Koeller were sentenced to 8 years each in connection with a Ponzi scheme that they ran through S & K and about 150 affiliated companies. They defrauded about 11,000 investors out of $258 million and used much of the money to throw lavish parties and buy luxury vehicles.

Hong Kong

The Securities Futures Commission obtained an interim order to freeze approximately $2.66 million in the bank accounts of Heriberto C. Perez Valdes in connection with a suspected Ponzi scheme. It is alleged that Valdes is involved in the scheme operated by DFRF Enterprises and DFRF Enterprises LLC and their founder, Daniel Fernandes Rojo Filho.

India

Basudeb Bagchi, the chairman of Prayag Group, and his son Avik Bagchi, were arrested in connection with an alleged Ponzi scheme run through Prayag Group of Companies. The company’s website says "Our businesses range from real estate and construction, fishery, biotechnology, hotels and resorts, solid waste management, cement, food processing, organic farming, media, FMCG and of course the prestigious Prayag Film City."

Webwork Trade Links Pvt Ltd, and its directors, Anurag Garg and Sandesh Verma were accused of running a Ponzi scheme. The scheme allegedly defrauded 40,000 investors.

Nigeria
The Nigeria Deposit Insurance Corporation reported that 3 million Nigerians lost N18 billion in the Ponzi scheme known as Mavrodi Mundial Movement (MMM).

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

A court tentatively ordered MetLife Inc. to pay $6.2 million in attorneys’ fees on top of a $7.2 million judgment in connection with the Diversified Lending Group scheme that involved about $216 million. Investor Ramirez claims that MetLife and its agent had sold unregistered securities to her alongside her insurance policy.

The Birmingham Water Works has retained counsel to pursue its losses from investment with Jason Galanis and his father John Galanis. Jason Galanis had purchased Hughes Capital Management, which had worked with Water Works, and then changed the company name to Atlantic Asset Management. He purported to use investor funds to by $43 million in bonds using clients’ money, but then spent it as he pleased. Atlantic Asset Management was placed in receivership in January. 

The bankruptcy trustee for LLS America LLC filed 11 notices of civil claim in BC Supreme Court seeking to recover money transferred in that scheme. The scheme was run by Doris Nelson who ran a short-terms payday loan business.

A California court approved a $20.2 million settlement with Stanley Chais and the Lambeth Company in connection with the Bernard Madoff scheme.

A proposed $64.8 billion class action brought by customers of Bernard L Madoff Investment Securities LLC against the estate of Jeffry Picower was dismissed.

Securities America will pay over $1 million as part of a settlement of a case in connection with the Medical Capital Holdings. The firm had been ordered to pay $2.8 million to about 60 investors who were deemed not sophisticated enough for such investments. Medical Capital had sold $1.7 billion of the notes in the Ponzi scheme, and Securities America sold the bulk of them. Securities America had been paid $26 million in fees from the notes and had solicited investors at dinner seminars with up to 100 people at a time.

The SEC amended it complaint against Joseph Meli and Matthew Harriton, alleging that the scheme also involved the upcoming Broadway show, Harry Potter and the Cursed Child, in addition to Hamilton and Adele concerts. The amended complaint also alleges that the scheme took in more than $97 million from at least 138 investors in 17 states, as revised from the original allegations that the scam took in more than $81 million from 125 investors.

The SEC won a judgment for $74 million in fines against Gemcoin, Steven Chen, and US Fine Investment Arts Inc. (USFIA).

Criminal securities fraud charges were dropped against filmmaker, Dror Soref, 66, who had been accused of working with Michelle Seward, an insurance saleswoman, in operating a $21.5 million Ponzi scheme. The court previously found that 70 charges were untimely and dismissed the last two charges by finding that the 140 investors had “exclusive contact” with Seward or her agents, not Soref. Soref had been under arrest since September 2015 after bail was set at $2.7 million.

A court denied the request of Charles Scoville and Traffic Monsoon to set aside the Traffic Monsoon receivership and granted the SEC’s motion for preliminary injunction. The court found that the scheme was a Ponzi scheme and was driven by members continually reinvesting in the scheme by purchasing and repurchasing AdPacks and rolling over profit from matured AdPacks to purchase new AdPacks. SEC v. Traffic Monsoon LLC, 2017 U.S. Dist. LEXIS 45908 (D. Utah Mar. 28, 2017). 

Attorney Vincent Messina cannot keep $5 million that was transferred to him from his client, “Phil” Ming Xu, who ran a Ponzi scheme through WCM777. Messina was named as a relief defendant in the case brought by the SEC against Xu and WCM777, in which it was alleged that a worldwide scheme defrauded investors out of $57 million. The Ninth Circuit held that a relief defendant must establish a lawful and factually valid claim of ownership in the disputed funds. “Otherwise, any third party with a custodial claim to the proceeds of securities violations committed by others would be able to defeat relief defendant jurisdiction ‘simply by stating a claim of ownership, however specious.’” SEC v. World Capital Market Inc., 2017 U.S. App. LEXIS 4998 (9th Cir. Mar. 22, 2017).

The ZeekRewards receiver made a third round of disbursements to victims. He distributed $67.75 million, which will bring the rate of recovery to 75% for victims. Those who have already received 75% will not qualify for the third distribution.