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.

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.”

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.

December 2016 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for December 2016. The reported stories reflect: 2 guilty pleas or convictions in pending cases; over 59 years of newly imposed sentences for people involved in Ponzi schemes; at least 10 new Ponzi schemes worldwide; and an average age of approximately 51 for the alleged Ponzi schemers. Please feel free to post comments about these or other Ponzi schemes that I may have missed. And please remember that I am just relaying what’s in the news, not writing or verifying it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

INTERNATIONAL PONZI SCHEME NEWS

China

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

India

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

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

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

Nigeria

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

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

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

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

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

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

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

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

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

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

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