Kathy Bazoian Phelps
Senior Counsel in Ponzi Scheme Litigation
and Bankruptcy Matters

Kathy is a senior business trial attorney with more than 30 years experience prosecuting and defending claims for high net worth clients involved in Ponzi scheme matters and in bankruptcy proceedings. Kathy’s practice includes recovering assets for clients in complex fraud cases under standard fee and alternative fee arrangements. She also handles SEC and CFTC whistleblower claims. Kathy also serves as a mediator in bankruptcy matters, in complex business disputes, and in matters requiring detailed knowledge about 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, August 31, 2012

August 2012 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps
The Ponzi scheme news for the month of August is as vibrant as ever. Here are brief summaries of many of the stories that have been reported. I’ve included some international stories as well that made the news. Please feel free to post comments about other Ponzi schemes that I may have missed. And please remember that I am just relaying what’s in the news, not writing it.
Kevin Ray Asbury of Missouri has been sentenced to 9 years in federal prison in connection with two cattle fraud schemes that involved approximately $8 million of investor funds. Asbury pleaded guilty to charges relating to his Ponzi-type operation involving R&K Angus Ranch. He used investors' money to cover his own expenses and to pay purported returns to earlier investors. He also obtained a $4 million line of credit from a bank by pledging as collateral thousands of cattle he did not own.
George Atwater, a former corporate lawyer, pleaded guilty in connection with charges that he helped defraud an investor of $10 million by forging bank documents. At the time, Atwater was working for Robert Miracle, who is now serving 13 years in federal prison for running the elaborate Ponzi scheme. Miracle solicited investors by telling them he made money by operating companies supposedly involved in oil development in Malaysia and Indonesia. Miracle paid out about $37 million to some investors and lenders. The remainder was used in part to develop oil and gas fields in Indonesia and to pay for his lavish lifestyle. Atwater forged bank documents to convince an investor that the company was making money in oil and gas fields, showing fake deposits and bogus payments for drilling expenses. The statements were used to mislead the investor and induced the investor to invest $10 million.
Bitcoin Savings & Trust, an invite-only online hedge fund that promised large returns, has gone off-line. The service’s administrator, known as pirateat40, claimed it had collected 500,000 worth of Bitcoin currency, worth about $5.49 million. Although payouts were promised, no such payment has been made, and pirateat40 seems to have disappeared from the Web.
Thomas Bowdoin, 77, of Florida, the founder of AdSurf Inc., pleaded guilty and was sentenced to 78 months in prison in connection with his $120 million Ponzi scheme which promised investors 125% on their investments.
Ivan Wade Brown, 45, of Utah, was charged by the SEC with operating a real estate Ponzi scheme through his companies Avanti Capital Partners, LLC and Highland Residential, LLC, that may have taken in up to $27 million from investors. The SEC requested an asset freeze and the appointment of a receiver. The scheme was to provide “bridge loans” to homebuilders. The investors were provided promissory notes and were told their investments were nearly risk-free, with a worst case scenario of a 10% loss of principal. Ironically, Brown invested much of his investors’ funds in other Ponzi schemes. In addition to the bad investments, Brown spent money on the purchase of a luxury home in Alpine, Utah, a $120,000 down payment on his residence, a $225,000 airplane, and $650,000 towards the production of a motion picture.
James Scott Brown, 67, of Leawood, Kansas, was sentenced to 3 years in federal prison and ordered to pay more than $34 million in restitution, after pleading guilty to charges relating to a $52 million Ponzi scheme involving approximately 140 investors. His co-conspirator, Martin Sigillito, 63, an ordained bishop and attorney, was convicted and is awaiting sentencing, and his other co-conspirator, Derek J. Smith, 68, pleaded guilty and is awaiting sentencing. Brown and Sigillito lured investors into their program called the British Lending Program (BLP), promising returns of 17.5% to 25% for a one year loan made to BLP. They spent the investors’ money on themselves by paying Brown nearly $1.5 million and Sigillito approximately $6 million in management fees. Sigillito was chauffeured around town and purchased expensive antiques, including a $120,000 German book from the 15th century, Persian rugs, and British jewelry.
William Crafton of San Diego, California, has been sued, along with SunTrust Bank, Martin Kelly Capital Management and CSI Capital Management, for activities in relation to alleged Ponzi and other fraudulent schemes. Three NFL veterans, Joshua Feeley, Brent Celek and Kevin Curtis, and a woman pro soccer player, Heather Mitts, have filed a lawsuit alleging that they lost their investment accounts that they placed with Crafton as their financial advisor. Crafton is accused of having represented that he was investing their funds in conservative low risk investments, yet he allegedly invested their funds in Ponzi schemes or other fraudulent investments run, managed, controlled, operated and/or created by individuals with whom Crafton had a personal relationship, business dealings, or kickback agreements.
Brian Ray Dining, 47, was arrested in Virginia in connection with a $2.5 million Ponzi scheme he was operating in South Africa. Dining describes himself as an international tax lawyer with an interest in Africa and charity work. He represented that he was working on an “innovative sustainable resources and development model for use in developing countries around the world and especially in Africa.” Dining took money from investors supposedly for projects in South Africa, including a hotel, housing development, gold and diamond mines, charities and wildlife reserves. Dining is accused of misappropriating investor funds to pay for a $975,000 house, alimony, and his children’s private school tuition.
Jim Donnan, 67, a Hall of Fame football coach who coached the University of Georgia and Marshall University, has been sued by the SEC in connection with charges that he helped run a Ponzi scheme that defrauded former players and fellow coaches, promising investors annual rates of return ranging from 50% to 380%. Donnan is accused of raising $80 million from about 100 investors with his partner, Gregory Crabtree, 50, through their West Virginia-based business, GLC Ltd., which supposedly bought, liquidated, damaged and returned merchandise from major retailers for resale to discounters. The SEC alleges that only $12 million of the $80 million was actually used to buy merchandise, much of which was sitting unsold in warehouses. Donnan is accused of taking $7.4 million for himself. Donnan has filed for personal bankruptcy.
Charles David Eizelman, 68, pleaded guilty to operating a Ponzi scheme that targeted senior citizens. Eizelman advised investors that he would place their funds in legitimate investments and have interest payments sent to them. Instead, he took the money for himself. Eizelman agreed to pay $387,100 in restitution to the victims, with $100,000 to be paid at the sentencing.
Jim Ellis was appointed a federal public defender after being notified that he was the target of a criminal investigation. Ellis, in concert with his daughter Janis Ellis and alleged co-conspirator George Elia, have been accused by victims of vouching for the success of George Elia, a day trader who operated a Ponzi scheme. The Ellis’s acted as satisfied investors, and Jim Ellis provided personal guarantees in connection with promised returns of 20%.
Ulrich Felix Anton Engler aka Joseph Miller, 51, from Germany, was arrested by U.S. immigration authorities after a fingerprint match from a DUI stop in Las Vegas matched fingerprints from German authorities. Engler is accused of masterminding a $100 million Ponzi scheme in 2003 and 2004 using his company Private Commercial Office ("PCO") to solicit investments from investors worldwide. Engler sought investments for his day trading of securities, and represented that he had a powerful trading software that could analyze approximately 5,000 stock trades per second, which therefore enabled Engler to capture profits before other similarly situated traders. Engler’s bankruptcy trustee, Robert Tardif, Jr., sought court approval to take the 2004 examination of Engler before his deportation, which request was granted.
The Entrust Group Inc., Entrust Administration Inc., Entrust New Direction IRA Inc. nka New Direction IRA Inc., Entrust Arizona LLC nka Vantage Retirement Plans LLC, and Equity Trust Co have been sued in connection with an IRA-based Ponzi scheme. The class action accuses the defendants as follows: "Equity Trust and Entrust have made hundreds of millions of dollars while claiming to 'administer' SDIRAs that have resulted in many of their customers losing their entire live savings (which were invested in SDIRA 'investments' that were illegal, illusory, nonexistent, or failing)." The complaint further alleges: "The fraud promoters invested the money deposited by plaintiffs and class members in their SDIRAs in 'investments' that were fraudulent, illusory, or nonexistent. The custodians aided and abetted the fraud by periodically sending out investment account statements showing extraordinary investment returns in the SDIRAs when in fact the fraud promoters were absconding with the victims' money."
Ibis Febles, 66, of New York, was sentenced after pleading guilty to operating a scheme that took funds from Latino investors purportedly to invest in a company that bought and sold real estate for an above-market return of 10% to 14%. Febles worked with Giancarlo Giuseppe, 69, who cannot presently be located, in operating the scheme under Buyersnet Real Estate. Victims were given a “Guaranteed Interest Options” certificate that entitled them to the high returns in exchange for their investment, but the victims’ funds were not used for real estate.
Joseph Greenblatt, 50, of New York, rejected a plea deal of 6 to 18 years and $31 million in restitution, in connection with an alleged $42 million Ponzi scheme run through his real estate investment firm, Maywood Capital. His two co-defendants, lawyer Peter Vogel, and former Elmwood Park Council President Joseph Mongelli, have pleaded guilty. The complication in Greenblatt's plea deal is apparently whether he would serve the sentence concurrently with two prior sentences on fraud charges that he is currently serving.
In relation to the Ponzi scheme of Jose Nino de Guzman, lawsuits have been filed by 14 investors against the Seattle law firm of Graham & Dunn, which provided legal advice to Guzman. It has been alleged that Graham & Dunn was conspiring with Guzman to conceal a big secret. Graham & Dunn contends that it urged Guzman file Regulation D forms after the sale of securities and to comply with securities laws. A separate lawsuit has also been filed by one of Guzman’s investors against U.S. Bank, accusing the bank of turning a blind eye to Guzman’s alleged crimes.
Michael Justin Hoopes of Rexburg Idaho has been ordered to pay more than $10.4 million in restitution and a civil penalty of over $1.4 million for operating a Ponzi scheme that defrauded Idaho residents and others. Hoopes allegedly fraudulently solicited and accepted $2,068,103 from ten individuals, mostly Idaho residents, to trade stock index commodity futures in a commodity pool that he owned and operated called Aspen Trading, LLC. Hoopes also solicited an additional $9.68 million from other mostly Idaho residents during the same period for various other investments. Hoopes told some investors that they would earn 20 percent annually on their investments, that he was earning annual returns well in excess of 25 to 30 percent and that he had not lost any money in trading.
Michael Anthony Jenkins, 56, was charged in connection with his $100,000 Ponzi scheme run through his company, Harbor Light Asset Management LLC. Jenkins told investors that he was trading E Mini Futures. He was not registered to sell securities.
David Lincoln Johnson, 73, was sentenced to 30 months in prison for filing two false tax returns which failed to disclose a personal bank account in Costa Rica. Johnson has already been sentenced to 14 years in prison for his role in a Southern California Ponzi scheme operated under the name the Genesis Fund. Johnson used the Costa Rica bank account to conceal Genesis Fund distributions from the IRS. Johnson was ordered to pay restitution of $2.3 million - about $1.9 million to investors in the Genesis Fund and $400,000 to the IRS. The Genesis Fund had operated a Ponzi scheme that collected about $20 million from hundreds of investors.
George and Teresa Kastanes, 62 and 54, have been accused of misappropriating more than $10 million from loan proceeds obtained from the Detroit Police and Fire Retirement in connection with an alleged Ponzi scheme they ran through their company, Paramount Land Holdings. The Kastanes’ borrowed $10 million from the pension system ostensibly for the purposes of investing in distressed properties for resale; however, it is alleged that they fled to the Caribbean and spent large sums on jeweled Russian eggs and statues by French sculptor Auguste Rodin. The Kastanes’ allegedly owe the pension system and other creditors at least $39.5 million. The couple’s business partner, Abner McWhorter, committed suicide after a lawsuit was initiated by the pension fund.
Stephen J. Klos, 86, of Washington, pleaded guilty to securities fraud in connection with a $3.5 million Ponzi scheme in which he met victims at his church, Mercer Island Covenant Church, and told them he would invest their money. Klos had been asked by the church to stop soliciting members, many of which were elderly victims, and was eventually asked to leave the church.
Tomas Loebel, 57, is already serving 15 years in prison for his $1 million Ponzi scheme he operated through a company called The Rose Garden. Loebel has been sentenced to 40 more months in prison, to run at the same time as his current sentence for more than a dozen securities fraud charge. Loebel had solicited investment funds from doctors, lawyers and business leaders but then used those funds to support his lavish lifestyle and gambling habit.
Jeffrey Lowrance, 51, has entered into a plea agreement relating to his $25 million Ponzi scheme that took in funds from more than 400 investors. Although the charges against him carry a maximum sentence of 40 years, the agreement recommends 12 ½ to 15 ½ years.
Kevin Mirecki, 53, of Los Angeles, California, was sentenced to 6 months in federal prison after pleading guilty to charges of failing to file his tax returns on reportedly more than $1.3 million in income. Mirecki founded Genesis Fund Ltd., which was an $80 million Ponzi scheme involving foreign currency and hundreds of investors.
Jeffrey L. Mowen was ordered to pay about $18 million pursuant to a judgment obtained by the SEC for his operation of a Ponzi schemes in concert with Thomas Fry. Fry raised over $40 million from more than 150 investors through the sale of supposed high-yield promissory notes. About $18 million of those funds was paid to Mowen, who misappropriated the funds rather than investing them.
Thomas Preston O’Berry of Georgia, was sentenced to two years in federal prison and ordered to pay $922,000 in restitution in connection with charges relating to an over $2.4 million Ponzi scheme that he ran through a company called MoGo Consulting LLC. O’Berry solicited investors into his software consulting business, promising a 10% return per month for money loaned for each purported consultant contract to alleviate cash flow problems. O’Berry never actually had any clients or contracts though. Instead, he fabricated 245 consultant contracts which generated investments of $2,480,000.
Eric Olson and Ted Olson were hit with a $15.2 million attachment by Park Construction. The court found that Eric and Ted Olson received nearly $10 million from KMO Associates, managed by Aaron Olson — apparently as returns on their investments, although Ted Olson had not placed any of his own money with KMO, and Eric Olson said he had invested $7 million of his own funds. Park Construction had invested more than $15 million with KMO and Aaron Olson — Eric Olson’s nephew. Based in part on negative inferences drawn from Aaron Olson’s invocation of his Fifth Amendment right against self-incrimination, the Court noted that Eric Olson and Ted Olson were more than investors in KMO.
In connection with the Ponzi scheme of Daren Palmer and his company Trigon Group, a jury found that the head of the Bonneville County Republican Party, Doyle Beck of Pocatello Idaho, must return $55,000 of the $500,000 that he received from Trigon. Beck alleged at trial that the funds were repayment of a loan that he had made to Palmer’s brother-in-law, Duane Yost, which Yost repaid using Trigon’s money. Palmer was convicted last year in connection with what may be the largest Ponzi scheme in Idaho state history, involving about $75.8 million received from 68 investors between 2002 and 2008. The state of Idaho won a $27 million judgment against Yost last year in connection with Palmer’s scheme based on allegations that Yost brought more than $27 million of investor funds into Trigon.
Marc Perlman was charged by the CFTC with operating a Ponzi scheme through iGlobal Strategic Management in fraudulently soliciting at least $670,000 from about 17 people, supposedly to invest in foreign exchange and promising them profits of 10% per month. Perlman, who is deaf, targeting deaf evangelical Christians. He only invested about half of the funds and used the rest for charges at department stores, electronic stores, and for groceries, restaurants and rent.
Carmelo Provenzano, 29, and Daniel Dragan, 41, of New Jersey pleaded guilty to a $3.5 million Ponzi scheme. A third conspirator, George Sepero, has been indicted and is currently awaiting trial. They represented to investors that they owned hedge funds known as Caxton Capital Management and CCP Pro Consulting Inc. and that their trading program using a proprietary computer algorithm would generate returns of 170%. Dragan and Provenzano spent investor money on credit card bills averaging approximately $25,000 per month; bar tabs of $18,241—including a $4,000 tip—and $14,034 on separate nights at Drai’s Hollywood nightclub in Los Angeles; and flights to Paris and elsewhere. Provenzano bought a luxury Range Rover Sport SUV costing more than $71,000, with a down payment of more than $65,000.
Clifford Puterbaugh, 49, reportedly assisted by Kyle Higgins, 27, has been accused of running a Ponzi scheme that bilked $190,000 from at least three victims. Puterbaugh faces 28 charges ranging from aggravated theft to securities fraud. Higgins faces four charges ranging from securities fraud to sale of unregistered security.
Joseph D. Ransberger, 49, of Palm Beach Florida, and a previously convicted Ponzi schemer, has been charged with 105 new charges of grand theft and money laundering in a new scheme to allegedly defraud insurance premium finance companies to help pay for a lavish lifestyle. The new scheme was allegedly concocted after he was first arrested in June 2009 for a scheme in which he allegedly borrowed nearly $2 million dollars for insurance policies on entities that never existed. Ransberger is accused of allegedly misappropriating insurance premium funds between the date of his courtroom plea and his scheduled sentencing.
Rex Venture Group, a North Carolina company that operates ZeekRewards.com and Zeekler.com, was the subject of an emergency order obtained by the SEC to freeze its assets, including $225 million of investor funds that it still held. The principal of the company, Paul R. Burks, 65, is accused of raising approximately $600 million from more than 1 million customers through its penny auction website that appears to be a Ponzi scheme. ZeekRewards customers were offered several ways to earn money through the site, including buying unregistered investment contracts called “Retail Profit Pool” and the “Matrix” that promised a share of up to 50% of the company's net profits through rewards points that could be traded for cash payouts. ZeekRewards paid out nearly $375 million to investors and holds approximately $225 million in investor funds in 15 foreign and domestic financial institutions. It is alleged that Burks siphoned off up to $11 million dollars of investors’ funds and that he paid at least $1 million to family members.
Ricardo Rojas was charged in connection with a $7 million Ponzi scheme, run through his company Shadai Yire, which promised high returns of 15% to 50%, which were 100% guaranteed, to approximately 200 people in Puerto Rico, North Carolina, Florida and New York. Rojas said he was a commodities trader who would invest the funds through a subsidiary of Shadai Yire called M&R International Group. Rojas and his companies were not registered to sell securities. Rojas targeted evangelical Christians and factory workers in Puerto Rico, and he misappropriated about $700,000 of investor funds for his own personal use.
Francis X. Sanchez had his bond revoked while he awaits sentencing for his role in a $7 million Ponzi scheme which he ran with a partner through a company called InvestForClosures. Sanchez’s business partner, James D. Bourassa, was sentenced to 51 months in prison. The scheme involved representations to investors that they bought distressed houses, rehabilitated them, and sold them for a profit. The investments were supposedly backed by real estate, but there was not enough real estate to secure all of the investments. The court revoked the bond due to concern that Sanchez would not appear for future hearings.
Emanuel L. Sarris, 71, and his company, Sarris Financial Group, Inc. of Pennsylvania, were sued by the SEC in connection with a $100 million Ponzi scheme in which they solicited investors for the Kenzie Funds. The Kenzie Funds defrauded at least 400 investors worldwide out of over $100 million between 2001 and 2010. The SEC had already obtained a judgment against Kenzie and its principal, Illinois resident Daniel Spitzer. Sarris provided estate planning and insurance sales to investors through Sarris Financial and solicited over 70 clients to invest over $30 million with the Kenzie Funds. Sarris misrepresented to investors that he was independent of the Kenzie Funds, that his advice was unbiased and objective, that he had performed due diligence on the Kenzie Funds, and that he had personally seen the Funds' trading and banking records.
Arthur John Schlecht, 53, of North Carolina, Bart Gomer, 66, of Florida, Ricardo Jorge Padron, 52, and Carlos Rodriguez, both of Florida, were arraigned on charges of engaging in a conspiracy to commit fraud through their three corporations, Global Bullion Tracking Group, WJS Funding, d/b/a Capital Asset Management, and Certified Inc., d/b/a Certified Clearing. These businesses claimed to be investment brokerage firms offering investors the opportunity to invest in gold, silver, platinum, and palladium bullion, which would be stored for the investors in depository vaults. It is alleged that they never actually purchased any of the metal for the investors, but rather used the investors’ funds for their personal benefit, including expenditures by Schlect for maid services, personal tax obligations, salary, social security contributions, home and vacation home construction, landscaping, remodeling, interior furnishings, automobile purchase, restaurant dining, personal travel expenses, clothing and jewelry. Schlecht was the subject of a consent order from 1996 in connection with fraudulent activity through his company Concorde Trading Group in which Concorde traded over 2,800 accounts, over 90% of those customers lost all of substantially all of their money, and Concorde collected $12.8 million in commissions.
Joanne Schneider, 71, of Ohio was sentenced to 9 years after pleading guilty in connection with her $60 million Ponzi scheme where she promised investors 16 to 20% on their investments. She will get credit for 2½ years already served, reducing the time left to serve to 6½ years. Schneider sold unregistered promissory notes in connection with her real estate development projects. Schneider’s husband, Alan Schneider, played a lesser role in the scheme and was put on probation after pleading guilty in 2009. A receiver was appointed, who recovered $10.5 million for investors.
Jill Marie Silvey, 50, a former San Jose California real estate agent, has been accused of bilking at least 13 clients out of $1.2 million in a Ponzi scheme case between 2005 and 2011. Silvey allegedly took money from victims under the pretense that she was lending it to homeowners in exchange for monthly interest payments, but the homeowners were unaware about any loans. She is being held in jail on $3 million bail and faces more than 30 years in jail, if convicted. Silvey used the investors’ funds to buy expensive clothes, remodel her San Jose home, furnish it, and to purchase two luxury vehicles.
Weizhan Tang, a hedge fund manager who referred to himself as the “Chinese Warren Buffet,” and his companies, Oversea Chinese Fund and Weizhan Tang & Associates, have been ordered to disgorge more than $11.7 million in profits from a Ponzi scheme. Tang sold Chinese-American victims partnership interests in WinWin Limited Capital Partnership, a Texas-based entity. Tang collected $17.3 million from investors, about $9.6 million of which remains unaccounted for.
Daniel Thomas, 44, and his company, Key Business Solutions and Payroll Advisors in Florida, defrauded 7 clients who thought their money was going toward payment of payroll taxes to the IRS. Thomas created electronic taxpayer accounts for his clients and sent the IRS payments electronically. He then showed his clients that he made the payments by printing out the payment confirmation pages from the IRS, but then later cancelled the payments and transferred the money to his own business bank account. Thomas embezzled more than $850,000 and has been sentenced to 30 months in federal prison and ordered to pay $334,742.82 in restitution.
Michael J. Turncock, William P. Sullivan, and their company Bridge Premium Finance, LLC ("BPF") in Colorado were charged by the SEC in connection with a Ponzi scheme involving at least $15.7 million and more than 120 investors. Turncock and Sullivan were the principal and CFO of BPF, formally known as Berjac of Colorado, which promised investors an annual return of 12% and that their funds would be used to extend short-term loans to small businesses that would use the funds to pay up-front commercial insurance premiums. The investment was touted as 100% safe and protected by the “Colorado Insurance Guarantee Fund.
Doug Vaughan of Albuquerque, New Mexico, allegedly swindled 600 investors out of $75 million in at least eight states. Vaughan has been free since pleading guilty last year to mail and wire fraud charges, and his sentencing has been set for September 5, 2012.
Leesa Marie Ward, 47, and Alison Ann Jensen, 47, officers of Ward Real Estate, in California, were each sentenced to 3 years in San Joaquin County Jail in connection with a Ponzi scheme where there were losses of over $5.8 million collected from 33 victims. The bookkeeper of Ward Real Estate, Sharon Lee Graham, is scheduled for a preliminary hearing on October. Ward reportedly spent the money on parties, plastic surgery, and vehicles.
James Wiederhold, 39, was sentenced, along with his father, Neal Wiedrhold, 62, and uncle, Larry Niewenhuis, 55, in connection with a $1 million Ponzi scheme where he told victims he was the co-manager of Atlas Funds and that they were guaranteed 24% annual returns on their investments. Wiederhold was sentenced to 6 years plus 3 years of probation, restitution of $827,300, and forfeiture of $803,000. Neal Wiederhold was sentenced to 12 months and one day, plus two years supervised release, restitution. Niewenhuis was sentenced to 2 years plus 2 years of supervised release and restitution. Anthony Rinkus, 32, and Joseph Angioi were also named in the indictments. Rinkus was sentenced to 35 months imprisonment in July 2011 and Angioi was sentenced to 5 years probation in September 2011.
Ronnie Wilson, former South Carolina city councilman, pleaded guilty to charges that he operated a Ponzi scheme that bilked investors out of at least $60 million. Wilson operated Atlantic Bullion & Coin, Inc., ("ABC") from at least 2001 through 2012, telling investors they could expect above-average returns through profits earned from the purchase and sale of silver futures contracts. To convince investors of the scheme's legitimacy, Wilson represented that all silver purchased would be held in safe-keeping at a Delaware depository. In total, Wilson raised approximately $90 million from over 1000 investors in 25 states. However, Wilson failed to purchase a sufficient amount of silver to reflect the amount of funds raised from investors. Instead, a majority of investor funds were used for a variety of unauthorized purposes, including personal expenses of Wilson and his family and to make Ponzi-style payments representing fictitious interest to investors. Authorities estimate that Wilson lost at least $60 million of the $90 million raised from investors.
William Wise, 62, of North Carolina, has been sued for allegedly more than $1 million in back taxes on more than $3 million in unreported income in 2008. Wise operated Millenium Bank, billing it as a unit of a Swiss bank based on the Caribbean island of St. Vincent, and promised investors 16% returns on certificate of deposits. Millenium sold about $130 million of fraudulent certificates of deposits. Wise spent the investors’ dollars on a $12,000 weekly allowance for his wife, $6,000 to $10,000 a month each for his girlfriends, $1 million on wine, $800,000 to build an hangar in Atlanta for a corporate jet, $450,000 for three boats and an undetermined sum for a 2008 New Year's Eve party for 50 people on St. Vincent.
The FBI and the Australian Federal Police seized more than $12 million in gold and silver bullion from an Australian account of James Fayed, 49, of Los Angeles, who is alleged to have run an international Ponzi scheme through e-Bullion.com. Fayed is currently on death row for contracting hitmen who murdered his wife. Fayed’s e-Bullion purported to provide investors opportunities to invest in precious metals, where investors opened accounts with real money, purchased virtual “e-currency” purportedly backed by precious metal reserves maintained by Fayed’s companies in the United States and Australia, and then could then trade their e-currency with others on the website. Prosecutors in the United States and Australian authorities worked closely together to recover a total of approximately $24 million in assets. A forfeiture judgment was signed which awarded to the United States approximately $3.6 million in bank funds and $5.4 million worth of gold, silver and platinum previously seized by the United States government.
Retired Lieutenant General Harunur Rashid, former army chief and war hero in Bangladesh, and the president of Destiny Group, and 21 other senior officials of the group, have been charged by the Bangladesh's anti-graft agency with stealing $400 million from nearly two million investors through alleged Ponzi schemes. The Destiny Group allegedly collected 23.35 billion taka ($286 million) for a tree harvesting project. The other project was a credit society in which the Destiny Group collected deposits and said the money would be returned with a substantial rate of interest within a certain number of years. Destiny Group, with nearly 1.7 million investors, had been suspected by authorities of running Ponzi schemes since it was set up in 2000.
In the Canadian Ponzi scheme of Earl Jones, RBC Dominion Securities (RBC) and two brokers have been fined $700,000 for "failing in their duty to protect the financial markets" from Earl Jones' Ponzi scheme. The Investment Industry Regulatory Organization of Canada approved the fines. Jones, an unlicensed financier from Montreal, is serving an 11-year prison term for masterminding a $35-million fraud that saw 158 people bilked of their life savings. RBC agreed to pay a $500,000 fine while brokers Serge Leclaire and Jean-Pierre Menard will pay $100,000 each. The deal addresses longstanding allegations from Jones' victims, who say RBC should have stopped Jones from gaining signing power over estates and emptying bank accounts for 25 years. In March, Royal Bank agreed to pay $17 million to settle a lawsuit filed by victims of Jones.
The emu business in India is suffering as one of the latest Ponzi schemes came to light with over 40,000 emus abandoned by several emu farm businesses, at least one of which was owned by MS Guru operating under the name Susi Emu Farms. Guru is now missing. Up to 20,000 investors have lost their money and between 40,000 and 1000,000 emus have been abandoned. Government officials are seizing the assets of five firms and watching 23 others, as they also try to locate a buyer for the emus.
A husband and wife team, identified as BR and DM, have been arrested in connection with a Ponzi scheme they ran under PT Koperasi Putera Pandawa, which involved Rp 500 million (US$63,600). About 1,300 investors were offered profits of 30% to 50%. The victims were told that they could withdraw their money from Idul Fitri savings accounts two weeks prior to the Idul Fitri holidays. The victims, mostly low and middle-income citizens, held BR and DM hostage when their money was not returned. The police disbursed the crowd, charged BR and DM with fraud and embezzlement, and seized the company’s computers and records.
John Hirst, 61, Richard Pollett, 70, and Linda Hirst, 62, were convicted in connection with a £10 million Ponzi scheme that targeted UK investors and ex-pats in Majorca. The scheme operated under the name Gilher Inc. between 2001 and 2009, and investors were told that their money would be invested in the US stock market. They used £5 million of the funds to support their own lifestyles. John Hirst pleaded guilty of conspiracy to defraud and two counts of money laundering. Pollett, who was extradited from Spain, was found guilty of conspiracy to defraud, and Linda Hirst was found guilty of three counts of money laundering. John Hirst served a prison term in the early ‘90s for an investment fraud with similar characteristics to the Giher operation.
New Zealand
Jacqui Bradley is on trial in Auckland District Court for charges relating to a Ponzi scheme involving 28 investors who invested about $15 million. Bradley told investors that she was buying into New Zealand Government Stock or putting their money with Macquarie Bank, but instead used funds to buy an expensive home, and to pay her credit card bills and daughter’s school fees.
Prosecutors in Poland charged Marcin Plichta, 28, the owner of a suspended investment fund known as Amber Gold, in the gold-derivatives business, with illegal activity in connection with the collection of funds from up to tens of thousands of customers amounting to up to $24 million. The investors were promised up to 16% interest. Amber Gold owns OLT Express Poland, a Polish charter airline, formally known as Yes Airways, which suspended all charter services on July 31, 2012. An undisclosed amount of gold was seized during an inspection of the offices of Amber Gold and from private apartments.
South Africa
Herman Pretorious, a South African fund manager, is alleged to have shot and killed Julian Williams of Basileus Capital, a private equity firm, and then himself, in relation to an alleged Ponzi scheme involving investor losses of approximately $250 million. Pretorious operated the Relative Value Arbitrage Fund (RVAF) which purported to pay returns to investors of 20% to 30% and paid commissions to financial advisors of 7.5% to 12% to steer new business to RVAF. Pretorious led a lavish lifestyle, apparently using investor funds, and drove exotic cars, including an Aston Martin, and he owned two extravagant homes.
Irving Picard, Trustee of Bernard L. Madoff Securities, LLC, filed a lawsuit against New York Attorney General Eric Schneiderman in Manhattan federal court to stop a settlement with former Madoff investor Ezra Merkin. New York had announced a settlement for $410 million with Merkin over claims that Merkin funds secretly placed client money with Bernard L. Madoff. The agreement provides $405 million to compensate investors and $5 million for the state. Picard contends that the settlement prejudices creditors and has asked the U.S. Bankruptcy Court in Manhattan to block the settlement saying it interferes with his exclusive right to seek money for victims of Madoff's Ponzi scheme. Picard, who has been seeking more than $500 million from Merkin, says that New York should not have "a jump start over all of the victims of this heinous fraud." "It is clear that the remaining assets of the Merkin defendants will be insufficient to satisfy the trustee's claims. Such an outcome would be extraordinarily prejudicial to the creditors of the BLMIS estate."
Also in the Madoff case, Picard obtained court approval to make a second payment to customers that may approximate $2.4 billion. A hearing was held on Picard’s second distribution motion, and some customers had demanded 9% interest on their claims. The court ruled that Picard could reserve 3%, not the full 9% requested, pending final resolution of this issue, referred to as Time Based Damages, which means that he can distribute about $1 billion more than if he were required to reserve for the full 9% requested by customers.
The tax consequences of investing in the Madoff scheme continue. In New Jersey Tax Court, an investor’s estate, that of Theodore Warshaw, challenged taxes assessed against Warshaw’s IRA account, valued at $1,848,293, and holding securities worth $1,463,733. The estate paid estate tax of $88,677 and distributions were made in 2007 and 2008. But then the Madoff scheme broke in late 2008, and they learned that the IRA statements were entirely fictitious. Warshaw’s executors sought a refund of the estate taxes paid. Although the Ithaca Trust Rule provides that events following the decedent’s death should not be considered in calculating estate tax, the New Jersey Tax Court found that subsequent events can be considered to calculate the value of the asset at the time of death. The court found that later discovered information about the conditions at the time of valuation may be considered. In an ironic twist, the court noted that fair market value is determined by what a hypothetical buyer would have paid and that, here, a buyer would have conducted due diligence to discover there were not assets in the IRA. Of course, investors in the Madoff scheme, along with feeder funds, the SEC and everyone else, seemed to miss this fact, but this was probably the right result in this case anyway.
In the Arthur Nadel Ponzi scheme case, a court has dismissed many of the claims contained in a lawsuit filed by the receiver, Burton Wiand, against Wachovia Bank, which is now owned by Wells Fargo Bank. Wiand alleged that the bank had played an “essential” role in the Ponzi scheme and that the bank should have detected the scheme. Finding that the allegations did not meet the threshold of actual knowledge, the court dismissed the claims for aiding and abetting fraud, breach of fiduciary duty and conversion.
In the Nadel Ponzi scheme case, the law firm of Holland & Knight agreed to pay $25 million to settle claims against it brought by Burt Wiand, the receiver who is administering the case. Wiand had sued the firm for about $170 million, alleging malpractice and complicity in the scheme, alleging that the firm had missed red flags that would have exposed the fraud. The firm did not admit any wrongdoing in connection with the settlement. When the settlement is finalized, the receiver hopes to pay out an additional $20 million to investors, which would bring the amounts recovered to about 30 percent. Nadel had been found guilty of defrauding investors of $168 million. He died in prison in April of this year at the age of 80.
An investor in the Ponzi scheme of Gurudeo “Buddy” Persaud, the broker whose investment strategy was tied to lunar cycles, has sued Money Concepts Capital Corp., the brokerage firm that employed Persaud, accusing the firm of negligence.
The trustee in the Thomas Petters Ponzi scheme case won a $200,000 judgment against Luxembourg soccer club CS Fola Esch. The soccer club had received $200,000 from Petters in July 2008.
Also in connection with the Petters Ponzi scheme, a court has authorized the U.S. Attorney’s Office to seize a home linked to Petters in Minnesota with a value of about $580,000. The home was occupied by the ex-husband of a former Petters’ associate, Deanna Coleman.
And again in Petters Ponzi scheme, Roger Jenkins, dean of the business school at Miami University, has reached a settlement with the court-appointed receiver, to return $1.25 million in consulting fees that he had earned from Petters. Jenkins had obtained permission from the university to consult with Petters to help create the strategy to merge the management teams at Polaroid and Petters’ company and to develop strategy to develop the Polaroid brand for sale to a Chinese buyer.
In connection with the Ponzi scheme of Scott Rothstein, a U.S. District Judge ruled that ruled TD Bank and its counsel, Greenberg Traurig, violated rules regarding evidence produced in a lawsuit filed by investors in Rothstein's $1.2 billion scam. (see http://theponzibook.blogspot.com/2012/02/aiding-and-abetting-claims-against.html for an explanation of the lawsuit). The court found that the bank and law firm should pay Coquina Investments attorney fees and costs related to the sanctions motions. The amount will be decided later. The decision may have a larger impact, however, as the Court made findings of fact that the bank knew about the fraud scheme, participated in and had money laundering and fraud controls that were “unreasonable.” The court found: “I find that Greenberg Traurig acted negligently in failing to comply with its discovery obligations…, and TD Bank acted willfully in failing to comply with its discovery obligations and assist its outside counsel to properly litigate this case…” Coquina has filed a motion seeking attorney’s fees in the amount of $463,000.
Steven Hayworth, the former CEO of Gibraltar Private Bank & Trust, has agreed to settle a lawsuit filed in connection with the Scott Rothstein $1.4 billion Ponzi scheme. Hayworth was the founder of the bank but agreed to step down earlier this year in the face of allegations that Rothstein laundered money at the bank for years. The trustee of Rothstein’s law firm, Rothstein Rosenfeldt Adler, had already filed and settled a lawsuit involving the bank and three former officers, leading to a payment of at least $15 million from Gibraltar and the right to sue the bank’s insurance carriers for coverage valued at another $35 million.
In the bankruptcy case of the $140 million Ponzi scheme of Frederick Darren Berg and Meridian Funds, which involved more than 750 investors, the trustee, Mark Calvert, has filed a lawsuit against Berg and Moss Adams. Calvert contends that that Berg, with the “knowledge and assistance” of Moss Adams, engaged in the fraudulent activity. Moss Adams has contended that it only audited a few of the Meridian funds for a short period of time and that investors did not put their money into the funds because of Moss Adams’ audits.
In the R. Allen Stanford Ponzi scheme, the SEC has appealed the district court’s ruling that the SIPC, which insures U.S. brokerage accounts, does not have to cover the losses of the Stanford victims. The scheme was a $7 billion Ponzi scheme, and victims now continue to hold out hope that they will receive money from SIPC. The SEC had sought a court order to compel SIPC to cover losses of Stanford victims, but the court ruled against the SEC in July, finding that the SEC had not met its burden in proving that the victims of the Ponzi scheme constitute victims eligible for compensation by the SIPC, under the narrow definition of the law.

Wednesday, August 29, 2012

The Ponzi Book Cited for Discussion on Ponzi Scheme Factors

Posted by Kathy Bazoian Phelps

The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes is proving useful to both practitioners and courts on a myriad of issues relating to the unwinding of Ponzi schemes. The Ponzi Book was recently cited by the United States Bankruptcy Court for the District of New Mexico in In re Vaughn, 2012 Bankr. LEXIS 3581 (Bankr. D.N.M. Aug. 2, 2012). The Vaughn court stated: “For a compilation of factors courts consider to determine whether a Ponzi scheme exists, see Kathy Bazoian Phelps and Hon. Steven Rhodes, The Ponzi Scheme [sic] Book: A Legal Resource for Unraveling Ponzi Schemes, § 2.03[1][b] (2012).”

The compilation of factors used to establish the existence of a Ponzi scheme is, of course, very important  in connection with establishing actual intent to hinder, delay and defraud creditors in a fraudulent transfer claim under section 548(a)(1)(A) of the Bankruptcy Code. With proof of a Ponzi scheme comes a conclusive presumption of actual intent, known as the Ponzi scheme presumption, for transfers made during the Ponzi scheme. See, e.g., Johnson v. Neilson (In re Slatkin), 525 F.3d 805, 814 (9th Cir. 2008); SEC v. Res. Dev. Int’l, LLC, 487 F.3d 295, 301 (5th Cir. 2007); Picard v. Madoff (In re Bernard L. Madoff Inv. Sec. LLC), 2011 Bankr. LEXIS 3578, at *15 (Bankr. S.D.N.Y. Sept. 22, 2011). 

Tuesday, August 28, 2012

The Money and Business Show Talks to Kathy Phelps

Listen in tomorrow at 4 p.m. to 5 p.m. EDT to The Money and Business Show on Radio Shalom to hear Kathy Phelps, co-author of The Ponzi Book:  A Legal Resource for Unraveling Ponzi Schemes, talk about the latest issues in the Madoff case and what progress is being made in Ponzi scheme detection.  You can listen to the show at  www.radio-shalom.ca/site/emissions-1042