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

Kathy is a senior business trial attorney with more than 28 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. 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

Tuesday, December 31, 2019

December 2019 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

Below is a summary of the activity reported for December 2019. The reported stories reflect at least 7 new Ponzi schemes worldwide; at least 4 guilty pleas and convictions, over 34 years of newly imposed sentences for people involved in Ponzi schemes; 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.
   
Matthew Brent Goettsche, 37, Iovadiah Sinclair Weeks, 38, and Joseph Franks Abel, 49, were charged in connection with an alleged high-tech Ponzi scheme run through BitClub Network. A fourth man, Silviu Catalin Balaci, was arrested in Germany in connection with the scheme. The scheme defrauded investors out of $722 million and took funds from investors to purportedly purchase shares of cryptocurrency mining pools. Internal chat messages intercepted by authorities state that the internal business model was built “on the back s of idiots” by targeting the “typical dumb MLM investor” who will convince other “morons” to join.
   
Lester Burroughs, 60, of Connecticut, pleaded guilty to charges that he ran a $575,000 Ponzi scheme through Burroughs Investment Group, a financial consulting firm. Burroughs was registered as an investment adviser and broker and guaranteed returns to his clients of 4% or 7%. He used investor funds to pay his own expenses and to pay the guaranteed returns to other clients.

Joey Stanton Dodson, 55, was indicted on charges relating to a $15 million Ponzi scheme involving about 50 victims. The scheme was run through Citadel Energy LLC, in which he solicited investments in three limited partnerships that were supposedly providing water-related services to oil and gas companies in North Dakota.

Edward Espinal, of New Jersey, and his company, Cash Flow Partners LLC, were charged by the SEC in connection with a $5 million Ponzi scheme that defrauded at least 90 investors. Many of the investors were members of the Hispanic community. Investors believed they were investing in a pooled fund that would purchase and renovate houses and they were promised guaranteed returns of between 1.25% and 4% per month.
 
Richard E. Gearhart, 69, pleaded guilty to charges that he ran a Ponzi scheme through Asset Preservation Specialists that took more than $6 million from more than 25 investors, resulting in losses of $3.5 million. Gearhart ran the scheme with George R. McKown, 66. They promised returns of 6% to 8% and persuaded investors to invest their existing retirement funds into the scheme.

International Investment Group lost its license due to “a string of frauds” in connection with its investment program in diversified trade finance portfolios. IIG was charged with concealing defaulted loans in its hedge fund and selling at least $60 million in fake loan assets to other clients.
 
Samuel Israel, 60, lost his bid for an early release from his 22-year prison sentence due to medical issues. Israel orchestrated the Bayou Group Ponzi scheme that defrauded investors out of $450 million.

Robert A. Karmann, 53, pleaded guilty to charges relating to his participation in the $960 million Ponzi scheme run though DC Solar that involved the sale and leaseback of mobile solar electrical generators. Investors would supposedly buy mobile solar electrical generators but did not take possession of them. Karmann was the CFO and disseminated false financial information to investors. Ronald J. Roach, 53, of California, pleaded guilty in October and was barred by the SEC this month. Joseph Bayliss, 44, also pleaded guilty to the scheme in October.

Perry Santillo aka King Perry, 39, pleaded guilty to charges in Pennsylvania that he defrauded 1,000 investors out of $113 million. Perry pleaded guilty last month to charges brought in New York.
 
Jamie Smith, 42, of Wisconsin was sentenced to 4 ½ years in prison for defrauding elderly people out of more than $1 million. Smith ran the scheme through American Platinum Gold & Silver Inc. aka American Independent Gold & Silver Inc.
 
Kari Sonovich, 48, was sentenced to 2 years and 3 months in prison in connection with a Ponzi scheme that promised returns of 500% every 90 days. Sonovich told investors their funds would be invested through her Las Vegas company, B&B Consulting Group LLC, by an international trader who would produce high returns.

Randy Wayne Sprinkle, 54, was sentenced to 15 years in prison for defrauding investors out of more than $300,000 in a scheme that misappropriated funds in connection with remodeling projects.

Robert C. Walberg, 58, was charged with running a Ponzi scheme that defrauded more than 20 investors out of more than $5.5 million.
 
Susan Margaret Werth, 58, of California, was sentenced to 5 years and 10 months in prison and ordered to pay $6.3 million in restitution for operating a $6 million Ponzi scheme through Commercial Exchange Solutions Inc. and Exchange Solutions Company Inc. Investors were promised returns  of 15% from purported short-terms construction loans.

Alvin Wilkinson, 61, was sentenced to 7 years in prison and ordered to pay $8 million in restitution in connection with a Ponzi scheme that spanned two decades. Wilkinson is an investment manager who pleaded guilty to defrauding friends, family members and others in a $13.5 million scheme that he ran through Chicago Index Partners LP and Wilkinson Financial Opportunity Fund LP. He promised returns from investments in options and futures.

INTERNATIONAL PONZI SCHEME NEWS 

Australia

Tanya Pluckhahn, 41, and Aaron Parsons, 44, were charged with running a $900,000 scam that took money from investors under the pretense of kickstarting the career of country music singer Alys Ffion, who knew nothing of the scheme. The pair defrauded investors and then paid some money back so investors believed they were getting their money back.

China

Seventy-two people were arrested in connection with an alleged cryptocurrency scheme called CloudToken on charges that they defrauded more than 300 victims out of over $4 million. CloudToken promised 10% to 15% returns on investments. The scheme started in China but was also promoted in Korea, Japan, Indonesia, Malaysia and some countries in Africa.

India

Ajay Chakraborty and Sanjit Chakraborty were arrested in connection with an alleged Ponzi scheme run through Jugantor Realty and Jugantor Gold and Jewellery.

Nanda Chanda, the director of Amanat Group of Companies, was arrested after it was found that the companies were running a Ponzi scheme.

South Korea

Lime Asset Management is facing an investigation over suspicions that it continued to sell investments despite knowledge that certain fund options were invested with a U.S. hedge fund engaged in fraud. The SEC had revoked the registration of International Investment Group in November.
 
Uganda

Samson Lwanga was arrested in connection with an alleged scheme run through Dunamiscoins Resources Limited. The company is allegedly a cryptocurrency scam that defrauded over 10,000 people out of $2.7 million.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

The Texas Supreme Court found that a Stanford International Bank Ltd. investor could not claim good faith in response to a fraudulent transfer claim seeking recovery of $79 million. The court found that investor Gary Magness suspected fraud and had a duty to investigate that something fraudulent was happening. The court held that a defendant on inquiry notice who does not investigate is not entitled to the good faith defense even if inquiry would have been futile.

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