June 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for June 2015. The reported stories reflect: 3 guilty pleas or convictions in pending cases; over 140 years of newly imposed sentences for people involved in Ponzi schemes; at least 7 new Ponzi schemes involving over $240 million; 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.

    Thomas Abdallah, 51, and Mark George, 58, of Ohio, pleaded not guilty to charges that they ran a Ponzi scheme, along with Jeffrey Gainer, 51, through KGTA Petroleum Ltd. The three allegedly defrauded 70 investors out of $17 million. They promised investors returns of up to 5% per month, or 60% per year, for investments in oil and fuel.

    William D. Allen, 36, and his business partner, Susan C. Daub, 55, were criminally charged in connection with an alleged $32 million Ponzi scheme. Allen played for three NFL teams over his 12 year career, including the Giants, Dolphins and Patriots. Allen and Daub are accused of running a Ponzi scheme through their company, Capital Financial Partners Enterprises LLC, which was making high-interest, short-term loans to professional athletes. The company loaned out only $18 million of the $32 million it collected from investors. The FBI has said that $4.1 million went to Allen personally and $61,080 to Allen’s casino accounts.

    Jonathan Arrington, Michael Kratville, and Michael Welke were sentenced to 5 years, 4 years and 3 years, respectively, in connection with a $4 million Ponzi scheme involving 114 investors. The 3 men had pleaded guilty earlier in the year. The scheme involved commodities and foreign exchange.

    Charles B. Blackwelder, 70, had his attorney license suspended by the Indiana Supreme Court. Blackwelder is serving a four year prison sentence for running a $19 million Ponzi scheme through his firm CFS LLC in which he defrauded elderly victims. Blackwelder and his daughter, Cara Grumme, were accused of defrauding more than 300 elderly victims.

    John R. Bullar, 53, was sentenced to 8 years and four months in prison and ordered to pay $6.2 million in restitution in connection with a Ponzi scheme that he ran through Executive Management Advisors LLC. The scheme defrauded more than 46 victims, who were promised high returns and told their money was safe. Bullar claimed to invest in precious metals, bonds and foreign currency but actually “invested virtually nothing,” prosecutors said. Bullar also told investors he had devised a computer system that monitored the market for potential losses and, prosecutors said, claimed he "had been offered millions of dollars" for it.

    Tim Durham was resentenced after two of the charges against him were dismissed on appeal. Durham had appealed his original sentence of 50 years for running a Ponzi scheme through his company, Fair Finance Co. The scheme defrauded 5,200 victims out of $200 million. The appellate court found that the prosecution had failed to enter key documents. At his re-sentencing, Durham was again handed a 50 year sentence.

    Charles L. Erickson was charged with running a Ponzi scheme that defrauded at least 25 investors out of about $3.5 million. Erickson, who recruited from his church, claimed that the Holy Spirit had given him a proprietary day-trading system for a volatile type of futures contract. He guaranteed returns of over 96% to be paid over two years.

    Joseph Greenblatt, 53, was sentenced to 10 years in prison for writing bad checks to his victims. Greenblatt is already serving 18 years in prison in connection with a $31 million Ponzi scheme through Maywood Capital Corp. Greenblatt promised investors high returns on investments in inner-city commercial properties.

    Scott Anderson Hall, 50, was sentenced to 10 years in prison in connection with a $3 million Ponzi scheme that defrauded 48 victims. Hall promised investors large returns, sometimes over 12% from investments in his company, Abaco Securities International. He set up the company, which was a sham offshore investment company, in the Turks and Caicos Islands.

    Christina Hernandez, 43, was sentenced to 3 years of probation for her role in a Ponzi scheme that took in more than $100 million. Hernandez posed as a JP Morgan employee to assist Michael Goldberg in a scheme that defrauded investors out of more than $30 million. Goldberg misrepresented to investors that Chase had granted him a contractual right to purchase foreclosed and seized business assets from a Chase Foreclosure Manifest, which he would then supposedly resell at a profit, from which he would guarantee returns of up to 20% in about 90 days. Goldberg further represented that Chase would refund the purchase price of any asset that couldn’t be resold so there was no risk to the investor. Goldberg pleaded guilty in 2010 and was later sentenced to 10 years in prison.

    Wendell A. Jacobson, 61, and Allen R. Jacobson, 36, were charged in connection with an alleged Ponzi scheme run through the real estate investment firm called Management Solutions. The father and son used their membership in The Church of Jesus Christ of Latter-day Saints to lure in 400 investors and raise more than $200 million. They promised investors that they would buy apartment complexes at discounted prices, then renovate and sell them within five years.

    Kristine Louise Johnson, 60, was charged in connection with an alleged $7 million Ponzi scheme that defrauded more than 10,000 victims. The alleged scheme, run through a sham internet company called “The Achieve Community,” promised investors a 700% return in a 3 to 6 month period of time. Investors were paid back about $2 million during the scheme. Troy A. Barnes, 52, of Michigan was also charged in connection with the scheme. The scheme was previously operated under the name “Work with Troy Barnes Inc.” Johnson pleaded guilty to the charges.

    Herbert Ivan Kay, 57, was sentenced to 5 years in prison after being convicted on charges relating to a Ponzi scheme in which he marketed and sold investments in residential and commercial developments in Mexico. Kay was also ordered to pay $8 million of restitution to his victims.

    Stafford S. Maxwell, 46, pleaded guilty to charges relating to a multimillion Ponzi scheme that he ran through Millennium Capital Exchange, Inc. The scheme was a foreign exchange market trading program in which he promised his victims high fixed rates of return.

    Everett C. Miller, 45, was sentenced to 10 years in prison for a Ponzi scheme to which he pleaded guilty in 2013. The scheme, run through Miller’s company, Carr Miller Capital LLC, defrauded investors out of $5 million. He promised investors 7% to 20% returns through the sale of unregistered securities.

    Frederick E. Monroe Jr., 59, was charged with running an over $1 million Ponzi scheme through Capital Financial Planning. Monroe allegedly solicited money from clients to invest in bonds but never invested the money. Monroe pleaded not guilty.

    Randy Poulson, 44, pleaded guilty to charges that he ran a Ponzi scheme through his companies, Equity Capital Investments LLC and Poulson-Russo LLC. Poulson promised to pay the mortgages of distressed homeowners facing foreclosure if they sold their homes to him. He obtained deeds to more than 25 homes, put renters in the homes, and then stopped making the monthly mortgage payments. Poulson also brought in investors, promising then 10% to 20% returns, for investments in properties that Poulson claimed he would rehabilitate, rent out and then sell.

    Daniel Christian Stanley Powell, 33, was sentenced to 10 years in prison in connection with his $5.2 million Ponzi scheme. Powell centered his scheme around a sham “reverse life insurance” company. Powell represented to investors that his company, Christian Stanley Inc., owned policies worth $1.9 billion, but in fact did not own a single insurance policy.

    Premier Asset Management and its principals and employees, Gerald Lawler, Nicola Lawler, Mariam Williams, Claude L. Collins Sr., and Patrik Granec, were the subject of a temporary cease and desist order by the Massachusetts Securities Division and the Alabama Securities Commission. Premier solicited investments funds through Craig’s List and, at least in one instance, promised a 100% return in as little as 48 hours. One investor was assured that the account was 100% secure.

    William Allen Risinger was indicted on charges relating to an alleged $4.5 million oil and gas Ponzi scheme. Risinger allegedly sold fraudulent royalty interests relating to oil and gas wells through his entity known as RHM Exploration. Investors were invited to invest in ventures, such as the RHM-Sinton Joint Venture.

    Steven B. Rodd, 49, who previously served time for soliciting investors into Lou Pearlman’s $300 million Ponzi scheme, was arrested for drowning a rabbit. Rodd was observed tossing a rabbit into a hotel pool and watching it down, so has been charged with animal cruelty. Rodd’s involvement with the Pearlman Ponzi scheme related to his solicitation of over $32 million in investments to hundreds of Florida investors, for which he served a 3 year prison term.

    Keith Michael Rogers was accused by the Alabama state security commission of running a Ponzi scheme. Rogers is a financial advisor who is accused of defrauding investors out of millions of dollars and using $2.5 million for his personal expenses.

    Sunil Sharma, 68, pleaded guilty to running a Ponzi scheme that started as a risky day-trading strategy. Sharma set up Gold Coast Holding LLC to trade options and then later set up Safe Harbor Tax Lien Acquisitions. Sharma raised $8.36 million from 32 investors and paid $2.12 million in returns to earlier investors.

    Louis J. Spina, 58, was sentenced to 79 months in prison in connection with his $20 million Ponzi scheme. The scheme defrauded 42 investors through his company, LJS Trading LLC, and promised returns of 9% to 14%. Spina had been sentenced to 3 years and 5 months in prison for a bank robbery to which he had pleaded guilty in 2014. The judge in the Ponzi scheme criminal matter ordered that the two sentences be served consecutively, that Spina pay back $12.7 million, and that he forfeit over $800,000.

    Paul Sullivan, 50, was sentenced to 4 years and 7 months in prison and ordered to pay $1.9 million in restitution for a Ponzi scheme that defrauded investors out of about $1.9 million. Sullivan made investments for his clients that result in losses. In order to repay them, he solicited new investments with promises of high rates of return.

    Phil Donnahue Williamson, 48, of Florida, was charged by both the SEC and criminally in connection with an alleged Ponzi scheme run through Sterling Investment Fund LLC and Sterling Financial Partners. The scheme targeted retired teachers and police officers and promised investors returns of 8% to 12% for investments in distressed real estate. It is alleged that the scheme defrauded at least 17 investors. Williamson voluntarily surrendered and agreed to settle the SEC charges by paying about $750,000 in disgorgement of ill-gotten gains.

    Bryan Zuzga entered into a plea agreement in connection with a $25 million Ponzi scheme he was accused of running along with Jenifer E. Hoffman and John Boschert. The scheme was run through Assured Capital Consultants and defrauded about 100 victims. Zuzga was accused of impersonating a Florida attorney and assuring investors that their money was safe in an escrow account. Boschert pleaded guilty last year.

 

INTERNATIONAL PONZI SCHEME NEWS

Cambodia

    Seven more people believed to be involved with the Empire Big Capital alleged scheme were arrested, bringing the total to 14. The company was registered in Hong Kong, but had vacated its offices a few months ago. The individuals have been charged with fraud in Cambodia.

Canada

    More than 600 victims have sent in letters in connection with the sentencing of Gary Sorenson, 71, and Milowe Brost, 61. The two men were both found guilty of defrauding more than 2,400 investors out of $100-$200 million between 1999 and 2008.

England

    Geoffrey Langdale, who is currently serving a 6 year prison term for running a Ponzi scheme, was told that he must repay £272,729.86 or face a further three years behind bars.

India

    Five suspects were arrested in connection with the Win Realcon scheme that allegedly defrauded investors. The suspects are Mahitosh Ganguly, Joy Bhowmick, Rajib Debnath, Partha Pratim Roy and Raju Dey.

    Leena Maria Paul and her partner Sekar Chandrashekhar, along with Adil Akhtar Jaipuri, Akhtar Hussain Jaipuri, Salman Rizvi and Nasir Jaipuri, were arrested on charges that they defrauded over 1,000 investors by promising them 300% returns on their investments.

    Authorities located 180 bank accounts of Rose Valley and recovered Rs. 36.91 crore. Earlier this year, the company’s chairman, Gautum Kundu, was arrested in what is alleged to be a Ponzi scheme. Amit Banerjee was arrested in connection with the scheme as well.

Indonesia

    Kamal Tarachand was arrested in an alleged Ponzi scheme involving a fraudulent tissue paper business. Investors were promised between Rp 50,000 and Rp 200,000 ($3.7 - $15) per day in return for every Rp 1 million ($75) invested in the company. Tarachand represented that his company was making money by selling advertising space on the back of the tissue paper packets that his company produces.

New Zealand

    A court of appeal found that an investor in the David Ross Ponzi scheme was required to return fictitious profits received from the Ross Asset Management Ponzi scheme. The investor had invested $500,000 but had received back $954,000 so was required to pay back $454,000. There are almost 200 investors who received about $30 million of fictitious profits who are now facing claims to return those profits

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    About 30 victims of the Philip G. Barry Ponzi scheme filed a lawsuit against JP Morgan, TD Bank, HSBC, and M&T Bank, seeking $11.1 million plus $25 million in punitive damages for the banks’ alleged failure to detect the fraud in the face of over 1,000 bounced checks and large repetitive transactions. Barry was convicted in connection with his $40 million Ponzi scheme that he ran through Leverage Group, Leverage Option Management Co. Inc., and North American Financial Services. The scheme defrauded about 800 victims.

    The Seventh Circuit ruled that liquidators in the British Virgin Islands cannot lift an injunction to disburse funds from the Nikolai Simon Battoo $340 million Ponzi scheme that had defrauded 800 investors. Battoo had defied an injunction issued in an SEC action against him and BC Capital Group in 2012 by transferring assets to the control of the liquidators.

    The trustee of Bernard Madoff’s business entered into a settlement with feeder funds, Ariel Fund Ltd. and Gabriel Capital LP, once run by J. Ezra Merkin. The settlements will free up $35.4 million for distribution to Madoff’s customers, and the funds will receive about $145 million in payments to catch with distributions made to other customers. The settlements do not resolve the trustee’s claims against Merkin himself or his related entities, Ascot Funds and Gabriel Capital Corp.

    The Bernard Madoff trustee announced a settlement with Plaza Investments International that will result in recovery of $140 million. The settlement will bring the total available to repay customers $10.874 billion. The trustee had sought $235 million from Plaza and its investment manager, Notz, Stucki Management (Bermuda) Ltd. Plaza will also be allowed its $405 million claim.

    The United States Supreme Court rejected the Bernard Madoff trustee’s appeal of a decision that blocked the trustee from recovering nearly $2 billion in direct recoveries. The Second Circuit had affirmed lower rulings finding that Section 546(e) applied to bar the trustee from seeking recovery of transfers made to Madoff’s customers.

    A district court declined to dismiss the claims of the receiver of Stanford Financial against two law firms, Chadbourne & Parke and Proskauer Rose. The receiver claims that Thomas Sjoblom, a lawyer who worked at both firms, obstructed investigations by the SEC and other regulators. The receiver may pursue negligence, aiding and abetting fraud, negligent supervision and civil conspiracy claims.

    Equity Trust Company, a company that offers self-directed IRAs, was charged by the SEC for its involvement with the $5 million Ponzi scheme run by Ephren Taylor and Randy Poulson. Equity Trust is alleged to have ignored red flags in connection with the investments. The scheme defrauded more than 100 investors out of $5 million that was invested through accounts at Equity Trust.

    The TelexFree trustee reported to the court on the status of his administration of the case. He reported that he has identified over 900,000 accounts that were registered with TelexFree, approximately 68,000 of them which appear to have profited from the scheme. The trustee believes that they may have profited an average of over $20,000 each, meaning over $1 billion in potential recoveries to be sought. The trustee has recovered approximately $16 million to date in the case.

    The court presiding over the Zeek Rewards receivership case ordered NxSystems to turnover $9 million to the receiver. NxSystems is an “e-wallet” account company. An e-wallet allows Internet users the ability to make electronic transactions, such as PayPal.

    The Zeek Rewards receiver settled with attorney Kevin Grimes, the Grimes & Reese law firm and a Grimes-related entity, MLM Compliance VT LLC, for $1.175 million. The receiver had alleged that they had received $843,000 from the sale of a “bogus compliance course” and that Grimes had received $342,510 less than a week before Zeek Rewards shut down. Grimes and the entities did not admit any wrongdoing in connection with the settlement.

    The Zeek Rewards receiver announced that he will be making a second partial interim distribution to the affiliates who hold allowed claims. Combined with the first partial interim distribution, the receiver believes this will return 60% of the allowed claim losses. The receiver is using the rising tide methodology of distribution which he described as follows: “two investors put $10,000 into the scheme and each will receive $6,000 total, whether it was received from the scheme itself, or from distributions from the receivership, or a combination of both.”
 

May 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for May 2015. The reported stories reflect: 7 guilty pleas or convictions in pending cases; over 62 years of newly imposed sentences for people involved in Ponzi schemes; at least 16 new Ponzi schemes involving over $130 million; 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.

 

    Joyce Allen, 67, was sentenced to 3 years in prison and ordered to pay $20.7 million in restitution for defrauding hundreds of investors out of $40 million. Allen was associated with Benchmark Capital which was owned by Charles D. Candler. Allen would represent that they would refinance the investor’s property and put them into a program that would pay the mortgage payments.

    Douglas Bates, 56, had his 5 year prison term reduced by nearly two years due to the assistance that he provided to federal prosecutors in convicting three other individuals in connection with the Scott Rothstein Ponzi scheme. Rothstein himself has such a request pending to shorten his 50 year prison sentence, but no decision has yet been reached on his request.

    Jason Bo-Alan Beckman, Gerald Durand, and Patrick Kiley, all had their convictions and sentences upheld on appeal to the Eighth Circuit. United States v. Beckman, 2015 U.S. App. LEXIS 7805 (8th Cir. May 12, 2015). The court was not persuaded by their various arguments seeking to overturn their sentences in connection with the Trevor Cook Ponzi scheme that involved over $193 million. The dissent argued that the conviction and sentence of Kiley should be overturned because his counsel at the time of trial was “laboring under a conflict of interest that adversely affected his representation of Kiley.”

    Ian Bick, a 19 year old who was arrested earlier this year on charges that he was running a $500,000 Ponzi scheme, must now close his club, Tuxedo Junction, due to alcohol violations because the club does not have a license to serve alcohol. He is due to go to trial in the fall on the Ponzi scheme charges.

    Adam Jay Boskovich, 45, pleaded guilty to charges relating to a $200 million Ponzi scheme that was run primarily by Gerard Frank Cellette, 50. The scheme defrauded 80 investors who were told that Cellette had printing contracts with major corporations through his company, Minnesota Printing Services Inc., and needed money upfront to get a 20% discount on purchasing paper. Boskovich recruited about $17 million of the investor funds. Boskovich’s felony conviction was reduced to a misdemeanor, and he was sentenced to one day in jail.

    Patrick Churchville, 46, was charged with running an $11 million Ponzi scheme through his company, ClearPath Wealth Management. Churchville took investors dollars for his own use and lost some of it in a separate $23 million Ponzi scheme.

    Enrica Cotellessa-Pitz, 56, was sentenced to time served in connection with her role as a former employee of Bernard Madoff’s firm. Cotellessa-Pitz had faced up to 50 years in prison, but the judge cited her extensive cooperation with prosecutors which helped lead to the conviction of 5 other people.

    Frank DiPascali died at the age of 58 of lung cancer. DiPascali was one of Bernard Madoff’s top aids and had testified for the government against several other Madoff employees. DiPascali had admitted that he had made bogus trades with Madoff for 30 years but always thought that Madoff had enough assets to cover everything. DiPascali was set to be sentenced in September.

    David Fili Jr., 45, was charged with running a Ponzi scheme that allegedly defrauded several mortgage lending banks, including PNC Bank and Wells Fargo Bank, out of $9.7 million. Fili is the former co-owner of Capital Financial Mortgage Corp. and allegedly deceived numerous lenders into purchasing mortgages issued by his company that were represented to be first mortgages but were really worthless second mortgages.

    Daniel Fodiman, 51, was charged with running a multi-million dollar Ponzi scheme where he represented to investors that he was buying merchandise that he was reselling to TJ Maxx for a profit. Fodiman is accused of presenting investors with falsified TJ Maxx purchase orders and altered bank statements. Fodiman pleaded not guilty and was ordered held on $1 million bail.

    David G. Friehling, 55, was sentenced to a year of home detention after pleading guilty and cooperating with prosecutors in connection with the Bernard Madoff Ponzi scheme. Friehling was Madoff’s firm’s auditor and was also the personal account for Madoff and his sons. Friehling assisted the government in getting convictions for 5 former employees of Madoff. He has said that he was not aware of the fraud at the firm but that “I did not question what I should have questioned.” Friehling could have been sentenced to more than 100 years in prison for his role in the Ponzi scheme. Craig Kugel, 41, who worked in human resources for Madoff, was sentenced to time served, and his father, David Kugel, was sentenced to 10 months of home confinement for his role in helping create fake, backdated trading records.

    FX & Beyond Corp. and Steve H. Karroum were the subject of a motion by the SEC to enforce a subpoena again them in connection with an investigation of an alleged Ponzi scheme.

    Eduardo Galan, 64, pleaded guilty to charges that he defrauded 38 investors in a Ponzi scheme. Galan was once a licensed securities broker but was barred by FINRA in 2008 from selling securities. Galan admitted that he took more than $800,000 from investors and misrepresented to them that their money would be loaned out in private mortgages.

    Robert Gavin and Daniel Hogan, along with their company, North Dakota Developments LLC, were sued by the SEC who accused them of running a Ponzi scheme that allegedly raised more than $62 million from about 980 investors. The defendants represented to investors that they were selling stakes in four short-term housing projects known as “man camps” for workers in the Bakken oil field region of North Dakota and Montana. The investors were promised returns of 42% in the first year or a guaranteed annual return of up to 25%. The scheme allegedly raised money from investors in 66 countries, including the U.S., Australia, France, Great Britain and Spain. The North Dakota Securities Commissioner also issued a cease-and-desist order against the three defendants.

    Tyrone Herman, 56, was sentenced to 10 years in prison for operating a $20 million Ponzi scheme. Herman defrauded 51 victims by promising them investment returns as much as 30%. He told his victims that he purchased small appliances at below retail prices and then sold them with a 35% markup.

    Charles Huggins, 68, was sentenced to 10 years in prison in connection with a Ponzi scheme that defrauded investors out of more than $8 million. Huggins is a former music producer who helped launch Kenny G and Whitney Houston. He diverted investor dollars to one of his record labels and used funds to pay for his personal expenses.

    Michael Anthony Jenkins, 57, was sentenced to up to 13 years in prison following his guilty plea to charges relating to a Ponzi scheme that he ran through Harbor Light Asset Management. The scheme allegedly defrauded more than 435 victims out of $1.79 million in a commodities futures scam.

    Herbert Kay, 58, was sentenced to 5 years in prison in connection with a Ponzi-style operation that he ran through several companies, including Taxon LLC. Kay defrauded more than 30 people. He had initially pleaded guilty but then withdrew his guilty plea. 

    Shaine Joseph LaVoie, 46, was convicted on charges related to a Ponzi-like scheme that defrauded 12 victims. The scheme involved the supposed purchase of over-produced and out-of-season clothing for re-sale in a deal that was to involve a shipment of designer jeans being sold to a Japanese buyer. LaVoie promised investors a 100% profit.

    George Lindell and Holly Hoaeae were found guilty by a jury on charges relating to the running of a Ponzi scheme through their mortgage and insurance business, The Mortgage Store. The scheme defrauded 166 people, who invested $26 million and who lost a net amount of $8.9 million.

    Eric Lipkin, 41, was sentenced to nine months of home detention for his role in the Bernard Madoff Ponzi scheme. Lipkin had pleaded guilty to his role in helping to prepare fraudulent documents. Lipkin was also ordered to forfeit $1.4 million.

    Randy Miland, 61, lost his chiropractor license due renewed allegations that he defrauded patients and other investors. Miland’s license had previously been suspended but was reinstated in 2011, with the condition that he not engage in personal or business relationships with patients or their families. Instead of paying back old debt, Miland took on new debt involving patients, which violated conditions of his license.

    Brian J. Polito, 34, pleaded guilty to charges relating to an $11.8 million Ponzi scheme in which he sold phony oil and gas interests. Polito ran the scheme through GC Resources LLC. Prosecutors have recovered more than $664,000 by selling Polito’s cars, including a 2014 Rolls-Royce Wraith, a 2015 McLaren 650S Coupe, a 2014 Lamborghini, a Lamborghini Aventador Anniversary Coupe, a 2015 BMW M4 Coupe, a 2014 Mercedes E63 Wagon and a 2014 Ferrari 458 Speciale.

    Giuseppe Porcaro, 53, was sentenced to 8½ years in prison in connection with a $4 million Ponzi scheme. Porcaro put much of the money into his businesses, including the Australian Motor Finance Company. Porcaro had pleaded guilty to a number of charges relating to the scheme.

    Frank Preve challenged a request by the SEC that he pay a $1 million penalty for his role in running the largest feed funds for Scott Rothstein’s $1.2 billion Ponzi scheme. Preve, scheduled to begin his 3½ year prison sentence next month, says that he is destitute, in poor health, and they he has already suffered enough. He argued that he was an independent contractor for George Levin, who owned the funds.

    Devasc Sanderley Rodrigues aka Sann Rodrigues, 43, was arrested in connection with the TelexFree scheme. Rodrigues is a native of Brazil but has been living in the U.S. Rodrigues was one of the 8 TelexFree figures charged civilly by the SEC. James Merill and Carlos Wanzeler have also been charged criminally. A court has required Rodrigues to surrender his driver’s license as a condition of his release on a charge of immigration fraud.

    Perry Sawano, 51, pleaded guilty to charges in connection with a $4.8 million Ponzi scheme that he ran through Integrity Financial Consulting. Sawano offered investment opportunities to his investors but would move funds into “alternative investments” without notification to the investors. Sawano would take the money himself or use investors’ money to pay other investors.

    John Sposato, 64, was charged with wire fraud and accused of running a Ponzi scheme. Sposato allegedly defrauded 48 people who invested a total of about $810,000 in his companies that included Pegasus Investment & Development Corp.; Pegasus Investments; Oil Eaters; Organic Miracle Incorporation; Pegasus Truck Lines; and Pegasus Demolition & Debris Removal Service.

    Brandon Walton Stewart, 30, was accused of running a $13 million Ponzi scheme. Walton allegedly told investor that their money would be added to an investment fund with corporate stocks, including Facebook, and foreign investments.

    Barry C. Taylor, along with his companies OTC Investments LLC and Foreign Currency Trade Advisors, LLC, were charged by the CFTC with operating a foreign exchange Ponzi scheme. The scheme allegedly involved about $2.5 million and at least two dozen investors. The CFTC complaint alleges that Taylor promised investors 2% returns per month from foreign exchange trading.

    Garfield M. Taylor, 56, was sentenced to 13 years in prison and ordered to pay $28.6 million in restitution in connection with a $28.6 million Ponzi scheme that defrauded more than 170 investors. Taylor operated two companies, Garfield Taylor Incorporated and Gibraltar Asset Management Group, which traded in extremely risky options. Taylor had promised substantial returns to investors based on a sophisticated trading strategy that supposedly protected against loss. Taylor had pleaded guilty but has now filed a motion to withdraw the plea.

    Germaine Theodore, 35, was indicted on charges that defrauded clients through his purported bill payment and debt consolidation business, Save My Future, in which he promised to cut customers’ bills by 35% but instead was running a Ponzi scheme. Theodore had been indicted in February for stealing $250,000 through his company, TGC Movement, but had posted bail. He began the Save My Future scheme while out on bail.

    Jack Utsick, who had pleaded not guilty to running a $300 million Ponzi scheme through his company, Worldwide Entertainment Inc., had his case set for trial in November. Utsick’s scheme allegedly defrauded about 3,300 investors.

    Veros Partners and its executives, Matthew D. Haab and Adam Decker, were named in a lawsuit filed by the SEC, along with associates Jeffrey B. Risinger and Tobin J. Senefeld, accusing them of running a $15 million Ponzi scheme that defrauded approximately 80 investors. The scheme was run through Veros Farm Loan Holding LLC and FarmGrowCap LLC. Investors were told that they money would be used for short-term operating loans to farmers.

    Stu Voigt, 66, pleaded not guilty to charges that he and Jeffrey Gardner, 61, ran a real estate Ponzi scheme through Gardner’s business, Hennessey Financial. Gardner had previously pleaded not guilty.

INTERNATIONAL PONZI SCHEME NEWS

Australia

    An investor couple who lost $450,000 in the Ponzi scheme of Neovest had their judgment upheld against Wealthsure, the financial advisers who advised the couple to invest. The judgment is for over $1.7 million. The High Court upheld the trial judge’s ruling that Wealthsure was 100% liable for the loss despite that finding that others were also responsible.

    Michael Samra was charged in connection with an alleged $12 million Ponzi scheme run through his company, ALC Company Pty Ltd. Samra represented that investor funds would be lent to unnamed builders and property developers on a short-term basis and that investors would receive 30% to 48% returns annually.

Canada

    The British Columbia Securities Commission issued an Investor Alert on DFRF Enterprises LLC, DFF Enterprises Ltd., and other companies associated with Daniel Fernandez Rojo Filho. The Commission alerted investors to the scheme that it said was characteristic of investment fraud, noting that the scheme is offering returns of up to 15% per month and stating that DFRF will soon be listed on the public stock exchange after which investments will triple within 30 days.

    Shabnam Shafi, 41, and Shafi Shauaid, 27, were charged with running a Ponzi scheme that defrauded 24 investors out of $4 million.

    An arrest warrant was issued for John Paul Baron after he failed to appear in court for his sentencing. Baron had been convicted on 28 charges in a $3 million Ponzi scheme that defrauded 22 investors. Terrence McGill, 57, was sentenced in March to 23 months, and Leeanne Houle, 46, is scheduled to go to trial in November in connection with the scheme.

England

    Joe Lewis, 60, was arrested in connection with an alleged £130m Ponzi scheme. It is believed that more than 370 victims were defrauded by Lewis’ company, JL Trading.

    Peter Bernstead, 72, killed himself in the middle of his trial on charges that he was running a Ponzi scheme. Bernstead was on trial for defrauded 12,500 people out of £19.5 million through Crown Currency Ltd.

    Four suspects, Sal Palermo, Sal Darsee, Santos Palermo, and Santos Salvatore, were arrested in York for allegedly operating a romance-based Ponzi scheme that defrauded at least 20 victims out of $1.2 million. Yiaoming Liang, 47, and Ansari Farhan, 32, also face charges in connection with the scheme, and Tatiana Krainova, 39, was charged in January.

India

    Dandapani Sethi, the principal of Zodiac Foundation, was arrested on charges that he was running a Ponzi scheme.

    Deba Kumar Panda, of Vista Management Services Limited, was arrested on charges that he defrauded investors out of more than Rs 50 crore. Bijay Swain, the director of the company, was also arrested.

    Arindam Das aka Bumba was arrested in connection with the Saradha Group Ponzi scheme. Das is alleged to be mentoring the operation of the scheme.

    Subhransu Singh, the managing director of Sree Bhumi Construction, was arrested in connection with an alleged Ponzi scheme that defrauded victims out of Rs 50 crore.

Singapore

    Leong Lai Yee may have defrauded over 100 investors by promising them 30% returns from a deal involving the buying and selling of properties in Singapore. Leong has been reported missing, and it is believed that she owes investors more than $60 million.

Thailand

    The Department of Special Investigation warned consumers not to get involved with Virgin Gold Mining Corporation, which it described as a “money game.” Investigators have also found that a claims subsidiary of Virgin Gold, Asia Pacific Gold Mining Investments Ltd. in Toronto is not registered for gold futures trading.

    Police raided a Bangkok apartment complex in connection with an investigation of the UFUN alleged Ponzi scheme. It has been estimated that 120,000 people invested in the scheme. Losses could be as much as $1.13 billion.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    The receiver in the Ponzi scheme run by Donald Ray Babb and Ralph Ruth obtained permissions to sue recipients of payments from nearly 100 victims of the Ponzi scheme that received in excess of 46.7% of their investments. The receiver is seeking to use the rising tide method of distribution.

    The trustee in the Fair Finance Co. bankruptcy case reached a $35 million settlement with Fortress Credit Corp. in connection with the scheme run by Tim Durham. The trustee had alleged that Fortress had turned a blind eye to the Ponzi scheme because it was making millions of dollars at the lender and held first priority liens on the assets with value.

    A District Court dismissed a lawsuit filed by investors in the Ponzi scheme run by 3 investment advisors, John Geringer, Christopher A. Luck and Keith E. Rode, through their company GLR Fund. The lawsuit against Santa Cruz Country Bank was not allowed to proceed because the court found that the investors did not show how the bank profited from the fraud. The lawsuit had alleged that the then-vice-president Chuck Maffia "knowingly participated in and substantially assisted the Ponzi scheme" by serving as a banking reference for the GLR Fund and soliciting investors.

    A receiver was appointed in the $800 million Ponzi scheme case of MRI International and Edwin Fujinaga. Fujinaga had told investors he could buy medical accounts receivable at a discount from medical providers and recover the full amounts from insurers.

    The Eighth Circuit upheld the dismissal of an investor’s legal malpractice lawsuit against Martin Sigillito based on procedural grounds because the investor, Phil Rosemann, had failed to name an expert during discovery to testify as to whether Sigillito was negligent.

    The receiver in the Stanford Financial case reached settlements with two law firms and some individuals that will result in payment of $5 million. The receiver had sued Adams & Reese and Breazeale Sachse & Wilson, along with some of the lawyers involved, for negligence, breach of fiduciary duty and aiding and abetting, alleging that they referred clients into Stanford’s $7 billion Ponzi scheme.

    The Allen Stanford receiver sued the State Department, demanding documents relating to $16.4 million in fraudulent transfers to former Stanford insiders, David Miguel Nanes and Hasibe Elizabeth Ancona. The receiver believes that those two individuals have possession and knowledge relating to millions of dollars of transfers. In fact, the receiver already has a judgment against Nanes’ company, Wealth Management Services, Ltd. for over $9.8 million. The Receiver says that Nanes’ has taken steps to make sure he is not found and Nanes’ lawyer says he does not know of his whereabouts. The State Department has objected to the Receiver’s subpoena on the following grounds: (1) disclosure is prohibited under the Privacy Act, (2) disclosure is prohibited under the Immigration and Nationality Act, (3) disclosure would expend Department resources for purposes other than the conduct of official business, and (4) disclosure would reveal information protected by privileges available under federal or state statutory, constitutional, or common law."

    A settlement was reached in the George Theodule $68 million Ponzi scheme case between the receiver administering the Theodule case an Wells Fargo Bank. Wells Fargo will pay $3.175 million to settle a lawsuit that has been pending for several years. The receiver had alleged that Wells Fargo’s predecessor, Wachovia Bank, had turned a blind eye to Theodule’s fraudulent scheme. This settlement, along with several others reached by the receiver (Bank of America for $2.75 million and TD Ameritrade for $1.25 million), will allow the receiver to begin making distributions to the approximately 2,500 Haitian-Americans who were defrauded in the scheme.

    The receiver of Zeek Rewards filed a new set of fraudulent transfer lawsuits against net winners in Brazil, Denmark, France, Germany, Israel, Ireland, Netherlands and Sweden.

April 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for April 2015. The reported stories reflect: 10 guilty pleas or convictions in pending cases; over 105 years of newly imposed sentences for people involved in Ponzi schemes; at least 11 new Ponzi schemes involving nearly $100 million; and an average age of approximately 49 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.

    Achieve Community aka TAC was the subject of a cease-and-desist order issued by the Colorado Division of Securities which accused the company and others of running a Ponzi and pyramid scheme. The order apples to Achieve, Achieve International LLC, Work with Troy of Barnes Inc., Troy Barnes, and Kristine “Kristi” Johnson. The company’s website had promised 800% returns based on funds of others who were brought into the scheme. The company did not sell a product.

    Joyce Elaine Allen, 67, was sentenced to 30 years in prison and ordered to pay more than $20 million in restitution in connection with the Benchmark Capital Investments Ponzi scheme. Allen used her company, J. Allen & Associates, in which she was an accountant. Tiffiny Thompson, 34, pleaded guilty last June and was also sentenced this month to 21 months in prison. The scheme involved 358 victims and about $20 million. Dona Rector and Paulynn Wright were previously sentenced to 2 years of probation and 4 months, respectively.

    William D. “Will” Allen, 36, was charged by the SEC with running a $31.7 million Ponzi scheme through his investment businesses, Capital Financial Partners LLC, Capital Financial Holdings LLC, and Capital Financial Partners Enterprises LLC. Allen was an NFL cornerback, and he played for the New York Giants and the Miami Dolphins. Allen started his business to make loans to professional athletes and sold investors on the idea of lending money to professional athletes. Allen and his associate, Susan C. Daub, 54, allegedly raised nearly $32 million from at least 40 investors, but failed to loan all of the money. The SEC has alleged that they made $18 million worth of loans but also took $7 million for themselves. Their website stated that they charged interest rates of 9% to 18% on the loans and that investors could make investments in the minimum amount of $75,000 from which a 3% origination fee would be deducted.

    William Apostelos and Connie Apostelos are the subject of an amended forfeiture complaint seeking to recover certain assets, including two race horses, racing proceeds and bank accounts, which are believed to be the proceeds of a Ponzi-type scheme. The scheme allegedly defrauded 450 victims who invested $84 million and lost more than $30 million.

    Brenda Ashcroft, 45, pleaded guilty to charges that she ran a $15 million Ponzi scheme. She admitted to running a fraudulent investment scheme to purchase and sell real estate through trusts in her company, French Manor Properties.

    Charles Blackwelder, 70, was sentenced to 15 years in prison after pleading guilty to running a Ponzi scheme. His daughter, Cara Grumme, 42, received a 3 year suspended sentence in connection with the scheme and together they were ordered to pay $19.4 million in restitution. Their company, CFS LLC, defrauded over 300 elderly investors to invest in real estate investment opportunities that included undivided ownership interests in rental properties owned by CFS.

    Charles J. Boyer III and James A. Wilson were ordered to pay $1 million in civil penalties in connection with a scheme run through Access Capital Co. fka Access Capital Education and Services Co. that New Jersey investigators say was a Ponzi scheme. Boyer and James told investors that their company was managed by a financial genius and that they could earn returns up to 120%. The scheme raised at least $342,000 from 10 investors.

    Leroy Brown Jr., 32, and his company, LB Stocks and Trades Advice LLC, were charged by the SEC with running a scheme that targeted military personnel at Fort Hood in Texas. Brown, a member of the Army between 2001 and 2013, promised investors guaranteed returns and an ability to double or triple their money in 120 days. He represented that he traded stocks, mutual funds, exchange traded funds, commodities, and foreign exchange currencies. Brown claimed to have 65,000 investment clients, but it is not yet known how many clients or money was involved.

    Jerry Cicolani Jr., 51, and Kelly Hood, 36, husband and wife, were charged in connection with an alleged Ponzi scheme run though KGTA Petroleum Ltd. KGTA promised investors high returns for purchasing fuel products at discounted prices and then the resale of those products. It is believed that a plea agreement is being discussed. Cicolani and Hood are two of seven people named in an SEC lawsuit to stop the investment program that allegedly defrauded 70 investors out of $17 million.

    Abbe Edelman, 51, was sentenced to 11 years and 3 months in prison for running a $5 million Ponzi scheme that defrauded investors into purchasing foreclosed properties that did not exist. Edelman promised returns as high as 25%, but he never purchased any foreclosed properties.

    James A. Evans Jr., 33, was accused by the SEC of running an alleged Ponzi scheme that raised $1.15 million from investors through an Internet-based investment called CashFlow Bot or Dollar Monster. The SEC alleged that investors deposited funds into their Solid Trust accounts and then the funds were transferred to a Solid Trust account owned by Evans, who would transfer a portion of those funds to his account and then redistribute funds to investors.

    Dorian A. Garcia, 30, and his companies, DG Wealth Management, Macroquantum Capital LLC, and UKUSA Currency Fund LP, had their assets frozen by the CFTC who alleged that they were running a Ponzi scheme and had misappropriated approximately $2.5 million. The scheme allegedly involved $4.7 million taken from at least 80 customers.

    Gregory Gray, Jr., 39, was charged in connection with an alleged $5 million Ponzi scheme run while working at Archipel Capital LLC. Gray told investors that their money would be invested in shares of Uber Technologies or in Twitter.

    Steve Gordon was charged with running a $4 million Ponzi scheme. Gordon, a former NBA assistant, falsely claimed a relationship with Los Angeles Clippers owner Steve Ballmer and told investors different stories about Balmer’s supposed business ties to Gordon.

    Matthew Haab, 43, along with Jeffrey Risinger, 59, and Tobin Senefeld, 48, were sued by the SEC upon allegations that they were running a $15 million Ponzi-like scheme that defrauded more than 80 investors. Their company, Veros Partners, was also named in the lawsuit and became the subject of an asset freeze. Other named defendants are Veros Farm Loan Holding and FarmGrowCap. The scheme involved representations to investors that their money would be used to make short-term loans to farmers.

    Loren Holzhueter, who was under investigation for running an alleged $10 million Ponzi scheme, died at his home at the age of 69. Holzhueter had denied running a scheme and had said that the source of the money he handled through his insurance company, Insurance Service Center, Inc. aka ISC, Inc., was loans given to him by friends, family and customers to help expand his business. It is unknown whether the SEC will continue its action against his estate.

    Diane Kaylor, 39, and Jason Keryc, 39, former employees of Agape World Inc., were convicted for their role in the Ponzi scheme. The scheme defrauded about 3,800 investors out of about $147 million. Keryc had made more than $9 million off the scheme, and Kaylor made about $3.4 million. The founder of Agape, Nicholas Cosmo, is serving his 25 year prison sentence.

    Christina Kitterman, previously sentenced to 5 years in prison for her role in the Scott Rothstein Ponzi scheme, appealed her prison sentence before the Eleventh Circuit. Kitterman had impersonated someone from the Florida State Bar to try to persuade a hedge fund to invest in the scheme.

    George C. Levin, 74, was found liable for fraud in an action brought by the SEC relating to about $157 million of funds that Levin funneled into the Scott Rothstein Ponzi scheme through his feeder fund, Banyon 1030-32 LLC. Levin has maintained that he was not aware of the fraud and that he himself was a victim.  The SEC has also asked for $180 million in disgorgement and civil penalties.

    Christopher Shawn Linton lost his appeal challenging his prison sentence. U.S. v. Linton, 2015 U.S. App. LEXIS 6711 (11th Cir. Apr. 23, 2015). Linton had pleaded guilty to running a Ponzi scheme through Integrity Capital Corp. The scheme defrauded 12 investors out of about $2.5 million. The Eleventh Circuit affirmed the lower court’s finding that Linton had failed to show that he was suffering from bipolar disorder or that he had ineffective assistance of counsel.

    Linda Livolsi aka Linda Grogg, 46, and her husband William Livolsi, 55, were sentenced to 45 months and 24 months in prison, respectively, in connection with a Ponzi scheme they ran through RGM Enterprises. The couple promised investors high returns from what they said was a hedge fund. The money was never invested but was used by the couple or to make payments to investors.

    Anthony J. Lupas Jr. died at the age of 80 years old. Lupas had been at a nursing home since a judge decided he was incompetent to stand trial last year in connection charged with defrauded investors of $6 million in a Ponzi scheme. Lupas had promised investors 7% tax free returns. About 50 victims are sharing $3.35 million from a state compensation fund in Pennsylvania.

    James H. Mason agreed to pay $5.5 million to settle allegations that he violated that Commodity Exchange Act in fraudulently soliciting contributions from investors for two foreign currency trading pools. The scheme involved JHM Forex Only Pool and Forex Trading at Home Association. Mason raised $5.3 million from investors by promising 500% returns each year with no risk to their principal.

    Stafford S. Maxwell, 46, the former owner of Millennium Capital Exchange, Inc., was arraigned and indicted on charges that he allegedly ran a foreign exchange Ponzi scheme through accounts in Switzerland. Maxwell raised at least $1 million from investors and promised returns of 48% to 72% and represented that he had special techniques to ensure large gains and reserve funds to cover any trading losses.

    Scott Stone Mehler was disbarred by the California Supreme Court in connection with the theft of at least $800,000 while he was the California attorney for Plastic Cash International. Plastic Cash has been sued by the receiver of Zeek Rewards for the return of millions of dollars alleged to be Zeek assets. It is presently unclear whether criminal charges will be filed against Mehler.

    Patricia S. Miller, 68, was sentenced to 6 years in prison for running a $4.1 million Ponzi scheme that defrauded over 80 victims. Miller was a trusted financial adviser, and she used her position to obtain money from clients for purported investments that she never made.

    Brian C. Rose aka  John Hankins, 36, Jason Bryant Smith, 39, Dallas McRae, 44, and Hugh Sackett, 83, pleaded guilty to charges relating to an alleged $15 million Ponzi scheme that defrauded 160 investors. The scheme was run through New Century Coal, and investors were told that the company was running several coal mines. Other defendants named in the original indictment were Robert McGregor aka Jim Robinson III, 36, James Robinson, 55, Brent Loveall, 30, and Ray Spears aka Brock Hamilton, 44, and Jennifer L. Key, 36. Three additional defendants were also added to the original indictment, Thomas L. Berry, Johnny D. Phillips, 64, and David G. Rose.

    David Smith, 46, and Timothy McGinn, 67, were ordered to pay back $99 million to the defrauded investors in the Ponzi scheme run through McGinn Smith & Co. The SEC obtained a judgment against the two defendants, who are both in prison following their criminal convictions in 2013.

    Michael Stevens, 57, pleaded guilty and was sentenced to 24 months in connection with a Ponzi scheme that defrauded 7 victims out of $4 million. Stevens’ accomplice, Anthony Fregenti, 43, was sentenced in 2014 to 5 years in prison.

    David Tamman had his conviction and sentence upheld by the Ninth Circuit. Tamman was an attorney who performed services for NewPoint Financial Services Inc., a company owned by John Farahi which ran a Ponzi scheme. U.S. v. Tamman, 2015 U.S. App. LEXIS 5393 (9th Cir. Apr. 3, 2015).

    Marcello Trebitsch aka Yair Trebitsch, 37, was charged and arrested in connection with an alleged $7 million Ponzi scheme. Trebitsch is the son-in-law of former New York Assembly Speaker Sheldon Silver, who was indicted on corruption charges in January. Trebitsch had promised investors that he would use their money to trade in securities through his investment firm, Allese Capital LLC.  He owns the company with his wife, Michelle Trebitsch, who has not been charged.  He delivered false account statements and tax forms showing annual returns of 15% to 19%.

    Frank Vennes was denied his request to withdraw his guilty plea. U.S. v. Vennes, 2015 U.S. Dist. LEXIS 56041 (D. Minn. Apr. 29, 2015). Vennes had pleaded guilty to charges in connection with the Tom Petters Ponzi scheme. Vennes had argued that the government did not honor its promises and that he had ineffective assistance of counsel, among other things.

    Stuart Alan Voigt, 66, a former Minnesota Vikings tight end, was indicted on charges of conspiracy and fraud in an alleged real estate Ponzi scheme that he and Jeffrey Allen Gardner, 61, allegedly ran through Hennessey Financial LLC. Investors were promised returns between 10% and 20% and were told that their funds would be invested in commercial real estate financing and related projects.

    Steven Wessel aka Wes Wessels, 56, pleaded guilty to defrauding two investors in a Ponzi-like scheme that involved $750,000. Wessel had used a shell investment bank, Windsor Capital Investments Ltd., and a personal investment company, Steeplechase USA LLC, to solicit funds.

    Joel Wilson, 32, was sentenced to nine to 20 years in prison and order to pay $6.5 million to investors for his Ponzi scheme run through Diversified Group Advisory Firm LLC. Diversified was in the business of buying and rehabilitating homes. The scheme involved $6.4 million and about 125 investors. At his sentencing, Wilson acknowledged that he made mistakes, but stated that he had never intentionally defrauded anyone.

INTERNATIONAL PONZI SCHEME NEWS

Canada

    Gordon Driver, 58, pleaded guilty to charges in California relating to a Ponzi scheme that took in at least $15 million and in which an estimated 250 investors lost at least $9 million. The scheme was run through Driver’s companies, including Axcess Automation LLC, and he promised investors profits of 1% to 5% per week. Driver has already been banned for life from trading securities by the Ontario Securities Commission.

    Anthony Pittarelli, 46, was sentenced to 5 years in prison in connection with a $1.3 million Ponzi scheme that he ran with his mother, Marisa Pittarelli, 66, through their company, Front Row Tickets. Marisa was sentenced to two years in prison. Investors were promised returns based on sales of bulk tickets which did not take place.

England

    David Dixon, 49, was sentenced to 3 years and 10 months after pleading guilty to running a Ponzi scheme through Arboretum Sports (UK) and Arboretum Sports (USA). The Ponzi scheme involved £4m and 650 victims in what was represented to be a no-risk gambling syndicate.

India

    Harpal Singh was arrested in connection with the scheme involving Mahadev Mutual Fund. The Mahadev fraud was revealed in 2013, in which investors were defrauded out of Rs 150 crore. Two other company directors, Rajesh Kumar and Yogesh Yadav, were also recently arrested in connection with the scheme.

    Kamal Kant Kaushik, 51, was taken into custody in connection with an alleged scheme that defrauded 90 investors out of Rs 15 crore. The scheme was run under the name Indus Mutual Growth Plans through the company, M/s Indus Car and Air Rentals.

 

Mauritius

    Bramer Banking Corp Ltd. (BBCL) was accused of running a Ponzi scheme. The Bank of Mauritius appointed a conservator over the bank based on allegations that the scheme involved 25 billion rupees ($693 million). Mauritius will create a new company, National Commercial Bank, to take over the company.

Thailand

    Namonphan Tharabundit, a suspect in the alleged Ponzi scheme involving at least 100,000 investors out of 20 billion baht, has been arrested while she was trying to flee to Laos. Some reports reflect that the amount involved could rise to 38 billion baht, or more than $1.17 billion. The scheme involves Ufun Store Co, which was running a direct sales business and was legally registered, but which transferred money to other companies. Thai police are searching for other individuals affiliated with the scheme, including “Datuk Daniel,” the 40 year old executive chairman. Other reports identify former Colorado resident, Michael Jamison Palmer, as a purported UFunClub “VIP” and that he was promoting a digital currency known as “UToken.” Palmer has not been accused of wrongdoing.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    A California Court of Appeal affirmed summary judgment in favor of the insurer on defense regarding the application of Crown Capital Securities LP for a professional liability insurance policy in which it failed to disclose facts application facts relating to a Ponzi scheme that was known to the investment firm applicant. Crown was a securities firm that had recommended o clients that they invest in real estate companies that were eventually determined to be part of the DBSI, Inc. Ponzi scheme.

    The bankruptcy trustee for Lancelot Investors Fund Ltd. argued to the Seventh Circuit that his malpractice lawsuit against Katten Muchin & Rosenman LLP should be allowed to proceed. Lancelot was one of the hedge funds that pumped billions of dollars into the Thomas Petters Ponzi scheme. The trustee has alleged that Katten Muchin ignored red flags that should have made them aware of the fraud.

    The trustee of the Bernard Madoff Ponzi scheme case requested court approval of a sixth interim pro rata distribution which would bring the aggregate payout to customers to about $8.224 billion. The trustee is asking to release $1.249 billion of the reserved $1.449 billion following a Second Circuit ruling affirming a decision that investors were not entitled to time-based damages in connection with their claims. The trustee has already returned $7.2 billion to Madoff’s customers in five other distributions previously made.

    The Second Circuit overturned a lower court’s ruling dismissing an entire complaint brought by a class in connection with the Madoff Ponzi scheme against Kingate Management Ltd., PricewaterhouseCoopers LLP and Tremont Group Holdings Inc., among others. In re Kingate Management Limited Litig. v. Tremont (Bermuda) Ltd., 2015 U.S. App. LEXIS 6725 (2d Cir. Apr. 23, 2015). The lower court had dismissed all 28 class action claims, finding that some of them were precluded by the Securities Litigation Uniform Standards Act. The Second Circuit found that the district court should only have dismissed the specific fraud claim precluded by SLUSA.

    The court approved a plan in the case of Management Solutions Inc. and Wendell and Allen Jacobson that could result in a 100% return for investors in the real estate Ponzi scheme. About $100 million will be returned to investors in a first distribution, with about $31 million being held back as a contingency to cover claims still under investigation. The scheme had involved promises to investors that their money was invested in apartment complexes.

    The U.S. Attorney has asked Resurrection Life Church to return $300,000 paid to it from proceeds of the David McQueen Ponzi scheme. The Church responded that it did not have the money to return, but has set up an account and invited parishioners to donate to the fund to help the victims of the Ponzi scheme. The church was initially upset that the government identified the church in a letter to the victims of the scheme and has been fielding calls from the victims asking for restitution.

    TD Bank has made another appeal to the Eleventh Circuit to avoid the $67 million in liability to Coquina Investments that TD Bank has already paid over. TD Bank was found liable by a jury for that amount in connection with the Scott Rothstein Ponzi scheme. TD Bank says that Coquina really only suffered out of pocket damages of $7.5 million and that it has already paid money into the Rothstein bankruptcy case from which investors can get paid.

    Peter Romero, the former ambassador to Ecuador, was denied his post-trial request for judgment as a matter of law and was ordered to pay more than $950,000 to the receiver in the Allen Stanford Ponzi scheme in connection with the receiver’s fraudulent transfer claims.

    A New York state appeals court upheld a lower court ruling dismissing a $2.1 million legal malpractice claim brought by an investor in the Ponzi scheme of Laurie Schneider against McLaughlin & Stern LLP. The lawsuit was brought by an ex-client of the firm who alleged legal malpractice for advice relating to investment into two companies, Eager Beaver Realty and All Cleaning Supplies LLC, that were part of the Ponzi scheme. The retainer agreement had excluded due diligence from the scope of its representation, and the investor had declined advice to conduct due diligence, stating that none was needed because he trusted Schneider.

    A district court judge allowed most of the claims in a lawsuit filed by victims in the Stanford Financial scheme against five banks accused of playing a role in the Ponzi scheme. The court dismissed some of the claims brought pursuant to Texas state law, but permitted other claims to proceed in federal court. The banks involved are HSBC, Societe Generale, Toronto Dominion Bank, Trustmark National Bank and the Bank of Houston.

March 2015 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

    Below is a summary of the activity reported for March 2015. The reported stories reflect: 4 guilty pleas or convictions in pending cases; over 54 years of newly imposed sentences for people involved in Ponzi schemes; a possible new massive Ponzi scheme involving $16 billion; and an average age of approximately 48 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.

    Bryan W. Anderson, 40, pleaded guilty to running a Ponzi scheme that lured in 18 investors who invested $8.4 million. It is believed that 12 investors ended up losing about $3.1 million. Anderson promised the investors that their investments were 100% risk-free and had a guaranteed rate of return of 5% to 20%. He solicited them to invest in stock options and to invest in his company, 360 Properties.

    Charles A. Bennett, 56, is in plea talks relating to an alleged $5 million Ponzi scheme that Bennett confessed to in a note written before a failed suicide attempt. Bennett is an attorney who formerly worked at Skadden Arps Slate Meagher & Flom LLP before he engaged in his admitted Ponzi scheme in which he defrauded at least 30 investors.

    Mary Faher, 57, was sentenced to prison for 23 months to 10 years in prison and ordered to pay about $2.6 million in restitution for her role in the Diversified Group Advisory Firm LLC Ponzi scheme. Faher had worked as a licensed investment advisor for Diversified, guaranteeing clients a 10% return on their investments and promising them their money would be safe. Shawn Dicken, 40, was previously convicted in connection with the scheme and sentenced to 11 years and 8 months to 20 years in prison.

    Gregory W. Gray, Jr., 39, and his firms Archipel Capital LLC and BIM Management LP were the subject of an asset freeze in an action commenced by the SEC. Gray allegedly took more than $20 million from 140 investors, promising them Twitter stock before the company went public. Gray was also arrested on charges relating to the alleged scheme.

    Jerry Lynn Helms, 50, was ordered to pay more than $1.5 million for defrauding at least 25 victims in a Ponzi scheme that he ran through his company, Prestige Pipeline. Prestige had been a profitable company before the economy crashed, but Helms began soliciting funds to invest in it.

    Craig Hipp, 54, was found guilty for his role in a virtual concierge Ponzi scheme. The scheme was run through JCS Enterprises Virtual Concierge program which is believed to have defrauded 100 of victims out of tens of millions of dollars. The program promised annual returns of 80% to 120%. Joseph Signore, Laura Grande-Signore, and Paul Schumack are all awaiting trial in connection with the scheme.

    Marguerite Martial Jean, 42, began her 8 year prison sentence in connection with her Ponzi scheme that she ran through her companies, MMJ’s Warehouse and VLM Enterprise. Jean targeted members of South Florida’s Haitian-American communities. She defrauded 293 victims by issuing them promissory notes for stakes in her businesses and guaranteeing them returns of up to 22%.

    Mahmoud “Mike” Karkehabadi, 57, had his conviction and 27 year prison sentenced affirmed by an appellate court. People v. Karkehabadi, 2015 Cal. App. Unpub. LEXIS 1921 (Mar. 16, 2015). Karkehabadi was convicted of running a $3 million scheme that promised investors 18% to 25% on loans to back production of a series of independent films. He ran the scheme through Alliance Group Entertainment.

    Michael Kratville, 54, was disbarred in Nebraska while awaiting sentencing for operating a Ponzi scheme in the Omaha area. The scheme defrauded about 100 victims out of about $4 million. Kratville had run the scheme with Jon Arrington and Michael Welke through companies called Elite Management Holdings Corp. and MJM Enterprises.

    Robert E. Lee Jr., 51, was sentenced to 5 years and 3 months in prison in connection with a $1.1 million Ponzi scheme. Lee was ordered to pay full restitution and to forfeit $358,077 that he had in an online trading account.

    Peter Madoff’s home sold for $3.5 million. Peter is the brother of Bernard Madoff, and the proceeds of the sale of the home will be contributed to the restitution amounts to be paid to victims. Peter Madoff is currently serving 10 years in prison for his role in the Ponzi scheme.

    Dee Allen Randall, 63, was found to have been running a $72 million Ponzi scheme by a federal bankruptcy judge. A federal bankruptcy judge found that “since at least 1997, Randall operated the [companies] as a ‘Ponzi scheme,’ and engaged in a continuing fraud.”

    Matthew John Ryan, 50, was ordered to pay his alleged victims $3.8 million in restitution. Ryan had pleaded guilty to running a Ponzi scheme through his company, Prime Rate and Return LLC, which sometimes did business as American Integrity.

    Trendon T. Shavers, 33, the former operator of Bitcoin Savings & Trust, pleaded not guilty to running Ponzi scheme. The U.S. Attorney had stated in court papers, “Trendon Shavers managed to combine financial and cyber fraud into a Bitcoin Ponzi scheme that offered absurdly high interest payments, and ultimately cheated his investors out of their Bitcoin investments. This case, the first of its kind, should serve as a warning to those looking to make a quick buck with unsecured currency.”

   Ricky Lynn Stokes, 54, was sentenced to 5 years in prison in connection with the Cay Clubs scheme. Barry J. Graham, 59, was also sentenced to 5 years in connection with the scheme.

    Ephren Taylor II, 32, was sentenced to 19 years and 7 months in prison and ordered to pay restitution of more than $15.5 million in connection with a $16 million Ponzi scheme that defrauded more than 400 victims. Taylor had run the scheme through City Capital Corp., claiming that 20% of his investments’ profits went to charity. Wendy Connor, 46, was also sentenced to 5 years and ordered to pay back $5.8 million.

    Deepal Wannakuwatte, 64, was ordered to pay $108 million in restitution. Wannakuwatte was sentenced to 20 years in prison last year in connection with an over $200 million scheme that involved investments into a medical supply company, International Manufacturing Group, selling latex gloves to veterans’ hospitals. He represented that he had $125 million worth of contracts when in reality they were only worth $25,000.

    Joel Wilson, 32, was convicted in connection with his Ponzi scheme run through Diversified Group Advisory Fund LLC. The scheme defrauded about 120 investors out of about $6.4 million.

INTERNATIONAL PONZI SCHEME NEWS

Canada

    Nicholas Smirnow, 57, was arrested in Canada and an extradition requested has been submitted to the government of Canada for his extradition to the U.S. Smirnow is accused of running a $70 million Ponzi scheme operating under the name “Pathway to Prosperity.”

China

    Hong Kong police arrested 5 suspects in connection with the MyCoin alleged Bitcoin scam. MyCoin has been accused of operating a pyramid or Ponzi scheme, serving 3,000 clients who had invested as much as HK $1 million.

England

    Phillip Boakes, 55, was sentenced to 10 years in jail for his Ponzi scheme run through CurrencyTrader Ltd. that defrauded at least 30 investors out of more than £3.5 million. Boakes engaged in Forex spread betting, promising guaranteed returns of 20%. This is the longest sentenced imposed as a result of an investigation by the Financial Conduct Authority.

    Michael McIndoe, 35, is under investigation in connection with an alleged Ponzi-like scheme that defrauded hundreds of investors.

    David Gerald Dixon, 49, pleaded guilty to charges in connection with a Ponzi scheme that he ran through Aboretum Sports (USA) Incorporated and Arboretum Sports (UK) Limited. Dixon promised investors their money would be put in a no-risk gambling syndicate. Investors were defrauded out of about £4 million.

India

    Gautam Kundu was arrested in connection with the Rose Valley Ponzi scheme. Over 2,630 bank accounts were previously attached, and the corporate name was subsequently changed to Sun City Group and Chocolate Group.

Mauritus

    Cobus Kellermann, the head of Belvedere Management, has denied that Belvedere was running a Ponzi scheme. Belvedere is a Mauritus-based fund manager which manages about $16 billion in funds. David Cosgrove and Kenneth Maillard also run the company. Offshore Alert claims that Belvedere has falsely inflated the value of funds and is running a Ponzi scheme.

South Africa

    Investors in Defencex can now register claims for lost funds in scheme run by Chris Walker. Investors had purchased “points” that paid 2% per day in returns through the website trading as Net Income Solutions. Investors have 3 months to register their claims on the Repayment Administration Web Application website. The scheme is believed to have defrauded about 171,000 investors out of over R800 million.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

    The Montauk Fire Department agreed to pay back $81,000 of funds it received from Ponzi schemers Brian R. Callahan and Adam J. Manson. The amount agreed to be paid was based on the profit it had made from its investment into Distinctive Ventures LLC.

    The Eighth Circuit overturned the lower court’s decision in dismissing the receiver’s lawsuit against Associated Bank in connection with the Trevor Cook $190 million Ponzi scheme. Zayed v. Associated Bank, N.A., 2015 U.S. App. LEXIS 3137 (8th Cir. March 2, 2015).  The court found that the elements of the aiding and abetting claim were properly plead, including that the bank had actual knowledge that it was providing “substantial assistance” to Cook. An assistant vice president of the bank allegedly allowed Cook to set up accounts for bogus entities and approved $3 million in transfers to Cook’s personal accounts, among other things. The bank was allegedly involved in $79 million of the $190 million Ponzi scheme run by Crown Forex SA.

    The trustee of Fair Finance Co. has agreed to settle lawsuits against Dan Laikin, the former head of National Lampoon, for about $3.5 million. Laikin is a former director of Fair Finance, which ran a $200 million Ponzi scheme. The trustee is also in settlement talks with National Lampoon.

    Roger Corman, a movie director, and his wife Julie Corman, sued Citco Group Ltd. alleging that it tricked them into withdrawing millions of dollars from a successful fund and investing it into a Ponzi scheme, resulting in a $60 million loss. The Corman’s allege that their funds were then under the control of Alphonse “Buddy” Fletcher, whose bankruptcy trustee has noted that Fletcher’s program “had many characteristics of a Ponzi scheme.”

    The father of Trent Francke, Edward Francke, is claiming ownership to $126,000 of collectible coins and silver that has been forfeited in connection with the David McQueen and Francke convictions for their $46.5 million Ponzi scheme. Edward Francke claims that the coins and silver belong to him, that he paid for them, and that he was unaware of any illegal conduct involving his son.

    A court declined to allow Santander Bank NA to remove a lawsuit from bankruptcy court which accuses the bank of wrongful conduct in connection with the bankruptcy proceedings of Liberty State Benefits of Delaware Inc., founded by convicted attorney Michael W. Kwasnik.

    The trustee of the Bernard Madoff Ponzi scheme case filed a petition for Supreme Court Review of a Second Circuit Decision allowing the safe harbor/stockbroker defense to bar some of the trustee’s avoidance power claims against investors.

    The Supreme Court declined to hear two separate appeals of rulings that barred investors in foreign investment vehicles from suing Madoff’s banks, JPMorgan Chase and Bank of New York Mellon. The Second Circuit had dismissed the lawsuits on the grounds that they were barred under the Securities and Litigation Uniform Standards Act. The cases are Trezziova v. Kohn and Davis v. JPMorganChase.

    A settlement was reached between a putative class of investors and law firm Astor Weiss Kaplan & Mandel LLP over allegations that the attorneys should have known that Mantria Corp. was running a Ponzi scheme. The $6 million settlement involved a series of defendants, including Astor Weiss, who agreed to pay $750,000. The settlement resolves all of the claims in the litigation.

    A jury awarded damages of $491 million against PNC Bank, as successor to Allegiant Bank, which served as trustee for National Prearranged Services. The lawsuit was filed by state life and health guarantee associations and the receiver of National Prearranged Services. The company had defrauded about 100,000 customers before it was shut down in 2008. Six officers and employees have been sentenced to prison time in connection with the scheme.

    In Ritche Capital Mgmt. LLC v. Stoebner, 2015 U.S. App. LEXIS 3735 (8th Cir. Mar. 10, 2015), the Eighth Circuit found actual fraudulent intent by rely on several badges of fraud in connection with the Thomas Petters Ponzi scheme, and did not rely on the Ponzi scheme presumption that was recently rejected by the Minnesota Supreme Court in Finn v. Alliance Bank, 2015 Minn. LEXIS 52 (Minn. Feb. 18, 2015).

    A district court partially dismissed investors’ claims against Proskauer Rose LLP and Chadbourne & Parke LLP in connection with the  Allen Stanford Ponzi scheme. The proposed class action alleged that the law firms aided the fraud, but those claims were dismissed. The court declined to dismiss many of the other claims in the lawsuit. Chadbourne & Park separately lost an effort to obtain from the Stanford receiver a list of the identities, residences and citizenship of the proposed class members.

    Westport Insurance Corp. argued in court that the firm of Breazeale Sachse & Wilson LLP is not covered against two related class actions against it in connection with the Allen Stanford Ponzi scheme. Westport contends that the firm concealed the fact that it represented businesses that Stanford used to run his scheme and that one of the firm’s partners, Claude F. Reynaud Jr., was a director at the Stanford Trust for 10 years.

    The Fifth Circuit reversed the lower court which had allowed The Golf Channel Inc. to avoid paying back $5.9 million that it had received as marketing revenue from Allen Stanford’s Ponzi scheme. See Janvey v. The Golf Channel, 2015 U.S. App. LEXIS 3818 (5th Cir. Mar. 11, 2015). The appellate court found that there was no showing by Golf Channel that its services preserved the value of Stanford’s estate or had “any utility from the creditors’ perspective.” The court found, "This was insufficient to satisfy its burden under TUFTA of proving value to the creditors. While Golf Channel's services may have been quite valuable to the creditors of a legitimate business, they have no value to the creditors of a Ponzi scheme."

    The Eleventh Circuit dismissed a lawsuit filed by investors of the Allen Stanford Ponzi scheme against the SEC for negligence in not spotting the Ponzi scheme. The court found that the SEC enjoys sovereign immunity. Zelaya v. U.S., 2015 U.S. App. LEXIS 5041 (11th Cir. Mar. 30, 2015). Although the court did not reach any conclusions about the SEC’s conduct, it did describe the plaintiff’s allegations as follows:  “According to Plaintiffs, notwithstanding its knowledge of Stanford’s likely nefarious dealings, the SEC dithered for twelve years, content not to call out Stanford and protect future investors from his fraud. And even though the SEC eventually roused itself to take action in 2009, by then, of course, the money was long gone, and many people lost most of their investments.”

    The trustee of TelexFree LLC reported that the scheme took in nearly $1.8 billion worldwide over a two year period and may have had about 1.9 million participants. TelexFree supposedly sold Internet telephone services, and people paid TelexFree to become promoters for the company. In exchange for placing online advertisements, they received telephone service packages that they could redeem for cash.

    The ZeekRewards receiver has sued alleged net winners with addresses in the United Kingdom. Last month he sued alleged winners who reside in Norway, and he had previously filed lawsuits against U.S. residents and residents of Australia, New Zealand, Canada and the British Virgin Islands.

    The ZeekRewards receiver has also taken action to tie up property in the Cook Islands which appears to have been purchased a vacation home in the Turks and Caicos Islands. The funds were transferred using a Zeek vendor known as Preferred Merchants Solutions LLC.

    The ZeekRewards received posted his Notice of Certification of Defendant Class Action on his website at: www.zeekrewardsreceivership.com. The court has certified the defendant class of alleged net winners. The receiver is suing more than 9,000 individuals who are alleged to have received more than $1,000 from the program.

    Utah passed legislation to publish an online white collar crime database. The database will identify individuals convicted of certain white collar crimes, such as securities fraud, mortgage fraud, money laundering, and theft by deception. The database will include the offender’s name, physical description and a photograph.