April 2014 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

     Below is a summary of the activity reported for April 2014. The reported stories reflect: at least 9 guilty pleas or convictions in pending cases; over 85 years of newly imposed sentences for Ponzi schemers; 11 newly discovered schemes allegedly involving over 700,000 victims and nearly $1.2 billion; and an average age of 50 for the alleged Ponzi schemers in the stories reported. 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.

     Russell Adler, 52, pleaded guilty to charges relating to the Ponzi scheme run by Scott Rothstein and through their firm, Rothstein Rosenfeldt Adler. Adler pleaded guilty to charges that he violated federal campaign finance laws.

     Ron Battistella was arrested and has been accused of securities fraud in connection with an alleged $1.3 million Ponzi scheme that promised 10% annual returns. Battistella ran a car dealer and promised investors that their investments were backed by the cars in his showroom.

     Daniel Bonventre, Annette Bongiorno, Joann Crupi, Jerome O’Hara and George Perez moved to overturn their guilty verdicts. The five Madoff employees were found guilty last month in connection with the Bernard Madoff Ponzi scheme, and now cite flawed jury deliberations and a lack of evidence in their request to overturn the jury verdicts.

     Lt. David Benjamin, 48, and Detective Jeff Poole, 47, were charged with conspiracy in connection with the Scott Rothstein Ponzi scheme. Benjamin and Poole were both Ft. Lauderdale sheriff’s deputies at the time they allegedly accepted over $100,000 in cash and gifts from Rothstein for supposedly illegally arresting of the ex-wife of one of Rothstein’s acquaintances, Douglas Bates, to give Bates the upper hand in a child custody dispute. Both Benjamin and Poole surrendered to face the charges, and both were fired from their jobs. They are expected to plead not guilty but may ultimately enter guilty pleas.

     Ivan Brown, 45, of Utah, was ordered to pay the SEC $1.43 million in connection with a $27 million Ponzi scheme run through Highland Residential LLC and Avanti Capital Partners. Brown had formed the companies for the purpose of making real estate loans called “bridge loans” to people who could not obtain conventional home loans.

     Brian R. Callahan, 44, pleaded guilty to charges relating to his operation of a $96 million Ponzi scheme that defrauded at least 40 investors. Callahan promised the investor funds would be placed in mutual and hedge funds and securities paying high dividends. Instead, he used the money on personal expenses and to retain ownership of Panoramic View Resort & Residence in Montauk. Callahan’s brother-in-law, Adam J. Manson, was also indicted and has pleaded not guilty.

     Timothy J. Coughlin, 63, and his two companies, Oxford International Credit Union and Oxford International Cooperative Union, were charged by the SEC with conducting a Ponzi scheme through a fictitious credit union. The scheme allegedly defrauded more than 5,000 investors who deposited more than $12.8 million. The Oxford International Credit union website (www.oxfordicu.com) reflected that investor deposits were purportedly earning average daily returns of .471%, but the defendants did not actually make investments sufficient to generate those kinds of returns. A criminal complaint was also filed against Coughlin.

     Gregory L. Crabtree, 52, pleaded guilty to a charge in connection with his role in the alleged $81 million Ponzi scheme run by former University of Georgia football coach Jim Donnan. Crabtree and Donnan were partners in GLC Limited Inc., a West Virginia-based business that operated retail stores. Crabtree admitted that that they offered and sold short-terms investments, promising rates of return ranging from 50% to 200%, telling investors that the company purchased “seconds” and discounted merchandise that they were able to sell for a profit. Donnan has denied the charges against him.

     Patrick Daoud, 55, a well known jeweler, was sentenced to house arrest for 10 months for helping to hide a 12.08 carat yellow diamond that Scott Rothstein’s wife was trying to conceal from federal authorities.

     Richard Freer, 68, agreed to enter into a non-trial disposition in connection with charges relating to his alleged $10 million Ponzi scheme that defrauded about 80 people, so he will not face trial as scheduled.

     Tate George, 45, had his sentencing postponed until May. George was convicted on charges relating to a Ponzi scheme that involved about $7 million and 10 victims. George was a well-known University of Connecticut basketball player.

     Johnny “Jay” Grivette Jr., 39, was sentenced to 4½ years in prison and ordered to pay $4 million in restitution in connection with a $100 million Ponzi scheme. Grivette’s company, Advantage Financial Partners of California was part of Loomis Wealth Solutions. Lawrence Leland “Lee” Loomis has been charged in connection with the scheme as well.

 

     Gordon Leroy Hall, 61, was sentenced to 15 years in prison following his guilty plea in connection with his involvement in the Ron Wilson Ponzi scheme run through Atlantic Bullion & Coin. Hall had agreed to hide at least $1.5 million, a bag of gold and 1,000 silver coins, along with 128 acres of property belonging to co-conspirator Wallace Lindsey Howell. Hall, along with his son, Benton Hall, had also created fictitious bonds for 43.5 million in an attempt to secure Howell’s release from jail.

     Joseph Hennessy, 53, was charged with running a Ponzi-type scheme that defrauded at least 10 investors of about $2.9 million. Hennessy co-owned Resource Planning Group Inc., which was operating a private equity fund and promising investors 15% returns.

     Keiko Kawamura, 27, of Hawaii, was doing business as Kawamura Financial and was charged by the SEC with running a fraudulent scheme that defrauded about 70 investors of more than $50,000. Kawamura charged investors a subscription fee of between $94.95 and $174.95 per month to receive access to a locked Twitter account that Kawamura said would provide recommendations on when to sell or purchase particular stocks and options.

     Michael Kwasnik, 42, was indicted on new charges of violating state securities laws. Kwasnik had pleaded guilty in New Jersey last year to money laundering charges in connection with the theft of $1.1 million from a 96 year old widow while managing her investment accounts.  Kwasnik was affiliated with Liberty State Benefits and Liberty State Financial Holdings Corp., two investment companies. Kwasnik’s license to practice law has been suspended and he is awaiting a final decision on whether to permanently bar him from practicing law.

     Anthony M. Livoti Jr., 65, was sentenced to 10 years in prison in connection with charges relating to his role in the $1.25 billion Mutual Benefits Ponzi scheme run by Joel Steinger.  Livoti requested a 6 year sentence, the prosecutors recommended 30 years, the federal sentencing guidelines had a potential of 80 years, and the judge decided on 10 years.

     Lawrence “Lee” Loomis was permanently enjoined barring him from further securities violations. Loomis had been found liable for such violations in connection with his business, Loomis Wealth Solutions, in which Loomis had allegedly defrauded $10,000 from investors. SEC v. Loomis, 2014 U.S. Dist. LEXIS 57423 (E.D. Cal. April 24, 2014).

     Duncan MacDonald III, 50, of Texas, was sentenced to 5 years in prison for his role in a $10 million Ponzi scheme run through Global Corporate Alliance, a holding company that managed North American Consumer Alliance. The scheme sold an “overage program” related to insured benefit association healthcare programs. Co-conspirator, Gloria Ann Solomon, 71, pleaded guilty to a charge in connection with the scheme.

     Gary D. Martin, 62, and Brenda K. Martin, 57, of Florida, were fined $4.3 million and $1.4 million, respectively, for their role in the $32.5 million Ponzi scheme run through Queen Shoals Consultants LLC. The scheme promised investors returns from foreign currency and precious metals. The Martins lured customers into the scheme by misrepresenting their experience and then paid their money over to the mastermind of the scheme, Sidney S. Hanson, who is now serving a 22 year sentence. Gary Martin was sentenced to 10 years. No criminal charges were brought against Brenda Martin.

     Gary Lynn McDuff, 59, of Texas, was sentenced to 25 years in prison and ordered to pay $6.5 million in restitution in connection with the $11 million Ponzi scheme run through Lancorp Investment Fund involving purported top-rated bonds. Two of McDuff’s co-conspirators, Gary Lancaster, 62, and Robert Reese, had previously pleaded guilty and were sentenced to prison.

     David McQueen’s criminal trial began over allegations that he ran a $46 million Ponzi scheme. McQueen is said to have operated an alleged foreign exchange trading, real property and ethanol-related projects using funds placed into his investment funds - Accelerated Investment Group, or AIG, International Opportunity Consultants, IOC, Diversified Liquid Asset Holdings, DLAH, and Diversified Global Finance.

     Barry Minkow, 47, was sentenced to 5 years in prison for his latest fraud. Minkow pleaded guilty to stealing from the San Diego Community Bible Church. He had previously been convicted in 1988 of defrauding investors our of $26 million through his company, ZZZZ Best Co. Minkow was paroled after serving less than 1/3 of his 25 year sentence and became a pastor and formed the Fraud Discovery Institute to serve as a fraud detection expert. This latest sentencing comes at a time when Minkow is already in custody in Florida on unrelated securities fraud charges.

     Doris “Dee” Nelson, 55, pleaded guilty to charges relating to a $126 million short-term lending Ponzi scheme run through Little Loan Shoppe that defrauded at least 800 investors. Nelson rejected a plea agreement and instead pleaded guilty to all 110 criminal charges brought against her. Nelson had promised the 650 investors returns of between 40% and 60% annually. Nelson had used over $3 million of the investor funds on personal expenses such as clothing, jewelry, luxury vehicles and gambling.

 

     Aaron E. Olson entered into a plea agreement admitting that he defrauded investors of $27.8 million and diverted $2.6 million of those funds to his personal use. Olson plans to plead guilty to tax evasion. Olson had purportedly invested the funds in commodity, stock and bond markets.

     Steven Palladino, 57, has been charged with 25 counts of criminal contempt for violating court orders that froze his assets last year. Palladino, along with his wife and son, had operated a Ponzi scheme through the loan company, Viking Financial Group Inc., and were all convicted in January. Palladino is now accused of spending money that he had been ordered to deposit into an escrow account established by the court.

     Luis Felipe Perez testified against Hialeah former Mayor Julio Robaina, 49, and his wife Raiza Robaina, who are standing trial on charges that they failed to report about $2 million of income, some in the form of cash payments, received from Perez in connection with Perez’s Ponzi scheme. Perez is currently serving a 10 year prison sentence for the scheme, but is testifying relating to an agreement that he had with Robaina that cash payments would be dropped off as interest on Robaina’s investment.

     Dunya Predovan, 59, was sentenced to 5 years on prison and ordered to pay more than $750,000 in restitution. Predovan had pleaded guilty to charges relating to a Ponzi scheme in which she represented to investors that they were investing in a hedge fund overseen by George Soros.

 

     David Prenatt, 53, is facing new charges for allegedly defrauding 17 investors out of $13 million in connection with a Ponzi scheme that involved home or hotel deals. Prenatt is already serving 4 years in prison but could face another 45 years.

     Richard Reynolds aka Richard Adkins, 52, will represent himself during his sentencing hearing. Reynolds was convicted of charges relating to a $4.34 million Ponzi scheme that defrauded at least 140 investors in 20 states.

     Richard Roop and his company Bottom Line Results Inc. were ordered to stop selling interests in mortgages on distressed houses in connection with an alleged $1.6 million Ponzi scheme that allegedly defrauded 25 investors. Roop accused the Colorado Division of Securities of using “numerous inaccurate and misleading statements” to obtain the court order.

     Ronald E. Russell was sentenced to 13 years, 4 months in prison in connection with his "Rent to Own" Ponzi scheme. Russell charged homeowners $2,900 each to get investors to buy their home and then allowed the current occupant to rent it back and continue living there. There were 51 victims who lost a total of $139,000.

     Irene Shannon fka Irene Stay, 50, the former chief financial officer of Scott Rothstein’s law firm, Rothstein Rosendfeldt Adler, was charged with conspiracy in connection with the $1.2 billion scheme and has pleaded not guilty. Shannon oversaw much of the accounting and the banking at the law firm, and it is alleged that she helped Rothstein by moving hundreds of millions of dollars around between accounts to pay investors. It is expected that she will eventually plead guilty. Rothstein has testified that Shannon could be a “knucklehead” but that her duties were “an instrumental part” of the fraud.

     Martin Sigillito, 64, of Missouri, has claimed that the reason he was convicted and is now serving a 40 year prison sentence for his $50 million Ponzi scheme is because he attorneys failed to represent him adequately. Sigillito was a priest who persuaded parishioners to invest in his “British Lending Program,” claiming that their money would go to real estate investments in the United Kingdom. Sigillito alleges in a lawsuit against his lawyers that they helped him set up loan agreements with investors and that the lawyers “knew that funds received from later lenders were used to pay principal and interest due prior lenders.” Sigillito says that at no time did his lawyers advise him that this could be considered to be a Ponzi scheme or involve criminal exposure.

     Joseph Signore, 49, and Paul Schumack, 56, were arrested and charged in connection with an alleged $70.9 million Ponzi scheme that defrauded more than 1,000 investors. Signore and his wife, Laura Grande Signore, are the president and vice-president of JCS Enterprises, and Schumack owns T.B.T.I., Inc., an ATM sales and service business, with his wife Christine Schumack. The scheme involved Virtual Concierge machines, and investors signed contracts providing for income of $300 per month from each $3,500 machine they purchased. The Internet-based kiosks were to be placed in hotels, hospitals, casinos, stadiums and other locations to provide services such as ordering food, downloading movies, playing games or using Skype. Two days after Signore was released from custody, the U.S. Attorney’s Office asked the court to revoke Signore’s bond, alleging that Signore had “brazenly” violated the terms of his release by making direct e-mail contact with investors. Signore's bond was revoked, but Signore requested that he be released based on new information. A Florida court appointed a receiver over the businesses and ordered the company, My Gee Bo, Inc., to be included in the receivership.

     Douglas L. Swenson, 65, along with his two sons, Jeremy Swenson, 41, and David Swenson, 36, as well as Mark Ellison, were found guilty in connection with the real estate Ponzi scheme run through DBSI Inc. that defrauded nearly 10,000 investors. The defendants have asked that the verdicts be overturned or that they be granted a new trial.

     TelexFree LLC, TelexFree Inc. and TelexFree Financial Inc. filed Chapter 11 bankruptcy petitions in Nevada. Telex is also the subject of an enforcement action by the Massachusetts Securities Division which has alleged that Telex is running a pyramid or Ponzi scheme. Prosecutors in Brazil have also alleged that the business is a Ponzi scheme, and fraud warnings have been issued in Uganda and Rwanda. The SEC also filed civil fraud charges against the entities, along with the officers and promoters: M. Merrill, Carlos N. Wanzeler, Steven M. Labriola, Joseph H. Craft, Sanderley Rodrigues de Vasconcelos, Santiago de la Rosa, Randy N. Crosby, and Faith R. Sloan. The Dominican Republic has also launched an investigation into the TelexFree business in that country. TelexFree has denied the Ponzi scheme allegations.  Meanwhile, there have already been at least 6 suicides in the Dominican Republic attributable to TelexFree.

     Deepal Wannakuwatte, 63, announced his plans to change his plea to guilty in response to allegations that he ran a Ponzi scheme through his medical supply business, International Manufacturing Group Inc. Wannakuwatte had allegedly defrauded investors out of $150 million by representing that he had $100 million worth of contracts to supply latex gloves to veterans’ hospitals, when he actually only had contracts worth $25,000 a year. Investor Sammy Cemo won a default judgment against Wannakuwatte and his wife and daughter for $7.1 million. Wannakuwatte is also being sued by a group of about 20 other investors.

     WCM777 had a receiver appointed over its assets at the request of the receiver, and the receiver estimates that there may be more than 479,000 “member accounts” related to this alleged $65 million Ponzi scheme. The receiver identified a $5 million transfer made by WCM777’s operator, Phil Ming Xu, to lawyer Vincent Messina a month before the asset freeze.

     Eliyahu Weinstein aka Edward Weinstein aka Eddie Weinstein, 38, already serving 22 years in prison for a $200 million real estate scam, is facing new charges that he defrauded investors of an additional $8 million. Weinstein had falsely promised investors returns from his supposed access to large blocks of Facebook shares prior to that company’s initial public offering.

     Michael Zuno Zuniga, 43, was sentenced to 5 years in prison and ordered to pay $1.2 million in restitution for his role in a $1.5 million Ponzi scheme that targeted seniors in the Los Angeles area. Zuniga ran the scheme through Omega Investment Group, an unlicensed entity that targeted Latino seniors to refinance their homes and invest in his scheme. Zuniga represented that he would buy and sell real estate that was in foreclosure and that he could guarantee 15% returns. About $663,000 of the investors’ funds was paid to an entity known as Home Brought Current. 18 victims were identified.

INTERNATIONAL PONZI SCHEME NEWS

Canada

     Ronald Jerry Fast sat through his sentencing hearing relating to his $16.8 million Ponzi scheme. At the hearing, 13 investors of Fast’s companies, Marathon Leasing Corp., NuDawn Enterprises Ltd. and H.H. Fast Investments, read victim impact statements describing the scheme. The decision on sentencing has been reserved.

England

     Stephan Evans, 30, was found guilty of running a £4.4m Ponzi scheme. Evans has been dubbed the “Wolf of Old Hall Street.” He worked as a stockbroker and financial advisor for Globaleye Investment and One International in the United Arab Emirates and then set up his own company, Stephan Evans Investments Ltd.

     Alok Dhanda, 53, is facing charges that he orchestrated a £600,000 Ponzi scheme. It is alleged that Dhanda obtained funds from investors in which he represented their funds would be used for a property venture in Bangalore, India. Dhanda has pleaded not guilty.

     Alex Hope, 25, is accused of masterminding a £5.6 million forex Ponzi scheme. During his trial, it was revealed that he spent about £2 million on extravagant personal expenditures. Hope’s partner, Raj Von Badlo, 56, is also charged with involvement in the scheme.

India

     The principal of Pearls Group, Nirmal Singh Bhangoo, had his passport confiscated as officials investigate an alleged Ponzi scheme that involved Rs 45,000 crore and about five crore investors. The investors were given fake guarantees that they would be provided plots of agricultural land. Cases are pending against Pearls Agrotech Corporation Limited and Pearls Golden Forest Limited.

     Regulators sought permission to attach properties of Aastha International and Green Ray International. The two companies are allegedly part of a larger multi-crore rupee chit fund scam have allegedly defrauded depositors of more than `500 crore.

     Investors in the Saradha Group are estimated to have lost Rs 1,983 crore as has been reported in a draft forensic audit report commissioned by the Securities & Exchange Board of India.

New Zealand

     Convicted Ponzi scheme David Ross, who ran a Ponzi scheme through his company, Ross Asset Management, was removed from the Chartered Accountants registry and ordered to pay $7,209.

South Africa

     Net Income Solutions aka DefenceX, along with Zantech Trading, were found guilty of violating the Banks Act by operating a Ponzi scheme with about 200,000 investors that involved about R816 million.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

     A lawsuit against TD Bank filed by investors Oleg and Angela Shtutman in connection with the Car Miller Ponzi scheme run by Everett C. Miller was permitted to proceed in state court. The lawsuit seeks recovery of $1.5 million for money lost in the scheme that was deposited into a joint TD account with Miller.

     Investors in the $58 million David Dadante Ponzi scheme case are to receive 100% on their claims. The 105 victims may receive about 10% interest on their claims as well. The receiver recovered $59 million. Dadante, 60, is serving a 13 year prison sentence for the scheme. He had defrauded victims by representing that he knew an executive at Goldman Sachs who could provide an opportunity to purchase stock in exclusive public offerings that promised annual returns of 10% to 20%. 

     A civil lawsuit was filed against Farallon Capital Management in connection with an alleged Ponzi scheme that defrauded German real estate investors of $67 million. The founder of Farallon, Tom Steyer, is a billionaire environmentalist who has pledged to raise more than $100 million to elect environmentalist Democrats to Congress through his political group, NextGen Climate Action.  Farallon has not been found to have violated the law in connection with the scheme and denies any wrongdoing.

     Victims of the J.V. Huffman Jr. Ponzi scheme received distribution checks from the receiver in the case. The victims will receive 10.567% of the money they invested. The receiver of the Huffman estate reported that he recovered a total of $3.26 million and, after payment to the receiver and his professionals, $2.9 million will be available for distribution. Huffman was sentenced to 30 years in prison more than 4 years ago. Huffman had operated his scheme through Biltmore Financial Group, promising investors their money would be invested in a mutual fund. Huffman represented he was earning interest between 8.02% and 16.54%.

     The lawsuit brought by Jay Wexler against Tremont Group Holdings, one of the largest feeder funds into Bernard Madoff’s scheme, was dismissed. The lawsuit had accused Tremont of not heeding and investigating red flags that Madoff never actually bought or sold securities. Tremont allegedly had invested $3.3 billion with Madoff. The New York Supreme Court dismissed the case, noting that the complaint “fails to explain how one or more alleged red flags made it so obvious that Madoff was running a Ponzi scheme that defendants must have known about the scheme and wanted to further it.”

     A group of investors in the Bernard Madoff scheme were given permission to add state law claims to their class action lawsuit following the Supreme Court ruling in Chadbourne & Park v. Troice, 2014 U.S. LEXIS 1644 (Feb. 26, 2014). In the Madoff case, the court also raised the possibility that KPMG LLP could be reinstated as a defendant in the lawsuit by Tremont Group Holdings Inc. In re Tremont Secs. Law v. Tremont Group Holdings, 2014 U.S. Dist. LEXIS 52082.

     The BVI liquidator of three feeder funds to the Bernard Madoff scheme – Fairfield Sentry, Fairfield Sigma and Fairfield Lambda – was barred in the British Virgin Islands from pursing the return of more than $1.4 billion from investors who withdrew their funds prior to the demise of the Madoff scheme. The funds’ investors lost about $6 billion to $7 billion.

     The receiver in the Arthur Nadel Ponzi scheme case plans to distribute another $5 million to about 350 victims who were defrauded in the scheme, bringing the total recovery to about 44% of the losses. This will be the fourth distribution by the receiver, bringing the total distributed to $58.2 million. The scheme was run through Nadel’s company, Scoop Management.

     An additional distribution payment was made to victims of the Lou Pearlman Ponzi scheme. The Trustee made a second distribution payment of $5.6 million, in addition to an earlier distribution of $10.4 million that had been made. The recovery so far for victims is about 3.3%, but the trustee anticipates making a third and final distribution later this year. Pearlman is serving a 25 year prison sentence.

     The trustee for the bankruptcy entities once run by Thomas Petters has asked the bankruptcy court for permission to sue to avoid fraudulent transfers in 26 countries. More than 200 lawsuits have already been filed against 382 defendants in the U.S. to recover assets transferred as “false profits, bonuses, commissions, gifts.”

     JPMorgan Chase and other financial institutions sought to move a lawsuit pending against them arising from the Thomas Petters Ponzi scheme to New York federal court. The lawsuit, filed by Ritchie Capital Management LLC, accuses the financial institutions of playing a role in the Petters scheme.

     Charles Ponzi’s house was publicly listed for sale for the first time. The list price is $3.3 million. Ponzi had occupied the house for only 6 weeks in 1920 before he was arrested. All previous sales of the house have been private. Ponzi had first offered $25,000 for the house but raised his offer to $39,000 on the condition that the seller invest in Ponzi’s Securities Exchange Company. Ponzi ultimately paid $9,000 in cash and delivered a Securities Exchange Company certificate that he promised would eventually be worth $30,000.

     The $8.2 million settlement between Bank of America Corp. and a class of victims was approved in connection with claims arising from the Ponzi scheme of Juan Rangel and his company, Financial Plus Investments. The class action involving the claims of more than 400 victims alleged that the Bank of America branch manager accepted bribes from Rangel in returns for laundering $1 million in proceeds from the scheme to bank accounts in Mexico. Rangel had represented that investor funds would be used to buy and sell properties and to make high interest loans to distressed homeowners, and he guaranteed returns as high as 60% per year. Rangel pleaded guilty and was sentenced in 2011 to 22 years in prison.

     Almost 100 defrauded victims in the Scott Rothstein Ponzi scheme filed lawsuits against Bank of America and 4 current and former employees of the bank. The victims, who lost more than $385 million, claim that the Bank and some of its employees knew about and “helped” Rothstein run his fraudulent scheme. The victims are also seeking punitive damages, alleging that Bank of America “concealed, covered up, and possibly destroyed documents reasons: to avoid massive liability and a public relations nightmare.”

     The trustee of the bankruptcy case of Scott Rothstein’s law firm, Rothstein Rosenfeldt Adler, reached a settlement with Frank Preve to pay cash and property to resolve claims against Preve. The settlement is valued at $471,000 on the claim of $5.06 million that was sought by the trustee.

Investors who were placed into the Ponzi scheme run by Joel David Salinas were awarded a judgment by an arbitration panel against a brokerage firm, Golden Beneficial Securities Corp., for its failure to supervise of its employees. The claimants alleged that they invested more than $3 million through the broker but their assets were commingled with funds in the $50 million Ponzi scheme.

     The victims of Nickolas Skaltsis, 64, will receive some compensation. An agreement was reached with Tobias Investments LLC and the victim for allocation of net proceeds to be obtained from the sale of properties owned by Tobias. Skaltsis had run his business, Pheonix Asset Group, as a management company for the properties owned by Tobias. Skaltsis is currently serving time in prison for his scheme.

     The Fifth Circuit affirmed the dismissal of a class action accusing the SEC of facilitating Allen Stanford’s $7 billion Ponzi scheme. The court found that the SEC’s negligence was not a matter of policy and that the SEC was protected by the discretionary function exception of the Federal Tort Claims Act.

     Halo Cos. settled with the SEC appointed receiver over Stewardship Fund run by James Temme to resolve claims that Halo had received $1.2 million from the $35 million Ponzi scheme. Temme asserted his Fifth Amendment privilege and refused to testify in the litigation, and Halo agreed to pay a total of $250,000 in settlement of the fraudulent transfer claim.

     The lawyers for a group of 740 victims sought clarification and/or reconsideration of an order in the ZeekRewards case regarding payment on account of those victims claims. The lawyers seek a contingency fee for their work in assisting the victims to file proofs of claim, while the receiver of ZeekRewards seeks to pay the victims directly rather than paying the lawyers who will retain a contingency fee. The receiver stated that the motion for clarification is another challenge to “the Court’s decision by seeking to change the approved distribution process to require the Receiver to aid the Movant’s attorneys in collecting their attorneys’ fees from the Movants.”

March 2014 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

     Below is a summary of the activity reported for March 2014. The reported stories reflect: 18 guilty pleas or convictions in pending cases; about 60 years of newly imposed sentences for Ponzi schemers; 9 newly discovered schemes involving over 1,000 victims and over $207 million; and an average age of 53.3 for the alleged Ponzi schemers in the stories reported. 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.

     Russell Adler, 52, a former law partner in Scott Rothstein’s firm, Rothstein Rosenfeldt Adler, was charged with conspiring to violate federal campaign contribution laws. Adler allegedly helped orchestrate contributions from the firm’s employees and attorneys to John McCain’s 2008 presidential campaign and Charlie Crist’s run for the U.S. Senate, which contributions were then reimbursed by the law firm. Adler is expected to plead guilty next month.

     Robert R. Anderson and his company Rosand Enterprises were relieved of monetary liability when the SEC dismissed its request for monetary relief because Anderson was sentenced to 68 months in prison in a related criminal action and because Rosand Enterprises is a defunct corporate entity.  The SEC had filed an action against the defendants alleging that they had operated a Ponzi scheme, defrauding at least 77 investors out of approximately $12 million. SEC v. Robert R. Anderson & Rosand Enters., 2014 U.S. Dist. LEXIS 38545.

     Hugh Arias, 44, pleaded guilty to charges relating to his role in the $400 million Ponzi scheme run by Nicholas Cosmo through Agape World. Arias received more than $9 million in commissions for pitching investments in the Ponzi scheme. The scheme defrauded more than 4,100 victims who lost a total of about $179 million. Sales agents for Agape World had promised investors returns of 12% to 14% and misrepresented that only 1% of their principal was at risk. Cosmo is currently serving a 25 year sentence in connection with the scheme and 8 others have been charged.

     George Atwater was disbarred for violating numerous rules of professional conduct in connection with his $65 million Ponzi scheme for which he was sentenced to one year in prison. Atwater had been a lawyer in Washington since 1988, and his license was suspended in 2012, after he had pleaded guilty to charges relating to the scheme. Atwater was working for Robert Miracle, who was sentenced to 13 years for running the Ponzi scheme that supposedly involved oil developments in Malaysia and Indonesia.

     Aldo Baccala, 73, pleaded guilty to charges relating to his role in a $20 million Ponzi scheme that defrauded 55 victims. The plea deal was proposed by the state court judge and was opposed by prosecutors. The court offered to limit Baccala’s sentence to no more than 20 years, but prosecutors wanted 64 to 84 years.  Baccala operated Baccala Realty Inc. and sought money from investors for business ventures that included assisted living facilities and a car wash. He promised investors annual returns greater than 12% and as much as 27.5%.

     Bryant E. “Bry” Behrmann, 67, is due for release after serving more than 4 years of his 6 year sentence for running a $45 million Ponzi scheme. Behrmann and his partner, Larry “Buck” Hunter, defrauded 9,400 people who invested $45.7 million in a get-rich-quick scheme that involved selling inventory overstock through their company, Global Online Direct. The scheme promised returns of 65% and up to 35% bonuses to new investors.

     Annette Bongiorno, 66, Joann Crupi, 53, Daniel Bonventre, 66, George Perez, 48, and Jerome O’Hara, 51, were convicted on all counts against them for their respective roles in the Bernard Madoff Ponzi scheme. They were collectively convicted of 31 counts for conspiring to create and use millions of fake account statements and false trade confirmations to deceive investors. Bongiorno had testified in her own defense at her criminal trial, explaining that she didn’t realize she was doing anything wrong when she had backdated trades that didn’t really exist for 40 years. She said, “Everything was backdated. It didn’t raise a red flag.” Backdating trades was like “brushing my teeth.” The five Madoff former employees now face forfeiture of their assets.

     John Bravata and Richard Trabulsy were ordered to pay more than $8 million for their role in the $50 million Ponzi scheme run through Bravata Financial Group and BBC Equities. A district court awarded judgment against the defendants in the lawsuit brought by the SEC. The scheme defrauded about 440 investors through the unauthorized sale of securities.

     Patrick Cole and his company Global Strategic Marketing had a judgment entered against them by the CFTC, issuing a permanent injunction and a disgorgement order of over $1.1 million. The judgment relates to a $23 million Ponzi scheme run through Complete Developments, LLC as a foreign exchange investment program. Global was partners with Complete Developments and failed to verify data provided by Complete Developments in addition to making false statements and claims about low risk of loss.

     Stephen Richard Colson, 48, pleaded guilty to charges relating to a mortgage Ponzi scheme that he ran through his companies, Prestige Title Inc. and Advanced Title and Escrow. Colson’s business depended upon funds generated in new real estate closings to pay off earlier closings.

     Jenny Coplan, 54, was hit with a default judgment against her for more than $936,000 in connection with an SEC action against her for her alleged violations of federal securities laws. The SEC alleged that Coplan defrauded about 90 individuals to invest in her business involving immigration bail bonds – bonds that a person must pay before being released from immigration detention. Coplan operated the business through Immigration General Services LLC and promised high rates of return. Coplan raised about $4 million from investors, returned about $3.1 million in Ponzi-like payments, and misappropriated about $878,000.

     Shawn Kristi Dicken, 40, was found guilty on charges relating to her role in a Ponzi scheme run through Diversified Group Advisory Fund LLC. It is alleged that Dicken funneled $2 million of investors’ money into the Ponzi scheme operated by Joel Wilson. Dicken was a lead sales person at Diversified and had promised investors that their investments were without risk, completely liquid and had a guaranteed rate of return of between 9.5% and 10.44%.

     Robert Eberle, 75, and his wife, Barbara Eberle, 66, were each sentenced to 5 years in prison and ordered to pay $13.2 million in restitution in connection with a Ponzi scheme that they ran through Secure Investment Services. They promised investors returns from the profits of life insurance policies on other people’s lives.

     Archie Evans sought an indefinite delay to his sentencing, arguing that he has been “mentally incapacitated” due to an illness that has prevented him from responding to a pre-sentence report in his criminal case. Evans pleaded guilty in January 2013 to charges relating to a Ponzi scheme run through Gold & Silver LLC that defrauded members of the Baptist church in which he was a preacher. Evans promised investors 10% to 12% interest but either spent their money or lost it on bad investments.

     Fleet Mutual Wealth Limited, MWF Financial Limited and Mutual Wealth were accused by the SEC of operating securities fraud and of using Facebook and Twitter to promote fraudulent investments. The scheme promised investors returns of between 2% and 3% per week and also encouraged investors to become “accredited advisors” who would earn a commission for bringing in new investors. It is alleged that about 150 investors opened accounts with Mutual Wealth and invested about $300,000.

     Michael Brendan Ferguson, 44, was charged not only with securities and grand theft charges relating to an alleged ATM Ponzi scheme, but was also charged with burglary. Ferguson promised up to 15% returns from transaction fees from private ATMs and allegedly defrauded at least 100 investors out of more than $10 million.

     Anthony Robert Fregenti, Jr., 42, was sentenced to 5 years in connection with charges that he operated a Ponzi scheme through Dark Hawk Enterprises LLC involving motorcycles and exotic sports cars. He pleaded guilty last year and had offered to pay $1 million to stay out of prison. His offer was rejected, but he was given credit for 121 days he had already served in jail.

     Michael B. Gale, 66, was sentenced to 2 years in prison and ordered to pay over $425,000 in restitution following his guilty plea to charges that he ran a commodity futures Ponzi scheme through his company, Capital Management Group. Gale defrauded 9 people out of about $893,000.

     John Hagener, 77, and Dawn C. Powers, 43, pleaded guilty to charges relating to a $7 million Ponzi scheme that defrauded more than 100 people. The scheme related to the sale of shares in an investment program called Naras Funds. The scheme was run with Lawrence Lee Loomis aka Lawrence Leland Loomis through Loomis Wealth Solutions in which investors were promised 12% returns.

     Mitchell Brian Huffman was ordered to pay a $2 million civil penalty relating to his operation of a $30 million Ponzi scheme that defrauded about 30 investors. Huffman pleaded guilty in 2011 and was sentenced to 5 years in prison in connection with his scheme that involved exchange-traded commodity futures contracts. Huffman had promised investors annual returns of between 100% and 150%.

     Jeffrey Kelly, 45, was sentenced to 5 years in prison and ordered to pay $1.1 million in restitution in connection with a $1.5 million Ponzi scheme. Kelly told clients that he would invest their money in various financial products such as annuities, stocks and real estate investment trusts, but spent the money on personal expenses instead.

     Robert S. Leben and Amy L. Leben were accused of running a $3 million Ponzi scheme through their company, Structured Financial Group, LLC, in violation of CFTC regulations. In a CFTC enforcement action, they were accused of promising investors quarterly returns of 3.5% and directing investors to paying their money to an attorney serving as agent for the company in a foreign exchange scheme.

     Wing K. Lim aka Kent Lam, 41, pleaded not guilty to charges accusing him of defrauding 5 victims out of $4.3 million in an alleged Ponzi scheme that he ran through his company, Wall Street Investments LP. Lim told his clients that he would invest their money in high-yield hedge funds, such as his DT China Growth Funds, LP and Daytop Funds, LP, but instead he allegedly spent the money on personal items and transferred some of the money into accounts belonging to him and his relatives. Lim is an illegal alien from China.

     Geoffrey Lunn, 58, has admitted he was guilty of running a Ponzi scheme. Lunn claimed he was the vice president of Dresdner Financial, which doesn’t really exist, and said that his operation was named “Operation 44 Magnum.” Lunn told FBI agents that it was called that because, “When people found out that they’d been ripped off they would buy a .44 Magnum and shoot themselves in the head.” Lunn had misrepresented that he worked with stocks and bonds and resold high end items such as Picasso paintings and jewelry.

     Eddie Marin, 52, was sentenced to 10 months in prison after pleading guilty to charges that he helped the wife of Scott Rothstein, Kim Rothstein, conceal jewelry from investigators. Marin also admitted committing perjury in the bankruptcy proceedings relating to Rothstein’s law firm, Rothstein Rosenfeldt Adler. Kim Rothstein is serving 18 months in prison for concealing jewelry.

     Brian William McKye, 50, was sentenced to 17 years in prison and ordered to pay more than $4.5 million in restitution for his role in a $4.5 million Ponzi scheme that defrauded 83 victims. The scheme was run through Global West Funding Ltd., Global West Financial LLC, Global West Financial LLC, Sure Lock Financial LLC, Sure Lock Loans LLC, and The Wave-Goldmade Ltd., and involved fraudulent notes in real estate in which investors supposedly had “100 percent total control” of their money. The scheme promised investors a monthly return from 6.5% to 20% for 6 to 60 months.

     Al Moriarty, 80, was assigned in a new lawyer to handle his criminal trial in connection with his alleged role in a $22 million Ponzi scheme. Moriarty’s prior lawyer, Scott Whitenack, had to bow out of the case because of charges of his own involving moral turpitude. Moriarty and Whitenack had met when both men were in county jail.

     Mt. Gox, the formerly largest Bitcoin exchange in the world, filed for bankruptcy protection in Japan. The company cited liabilities of $64 million and assets of $38 million. Mt. Gox CEO Mark Karpeles suggested that the company had lost about $500 million of Bitcoin through a major breach of system by a hacker. Over 850,000 Bitcoin were lost, which was about 7% of the total outstanding number of Bitcoin worldwide. Mt. Gox soon after filed a petition in Dallas Texas seeking protection under Chapter 15 of the United States Bankruptcy Code. Some have alleged that the Bitcoin business is a Ponzi scheme.

     Jane O’Brien, 61, who is serving a 33-month sentence for securities fraud, has been indicted in connection with an alleged 18 year Ponzi scheme. O’Brien is a former Merrill Lynch broker and is accused of convincing clients to take money from their bank and brokerage accounts and giving the money to her for private placement investments. O’Brien promised at least one client a 25% return but instead used the money for her personal expenses and to make payments to other clients.

     Samuel Ray Palasota, 53, was sentenced to almost 6 years in prison in connection with a $1 million Ponzi scheme. Palasota was convicted in the real estate fraud that Palasota called “The Maker’s Resources.”

     Elaina Patterson, 54, pleaded guilty and was sentenced to 3 to 5 years in prison plus 10 years probation in connection with a $6 million Ponzi scheme that defrauded 31 investors. Patterson formerly worked as a banker at Bank of America and would promise her friends and family investment programs generating 10% to 15% returns that were normally reserved for corporate and high-level clients. Patterson paid back about $4 million but used some of the rest of the money that she stole from victims on travel expenses and expensive cars.

     Ronald Russell, of California, was convicted of running a real estate Ponzi scheme in which he charged investors $2,900 to participate. Russell told investors he would use the money to buy homes, rent them to investors, and then sell them at the same price he had bought them for. Russell defrauded 51 victims who lost about $139,000 in the scheme.

     Feisal Shariff, 43, was sentenced to 8 years and 4 months and ordered to pay more than $3.6 million in restitution in connection with a Ponzi scheme that defrauded more than 70 investors of about $3.6 million. Sharif had pleaded guilty to charges relating to his Ponzi scheme run through First Financial, LLC as a commodities trading program.

     Joel Steinger pleaded guilty to his role in the $1.25 billion Ponzi scheme of Mutual Benefits Corp. which marketed viatical and life insurance settlements. Steinger was the last of 13 defendants to be convicted on charges in connection with the scheme that defrauded about 30,000 victims.

     Garfield M. Taylor, 55, of Maryland, pleaded guilty to charges relating to a $25 million Ponzi scheme in which Taylor misrepresented that he used a sophisticated securities trading strategy that protected against loss. Taylor misrepresented to investors how their money was being used. His companies, Garfield Taylor Incorporated and Gibraltar Asset Management Group, did not have licenses to trade securities.  The SEC also obtained a civil judgment against Taylor.

     Tri-Med Corporation, Tri-Med Associates, Inc., Jeremy Anderson, Anthony N. Nicholas, III, Eric Ager, Irwin Ager, and Teresa Simmons Bordinat were the subject of an asset freeze and had a receiver appointed over them. Tri-Med promised investors above-market interest rates in an alleged medical accounts receivable scam in which Tri-Med assured investors that their funds would be held in trust in a law firm escrow account. About $13 million was raised from at least 232 investors.

     Jason K. Vaughn, an associate of accused Ponzi schemer Rick Koerber, went on trial for his role in the $100 million real estate scheme. Vaughn is accused of defrauding certain investors who put $2.85 million in Vaughn’s company, Freestyle Holdings, which was then lost in the scheme. The trial of Koerber is scheduled to begin in June.

     Deepal Wannakuwatte, 63, of California, was indicted on charges that he allegedly ran a $100 million Ponzi scheme through his companies, International Manufacturing Group, Inc. and Rely Aid Global Healthcare Inc.

     WCM777, WCM777 Inc., WCM777 Ltd., World Capital Markets, and Ming Xu aka Phil Ming Xu were accused by the SEC of running a Ponzi scheme that defrauded victims of $65 million. The defendants are accused of selling “packages” or “membership units” in WCM777, which they claimed to be a profitable multi-level marketing program that sells packages of cloud media or cloud services. The scheme promised 100% returns in 100 days. Investors’ money was used, among other things, to purchase properties that are held in the names of World Capital Market Inc., Manna Holdings Group LLC and Kingdome Capital Market LLC, which are affiliated with Xu. Funds were also sent to PMX Jewels, Limited, a rough diamond jewel merchant in Hong Kong, to Aeon Operating Inc., and to Manna Source International, Inc.

INTERNATIONAL PONZI SCHEME NEWS

Australia

     Centaur Litigation is believed to be a Ponzi scheme and moved from Hong Kong to Sydney. Centaur claimed to have raised more than $160 million from investors and promised large returns. Centaur is purportedly funding a class action over an outbreak of equine flu in 2007. Centaur’s manager, Buttonwood Legal Capital, is seeking assurances from Centaur that it can meet its obligations.

     Ponzi schemer Earl Jones was released from prison after serving one-third of his 11 year prison sentence. Jones had pleaded guilty to running a scheme that targeted more than 150 victims.

     Philip Linacre, 61, pleaded guilty to charges that he ran a $12 million Ponzi scheme that was supposedly a high-return investment program that defrauded his clients. About $1.8 million of the money was paid back as interest to the victims. He was then struck off the Roll of Legal Practitioners.

Canada

     Pamela Vanberg, 33, and two of her companies, Calgary Motorhome Inc. and Canada Motorhome Inc., have been charged in connection with an alleged motorhome time share Ponzi scheme. The scheme defrauded at least 7 people of over $100,000. Vanberg supposedly rented RVs, offered parking stalls to RV owners for a fee of at least $5,000, and gave consumers the option of buying into a resale program for a fixed dollar amount of $10,000.

     Kevin Warren Zietsoff, 41, was sentenced to 4½ years in prison and ordered to pay $11 million in restitution in connection with his $15 million Ponzi scheme that defrauded more than 80 victims.

     In the case of Roszko v. The Queen, the Tax court of Canada allowed a taxpayer’s appeal and held that amounts paid out in a Ponzi scheme were not taxable as interest income. In Roszko, the taxpayer was an investor in the commodities trading company, TransCap Corporation, which promised investors returns of 18% to 22% annually. TransCap was found to be a fraudulent scheme. The taxpayer had invested $800,000 and had been repaid a total of $408,000. The court found that the payments were a return of principal but noted that excess returns might be considered income.

     Roger Schoer was accused at trial of running a Ponzi scheme. Schoer plead not guilty to allegations that he ran a fraudulent scheme. Schoer had advised investors that he was launching a Prince Edward Island tech company.

England

     Matthew Ames, 38, was sentenced to 40 months in prison after having been found guilty on counts relating to a £1.6 million Ponzi scheme operated through his two companies, Forestry for Life and The Investors’ Club. Ames promised investors returns of 15% from investments in teak tree plantations that supposedly generated carbon credits which could then be traded for profit. 

     Bordeaux Fine Wines Ltd. was put into liquidation amid allegations that it was a Ponzi scheme. Investors put as much as £12 million into a wine funds to buy cases of vintage wine, but it appears that the investors’ funds were not spent to purchase the wine but went to pay salespeople instead. The company was formed by Kenneth Gundlach who promised investors large returns based on “carefully selected portfolios of vintage wine.” It is believed that about 444 investors lost money in the scheme.

India

     Giel Mans, 36, was released on bail after having been arrested in December 2011. Mans is accused of running a R10m Ponzi scheme and has previously been denied bail on two occasions as he was deemed a flight risk. Mans faked his own kidnapping to get out of reimbursing investors.

     Nirmal Singh Bhangoo, 60, is being investigated in connection with an alleged Ponzi scheme that defrauded 900,000 investors relating to the sale and development of agricultural land. The scheme involved about $8 billion.

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

     Relatives of convicted Ponzi schemer Gershon Barkany were sued by investors in Barkany’s $62 million Ponzi scheme for fraudulent transfer, unjust enrichment and conversion.  The plaintiffs are Barkany Asset Recovery and Cortland Realty Investments, and they sued Barkany’s in-laws, Joseph and Deborah Rosenberg, and his uncle and wife, Jonathan and Gila Zelinger. The lawsuit alleges that the plaintiffs wired in millions of dollars to Barkany’s lawyer’s trust account and that some of the money was thereafter wired to the defendants.

     Four republican politicians from Texas have filed a lawsuit against Archer Bonnema for their losses of $2.5 million in an alleged Ponzi scheme run by Bonnema in which he was to be investing in utilities trading through Pirin Electric, a company traded on the energy market. Bonnema had once claimed to have found Noah’s Ark, and he targeted Christian conservatives in his scheme.

     Skadden Arps agreed to pay $4.25 million to settle claims of defrauded victims in the Ponzi scheme of Alphonse “Buddy” Fletcher. Skadden had represented Fletcher Asset Management, and investors alleged that Skadden had failed to adequately protect their interests.

     Players in the Full Tilt Poker Ponzi scheme are scheduled to get a distribution. An estimated $76 million is to be paid out to an estimated 30,000 American online poker players whose funds have been held in their frozen Full Tilt Poker accounts for about 3 years.

     Victims of the Queen City Investment Fund Ponzi scheme run by Glen Galemmo are suing a Galemmo client, Michael Willner, in a class action alleging that he received millions of dollars from the scheme. The lawsuit is for recovery of fraudulent transfers allegedly made to a net winner in the scheme. Galemmo pleaded guilty to what is alleged to be a $100 million Ponzi scheme.

     The trustee in the Bernard Madoff case argued his appeal before the Second Circuit on the issue of whether section 546(e) of the bankruptcy code should bar some of his claims to avoid and recover fraudulent transfer claims.

     A court approved the settlement between JPMorgan and a class of victims of Bernard Madoff, which provides for payment of $218 million to the victims. The court also approved $18 million of fees to the lawyers who represented the customers.

     The Madoff trustee filed his proposed fourth distribution announcing a distribution of about $349 million to pay customer claims. This distribution will bring the total amount of funds distributed to customers to about $6 billion. Those claimants who also received a SIPC cash advance of up to $500,000 will now be made whole if their claims are $925,000 or less given the 46% distribution the trustee will reach with this latest distribution. 

     JPMorgan has been accused of assisting another Ponzi scheme. A group of investors who claim to have been defrauded by William Wise and his Millennium Bank Ponzi scheme have filed a complaint alleging that JPMorgan knew of suspicious activity at the time that it took over the Millennium account from Washington Mutual. The complaint alleges that for the approximate 5 month period after JPMorgan took over the account, about $16 million passed through the bank and ended up in overseas accounts.

     The law firm Band Gates PL will pay about $167,000 to the receiver of the Arthur Nadel Ponzi scheme to finally settle the receiver’s claims that the firm had fraudulent transferred funds for Donald Rowe, an investment newsletter publisher who had been ordered to pay $4 million to the Nadel receivership. The receiver has returned about $52 million to the approximately 350 investors who lost about $162 million in the Nadel scheme.

     An aircraft hangar business known as Tradewind that was previously owned by Arthur Nadel was sold by the receiver for $1.2 million. Some of the sales proceeds will go to the 400 defrauded victims who had lost about $162 million in the Ponzi scheme and the balance will go to the secured creditor.

     Cordell Consultants Inc. on Friday asked the Eleventh Circuit to revive its fraud suit accusing Kluger Peretz Kaplan & Berlin PL and four of its attorneys of helping Edward Okun perpetuate his $130 million Ponzi scheme. The Eleventh Circuit heard oral arguments in the case relating to Cordell’s lawsuit to recover $7 million.

     The Backstreet Boys are litigating their claim filed in the bankruptcy case of their former manager, Lou Pearlman. The band claims that Pearlman still owes them $3.4 million, but the bankruptcy trustee objected on the grounds that the claim is duplicative of a claim the band filed in the bankruptcy case of one of Pearlman’s companies, Trans Continental Records, Inc., and that there was no evidentiary support for the claim.

     Thomas Petters latest appeal of his criminal conviction and 50 year prison sentence was rejected less than 24 hours after it was filed. Petters contends that the judge who promptly denied the appeal has a conflict of interest because his son is an attorney who worked at the law firm that provided legal services to Petters before his arrest.

     Julio Robaina, who is accused of tax evasion for failing to report $300,000 received from Ponzi schemer Luis Felipe, has now been alleged to have used the money to keep a mistress. Robaina is the former mayor of Hialeah, Florida. Felipe is serving 10 years after pleading guilty to running a $45 million jewelry investment Ponzi scheme.

     TD Bank argued before the Eleventh Circuit, seeking reversal of the jury award against it for $67 million in connection with its activities in the Scott Rothstein Ponzi scheme. Coquina Investments won a jury verdict against the bank, largely based on the role of Frank Spinosa, a TD Bank officer that was allegedly bribed by Scott Rothstein in connection with the Ponzi scheme. Spinosa invoked his Fifth amendment right not to incriminate himself 193 times at the trial, although he has not been charged with any crime in the Rothstein case.

     Cole Taylor Bank was sued by 81 customers in connection with the $50 million Ponzi scheme run by Martin Sigillito. The Bank was accused of aiding and abetting the Ponzi scheme and was also sued for fraud, conspiracy, breach of contract breach of fiduciary duty and negligence. Sigillito was a lawyer who targeted individuals with IRAs. Customers were lured into the scheme by false statements from Millennium Trust, which was the custodian for Sigillito’s company, British Lending Program. The Bank performed the banking services for the IRA accounts, and the customers allege that the bank’s oversights allowed Sigillito to run the Ponzi scheme.

     The receiver in the Small Business Capital Corp. case mailed checks to victims returning about 43% of the investors’ original contribution. SB Capital, run by Mark Feathers, had promised investors 7.5% and involved about $40 million. The receiver hopes to make additional distributions to victims later in the year.

     The Supreme Court found that victim class actions filed in connection with the Stanford Financial Ponzi scheme can proceed against two law firms, an insurance company and a financial advisory firm in Chadbourne & Park v. Troice, 2014 U.S. LEXIS 1644 (Feb. 26, 2014).

     The receiver of Vesta Strategies LLC was barred from suing Continental Casualty Co. to recover losses in the 1031 exchange real estate Ponzi scheme. Dillon v. Continental Casualty Co., 2014 U.S. Dist. LEXIS 41709 (N.D. Cal. Mar. 26, 2014).

     IMG Funding LLC sued Deepal Wannakuwatte and his company the International Manufacturing Group for fraud. The lawsuit claims that the defendants ran a fraudulent investment scheme and claimed that they had secured a $100 million contract to supply latex gloves to the Department of Veterans Affairs. IMG says that, based on the misrepresentations of the defendants, it raised $24 million from 20 investors and paid most of that money to the defendants. Another group of investors, led by Sammy Cemo, the head of Cemo Commercial Inc., also filed a lawsuit for the $7.1 million of funds that they invested.

     The Second Circuit affirmed the dismissal of the lawsuit of Iowa Public Employees Retirement System against Deloitte & Touche LLP relating to Deloitte’s conduct in the WG Trading $38 million Ponzi scheme. The lawsuit had alleged that Deloitte’s auditors had intentionally ignored warning signs that the WG Trading’s principals were stealing investor funds. Iowa Public Employees’ Retirement System v. Deloitte & Touche, 2014 U.S. App. LEXIS 4918 (2d Cir. Mar. 17, 2014).

     The ZeekRewards receiver filed a complaint against six insiders of the company, including Zeek CEO Paul Burks, seeking the return of alleged fraudulent transfers. The six insiders made close to $25 million from the scheme. The receiver also filed a lawsuit against 10 net winners who allegedly made more than $900,000 for a combined total of $18.74 million. That suit also includes net winners who made more than $1,000 in the scheme, which includes about 9,000 affiliates as members of a defendant class. Separately, the court approved judgments that will force Dawn Wright-Olivares and her step-son Daniel Olivares to forfeit a combined $11.4 in earnings. The receiver has reached settlements with about 180 net winners totaling about $2.5 million on winnings of about $4.5 million, or about 56.7% of the profits that were paid out.

Supreme Court Ruling in Stanford Financial Case on SLUSA Leaves Madoff Victims Wondering “Why Not Us?”

Posted by Kathy Bazoian Phelps

   In a legal environment that seems to be growing increasingly difficult for Ponzi scheme victims to recover their losses, the United States Supreme Court gave a group of defrauded investors some welcome news. The Court issued its decision in Chadbourne & Park LLP v. Troice, 2014 U.S. LEXIS 1644 (Feb. 26, 2014) (attached here) in a 7-2 vote, allowing lawsuits by a class of victims of R. Allen Stanford and Stanford Financial against two law firms, an insurance brokerage firm and a financial services firm to proceed. 

   The case involved an appeal over the issue of whether the Securities Litigation Uniform Standards Act of 1998 (SLUSA) bars the investors' lawsuits which allege that some of the defendants misrepresented that certificates of deposits sold by Stanford were safe investments and that the law firms helped Stanford evade regulatory oversight. 

   The SEC and the Obama administration had filed amicus briefs in support of the defendants' positions, supporting the application of SLUSA to bar the victims' claims. The Ponzi Scheme Blog in October 2013 questioned why the SEC would be supportive of a position that would deny recovery to Ponzi scheme victims. The Supreme Court’s recent ruling pretty handily shut down the government’s position in the Stanford case. 

The Holding

   SLUSA is a federal law that bars class-action lawsuits related to securities fraud that are brought under state law.  In Troice, the Court summarized the issues and its conclusion as follows:

The question before us is whether the Litigation Act encompasses a class action in which the plaintiffs allege (1) that they "purchase[d]" uncovered securities (certificates of deposit that are not traded on any national exchange), but (2) that the defendants falsely told the victims that the uncovered securities were backed by covered securities. We note that the plaintiffs do not allege that the defendants' misrepresentations led anyone to buy or to sell (or to maintain positions in) covered securities. Under these circumstances, we conclude the Act does not apply.

The Issues

Boiled down to its simplest form, the main questions considered by the Court were: 

   -Are the Stanford CDs "covered securities"?

   -What do the words "in connection with" mean under SLUSA? 

   If the CDs were not "covered securities" or if they were but the alleged purchase or sale of a covered security was not "in connection with" an untrue statement or omission of material fact, then the cases could proceed under SLUSA. 

Is a CD a security and, if so, is it a "covered security"?

   The Court found that the Stanford CDs did not fall within SLUSA’s definition of a "covered security": 

The law defines "covered security" narrowly. It is a security that "satisfies the standards for a covered security specified in paragraph (1) or (2) of section 18(b) of the Securities Act of 1933." §78bb(f)(5)(E). And the relevant paragraphs of §18(b) of the 1933 Act define a "covered security" as "[a security] listed, or authorized for listing, on a national securities exchange." . . The Litigation Act also specifies that a "covered security" must be listed or authorized for listing on a national exchange "at the time during which it is alleged that the misrepresentation, omission, or manipulative or deceptive conduct occurred." §78bb(f)(5)(E).

   The Court did not challenge or dispute the notion that the CDs are "securities" – noting that the SEC brought an action against Stanford on that basis – but concluded that the CDs were not "covered securities."

   In other words, if there is no "covered security," there is no protection for the defendants under SLUSA. And even if the transaction related to a covered security, the Court noted that the connection only matters if the decision to buy or sell a security is by someone other than the fraudster:

A fraudulent misrepresentation or omission is not made "in connection with" such a "purchase or sale of a covered security" unless it is material to a decision by one or more individuals (other than the fraudster) to buy or to sell a "covered security."

   The Court noted, "If the only party who decides to buy or sell a covered security as a result of a lie is the liar, that is not a 'connection' that matters."

Majority’s Strong Criticism of the Dissent

   The majority opinion disagreed with the two dissenting justices (Justices Kennedy and Alito) on the subject of whether the ruling would have the impact on the securities market threatened by the dissent. Among other things, the dissent argued, "The state-law litigation will drive up legal costs for market participants and the secondary actors, such as lawyers, accountants, brokers and advisers, who seek to rely on the stability that results from a national securities market regulated by federal law."
The majority responded to the dissent’s concerns about the protection of the securities market:

• "We find it surprising that the dissent worries that our decision will 'narro[w] and constric[t] essential protection for our national securities market,' post, at 3, and put 'frauds like the one here . . . not within the reach of federal regulation,' post, at 11. That would be news to Allen Stanford, who was sentenced to 110 years in federal prison after a successful federal prosecution, and to Stanford International Bank, which was ordered to pay billions in federal fines, after the same. Frauds like the one here--including this fraud itself--will continue to be within the reach of federal regulation because the authority of the SEC and Department of Justice extends to all 'securities,' not just to those traded on national exchanges."

• "[D]espite the Government's and the dissent's hand wringing, neither has been able to point to an example of any prior SEC enforcement action brought during the past 80 years that our holding today would have prevented the SEC from bringing."

• "[The dissent's warning that our decision will 'inhibit litigants from using federal law to police frauds' and will 'undermine the primacy of federal law in policing abuses in the securities markets' rings hollow."

Lingering Questions About Application of SLUSA in Fraud Cases

   The Troice opinion gives the Stanford victims the opportunity to pursue recourse against alleged wrongdoers – a good thing in the face of minimal recoveries coming out of the Stanford receivership to date. Of course, the defendants in the litigation have stated their intention to file motions to dismiss in the remanded cases on other grounds, so it remains to be seen what actually recovery will ultimately be obtained for the victims through these class actions.

   So while the result appears to be the right one in this case, it does cause one to question the value of SLUSA in other fraud cases. Does this opinion put form over substance, giving relief to the Stanford investors simply because CDs were involved? What about the Madoff victims? They, like the Stanford victims, bought into a fraud and didn’t actually acquire securities – whether "covered" or uncovered – yet Madoff class actions have been barred by SLUSA. See Trezziova v. Kohn (In re Herald, Primeo, and Thema), 730 F.3d 112 (2d Cir. 2013) (“[W]e agree with the district court that the fact that Madoff Securities may not have actually executed their pretended securities trades does not take this case outside the ambit of SLUSA”); see also, Select, L.P. v. Tremont Group Holdings, Inc., 2013 U.S. Dist. LEXIS 125550 (S.D.N.Y. Sept. 3, 2013). 

   Worse yet for Madoff victims, the findings in Troice could have adverse consequences for them in a context other than SLUSA. The Madoff trustee is currently appealing an adverse ruling under Bankruptcy Code section 546(e) which bars certain of his claims to recover fraudulent transfers on transactions relating to securities. If these federal statutes apply whether or not securities were actually purchased, Troice may add insult to injury to the Madoff victims.

   Is it fair to give relief to one set of victims but not the other? Both cases involved massive Ponzi schemes in which victims invested in phony securities and lost their money. What is the difference? Should SLUSA apply where victims thought they were buying covered securities but in fact were buying nothing at all? 

February 2014 Ponzi Scheme Roundup

Posted by Kathy Bazoian Phelps

     Below is a summary of the activity reported for February 2014. 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.

     Barbra Alexander, 66, of California, was convicted on 28 counts relating to a $6.7 million real estate Ponzi scheme. Alexander is the former producer of the financial talk show “Money Dots.” She operated APS Funding along with Michael Swanson, 65, and Beth Pina, in which about 45 investors placed their money and were promised 12% interest in connection with hard money short term loans for real estate. Swanson and Pina have also been convicted.

     Stanley Wayne Anderson, 69, pleaded guilty to charges relating to a Ponzi scheme run through CFO-5 LLC and Trinity International Enterprises, with the assistance of Lawrence Kennedy Jr. and Edwin Alexander Smith. The three men are accused of defrauding investors of about $5 million. Kennedy was previously sentenced to 12 months in prison, and Smith was sentenced to 30 months. Kennedy had conducted business through Keys to Life Corp. which solicited investment funds for Trinity. Investors were promised returns of between 200% and 1,000%.

     Douglas Bates, 55, pleaded guilty to charges that he assisted Scott Rothstein in connection with Rothstein’s Ponzi scheme. Bates had been charged with assisting Rothstein by inflating legal bills and signing a false letter. He was involved in about $60 million of Rothstein’s $1.4 billion fraud.

     Michael Berman and his company Discount Gold Brokers have been accused in a lawsuit of running a nationwide Ponzi scheme. Thomas Hendrix sued Berman and Discount Gold Brokers claiming that they defrauded victims by failing to deliver large orders of precious metals and coins, or by sending only a partial order and pocketing the difference.

     Annette Bongiorno, Joann Crupi, Daniel Bonventre, George Perez and Jerome O’Hara put on much of their case in defense as the prosecutors rested in the criminal trial of these defendants. The defendants are former employees of Bernard Madoff who hope to blame Madoff and prove that Madoff kept them in the dark. Bonventre, who ran the investment advisory unit at Madoff’s company, sought to have Dr. Paul Babiak, a psychologist who wrote “Snakes in Suits,” testify in his defense that Madoff was a psychopath. Bonventre testified in his own defense saying “Now, I think he’s a terribly ill man, and it’s difficult to reconcile everything I knew for 40 years and what I know now.” The court also dismissed two counts against Bonventre relating to arranging for his son to get a no-show job at Madoff’s firm. The court also granted the defense request to play excerpts of an October 2007 video of Madoff in action at a conference asserting that the then-current securities regulations provided a sufficient safeguard against fraud. Bongiorno also took the witness stand in her own defense.

     Janet Brown, the wife of deceased Jack Brown, agreed to plead guilty to charges relating to a $10 million Ponzi scheme run through Browns Tax Service. Janet Brown was charged with lying during a bankruptcy hearing when she was questioned about holding jewelry. She said she was not, but then turned over a bag of jewelry appraised at $25,000 to her attorney a few days later. Jack Brown had promised returns of 15% to his clients from supposed day trading, but instead used much of the money to fund a lavish lifestyle.

     Frank Castaldi’s 23 year sentence was upheld by the Seventh Circuit, which held that the punishment was reasonable and that the lower court had properly considered Castaldi’s cooperation with the government. U.S. v. Castaldi, 2014 U.S. App. LEXIS 3394 (7th Cir. 2014). The lower court had imposed a sentence that was nearly double the length of the term requested by the prosecutors.

     Robert Custis was banned from appearing or practicing before the SEC as an attorney under Rule 102(e) of the Commission’s Rules of Practice due to his involvement with Yusaf Jawed and his Ponzi scheme run through Grifphon Asset Management LLC and Grifphon Holdings LLC. The SEC accused Custis of making false and misleading statements to investors in the Grifphon scheme.

     Russell Erxleben, 57, was sentenced to 90 months in prison in connection with a $2 million Ponzi scheme that he ran through his companies, WALTEC Consultants, LRE Holdings, and The MDM Group. The investment scheme involved post-WWI German government gold bonds and works of art. Erxleben had previously been sentenced to 10 years in prison in 1999 after pleading guilty to charges in connection with a $30 million foreign currency trading scheme.

     David N. Hawkins, 46, was sentenced to 2½ years in prison and ordered to pay $204,000 in restitution in connection with a $1.2 million Ponzi scheme to which he pleaded guilty. Hawkins was a sheriff’s deputy who took advantage of his position as a law enforcement officer to gain the trust of investors to invest in his foreign currency exchange business. A total of 73 people invested, and all but 3 had been repaid.

     Kimberly Jeffreys pleaded guilty to one charge relating a real estate Ponzi scheme that she was accused of running with her husband, Greg Jeffreys. The Jeffreys had been accused of running a real estate Ponzi scheme that defrauded investors out of millions of dollars. Kimberly admitted that she had knowingly provided false financial statements reflecting that she and her husband had assets exceeding $30 million so that they could secure loans for the construction of a property.

     Michael Anthony Jenkins and his company, Harbor Light Asset Management LLC, were ordered to pay a total of $5.2 million in connection with charges that they were operating a commodities Ponzi scheme and had violated the federal Commodity Exchange Act. The court ordered them to pay $1.3 million in restitution and $3.9 million in penalties. Jenkins had defrauded more than 377 North Carolina residents out of at least $1.8 million, convincing them to invest in “E-mini futures” and promising them that their money would be sent to a specific trading account. He provided them with statements showing false trades, profits and inflated values.

     Kenneth Kenitzer, 70, was sentenced to 6 years in prison for his role in an $83 million Ponzi scheme run through Equity Investments Management & Trading. The scheme defrauded more than 300 individuals of about $40 million which they were not repaid. Kenitzer was an officer in the company that promised returns as high as 36% a year based on a computerized trading program. Anthony Vassallo had previously received a prison sentence of 16 years in connection with the scheme.

     Christina Kitterman, 39, was found guilty at her criminal trial in connection with the Ponzi scheme of Scott Rothstein and his law firm, Rothstein Rosendfeldt Adler. Kitterman was accused of assisting the Rothstein fraud by pretending to be a Florida Bar official in telephone conversations and in a meeting with investors. Kitterman had pleaded not guilty, and her lawyers asserted that Rothstein named another lawyer, not Kitterman, as the one who participated in an investor meeting. Rothstein testified at the trial that he hired Kitterman and that she told investors that Rothstein’s law firm’s accounts had been frozen in connection with a pending bar investigation. Kitterman took the stand in her trial and insisted that she did not lie for Rothstein. Prosecutors will likely ask for a 9 year prison sentence, while Kitterman will seek a sentence below 5 years. The court may evaluate perjury implications arising from her testimony at trial in connection with sentencing.  Rothstein also testified at the trial of Christina Kitterman that democratic candidate for Florida governor, Charlie Crist, engaged in contributions-for-favors quid pro quo. Rothstein said: "For certain [campaign] contributions, people were appointed to the bench." Crist has called the statements “gibberish.”

     Michael Kratville, was found liable for operating a $4.7 million Ponzi scheme that defrauded 130 victims. He ran the scheme through Elite Management Holdings Corp., NIC and MJM Enterprises, LLC. Kratville promised returns of 6% per month and claimed that he ran an “investment club exempt from the Securities and Exchange Commission rules.” In reality, the funds were being sent to an investment firm in Spain. Kratville was sued by the CFTC in 2007, and was ordered to pay restitution of $524,000 and penalties of $1.17 million. Additionally, a court ordered about $10 million in civil sanctions against Elite Management Holdings, MJM Enterprises, Kratville and Jonathan Arrington. Last year, Kratville’s business partner Michael Welke agreed to pay $257,000 in restitution and $130,000 in penalties. Kratville, Welke and Arrington are all facing criminal charges related to the scheme.

     Gary H. Lane, 60, a former Bank of America Merrill Lynch financial advisor, was sentenced to 10 years in prison for running a $2.7 million Ponzi scheme that defrauded at least 6 investors. Lane convinced investors to place money in an account outside of Bank of America, promising that the funds would be invested in U.S. Treasury bonds that would pay more than 6% interest with a 2 year maturity. Instead, the money was placed in his wife’s E*Trade account. Merrill Lynch fired Lane and has not been named in any lawsuits. The firm made full restitution to the victims.

     Gregory P. Loles, 54, was sentenced to 25 years in prison in connection with a $27 million Ponzi scheme that he ran through Apeiron Capital Management Inc., an investment advisory firm. Loles falsely represented that Apeiron was a registered investment management firm and that he would invest his victims’ funds in “Arbitrage Bonds,” which Loles promised would deliver safe and steady returns. Lole defrauded parishioners in the church in which he was a manager and also misappropriated church funds. He defrauded more than 50 victims and, instead of investing their money, he paid personal expenses, purchased a large home with a pool, tennis court and multi-car garage for his sports cars, and funded his other business operations.

     Derek Lurie, 40, was charged in connection with running a Ponzi-like scheme through his company, American Escrow, which allegedly defrauded investors of more than $500,000. It is alleged that American Escrow survived by using new escrow funds to pay off tax and insurance payments due at different times throughout the year. An employee of the company, Jacqueline Cruz, was indicted earlier this year on charges relating to 122 company checks that she wrote to herself totaling more than $400,000.

     Daniel McCorry was ordered to pay the state of New Jersey more than $335,000 for his role in defrauding elderly victims to invest in the $8.5 million Ponzi scheme run by Michael Kwasnick through Liberty State Financial Holdings Corp. and its subsidiary Liberty State Benefits of Pennsylvania. The companies were purportedly in the business of buying life insurance contracts from elderly people and collecting their benefits when they die. McCrory and Joseph Schifano induced about 30 annuity holders to give up their contracts in exchange for promissory notes in Kwasnick’s company.

     Ron Earl McCullough and David Christopher Mayhew were charged by the CFTC with running a foreign exchange Ponzi scheme that allegedly defrauded 11 investors of about $2.3 million. They promised very high short-term returns from foreign exchange trading, but instead of investing the money they spent much of it for personal expenses, which included online forex trading courses.

     David Wilson McQueen, facing charges in connection with a $46.5 million alleged Ponzi scheme, saw one of his co-defendants flip and agree to testify against him. Jason Eric Juberg agreed to plead guilty to charges relating to the sale of unregistered securities through Michigan-based, American Benefits Concepts, Inc. As part of the plea agreement, charges were dropped against Jubert’s father, Donald Juberg. Trent Francke, another target in the investigation, previously pleaded guilty and agreed to testify against McQueen. Two other co-defendants, Penny Hodge and John Bertuca, also pleaded guilty and agreed to testify.

     John J. Packard, 63, and Michael J. Stewart, 66, were arrested in connection with an alleged Ponzi scheme run through Pacific Property Assets. Pacific Property filed bankruptcy in 2009, having $100 million of bank debt and $91 million owed to about 647 investors. They promised investors that they would use the funds to purchase, renovate, operate and resell or refinance apartment complexes in Southern California and Arizona. The SEC sued them in 2012 and alleged that they formed a new company, Apartments America, to replicate Pacific Property’s business model.

     Melody Nganthuy and her companies, My Forex Planet Inc., Wal Capital, S.A., and Top Global Capital, Inc., were charged by the CFTC with operating a $3.7 million foreign exchange scheme. The scheme allegedly fraudulently solicited at least $3,764,214 from over 174 customers. Phan used forex training classes to solicit clients to open accounts at Wal Capital. The CFTC complaint alleges that the defendants used customer funds for unauthorized purposes, such as paying other customer withdrawals and for business expenses such as radio ads and marketing.

     Roderick Rieman, 69, was sentenced to 4 years in prison and ordered to pay $6.6 million in restitution, along with his associate, Michael Crook, 55, who was sentenced to 3½ years in prison and ordered to pay $6.6 million in restitution in connection with a Ponzi scheme that they ran through Z Touch Systems, Global Payment Solutions, Bluko Information, and Smart Restaurant Solutions. Rieman and Crook defrauded about 126 investors out of $6.6 million in connection with their supposed insurance and investment business.

     Bradley Schiller, 37, was sentenced to 6½ years in prison and ordered to pay $5.3 million in restitution in connection with his $10 million Ponzi scheme. Schiller had spent the money raised from investors for the purpose of commodities futures trading on a Range Rover, country club fees and payments to investors while he lost the rest of the money trading.

     Laurie Schneider, 39, pleaded guilty to charges relating to her operation of a $6.9 million Ponzi scheme through her company, Janitorial Close-Out City Corp., which defrauded 30 investors. Schneider promised investors up to a 60% return in 18 months on a supposed deal to buy machinery in China and sell it in the U.S. at a steep markup. Schneider allegedly spent the investors’ money on a country club membership, a power boat, luxury cars and travel.

     Charles G. Shomo, 63, pleaded guilty to charges that he defrauded more than 30 investors out of more than $620,000 through his company, P&G Enterprises. Shomo offered investors promissory notes with a one year maturity. There was no plea agreement.

     Kari Sonovich, 42, was arrested and charged in connection with a $3 million investment scheme that allegedly targeted victims of the Equity Investment Management and Trading Ponzi scheme run by Anthony Vassallo and Kenneth Kenitzer. Sonovich recruited investors to invest with her company, B&B Consulting Group LLC, and represented that she would place their funds with an international trader who promised returns of up to 500% every 90 days.

     George Theodule, 52, was sentenced to 12½ years in prison in connection with a $68 million Ponzi scheme that targeted as many as 2,500 investors, many of which were from the Haitian community. Theodule had promised investors that he would double their investment in 90 days by investing in stock options. He used the company names Creative Capital Consortium and A Creative Capital Concepts to run the fraud. He invested about $18 million in stock options but lost it all. The rest of the investor’s funds were spent on Theodule’s lavish lifestyle, including exotic cars, motorcycles, jewelry and Vegas trips.

     Deepal Wannakuwatte, 63, of California, was arrested on charges that he allegedly ran a $100 million Ponzi scheme through his companies, International Manufacturing Group, Inc. and Rely Aid Global Healthcare Inc. Wannakuwatte represented to investors that their funds would be used to finance contracts to supply gloves to the U.S. Department of Veterans Affairs and that he had contracts totaling $100 million per year. In reality, actual sales totaled about $25,000 per year and investors were paid with money from other investors not from profits from glove contracts. General Electric Capital Corp. had sued Wannakuwatte’s companies last year for $4.6 million, and the court in that pending lawsuit ordered that Wannakuwatte give GE a $3 million private King Air plane that had been pledged as collateral.

     WCM777 is now subject to regulatory actions and investor alerts in 7 jurisdictions: Peru, Massachusetts, California, Colorado, Louisiana, New Hampshire and New Brunswick.

     Eliyahu Weinstein aka Eli Weinstein aka Edward Weinstein aka Eddi Weinstein, 38, of New Jersey, was sentenced to 22 years in prison and ordered to pay $215.4 million in restitution in connection with his $200 million real estate Ponzi scheme. Weinstein targeted victims from the Orthodox Jewish community, misrepresenting that he had inside access to below market prices for real estate. Weinstein spent millions of dollars on jewelry, Jewish ceremonial art, credit card bills, gambling and legal expenses. His accomplice, Vladimir Siforov, has also been charged in connection with the scheme but remains at large.

     Dawn Wright-Olivares, 45, and her step-son, Daniel Olivares, 31, pleaded guilty to charges relating to their roles in the ZeekRewards $850 million Ponzi scheme. Wright-Olivares worked as the chief operating officer and Olivares worked as the master computer programmer. The two were charged with knowing that the daily reward of 1.5% promised to investors was arbitrary and not related to the company’s net profits, yet they did not disclose this to investors. After learning about criminal investigations of ZeekRewards, they withdrew large amounts of money and caused the forgiveness of loans made to them by the company. Criminal charges have not been filed against the scheme’s mastermind, Paul Burks.

INTERNATIONAL PONZI SCHEME NEWS

Australia

     Ronald Morris Coles, 66, a former art dealer currently sitting in jail awaiting sentencing for running a $6 million Ponzi scheme, spoke at his sentencing hearing. Coles denied that his scheme was a “calculated fraud” but admitted that it involved “robbing Peter to pay Paul.” He also stated that he could have been more ruthless, stating: “If I wanted to, I could have gotten five, six million dollars in 24 hours and we wouldn’t  be here. . . I could be having pina coladas right now.”

     Bill Vlahos, accused of running a $144 million Ponzi scheme, was seen on the run at a local pub, but has not yet been picked up. Vlahos, accused of running a Ponzi scheme through his race horse business, BC3, was questioned at a hearing in connection with his bankruptcy case. Investors had placed more than $140 million into the Edge, a betting syndicate

China

     It was reported that a Ponzi scheme entitled “Pure Capital Investment” has attracted a large number of Malaysians. The get-rich-scheme promises investors that they will receive a return of more than 100% on their investment of RM 38,474 if they bring at least 3 new investors to the scheme. Malaysian investors are lured into the scheme by all-expense paid trips to China where they are told that the scheme is not against the law and that this is their chance to become multi-millionaires.

England

     Matthew Ames was found guilty on counts relating to a £1.6 million Ponzi scheme operated through his two companies, Forestry for Life and The Investors’ Club. The companies claimed to invest money in teak tree plantations that generated carbon credits which could then be traded for profit. Ames promised investors returns of 15%. Ames terminated the employment of any employees who questioned the legitimacy of his companies. At the time of his arrest, Ames was in the process of setting up a new company, the Carbon Neutral Business Director, when he could no longer attract investments into his other companies.

     David Reid pleaded guilty to charges that he ran a Ponzi scheme through his company, Washington Mortgage Centre, which defrauded about 50 victims of £3 million.

     Benjamin Wilson, 35, was sentenced to 7 years in prison in connection with a $34.94 million Ponzi scheme that he ran through SureInvestment and that defrauded more than 300 victims. Wilson had pleaded guilty last year to charges of dishonesty and operating a collective investment scheme. He had promised investors average annual returns of 60%. At Wilson’s sentencing, the court said that Wilson committed an “utterly shameless confidence fraud” that was “an abuse of trust on a massive scale.” Wilson spent the investor’s money on a Ferrari, horse racing, travel and a luxury property.

India

     Tata Group, an Indian conglomerate that operates over 100 companies worldwide issues a warning to consumers that its name “Tata” is being wrongfully used by a British Virgin Islands company, Tata Agro Holding Ltd. Tata Group disavowed any connection with the company and warned that Tata Agro had been soliciting investors and promising daily returns between 1.9% and 3.1%. Tata Agro represented that it was a subsidiary of Tata Group and that it was an agricultural investment company. Tata Agro also had a “referral program” which promised commissions.

     Sudipta Sen, the chairperson of Saradha Group, was sentenced to 3 years in prison. Sen admitted that various arms of Saradha Group did not properly deposit money deducted from employee’s salary. This resolves one of many complaints in connection with the Saradha Ponzi scheme that involved around 1.7 million investors an about Rs 20,000 crore.

     The offices of Pearls Golden Forest (PGF) and Pearls Agrotech Corp Ltd. (PACL) were searched by regulators following charges that the companies allegedly defrauded investors by promising agriculture land to investors. Documents obtained in the search reveal that the companies allegedly operated a Ponzi scheme to defraud about 5 crore investors of Rs 45,000 crore. The Central Bureau of Investigation named PGF director Mirmal Singh Bhangoo and PACL director Sukhdev Singh in a case of criminal conspiracy and cheating.

New Zealand

     The Financial Markets Authority dropped its complaint against David Ross because he pleaded guilty to charges relating to a Ponzi scheme run through his company, Ross Asset Management. Ross was sentenced to 10 years and 10 months in prison for his nearly $400 million Ponzi scheme.

     The liquidator of Ross Asset Management is preparing to file clawback actions to seek to recover up to $25 million from investors who received money during the course of the Ponzi scheme. Ross pleaded guilty last year to stealing $115 million from 700 investors and was sentenced to 10 years in prison.

     Charles Huggins stood trial for allegedly running a $5 million (£3.13 million) Ponzi scheme. Huggins defrauded wealthy clients such as comedian Steve Harvey and football player Emmitt Smith by promising them he was investing in diamond and gold mining in West Africa, but instead used the money to fund other business ventures.

Russia

     “ProfMedia” broadcasting company was fined 100,000 rubles for advertising the MMM Ponzi scheme operation over the radio. Regulators alleged that the broadcaster ran MMM advertisements on two of their radio stations without clarifying who was providing the services described. Regulations require that the service provider must be named in the advertisement. MMM was originally set up in the 1990’s by Sergey Mavrodi, who was arrested in 2003 and sentenced in 2007. After his release from prison, he set up similar schemes again using the name MMM with the stated ambition of “destroying the global financial system.”

South Africa

     The Net Income Solutions alleged Ponzi scheme, known as Defencex, will not be investigated further. The bank accounts of Defencex were frozen last year with a balance of R320m. It has been reported that the scheme solicited more than R800m from about 200,000 investors. Last year, the Reserve Bank had ordered the inspection of the business affairs of Defencex, Cycle4Dollars, Net Income Solutions and its director, Chris Walker. Although a court labeled the scheme as an “illegal deposit-taking scheme,” the Reserve Bank has not get lodged a complaint with regulators or police, so no further investigation is taking place at this time.
 
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

     Rio Casino, owned by Caesars Entertainment Corp., was found liable by a jury to return about $1,480,000 million that was gambled at the casino by Salvatore Favata. Favata operated a $32 million Ponzi scheme through National Consumer Mortgage in which he promised investors returns of 30% to 60%. Favata gambled much of the money he received from investors, and over $10 million was used to purchase cashier’s checks that were transferred to Rio Casino to be used at the casino’s sportsbook. Although the jury found that in the one year prior to National Consumer’s bankruptcy filing Rio Casino had received $6,840,000, Rio Casino had established defenses to the fraudulent transfer and preference claims brought by the trustee to all but $1,480,000 of the transfers. In 2007, Favata plead guilty and was sentenced to 5 years in prison.

     Victims of Glen Galemmo and his company Queen City Investments filed a lawsuit against Fifth Third Bank, U.S. Bank and PNC Bank to recover more than $450,000 that they had invested in Galemmo’s $100 million Ponzi scheme. The victims allege that the banks allowed their checks to be deposited into accounts other than the accounts where the victims allege they were to be deposited. Galemmo has pleaded guilty but has not yet been sentenced.

     The bankruptcy court approved a settlement with JPMorgan Chase & Co in the Bernard Madoff case which resolved two lawsuits. JPMorgan will pay $218 million to settle a class action lawsuit against it and $325 million to settle claims brought by the Madoff trustee.

     The special master over the Madoff Victim Fund has extended the deadline for victims to submit claims to share in the $4 billion of forfeited funds to be distributed by the government to victims of the Bernard Madoff scheme. About 9,000 claims have been filed to date, and the special master has agreed to extend the deadline to April 30 to accommodate those claimants who need more time to file their claims. The special master has also reported that approximately 94% of the claims received so far have come from individuals who either did not file a claim with the trustee-administered fund or whose claim there was disallowed because they were not direct investors with Madoff.

     A group of investors led by Touchstone Group LLC sought court approval of a $6 million settlement of their claims against Mantria Corp. relating to an alleged $54 million Ponzi scheme that targeted the elderly and retired.

     Ritchie Capital Management and 5 other hedge funds filed a complaint against JPMorgan Chase, Bank of America and others, alleging that they aided and abetted Thomas Petters’ $3.7 billion Ponzi scheme. They claim they lost $177 million in the scheme. The plaintiffs are: the plaintiffs: Ritchie Capital Management LLC; Ritchie Special Credit Investments Ltd.; Rhone Holdings II Ltd.; Yorkville Investment I LLC; Ritchie Capital Structure Arbitrage Trading Ltd.; Ritchie Capital Management Ltd. The defendants are: JPMorgan Chase & Co.; JPMorgan Chase Bank NA; JPMorgan Private Bank; Wells Fargo & Co. as successor by merger to Wachovia Capital Finance (Central); Wells Fargo Bank NA; Wachovia Capital Finance Corporation Central; UBS Loan Finance LLC; UBS AG; UBS AG Stamford Branch; Merrill Lynch Business Financial Services Inc.; LaSalle Business Credit LLC; Bank of America Business Capital; Bank of America Corp.; The CIT Group Inc.; The CIT Group/Business Credit Inc.; PNC Bank NA; Fifth Third Bank; Webster Business Credit Corporation; Associated Commercial Finance Inc.; Chase Lincoln First Commercial Corporation; Richter Consulting Inc.

     As reported in The Ponzi Scheme Blog, a broader reading of the Ponzi scheme presumption was upheld in connection with the Thomas Petter case in the Stoebner v. Ritchie Capital Management, L.L.C. (In re Polaroid Corp.) litigation. The appellate court affirmed the bankruptcy court’s finding that the Ponzi scheme presumption can be applied to find fraudulent intent by attributing the requisite intent to a controlling entity.

     The jury in the trial on the SEC lawsuit against the Thomas Petters’ hedge fund manager, Marlan Quan and Quan’s companies Acorn Capital Group and Stewardship Investment Advisors, came back with a mixed verdict. The SEC had sued Quan in 2011, alleging that Quan had misled clients in putting money into the Petters’ scheme and that those investors lost $221.4 million in the scheme. The SEC was seeking the return of $33 million in commissions paid to Quan. The jury found that Quan had breached 5 of the 7 securities laws, but cleared him on another count and an aiding and abetting claim. The SEC said that based on the verdict, it will seek a fine and a court order restraining Quan’s activity in the securities industry.

     The Antiguan-based receiver of the R. Allen Stanford and Stanford International Bank Ponzi scheme has sent letters to local victims threatening to sue them for money they received from the scheme.

     The United States Supreme Court, on a 7-2 vote, ruled that class actions by victims of the Allen Stanford Ponzi scheme may proceed in state court against Chadbourne & Parke and Proskauer Rose and insurance brokerage Willis Group Holdings Plc. Chadbourne & Park LLP v. Troice, 2014 U.S. LEXIS 1644 (Feb. 26, 2014). The defendants in those actions had argued that the lawsuits were barred by the Securities Litigation Uniform Standards Act (SLUSA), but the Supreme Court declined to extend the reach of SLUSA to apply to their claims.
 
     Thirteen members of the New Birth Missionary Baptist Church who were victims of the Ephren Taylor Ponzi scheme settled their claims against Taylor and Bishop Eddie Long. The parishioners accused Long of encouraging them to invest in Taylor’s company which turned out to be a Ponzi scheme. The victims lost more than $1 million investing in ventures that did not really exist. Taylor had guaranteed 20% returns. The SEC had charged Taylor with running an $11 million Ponzi scheme in 2012.