The Ponzi scheme news for the month of November was as
strong and steady as ever. Here is the summary of the stories that were reported
this month. 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.
Akins was ordered to pay $340,000 restitution in connection
with a Ponzi scheme that defrauded 82 investors of more than $1 million. Akins
was accused of being the chief marketer of the fraud run by Frederick H. K. Baker, in which
investors were told their money was being invested in foreign currency trading
using a foolproof algorithm that paid 15% profits every month. Akins was
sentenced to 27 months in prison earlier this year. Baker is serving a 41-month
prison sentence and must pay $776,336 in restitution.
Barry, previously convicted of operating a Ponzi scheme that
defrauded investors of $27 million, saw his conviction affirmed on appeal. The
Second Circuit concluded that any evidentiary error was harmless in the face of
the evidence of the fraud, including a seized note on which Barry had written
to himself, "I'm just a crook running a Ponzi scheme." United States v. Barry, 2012 U.S. App. LEXIS 23275 (2d Cir. Nov.
Brown, the owner of Brown's
Tax Service, has been accused of running a Ponzi scheme. Brown's Tax
Service was closed, and a sign was posted that read: "Due to health issues,
Brown's Tax Service is closed as of November 6, 2012." However, Brown's Tax
Service has been accused of running a scheme in which nearly a thousand
investors lost more than $4 million.
R. Cruise Jr. was charged in connection with a real estate
Ponzi scheme that defrauded 25 investors of more than $1.2 million. An
administrative complaint was filed seeking a cease and desist order against
Cruise and his company, The Austin Group.
Demuzio of Idaho was sentenced to prison after being charged by
the CFTC with operating a $1.8 million commodity pool and foreign currency
exchange Ponzi scheme through his company, Demuzio
Capital Management. Demuzio defrauded at least 16 investors and falsely
represented that their principal was safe and that they were earning profits.
Desage was ordered to stop gambling while awaiting trial in
connection with charges that he ran a $75 million Ponzi scheme. DeSage is
accused of running a Ponzi scheme using his company Cadeau Express, which described itself as a "unique company that
caters to hotels and casinos who roll out the red carpet for selective guests
and high-end gamblers."
Dowlatshahi and Christopher
Mills must disgorge more than $766,000 in ill-gotten gains from the Ponzi
scheme run by David Allen, the co-founder of China Voice Holding. The specific findings were: "Court finds
Dowlatshahi jointly and severally liable for disgorgement of ill-gotten gains
with his entities: (1) Lucrative [Enterprises Corp.] to disgorge ill-gotten
gains of $300,454, (2) [Strategic Capital] Synergetic [Solutions LLC] to
disgorge ill-gotten gains of $24,091, and (3) relief defendants Darius Assets
to disgorge ill-gotten gains of $305,989." The court also found that Mills
should disgorge ill-gotten gains of $2,165 and found Mills jointly and
severally liable for disgorgement of ill-gotten gains with his entities: (1)
Sleeping Bear [LLC] to disgorge ill-gotten gains of $116,219 and (2) Silver
Summit [Holdings LLC] to disgorge ill-gotten gains of $18,025."
Durham, 50, who was convicted of charges relating to his Ponzi
scheme run through Fair Finance Co.,
was sentenced to 50 years in prison.
Durham had objected to a pre-sentencing report that recommended 225 years
in prison and restitution of $209 million. Durham has asked for a five year
prison term. Durham's co-defendants, Jim
Cochran and Rick Snow, are also
scheduled to be sentenced and face 145 years and 85 years, respectively. The
defendants misappropriated funds from Fair Finance, leaving the company without
the ability to repay about 5,000 investors who had purchased more than $200
million unsecured investment certificates. Durham and Cochran used investor
funds to sustain their lavish lifestyles, which at one point included more than
40 classic and exotic cars worth over $7 million, a $3 million private jet, and
a $6 million yacht in Miami.
"Jed" Duarosan, of Maui, Hawaii, was scheduled be sentenced in
connection with charges relating to the operation of a Ponzi scheme in which
she collected approximately $882,000 from six Maui families. Duarosan fired her
attorney at her sentencing hearing and asked to be represented by David Miller,
who Duarosan claimed to be a federal judge. The court ordered Duarosan, who was
free after posting a bond, to be held in jail overnight pending a hearing to
determine who represents Duarosan.
F. Ellis, 69, of Florida was indicted in connection with an
alleged $11 million Ponzi scheme that targeted members of the Wilton Manors gay
community. Ellis is accused of being the front man for adviser George Elia, who is accused of
defrauding investors through his company, International
Consultants & Investment Group Limited Corp. Ellis allegedly pretended
that Elia was a financial whiz capable of generating large returns for investors.
Elia had promised investors quarterly returns of 40%. Ellis received monthly
payments from Elia that often totaled $20,000 - $25,000 which were "kickbacks"
given in exchange for Ellis's recruitment of new investors to Elia's scheme.
E. Estupinian was sentenced to 66 months in prison in
connection with the Ponzi scheme run through Vesta Strategies. Vesta represented that it was a safe and
financially secure Section 1031 exchange company, that client deposits would be
held by Vesta, and that client deposits would be returned at the time of
redemption. Vesta collapsed in 2008 with $25 million owed to depositors.
Estupinian, along with John D. Terzakis
and Peter Ye, pleaded guilty to
charges in connection with the scheme. Terzakis was previously sentenced to 84
R. French, Jr. of Florida is thought to be the youngest
Ponzi schemer ever. He launched his $10 million scheme at the age of 21. French
saw his arraignment postponed in connection with charges that he ran a Ponzi
scheme through his company, D3 Capital
Management, which promised investors returns of up to 50% per year with
investments in foreign currencies, emeralds and a solar energy project in
Italy. He used investor funds to buy a home in Rome and to travel to 30
countries. He was also a high roller in Las Vegas. French was detained in South
Africa and brought back to Las Vegas for passing bad checks.
Greenblatt, 50, of New York was sentenced to 6 to 18
years and ordered to pay more than $23 million in restitution for stealing more
than $31 million through his Ponzi scheme run through Maywood Capital, a real estate investment company.
Hague-Rogers, 76, was sentenced to 10 years in federal
prison and ordered to pay $9.34 in restitution in connection with a Ponzi
scheme that he ran through HR Financial
Services and HR Sales and Marketing.
Rogers made unauthorized loans against employer-sponsored health plans to repay
investors holding promissory notes with interest rates of up to 15%. He used
the funds for personal expenses including leases of luxury vehicles, house
payments and taxes, and private life insurance policies.
H. Heim, 72, of Oregon, was sentenced to 51 months in prison and
ordered to pay $4,057,003.87, in connection with the $4 million Ponzi scheme he
ran through U.S. Gold & Silver
Investments, Inc. Heim operated a website and hosted a radio program in
which he advertised the sale of gold and silver coins and calculated the future
value of gold. Many of Heim's approximately 48 victims were elderly individuals
who had purchased coins with funds from their retirement savings.
Jenkins and Harbor Light
Asset Management were charged by the CFTC in connection with a Ponzi scheme
in which they allegedly solicited at least $1.79 million from about 377 people.
Jenkins allegedly used $748,827 of investors' funds to trade gold and oil
futures, stock index futures, and E-mini futures in his personal accounts and
to pay for charges at department and discount stores and gasoline stations, and
for cellular phone bills and airline tickets. The CFTC complaint, filed on
November 20, 2012, alleges that HLAM's investment agreement falsely represented
to investors that their investment was solely for investing in E-mini futures
and that investors' funds would be immediately wired to a specific trading
account. However, according to the complaint, most of investors' funds were
misappropriated by HLAM and Jenkins.
F. Lagona was arrested in connection with obstruction of justice
charges, among others, that he tried to use political influence to alter an
upcoming sentence relating to a $5.8 million Ponzi scheme. Lagona was found
guilty in connection with a scheme that defrauded 90 victims and that was run
by Guy Gane and his company, Watermark Financial Services.
Roland Langguth of Texas pleaded guilty to charges in
connection with an alleged Ponzi-style scheme that he ran through Capital Finance, Paris Properties, and Paris
RE Inc. in which he allegedly sold ownership shares in real estate bridge
loans, even though he was not licensed to sell real estate or securities. The
arrest warrant stated that Langguth stole between $7 million and $20 million
from up to 250 victims.
Lipkin, 74, pleaded guilty to charges related to Bernard Madoff's
Ponzi scheme. Lipkin was Madoff's first employee in 1964 and retired in 1998,
and has said that he was not aware of the Ponzi scheme before he retired.
Lipkin did plead guilty, however, to falsifying the books on Madoff's order in
making accounting entries in financial records that he knew were inaccurate.
Lipkin and his wife illegally remained on the Madoff payroll after his
retirement in 1998 and received benefits although they did not work. Lipkin's
son, Eric Lipkin, pleaded guilty in
2011 to charges that he reported people were Madoff employees so they could
receive retirement benefits.
Lopez, 70, and Mark
Kuhrt, 40, two former accounting executives at Stanford Financial Group Co., were convicted on criminal charges
related to their alleged assistance to R. Allen Stanford in concealing the
Stanford Ponzi scheme from investors. Prosecutors told jurors that Lopez and
Kuhrt meticulously tracked about $2 billion that Stanford "sucked out" of the
bank to fund risky private ventures including Caribbean airlines, resort
developments and international cricket tournaments. They further charged that
the accountants didn't disclose these loans or additional funds that Stanford
took to underwrite a lavish personal lifestyle of private jets, yachts and
waterfront mansions. They face possible sentences of more than 20 years in
Lowrance, 51, a United States citizen based in Panama, who
operated a New Zealand registered company, was sentenced to more than 14 years
in prison and ordered to repay more than $17 million. Lowrance had defrauded
452 investors of $31 million in connection with his Ponzi scheme which he ran
through Mentor Investing Group, Inc.
and First Capital Savings & Loan,
Ltd. Both businesses claimed to buy and sell foreign currencies and to
engage in FOREX trading. Lowrance misrepresented to potential investors that
they would be paid as much as 4 to 7% monthly interest.
Mackey, 62, of New York, was sentenced to 27 years in prison
and ordered to pay $6,650,067 in restitution in connection with a Ponzi scheme
that defrauded more than 160 investors who invested almost $12.3 million in his
company, ASM Financial Funding Corp.
Mackey falsely promised investors monthly returns of 10-20% from allegedly
lucrative offshore deals. One of his investment programs was known as the Wealth Enhancement Club. Mackey also
used more than 30 salespeople as intermediaries, paying them $1.1 million in
commissions for recruiting new investors. Mackey's common-law wife, Inger Jensen, 54, was also convicted
and received a 14 year sentence.
Qaisar Madad, 65, was charged in connection with a $50
million Ponzi scheme. Madad was the CEO and co-owner of Technology for Telecommunication and Multimedia, Inc. ("TTM"). TTM,
which first claimed to be in the business of securing large orders for the
supply of equipment to a video-conferencing company, later transitioned to investments
and trading. Madad stated that his investment strategy centered around both
beginning and ending the trading day with 100% cash. He claimed to achieve
extraordinary returns that regularly exceeded 30% and some years approached 65%
despite never investing more than 10% to 15% of his cash in the market at any
given point. Madad used millions of investor funds to pay his own personal
expenses and the expenses of his wife's business.
W. McClintock, 70, and Dianne Alexander aka Linda Dianne Alexander, 70, were charged with
running a $15 million Ponzi scheme that defrauded at least 220 investors. The
fraud was allegedly a "prime bank" scheme that promised annual returns of 38% that
was to be generated by a secret, highly exclusive organization in Europe known
as "The Trust." McClintock and
Alexander told investors that the Trust was created after World War II by a
group of extremely wealthy families, that the Trust owned European banks, and
that it had the power to create money through fractional banking and the sale
of bank debentures. They also represented that access to the Trust was open
only to close friends and family members of current investors, and was subject
to strict secrecy rules. The Trust does not exist.
R. Melbye, 47, of Texas, pleaded guilty to charges related to the
Ponzi scheme of Provident Royalties LLC
that Melbye ran with Joseph Blimline.
It is alleged that Melbye took money from more than 7,700 investors promising
18% annual returns. Melbye, acting on behalf of Provident Royalties made
omissions to investors such as that Blimline had received millions of dollars
in unsecured loans; that Blimline had been previously charged with securities
fraud violations by the state of Michigan; and that funds from investors in
later oil and gas projects were used to pay individuals who invested in earlier
oil and gas projects.
Keith Miller, 47, was sentenced to 6 years and 8 months
in prison for running a Ponzi scheme which defrauded 32 victims of nearly $1
million. Miller led some investors to believe he worked at the investment firm
Anderson and Strudwick after he had been fired. Miller used some of the
proceeds to pay about $2,000 per month on a $380,000 mortgage and other
proceeds were used to repay personal loans, buy vehicles and furniture, pay for
travel and leisure activities, and make home improvements.
Olson was sued by his uncle, Eric Olson, in connection with a
Ponzi scheme run by Aaron Olson through his investment company, KMO Associates. Aaron and Eric had
previously been sued by Park Construction, which alleged that Eric was engaged
in a partnership with Aaron. Eric denied the charges and had filed a complaint
against Aaron alleging that Eric was a defrauded investor and was not part of
the fraudulent scheme. Eric has sought to consolidate his case with the Park
Sekaran, president and director of Wasson Capital Ltd., pleaded guilty to running a $2.3 million Ponzi
scheme that defrauded more than 10 investors. As part of his plea agreement,
Sekaran agreed to pay $2.3 million in restitution and forfeit for the proceeds
obtained as a result of the offense.
Sharif of Connecticut was charged by the CFTC of operating a
$5.4 million Ponzi scheme that defrauded at least 50 people. The investors invested in a commodity pool
named First Financial, LLC, and they
were promised guaranteed monthly and yearly returns of 1 to 15%. To falsely
assure pool participants that their funds were safe in the pool's trading
accounts, Sharif allegedly fabricated trading account statements from First
Financial and from futures commission merchants.
Snelling, 48, was sentenced to a total of 40 years in prison by a
court in Franklin County, Indiana for running a $9 million Ponzi scheme.
Snelling ran a bogus day trading business through CityFund Advisory and Dunill
Investments by creating fictitious trading statements and failing to do
anything more than deposit investor funds and then spend them to pay earlier
investors and to pay personal expenses. Snelling had previously been sentenced
by other courts in Ohio on other charges related to the scheme and is currently
serving time in Ohio as a result of a plea deal he signed with the United
States Attorney for the Southern District of Ohio. Snelling's partner, Jerry Smith, is currently awaiting two
state court trials on related charges.
Telthorst, 52, of Topeka, pleaded guilty to charges in connection
with a Ponzi scheme in which he stole more than $460,000 from client trust
funds. Telthorst admitted to taking money from the account for himself and then
covering up the theft by taking money from other clients' trust accounts.
Vehedi, 51, of California, has agreed to plead guilty to
charges in connection with a Ponzi scheme he ran through KGV Investments in which he sold himself as a successful
international broker, claiming connections to projects in Dubai, China, and San
Diego. The scheme promised 50% returns within nine months to some investors,
and he defrauded 31 people to invest over $12 million. Vehedi allegedly used
the proceeds to pay for luxury vehicles, private school tuition and his own
Weigel, 77, a lawyer from Milwaukee, was the subject of a
proceeding in the Wisconsin Supreme Court over his license. It was alleged that
Weigel ran hundreds of millions of dollars through his firm's trust accounts
like a Ponzi scheme, using money from new cases to pay off older clients.
Wilson, 65, of South Carolina was sentenced to nearly 20 years
and ordered to pay $57,401,009 in restitution in connection with his $59
million Ponzi scheme that he ran through his company, Atlantic Bullion & Coin Inc. Wilson collected about $90 million
from 798 investors in 25 different states by promising them profits from the
purchase and appreciation of silver which Wilson was to purchase and hold at a
Delaware depository. The losses were about $57.4 million. Wallace Lindsey Howell has also been charged in connection with the
scheme. In addition, Joey Preston
and Tracy Neily have also been
accused of fraud in connection with the scheme and the South Carolina
Securities Division is seeking a permanent bar on selling of securities of these
two individuals. Preston and Neily acted as securities agents, although they
were not registered and did not tell clients that neither they nor the
investment was registered.
PONZI SCHEME NEWS
A new report by Kroll Investigative Firm reveals that
Kabul Bank, the largest financial institution in Afghanistan, has turned out to
be a Ponzi scheme. According the audit, Kabul Bank was an institution linked to
President Hamid Karzai's government and was siphoning money from the funds
deposited at the bank. The audit found that $861 million, which is around five
percent of the total economic output of the nation, had been spread around to
19 different people and companies. In total, hundreds of millions of dollars is
said to have been sneaked out of Afghanistan, with some of it even in airplane
The Australian Securities and Investments Commission
(ASIC) began seeking large fines and disqualification orders against the
operators of a massive Ponzi scheme that was run through the Integrity Plus Unit Trust and the Super Save Superannuation Trust. The scheme
involved about 700 Australians who lost more than NZ$60 million. The scheme was
run through other countries as well, such as the US, Hong Kong, Vanuatu, the
Bahamas, Anguilla, Turks and the Caicos Islands, though it was principally
operated by David Hobbs of New
Zealand. Investors were lured into subscribing to so-called investment
education packages and setting up personal offshore companies. Hobbs made false
representations such as that the offshore investments were legal, that there
was no risk of losing money because it was "capital guaranteed" or "principal
protected," and that the returns would be "around 4% per month."
Brost was freed from custody after a judge lowered his bail
from $1 million to $2,000. Brost faces charges in connection with an alleged
Ponzi scheme that defrauded investors of at least $100 million.
Bayne and Lloyd Culham
were found guilty of illegally trading securities in a civil suit and were
ordered to pay more than $500,000. Bayne ran Arcadia Investments and, with
Culham, persuaded investors to invest in a scheme that involved a fake bank and
a Danish lawyer, Eli Heckscher.
Bayne was involved with a fraudulent investment company, Morgan European Holdings, which was not registered to trade in
securities. Bayne and Culham told investors that MEH had a special link to a
global bank called the World Trade Bank, though no such bank exists.
Eleven conmen were indicted at Regional Court in
Duesseldorf for running a Ponzi scheme using Business Capital Investors, a company located in New York and
Panama. The fraudsters sold shares in BCI to more than 1,700 customers
promising an annual return of 15.5%. The annual payments were made with the
money of the investors joining later. The Ponzi scheme was discovered one year
ago when 120 policemen made a raid on the conmen and seized, among other
things, a yard on the Dutch Antilles which was acquired with the money of the
victims. The total damage is believed to BCI as high as EUR 60 million.
by Bernd H. Klose, www.raklose.de
of FraudNet, http://www.icc-ccs.org/home/fraudnet.
Stuttgart Regional Court has sentenced a 79 year old
investment adviser to two years imprisonment. The investment adviser persuaded
long time customers of his investment advisory firm to invest with a US company
promising a yield of 15%. What makes the case so remarkable is the fact that
the investment adviser had consulted two well-known law firms to receive advice
if the investments introduced to him by the US company was safe. Both law firms
denied and advised not to invest any money into the US company. However, the
investment adviser persuaded eight long standing customers to investments in
the amount of EUR 1.5 million. He himself invested EUR 145,000. None of the
investors - including the investment advisor - received any return.
The Public Prosecution Mannheim has indicted Ulrich "Richie" Engler, who was extradited
from the U.S. to Germany earlier this year for running a massive Ponzi scheme.
According to the indictment, Engler is accused of having swindled 1,295
investors from Germany, Austria and Switzerland of EUR 29,000,000.00. Engler
offered an investment into US based companies and promised interest up to 6% per
year. According to the indictment, Engler never intended to make any payments
to the investors, but intended to spend their money for his own lavish
lifestyle and to sustain the fraud scheme. It is unclear yet as to when
Mannheim District Court will schedule the trial.
Gandhi was arrested in connection with a Ponzi scheme that he
ran through AISE Capital Management.
Gandhi was wanted in four cases of cheating and breach of trust, and he is
accused of investing investor dollars overseas to avoid paying back investors.
Gandhi had promised investors 10% returns every month. Gandhi has been charged
under section 409 of the IPC, which carries with it the possibility for life
imprisonment. Gandhi has identified Janaksinh
Parmar as having a role in sheltering Gandhi and accepting a large fee for
providing Gandhi safe passage out of the country.
The Securities and Exchange Board of India (Sebi) served
show-cause notices to Beetal Livestock
& Farm (P) Ltd, a company that had claimed to have large goat-rearing
farms in northern parts of the country and
had solicited investments from the public with a promise of 2% monthly
returns, and doubling of money in three to four years. The business model
involved having investors pay a few thousand rupees to become owner of a goat,
to be reared by Beetal. Investors were told that as each goat gives birth to
four kids a year, the new goats would be sold to other investors - giving up to
four-fold appreciation in the first year itself. Beetal told investors that the
investments could give manifold returns in subsequent years, with each of the
four new goats giving birth to 3-4 kids the following years.
Shoeb Diwan was arrested in connection with a Ponzi
scheme run through Aliya Enterprises,
of which he was the director. Qutubuddin
Saiyed, the owner of Ailya, was previously arrested in connection with the
case. The scheme promised investors double returns on their investments.
A 43 year old man from Bnei Brak was convicted in a Tel
Aviv court in connection with a Ponzi scheme that stole more than 5 million
shekels from investors. The man used the money to purchase an apartment
building for himself and to buy other personal things.
The receivers of Ross
Asset Management, a Wellington fund manager, released a report stating that
they have identified $10.2 million of the $449.6 million that was believed to
managed by Ross for 900 investors. The Financial Markets Authority had obtained
a freezing order on the assets of the company's director, David Ross, 62, and associated entities. The receivers,
PricewaterhouseCoopers, have noted characteristics of a Ponzi scheme in that
investors' money was coming into accounts and those funds were being used to
pay other investors.
President Benigno S. C. Aquino has ordered a fast-tracked
investigation of a scheme run by Manuel
Amalilio through the Malaysian-owned Amman
Future Trading. It is believed that 15,000 investors were involved in the
scheme that involved 12 billion peso ($290 million). Aman Futures supposedly
promised profits of 20 to 30% in eight days and 50-86% in 18 to 20 days for
investments made allegedly on the company's non-existent palm oil, mining and
futures businesses. It is reported that charges are being prepared against
company chief executive officer Manuel Amalilio, Mohammad Suffian Saaid, and an associate, who are now in hiding. Anwar
Alvin Zainal, an insurance agent believed to be an incorporator of the Aman
Futures Group Phils. that operated the scheme, was kidnapped and murdered this
week in Zamboanga del Sur. Pagadian City Mayor Samuel Co and his wife were also
officially designated as accused in the scam.
accused of masterminding a $5 million Ponzi scheme and of faking his own
kidnapping and trying to bribe a prosecutor, now claims he has a secret stash
of diamonds located in a safe deposit box in London that are worth $10 million
and will compensate his victims. Mans argued that he would only reveal the
secret if he is released from jail on bail. The court declined to release him
on bail after prosecutors expressed concern that Mans would likely flee if
released. Mans, known as a diamond dealer, solicited investors for his diamond
business, promising lucrative returns from his purchase of the best diamonds
and the resale of those diamonds at a huge profit abroad. Rather than purchase
expensive diamonds, Mans merely falsified receipts from various diamond
'Beano' Levene, 48, was sentenced to 13 years in connection
with a Ponzi scheme that involved between £32 million and £200 million. Levene
had offered shares in blue-chip companies, including HSBC, the Royal Bank of
Scotland, Imperial Energy and Rio Tinto. He claimed he had access to shares
unavailable to ordinary investors, which he would trade at a supposedly huge
profit. In fact, he just invested and lost the investors' money in the stock
market. Levene also spent more than £18 million funding his lavish lifestyle,
including £588,000 for his son's bar mitzvah.
Bowerman, 35, was sentenced to 8 years in prison in connection
with his Ponzi scheme that defrauded more than 250 investors, including
terminally ill cancer patients, out of up to £7.5 million. Bowerman sold fake
bonds and offered loans under the pretense that his experience as an
FSA-approved financial advisor would help boost their credit rating. He spent
investors' funds on three Caribbean cruises and flashy cars including a £38k
Audi sports car, a BMW and an Aston Martin, and he is reported being seen
lighting cigarettes with a £50 note. Bowerman then set up an online bookmaker
called Shearer Hare and encouraged
friends and family to invest heavily in it - using the funds to give the
impression of a profit-making business. The business generated £4.85m but £3.8m
soon disappeared through online betting by Bowerman with an unknown amount
blown on his increasingly lavish lifestyle.
LEGAL ISSUES IN PENDING PONZI SCHEME CASES
In connection with the Ponzi scheme of John Farahi, which targeted the Persian
community in Beverly Hills California, David
Tamman, 45, a former Nixon Peabody securities partner, was found guilty on
charges of conspiracy, obstruction of justice, alteration of records, and
accessory to mail fraud and securities violations. Farahi, through his company New Point Financial Services Inc.,
recruited investors through a daily Farsi-language radio show, promising that
their money would be used to buy low-risk corporate bonds backed by the federal
bank bailout initiative known as the Troubled Asset Relief Program. Investors
lost at least $7 million.
Greenwich Group, one of Madoff's
feeder funds, along with other related entities, settled their part of a class
action suit for as much as $80.3 million. The settlement will be funded by
founder Walter Noel and other individuals associated with the firm. The
settlement, which needs a judge's approval before taking effect, provides $50.3
million to the class, which will get an additional $30 million if that money
isn't used to resolve other legal claims. A provision in the agreement allows
Fairfield Greenwich to cancel the settlement if too many investors opt out of
the deal to pursue individual claims. The
investors are continuing to pursue claims in the case against Citco Group Ltd.
and PricewaterhouseCoopers LLP.
Fortress Credit purchased more than $2 billion of claims
from Rye Select Broad Market Fund in the Madoff
case. Rye settled a lawsuit brought by the Madoff trustee and assigned
unspecified additional amounts of each of the two claims to Fortress that it
was granted under the settlement.
A Bank of New York Mellon Corp. unit, Ivy Asset
Management, agreed to pay $210 million to the state of New York to resolve a number
of lawsuits claiming that the bank concealed doubts about Madoff's business. An additional $9 million will be contributed by
other individual defendants in the cases. Ivy had been paid more than $40
million to give advice and conduct due diligence for clients invested in Madoff
investments, and those clients lost more than $236 million in the Madoff
scheme. The New York Attorney General announced that the settlement funds will
be returned to investors. The Madoff trustee, Irving Picard, also reached a
settlement with Ivy for $24 million.
Appellate arguments were heard in the cases filed by
Irving Picard, the Madoff trustee,
against various financial institutions, including HSBC Holdings PLC, JP Morgan
Chase & Co, UBS AG, and Uni-Credit SpA. Picard's lawsuits against the banks
were dismissed by the district court on standing and in pari delicto grounds. Picard argues that he is not an ordinary
bankruptcy trustee and has additional rights and powers under the Securities
Investor Protection Act. The banks answered pointing to language in SIPA which
they argue gives Picard the same rights and powers as an ordinary bankruptcy
trustee and thus is barred from suing.
In litigation pending in connection with the Meridian Mortgage Ponzi scheme, new
evidence was presented to the court in the case of the liquidating trustee
against Moss Adams, the accounting firm for Meridian Mortgage. The trustee told
the court that Moss Adams had withheld "smoking-gun emails" which demonstrated
that Moss Adams knew that one of its employees had a romantic relationship with
Meridian founder Frederick Darren Berg.
The lawyer for the trustee stated that "The auditor cannot be, if you will, in
bed figuratively or literally with the client," as such a relationship "would
absolutely violate the most basic premise of auditing." The employee, Dan
Matthias, said his relationship with Berg lasted about 6 months and says that
it is far-fetched to suggest that he could have influenced the audit work of more
senior people in a different part of the firm.
The receiver of the Arthur
Nadel Ponzi scheme obtained approval to distribute another $22 million to
about 340 defrauded investors. This distribution, combined with an earlier
distribution of $26 million, will bring the total distributed to investors to
almost 37%. Most of the latest money comes from a settlement paid to the
receiver by the law firm Holland & Knight, which agreed to pay $25 million
to settle a lawsuit accusing it of failing to report illegal activities at the
Scoop Management hedge funds operated by Nadel.
The trustee of the bankruptcy case of Thomas Petters lost his claims to recover
allegedly fraudulent transfers in the amount of $2 million paid to College of
St. Benedict. A federal judge has dismissed the Trustee's fraudulent transfer
claims against the College
of St. Benedict, allowing the organization to keep $2 million that was
donated by Petters from Ponzi scheme proceeds. Petters, through the Thomas J.
Petters Family Foundation, had paid $2 million to get his parents' names on the
trustee filed a lawsuit against BMO Harris Bank for aiding and abetting the
Petters fraud by ignoring Petters' huge deposits. It is alleged that M&I
Bank, now owned by BMO Harris, was complicit in the Ponzi scheme and ignored
multiple red flags to protect its lucrative banking relationship, where more
than $35 billion flowed through the account. The trustee alleged that none of
the $35 billion in deposits were from retail stores, which were supposedly a
source of income for the Petters' operation, and nearly $70 million was
transferred to personal accounts controlled by Petters.
The fraudulent claims of trustee of the bankruptcy of
Scott Rothstein's law firm, Rothstein,
Rosenfeldt Adler against the Dan Marino Foundation for $259,000 were
dismissed. The court found that Marino had provided value in exchange for the
Jonathan Hullick, former chief operating officer and
executive vice-president of Gibraltar Private Bank and Trust Co., has sued
Gibraltar and Boston Private Financial Holdings for wrongful termination in
2008 in relation to the Ponzi scheme of Scott
Rothstein. Hullick claims that while working for Gibraltar he spotted
suspicious activity in the bank accounts of Rothstein and Rothstein's law firm,
and reported it to Steven D. Hayworth and other Gibraltar executives, who
assured him the accounts were "taken care of." Hullick further alleges that he
was asked to "relax regulatory requirements" and when he refused, the bank
fired him. The complaint further alleges that Rothstein admitted this year that
he had asked Hayworth to fire Hullick, and that Hayworth promised he "would
take care of it."
A new group of 35 investors sued TD Bank and Scott Rothstein seeking $72 million in
damages, alleging that the bank was "Rothstein's key conspirator in the Ponzi
scheme." It is alleged that the bank legitimized the illegal enterprise,
disregarded red flags that should have exposed the fraud, lied to investors and
covered up incriminating documents.
The trustee in the Rothstein
bankruptcy case has hired GrayRobinson to help track down missing jewelry.
GrayRobinson had represented JR Dunn Jewelers, who had been sued by the
trustee. That lawsuit settled, and GrayRobinson will now help the trustee
tracking the most valuable diamond connected to the Rothstein fraud, which is
an 8.91-carat unmounted gem worth almost $700,000.
The receiver of Stanford
Financial, along with several investors, filed a lawsuit for $1.8 billion
against the law firms, Greenberg Traurig and Hunton & Williams, for their
role in designing the "architecture" of the Ponzi scheme and "essentially
hijacking the sovereign island nation of Antigua through the use of political
corruption, loans made with funds stolen from Stanford's investors, and even
writing the laws that governed Stanford International Bank's operations." Attorney
Carlos Loumiet worked at both law firms, but was not named as a defendant in
the lawsuit. Yolanda Suarez, a protégé of Loumiet, was named in the suit. The
claims alleged in the complaint are negligence, aiding and abetting breaches of
fiduciary duty, breach of fiduciary duty, fraudulent transfer, unjust
enrichment, negligent retention and negligent supervision.
In connection with the Ron Wilson Ponzi scheme, the South Carolina Attorney General's
office filed a complaint requesting that Joey
Preston be ordered to return approximately $1 million that Preston
allegedly made as commissions in connection with Wilson's silver-buying Ponzi
scheme. It is alleged that Preston violated the South Carolina Uniform
Securities Act by bringing in investors without being properly registered and
without doing proper due diligence on the investment he was recommending. The
state's complaint claims Preston held "silver parties" at his home for Wilson,
where guests received a seminar on silver investment.
The receiver in the ZeekRewards
case posted a letter on his website updating investors and expressing his
intention to pursue fraudulent transfer claims against those who had profited
from the Ponzi scheme. The receiver estimates that there are about 800,000
victims and total losses of $500 million to $600 million. The receiver has
recovered about $300 million so far.
Paul Burk, 65, the owner of ZeekRewards.com's parent company, Rex Venture Group, LLC, has denied that he operated a Ponzi scheme
in response to a class-action lawsuit filed against him and his companies.
Burks has said that said that plaintiffs "knowingly and voluntarily purchased
bids" to participate in ZeekRewards.com.
Kelsey Grammer was dismissed from a lawsuit in which he
had been named and accused of receiving dirty money from a Ponzi scheme
affiliated with the website Staropoly.com.
TV actress Lydia Cornell had sued Grammer, claiming that the website, which was
billed as a new social network, was nothing more than a Ponzi scheme that
caused her to lose money.
The quest for turnover of records from the FBI continues
in the Ponzi scheme case of Blue
Mountain Consumer Discount Co. Investors chose not to serve a subpoena for
about 20 boxes of documents seized by the FBI, even though those records are
thought to be needed in connection with lawsuits filed against Francis Cinelli and the CEO of the
company, Walter "Buddy" Lambert. The
court overseeing the matter had suggested that the victims serve a subpoena to
force the FBI to release the documents. The attorneys for the victims stated at
a hearing that they have not, and do not intend to, file a subpoena out of
concern that it will interfere with the FBI's criminal investigation.
The government announced that it will return $9,000,000
in forfeited funds to the victims of the Ponzi scheme that was run by the late Ashvin Zaveri of New York. More than
120 victims may be eligible to receive a share of the forfeited funds. Zaveri
was indicted in 2009 on charges related to his scheme that defrauded investors
of approximately $35,000,000 in connection with "oil and natural gas
exploration partnerships" available through his company Zaveri Oil & Gas Ltd.
Read additional articles at The Ponzi Scheme
Kathy Bazoian Phelps is the co-author of The Ponzi Book: A Legal
Resource for Unraveling Ponzi Schemes (LexisNexis 2012), along with
Hon. Steven Rhodes. The Ponzi Book, recently reviewed by Commercial Crime International, is
available for purchase at www.lexisnexis.com/ponzibook, and more information about
the book can be found at www.theponzibook.com.
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