The year continues its strong start for Ponzi scheme
news. 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.
James Addy, 34, of Pennsylvania, pleaded guilty to charges in
connection with a $3 million Ponzi scheme that involved the fake purchase and
resale of wholesale jewelry and loose precious stones. Addy owned Edward J. & Company, which operated
a retail jewelry store called La Porte Jewelers. Addy lured in 40 investors,
many of them from religious groups with which he was affiliated, but never
conducted the promised wholesale jewelry transactions.
W. "Bill" Bailey, Jr., 65, was sentenced to 32 years in prison in
connection with his Ponzi scheme run through Southern Financial Services, which defrauded investors of more than
$13 million. He dealt in asset management, individual retirement accounts, and
wills and trusts, and he previously pleaded guilty to charges relating to his
has asked the court to vacate his prison sentence in connection with the $140
million Ponzi scheme run through the Meridian
Funds. Berg alleged that the trustee who administered Berg's personal
bankruptcy case "engaged in a conspiracy to elicit incriminating statements"
from Berg when Berg' attorneys were not present. Berg also argued that his
attorneys provided an inadequate defense. Berg had previously pleaded guilty,
was sentenced to 18 years in prison, and apologized to his victims at his sentencing,
stating that "I did it consciously."
Anthony Bjork, 43, of Missouri, was charged in connection
with a $1 million Ponzi scheme that defrauded approximately a dozen investors. Bjork
had been employed as a registered investment advisor in J. David Financial Group and Select
Asset Management, companies owned by deceased investment advisor Joel David Salinas. It is alleged that
Bjork's investment scheme was to solicit funds under the false pretense that he
would either invest those funds in Salinas' pawn shops or use those funds to
purchase corporate bonds being offered by Salinas. Bjork had established a bank
account over which he had sole signing authority in the name of Brian A. Bjork
dba J David Financial Group.
Blackwelder, 59, of North Dakota, pleaded guilty to
charges in connection with a $400,000 Ponzi scheme. Blackwelder is a former
Mormon bishop whose victims included members of his congregation. He advised
investors that he would invest the funds in safe, long-term commodities futures
contracts. Instead, he used money to pay earlier investors, to build a
waterfront home, and to repay personal bank loans.
P. Bowie, 61, of Texas, was sentenced to 80 years in prison for
operating a Ponzi scheme through Titan
Wealth Management LLC in which she sold fictitious high yield "European
Mid-Term Notes" that she represented were issued by European banks. The scheme
involved at least $4.7 million taken from investors, some of which was used by
Bowie to purchase a coastal home in Maine. Thomas
Lester Irby II was the owner of Titan Wealth, and he promised investors
short-term returns of between 10% and 50%. Irby had told investors that their
notes were protected by a $10 million note he owned that could be liquidated to
pay them back. Irby was previously sentenced to 24 years in prison.
Frank Cellette, 48, already serving an 8 year sentence in
Minnesota for a $200 million Ponzi scheme, was charged in Orange County for
losses of more than $21 million that took place in California. Cellette,
through his company Minnesota Print
Services, Inc., promised investors returns of 10% to 15% based upon false
claims that he had large printing contracts with major corporations. Cellette
never actually set foot in California. The scam also affected investors in
Minnesota, Hawaii, Georgia, Arizona, Colorado, and Illinois. He is accused of
using the ill-gotten gains to buy cars, private jets and multiple homes with
features such as a go-kart track, bowling alley, and a 1950s malt shop.
Fred David Clark, Jr.,
54, David Schwartz, Cristal Coleman, 39, Barry Graham, and
Ricky Lynn, all former real estate executives with Cay Clubs Resorts
and Marinas, were sued by the SEC for allegedly running a $300 million
Ponzi scheme in which almost 1,400 investors were defrauded. The SEC alleged
that investors were promised guaranteed returns of 15% and future income
through the Cay Clubs rental program. Clark has also been identified as having
interests in CMZ Group, Ltd., a Cayman Islands entity that has ventures
including CashWiz pawn shops, and Argentum Refineries, a precious metals
processor and bullion storage operation in Cayman Enterprise City. CMZ Group
also has a company called "Best4Less", a wholesale distribution company based
in Turks and Caicos Islands that manufactures Pirates Choice rum.
46, who formerly served 78 months in prison for a worldwide $64 million Ponzi
scheme, was just sentenced to be jailed on weekends for 8 months and to pay
$32,000 in restitution for his theft of 8 saguaro cacti from federal land.
Connolly, 51, of New Jersey, pleaded guilty to charges in
connection with a real estate investment Ponzi scheme that defrauded 200
victims of more than $50 million. Connolly told investors that he would use
their money to buy specific properties that would generate monthly rental
income to be distributed to them. He also told them that their money would be
held in escrow until the closing of their real estate transaction. The scheme
collapsed when Connolly began defaulting on mortgage payments.
T. Cox, 35, was sentenced to 3 years and ordered to pay $1.98
million in restitution after pleading guilty to charges in connection with a
$3.2 million Ponzi scheme that he ran through Integra Capital Management LLC. The scheme was to defraud
commodities trading investors. Last year the CFTC had ordered Cox, along with Rodney W. Whitney, to pay millions in
restitution and penalties and to refrain from engaging in any commodity-related
activity. It was alleged that, instead of investing money from clients, Cox and
Whitney used the money to pay other investors and for personal expenses, including
dining, entertainment, travel and real-estate purchases.
Brown Cornett and Heidi
Beryl Beyer received sentences of 40 years and 6 years, respectively, in
connection with a Ponzi scheme that involved more than 150 people and resulted
in more than $10 million in losses. The scheme involved trading in foreign
currency exchange markets. The investors' money was lost in bad trades and
gambling, to make payments to investors, and to purchase a new Chevrolet
Davey, 47, stood trial and was convicted for his role in a $40
million Ponzi scheme that he ran through a hedge fund called Black Diamond Capital Solutions that
defrauded about 400 victims in North Carolina, Virginia and Ohio. Davey served
as "Administrator" for numerous hedge funds, and he solicited over $11 million
from victims for his own hedge fund called "Divine Circulation Services." Davey used a shell company in Belize
to funnel money to buy 47 acres of land in Ohio and to build himself a mansion.
The Black Diamond scheme was masterminded by Keith Simmons and was sold as a Forex
trading operation that promised risk-free annual returns exceeding 20%. Simmons
appealed to investors' faith, quoting Bible verses and stressing his devout
Christianity to portray himself as trustworthy. The following individuals have
also been convicted in the Black Diamond scheme:
"Denny" Denniston, 62, pleaded guilty to one charge in
connection with his operation of a $2.5 million Ponzi scheme that defrauded
more than 50 victims. Denniston ran his scheme through ConsensusOne that supposedly specialized in mergers and
acquisition. He told investors that their money was invested in
ConsensuOne-owned companies and that their investments were risk-free. Instead,
he spent their money for gifts to family members and spent a large portion on
airfare, hotels, restaurants, country club memberships, golf and ski vacations,
mortgage and rent payments, cable and telephone bills, furniture, home
renovation costs and other personal expenses.
Jim Ellis entered a guilty plea in connection with his Ponzi scheme in which he
defrauded Wilton Manors residents out of millions of dollars. Ellis admitted to
conspiring with George Elia to defraud investors. Elia is scheduled to go
to trial in March. In Ellis' case, the government filed a motion to restrict
the defense's right to peremptorily exclude gay jurors, which the government
anticipated because so many of the victims were members of that community. The
government argued that "sexual orientation should be treated like race, gender
and ethnicity for purposes of voir dire" in the process of picking
Alice H. Everett, a former adviser with ING Financial Services and
Allstate Financial Services, was banned from holding a license in the state of
Florida after she was charged with selling shares of a Ponzi scheme known as Paramount
Group, to 8 clients and shares of Minnesota Investment Group, a company of
which she was VP, to 3 clients. The Paramount Group Ponzi scheme took place in
St. Thomas, Virgin Islands and was revealed in 2010. Everett was previously
barred by FINRA from working in the securities industry.
Rodney Wade Grubbs, 43, had pleaded guilty last year to charges
relating to a Ponzi scheme and was just sentenced to spend 2 more years in
prison. Grubbs is still serving 30 years of probation from his guilty plea in
the scheme where he had told investors he would use their money to purchase
hotel rooms and tickets to concerts and sporting events, including the Super
Bowl, the Ryder Cup, the Masters Tournament and the Kentucky Derby. He had
defrauded 3 investors out of more than $500,000.
Charles Huggins, 66, and Anne Thomas, 68, were charged in connection
with a $2.5 million Ponzi scheme run through JYork Industries Inc. and Urogo
Inc., which promised high returns from gold and diamond mines in Sierre
Leone and Liberia. They said that they would use the investors' funds to mine
gold and diamonds and then sell them at a profit in the U.S. The scheme was
based in New York City, but also involved Christopher Butchko, 43, of
Samuel B. Jacobs, a religious broadcaster, was sentenced to 12 years
in prison following is conviction relating to a Ponzi scheme that defrauded
investors out of $787,000. Jacobs and his former business partner Christopher
Rice were found guilty of running a Ponzi scheme that defrauded 80 to 100
Howard G. Judah Jr., 82, and Gregory F. Jablonski, 62, were
each sentenced to 10 years in prison for their role in a $30 million Ponzi
scheme run through National Life Settlements LLC. They solicited money
from both active and retired state employees and teachers and arranged to have
their money rolled out of retirement funds and into National Life Settlements
investments. However, Judah and Jablonski never acquired the necessary life
insurance policies. Judah had been convicted three previous times and Jablonski
had been the principal of a bankruptcy Internet network firm.
Helmut Kiener, 53, was charged in Philadelphia in connection with
a $311 million Ponzi scheme that he ran through hedge funds including K1
Global Limited, Oceanus, Mezzanine and K1 Invest.
Kiener is already serving a 10 year sentence in Germany, as was reported in the
January 2013 Ponzi Scheme Roundup. Kiener faces a maximum sentence of 200
years. An associate, John C. Tausche, 61, was also charged.
James Stanley Koenig, 60, saw his trial begin in connection with a $250
million Ponzi scheme in which many elderly investors were defrauded. His former
business partner, Gary Thomas Armitage, 62, pleaded no contest to
charges in exchange for a 10 year sentence. Another former co-defendant, Jeffrey
A. Guidi, entered into a plea agreement and agreed to cooperate with
prosecutors. It is alleged that Koenig and Armitage hid crucial information
from investors, including that Koenig was convicted of felony mail fraud in the
1980s. Koenig's trial is expected to last a few months.
Jason Konior, 39, was arrested on charges in connection with a
$2 million Ponzi scheme involving 3 hedge fund investors. Konior promised
investors that he would match their investments in his fund, Absolute Fund
LP, up to 9 times. The complaint alleged that Konior advertised that his
fund provided trading leverage to new and emerging hedge funds and that he
would put the money into brokerage accounts that investors could use to trade
securities. Instead, Konior allegedly took the money to pay his own expenses
and cover redemption requests from prior investors.
George G. Levin and Frank J. Preve partially prevailed on a
motion to dismiss claims brought against them by the SEC. The court dismissed
most of the claims but allowed a portion of one claim to stand. Levin and Preve
were accused by the SEC of assisting Scott Rothstein in his $1.2 billion Ponzi
scheme by defrauding investors to raise funds to purchase purported legal settlements
from Rothstein. The SEC alleged that Levin and Preve offered promissory notes
in Levin's company, Banyon 1030-32, LLC, to raise money for Rothstein's
scheme. It is alleged that they "profited from the amount which the settlement
discounts they obtained from Rothstein exceeded the rate of return promised to
Gilbert Lopez, 70, the former chief accounting officer of Stanford
Financial Group, and Mark Kuhtr, 40, the former controller, were each
sentenced to 20 years following their convictions last November. It is reported
that the evidence at trial demonstrated that the two defendants knew Stanford
was misusing the bank's assets, helped him conceal this misuse, and helped him
deceive customers into believing he had infused hundreds of millions of dollars
into the bank during the 2008 financial crisis. Laura Pendergest-Holt,
the former chief investment officer was previously sentenced to 3 years and James
Davis, the former chief financial officer, was previously sentenced to 5
Syed Qaisar Madad, 66, pleaded guilty to charges in connection with
his $49 million Ponzi scheme that he ran through Technology for
Telecommunication and Multimedia Inc. Madad. Madad targeted the
Pakistani-American community and pitched what he represented was a successful
day trading investment model. Madad spent more than $15 million of investors'
money on personal expenses such as real estate, jewelry for his wife and
daughters, cars, and cash disbursement to himself and family members. As part
of his agreement, Madad has agreed to forfeit his mansion, a Mercedez-Benz, 68
pieces of jewelry, and silk and wool handmade oriental carpets, among other
Timothy McGinn, 64, and David Smith, 67, of New York, were
convicted in connection with a Ponzi-like scheme. The two investment brokers
were found guilty of diverting more than $4 million of their clients' funds to
pay personal expenses and to pay their firm's employees and preferred clients.
Both defendants face the possibility of 30 year prison sentences.
Istvan A. Merchentaler, aka Steven Merchentaler, 42, was arrested
and charged with defrauding investors of more than $2 million in connection
with his Ponzi scheme run through PhoneCard USA. Merchentaler represented
that PhoneCard was a "premier distribution source" for prepaid phone cards and
cell phones that had contracts with Walmart, 7-Eleven and BJ's Wholesale Club.
W. Mark Miller, 59, Brendan W. Coughlin, 46, and Henry
D. Harrison, 47, all from Texas, pleaded guilty to charges in connection
with the $400 million oil and gas investment Ponzi scheme run through Provident
by Joseph Blimline, 35, and Paul R. Melbye, 47. Coughlin and
Harrison founded and controlled Provident and provided false information about
oil and gas projects.
Shawn H. Moore was found guilty of charges in connection with his
role in operating the VesCor Capital real estate development Ponzi
scheme. The $180 million scheme offered investments in real estate projects but
was run as Ponzi scheme from inception with money from new investors going to
pay previous investors in order to make the business appear profitable. Moore
managed investor relations for VesCor, but failed to disclose the poor
financial condition of the company when selling investments. VesCor Capital owner
Val Southwick pleaded guilty in 2008 and was sentenced to 1 to 15 years
in prison on each of 9 counts, with the sentences to run consecutively.
Nicholas Mussolini, the CEO of Preston Waters, was arrested in
connection with allegations that he was running a Ponzi scheme in which he
promised high returns in connection with film financing. Preston Waters took in
funds for purposes of supposedly financing 10 to 15 projects a year in the $20
million to $60 million budget range. Mussolini is facing up to 30 years in
prison as well as a $ 1 million fine.
Gurudeo "Buddy" Persaud, 47, had his federal indictment unsealed. Persaud
is accused of running a $1 million Ponzi scheme through his private equity
fund, White Elephant Trading Co., in which he based his trading model on
lunar cycles and the gravitational pull of the moon and Earth. Persaud
guaranteed returns of 6% to 18%.
James Pantazelos, 64, was sentenced to 9 years after pleading guilty
to charges in connection with his Ponzi-like scheme run through Destiny
Partners, Inc. Investors were invited to conferences where they were
promised returns of up to 200% and were guaranteed the return of their
principal investment. Investors were told that their funds were invested in "Private
Investment Trading Platforms," which traded bank notes in foreign markets, and
that a substantial portion of profits generated would be donated to charitable
and humanitarian causes.
Richard Reynolds, 51, was denied his request for a reduction of his
bail from $10 million to $100,000. Reynolds, who is accused of using church
leaders to lure in more than $5 million of investor funds, argued that the
reduction would allow him to pursue a proper defense outside of a jail cell.
The court denied the request, concluding that Reynolds is a flight risk and
that his medical concerns and need for adequate resources to work on his
defense can be addressed in jail.
Kimberly Rothstein, 38, pleaded guilty to a federal conspiracy charge
that she tried to conceal and sell more than $1 million of jewelry that was the
proceeds of the Ponzi scheme run by her husband, Scott Rothstein. She
faces a maximum of five years in prison, as do her two co-defendants Stacie
Weisman, 49, and Scott Saidel, 45 (who was Kimberly's lawyer), who
have also pleaded guilty. Kim Rothstein and the others hid dozens of pieces of
jewelry, including a 12-carat yellow diamond ring, gold bars, 10 luxury watches
and an 18-diamond wedding band, and then attempted to sell them. Prosecutors
say that they also tried to get Scott Rothstein to testify falsely in various
civil cases about where the missing jewelry was located.
Steven Steiner, 61, and Henry Fecker III, 59, await their
fate as a jury deliberates the outcome of their criminal trial relating to
allegations that they laundered millions of dollars in the Mutual Benefits
Corp. Ponzi scheme. Mutual Benefits had sold $1.25 billion of life
insurance policies held by people dying of AIDS, and investors lost $830
million in the scheme. Mutual Benefits was shut down in 2004, and a receiver
administered the case. Separately, Steiner is awaiting another trial on charges
accusing him and Joel Steinger of conspiring to defraud investors between 1994
and 2003. The president of Mutual Benefits, Peter Lombardi, previously pleaded
David Tamman, former Nixon Peabody securities partner, was
suspended from practicing law in California. Tamman was convicted on charges
relating to the $20 million Ponzi scheme of Newpoint Financial Services Inc.
run by John Farahi in Beverly Hills. The California State Bar
automatically suspends any attorney convicted of "felonies involving moral
turpitude." Tamman was found guilty on charges for backdating documents and
lying about it during an SEC investigation. The Newpoint Financial scheme
targeted the Iranian-American Jewish population in Los Angeles, who were told
that their money would be used to purchase corporate bonds backed by the
Troubled Asset Relief Program.
Anthony Vassallo, 33, pleaded guilty to a fraud charge in connection
with his Ponzi scheme run though Equity Investment Management and Trading
Inc. Vassallo promised investors profits of up to 36% per year through a
computerized stock trading system. More than 300 customers, most of which were
Mormons, invested a total of $83.3 million in the scheme. Co-defendant Kenneth
Kenitzer, 66, pleaded guilty earlier and is awaiting sentencing. Several investors
had been confronted by four of Vassallo's associates at gunpoint who identified
themselves as federal agents and demanded over $378,000. Michael David Sanders,
along with three accomplices, was later charged with conspiracy, impersonating
a federal agent, and attempted extortion. The four were sentenced Friday, and
each receiving probation.
Frank Elroy Vennes, Jr., 55, of Florida, the former partner of Thomas
Petters who helped raise millions of dollars for the Ponzi scheme, pleaded
guilty for his role in the fraud. Vennes was scheduled to stand trial with James
Nathan Fry, 59, the hedge fund manager who helped Vennes raise funds. The
trial of Fry has been pushed back to an undetermined date. Vennes and Fry
allegedly misled investors about the nature of their investments, failed to
disclose Vennes' criminal, and did not report delays in interest payments as
the scheme started to collapse in 2007. According to government calculations,
Vennes and his company, Metro Gem, made more than $100 million in
commissions over 15 years, and Fry collected $42 million over 10 years.
Rodney Wagner, Roger Wagner and GID Group, Inc.,
all from Texas, were the subject of a CFTC order requiring them to pay $1.37
million in restitution to defrauded customers and a civil monetary penalty of
about $1.05 million. The consent order finds that the defendants took at least
$5.5 million from about 99 customers, that the Wagner brothers had represented
that they were successful Forex traders who generated 6% returns per day, and
that they promised that they could return principal plus 200% returns. The
order also finds that the representations were false, that the defendants
sustained consistent net trading losses, and that some of the stolen funds were
used to pay their personal expenses and other pool participants' purported
Michael Winans, Jr., 30, was sentenced to 13 years in prison in
connection with his $8 million Ponzi scheme in which he promised nearly 1,200 victims
they would receive 100% returns. He was the operator of the Winans Foundation
Trust, which represented that it invested in crude oil bonds in Saudi Arabia.
Winnans had pleaded guilty and was order to pay almost $4.8 million in
INTERNATIONAL PONZI SCHEME NEWS
Wickham Securities was liquidated at a meeting for creditors. Wickham
had raised funds from investors, many of which were retired and elderly, and
then lent that money for property development, promising returns of up to 30%.
Many people had invested in Wickham through Sherwin Financial Planners who
provided investment advice. Sherwin has now also collapsed.
David and Jacqueline Hobbs received the largest fine in the history of the
Australian Securities and Investments Commission. They received a $500,000 fine
in connection with their global Ponzi scheme that defrauded investors of more
than $55 million. The scheme targeted more than 500 Australians and placed
their money in 14 unlicensed funds, all located offshore in the Bahamas,
Vanuatu and Hong Kong, among others. The court found that Mr. Hobbs's conduct
reflected a disregard for the interest of investors and found Mr. Hobbs "deliberately
sought to put in place and have implemented a structure that was intended to
avoid regulatory supervision (and hence would deprive investors of that
safeguard)." A permanent ban has also been placed on Mr. Hobbs from managing
corporations, and a 6 year ban was placed on Ms. Hobbs.
Brian Wood, Jimmy Truong and Con Koutsoukos all pleaded guilty to
charges in connection with a scheme called Integrity Plus Fund, which
was one of David Hobbs funds and which raised more than $30 million from about
Frankfurt Public Prosecution
sent out 1,200 police officers and 15 public prosecutors to arrest Jonas
Koeller, 31, and Stephan Schaefer, 33, and other suspects, to search
their houses and premises of companies run by them and to seize all their
belongings including some hundred parcels of land. More than 100 million euros
($124 million) was frozen. According to Frankfurt Public Prosecution, Koeller
and Schaefer used Frankfurt based S&K companies, including Deutsche
S&K Sachwert AG, and others to offer investors investments into the
German real estate market promising 12% returns. News reports indicate a very
lavish lifestyle of Koeller and Schaefer including high-end sports cars.
Frankfurt Public Prosecution has started investigations into the affairs of
lawyers, notaries, appraisers who had long standing relations with Schaefer and
Koeller as well. It is to be expected that insolvency proceedings on the assets
of the S&K companies will be opened shortly.
Report by Bernd H. Klose, www.raklose.de
Member of FraudNet, www.icc-ccs.org/home/fraudnet
David Smith, who ran a $220 million Ponzi scheme that cheated thousands of Caribbean
nationals in Jamaica and the Turks and Caicos, has asked for an early release
from his 6½ year sentence in Grand Turk on the Turks and Caicos Islands. The Smith's
victims are less concerned about his early release than they are about what the
government will do to secure the return of the millions of dollars lost by the
victims. A confiscation order had been entered in the amount of $20.9 million,
and Smith has until October 24, 2013 to pay that amount, otherwise he will
serve an additional 8 years in prison by default. However, even if he is
released, he still faces another 30 year sentence in Florida.
Kris Aquino, the sister of
President Benigno Aquino, denied investing P50 million in the Ponzi-type scheme
of Aman Futures Group founded by Manuel Amalilio. An estimated
15,000 victims lost P12 billion in the scheme. Amalilio is also known as Mohammad
Kamal Bin Sa'ad and was arrested with a fake passport under the name of
Manuel Karingal. President Aquino said that he expects Amalilio to be brought
back to the Philippines to face trial.
The Financial Planning
Institute, a South African organization for financial planners, is
investigating whether any of its members breached that organization's code of
ethics in advising their client to invest in Relative Value Arbitrage Fund
(RVAF). RVAF was a $245 million Ponzi scheme that defrauded 3,000 investors. The
scheme was run by Herman Pretorius, who subsequently shot his partner,
Julian Williams, and then committed suicide.
Jeremy Stone, the former
manager of hedge fund Marble Bar Asset Management, lost his claims of negligence
against NatWest and its employee Paul Amlin. Stone alleged that they failed to
spot fraudulent activity of Saunders Electrical Wholesalers, which was
run by Jolan Saunders. Stone had invested £20 million in the scheme. The
court ruled that ruled Aplin had good reason to believe Saunders was running a
legitimate business and "did not shut his eyes to the truth."
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI
Two legislators in New Hampshire are co-sponsoring a bill
that would create a fund to pay restitution to victims of the state's largest
Ponzi scheme that was run by Financial
Resources Mortgage Company. The bill would designate a percentage of fines
collected by the Bureau of Securities Regulation, as well as the state Banking
and Insurance departments, for the victims of FRM. FRM principal Scott Farah is serving a 15 year
sentence, and co-defendant Donald Dodge
was sentenced to 6½ years.
Investor Denise Russelot filed a lawsuit against Focus Group Advisors, LLC, Larry Dearman, Marya Gray, Homer
Fitzgerald, Jon Nettles, Daniel Wise, The Property Shoppe, Inc. and Bartnet, LLC in connection with her
losses in what she alleges was a massive Ponzi scheme. Russelot alleged that Gray
ran he scheme using various shell and alter ego companies, and that Gray
convinced Dearman to use his Focus Group clients to fund the scheme.
Daniel Stermer, the administrator over the state court
proceeding for Global Bullion Exchange,
filed a lawsuit against Wachovia Bank, which has been purchased by Wells Fargo
Bank, alleging that the bank had failed to detect the fraud and failed to
monitor the accounts.
The trustee in the Bernard
Madoff case, filed a motion seeking court approval to return another $505
million to victims of the Ponzi scheme. If the amount is approved, the total
amount returned to victims would be $5.438 billion.
The Second Circuit held that victims who lost money by
investing in feeder funds are not entitled to recover for their losses in the
same manner that direct victims of the Bernard
Madoff Ponzi scheme. The court determined that "indirect" investors are not
customers who can recover from the bankruptcy estate.
In a separate opinion from the Second Circuit, investors
were not permitted to pursue claims against Madoff's brother, Peter, as well as Madoff's son Andrew and the
estate of his late son, Mark. The court said that allowing such claims to
proceed would impede the trustee's effort to maximize payouts from the estate.
Madoff sent an email from prison, stating that his bank, JP
Morgan, knew about the Ponzi scheme. Madoff also says that the feeder funds
were involved and that the recipients of the monies paid to the feeder funds
should be recovered by the Madoff trustee.
The Department of Labor reached a more than $43 million
settlement with Austin Capital Management Ltd. and its general partner Austin
Capital Management GP Corp. that will compensate thousands or workers and
retirees whose savings and health plans were harmed in the Bernard Madoff scheme. The Department of Labor investigation found
that Austin Capital violated the Employee Retirement Income Security Act by
allowing funds to invest the assets of ERISA-covered plans with Madoff through
investments in the Rye Select Broad Market Prime Fund LP offered by Tremont
Partners Inc, which was 100 percent invested with Madoff.
The receiver for Management
Solutions Inc. called off his proposed sale of property and advised the
court that he would come up with another plan to liquidate the properties that
are located in multiple states. A group of investors who had been opposing the
bulk sale were pleased, believing that the properties will sell for more if
marketed separately. The alleged Ponzi scheme was run by the owners of
Management Solutions, Wendell Jacobson
and Allen Jacobson, and it is
alleged that the scheme took in about $200 million and defrauded 225 investors.
Lincoln Financial Securities Corp. settled with FINRA
over allegations of supervisory deficiencies in connection with the Kenneth Wayne McLeod Ponzi scheme run
through F&S Asset Management Group
and Federal Employee Benefits Group.
FINRA noted several deficiencies, including that Lincoln Financial failed to
place McLeod on heightened supervision, given that Lincoln Financial hired
McLeod while a state securities regulator had an open investigation.
Victims of Kenneth
Wayne McLeod's Ponzi scheme have filed suit against the United States for
losses totaling $120.1 million. The 93 victims were active and retired
government employees and law enforcement agents. The lawsuit seeks damages for
the alleged negligence and wrongful acts of federal employees who endorsed
McLeod to conduct retirement education and planning seminars for federal
government and law enforcement employees. The victims allege that the U.S.
failed to supervise McLeod to insure that the seminars did not provide specific
financial investment advice, failed to properly vet and/or investigate McLeod
and his company over a 20-year period and failed to adhere to the ethical rules
that would have prevented the scheme. McLeod committed suicide in 2010.
Bank of New York Mellon Corp. agreed to pay $114 million
to settle investor claims in connection with the Medical Capital Holding Inc. Ponzi scheme. The settlement will
resolve claims for BNY Mellon's alleged failure to review MedCap's dealings
before disbursing investor funds to the company. The stolen money from the $1
billion Ponzi scheme went to pay for things like the purchase of failing
hospitals, financing of a money-losing film about a Mexican little league team,
the purchase of a 100-foot party yacht that cost $4.5 million, and an investment
of $5 million into a company called EMark that supposedly specialized in
internet porn, if in fact the company actually existed.
The trustee in the Scott
Rothstein case announced in his final liquidation plan that he expects that
"payouts may fully compensate creditors holding general unsecured claims for
their losses." The significant recoveries in this case are due in part to a
proposed settlement with TD Bank for a proposed $72.45 million, and the
trustee's proposal that investors that have already recovered from TD Bank be
barred from sharing in the distribution scheme until the total claims paid out
reach 95% of losses. The total filed claims are $461,078,446.36 but may be
reduced to $141 million through objections. The trustee is holding approximately
$79.2 million in cash, which, when added to the $72.45 million TD Bank
settlement, would allow 100% payment of the estimated claim total of $141
million. The trustee is also pursuing numerous clawback lawsuits against net
winner investors and is in a dispute with the U.S. government over
approximately$50 million in forfeited funds.
The Trustee for Nevin
Shapiro's company, Capitol
Investments USA Inc., which ran a $390 million Ponzi scheme, continued to
prosecute a complaint filed against Marc Levinson and Shook, Hardy & Bacon
in which allegations were made that Levinson and the firm helped Shapiro and
his company to stay afloat financially even after they became aware of
securities violations. The suit alleges that they "tacitly agreed with
Capitol's proliferation of its Ponzi scheme and Shook, Hardy & Bacon failed
to ever deter Capitol from its additional borrowings."
The NCAA's University of Miami investigation relating to Nevin Shapiro is now being investigated
itself. An investigation has revealed that the NCAA broke its own rules by
using the information provided by Shapiro and paying his lawyer for it, even
through the NCAA's lawyers had advised against it. It is also alleged that
Shapiro gave improper money and gifts to players and coaches and 3 assistant
coaches are now being questioned about giving false of misleading information
to authorities. Nevin's lawyer says that "Nevin is extremely remorseful. That's
why he agreed to cooperate."
The receiver and creditors committee in the Allen Stanford Ponzi scheme have sued
Antigua, accusing it as serving as Stanford's "blood brother" by providing the
necessary assistance to allow the scheme to flourish. It is alleged that
Antigua was a prime participant in the fraud, a co-conspirator, and the
beneficiary of $90 million in loans from Stanford that were not repaid. A
separate lawsuit was also filed against eight Caribbean banks. The lawsuits are
seeking over $230 million in damages and punitive damages. A banking regulator,
Leroy King, is facing criminal charges and has been accused of taking bribes
from Stanford to falsify bank audits and to impede investigations by U.S.
New documents were revealed in a lawsuit filed by victims
in the Ephren Taylor Ponzi scheme against
New Birth Missionary Baptist Church and Bishop Eddie Long of the Church that
reflect that Bishop Long was warned about financial problems with Taylor before
members of the congregation were convinced to invest more than $1 million in
the scheme. An internal memo reflects that an unidentified caller informed
Bishop Long's assistant that he "did not want the church to be taken advantage
of" and predicted that Taylor would "issue promissory notes to the congregation
if allowed that gives him legal authorization to do what he wants and there
will be no return on investment." Bishop Long reportedly introduced Taylor to
the church members as "my friend, my brother, the great Ephren Taylor," but the
Bishop did not himself invest with Taylor. The SEC says that Taylor and his
company City Capital had raised about $11 million from churches across the
country and that they issued promissory notes supposedly funding various small
businesses and interests in "sweepstakes machines."
The complaint filed by A.J. Feeley, Heather Mitts, Brent
Celek and Kevin Curtis against Suntrust Bank Inc., Martin Kelly Capital Management
LLC and William Crafton, for alleged misconduct relating to the Westmoore Management LLC Ponzi scheme,
was sent to binding arbitration. The court concluded that the financial
services agreements between the parties mandated a binding arbitration for the
dispute. The plaintiffs are seeking to recoup their losses from the Ponzi
scheme, alleging that the firms failed to vet the Crafton's investment
The receiver of ZeekRewards
filed a quarterly report in the case with over 1 million victims. The report
reflects that the receiver is holding approximately $310 million, and that at
least $295 million may have been transferred to about 80,000 net winners and
subject to possible fraudulent transfer claims. The receiver has expressed his
intent to pursue both domestic and foreign defendants.
Also in the ZeekRewards
proceeding, the judge overseeing the case refused to appoint a separate
examiner, who was proposed by net winner investors to supervise the
court-appointed receiver's efforts. The court noted that it would be impossible
for an examiner to represent the interests of both net winners and net losers
and that it would result in a duplication of efforts being made by the
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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