August was another busy month for Ponzi scheme news. 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.
Suzette Anguay, 50, pleaded guilty to charges in connection with an $800,000 Ponzi scheme and then was taken away from court in an ambulance on what was later described as a minor medical emergency. Anguay promised about 15 investors 15% to 30% per year on their investments, but instead of investing their money, she spent it on personal credit card payments, expenses and travel.
Lloyd Barriger pleaded guilty to charges relating to his $50 million Ponzi scheme run through the Gaffken & Barriger fund. Barriger promised investors 8% annual dividends, promising to invest their funds in real estate investments.
Donna Bello, 55, and Jill Platt pleaded not guilty during their arraignments on charges that they ran an illegal gifting club Ponzi scheme that defrauded participants out of more than $1 million. The scheme looked like a pyramid scheme, with four levels: "Appetizers," "Soup and Salads," "Entrees" and "Dessert." New members would contribute $5,000 to join at the “appetizer” level. The proceeds were referred to as “green beans.” Members were promised large tax-free financial gains, with some promised returns of $80,000 in one year on the $5,000 investment.
John Bertuca was sentenced in connection with a $46.5 million Ponzi scheme. Bertuca pleaded guilty and as part of his plea agreed to testify against David Wilson McQueen and Trend Edward Francke, who were also tied to the case. Bertuca will serve one year on supervised release and pay $115,000 in restitution.
Russell Samuel Biszantz, 43, pleaded guilty to his involvement in a Ponzi-like scheme that defrauded-investors of more than $2.44 million. Biszantz admitted that he knowingly operated an unlicensed escrow company that diverted bank loans for customers to pay his own company expenses.
Daniel Bonventre, Annette Bongiorno, Joann Crupi, Jerome O’Hara and George Perez, each former employees of Bernard Madoff, sought a two-month postponement of their trial on charges relating to assisting Madoff’s Ponzi scheme. Perez’s lawyer said that a revised indictment “contains a wholesale re-writing” of the previous one and includes additional allegations.
Brian R. Callahan, 43, and Adam J. Manson, 41, were arrested in New York and charged with running a $100 million Ponzi scheme that allegedly defrauded 40 investors. The investors were told that their money would be invested in mutual funds, hedge funds and other securities. About $118 million was raised, and investors were provided with account statements showing growth in the funds. Instead funds were spent on a beachfront resort and development, to buy expensive cars and homes and to pay returns to investors. Callahan, Manson and Callahan’s wife, Sheri Manson Callahan, were named in a 2012 SEC complaint related to the same scheme.
John Cameron, 48, was arrested on charges that he was running a Ponzi scheme by trading securities without a license and operating as a securities dealer without a license.
Razel Canedo, 44, was sentenced to 24 months in jail and 3 years of supervised release thereafter and ordered to pay $949,200 of restitution following a plea bargain. Canedo admitted that she was trying to set up and run a supposed “nanny service and nursing agency business” that would help bring Filipino nurses from the Philippines to work in the US. Canedo promised investors a return of up to 50%.
Fred David Clark Jr. and his wife, Cristal R. Coleman, are the subject of an amended complaint filed by the SEC in connection with an alleged $300 million Ponzi scheme based in Florida. The SEC accused Clark and Coleman of raising about $300 million from about 1,400 investors for the Cay Clubs Resorts and Marinas, which was marketed as a resort development, but which the SEC claims is a Ponzi scheme. The amended complaint also accuses Clark, Coleman and others of misappropriating more than $33 million as exorbitant salaries and commissions or to pay personal expenses.
Clayton Cohn and his company Marketaction Capital Management were the subject of an SEC motion accusing them of operating a Ponzi scheme. Clayton targeted fellow veterans, family members and friends, and directed him to his hedge fund using a fake charity that he operated called Veteran’s Financial Education Network. Cohn raised $1.78 million from 24 investors promising returns from his “multi-strategy hedge fund.” He had advised investors that the funds regularly audited by a reputable outside accounting firm, but neither Cohn nor his companies had retained the firm, and the firm advised it was unfamiliar with the defendants.
Anthony Davian and his company Davian Letter/Davian Capital Advisors have been charged by the SEC of operating a Ponzi scheme. Davian promoted his pump and dump day trading business in Twitter using the handle @hedgieguy.
Jim Donnan defeated claims brought by a creditor for nondischargeability in which the creditor sought to bar discharge of its claims on the grounds that the claim was incurred as a result of false pretenses, false representation or actual fraud (11 U.S.C. § 523(a)(2)(A)), embezzlement (§ 523(a)(4)) and willful and malicious injury § 523(a)(6)) [an annotated version of this statute is available to lexis.com subscribers] . Fennell v. Donnan, 2013 Bankr. LEXIS 3110 (Bankr. M.D. Ga. August 1, 2013) [an enhanced version of this opinion is available to lexis.com subscribers]. The court found that Donnan did not knowingly participate in the Global Liquidation Company Ponzi scheme. The court stated that “Plaintiff has not cited, nor has this Court found, any case where a court has held that proof of the existence of a Ponzi scheme is sufficient to supply the required fraudulent intent under section 523(a)(2)(A) where the debtor has not admitted, or been found by the court, to have knowingly participated in the scheme.” Donnan has already been indicted on charges related to the Global Liquidation scheme.
Mark Feathers was finally hit with a ruling that he has been battling for about a year. The court found that Feathers and his company, Small Business Capital Corp., had violated federal securities and exchange laws. In the scheme, about 400 investors lost about 25% of the $42 million that they had invested, and that Feathers had been “Ponzi-like payments.” SEC v. Small Bus. Capital Corp., 2013 U.S. Dist. LEXIS 116607 (N.D. Cal. Aug. 16, 2013) [enhanced version].
Edward Lincoln Forehand, 68, of Alabama, was sentenced to 90 months in prison for his participation in a $3 million Ponzi scheme that defrauded 87 investors. Forehand used the business name “USA Marketing” and promised investors returns up to 700% on their investments with Elite Marketing, a company run by Vicky Yeager who sold cookware to colleges and universities.
Glen Galemmo of Ohio is being investigated by the IRS and is the subject of a civil forfeiture action in connection with his alleged $300 million Ponzi scheme run through Queen City Investments that defrauded about 165 investors. Galemmo promised returns of 432% in connection with what he represented was a hedge fund. It is alleged that Galemmo, along with his wife and business partner, Edward Blackledge, used investors’ money for their personal needs. Galemmo is also the subject of a criminal investigation along with multiple civil lawsuits. The government is attempting to seize his home, a condominium in Florida, five cars and a bank account.
Stephen K. Gilley lost his attempt to have his disgorgement judgment of almost $2 million owed to the SEC in connection with his Ponzi scheme discharged in his subsequent bankruptcy case. The SEC had obtained a judgment against Gilley in 2006, which Gilley sought to discharge in a Chapter 7 bankruptcy case filed in 2012. The bankruptcy court found that the debt was excepted from discharge under 11 U.S.C. § 523(a)(19).
Keelan Harris, 37, and Karen Starr were charged in connection with a $15.8 million Ponzi scheme that defrauded 408 investors. Harris’ brother, Kevin Harris, was sentenced in 2012 to 7 years and 3 months after he pleaded guilty to the same charges that have now been made against his brother. Karen Starr remains at large. The scheme was operated through Complete Developments LLC and Investments International and investors were promised rates of return of 7% to 12% per month and were told that 80% of their principal investment would be secure. Instead of investing the money in commercial real estate, bonds or foreign currency as promised, they purchased a vehicle and money was transferred to overseas bank accounts in Columbia, Panama and the United Arab Emirates.
Steven B. Heinz, 56, of New York, was accused of running a $4 million Ponzi scheme through his investment firm, S.B. Heinz & Associates, Inc., to get “loans” that he said would be put into a trading program. Heinz took money from about 15 investors and promised them tax free returns of 6% to 120% annually. Heinz used most of the money to support his lavish lifestyle. The SEC obtained a temporary restraining order and an order to freeze the assets of Heinz and his company.
Douglas Hollingsworth, 64, was sentenced to 5 years and ordered to pay $4.9 million in restitution for his role in a $7 million Ponzi scheme. Hollingsworth defrauded about 12 investors by telling them he had developed a sophisticated computer system that allowed him to identify market trends and generate substantial profits from trading activity. He operated his scheme through Baytree Investors, LLC and Capsule Partners LLC, promising investors monthly returns of 6%. Hollingsworth used investor funds to make payments to investors and to fund his lavish lifestyle, including purchase of fine jewelry, at least $14,000 in Best Buy purchases, and over $20,000 in dental care.
Terry Jones was indicted for tipping off Ponzi schemer John F. Holtsinger that a federal grand jury had indicted Holtsinger on charges related to a $1.1 million Ponzi scheme. Holtsinger later pleaded guilty and received a 7 year sentence. Following the grand jury proceedings, Jones had a chance meeting at Costco with one of the witnesses from the grand jury proceeding and advised the witness of the indictment while it was still sealed. The witness notified Holtsinger who fortunately did not make any attempt to flee.
Christina M. Kitterman and Douglas L. Bates were arrested by IRS agent in connection with the Scott Rothstein Ponzi scheme. Kitterman and Bates are both attorneys in Florida who were identified by Rothstein in a deposition as having assisted in parts of his fraud. Kitterman, who formerly worked at Rothstein’s firm, Rothstein Rosenfelt Adler, is alleged to have impersonated an official of the Florida Bar during discussions with an investor in Rothstein’s scheme. Rothstein testified that Bates agreed to sign his name to a letter threatening a discrimination action against a company Rothstein represented in order to inflate his legal bills.
Rick Koerber won a favorable ruling from the court in his criminal trial when the Court prohibited prosecutors from using as evidence certain interviews that Keorber had given to investigators before his indictment on charges relating to an alleged $100 million Ponzi scheme. The prosecutors had not attempted to contact lawyers who had represented Koerber in the past and the court noted that he felt that they did not do so because they would have been likely told there would be no interviews. “[T]he way it was approached at least allows an inference that they didn’t want to get that response, they wanted to be coy and say, can we justify saying that he’s not represented so we can interview him."
John Marcum, 49, of Indiana, was charged by the SEC with running a $6 million day-trading Ponzi scheme through Guaranty Reserves Trust LLC that defrauded at least 37 people into investing in promissory notes that promised double-digit annual returns with no risk. Marcum targeted investors with retirement funds and told some investors that he was waiting for a two year suicide clause to take effect and that after the two year waiting period he would kill himself to assure that investors were repaid. Marcum used the investors’ funds on personal expenses such as travel, luxury car payments, and to finance start-up businesses such as a bridal store, a bounty hunter reality television show and a soul food restaurant.
Timothy McCabe, 55, is the subject of a lawsuit filed against him along with TD Bank N.A. in connection with an alleged $1.2 million Ponzi scheme. McCabe was a partner in the law firm, McCabe and Samiljan, that advertised itself as a real estate and foreclosure defense law firm. McCabe was also the managing member of City Title LLC, and allegedly used his position at City Title and as a signatory on the law firm account located at TD Bank to commingle incoming funds. The complaint alleges RICO charges against McCabe and others, and also alleges that TD bank failed to exercise proper supervision of the trust account by allowing him to improperly deposit checks into the account that were payable to other people.
Greg McKnight, 53, of Michigan was sentenced to more than 15 years in prison and ordered to pay almost $49 million in restitution for his role in a Ponzi scheme that took in $72 million and has left investors out more than $45 million. The scheme involved 3,000 investors in all 50 states and 33 countries, and he had promised investors “outlandishly high interest rates” of at least 15% per month through his company, Legisi Holdings LLC. McKnight used $2.2 million of the funds for his own use. McKnight’s associate, Matthew J. Gagnon, was previously sentenced to 5 years in prison for his role in promoting Legisi. McKnight lost $3 million in trading losses and spent more than $2 million for personal expenses.
Robert Medhus was sentenced to 10 years in prison for his Ponzi scheme in which it stole $900,000 from 19 clients. Medhus had pleaded guilty to charges of fraudulent practices and offering to sell unregistered securities. Medhus’s attorney had asked for a reduced sentence to allow Medhus to repay some of the $900,000, but the court denied the request, noting that Medhus had not paid back one dollar since being charged. The court also sentenced Medhus to two more years in prison than the prosecution had requested.
Brian William McKye, 49, of Oklahoma, had his conviction overturned and 21 year prison sentence reversed by the Tenth Circuit. The court ruled that his conviction on charges related to running a $4.5 million Ponzi scheme that defrauded 115 investors could not stand because the lower court had improperly instructed jurors on what proof was required to convict him. McKye had run an investment business through Global West and had promised investors monthly returns of up to 19%. The lower court had refused a request of McKye’s lawyer to instruct the jury that they could decide whether the investment notes were securities and instead instructed the jurors that the term “security” includes a note. U.S. v. McKye, 2013 U.S. App. LEXIS 17297 (10th Cir. 2013) [enhanced version].
Wayne Ogden, 49, of Utah, 3-time Ponzi schemer, was sentenced to 10 years in prison in connection with charges relating to a $4.8 million Ponzi scheme. While Ogden was awaiting trial on those charges, he was indicted in 2011 on charges relating to a $3.5 million Ponzi scheme. Ogden had previously been indicated for running a Ponzi scheme through his company, Paradigm Acceptance LLC, where he raised $29 million from investors and promised returns of 20% to 100%.
Gurudeo “Buddy” Persaud, 47, who pleaded guilty to charges that he was running a Ponzi scheme, was sentenced to 3 years in prison and ordered to pay about $1 million in restitution. Persaud had been indicted on charges relating to his Ponzi scheme run though his private equity firm, White Elephant Trading Company LLC, that 14 investors out of about $1 million. Persaud had promised investors between 6% and 18% returns, but lost money in the stock market when he used astrology and lunar cycles to make trade decisions. Persaud had neglected to mention to his investors that his trading strategy was based on lunar cycles and the gravitational pull between the moon and the Earth, which he believed affects human behavior. Persaud believed that when the moon is positioned in a manner that exerts a greater gravitational pull on human beings, they feel down and are therefore more inclined to sell securities in the markets.
Martin A. Pool of Georgia agreed to a settlement with the SEC over charges that he and his partner, Armand R. Franquelin, ran a $12 million Ponzi scheme through their company, Elva Group, that defrauded about 130 investors. They had promised investors that their money would be used to buy and develop real estate but instead, the money went to pay other investors and for personal expenses of Pool and Franquelin. Pool agreed to a settlement in which he is prohibited from further violations of federal securities laws and will have a penalty of about $1.4 million stayed unless he violates the agreement.
Curtis Wayne Ross of Hawaii was indicted in connection with a $167,000 scheme in which he promised investors returns of between 17% and 400% by telling them that he would invest in international gold and diamond transactions and a waste-to-energy company.
Bradley Schiller, 37, has been accused of running a $10 million commodities trading Ponzi scheme. Schiller used the investors’ money to pay for his personal expenses, including a Range Rover, jewelry, country club fees, and housing rental fees for his mother-in-law, and also to make Ponzi-like payments to victims. It is alleged that Schiller created and distributed phony documentation, including fictitious commodities brokerage and bank account statements, false financial statements and false tax forms.
Yaman Sencan and Stephen Merry pleaded not guilty to charges that they had run a $5 million Ponzi scheme. One of the companies used for the scheme was Ramco and Associates. The men had promised investors returns to be generated by taking advantage of temporary price differences between different stock markets using a computer algorithm. They promised profits from the quick buying and selling of stocks and the volume of trades, sometimes thousands of times per day. David Petersen and Timothy Durkin have also been charged in connection with the scheme.
Michael Shapira, 48, who had previously pleaded guilty to charges related to a $2 million Ponzi-scheme run through Keywest Leasing, defrauding 11 investors, avoided a 2-year prison sentence. Instead, Shapira was sentenced to a conditional sentenced to be served at his home under an absolute curfew under the rationale that the best way to punish Shapira is to let him work and pay back the money he stole. Shapira’s clients were told their money would be used to fund leases of used medical equipment that would then be leased again to medical organizations and government agencies. They were promised returns in the range of 20-30%.
Feisal Sharif, 43 pleaded guilty to charges relating to a $3.6 million Ponzi scheme that he ran through First Financial LLC. The scheme defrauded more than 50 investors in what Sharif said was a commodity pool to profit from trading in commodity futures.
Joseph Angelo Sivigliano had his appeal of his conviction arising from his operation of a Ponzi scheme denied. U.S. v. Sivigliano, 2013 U.S. App. LEXIS 15962 (10th Cir. Aug. 2, 2013) [enhanced version]. Sivigliano had operated his real estate flipping scheme through Helping Hearts and Hands, Inc., promising returns from the purchase of foreclosed properties in Oklahoma City that would be sold at a profit.
David Smith, 67, and Timothy McGinn, 64, of New York, were sentenced to 10 and 15 years, respectively, for their role in a $4 million Ponzi scheme that they had run through their securities firm. They were both ordered to pay about $6 million in restitution.
Ralph John Solis, 56, was sentenced to 15 years and ordered to pay $12.6 million in restitution in connection with a $12 million real estate Ponzi scheme to which he had previously pleaded guilty. Solis had sold forged first and second trust deeds to about 50 investors. Solis created fictitious deeds of trust by finding mortgages held by non-traditional lenders and private parties and obtaining copies of the documents and putting his name on them as the beneficiary. The fake deeds were then bundled and sold directly or through third parties.
John David Stroud of Alabama pleaded guilty to charges relating to a $5.2 million Ponzi scheme. Stroud ran a Ponzi scheme through TS Capital Partners. Stroud was the hedge-fund partner of college football coach Tommy Tuberville, who was sued by investors but not charged criminally.
George Louis Theodule, 53, of Florida, was indicted on charges relating to an alleged $30 million Ponzi scheme that defrauded fellow Haitians. Theodule ran his scheme through Creative Capital Concept, LLC and Creative Capital Consortium LLC and promised to double investors’ money in 30 to 90 days through “investment clubs. “ He claimed to have 17 years of successful stock trading experience but instead of investing, spent the money on expensive cars, motorcycles, jewelry, and trips to Las Vegas.
David R. Wulf, 60, was convicted on charges relating to the National Prearranged Services Inc. funeral Ponzi scheme. The scheme involved more than $150 million paid from customers supposedly purchasing prearranged funeral services.
Bernerd Young, Daniel Bogar, and Jason Green, each a former executive of Allen Stanford’s enterprise, were found liable for fraud and banned from the securities industry. They were each ordered to pay $260,000 in fines and forfeit ill-gotten profits. Young, a former regulator with what is now FINRA, said that he had taken due diligence steps in reviewing quarterly financial statements and reading annual reports about the bank, but that Antiguan privacy laws kept him from seeing more details about the investment portfolio.
INTERNATIONAL PONZI SCHEME NEWS
Ronald Morris Coles pleaded guilty to charges relating to a $6 million Ponzi-like scheme involving artwork. Coles had agreed to buy, sell and manage valuable works by famous Australian arts. Coles had been convicted of using a single painting as surety for multiple loans and selling single works several times over.
Robert Sellers, 76, was sentenced to 4 years in prison and ordered to pay $10 million in restitution after pleading guilty to charges in connection with a $27 million Ponzi scheme that promised returns of 15% to 18% to about 359 investors. Sellars told investors their money was going into ventures such as gold mining in Montana and European money markets, and many were told that their investments were guaranteed and insured.
Kevin Zietsoff, 41, has been charged with operating a $15 million Ponzi scheme. It is alleged that more than 50 investors lost money in what was a highly speculative futures and commodities trading scheme where investors were guaranteed a high rate of return.
Authorities arrested 35 suspects in a sting operation to shut down a fraud ring at the same time that authorities in Taiwan arrested 89 suspects for running a Ponzi scheme that defrauded about 1,000 investors. Authorities believe that more than NT$100 million was involved in the scheme in which investors and put their money in a “capital investment project” in Nanning, Guangxi province.
Shanghai FanXin Insurance Agency was accused of running a Ponzi scheme. Chen Yi, the general manager of Shanghai FanXin, who has fled with 500 million yuan ($81.6 million) was arrested in Fiji and taken back to China. The Shanghai branch of the China Insurance Regulatory Commission said that the company was selling unauthorized fixed-income financial agreements. The company employs about 800 brokers, and most of the customers of Shangia FanXin had bought insurance products of Happy Life Insurance and Kunlun Health Insurance through the agency. Happy Life has said that it was not aware that Shanghai FanXin was using their policies to sell wealth management products to its customers.
The assets of a more than $4 million Ponzi scheme run under the name Ek-ka-Teen, and its principal, Ashkok Jerambhai Jadeja, were frozen by Indian authorities. Jadeja told investors that a Hindu goddess, Vahnavati Sikotar Mata, had given him powers to triple their money in 3 days. As the numbers of investors grew, so did the number of days in which their money would grow. Jadeja raised Rs 25,25,68,000 and purchased gold and silver ornaments, vehicles and properties, and he stashed money in bank accounts in his name and in his family members’ names.
Manorama Haldar, 32, an agent of the Ponzi scheme Basil International Limited, hung herself, unable to bear the pressure from investors. Haldar had brought investors into the scheme, which promised redeemable shares with returns of 11% to 14%. The company had raised about $15 million, but has been barred from raising any money from the public.
David Ross, 63, pleaded guilty to running a $384.8 million Ponzi scheme through Ross Asset Management, that defrauded about 1,200 investors. Ross had been charged with providing a financial service when he was not registered to do so, making false or misleading statements to get authorization as a financial advisor, and supplying information to the authority that he knew to be false or misleading. He promised investors returns of up to about 40%
The South Africa Reserve Bank appointed investigators to inspect Zantech Trading, an alleged Ponzi scheme promising returns of 25% per month. The scheme’s mastermind, Ntokozo Mayisela, had previously been arrested on charges of fraud related to his involvement with Larjent, a scheme that offered investors 30% monthly returns.
Wachira Poonperm and Pimolpan Poonperm were arrested for conspiring to defraud 12 people out of 100 million baht. The couple convinced victims to invest in businesses including a book store a CD shop and a car service garage and promised returns of 10% per month.
The assets of convicted Ponzi-schemer, Kankamol Albon, went up for sale. Albon was sentenced to 6 years in prison last year after she was convicted of running a £ 7.5 million scam that involved luxury cars including Ferraris, Bentleys, Bugattis and Maseratis.
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
Two Oregon banks, Umpqua Holdings and Pacific Continental, were sued by victims of an alleged Ponzi scheme run through Berjac of Oregon and Berjac of Portland. The investors claim that the banks helped perpetuate the Ponzi scheme by making loans to Berjac and involving other parties despite knowledge that the company was involved in speculative real estate investments and using investors’ money to pay back banks and other investors.
A court ruled that the SEC could pursue its Ponzi scheme case against Bitcoin Savings & Trust, run by Trendon Shavers. Shavers had claimed that the SEC had no jurisdiction since transactions regulated by the SEC must involve “an investment of money” — and the investors paid in Bitcoin instead. The court found that Bitcoin can be used as money and exchanged for conventional currencies so, therefore, “Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.”
The Senate Homeland Security and Government Affairs Committee sent letters to several federal agencies requesting that they disclose their virtual currency policies in light of the recent disclosure of the alleged Bitcoin Ponzi scheme. The committee is asking how such policies are developed and how agencies are coordinating, and what they plan to do going forward. The committee is prepared to scrutinize the four year old, $1.2 billion Bitcoin marketplace, which is a tempting locale for money laundering and tax evasion. New York Financial Services also sent subpoenas to 22 Bitcoin businesses and is considering whether to issue new regulatory guidelines for virtual currencies rather than applying existing rules for money transmission.
The Trustee of Bernard Madoff’s Ponzi scheme reached a $97.8 million settlement with Maxam Absolute Return Fund. Maxam agreed to return $97.8 million that the fund had withdrawn from Madoff’s firm and was allowed a claim of about $276.7 million against the estate in exchange.
Comstock Township, Michigan, has agreed to pay back another $190,000 to the bankruptcy trustee in the Ponzi scheme case of Dante DeMiro. Comstock Township had received over $1 million from DeMiro in connection with its &1.75 million investment with DeMiro and his company MuniVest Financial Group, and the trustee sought the return of that money. Comstock Township has already paid by $500,000, but will retain its right to participate in later distributions from the bankruptcy case to creditors.
One of the victims of the Marc Dreier Ponzi scheme will receive pieces of Dreier’s art collection. The victim had obtained a security interest in the art collection, which was valued at over $30 million, to secure payment to the victim on promissory notes that had a face value of more than $110 million. A district court agreed that the victim, Heathfield Capital Ltd., could get the art, but that the creditor will pay $1.65 million, which was a fee due to Dreier, to the estate that will go to Dreier’s other victims.
Investor Robert Melkesian was awarded $132,000 by a FINRA arbitration panel against his financial adviser at Raymond James in connection with the Grifphon Asset Management hedge fund. The founder of the scheme, Yusaf Jawed, pleaded guilty in April to charges stemming from the scheme. Melkesian’s lawyer said, “I think the key to the case was a failure of supervision,” and “Brokerage firms have an obligation to supervise their financial advisers, and if they fail to do so, there is usually a strong case to be made that they are responsible for the investors losses, even if the brokerage did not even know that the sales had occurred.”
About 50 investors have joined in a lawsuit against Sasquatch Capital Management seeking to recover $32 million in investments made in the company run by Lyman Bruhn and Yusaf Jawed. Bruhn founded Sasquatch in the late 1990s as a hedge fund trading in public securities. The SEC charged him with running a Ponzi scheme and reached a settlement with Bruhn barring him from working as a financial adviser. Jawed ran a scheme through Grifphon Asset Management and Gifphon Holdings, pleaded guilty in April and is awaiting sentencing.
A Washington appellate court overturned a lower court’s order dismissing the claims of an investor against Tremont Group Holdings for negligent misrepresentation. FutureSelect Portfolio Management claims that it lost $195 million in the Bernard Madoff Ponzi scheme. Tremont previously settled a lawsuit with the Madoff trustee for $1 billion, but FutureSelect opted out of that settlement.
The owners of the Bernie Madoff New York penthouse that they purchased for $8 million in 2010 out it on the market for $17.25 million. Madoff had bought the penthouse in 1984 and lived there under house arrest until he was sentenced to 150 years in prison in 2009.
A court has found that Management Solutions Inc. was not a Ponzi scheme as it has historically been defined, even though the real estate investment company may have engaged in some illegal transactions. The court declined to apply the Ponzi scheme presumption to all transactions, finding that the irregularities need to be dealt with “transaction by transaction.” SEC v. Management Solutions, 2013 U.S. Dist. LEXIS 120277 (D. Utah Aug. 22, 2013) [enhanced version].
In the Medical Capital Holdings Inc. case, a court denied a good faith determination request in connection with a $105 million settlement with Wells Fargo Bank NA, declining to shield Wells Fargo from future claims over its alleged role in the $1 billion Ponzi scheme.
A bankruptcy court dismissed a lawsuit against Moss Adams filed by the trustee of the Meridian Mortgage Ponzi scheme, which sought as much as $150 million from the accounting firm relating to its audits of Meridian Mortgage. The court ruled that the case properly belongs in state court and not in the bankruptcy court. Moss Adams had audited about 10 Meridian Mortgage funds, which were created by Frederick Darren Berg, and also prepared Berg’s personal taxes. Berg pleaded guilty in 2011 to defrauding investors of more than $100 million and was sentenced to 18 years.
The former lawyer of Thomas Petters has filed papers seeking permission to question witnesses and present evidence at a hearing in which Petters is asking for a shorter prison sentence based on his accusations that his former lawyer, Jon Hopeman, supposedly did not advise him of a proposed 30 year prison sentence in connection with a plea deal.
The lawsuit against General Electric Capital Corp. brought by the liquidator of Palm Beach Finance Partners LP in the Thomas Petters case was allowed to move forward. The court dismissed 8 of 9 claims, but kept alive the claim for civil conspiracy to commit fraud. The plaintiff is seeking to recover losses of $1.1 billion in losses and over three times that in damages.
A court dismissed a claim of negligence against the SEC in connection with its conduct in connection with its investigation of Allen Stanford. Zelaya v. U.S., 2013 U.S. Dist. LEXIS 113369 (S.D. Fla. Aug. 2013) [enhanced version]. Carlos Zelaya and George Glantz, said they lost a combined $1.65 million with Stanford, and sought class-action status on behalf of investors who were victims of his fraud. They claimed that the SEC considered Stanford’s business a fraud after 4 separate examinations but failed to advise the Securities Investor Protection Corp. The court had previously allowed the case to proceed for consideration of the issue of whether the SEC had breached a duty to report Stanford’s misconduct, but now dismissed the case, finding that the Federal Tort Claims Act exception barring claims of misrepresentation deprived him of jurisdiction.
Principal Financial Group Inc. agreed to pay $3.2 million to settle a class action that alleged that Principal Financial had let is retirement account holders invest in a Ponzi scheme run by Westgate Management LLC. The proposed settlement will pay back the retirees 5.5% of their estimated losses from the scheme.
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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 the ABI Journal and 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.
Watch Kathy’s interview on the The Not So Legal Show.
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