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A former Biglaw lawyer who was charged with operating a $5 million Ponzi scheme after surviving a Ponzi scheme will reportedly plead guilty to fraud charges. Charles Bennett, a former lawyer at renowned law firm Skadden Arps Slate Meagher & Flom LLP, was arraigned from his hospital bed late last year on charges of wire fraud and securities fraud after an NYPD diver rescued him from the Hudson River. He also faced a civil enforcement action from the Securities and Exchange Commission. It remains unclear as to what specific charge(s) Bennett will enter a guilty plea.
Bennett started as a lawyer in the 1980s, working for several prominent New York law firms that specialized in corporate law and mergers and acquisitions. During his tenure at those firms, he made several key connections, including the then-wife of former New York governor Eliot Spitzer and the principal of a Wyoming family-owned investment fund. In the early 2000s, Bennett opened a solo law practice. In the mid-to-late 2000s, Bennett began encountering financial difficulties as a solo legal practitioner and started borrowing funds from friends to stay afloat. Soon thereafter, Bennett began representing that he had a connection to a Wyoming hedge fund (the 'Fund"), which purportedly generated significant returns through investments in European real estate mortgage-backed securities and/or credit default swaps. Potential investors were told that former Governor Eliot and his then-wife were investors in the Fund. After making an investment in the Fund, investors then received falsified documents containing the logo of the Fund, which he used without permission of the Fund. In total, Bennett raised more than $5 million from at least 30 investors. However, while the Fund was real and Bennett had a relationship with the Fund principal, no outside investor money was ever taken by the Fund nor did Bennett ever make an investment with the Fund. Rather, Bennett simply appears to have taken advantage of the fact that the Fund was based across the country in Wyoming. Instead of investing those funds entrusted to him, Bennett instead allegedly used investor funds to sustain his lavish lifestyle that included international travel and large cash withdrawals. Bennett also used new investor funds to make payments of fictitious interest and principal to existing investors - a hallmark of a Ponzi scheme.
By 2014, Bennett was repeatedly receiving investor demands for the return of their principal and accrued returns - demands that Bennett was unable to meet with his available funds. In an attempt to stave off victim demands, Bennett opened two bank accounts at a new financial institution with $100 in each account - and then proceeded to write checks of $500,000 and $550,000, respectively. Those checks subsequently bounced. After the demands intensified, Bennett checked into a New York hotel in early November 2014 and authored a 16-page suicide note titled "A Sad Ending To My Life," in which he took full responsibility for the Ponzi scheme and confessed that “the whole investment scheme that so many thought was real was in fact a complete and [sic] fiction of [his] crazed imagination,” and that “the bulk of the funds were used in classic Ponzi scheme fashion to pay off other supposed ‘investors’ and my absurd lifestyle.” The next day, Bennett jumped into the Hudson River.
Depending on the charges, Bennett could face decades in prison although federal sentencing guidelines will likely call for a much shorter term.
For more news and analysis of Ponzi schemes, visit Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.
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