Not a Lexis+ subscriber? Try it out for free.
LexisNexis® CLE On-Demand features premium content from partners like American Law Institute Continuing Legal Education and Pozner & Dodd. Choose from a broad listing of topics suited for law firms, corporate legal departments, and government entities. Individual courses and subscriptions available.
Below is a summary of the activity reported for January 2016. The reported stories reflect: 5 guilty pleas or convictions in pending cases; over 70 years of newly imposed sentences for people involved in Ponzi schemes; at least 5 new Ponzi schemes worldwide; and an average age of approximately 53 for the alleged Ponzi schemers. 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.
Angelo A. Alleca, 46, and Mark Morrow, 54, were indicted on charges that they operated a Ponzi scheme through Summit Wealth Management and Detroit Memorial Partners, promising returns to investors from investments in hedge funds and fixed-income securities. They falsely promised investors promissory notes secured by real property. The scheme allegedly defrauded more than 300 investors out of $35 million.
Lori Ann Anderson, 53, pleaded guilty to running a Ponzi scheme that defrauded about 70 investors out of over $1.7 million. Her investment business, SMTS Association, was a type of trading club.
Nikolai S. Battoo was the subject of a $500 million fine and restitution order in connection with a $140 million Ponzi scheme that defrauded about 250 pool participants. He ran a group of businesses under the name BC Capital Group. The CFTC sued them for fraud 3 years ago alleging that they committed fraud by failing to disclose the exposure of their investments in the Bernard Madoff Ponzi scheme as well as other trading losses that were suffered.
Roger Stanley Bliss, 57, was sentenced to one year and one day in prison in connection with a Ponzi scheme. He was convicted for obstruction of justice and a false declaration for violating a court order obtained by the SEC to freeze his assets when he gave his sailboat to his brother-in-law, Kevin Carl Fortney.
Diane Cobb, 58, was sentenced to 41 months in prison for her operation of a Ponzi scheme along with her business partner, Paul Sloane Davis, 76, through DM Financial. Cobb is a former mortgage broker who defrauded investors by promising returns from bridge loans that would be made to borrowers to purchase residential real estate. Cobb and Davis profited by more than $1 million from the scheme. Davis was sentenced to 3 years in prison.
Darryle Douglas is still the subject of an ongoing investigation and is wanted by the FBI, following his arrest that was ordered last month. Douglas violated a court order in connection with the ZeekRewards receivership case to turn over the ZeekRewards database and other information. Douglas is believed to now be associated with another possible scheme, Auction Attics.
Chad R. Deucher, Richard Clatfelter, and Marquis Properties LLC were named in an SEC complaint seeking an asset freeze. The SEC alleged that the defendants were operating a Ponzi scheme and promising returns of 8% to 12% annually that were supposedly risk-free because the investments would be secured by a first deed of trust on the property. The scheme raised at least $28.2 million from more than 250 people. Marquis was supposedly an experienced property management company that specialized in acquiring and managing properties and was selling interests in “turnkey real estate properties, promissory notes secured by real properties, and joint venture agreements to purchase real properties.” The SEC alleged that investor funds were used to pay personal expenses, including payment of about $400,000 to Deucher’s wife.
Rebekah Fairchild and Rebekah L. Riddell both agreed to plead guilty to one count of conspiracy in connection with the $70 million Ponzi scheme run by William Apostelos. The scheme allegedly defrauded nearly 500 investors. Apostelos and his wife, Connie Apostelos, are free on bail pending their trial scheduled for May 2016. Fairchild was the receptionist for the business and handled accounts and banking activities. Riddell was an administrative assistant who allegedly prepared promissory notes, prepared investor statements, and communicated with investors.
Tate George, 47, was sentenced to 9 years in prison and ordered to pay $2.55 million in restitution in connection with a Ponzi scheme he operated through The George Group. George is a former professional basketball player who defrauded victims, including other professional athletes, by promising them returns from a supposedly successful real estate development company that had a portfolio of $500 million in assets.
Coral Rose Grant and her husband Mac Grant were accused in a class action lawsuit of running a Ponzi scheme through their company, The Secret to Life Coaching. The lawsuit alleges that Coral and Mac stole between $8 million and $20 million.
Lawrence Leland “Lee” Loomis, 58, pleaded guilty to charges related to a Ponzi scheme in which he took in more than $10 million of investor funds from 50 individuals through his company Loomis Wealth Solutions. Loomis promised 12% returns to investors through the purchase of life insurance policies or real estate investments.
Matthew McClintock aka Michael Willis was accused of defrauding at least 70 investors and 9 businesses in an alleged Ponzi scheme involved $25,000. McClintock solicited investors for a film project that purportedly featured Clint Eastwood. McClintock promised that the show would air on PBS and that a portion of the proceeds would go to the Western Montana Breast Cancer Fund.
Steven McKinlay, 58, and his wife, Kristi McKinlay, 56, were charged with running a Ponzi scheme through their company, God’s Sports Company. The company raised more than $3 million from investors for a prototype baseball. The funds were used to make payments to existing investors, for personal expenses, and for at least a $50,000 donation to their church.
Istvan Merchenthaler, 45, was sentenced to 11 years and 8 months in prison and ordered to pay $3.4 million in restitution in connection with a scheme that defrauded more than 250 investors out of $3 million. The scheme was run through his company, PhoneCard USA, a supposed prepaid phone-card and cellphone distributor. Merchenthaler was arrested in 2012 and fled when he was out on bail, but was ultimately located in 2013 when authorities found him along with multiple firearms and ammunition.
James E. Neilsen, 55, was sentenced to 8 years and one month in prison in connection with his Ponzi scheme that defrauded investors out of $1.6 million. The scheme was run through Ulysses Partners and Neilsen Financial Services. Investors were promised returns of 9% to 10.5%.
Brent Lee Newbold, 58, was sentenced to 4 years and 3 months in prison and ordered to pay $2.9 million in restitution in connection with a Ponzi scheme that defrauded 13 investors.
Rose Marie O’Reilly, 63, was sentenced to 4 years in prison and ordered to repay around $1.4 million in restitution in connection with a Ponzi scheme involving pink diamonds and silver antiques. O’Reilly defrauded investors by falsely claiming that she could buy and sell items owned by famous musicians or mob bosses for huge profits. O’Reilly had pleaded guilty last year.
Randy Poulson, 45, was sentenced to 6 years in prison for a Ponzi scheme that he ran through Equity Capital Investments. Poulson had admitted defrauding distressed homeowners by coaxing them to give him their houses and then soliciting fake real estate investments from private investors secured by those properties. Poulson netted more than $3 million from the scheme.
Richard Reynolds, 54, filed an appeal of his conviction relating to a $4 million Ponzi scheme that defrauded 140 investors. Reynolds was sentenced to 60 years in prison and ordered to pay $4.45 million in restitution. Prosecutors allege that Reynolds used his affinity with ministers, pastors, evangelists and other church-related people to solicit investors. Reynolds has appealed, claiming that the lower court improperly denied his motion to dismiss the case for a speedy trial violation.
Jeffrey Bruce Risinger has been barred for life from ever working in the securities industry or associating with any FINRA member institution. The sanction stems from an alleged Ponzi scheme that raised $15 million from 80 investors. Risinger ran the scheme through Veros Partners along with Matthew D. Haab and Tobin J. Senefeld.
Joel Wilson, 33, was convicted on charges including securities fraud in Saginaw County. Last year, Wilson was sentenced to 8 years to 20 years in connection with his scheme run through The Diversified Group Advisory Fund LLC. The scheme defrauded about 120 investors of about $6.4 million.
Thomas Franklin Tarbutton, 56, was found guilty in connection with a scheme run through Villa Capital Inc. that involved 11 victims and over $3 million. Investors understood that they were funding mortgages that would pay quick profits. A warrant had been issued for Tarbutton’s arrest in 2011, and Tarbutton fled to Brazil and then to Panama. He was detained in Panama in 2014, and returned to the U.S. to stand trial.
Steven Wessel aka Wes Wessels, 58, was sentenced to 4 years and 7 months in prison and ordered to pay $499,000 in restitution for his role in a scheme run through Steeplechase USA, LLC.
Robert Scott Wiens, 53, was sentenced to one year in jail and agreed to pay $260,000 out of $734,140 in restitution. Wiens had promoted an investment program in RXM Holdings Ltd., which he held out to be a proprietary trading operation. Wiens claimed to be a specialist in the purchase and sale of U.S. Stock Index future contracts.
Lorie Ann Williams, 49, was sentenced to one year and one day in prison for her role in evading requirements for bank reporting in connection with the her husband’s involvement in the $900 million Nevin Shapiro Ponzi scheme run through Capitol Investments USA Inc. Williams’ husband, Sydney “Jack” Williams, had brought about 60 people into the scheme and he was paid about $18 million in commissions while the investors lost $38 million. Lori Williams began withdrawing funds from her husband’s account in increments of less than the $10,000 limit to evade the currency reporting threshold after lawsuits were filed against him.
Joseph Paul Zada, 57, was sentenced to 17½ years in prison in connection with a scheme in which he defrauded more than 20 investors out of more than $20 million and possibly as much as $37 million. Zada promised that he would put the investors’ funds into oil ventures and currency trading through a top-secret board headquartered in London.
INTERNATIONAL PONZI SCHEME NEWS
Provisional liquidators were appointed over 5 companies believed to be operating a Ponzi scheme. The companies are CME Capital Australia Pty Ltd., Boston Pacific Capital Australia Pty Ltd., GKN Capital Pty Ltd., Boston Pacific Capital Pty Ltd. and IMCG Pty Ltd. The companies raised about $13.55 million from investors. ANZ and the Commonwealth Bank of Austria were listed among the 13 co-defendants in the case.
The trial of Quintin Earl Sponagle, 51, was moved to Halifax due to the long length expected for the trial. Sponagle sought to further delay the trial because he does not have counsel. He is accused of defrauding 179 investors out of more than $4 million through his company, Jabez Financial Services Inc.
The government issued a warning to the public that the Russian-based website run by Sergei Mavrodi, known as MMM Global, is operating illegally in the country and is unlicensed to attract investors online. The notice stated that Mavrodi had served 4½ years in prison because of prior activities in defrauding investors.
Nirmal Singh Bhangoo was arrested in connection with his role in the Pearls Group Ponzi scheme. Bhangoo was affiliated of both PGF Limited and Pearls Australasia Private Limited. Others arrested in connection with the scheme are Sukhdev Singh, Gurmeet Singh, Subrata Bhattacharya. They were arrested almost two years after CBI had begun investigating the alleged Rs 45,000-crore ($6.7 billion) Ponzi scheme. The Pearl entities own more than 183,000 acres of land in India, and the scheme is believed to have defrauded 55 million investors.
The CBI took Gautam Kundu into custody. Kunda was the head of the Rose Valley Ponzi scheme.
Sim Tee Peng pleaded guilty to having defrauded 21 victims out of more than $1,785,000 by acting as a paralegal supposedly helping four law firms. Peng represented himself as a lawyer and took victims money who thought they were buying properties for the purpose of paying conveyancing fees. He would instruct victims to deposit stamp duty payments into his personal bank account, telling the victims that he had issued payments on their behalf.
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
The Sixth Circuit upheld the convictions of John Joseph Bravata and Antonio Bravata and also upheld John Bravata’s 20 year sentence. U.S. v. Bravata, 2016 U.S. App. LEXIS 1120 (6th Cir. Jan. 22, 2016) [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance]. The father and son had been convicted of running a Ponzi scheme through BBC Equities, LLC. A third defendant, Richard Trabulsy, had pleaded guilty prior to trial. Antonio did not appeal his 5 year sentence.
The Tenth Circuit reversed the district court’s order dismissing the criminal case against Claud “Rick” Koerber with prejudice. U.S. v. Koerber, 2016 U.S. App. LEXIS 994 (10th Cir. Jan. 21, 2016) [lexis.com | Lexis Advance]. Koerber was indicted on charges that he ran a $100 million Ponzi scheme, but his criminal case remained pending for more than 5 years without reaching trial. The district court found a violation of the Speedy Trial Act, but the appellate court remanded, finding that the district court abused its discretion by considering improper factors regarding the seriousness-of-the-offense factors and by failing to fully consider Koerber’s own actions that may have contributed to the speedy-trial delay.
The trustee of the Bernard Madoff Ponzi scheme reached a settlement with Vizcaya Partners Ltd. a British Virgin Islands hedge fund, and its affiliates. Vizcaya agreed to pay $24.9 million to the trustee for their role as a feeder fund in the Madoff scheme.
PricewaterhouseCoopers LLP agreed to pay $55 million in connection with the Bernard Madoff Ponzi scheme to settle a class action lawsuit alleging that it failed to recognize and alert investors to red flags in connection with the scheme. The settlement will be paid to owners of shares or limited partnership interests in funds managed by Fairfield Greenwich Ltd. PWC did not admit any wrongdoing in the settlement.
The Second Circuit ruled that James Dimon, the chief executive of JPMorgan Chase & Co., along with 12 others, cannot be sued by the Steamfitters Local 449 Pension Fund and the Central Laborers’ Pension Fund for the alleged failure to flag irregular transactions in the account of Bernard Madoff’s business. The lawsuit had alleged that “JPMorgan – at its highest level – chose to turn a blind eye.”
An appellate court upheld a lower court decision in the Bernard Madoff case determining the proper method for calculating customers’ claims involving inter-account transfers
A New York court of appeals affirmed the dismissal of a lawsuit against KPMG International and KPMG U.K. accusing them of wrongful conduct in connection with audits of Madoff Securities International Ltd. The court held that the New York courts did not have jurisdiction over the claims because the harm did not occur in New York.
A New York appeals court upheld the lower court’s dismissal of a lawsuit filed by investors in Bernard Madoff’s scheme that alleged HSBC Private Bank had breached its fiduciary duty and had wrongfully frozen their assets. The court found that the accounts agreements explicitly authorized the bank to freeze the accounts.
The Sixth Circuit denied the appeal of David McQueen, seeking to overturn his conviction. U.S. v. McQueen, 2016 U.S. App. LEXIS 1052 (6th Cir. Jan. 19, 2016) [lexis.com | Lexis Advance]. McQueen was sentenced to 12 years in connection with a Ponzi scheme he had run through Multiple Return Trading along with Trent Francke. The scheme defrauded about 800 investors out of $46 million. McQueen had also established three other investment funds – International Opportunity Consultants, Diversified Global Finance and Diversified Liquid Asset Holdings. The appellate court found that sufficient evidence to convict McQueen and that his sentence did not violate the Eighth or Fourteenth Amendments and was not substantively or procedurally unreasonable.
A class action was filed against City National Bank, alleging that the bank helped Joel Barry Gillis, 75, and Edward Wishner, 77, run a $125 million Ponzi scheme through Nationwide Automated Systems Inc. City National Bank was the primary bank used by Gillis and Wishner. The investors’ complaint alleged that the bank "had before it the very nuts and bolts of the Ponzi scheme and could not perform even cursory due diligence without bumping up against evidence of the fraud. Not only was defendant City National Bank instrumental in lulling investors into a false sense of security by helping to ensure that virtually none of the fictitious profit checks bounced, but it also routinely served as a reference for Nationwide Automated Systems in its recruitment of potential investors."
The First Circuit affirmed the 242 month sentence of Dilean Reyes-Rivera in connection with a Ponzi scheme he operated largely in Puerto Rico that defrauded more than 230 people out of $22 million. U.S. v. Reyes-Rivera, 2016 U.S. App. LEXIS 1512 (1st Cir. Jan. 29, 2016) [lexis.com | Lexis Advance]. The scheme was run through Global Reach Trading in which he was president. Reyes-Rivera had pleaded guilty but appealed the length of his sentence. The appellate court found no error in the lower court’s ruling.
The TelexFree trustee filed a class action lawsuit against alleged winners in the scheme, naming 56 promoters. It is reported that there are between 78,000 and 93,000 other potential defendants who reside outside of the United States to be joined in a class action. TelexFree had as many as 1.9 million participants.
The trustee in the Tom Petters bankruptcy case filed a plan of liquidation. The plan will create a liquidating trust to distribute the $160 million currently in the estate, plus an additional funds that may be brought into the estate through litigation. Petters, 58, was convicted of running a $3.5 billion Ponzi scheme and was sentenced to 50 years in prison.
Read additional articles at The Ponzi Scheme Blog
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.
Kathy is also the author of is Ponzi-Proof Your Investments: An Investor’s Guide to Avoiding Ponzi Schemes and Other Fraudulent Scams. For more information, or to purchase the book, click here.
Watch Kathy’s interview on The Not So Legal Show.
For more information about LexisNexis products and solutions, please connect with us through our corporate site.