The last month of 2012 finished the year with a continued
high volume of 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.
Aronson, 43, had previously been indicted with two other men as part
of an alleged $26 million Ponzi scheme but had been out on bail until he just
surrendered to new charges. The first charges alleged that Aronson promised
investors up to 400 percent interest in a business that imported paving stones
from Australia. Aronson was also charged with defrauding a California man out
of $25,000 by falsely claiming he could market the businessman's health food
bars on the "Dr. Oz" television show. Aronson was sentenced to 40 months prison
in 2000 for securities fraud.
Aulwes, 56, has been sentenced to 10 years in prison in
connection with his Ponzi scheme which defrauded 36 investors. Aulwes pleaded
guilty in August to securities fraud, money laundering and first-degree theft.
He misappropriated about $200,000 of investors' funds for his personal benefit
and to make "Ponzi-type" payments to other investors. He misappropriated
about $90,000 of investors' funds invested in the Philippines.
"Bo" Beckman, 42, filed a sentencing memorandum trying to
avoid a lengthy sentencing for his role in a $195 million Ponzi scheme run by Trevor Cook. Beckman offered to deliver
a $19 million check to the scheme's victims, provided that he only receives a
one-year prison sentence. The Ponzi scheme is believed to be the second largest
financial fraud in Minnesota history. It involved promises of above-average
returns because one of Cook's companies, Crow Fores, could supposedly take out
interest-free loans by virtue of its Jordanian operators' adherence to Islamic
sharia law that forbade charging interest. The scheme targeted about 700 investors.
Two of Cook's co-conspirators used their influence as Christian radio talk show
hosts to pitch the investment, while Beckman used his position as a money
manager to recruit investors. Cook was previously sentenced to 25 years in
Blankenship, 64, of Connecticut, known as "Danbury's
Bernie Madoff," was sentenced to 41 months in prison and ordered to pay
restitution in connection with a Ponzi scheme that defrauded about a dozen victims
of more than $500,000. The court rejected Blankenship's assertion that he was
too sick for prison. Blankenship had solicited customers to invest in his
company, Deer Hill Financial Group, LLC,
promising them high rate of return. In order to create the appearance of
legitimacy, Blankenship sent investors fraudulent account statements reflecting
fictitious holdings, fictitious transactions, fictitious prices for the
securities, and phony balances, all of which were intended to convince
investors that their money was secure and appreciating.
E. Brown, a tax preparer accused of running a large Ponzi scheme,
is refusing to answer questions by his bankruptcy trustee. Brown is accused of
running a scheme that promised returns as high as 15 percent and of never
actually investing the $10 million that he took in.
Thomas Brown was charged by the CFTC with operating two
commodity schemes which defrauded investors of about $1.2 million. It is
alleged that Brown fraudulently solicited members of the public to participate
in a commodity pool while acting as an unregistered commodity pool operator,
and that Brown fraudulently duped persons to authorize him to trade their
commodity futures accounts. Brown's fraud allegedly included misrepresentations
and omissions about his past trading success, trading profits, trading
expertise and personal history, the dissemination of false account statements,
and the misappropriation of customer funds.
D'Agonstino, 77, was indicted in connection with
allegations that he ran a Ponzi scheme through his company, Commercial Mortgage and Finance. The
scheme may have involved about 1,400 investors and about $20 million.
Daniels of California, Dominic
O'Dierno of Oregon, and Stephen
Persad of Oregon were charged by the SEC with failing to register as
broker-dealers before engaging in securities transactions. The SEC's
investigation found that the three were serving as primary points of contact
between investors and a hedge fund manager named Yusaf Jawed, who has been charged with running a $37 million Ponzi
scheme. They have not been charged, however, with having knowledge of the
Ray Dinning was charged in connection with a $2 million
Ponzi scheme, which involved purported investments in South African gold and
diamond mines. Dinning's bond request was denied when the court found that
Dinning had a history and character that showed a pattern of running from
Mills, and Robert Wilson had
final judgments entered against them in favor of the SEC in connection with a
Ponzi scheme that benefitted themselves, David
Ronald Allen and other companies including China Voice Holding Corp. The judgments permanently enjoin
Dowlatshahi and Mills from further securities violations. Dowlatshahi and his
companies, Lucrative Enterprises Corp.,
Synergetic Solutions LLC, Integrity Driven Network Corp., Darius Assets Holding Corp., are
ordered to pay disgorgement and prejudgment interest. Mills and his companies, Sleeping Bear LLC and Silver Summit Holdings LLC, are ordered
to pay disgorgement and prejudgment interest. Wilson and his companies, Strategic Capital and Green Horseshoe Holdings, Inc., are
ordered to pay disgorgement and prejudgment interest.
William Downing, 49, was sentenced to 15 years in prison in
connection with his Ponzi scheme that he ran through Health Solutions for Life. Downing defrauded investors of $340,000.
Jay Dresher, 66, was sentenced to 6½ years in prison and
ordered to pay $8.8 million in restitution for his scheme that defrauded about
26 victims out of $13.5 million by falsely promising that he was using their
money to finance a business that distributed NASCAR merchandise to retailers
such as Costco and Ross. Dresher guaranteed substantial monthly returns between
20 and 25 percent every six months.
Durham filed an appeal of his conviction for which he was
sentenced 50 years for stealing $200 million from investors in Fair Finance.
D. Fox, the former chief executive of Powder River Petroleum International Inc., has been ordered to pay
nearly $500,000 in fines and forfeitures in connection with charges by the SEC
that he ran a Ponzi scheme.
70, was sentenced to 8 years in prison after being convicted on charges
relating to a $6 million Ponzi scheme that defrauded 94 investors. Gent was
working for Guy Gane in soliciting
funds to invest in waterfront real estate through Watermark M-One Financial Services. Gane promised investors 10
percent returns, but no investments were made.
Robert Graves, 53, of Virginia, and his wife, Sara Turberville Graves, 45, pleaded
guilty to a scheme that defrauded 11 investors out of $1.3 million. John Graves
had resigned from the FBI in 1999 and founded Brooke Point Management in 2003, through which he sold insurance
and offered financial advice and investments. He was also a registered
investment advisor with and SEO of Compas
Financial Advisers. The Graves targeted elderly investors. John Graves received
an 11 year 3 month sentence and Sara Graves received a 3 year sentence.
and Allen Jacobson were ordered to forfeit millions of dollars
of profits from the operation a Ponzi scheme through Management Solutions Inc. The scheme involved about 200 investors
who had invested more than $200 million. The receiver of Management Solutions
and the defrauded investors continue to disagree on the best method of
liquidation and distribution of the assets of the company.
Johnson, the CEO of Herbalife,
was accused by investor Bill Ackman of running pyramid and Ponzi scheme and
defrauding people out of $3.8 billion. Ackman claims that 1.9 million Herbalife
salespeople have not made money since the company was founded 32 years ago, and
each person would have paid about $2,000 for supplies and training. Ackman
claims that Herbalife makes most of its money not by selling products but by
recruiting sales staff, which pay a sign-on fee. Johnson responded to the
accusations by stating, "This is a ridiculous assertion by people who are
trying to manipulate our stock."
Kelly, 44, of Ohio, was arrested in connection with charges
that he took more than $1.5 million from about 15 people in a Ponzi scheme that
he ran through his insurance and investment company J.G. Kelly Financial Group. Kelly solicited clients to invest in
funds called Superior Financial
Resources and J.G. Kelly Equities
Group. Kelly was arrested while he was working as a boat captain at Disney
E. Kelly, 63, suffering from colon cancer, was ordered freed from
custody just one day after he pleaded guilty to one charge relating to a
massive Ponzi scheme that scammed mostly elderly investors out of $342 million
by promising safe, high returns from timeshares in Mexico. Kelly had been
serving time since 2006 and was sentenced to time already served. Kelly faces a
far lengthier prison term if he survives and is convicted on any of the 13
Kennedy of California, the former president of 21st Century
Financial in Paso Robles, was sentenced to 5 years in prison and ordered to pay
restitution after pleading guilty to charges in connection with her operation
of a Ponzi scheme.
J. Klos, 86, saw his sentencing continued. Klos accepted a plea
deal in connection with his $3.5 million Ponzi scheme that defrauded 10 elderly
victims in the Seattle area. Klos agreed to a sentence for one year in jail and
$2.3 million in restitution. Klos faces a sentence range of 51 to 68 months if
the judge declines to accept the plea and imposes his own sanctions, or if Klos
has failed to repay the victims of his Ponzi scheme $2.3 million as he promised
T. Knapp, 29, was charged with running a Ponzi scheme through his
company SteepleChase Group, by
promising returns of 18 to 20 percent for short-term investments. Knapp worked
as a financial advisor for Dawson James Securities Inc. and solicited his
clients to invest in his scheme.
The Fifth Circuit denied the motion of Gilbert Lopez and Mark Kuhrt for release pending sentencing. They were convicted on
November 19, 2012 of conspiracy and wire fraud for their roles in Allen Stanford's multi-billion-dollar
Ponzi scheme. United States v. Lopez,
2012 U.S. App. LEXIS 26292 (5th Cir. Dec. 21, 2012).
Madoff, 67, the brother of Bernard
Madoff, was sentenced to 10 years in prison and ordered to forfeit $143.1
billion for his role in the Madoff Ponzi scheme. Peter Madoff pleaded guilty to
charges for falsifying books and records and agreed not to oppose a request by
prosecutors for a maximum sentence of 10 years. Peter Madoff helped create
false and misleading documents designed to make it appear that the firm had an
effective compliance program. He also transferred millions of dollars within
the Madoff family to avoid tax payments to the Internal Revenue Service and put
his wife on the firm's payroll.
Ann McCall was arrested for defrauding Ponzi schemer James Koenig. McCall met Koenig though
match.com in 2007and then advised him that she had breast cancer. She moved
into Koenig's house and never paid for it. Koenig was arrested and jailed for
defrauding hundreds of investors out of millions of dollars. The original
indictment alleged more than 700 victims with about $250 million in damages.
Koenig's assets were frozen in connection with his scheme, and the house is now
Perlman of California saw a default judgment and permanent
injunction entered against him and his firm, iGlobal Strategic Management LLC, in connection with the operation
of a commodity pool Ponzi scheme that defrauded 17 people of at least $670,000.
According to the CFTC, Perlman, who is deaf himself, solicited funds mostly
from the deaf community. At least $365,000 of iGlobal investor funds were
misappropriated to make payments of fictitious profits, for cash withdrawals
and personal expenses including electronics, groceries, restaurants, and to pay
utility bills and rent at Perlman's personal residence.
Shannon Polen, 37, pleaded guilty to running a $16 million
Ponzi scheme. Polen admitted that, between January 2007 and March 2011, he
operated three investment Ponzi schemes in which he solicited and received
approximately $16 million from more than 50 investors. Polen admitted that the
investment schemes, identified individually as the "John Deere Investment," the "Greenway
Investment," and the "Tennesseein
Valley Authority Coal Ash Cleanup Investment," were totally fraudulent, and
he never intended to invest any of the funds he received from investors.
Schnepp, 51, former high school basketball coach in Florida, was
arrested in connection with an alleged Ponzi scheme that defrauded investors of
about $200,000. Schnepp told friends, teachers and fellow coaches that he was
an investment adviser and began soliciting money from them. Schnepp sent out
fake quarterly statements indicating the investments were doing well. Schnepp
was not a licenses investment adviser during that time period.
Sharif of Connecticut was charged by the CFTC with operating a
commodity pool Ponzi scheme named First
Financial that solicited approximately $5.4 million from at least 50
people. Sharif enticed investors by guarantying monthly and yearly returns of
one to ten percent on their investments. To falsely assure pool participants
that their funds were safe in the pool's trading accounts, Sharif allegedly
fabricated trading account statements from First Financial and from futures
Sigillito, 63, was sentenced to 40 years in connection with his
Ponzi scheme which defrauded more than 150 investors out of $52.5million. Sigillito,
a lawyer and American Anglican bishop, told investors that their money was
going to real estate investments in the United Kingdom through a program known
as the British Lending Program, that
there was little or no risk, and they would earn high rates of return.
Sigillito ran the scheme with James
Scott Brown, who previously received a 3 year sentence.
Singh, 43, was ordered to remain in jail pending a pre-trial
hearing in January in connection with an alleged $20 million Ponzi scheme that
defrauded around 190 victims. Singh allegedly operated the scheme through his
business, Perfect Financial Group,
which supposedly made hard money loans. According to federal authorities, Singh
represents a flight risk and has already been charged with obstruction of
justice, so there was not sufficient reason to release him.
D. Snow was sentenced to 10 years in prison for his role in the Fair Finance Ponzi scheme.
Co-defendants Timothy Durham and James Cochran were sentenced to 50 and
25 years, respectively.
L. Spector, 52, was sentenced to 5 years of probation and ordered
to pay more than $600,000 in restitution in connection with charges relating to
mortgage fraud and a Ponzi scheme. Spector would conduct real estate mortgage
refinance closings but would transfer the proceeds of the mortgages obtained by
his clients in a Ponzi scheme fashion.
Group, Inc. and Darren L.
Palmer were permanently enjoined in an action by the CFTC and ordered to
return $20.6 million in ill-gotten gains in connection with a commodity pool
Ponzi scheme. The consent order states that the defendants solicited at least
$40 million from at least 57 investors.
Underwood and Cynthia
Underwood lost their motion to overturn 2009 convictions for their role in
a Ponzi scheme. "Darrell Underwood, aided and assisted by Cynthia Underwood,
solicited investors for a real estate venture, convincing investors to invest
in Walkwood Properties by telling
them the company would invest the money in properties subject to foreclosure.
Petitioners promised investors a 50 percent return on the investment within a
60-to-120 day period. Throughout 2007 and into early 2008, investors received
payments, leading them to believe the housing transactions were generating the
promised returns on the investments. Evidence introduced at trial, however,
established Petitioners were using investors' funds to pay other investors and
for Petitioners' own enrichment." Underwood
v. United States, 2012 U.S. Dist. LEXIS 173514 (E.D. Va. Dec 6, 2012)
Vahedi, 51, pleaded guilty to charges related to his $12
million Ponzi scheme that he ran through his company KGV Investments in which he defrauded 30 investors.
PONZI SCHEME NEWS
Samji, alleged perpetrator of a large Ponzi scheme, filed
bankruptcy in the face of 58 lawsuits by investors against her, her alleged
accomplice, Arvin Patel, and their
companies, Worldsource Financial Management
Inc. and Coast Capital. It has
been alleged that Samji raised $83 million from 218 investors for what she
purported to be a "secure investment" in a winery that would yield six to 30
per cent annually. Many of the defrauded investors are from the Surrey
Indo-Canadian community. Some of the lawsuits also name three financial
institutions through which Samji allegedly funneled money from her scheme - TD
Bank, Royal Bank and Vancity Savings Credit Union.
A report was issued by Sin Chew Daily cautioning
investors about investing in Nanning-Asean
Economic Development Zone, which might be a Ponzi scheme. The report said
that investors were asked to invest 69,800 yuan (RM35,000) and then told that they
would be able to receive returns of about RM5.2mil within three years.
An investor protest took place at a branch of Huaxia Bank
in Shanghai over products that the investors claim have not paid out as
promised. Investors who had invested funds in a wealth management product (WMP)
issued by Zhongding Wealth Investment
Centre, sold at Huaxia Bank, have lost their savings. Forty investors
protested against Huaxia Bank in Shanghai after they learned that Zhongding
would be defaulting on its repayment to them. Zhongding had offered 11 percent
interest which was more than triple the benchmark deposit rate set by the
central bank. The products were structured as limited partnership interests that
provided private equity stakes in auto companies and pawn shops. Huaxia Bank
says that it is not a distributor of this product and that any sales person who
sold it did so without bank authorization. This type of "wealth management"
product is unregulated in China, causing concerns that there may be systemic
problem in the country's entire financial system.
The order freezing the assets of David Ross and his company, Ross
Asset Management, will continue until February. Ross in the meantime is receiving
$1,000 per week to live on. Ross Asset Management was placed in receivership in
November. The receivers of Ross Asset Management, a Wellington fund manager,
also applied to the High Court to liquidate the companies. The receivers thus
far have identified $10.2 million of the $449.6 million that was believed to be
managed by Ross for 900 investors.
John Collecutt, 57, was sentenced to 2 years, 2 months and
3 weeks' imprisonment in connection with his Ponzi-style scheme that he ran as
a self-employed foreign exchange trader. Collecutt traded from home under the
name CFX Trading, and defrauded 59 investors out of about $1.5 million.
A 52 year old woman surnamed Huang was sentenced to 12 years in prison in connection with a
NT$20 billion Ponzi scheme where she embezzled tuition fees paid for a
spiritual workshop she founded. Huang's sister and husband, each surnamed Lin, each got a 10 year sentence. Huang
would promise NT$80,000 in interest payments every 8 months for every
NT$1million that victims deposited. Huang collected over NT $19.9 billion from
8,056 people. The money was in luxury real estate.
LEGAL ISSUES IN PENDING PONZI SCHEME CASES
A murder plot was revealed in connection with the Ponzi
scheme of Jason "Bo" Beckman.
Federal prosecutors said that Gerald
Durand proposed to Christopher
Pettengill, two co-conspirators in the Ponzi scheme with Beckman, that they
arrange to kill Beckman to collect and split the proceeds of his $2.5 million life
The receiver of Benny
Judah filed his final report disclosing that $10.3 million will be
distributed to investor victims who have combined losses of $35.9 million. Judah
is serving a 25 year sentence after pleading guilty to charges in connection
with his Ponzi scheme in which he knowingly sold and delivered unregistered
The Bernard Madoff
trustee, Irving Picard, asked the court to block an $80 million settlement with
the founders of Fairfield Greenwich Group. Picard said that that settlement, if
allowed to proceed, will "thwart the Trustee's efforts to recover funds for
equitable distribution to the victims of the Ponzi scheme." Picard separately
entered into a settlement with the funds where they will receive distributions
on $270 million in approved claims. If the $80 million settlement succeeds,
then these investors will receive more than others who invested directly or
indirectly with Madoff. Picard has estimated as much as $7 billion was invested
by various Fairfield funds with Madoff, including investments by the Sentry
funds. The settling defendants include Fairfield Greenwich's founder partners,
Walter Noel Jr., Andres Piedrahita and Jeffrey Tucker, who will cover the bulk
of the settlement.
Madoff investors Adele Fox and Susan Marshall argued before the
Second Circuit that an injunction issued against them prohibiting them from
pursuing claims against the estate of Jeffry Picower should be overturned. Picower's
estate entered into a settlement with the Madoff trustee and the government
providing for payment of $7.2 billion. About $5 billion of the settlement is to
be paid to the estate of Bernard L. Madoff Investment Securities LLC, and $2.2
billion was to be forfeited the government. Picard has recovered $9.28 billion
for Madoff victims, excluding the $2.2 billion in the government forfeiture,
and about $2.89 billion has been distributed.
The family of Shimon Levy, an investor and business
partner of Scott Rothstein, settled
a lawsuit with the Rothstein Rosenfeldt
Adler bankruptcy estate for $150,000. The Levys had been sued for recovery
of $4.8 million of payments that had received from Rothstein. The Levys had
invested approximately $50.6 million in the Ponzi scheme and were repaid
approximately $49 million. The settlement involves the payment of $150,000 and a
lower priority treatment for the Levys' $5.6 million claim. The Trustee was
satisfied with the Levy's claims that the Rothstein transactions were made in "good
The receiver of Small
Business Capital Corp. reported fees, along with his attorney, of about
$377,000. The scheme involved 400 investors that had invested $42 million into
funds managed by SB Capital. The CEO of SB Capital, Mark Feathers, denies charges of fraud. The receiver reported that investors
might recoup $11 million in liquid assets and $25.45 million from loans.
An accord was reached between the receiver of the R. Allen Stanford estate and the
Stanford Antiguan liquidators to jointly control the remaining assets,
coordinate victim claims, and to cooperate on asset recovery and information
The SEC commenced proceedings against the Chinese arms of
five top accounting firms - Deloitte, KPMG, PricewaterhouseCoopers, BDO and
Ernst & Young - in connection with a probe of possible accounting fraud of
nine U.S.-listed Chinese companies.
The SEC has been attempting to obtain documents relating to possible accounting
irregularities at those firms, but Chinese secrecy laws have stymied those
efforts. Although the SEC has been in discussions with Chinese regulators on
cross-border cooperation, including access to documents, those efforts have not
yielded an agreement. The SEC action accuses the affiliates of violating U.S.
securities laws that require foreign public accounting firms to provide the SEC
with audit work papers involving any company trading on U.S. markets. Many of
the Chinese companies under investigation traded on U.S. exchanges through "reverse
mergers" and have since been deregistered by the SEC.
The receiver of ZeekRewards
is battling with investors over the service of subpoenas by regular mail rather
than by personal service. Additionally, counsel for victim Fun Club USA,
Michael Quilling, has filed a motion seeking the appointment of himself as an
examiner that would act as a representative on behalf of all "affiliates."
The former lawyer for Bernard Madoff, Lee Sorkin, on
behalf of Trudy Gilmond and Kellie King, filed a motion to terminate the
receivership of ZeekRewards, taking
issue with the SEC's determination that ZeekRewards business involved the sale
of securities Gilmond and King are currently being pursued by the receiver for
the return of false profits.
receiver provided updates to victims on the $600 million Ponzi scheme case. The
receiver estimated that approximately 840,000 affiliates invested more than
they withdrew, but about 77,000 affiliates withdrew an amount in excess of
their total investment. The receiver is preparing to institute a claims process
and is in discussions with many net winners regarding the repayment of profits.
The receiver may institute litigation to recover clawbacks. The receiver is
also continues to oppose the appointment of an examiner along with efforts to
terminate the receivership.
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.