The year 2013 is off to a good (or bad, depending on how
you look at it) 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.
Gary T. Armitage,
60, reached a plea agreement on the eve of his trial relating to a $200 million
Ponzi scheme run through AGA Financial in which he and James Koenig,
57, defrauded about 2,000 investors.
Jason "Bo" Beckman, Gerald
Durand and Christopher Pettengill of Minnesota were sentenced in
connection with a $194 million Ponzi scheme that defrauded more than 700
investors, mostly retirees. The scheme was run by Trevor Cook, a money
manager who is now serving a 25 year prison term. Beckman was sentenced to 30
years in prison and ordered to pay nearly $155.4 million in restitution.
Beckman had recently unsuccessfully offered $19 million to victims in exchange
for a lighter sentence. Durand was sentenced to 20 years and Pettengill was
sentenced to 7.5 years. Co-conspirator Patrick Kiley has not yet been
sentenced. The scheme was allegedly that Cook and his co-conspirators solicited
investors to put money in a foreign currency trading program that they promised
would earn a double-digit rate of return, typically between 10.5% and 12% annually,
with little or no risk.
Lt. David Benjamin and
Detective Jeff Poole, both employees of the Broward County Sheriff's
Office, were suspended with pay after the disclosure that the men were "under
criminal investigation by an outside agency." The investigation relates to
their involvement with Scott Rothstein, although the exact conduct for
which they are being investigated in unclear. Lt. Benjamin had been contacted
in 2009 for a police escort to a waiting plane bound for Morocco. It is
reported that when Rothstein boarded the plane, he had a duffel bag containing
at least $2 million and a collection of expensive watches, and had already
wired at least $15 million to a Moroccan bank account. In exchange for his
services, Rothstein allegedly gave Benjamin one of the high-priced watches,
which Benjamin later agreed to return to the court-appointed bankruptcy
Jack E. Brown was
the subject of the largest-ever creditor's meeting in the U.S. Bankruptcy Court
for the Eastern District of Tennessee. About 50 victims showed up and called
for Brown, along with his wife, Janet Brown, and son, Jason Brown,
who are said to be involved, to be jailed and their assets seized. Brown is
accused of running a Ponzi scheme that promised 24 percent annual returns in a
$10 million scheme. Brown's lawyer reported that the money is gone. Brown
actually did not participate in the hearing, having reportedly suffered severe
heart palpitations at the exact moment that the meeting was scheduled to start.
Brown has advised that he intends to invoke his Fifth Amendment right not to
incriminate himself in any event. The trustee in the bankruptcy case has
objected to Jack Brown's claims of exemption in assets to the extent that any
of the assets claimed as exempt can be traced to the proceeds of the Ponzi
scheme. The Trustee has already reached an agreement with Brown's wife, Janet
Brown, who has agreed not to oppose the sale of certain family assets, include
Brown's Tax Service. The trustee sold the client list of Brown's Tax Service to
tax preparer Eric Pelton.
Randy M. Cho,
39, was sentenced to 12 years in prison in connection with a nearly $8 million
Ponzi scheme in which he misrepresented that he was able to purchase specially
discounted shares of big companies such as AOL/Time Warner, Inc. and Google.
Cho had pleaded guilty to the scheme in which he used investor funds for
himself rather than investing any of the funds.
Fred David Clark, Jr., David
Schwartz, Cristal Coleman, 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 suit alleges that the defendants
paid themselves "exorbitant salaries and commissions totaling more than $30
million." Cay Clubs allegedly promised guaranteed income, instant equity in
undervalued properties and triple digit returns.
Billy Frank Davis,
68, was sentenced to 10 years in prison and ordered to pay $7.8 million in
restitution for his $7.8 million Ponzi scheme in which he defrauded more than
20 investors. Davis is a former attorney who held himself out as being involved
in the real estate investment business.
James Davis, the chief financial
officer for Allen Stanford's business, was sentenced to 5 years in prison and
ordered to pay $1 billion in restitution. Davis had pleaded guilty and was used
by the government as a witness against Allen Stanford. During Stanford's trial,
Stanford's defense attorneys had tried to shift the blame for the fraud to
Davis, alleging that Stanford had naively placed his trust in Davis. Stanford
is presently serving a 110 year sentence. Davis admitted that he helped
Stanford falsify his bank's profits and fabricate documents to hide the fraud.
63, was indicted in connection with charges that he ran a Ponzi scheme through
companies including Cadeau Express, Beryt and Merits
Brian Ray Dinning
pleaded not guilty to charges in connection with an alleged Ponzi scheme in
which he took $2 million from 23 investors who believed they would be making
money generated from South African real estate and gold and diamond mines while
contributing to the protection of wildlife and building churches in poorer
areas of that country. Dinning also plans to appeal a no-bond ruling issued
after he was arrested in Canada.
Russell Allen Erxleben,
56, the former University of Texas kicker and New Orleans Saints punter, was
arrested on charged with running a $2 million Ponzi scheme in which he was
supposedly dealing with post-World War I German government bonds and a work of
art purportedly by French painter Paul Gauguin. Erxleben had previously been
sentenced in 1999 to 7 years in prior for a $36 million investment scheme.
Erxleben ran his latest scam through companies called WALTEC Consultants,
LRE Holdings and The MDM Group. The indictment said that WALTEC
stood for "We All Like To Earn Cash" and that MDM stood for "Million Dollar Man"
or "My Damn Money." Erxleben has been ordered to be held in custody until his
next court appearance.
Archie Larue Evans,
42, pleaded guilty to charges related to a Ponzi scheme. Evans, the former
Pastor of Tilly Swamp Baptist Church, allegedly defrauded church members and
others out of $2.5 million in a scheme he ran through Gold 7 Silver, LLC,
promising investors quarterly interest payments of 10 to 12 percent.
Dan Gaub's probabte estate in
the State of Washington received more than 200 claims from investors who were
defrauded by what they say was a Ponzi scheme in which they were promised 4%
every month. Gaub was a self-described "living legend" in high-risk foreign
currency trading. Gaub died last year in a motorcycle accident owing as much as
$40 million or more.
48, Christopher Luck, 56, and Keith Rode, 45, pleaded not guilty
to charges in connection with a Ponzi scheme they ran through a company called Geringer,
Luck & Rode, LLC, which managed an investment fund called GLR Growth
Fund. The indictment alleged that they took about $60 million from about 90
investors, promising returns of 17% to 25% per year for investments in publicly
Eldon A. Gresham,
67, of Georgia, pleaded guilty to charges in connection with a $15.8 million
Ponzi scheme in which he defrauded about 90 people, most of them elderly, in a
foreign exchange scam. Gresham, the former regional director for the Fellowship
of Christian Athletes, promised investors monthly returns of 5% to 10%,
allegedly basing his success on the "Lord's blessings" and offering the program
to "a limited number of Christians for a limited time."
Dean Gross, 50, of California
was sentenced to 7 years in prison and ordered to pay $15.4 million in
restitution in connection with a Ponzi scheme in which he collected more than
$35.8 million from approximately 39 investors. Gross operated the scheme
through his home business, Bridon Entertainment, where he falsely
represented himself as a veteran of the advertising industry who had
connections that allowed him to purchase advertising time and space at
discounted rates. Gross would provide supposed copies of contracts with
potential ad-buyers, and would promise short term rates of return of 8% to 30%
and one year investments with returns of 10% to 20%.
Keith V. Harned
lost his appeal of the denial of his motion to vacate his sentence of 210 months
for his involvement in a Ponzi scheme. The Eleventh Circuit affirmed the denial
of his motion to vacate. Harned v. United States, 2012 U.S. App. LEXIS
26645 (11th Cir. Dec. 31, 2012).
David N. Hawkins,
45, of Colorado, was charged in connection with a $1.2 million Ponzi scheme he
ran through PD Hawk Investments Fund, which promised guaranteed returns
of 10 percent a month through trading and exchanging foreign currencies. He
allegedly told investors he had spent three years "realizing sustained and
consistent profits" up to 62% in one day from trading in foreign currencies.
Hawkins is a former Colorado sheriff's deputy and is accused of defrauding
co-workers and other law enforcement officials.
Peter "Hans" Heckman,
63, is wanted in connection with a $1.2 million Kauai Ponzi scheme. Heckman was
indicted in July 2007, but had fled Hawaii prior to his indictment. The
indictment alleges that Heckman operated a failing recording studio on Kauai
and offered potential investors guaranteed returns of 10% to 15% for terms as
short as two weeks. A $10,000 reward has been offered by the FBI for
information leading to the capture of Heckman.
Herbalife is defending
allegations that it is a pyramid scheme. The SEC has opened an investigation.
In the meantime, Herbalife's executives are publicly defending the business
model, stating that Herbalife invested $44 million last year into research and
development, technical infrastructure and other areas to support its product.
Herbalife also hired a customer research company who found from a sampling that
more than 5 million households purchased Herbalife products in the past three
months. Herbalife is incorporated in the Cayman Islands and based in Los
Angeles and maintains that it complies with the appropriate Federal Trade
Commission standards and the guidelines of the SEC.
John Francis Holtsinger,
52, was sentenced to 87 months in prison in connection with a Ponzi scheme in
which victims lost about $1.1 million. Holtsinger admitted to receiving more
than $1.1 million from investors, but used the money for personal expenses and
to pay back earlier investors rather than for investment purposes. Holtsinger
also admitted to attempting to coerce people into lying to law enforcement
during the investigation by threatening that those who cooperated with
investigators would not be repaid.
Wallace Lindsay Howell,
61, of South Carolina pleaded guilty to charges in connection with his role in
a $90 million Ponzi scheme that was run with Ronald Gene Wilson. Wilson
has been sentenced to 19 years in prison and ordered to pay more than $57
million in restitution. Howell and Wilson promised to buy and sell silver for
customers, but actually invested very little of the money received.
Mitchell Brian Huffman,
52, of South Carolina was sentenced to 5 years in prison in connection with a
$2.5 million Ponzi scheme after pleading guilty in September 2012. Huffman
solicited investments by promising annual returns exceeding 100% by using a
proprietary trading program used to trade in the commodity futures market.
Investors were directed to deposit funds into Huffman's personal bank account.
Huffman had raised more than $3.2 million from 30 investors.
61, of West Palm Beach was sentenced to 41 months in prison and ordered to pay
$528,013 in restitution in connection with a $500,000 Ponzi scheme that he ran through
his investment house, Professional Planning Group.
Mahmoud Karkehabadi, aka Mike Karkeh,
56, was found guilty of operating a multi-million Ponzi scheme to finance
B-movies through his company Alliance Group Entertainment in Burbank,
California. Karkehabadi solicited hundreds of people to invest in the movies he
was producing and made promises of quick and high returns on millions of
dollars worth of loans. Timothy Cho, president of Newport Coast Entertainment,
which raised money to finance Karkehabadi's movies, was acquitted.
74, postponed his sentencing on two different occasions. First, he complained
that his lawyer had mishandled his defense. He later received court approval
for a mental health evaluation to review what his new attorney called "severe
emotional and psychological issues." Kiley, a Christian radio host, was
involved in the Ponzi scheme run by Trevor Cook in which they defrauded
more than 700 investors, mostly retirees, from about $194 million in savings.
Kiley's "Follow the Money" program aired on more than 200 Christian and
conservative radio station and drew in two-thirds of the investors.
67, pleaded guilty to charges in connection with a Ponzi scheme that he ran
with Daniel Tepoel, in which investors put their money into "prime bank
guarantees." They used the names Rainbow Management Trust and Interstar
Management Limited to run the fraud. Tepoel was convicted in 2008 and is
currently serving his prison sentence. Milosevich had been at large until January
2012 when he was found in Honduras and returned to the United States.
Edward Moskop had
his appeal of his 20 year prison sentence affirmed by the Seventh Circuit.
Moskop, 65, was sentenced after pleading guilty to charges that he had run a
Ponzi scheme for 20 years, stealing more than $1.4 million from 26 victims.
Moskop had appealed the sentence, arguing that the court had failed to address
his arguments in mitigation and had therefore imposed an unreasonable prison
sentence. United States v. Moskop, 2013 U.S. App. LEXIS 462 (7th Cir.
Jan. 8, 2013).
Robert Moss, 49, of South
Carolina was sentenced to 57 months in prison and ordered to pay $1.46 million
in connection with a $1.5 million Ponzi scheme in which he promised investors
above-average returns by options trading in the commodities futures market.
Moss told investors that he had not had a losing year trading since 1993, and
generated market-beating annual returns ranging from 22% to 41%. Moss lured in
$3 million from 22 investors.
Wayne Ogden, 48, stood trial in
connection with a real estate Ponzi scheme he allegedly ran after he was
released from prison in 2000 from a 1997 conviction for a different fraud.
Ogden faces a second trial in April for allegedly running another Ponzi scheme
with his brother Terry Ogden, using a company called Paradigm
51, admitted that she hid profits she had made from an investment in the Global
Trading Investments LLC Ponzi scheme in 2003, along with many other assets,
which she failed to disclose in her own bankruptcy case.
pleaded guilty to charges related to a Ponzi scheme involving investments for
purposes of home renovation. Parkhurst promised up to 25% returns on their
investments in renovation projects designed to quickly flip historic homes near
37, and Brian Gill, 55, have been sentenced to 2 years and 18 months,
respectively, for their roles in a Ponzi scheme run with Dan Two Feathers,
who previously sentenced to 6 years, and Terrance Paulin, who was
sentenced to two years and nine months. The scheme defrauded investors of more
than $2.4 million.
Alan Ritter, 70, of New York was
sentenced to 3 years in prison in connection with a $6 million Ponzi scheme
that he ran as a real estate investment program. Ritter pleaded guilty in
45, admitted that he conspired to help Kimberly Rothstein sell jewelry,
including a 12-carat diamond that she was supposed to turn over to federal
authorities. He pleaded guilty to conspiracy to commit money laundering,
obstruct justice and tamper with a witness. He faces up to 5 years in prison
and his sentencing is scheduled for June.
Feisal Sharif and
his company, First Financial, will likely be the subject of a fine for
Sharif's failure to be properly registered, among other things, the Connecticut
Banking Department announced. Feisal was arrested in September 2012 on charges
that he defrauded at least 50 (the number is now up to 80) investors in an
alleged Ponzi scheme involving equities futures where he promised returns of 1%
to 15% per month.
63, was sentenced to 40 years in prison in connection with a $52.5 million
Ponzi scheme which he ran through the "British Lending Program." The
scheme had the victims making "loans" for the purpose of buying and flipping
real estate in Great Britain.
62, of New Hampshire was charged in connection with a fraudulent scheme he ran
through Liberty Realty Trust, Phoenix Asset Group, and Tobias
Investment, promising returns of 12% to 14% for investments in distressed
properties. The scheme involved about $350,000 and 13 investors. In some
instances, investor checks were deposited into Skaltis' personal bank accounts
even though the investors were issued promissory notes by Liberty Realty Trust.
criminal trial resulting from his $160 million Ponzi scheme that targeted
wealthy Mormons resulted in a hung jury. Slade was the founder of Mathon
Investments through which investors would make loans to third-party
borrowers at high interest rates and were promised rates as high as 120%. The
trial also involved co-defendants Guy Andrew Williams and Brent
Williams. All three remain out of jail at this time. A fourth individual Russell
Sewell entered a plea and has not yet been sentenced.
Jeffrey Sykes of
California pleaded guilty to charges in connection with a $40 million Ponzi
scheme run through his company, Gemstar Capital Group Inc., in which he
solicited investors to participate in a T-Bill trading program. Sykes'
sentencing is set for April 26, 2013. Sykes, with the assistance of former
Cowboy center Michael John Kiselak, 45, solicited investors for the
trading program. Kiselak was accused by the SEC of lying to investors and was
ordered to surrender $19 million, but was not charged in the case.
pleaded guilty to charges that he masterminded a $200 million Ponzi scheme.
Weinstein, a former rabbinical student and used-car salesman, could be
sentenced up to 25 years in prison. His co-conspirator, Vladimir Siforov,
was also charged in connection with the scheme to defraud investors and
Ronald Gene Wilson,
65, began serving his 19 year prison sentence in a Florida facility. Wilson
pleaded guilty to charges in connection with his Ponzi scheme run through Atlantic
Bullion & Coin in which 798 investors lost $57.4 million. Before being
sentenced, Wilson told the judge, "I am extremely sorry for what I've done . .
. my conscience is clearer now than it has been in years; I am here now to
accept the punishment the court is giving me."
INTERNATIONAL PONZI SCHEME NEWS
British Columbia Securities Commission has accused Canadian woman Doris
Nelson of running a $135.4 million Ponzi scheme through her business, the Little
Loan Shoppe, a loan business. It is alleged that Nelson promised returns of
40% to 60% a year to at least 800 investors, promising that the investment was
risk-free. The U.S. SEC had also accused Nelson of "conducting a massive Ponzi
scheme and stealing investor money to fund her home improvement projects,
gambling jaunts to Las Vegas and purchases of a Corvette and a Mercedes." It is
believed that Nelson paid out $118 million to investors, including $2.2 million
in commissions to recruiters. The remaining $17 million was used to finance
operating losses and personal expenses, and other "unaccounted-for" losses.
The sentencing hearing for Weizhen Tang, 54, has
been delayed because the self-proclaimed 'Chinese Warren Buffet" is seeking a
psychiatric assessment for himself. Tang was found guilty of running a $52
million Ponzi scheme that defrauded 200 investors.
trial of 51 year old Ulrich "Richie" Engler, former member of German
Armed Forces who later worked as sales representative for vacuum cleaners,
opened at Mannheim Regional Court. Engler was indicted for allegedly having
swindled about 1,300 victims of US$ 37 million in a Ponzi scheme. Engler lived in
the U.S. and was arrested last summer in Las Vegas. German Public Prosecution
had issued an international search warrant for him. Las Vegas Police stopped
Engler in his car for driving drunken. Engler has confessed to the indictment.
The trial is scheduled for ten days. Engler faces up to 15 years imprisonment.
The remaining assets of Engler and his companies are in the custody of
Report by Bernd H. Klose, www.raklose.de
Member of FraudNet, www.icc-ccs.org/home/fraudnet
Barclays Plc was sued in Germany by investors who lost
money in the 345 million euro ($460 million) Ponzi scheme operated by Helmut
Kiener's K1 hedge fund. Over 150 lawsuits were filed, alleging that
Barclays failed to properly review the K1 products. Kiener was convicted in
2011 and sentenced to 10 years and 8 months in prison in connection with the
Zeplin Uteh Jacob was freed from detention
upon a finding that he was denied his right to counsel on a remand hearing
following his arrest. Jacob was arrested after 100 people had lodged complaints
with the police and Bank Negara claiming that they had been conned into
investing in the "Beras 1Malaysia" investment scheme and had lost RM 10
The Securities and Exchange Commission of Pakistan, State
Bank of Pakistan, National Accountability Bureau, Federal Investigation Agency,
Financial Monitoring Unit (FMU) and the federal and provincial police agreed to
devise a comprehensive strategy to combat illegal business activities, including
Ponzi and pyramid schemes, carried out by companies and unregistered entities.
The meeting identified different areas of common interest, including
intelligence sharing, training of investigators, and the possibility of
introducing new law to check fraudulent businesses. They also agreed to launch
awareness campaign so as to advise the public to be prudent while making any
investment and to verify that the entity they are dealing with is duly
authorized/licensed by the relevant authority to carry out its business.
Department of Justice filed syndicated estafa charges against officials and
owners of Nad21 Auto Options, led by Jahcob "Coco" Rasuman and
his father, former Department of Public Works and Highways (DPWH)
undersecretary Bashir Rasuman Sr., in connection with the P300-million
Ponzi investment scheme that duped investors in Cagayan de Oro.
Investigative Committee's Novosibirsk branch closed its criminal case against
organizers of the MMM-2011 financial pyramid, Alexei Astafyev.
Investigators said Astafyev had placed ads for the MMM-2011 Ponzi scheme on the
Internet promising investors annual profits of 100 percent. More than 100
people invested 9 million rubles in the scheme over three months.
Banners Brokers, an
online marketing business, has been accused by some of operating a pyramid or
Ponzi scheme. Participants have learned that the only way to grow the business
is to bring in new referrals. Banners Brokers is a US operation, but has a UK
arm that is run by Ian Driscoll, 58.
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
The receiver of the Trevor Cook Ponzi scheme filed
a lawsuit against Associated Bank, claiming that the bank "engaged in and
observed enough atypical banking activities and other circumstantial evidence
to have actual knowledge of the fraud" and that the bank's substantially
assisted in the fraud.
U.S. District Court Judge Mark S. Davis recused himself
from the criminal case of Brian Ray Dinning, who is charged with running
a $2 million Ponzi scheme. Judge Davis felt uncomfortable continuing with the
case after he learned that some of the prosecution witnesses work at Regent
University, where Davis sits on its law school Board of Visitors and is friends
or acquaintances with the faculty.
JP Morgan was ordered by the Office of the Comptroller of
the Currency (OCC) to cooperate and turnover documents in connection with its
investigation of the Bernard Madoff Ponzi scheme. JP Morgan takes the
position that an order requiring turning over documents would constitute a
violation of its attorney-client privilege. The OCC says that it cannot "do its
work and carry out its authority under its examination statute ... if that
statute was interpreted or operated to bar access to bank records for which a
claim of privilege was made."
In the Bernard L. Madoff SIPA proceeding, the
district court issued its ruling on whether the U.S. Supreme Court decision in Stern
v. Marshall, 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011), prohibits the
Bankruptcy Court for issuing a final ruling in fraudulent transfer claims filed
by the trustee. SIPC v. Madoff, 2013 U.S. Dist. LEXIS 2517 (S.D. N.Y.
Jan. 4, 2013). The court held that "although Stern precludes the Bankruptcy
Court from finally deciding avoidance actions (unless, possibly, the Trustee
has sought to disallow a claim to the estate under § 502(d)), the Bankruptcy
Court nonetheless has the power to hear the matter in the first instance and
recommend proposed findings of fact and conclusions of law." The Court further
declined to withdraw the reference of these cases to the Bankruptcy Court "for
cause shown" before the Bankruptcy Court has issued appropriate findings of
fact and conclusions of law."
In considering a settlement between defendants and the
SEC in which the defendants consented to judgment "without admitting or denying
the allegations," the district court denied final judgment against Michael
Turnock and William P. Sullivan II, who allegedly ran a Ponzi scheme
through Bridge Premium Finance LLC. The court stated, "I refuse to
approve penalties against a defendant who remains defiantly mute as to the
veracity of the allegations against him," Kane wrote in his Jan. 17 order
denying the entry of final judgments. "A defendant's options in this regard are
binary: He may admit the allegation or he may go to trial." Turnock and
Sullivan are accused of fraud and operating a $15.7 million Ponzi scheme in
which they promised annual returns of up to 12%.
Law firm Astor Weiss Kaplan & Mandel LLP was slapped
with a putative class action in Pennsylvania state court. The lawsuit alleged
negligence that the firm should have known that Mantria Corp. was
violating states securities law and was running a $54 million Ponzi scheme.
A liquidation trust created in the bankruptcy cases of
Palm Beach Finance Partners LP and Palm Beach Finance II LP, creditors in the Thomas
Petters Ponzi scheme, filed a lawsuit against General Electric Co., a
finance subsidiary that the creditors allege kept quiet after discovery the
fraud so that Petters had time to repay a $45 million loan. The complaint
asserts claims against GECC for aiding and abetting and conspiracy to commit
civil fraud and states that the funds lost $1 billion through the Petters
It was announced that Kim Rothstein, wife of Ponzi
schemer Scott Rothstein, is scheduled to plead guilty on February 1,
2013 to conspiring to hide more than $1 million in jewelry from federal
authorities. Kim Rothstein, along with her former attorney Scott Saidel, and
her friend Stacie Weisman, acknowledged to the court that they are ready to
take plea deals for their roles in the alleged plot to conceal jewelry,
including a 12-carat diamond ring, and then to attempt to persuade Scott
Rothstein to lie under oath about the ring.
The Eleventh Circuit heard arguments on the battle
between the bankruptcy trustee and the United States government over forfeited
assets in the Scott Rothstein Ponzi scheme case. Circuit Judge Gerald
Bard Tjoflat peppered both sides with many questions, debating the conflict
between criminal forfeiture and bankruptcy proceedings. The judge stated to the
Assistant U.S. Attorney at one point, "Your problem is how in the world does
criminal forfeiture proceedings adjudicate rights of claimants in the
bankruptcy estate?" The lower court, however, had ruled in favor of the
government, giving the government the right to administer Rothstein's yachts,
cars and other items, as well as about $2 million left in the accounts of the
law firm, Rothstein Rosenfeldt Adler.
In another case coming out of the Scott Rothstein
Ponzi scheme, Beverly v. TD Bank, a court heard a request for punitive
damages against TD Bank for its alleged wrongful conduct in covering up
Rothstein's fraud. The court said that it would take judicial notice of
previous rulings in other cases, including the sanctions order in the Coquina
v TD Bank case where the court found that TD Bank had knowledge of
Rothstein's $1.4 billion fraud and willfully violated evidence production
The trustee of Sentinel Management Group won an
award of $15.6 million against FCStone for the return of money that had been
paid to FCStone. FCStone had been paid about 70% of the money it had invested
with Sentinel while other customers had only received back about 35%. The
trustee had asked the court to allow creditors to receive more balanced
payouts, and the court noted "If there is one prevailing principle that
underpins American bankruptcy laws, it is that 'equality is equity,'" FCStone
says it will appeal the ruling and the district court ordered FCStone to post
an $8 million cash deposit pending judgment in the appeal.
The receiver for Allen Stanford, Ralph Janvey,
submitted his Motion for Approval of Interim Distribution, proposing to make an
initial payment of $55 million to approximately 18,000 defrauded investors. The
total claims received thus far total about $5.13 billion, so the payment would
amount to approximately 1% of each investor's loss. The plan has been
criticized by victim advocate groups who believe the amount of fees collected
is grossly disproportionate to the amount of the payout.
Janvey also obtained an order approving a plan to allow
him to claw back millions of dollars that were paid as fictitious profits to
about 800 net winner investors in the Ponzi scheme.
The Supreme Court granted certiorari regarding the appeal
from the Fifth Circuit over the issue of whether class-action lawsuits from
investors who lost funds in the Allen Stanford Ponzi scheme should be
permitted to proceed against individuals, law firms and investment companies
that the investors claim aided Stanford's fraud. The question is whether the
Securities Litigation Uniform Standards Act (SLUSA) blocks this type of class
action lawsuit related to securities fraud. The underlying lawsuits claim that
the law firms of Chadbourne & Park and Proskauer, Rose, in addition to
insurance broker Willis of Colorado, who each worked for Stanford, misled
investors and regulators about the value and risks of investing with Stanford.
Those defendants argue that SLUSA precludes state-law class actions over
alleged misrepresentations made "in connection with" the purchase or sale of
A lawsuit against Deloitte & Touche in connection
with its audit of WG Trading Co. was dismissed. The court dismissed
claims by the Iowa Public Employees' Retirement System, which had invested $500
million in entities controlled by the former managers of WG Trading, Paul
Greenwood and Steven Walsh. The court found that the plaintiff had
not adequately alleged that the defendant exhibited "conscious indifference"
and disregarded "red flags" that would have alerted it to the scheme. The court
also ruled that Deloitte & Touche could not be held accountable for
representations in statements of unaudited, non-client entities and dismissed
claims that the auditor had aided and abetted the fraud.
subscribers can access enhanced versions of the opinions cited in this article:
Harned v. United States, 2012 U.S. App. LEXIS 26645 (11th Cir. Dec. 31, 2012)
United States v. Moskop, 2013 U.S. App. LEXIS 462 (7th Cir. Jan. 8, 2013)
Stern v. Marshall,
131 S. Ct. 2594 (2011)
SIPC v. Madoff,
2013 U.S. Dist. LEXIS 2517 (S.D. N.Y. Jan. 4, 2013)
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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