June 2014 Ponzi Scheme Roundup

June 2014 Ponzi Scheme Roundup

 Below is a summary of the activity reported for June 2014. The reported stories reflect: 7 guilty pleas or convictions in pending cases; over 137 years of newly imposed sentences for Ponzi schemers; at least 8 newly discovered schemes allegedly involving over $147 million; and an average age of approximately 52 for the alleged Ponzi schemers in the stories reported. 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.

Thomas Abdallah aka Tom Abraham, 49, Kenneth Grant, 66, Mark M. George, 56, Jeffrey L. Gainer, 49, Nancy Gainer 50, Jerry A. Cicolani Jr., 45, and Kelly Hood, 35, were charged in a complaint filed by the SEC with operating a $20 million Ponzi scheme involving a fictitious oil and fuel-trading business. The complaint also named KGTA Petroleum Ltd., NATG, LLC and Turnbury Consulting Group LLC. Investors were allegedly told that they could earn 2% to 4% monthly with no risk by buying notes in KGTA. The scheme allegedly defrauded 47 people.

Fuad Ahmed and his company, Success Trade Securities, were barred from the securities industry by FINRA for allegedly running a Ponzi scheme that defrauded 59 people, including current and retired NFL and NBA players. FINRA ordered Ahmed to pay $13.7 million to investors.

Robert J. Andres and Robert Holloway were hit with a $44 million judgment in connection with a Ponzi scheme run through Winsome Investment Trust and U.S. Ventures. The CFTC obtained a default judgment in connection with its lawsuit alleging that Andres and Holloway took in at least $50 million from 243 people to invest in a commodity futures pool. Among other things, the two claimed to have a 40% interest in a "Safekeeping Receipt" from the Union Bank of Switzerland, which supposedly represented 500 metric tons of gold having a face value of $7.7 billion.

Brian Arias, 41, pleaded guilty to charges in connection with the Nicholas Cosmo Ponzi scheme run through Cosmo’s Agape companies. Arias admitted that he knew he was lying to investors about the way their money was being invested and the promised high returns. Cosmo promised investors returns of up to 80%, and the scheme took in $400 million from 5,000 investors. Cosmo is serving a 25 year prison sentence.

Aldo Joseph Baccala, 73, was sentenced to 20 years in prison and ordered to pay $6.4 million in connection with a $17 million Ponzi scheme run through Baccala Realty that defrauded more than 50 investors. Baccala had promised investors returns of 12% on notes for investments in properties such as assisted living facilities, a car wash, and other businesses.

Michael Balboa, 45, was sentenced to 4 years in prison in connection with a $390 million Ponzi scheme that Balboa ran through Millennium Global Investments. Balboa provided fake valuations to inflate month-end market prices on Nigerian warrants.

Alice Belmonte, 47, was sentenced to 3 to 9 years in prison in connection with her $4 million Ponzi scheme that defrauded more than 10 victims. Belmonte is a disbarred lawyer who had lured in investors to buy foreclosed properties and promised them large returns.

Janet Brown was sentenced to one year in prison on charges of bankruptcy fraud relating to her late husband, Jack Brown, and his $12 million Ponzi scheme run through Brown’s Tax Service. She had pleaded guilty to charges that she withheld $25,000 in jewelry from the bankruptcy trustee.

Edwards Exploration LLC was sued by a group of investors alleging that the company defrauded them in a $12 million Ponzi scheme. The company’s now-deceased founder, Spencer Edwards, persuaded the investors to invest in oil and gas interests.

Fred Davis Clark Jr., 56, and Cristal R. Clark aka Cristal Coleman Clark, 41, former executives of Cay Clubs, were arrested in connection with what had been an alleged $300 million Ponzi scheme. The SEC’s civil enforcement action against Cay Clubs was recently dismissed on statute of limitations grounds, but the Clarks were arrested in Honduras on conspiracy and obstruction charges and brought back to the U.S. Cay Clubs lured investors in the residential real estate scheme by promising 15% annual returns to be generated by refurbishing low end properties into five star resorts.

Jenny Coplan, 55, pleaded guilty to charges in connection with a $4 million Ponzi scheme run through Immigration General Services LLC. Coplan promised investors more than 60% per year for investing in federal bail and immigration bonds. Coplan provided false financial information and promised that investors’ funds were insured by the Federal Deposit Insurance Company.

Shawn Kristi Dicken, 40, was sentenced to 140 months to 20 years in prison and ordered to pay restitution in an amount estimated to be $1.5 million for her role as the lead salesperson for The Diversified Group Advisory Firm LLC. Dicken had marketed investments to investor, representing their investments were without risk, completely liquid, and had a guaranteed rate of return between 9.5% and 10.44%. The Ponzi scheme was allegedly operated by Joel Wilson, who was arrested in Germany after fleeing the country following charges against him.

James Ronald Donahoo II, 36, pleaded guilty to charges in connection with a Ponzi scheme that he ran through Paradigm Investing, Inc. Donahoo had promised investors returns of 3% per month by investing in bridge loans. He raised at least $2.5 million from investors. Instead of investing in loans, he used $1.5 million to fund businesses, to purchase $11,000 worth of fur coats, travel, jewelry and a Mercedes Benz. Following the scheme’s collapse, Donahoo began traveling around the country by bicycle to promote philanthropic causes, referring to himself as the “Bamboo Cyclist.”

Henry Millward Fisher, Jr. 60, was sentenced to 25 years in prison, with 5 years suspended, in connection with a $1 million Ponzi scheme that defrauded 23 investors and involved 6 properties. Fisher had previously served jail time in the 1990s for defrauding investors of more than $7 million in a similar Ponzi scheme.

Claus Foerster was barred from the securities industry by FINRA after FINRA accused him of stealing nearly $3 million from 13 clients. Foerster allegedly solicited investments through his fund known as S.G. Investments, which was not actually an investment fund but a bank account controlled by Foerster.

Richard Freer’s attorney sought the release of about $20,000 of the $50,000 cash that Freer has to pay back $7.8 million to his 90 defrauded victims. Freer’s attorney asked to be paid and argued that “The uses of the defendant’s funds for payment of counsel fees will not . . . materially affect his ability to make restitution in these matters.” The lawyer’s request was denied, and the court found that the remaining funds would instead go to Freer’s victims. Freer, 68, is currently serving a 12 to 30 year sentence after pleading guilty to operating a $10.1 million Ponzi scheme.

Michael Frew was permanently barred from the brokerage industry in connection with allegations that he was running a Ponzi scheme. Frew represented that he would invest with a real estate developer to rehabilitate properties in areas hit by natural disasters. He promised investors returns of 10% to 14% annually. Frew had refused to cooperate with the FINRA investigation which was opened one month after Frew had resigned from Wells Fargo Advisors following that firm’s investigation into whether he had received funds from customers. Frew ultimately consented to FINRA’s findings without admitting or denying the charges.

Tate George’s, 46, sentencing was delayed for a few months to allow the lawyers to determine how much money the victims of the real estate Ponzi scheme lost. The figure has been estimated at about $2 million, but the government is claiming that the amount is higher.

James D. Helgeson was fined by Montana’s Commissioner of Securities and Insurance and acknowledged that he participated in TelexFree. Helgeson was also a former pitchman for ZeekRewards. Helgeson must notify Montana for the next five years “prior to his participation in any multilevel distribution company.”

Thomas Kimmel, 68, was convicted on charges that he ran a Ponzi scheme through his company, Sure Line Acceptance Corporation, which claims to be the financing wing of Automacion, a used car company. Kimmel made false promises to investors who he found through his organization, Faithful Stewards, which offered “debt-free conferences” and “God’s Plan for His Money Conferences” to churches.

Paul Konigsberg, 78, pleaded guilty to charges that he assisted in the Bernard Madoff Ponzi scheme. Konigsberg, who was Madoff’s former accountant, fabricated records to cover up the Ponzi scheme and was charged with conspiracy, falsifying records of a broker-dealer, fabricating records of an investment adviser, and falsifying statements to the U.S. about employee-benefit plans. Konigsberg told the judge, “I was not aware of Madoff’s horrific and evil Ponzi scheme . . .” But he admitted that he knew that some of the investors’ account statements had been altered and that he used those when filing their taxes.

Robert P. McDermott Sr., 52, was sentenced to 3 years in prison in connection with a Ponzi scheme in which he stole at least $270,000 from about 50 clients. McDermott had represented that he would place customer funds paid in advance for funeral services into insurance policies, annuities or trusts, but he failed to do so. Insurance companies honored some of the policies even though McDermott never paid the premiums, leading to recovery of about $110,000.

Patricia S. Miller, 67, was arrested on charges that she orchestrated a Ponzi scheme in which she used her position as a financial advisor to lure in investors. She allegedly promised them high returns if they invested in investment clubs called KS Investment and Buckharbor.

Earl Abdulmalik Mohammed, 47, was sentenced to 9 years and ordered to pay restitution in the amount of $6.5 million in connection with a $6 million Ponzi scheme that he ran through Global Gold and Metals Trading. Mohammed lured investors to buy precious metals online by selling products below market value but then would fail to deliver the package, claiming that the Postal Service had lost it.

Michael Morawski lost his appeal of his 10 year prison sentence in connection with a $16.8 million Ponzi scheme. U.S. v. Morawski, 2014 U.S. App. LEXIS 10968 (7th Cir. 2014) [an enhanced version of this opinion is available to lexis.com subscribers]. The court rejected Morawski’s claim that his sentence was based on an inflated estimate of losses

Robert Palmer, 45, and Mark Driver, 50, pleaded guilty to charges that they ran a $3 million Ponzi scheme through Princeton Partnership. They lured in funds from elderly investors for the purpose of real estate investments and life insurance annuities, but kept the money for their personal use.

Rudolf “Rudi” Pameijer, 63, was sentenced to 18 years in prison and ordered to pay $1.8 million in restitution for his role in a Ponzi scheme that defrauded 24 investors. Pameijer sold fraudulent investment contracts and securities in the form of promissory notes through his company, Plan America LLC, and promised returns of 3% to 15% allegedly based on the performance of foreign markets. The scheme also involved Pameijer’s daughter, Lindsay Pameijer, 34, and Ryan W. Koester, 42, who ran Rykoworks Capital Group LLC. Pameijer spent the investors’ funds on his own lavish lifestyle include cars, a boat, his son’s college tuition and his daughter’s wedding and honeymoon in St. Lucia.

James M. Peister, 62, was charged in connection with an alleged $17 million Ponzi scheme that defrauded at least 74 investors through several commodity pools, including Northstar International Group, Inc., North American Globex Fund, L.P., and North American Globex Group, Inc. Peister had been charged by both the SEC and the CFTC in 2011 but had settled both of those cases. Peister pleaded not guilty to the recent criminal charges.

Dee Allen Randall, 63, of Utah, was indicted on charges that he ran a Ponzi scheme through his businesses, including Horizon Mortgage & Investment, Horizon Financial & Insurance Group, and Horizon Auto Funding, that defrauded about 700 people out of at least $72 million. Randall promised investors returns of 9% to 17% on their investments in real estate, auto leases and insurance products.

Richard Reynolds aka Richard Adkins, 53, was sentenced to 20 years in prison following his conviction on charges that he defrauded more than 141 investors out of $5.38 million, using his connections with ministers, pastors and other religious leaders to recruit new investors. The scheme was run through his companies, United Consultant Investment Corp., Buffalo Exchange, and Buffalo Extension, and Reynolds promised investor quarterly returns of 100%.  Following the sentencing, Reynolds said that he “will fry this court.”

Brian C. Rose aka John Hankins, 34, Brent Lovall, 30, and Ray Spears aka Brock Hamilton, 44, were charged with defrauding 160 investors out of $15 million. Rose had operated under the name Earth Energy Exploration and then renamed the business after it came under investigation created New Century Coal, supposedly mining Blue gem coal. Rose pleaded not guilty to the charges.

Stuart Rosenfeldt, 59, former partner of Scott Rothstein, pleaded guilty to bank fraud, campaign finance violations and financial irregularities in connection with their firm, Rothstein Rosenfeldt Adler. Rosenfeldt was never charged with having knowledge of the Ponzi scheme itself but was accused of making hundreds of thousands of dollars of illegal campaign contributions and using law enforcement to force a prostitute and her boyfriend to leave town before the prostitute exposed her relationship with Rosenfeldt. Rosenfeldt is the fifth former lawyer of the Rothstein law firm to be convicted.

Ephren Taylor II, 31, was arrested on charges that he defrauded investors out of more than $5 million. The charges allege that Taylor, through his company City Capital Corporation, and the company’s former COO Wendy Connor, “participated in a conspiracy to defraud investors.” Taylor allegedly pushed churchgoers to invest in small businesses he knew wouldn’t be profitable, and also offered investments in “100 percent risk free” sweepstakes machines, or computers with games where players can win cash prizes. The returns promised range from 12% to 20% on the business investments and up to 300% in the sweepstakes machines.

TelexFree had a bankruptcy trustee appointed, and the trustee is seeking records from the lawyers and other professionals previously working with Telexfree since the books and records of the company were previously seized by the government along with all of the company’s bank accounts. The Nevada Public Utilities Commission rejected the company’s application to become a telecom provider. James Merrill was freed on bail under tight restrictions.

Deepal Wannakuwatte, 63, and his company International Manufacturing Group, filed for bankruptcy protection as part of his plea agreement with federal prosecutors. Wannakuwatte listed $134 million of debt and $15.9 million in assets on his individual schedules. He agreed to forfeit his real estate and bank accounts and to surrender $8 to $12 million in tax refunds. Wannakuwatte claimed he had $100 million worth of contracts to sell latex gloves to veterans hospitals, but in fact only had $25,000 per year.

 

INTERNATIONAL PONZI SCHEME NEWS

Australia

Dean Rees, a lawyer accused of being one of the masterminds of the Barry Tannenbaum Ponzi scheme, was ordered to repay R158.9m to defrauded investors. The scheme defrauded more than 880 investors of more than R3.6b.

Joe Camilleri sued the Legal Services Board for more than $140,000 seeking payment for funds stolen from him by lawyer Philip Linacre, 61, in connection with a $12 million Ponzi scheme. Linacre had promised returns of between 13% and 23%. Camilleri has sued the Legal Services Board which has refused to refund his money out of the Legal Practitioners Fidelity Fund.

Ronald David Williams and Gary David Maile, former directors of Selection One Finance Pty Ltd, were sentenced to 4 years and 3 months each after pleading guilty to breaches of their director duties. Williams and Maile had promised investors returns of 3% per month.

Canada

Chi-Ho Chan aka Moses Chan, 38, was charged with two counts of fraud in connection with an alleged scheme targeting Calgary’s Asian community that brought in more than $6 million. Chan operated an investment and immigration scheme. The investment scheme involved promises in a share of profits from the sale of electronics imported from Hong Kong and sold in the U.S.

England

Investors in the Rienzi “Joe” Silva Ponzi scheme have filed a £1.2m lawsuit against the solicitors that provided conveyancing services to Abbey Brokers. The lawsuit alleges that Barrington Charles Edwards and Company is liable for the losses as it breached its fiduciary duty and client trust by making payments into third party accounts used in Silva’s fraud.

A fraud investigation was opened against a number of companies which form part of the Rican Group after complaints were received about an alleged Ponzi scheme. Richard Cannon, 54, was charged with two counts of fraud in connection with the alleged scheme.

Defrauded investors in the Ponzi scheme run by John Anderson, Kenneth Peacock and Kautilya Nanda Pruthi were invited to claim their share of the £914,000 "likely" available for distribution by the Financial Conduct Authority. The scheme had offered investors returns of up to 20% per month on short-term fixed deposits. The money to be distributed represents about 1% to 2% of the money lost.

Germany

The German Federal Finance Court issued a decision that any payments received from a Ponzi scheme, or payments that were reinvested, are taxable as investment income even if the Ponzi scheme fails. See File No. VII R 25/123. Reported by Bernd Klose, http://www.raklose.de/.

The German Federal Court issued a decision that victims of Ponzi schemes are entitled to be refunded their complete investment. In the case in question, the liquidator of the Ponzi scheme argued that under the agreements entered into between the victims and the fraudulent company, the fraudulent company would have been entitled to fees and commission. Additionally, even if the victims were not defrauded, the victims would have suffered losses due to the structure of the investment and the proposed investments. The German Federal Court held that the victims had been defrauded from the very first moment on and had no chance to receive any promised return. The victims, therefore, should not suffer any losses which would have accrued hypothetically. See File No. IX ZR 176/13. Reported by Bernd Klose, http://www.raklose.de/.

India

Hundreds of investors filed a complaint against Future India and Infrastructure Industry Ltd., demanding that the firm be investigated for collecting more than Rs 5 crore from investors, promising high returns, but then failing to return their money. A complaint had previously been filed against the managing director of the company, Sreemat Kumar Mallik.

Permission was sought to confiscate properties of alleged Ponzi scheme company, Rose Valley. There are at least 15 criminal cases against the company brought on the basis that the company defrauded investors.

Ireland

Breifne O’Brian, 52, pleaded guilty to charges that he ran a multi-million euro Ponzi scheme.

New Zealand

Convicted Ponzi schemer David Ross, 64, is appealing his 5 year, 5 month prison sentence. Ross was found guilty of defrauding more than 700 investors out of $115 million. Ross contends that his 65-month “minimum non-parole period” is “crushing.”

South Africa

A court ordered Dean Rees, the former attorney who helped Barry Tannenbaum run his Ponzi scheme, to pay nearly R159 to the Tannenbaum estate. The judge found “beyond any doubt” that Rees knew that he was colluding in a Ponzi scheme. Rees denied those allegations. Tannenbaum is a fugitive, but it is believed that he fled to Australia with his wife after being accused of defrauding investors out of more than $12 billion in what is known as the Frankel Scheme. The scheme lured in 880 investors, offered returns up to 216%, and represented that funds were used to buy active pharmaceutical ingredients from foreign countries which were then sold to generic makers to make antiretroviral drugs.

Frederick Johannes Greyling aka Frik Strauss had a warrant for his arrest issued, which was then stayed as a result of a medical certificate reflecting that he was being treated for a psychiatric condition. Greyling is accused of running a Ponzi-like scheme in which he promised interest at more than 10% per month.

 

NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES

Investors in the fundraising branch of the Church of God Ponzi scheme will receive a 70% distribution on their claims. The court approved the final distribution in the case that involved $85 million of investor funds.

The Supreme Court granted a request to remove JP Morgan Chase & Co. from the list of respondents in the Bernard Madoff trustee’s case against various banks for their alleged role in the Madoff Ponzi scheme. JPMorgan has settled its claims with the trustee for $543 million.

The Second Circuit declined to overrule the lower court’s approval of a $50.3 million settlement between an investor class and Fairfield Greenwich Ltd., a hedge fund that funneled $7 billion in the Madoff Ponzi scheme. Other defendants in the case had argued that any entity participating in the settlement could not pursue claims in any other jurisdiction. The Second Circuit did not agree and held that “Nothing in the final order precluded non-settling defendants from asserting in the District Court or in other litigation any claims or defenses that may be available to them.”

The Supreme Court declined to review the dismissal of the Madoff trustee’s claims against banks such as HSBC Holdings Plc, that were dismissed on the grounds that the Trustee did not have standing and on the basis of the in pari delicto doctrine.

The receiver in the Arthur Nadel Ponzi scheme won a favorable ruling from the Eleventh Circuit in connection with a fraudulent transfer claim. Wiand v. Lee, 2014 U.S. App.LEXIS 10154, (11th Cir. Jun 2, 2014) [enhanced version]. The court held that the receiver had standing to bring fraudulent transfer claims and also found that prejudgment interest could be awarded, but remanded for further proceedings.

The College of St. Benedict in Minnesota will return $600,000 of the $2 million that it received from Tom Petter’s Ponzi scheme in connection with a settlement of a fraudulent transfer claim against it.

A Florida appellate court upheld the lower court’s decision to deny a motion to transfer a defamation lawsuit filed by A.J. Discala against Mark A. Nordlicht and 7 other defendants. The lawsuit claims that the defendants made defamatory comments by falsely linking him to Scott Rothstein’s Ponzi scheme.

A group of insurance companies headed by Ironshore Indemnity Inc. filed a motion for summary judgment against Banyon Income Fund LP, a hedge fund that had invested in Scott Rothstein’s Ponzi scheme. The motion seeks to void approximately $70 million of coverage granted to Banyon on the basis that Banyon allegedly made deceitful claims about the business operations in order to obtain coverage when the Rothstein scheme was disclosed. The motion alleges that Banyon had assured the insurance companies that it had only obtained pre-funded settlements and had documented settlements before advancing funds. However,“[i]n reality, the Banyon Entities knowingly advanced money before settlements were funded and without any documentation.”

Broward Circuit Judge Nick Lopane is under investigation in connection with his handling of a divorce case involving a lawyer, Sabrina Kurzman, who worked for Scott Rothstein’s law firm, Rothstein Rosenfeldt Adler.

Victims of the Martin Sigillito Ponzi scheme have filed lawsuits against two banks and a law firm alleging that they knew about the scheme for years and assisted in it. The Sigillito scheme defrauded 111 victims out of $56 million, promising high returns from low risk real estate investment opportunities in the British Lending Program. One lawsuit was filed against St. Louis Bank and PNC Bank, which had merged with Pioneer Bank, which had merged with National City Bank. The other lawsuit was filed against Spencer Fane Britt & Browne, alleging that a lawyer from the firm knew that the money from new investors was being used to pay earlier lenders.

The Supreme Court declined to review the dismissal of claims brought by the receiver of the Allen Stanford businesses against Stanford employees. The lower court had held that the receiver did not have standing to bring the claims.

The receiver of WCM777 received permission to sell properties of the company and to close frozen bank accounts. It is alleged that WCM777 was a pyramid scheme involving between $65 million to $80 million.

The receiver and his professionals in the ZeekRewards case were awarded their fees and costs. The receiver and his firm were awarded approximately $750,000 for the first quarter of 2014.

The ZeekRewards receiver filed lawsuits against two multi-level marketing attorneys, Howard N. Kaplan and Kevin D. Grimes, alleging malpractice, negligence, breach of fiduciary duty and aiding and abetting breach of fiduciary duty. The receiver alleged that Kaplan and Grimes “played an indispensable role in the scheme.” Among other things, it is alleged that Grimes created a “compliance course” that ZeekRewards offered for $30 and then paid $5 of that to Grimes.

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.

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