Posted by Kathy Bazoian Phelps
Below is a summary of the activity reported for August 2014. The reported stories reflect: 10 guilty pleas or convictions in pending cases; over 138 years of newly imposed sentences for people involved in Ponzi schemes; at least 5 newly discovered schemes; and an average age of approximately 55 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.
Gabriel Bitran, 69, and his son Marco Bitran, 39, have agreed to plead guilty to running a hedge fund scam that lost more than $140 million. They ran their Ponzi scheme through GMB Management and GMB Capital Partners, promising returns of 16% to 23%.
Terrence Brown and Antranik Kabajouzian, 35, were sentenced to 15 years and 10 years, respectively, for their roles in a $5 million real estate Ponzi scheme that they operated through Bay Area Equity Group. Approximately 40 victims were promised “guaranteed” returns of 15%.
Bryan Caisse, 50, pleaded guilty to operating a $1.2 million Ponzi scheme that defrauded more than 20 victims. Caisse ran a hedge fund called Huxley Capital Management in which he promised investors annual returns of 8% in connection with short-term loans. Caisse instead used the money to fund his lifestyle including car services, tuition for his daughter’s school, and $10,000 on a dating service.
Robert H. Cassandro, 47, was sentenced to 15 months to 4 years in prison in connection with an at least $11 million Ponzi scheme. Cassandro was found guilty after a two month trial. He obtained loans from family and friends to build about 30 single-family homes on Long Island, and he pledged the new houses as security for the loans. The homes had already been pledged in connection with other loans. Cassandro used the funds on luxury items such as a race horse, a glass-enclosed home gym and pool, and parties.
Jenny Coplan, 55, was sentenced to 4 years in connection with a $4 million Ponzi scheme aimed at immigrants. Coplan defrauded 46 investors through her company, Immigration General Services LLC, and promised them 60% to 120% interest from nonexistent government-secured immigration and bail bonds.
Blayne Seth Davis, 33, pleaded guilty to charges in connection with an $11.9 million Ponzi scheme. Davis ran the scheme through his company, Capital Blu, which represented that it was investing in off-exchange foreign currency trading through an entity called CMB FX Fund LP. Davis ran the scheme with Damien L. Bromfield, who has pleaded guilty, and Donovan G. Davis, Jr., who has pleaded not guilty.
Archie Evans, 43, a convicted Ponzi schemer, was indicted on a firearm charge that could add another 10 years to his 7 year prison sentence he is already serving in connection with his $3.7 million Ponzi scheme. Evans had tried to bring a handgun into the federal courthouse on the day of his sentencing and was considered a felon in possession of a firearm. Evans scheme had targeted members of the Tilly Swamp Baptist Church where he was pastor and promised investors quarterly returns of 10% to 12% for investing in his company, Gold & Silver LLC.
Glen Galemmo, 48, was sentenced to 15 years, 8 months for conducting a $100 million Ponzi scheme through his company, Queen City Investment Fund. The scheme defrauded about 140 victims. Galemmo had filed a request for a shorter prison sentence of 6 years following his guilty plea and original request of 8 to 10 years. The government had sought 12½ to 5½ years.
Fotios Geivelis Jr., 34, was sentenced to 5 years in prison for a Ponzi scheme that defrauded 47 investors out of $3.9 million. Geivelis ran the scheme through Worldwide Funding III Ltd. He promised investors quick returns on their investments from the use of their money to make overseas loans for humanitarian causes. Instead of investing, however, Geivelis split the money with Bernard Butts, 70, and about 10% went to brokers.
Keelan M. Harris, 38, pleaded guilty to charges relating to a Ponzi scheme orchestrated by his brother, Kevin Harris, 49, who was sentenced to 7 years in prison in connection with the scheme. The $20 million Ponzi scheme was run through a company called Complete Developments LLC. About 400 victims were promised between 5% and 12% interest per month in connection with foreign-exchange trading and were promised that 80% of their money was safe. Investors lost $15.8 million.
Robert L. Holloway, 56, was found guilty in connection with a Ponzi scheme run through his Utah-based U.S. Ventures Company. He had promised investors 5% per month using a special software program. He ran a commodities trading program in which investors lost about $10.5 million.
Mark Holt, 45, was sentenced to 10 years in prison for his $4 million Ponzi scheme that he ran through Harbor Planning Investment Group. Holt promised returns though safe long-term investments but instead spent investor funds on his travel, clothing, and gym and club memberships.
William Ison pleaded guilty to charges that he helped defraud investors out of almost $7 million. Ison acknowledged assisting Douglas Ellingson in soliciting investors into a scheme that was supposedly safe because it was backed by Ison’s multi-billion dollar mining company.
Sam Israel, 54, will not be released from prison. His request to be released early from prison was denied. Israel, the founder of Bayou Hedge Fund Group, was sentenced to 20 years in prison in connection with the $450 million Ponzi scheme run through Bayou.
David Lincoln Johnson lost his appeal of his convictions and sentence in connection with a $20 million Ponzi scheme he ran through Gentech Fabrication Inc. The Ninth Circuit largely upheld his conviction and sentence.
James Willis Kirk, 63, Carol April Graff, 61, and Glen Smith Jr., 60, were sentenced to 4 years, 4 years and 18 months, respectively, in connection with a $20 million Ponzi scheme masterminded by Thomas Kimmel. The scheme was run through Sure Line Acceptance Corporation and targeted church-goers who were promised that their principal was protected by collateral such as cars and car loans. The 3 defendants had pleaded guilty and had each testified against Kimmel.
Rick Koerber saw all criminal charges get dropped against him in connection with allegations that he had operated a $100 million Ponzi scheme. The alleged scheme was known as FranklinSquires Cos. and Founders Capital, but the case was dismissed because the court cited the government’s pattern of neglect and dilatory conduct" as well as "several instances of questionable ethical conduct in prosecuting this case."
Robert Timothy Koger, 48, was sentenced to 11 years in prison in connection with a $55 million Ponzi scheme. Koger was the president and sole owner of Molinaro-Koger, an international hotel real estate brokerage and advisory firm. He ran three different schemes that involved flipping hotels and promissory notes.
Terry Kretz, 61, was sentenced to 14 years in prison and ordered to pay about $14.7 million in restitution for his role in an $18 million Ponzi scheme. Kretz offered investors the opportunity to invest in Hanover Corporation and issued them promissory notes bearing high interest rates. Kretz' co-conspirators, Daryl Bornstein, 55, a Hanover salesman, and Robert Haley, 55, Hanover's chief financial officer, previously pleaded guilty and were also sentenced this month to 5 years and 70 months, respectively.
Anthony J. Lupas, 80, had his criminal case dismissed due to his age and medical condition. Lupas was declared incompetent to stand trial. Lupas had been charged in connection with an alleged $6 million Ponzi scheme in which he promised annual tax-free investment returns of at least 5%.
Andrew Mackey and Inger Jensen saw their prison sentences upheld by the Eleventh Circuit. See U.S. v. Jensen, 2014 U.S. App. LEXIS 14636 (11th Cir. Jul. 31, 2014). The two had run a Ponzi scheme through Andrew Samuel Mackay Financial Funding Corp. and had received 14 and 27 year prison terms, respectively.
Robert McGregor, Jason Bryant Smith, and Brian Rose were indicted and accused of running a $15 million Ponzi scheme that defrauded more than 160 investors. The scheme operated under the name Earth Energy Exploration, but Rose started operating under the name New Century Coal when Earth Energy came under investigation. They represented that the company was the country’s largest producer of “Blue Gem” coal, and investors were promised quarterly payments of 6% of their investment.
Sean Meadows, 41, was indicted in connection with an alleged Ponzi scheme involving the retirement accounts of more than 50 investors. Meadows is a financial planner that used his firm, Meadows Financial Group, to defraud his victims out of at least $10 million. He told his victims that their money would be placed in bonds and real estate, and he promised returns of up to 10%. Instead, he used the money for personal expenses and to make payments to other investors.
Al Moriarty, 81, pleaded no contest to charges against him relating to a $22 million Ponzi scheme. Moriarty ran his scheme through Moriarty Enterprises. Moriarty had filed bankruptcy claiming $18 million in debt.
Doris Elizabeth Nelson, 55, who pleaded guilty in April to running a Ponzi scheme through The Little Loan Shoppe, is the subject of a forfeiture action. The U.S. government is seeking the forfeiture of millions of dollars, property and jewelry from Nelson. Nelson had admitted that she took in about $137 million from at least 650 investors, but her later request to withdraw her guilty plea was denied by the court.
Kelly Ng, 57, Walter Ng, 84 their advisory firm The Mortgage Fund LLC, and Bruce Horowitz agreed to resolve fraud charges brought against them by the SEC. The SEC alleged in its complaint that they defrauded investors in their real estate fund, Mortgage Fund ’08 LLC, and that they secretly used its assets to rescue another fund called R.E. Loans LLC. Kelly Ng and Walter Ng will be barred from the securities industry and will pay fines over $5 million along with the others.
Frank Preve, 70, pleaded guilty to charges in connection with the Scott Rothstein Ponzi scheme. Preve ran the Banyon Group feeder fund, which invested funds into the Rothstein scheme. Preve admitted that he should have known that Rothstein's firm, Rothstein Rosenfeldt Adler PA, was sending the feeder funds documents for sham legal settlements.
Stuart Rosenfeldt, 59, and Russell Adler, 52, both former law partners of Scott Rothstein, lost their licenses to practice law in Florida.
Lynn Alan Simon pleaded guilty to a Ponzi scheme that defrauded 4 victims out of $100,000. He promised investors a high rate of return for investments in his company, Financial Security Planning, Inc. Simon also operated Insurance Shoppe and Financial Security Planning.
Jeffrey Dean Schrader had his broker-dealer and investment adviser registrations revoked by the New Jersey Bureau of Securities. Schrader sold unregistered notes offered by Liberty State Benefits of Pennsylvania, Inc. The notes raised more than $10 million from investors, and the funds were improperly used in a Ponzi scheme by Michael William Kwasnik and others. Schrader is not alleged to have participated in the Ponzi scheme, but he did assist Kwasnik in selling the unregistered securities.
Irene Shannon aka Irene Stay, 50, was sentenced to 5 years in prison for her role in aiding the Scott Rothstein Ponzi scheme. Shannon was the CFO of Rothstein’s law firm, Rothstein Rosenfeldt Adler and oversaw the firm’s bank accounts. Shannon pleaded guilty and admitted to floating checks between bank accounts to launder money.
Nicholas D. Skaltsounis and his companies, AIC Inc. and Community Bankers Securities LLC, were ordered to pay penalties of nearly $70 million relating to what the SEC called a Ponzi scheme. At trial, Skaltsounis and his companies were found liable for a fraud that defrauded at least 74 investors in 14 states. AIC billed itself as a financial services holding company that acquired small broker-dealers such as Community Bankers, CBS Advisors, Waterford Investor Services and Advent Securities. They had promised investors dividends of between 9% and 12.5%.
Joel Steinger, 64, was sentenced to 20 years in prison for masterminding an $800 million Ponzi scheme run through Mutual Benefits Corp. The scheme victimized more than 30,000 investors who were promised high returns for their investments. Mutual Benefits would supposed buy life insurance policies from people with AIDS, cancer and other chronic illnesses and would sell them to investors. The policyholder would be paid an upfront discounted amount, and the investor was promised a larger insurance payout when the insured died.
Douglas L. Swenson, 66, and Mark Ellison, 66, were sentenced to 20 years and 5 years, respectively, for their roles in the Ponzi scheme of DBSI Inc. The scheme defrauded more than 250 people out of more than $100 million. They were convicted after a 42 day trial in which the evidence revealed a scheme involve a range of security investments, including bonds, notes and tenant-in-common investments in real estate.
Donna Tucker was charged by the SEC with running a $730,000 Ponzi scheme that defrauded elderly clients of UBS Wealth Management. Tucker resigned from UBS in 2013, and UBS has reimbursed several customers.
Stephen Walsh agreed to a permanent ban on trading and soliciting funds and to settle civil litigation brought against him by the CFTC. Walsh had previously pleaded guilty to charges relating to a $553 million commodity pool scheme through WG Trading Co.
Deepal Wannakuwatte, 63, fired his lawyer at his sentencing hearing, claiming that he had been coerced into pleading guilty. His sentencing was postponed indefinitely to give Wannakuwatte an opportunity to be represented in court by a lawyer. His scheme, run largely through International Manufacturing Group, is believed to have involved more than 100 victims and more than $200 million, with a net loss of about $108 million. He had promised investors returns to be generated from $100 million in hospital supply contracts which were actually only worth $25,000. Wannakuwatte also invoked his Fifth Amendment rights and refused to answer questions at the meeting of creditors in his bankruptcy case.
Ronnie G. Wilson, 67, is facing new charges that he conspired with his wife, Cassandra Kendall Wilson, 66, and his brother, Timothy L. Wilson, 60, to hide $400,000 in gold, silver and cash. Wilson allegedly gave his wife and brother ammunition canisters containing cash. Ronnie Wilson is currently serving a 19.5 year prison sentence after pleading guilty to running a $57.4 million Ponzi scheme through his company, Atlantic Bullion and Coin, Inc. that defrauded 798 investors. Cassie and Tim have also been charged with conspiracy.
INTERNATIONAL PONZI SCHEME NEWS
Wayward Industries, Wayard Infrastructure Company and Warish Group of Companies, have been accused of running a Ponzi scheme that defrauded investors of more than 100 crore.
Raids were conducted of the offices of Mid Touch Assets and Securities Ltd., as well as at the residence of the managing director, Soubhagya Kumar Samal. The companies are believed to be running a Ponzi scheme.
PACL was banned by the Securities and Exchange Board of India from collecting any more money from investors. It is believed that the PACL Ponzi scheme involved Rs 50,000 crore and 5.85 crore investors. Investors believed they were investing in “agricultural land.”
Grant Malcolm, 63, was accused of running a Ponzi-like scheme through Herbert Insurance Group Limited, which owed $3.1 million to insurers when it was liquidated in 2011.
Gary Anthony Croxford, 60, and Jacobus Basson, 41, were charged in connection with an alleged R8.8 million Ponzi scheme. The two promised safe capital investments in a micro-lending business called Streetwise Mutual Assistance. Investors were promised 24% returns with 2% payable monthly or, in some cases 36% per year with 3% paid monthly.
NEWSWORTHY LEGAL ISSUES IN PENDING PONZI SCHEME CASES
A settlement of a class action against East West Bancorp in connection with the Ponzi scheme of AOB Commerce Inc. was approved. The settlement of $10 million resolves claims that the bank assisted the $48 million Ponzi scheme. It was alleged that AOB promised investors guaranteed returns of between 3% and 5.5% and that the bank was the primary bank that AOB used to pay returns and commissions to investors.
The trustee of the Berjac Ponzi scheme sued a number of banks, claiming that they enabled the Ponzi scheme. The banks are Umpqua, Pacific Continental Bank, Century Bank and Summit Bank. The trustee is seeking the return of allegedly fraudulent transfers of $27.7 million from Umpqua Bank, $22.9 million from Century Bank, $6.3 million from Pacific Continental and $251,906 from Summit. The trustee is also seeking $10 million in punitive damages. The complaint also alleges that accounting firm Jones & Roth aided and abetted the scheme. Berjac was run by Mike Holcomb and Gary Holcomb and started out as an insurance premium finance company.
The Second Circuit affirmed a lower court decision denying the trustee in the Bernard Madoff case the ability to void two settlements between Madoff victims and feeder funds. Picard v. Fairfield Greenwich Ltd., 2014 U.S. App. LEXIS 15274 (2d Cir. Aug. 8, 2014). The trustee had sought to void a $410 million settlement with J. Ezra Merkin and an $80 million settlement with Fairfield Greenwich on the grounds that the settlements interfered with his administration of the Madoff case and were essentially an end run around the fraudulent transfer claims that the trustee is asserting against those entities. The Second Circuit did not agree with the trustee and permitted the settlements to stand. The trustee’s fraudulent transfer cases against the feeder funds remain pending.
The bankruptcy court in the Madoff case found that more than 300 individuals who had invested in the Madoff scheme indirectly through Employee Retirement Income Securities Act plans were not “customers” of Madoff’s firm and therefore cannot recover from SIPC. In re Bernard L. Madoff Securities, 2014 Bankr. LEXIS 3563 (S.D. N.Y. Aug. 22, 2014).
Investors in the Mueller Capital Management Ponzi scheme run by Sean Mueller may receive $10 million from the receiver administering the case. Mueller had promised investors returns of 12% to 20% using a proprietary day-trading system. More than 100 claims were filed in the case seeking $117.6 million in damages, of which $68.4 has been approved. Mueller pleaded guilty in 2010 and received a 40 year prison sentence. John Elway is among the largest claimants and is expected get back $1.44 million of the $9 million he invested. Mueller’s scheme involved at least 145 investors and over $147 million.
An appeals court dismissed claims of the Palm Beach Funds against U.S. Bank that the bank aided and abetted the Thomas Petters Ponzi scheme. Varga v. U.S. Bank, N.A., 2014 U.S. App. LEXIS 16095 (8th Cir. Aug. 21, 2014).
A court awarded investors $105 million in connection with their claims against Mamoru Saito and Takahito Sakagami, along with Tetsuya Hashikura, Hiromi Hashikura, Amiworld Inc., EBOA Ltd., EUBK Holdings Inc. and Tsukuyomi Corp. Saito and Sakagami masterminded the Ponzi scheme the defrauded Japanese investors
The Eleventh Circuit affirmed a $67 million jury verdict against TD Bank in connection with the Scott Rothstein Ponzi scheme. Coquina Investments v. TD Bank, 2014 U.S. App. LEXIS 14388 (11th Cir. July 29, 2014). TD Bank was found liable for aiding and abetting the Rothstein scheme.
The district court presiding over the Allen Stanford Ponzi scheme declined to compel the receiver to arbitrate his fraudulent transfer cases against defendants.
A court rejected Robert Allan Stanford’s attempt to enjoin the activities of the receiver of his companies in prosecuting litigation against various defendants. Stanford accused the receiver of illegally taking his customers’ account information and using estate assets to pay his legal fees.
A Louisiana congressman urged the SEC to appeal the recent D.C. Circuit ruling that the investors in the Stanford Financial Ponzi scheme are not entitled to relief from the Securities Investor Protection Corp. Rep. Bill Cassidy asked SEC Chairwoman Mary Jo White to seek Supreme Court review of the decision.
The receiver of WCM777 is seeking court approval to pursue claims against a California lobbying firm, Governmental Impact Inc., for $750,000. Ming Xu, affiliated with WCM777, entered into a contract with GII around the time that the WCM777 program was barred in Massachusetts and a Desist and Refrain order had been entered in California. GII allegedly did not perform any work.
The receiver in Zeek Rewards obtained approval to make interim partial distributions on allowed claims on September 20, 2014. The receiver said he would pay an amount equal to 40% of each allowed claim using the rising-tide method of calculation which was approved by the Court. See The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes, Chapter 20.04[e] for an explanation of the rising tide method.
The Zeek Rewards receiver also received permission to sue net winners overseas who had a net gain of at least $1,000.