SACRAMENTO, CA—John Hagener, 77, of Granite Bay, and Dawn C. Powers, 43, of Lincoln, separately pleaded guilty today to conspiracy charges, United States Attorney Benjamin B. Wagner announced.
According to court documents, Hagener pleaded guilty to conspiring to commit mail fraud, and Powers pleaded guilty to conspiring to commit wire fraud for their involvement in a mortgage fraud conspiracy and a large-scale Ponzi scheme in Northern California allegedly run by Lawrence Lee Loomis, aka Lawrence Leland Loomis. Loomis and his father-in-law, Hagener, operated a Ponzi scheme in 2007 and 2008 that victimized more than 100 people and caused more than $7 million of losses related to the sale of shares in an investment program called the Naras Funds.
A previously filed indictment charged Loomis and four other defendants, including Powers, in two related mortgage fraud schemes that caused more than $10 million in losses to mortgage lenders and others. The charges are pending against Loomis and three other defendants. An October 2014 trial date has been set before Judge John A. Mendez in Sacramento. The charges are only allegations; they are presumed innocent until and unless proven guilty beyond a reasonable doubt.
This case was the product of an investigation by the Federal Bureau of Investigation and the Internal Revenue Service, Criminal Investigation. Assistant United States Attorney Paul A. Hemesath is prosecuting the case. The Securities and Exchange Commission has filed separate proceedings against Hagener in an ongoing case.
Hagener and Powers are scheduled to be sentenced by Judge John A. Mendez on June 10, 2014. They face a maximum statutory penalty of five years in prison and a $250,000 fine. The actual sentence, however, will be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables.
Showing posts with label Ponzi Scheme. Show all posts
Showing posts with label Ponzi Scheme. Show all posts
Thursday, March 6, 2014
Monday, March 3, 2014
Oceanside Woman Pleads Guilty to Defrauding Investors of $6.9 Million in a Real Estate Ponzi Scheme
Earlier today, Laurie Schneider pleaded guilty at the federal courthouse in Central Islip, New York, to wire fraud. The proceeding took place before United States District Judge Dennis R. Hurley. When sentenced, Schneider faces up to 20 years in prison. As part of her plea agreement with the government, Schneider agreed to a $1 million money judgment payable to the United States.
The guilty plea was announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, and George Venizelos, Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office.
“Laurie Schneider played the part of a successful entrepreneur, willing to help others invest in equipment and machinery deals as well as Long Island real estate. In reality, she was a con artist, using lies and false assurances to bilk unsuspecting investors out of millions of dollars. Schneider ran a classic Ponzi scheme, using investor money for her own selfish purposes,” stated United States Attorney Lynch. “This office is committed to vigorously investigating and prosecuting individuals who are responsible for perpetrating financial crimes on the residents of our communities.”
FBI Assistant Director in Charge Venizelos stated, “By creating two different fraudulent shell companies and falsifying her connections with foreign companies to potential investors, Schneider was unfortunately able to swindle millions out of innocent investors promising big returns for their backing. Today’s guilty plea also promises a big return for Schneider’s criminal actions—a million-dollar judgment and a possible sentence of 20 years in prison. The FBI remains committed to protecting the investing public from perpetrators who seek to commit financial crimes.”
According to court filings and facts presented during the plea proceeding, Schneider used two shell corporations to operate a $6.9 million Ponzi scheme to steal money from unsuspecting investors. Schneider began accepting money in September 2006 from individuals seeking to earn profits on investments in overseas machinery and equipment deals and real estate on Long Island. In the first scheme Schneider operated a shell corporation called Janitorial Close-Out City Corp. (Janitorial Close-Out). Schneider falsely represented to investors that Janitorial Close-Out bought industrial equipment and machinery manufactured by companies in China for resale in the United States. In order to lure investors, Schneider, among other things, falsely represented that (1) she personally guaranteed varying high rates of return on investments of up to 60 percent, (2) she had a business contact with strong ties to companies in China that manufactured industrial equipment and machinery, and (3) she would be able to buy the Chinese-made industrial equipment and machinery at wholesale prices which Janitorial Close-Out would later resell in the United States at a 15 to 60 percent profit over a short period of time.
In a subsequent scheme, Schneider operated a shell company incorporated as Eager Beaver Realty LLC (Eager Beaver). Schneider touted Eager Beaver’s ability to purchase and sell real property on Long Island that was in foreclosure proceedings or otherwise available to Eager Beaver at significantly low prices. Schneider provided investors with written investment agreements in which she falsely represented and guaranteed that 100 percent of the invested funds would be used by Eager Beaver to purchase foreclosed real property for resale at prices that would enable Eager Beaver to pay as much as a 20 percent return on investment along with a 100 percent return of principal. To further the scheme, Schneider used a portion of the money that she obtained from Eager Beaver investors to pay returns to early investors in the China Deals. In reality, Eager Beaver earned no profits. In fact, Schneider was operating a Ponzi scheme, paying returns to early investors using money that she fraudulently obtained from later investors. In addition, Schneider diverted some of the investors’ money to pay personal expenses, including car payments on luxury automobiles and country club dues.
The government’s case is being prosecuted by Assistant United States Attorney Michael P. Canty.
Defendant:
LAURIE SCHNEIDER
Age: 39
The guilty plea was announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, and George Venizelos, Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office.
“Laurie Schneider played the part of a successful entrepreneur, willing to help others invest in equipment and machinery deals as well as Long Island real estate. In reality, she was a con artist, using lies and false assurances to bilk unsuspecting investors out of millions of dollars. Schneider ran a classic Ponzi scheme, using investor money for her own selfish purposes,” stated United States Attorney Lynch. “This office is committed to vigorously investigating and prosecuting individuals who are responsible for perpetrating financial crimes on the residents of our communities.”
FBI Assistant Director in Charge Venizelos stated, “By creating two different fraudulent shell companies and falsifying her connections with foreign companies to potential investors, Schneider was unfortunately able to swindle millions out of innocent investors promising big returns for their backing. Today’s guilty plea also promises a big return for Schneider’s criminal actions—a million-dollar judgment and a possible sentence of 20 years in prison. The FBI remains committed to protecting the investing public from perpetrators who seek to commit financial crimes.”
According to court filings and facts presented during the plea proceeding, Schneider used two shell corporations to operate a $6.9 million Ponzi scheme to steal money from unsuspecting investors. Schneider began accepting money in September 2006 from individuals seeking to earn profits on investments in overseas machinery and equipment deals and real estate on Long Island. In the first scheme Schneider operated a shell corporation called Janitorial Close-Out City Corp. (Janitorial Close-Out). Schneider falsely represented to investors that Janitorial Close-Out bought industrial equipment and machinery manufactured by companies in China for resale in the United States. In order to lure investors, Schneider, among other things, falsely represented that (1) she personally guaranteed varying high rates of return on investments of up to 60 percent, (2) she had a business contact with strong ties to companies in China that manufactured industrial equipment and machinery, and (3) she would be able to buy the Chinese-made industrial equipment and machinery at wholesale prices which Janitorial Close-Out would later resell in the United States at a 15 to 60 percent profit over a short period of time.
In a subsequent scheme, Schneider operated a shell company incorporated as Eager Beaver Realty LLC (Eager Beaver). Schneider touted Eager Beaver’s ability to purchase and sell real property on Long Island that was in foreclosure proceedings or otherwise available to Eager Beaver at significantly low prices. Schneider provided investors with written investment agreements in which she falsely represented and guaranteed that 100 percent of the invested funds would be used by Eager Beaver to purchase foreclosed real property for resale at prices that would enable Eager Beaver to pay as much as a 20 percent return on investment along with a 100 percent return of principal. To further the scheme, Schneider used a portion of the money that she obtained from Eager Beaver investors to pay returns to early investors in the China Deals. In reality, Eager Beaver earned no profits. In fact, Schneider was operating a Ponzi scheme, paying returns to early investors using money that she fraudulently obtained from later investors. In addition, Schneider diverted some of the investors’ money to pay personal expenses, including car payments on luxury automobiles and country club dues.
The government’s case is being prosecuted by Assistant United States Attorney Michael P. Canty.
Defendant:
LAURIE SCHNEIDER
Age: 39
Thursday, February 20, 2014
Final Defendant Pleads Guilty to Wire Fraud and Money Laundering Charges as Part of $5 Million Ponzi Scheme
DENVER—Stanley W. Anderson, age 69, of Arvada, Colorado, pled guilty before U.S. District Court Judge Christine M. Arguello late last week to one count of wire fraud and one count of money laundering, federal law enforcement announced. Anderson, who is free on bond, is scheduled to be sentenced by Judge Arguello on May 6, 2014. Anderson was indicted by a federal grand jury in Denver on March 22, 2012, along with co-defendants Pastor Charles Lawrence Kennedy, Jr. of Tampa, Florida, and Edwin Alexander Smith of Denver, Colorado. Kennedy and Smith pled guilty and were sentenced to 12 and 30 months, respectively, to federal prison.
According to the facts contained in the indictment as well as the stipulated facts contained in the various plea agreements, beginning in October 2005 and continuing through December 2008, Anderson, Smith, and Kennedy, together with each other, and aiding and abetting other persons known and unknown to the grand jury, devised a scheme to defraud investors.
Anderson and Smith resided in Colorado and conducted business through CFO- LLC and Trinity International Enterprises Inc, two companies they controlled. Trinity had no business operations apart from soliciting investment funds related to an investment program. Anderson was the chairman and chief executive officer of CFO-5 and Trinity. Smith was the secretary of CFO-5 and president of Trinity. Kennedy resided in Florida, where he worked as a pastor and conducted business through a company identified as Keys to Life Corporation. Kennedy through a formal partnership with Trinity assisted Anderson and Smith in soliciting investment funds.
They solicited investors’ funds for use in an investment program where significant profits would supposedly be generated through the trading of European medium term notes (MTN program), when in fact, the MTN program did not exist. Furthermore, they represented that their MTN program would pay nearly immediate returns in amounts ranging from 200 to 1000 percent.
They raised approximately $5 million dollars from approximately 100 investors nationwide over the course of the scheme. The investors’ funds were not used to trade in financial instruments but were instead misappropriated by Anderson, Smith, and Kennedy for unauthorized uses. Investors, with the exception of those who received Ponzi scheme-like payments, that is, money taken from one investor to compensate another, lost their total investments. Anderson and Smith generally commingled and deposited investors’ funds into bank accounts controlled by Anderson and Smith.
Anderson was the lead person for the investment program and managed the daily operations of the program, made key decisions as it related to the use of investor funds, handled investor communications, and oversaw the relationship with various promoters responsible for soliciting investors. During periodic conference calls with investors, Anderson conducted such calls and provided investors with purported updates. Similarly, Anderson would typically author and distribute e-mail communications to investors in which false information regarding the status of the investment was contained. As it related to the handling of funds collected by investors, Anderson typically controlled and determined the expenditure of such funds. He diverted thousands of dollars in investor funds for personal use including, house payments, meals and entertainment, personal judgments, and salary payments for his children.
This case was investigated by the Internal Revenue Service-Criminal Investigation, the Federal Bureau of Investigation, and the United States Postal Inspection Service.
This case is being prosecuted by Assistant U.S. Attorney Timothy Neff.
According to the facts contained in the indictment as well as the stipulated facts contained in the various plea agreements, beginning in October 2005 and continuing through December 2008, Anderson, Smith, and Kennedy, together with each other, and aiding and abetting other persons known and unknown to the grand jury, devised a scheme to defraud investors.
Anderson and Smith resided in Colorado and conducted business through CFO- LLC and Trinity International Enterprises Inc, two companies they controlled. Trinity had no business operations apart from soliciting investment funds related to an investment program. Anderson was the chairman and chief executive officer of CFO-5 and Trinity. Smith was the secretary of CFO-5 and president of Trinity. Kennedy resided in Florida, where he worked as a pastor and conducted business through a company identified as Keys to Life Corporation. Kennedy through a formal partnership with Trinity assisted Anderson and Smith in soliciting investment funds.
They solicited investors’ funds for use in an investment program where significant profits would supposedly be generated through the trading of European medium term notes (MTN program), when in fact, the MTN program did not exist. Furthermore, they represented that their MTN program would pay nearly immediate returns in amounts ranging from 200 to 1000 percent.
They raised approximately $5 million dollars from approximately 100 investors nationwide over the course of the scheme. The investors’ funds were not used to trade in financial instruments but were instead misappropriated by Anderson, Smith, and Kennedy for unauthorized uses. Investors, with the exception of those who received Ponzi scheme-like payments, that is, money taken from one investor to compensate another, lost their total investments. Anderson and Smith generally commingled and deposited investors’ funds into bank accounts controlled by Anderson and Smith.
Anderson was the lead person for the investment program and managed the daily operations of the program, made key decisions as it related to the use of investor funds, handled investor communications, and oversaw the relationship with various promoters responsible for soliciting investors. During periodic conference calls with investors, Anderson conducted such calls and provided investors with purported updates. Similarly, Anderson would typically author and distribute e-mail communications to investors in which false information regarding the status of the investment was contained. As it related to the handling of funds collected by investors, Anderson typically controlled and determined the expenditure of such funds. He diverted thousands of dollars in investor funds for personal use including, house payments, meals and entertainment, personal judgments, and salary payments for his children.
This case was investigated by the Internal Revenue Service-Criminal Investigation, the Federal Bureau of Investigation, and the United States Postal Inspection Service.
This case is being prosecuted by Assistant U.S. Attorney Timothy Neff.
Thursday, February 6, 2014
Founders of Bankrupt SoCal Real Estate Investment Firm Indicted in Wide-Ranging Scheme That Led to More Than $110 in Losses
SANTA ANA, CA—The owners of a now-defunct Southern California real estate investment firm were arrested today for allegedly perpetrating a Ponzi scheme that ended with the bankruptcy of their company and caused private investors and banks collectively to lose well over $110 million when the scheme collapsed.
Michael Stewart, 66, of Phoenix, and John Packard, 63, of Long Beach, California, were arrested this morning without incident by special agents with the FBI. The two men were named last month in a 16-count indictment returned by a federal grand jury. The two men each face 11 counts of mail fraud, three counts of bank fraud, and two counts of bankruptcy fraud.
Stewart and Packard owned and were the chief executives of Pacific Property Assets (PPA), which had offices in Long Beach and Irvine. The two men created PPA in 1999 to purchase, renovate, operate, and resell or refinance apartment complexes in Southern California and Arizona. Typically, PPA financed property acquisitions through mortgages, and it raised money from private investors to pay for renovations to the properties. After several years, PPA would usually refinance (or sometimes sell) each property.
Although PPA’s apartment rental operations were not profitable, it was able to raise cash through refinancing. As real estate values were generally increasing until approximately 2007, the properties were refinanced at ever-higher values, which enabled PPA to use the extra refinancing proceeds to not only pay off the original mortgages but also to make payments on other loans, make payments to investors, to pay other business expenses, and to pay Stewart and Packard. In its 10 years of operations, PPA acquired more than 100 real estate properties and raised tens of millions of dollars from hundreds of investors. Stewart and Packard paid themselves annual salaries of $400,000 to $750,000, and each received millions of dollars in additional payments.
According to the indictment, by the end of 2007, when the real estate market began to decline and credit became scarce, PPA’s business model was no longer feasible. As the value of PPA’s properties was falling, PPA could no longer raise money by refinancing its properties with increasingly large mortgages. Furthermore, PPA faced large debt payments to its mortgage lenders and private investors, while it was continuing to lose money in its business operations.
To keep PPA afloat, from late 2007 through April 2009, Stewart and Packard allegedly continued to raise tens of millions of dollars from new investors. The defendants are accused of using these new funds to pay earlier investors, mortgage lenders, other company expenses, and Stewart and Packard themselves.
The indictment alleges that during the course of this continued fundraising effort, Stewart and Packard misrepresented PPA’s financial condition, claiming that its business model was still working, and that PPA was still financially stable and able to raise money through refinancing. Stewart and Packard allegedly concealed from investors the fact that the business had effectively become a Ponzi scheme, using new investors’ funds to pay back earlier investors. Moreover, following PPA’s final investor offering in 2009, virtually none of the investors’ funds were used to invest in new property purchases, as had been promised to investors; instead, the money was used to pay earlier investors and banks, to pay Stewart and Packard, and to pay PPA’s bankruptcy attorney.
The indictment also charges that PPA provided false financial information to at least one of its bank lenders—Vineyard Bank—in order to obtain loans and to maintain its line of credit with that bank. In particular, PPA allegedly substantially overstated its income (including its rental revenue) and assets (including its cash position), concealing the fact that its operations were unprofitable and it had limited liquidity.
PPA and a group of related companies filed for bankruptcy in June 2009. When the bankruptcy was filed, PPA owed 647 private investors more than $91 million, and it owed banks approximately $100 million. In the bankruptcy proceeding, the private investors received nothing, while banks lost an estimated $24 million.
The indictment further charges that Stewart and Packard committed fraud in connection with the bankruptcy process. After PPA had retained bankruptcy attorneys and shortly before it filed for bankruptcy, Stewart and Packard allegedly transferred $165,000 from PPA to Packard’s personal bank account, ensuring that those funds were not available to PPA’s creditors through the bankruptcy process. The indictment also charges that after PPA entered bankruptcy, Stewart and Packard arranged for $131,000 in funds due to PPA to be transferred to outside accounts and then to Stewart, Packard, and their personal attorneys, thus circumventing the bankruptcy process.
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty in court.
Stewart is expected to make his initial court appearance later today in federal court in Phoenix. Packard is expected to be arraigned on the indictment this afternoon in United States District Court in Santa Ana.
If they are convicted of all 16 counts in the indictment, both Stewart and Packard each would face a statutory maximum sentence of 320 years in federal prison and millions of dollars in fines.
This investigation was conducted by the Federal Bureau of Investigation, which received assistance from the United States Trustee’s Office.
In May 2012, the Securities & Exchange Commission filed a complaint against Stewart and Packard, charging them with securities fraud and other violations of securities fraud (see: http://www.sec.gov/litigation/litreleases/2012/lr22365.htm). The SEC’s complaint alleged that, shortly after PPA entered bankruptcy, Stewart and Packard formed a new company, Apartments America, which was intended to replicate PPA’s business model. The complaint also alleged that Stewart and Packard made misleading statements to prospective investors about their track record and that of Apartments America, in an attempt to raise money for the new company. The SEC case has been partially settled, with Stewart and Packard agreeing to an injunction against committing further fraud and selling unregistered securities. The SEC is continuing to seek civil penalties.
Michael Stewart, 66, of Phoenix, and John Packard, 63, of Long Beach, California, were arrested this morning without incident by special agents with the FBI. The two men were named last month in a 16-count indictment returned by a federal grand jury. The two men each face 11 counts of mail fraud, three counts of bank fraud, and two counts of bankruptcy fraud.
Stewart and Packard owned and were the chief executives of Pacific Property Assets (PPA), which had offices in Long Beach and Irvine. The two men created PPA in 1999 to purchase, renovate, operate, and resell or refinance apartment complexes in Southern California and Arizona. Typically, PPA financed property acquisitions through mortgages, and it raised money from private investors to pay for renovations to the properties. After several years, PPA would usually refinance (or sometimes sell) each property.
Although PPA’s apartment rental operations were not profitable, it was able to raise cash through refinancing. As real estate values were generally increasing until approximately 2007, the properties were refinanced at ever-higher values, which enabled PPA to use the extra refinancing proceeds to not only pay off the original mortgages but also to make payments on other loans, make payments to investors, to pay other business expenses, and to pay Stewart and Packard. In its 10 years of operations, PPA acquired more than 100 real estate properties and raised tens of millions of dollars from hundreds of investors. Stewart and Packard paid themselves annual salaries of $400,000 to $750,000, and each received millions of dollars in additional payments.
According to the indictment, by the end of 2007, when the real estate market began to decline and credit became scarce, PPA’s business model was no longer feasible. As the value of PPA’s properties was falling, PPA could no longer raise money by refinancing its properties with increasingly large mortgages. Furthermore, PPA faced large debt payments to its mortgage lenders and private investors, while it was continuing to lose money in its business operations.
To keep PPA afloat, from late 2007 through April 2009, Stewart and Packard allegedly continued to raise tens of millions of dollars from new investors. The defendants are accused of using these new funds to pay earlier investors, mortgage lenders, other company expenses, and Stewart and Packard themselves.
The indictment alleges that during the course of this continued fundraising effort, Stewart and Packard misrepresented PPA’s financial condition, claiming that its business model was still working, and that PPA was still financially stable and able to raise money through refinancing. Stewart and Packard allegedly concealed from investors the fact that the business had effectively become a Ponzi scheme, using new investors’ funds to pay back earlier investors. Moreover, following PPA’s final investor offering in 2009, virtually none of the investors’ funds were used to invest in new property purchases, as had been promised to investors; instead, the money was used to pay earlier investors and banks, to pay Stewart and Packard, and to pay PPA’s bankruptcy attorney.
The indictment also charges that PPA provided false financial information to at least one of its bank lenders—Vineyard Bank—in order to obtain loans and to maintain its line of credit with that bank. In particular, PPA allegedly substantially overstated its income (including its rental revenue) and assets (including its cash position), concealing the fact that its operations were unprofitable and it had limited liquidity.
PPA and a group of related companies filed for bankruptcy in June 2009. When the bankruptcy was filed, PPA owed 647 private investors more than $91 million, and it owed banks approximately $100 million. In the bankruptcy proceeding, the private investors received nothing, while banks lost an estimated $24 million.
The indictment further charges that Stewart and Packard committed fraud in connection with the bankruptcy process. After PPA had retained bankruptcy attorneys and shortly before it filed for bankruptcy, Stewart and Packard allegedly transferred $165,000 from PPA to Packard’s personal bank account, ensuring that those funds were not available to PPA’s creditors through the bankruptcy process. The indictment also charges that after PPA entered bankruptcy, Stewart and Packard arranged for $131,000 in funds due to PPA to be transferred to outside accounts and then to Stewart, Packard, and their personal attorneys, thus circumventing the bankruptcy process.
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty in court.
Stewart is expected to make his initial court appearance later today in federal court in Phoenix. Packard is expected to be arraigned on the indictment this afternoon in United States District Court in Santa Ana.
If they are convicted of all 16 counts in the indictment, both Stewart and Packard each would face a statutory maximum sentence of 320 years in federal prison and millions of dollars in fines.
This investigation was conducted by the Federal Bureau of Investigation, which received assistance from the United States Trustee’s Office.
In May 2012, the Securities & Exchange Commission filed a complaint against Stewart and Packard, charging them with securities fraud and other violations of securities fraud (see: http://www.sec.gov/litigation/litreleases/2012/lr22365.htm). The SEC’s complaint alleged that, shortly after PPA entered bankruptcy, Stewart and Packard formed a new company, Apartments America, which was intended to replicate PPA’s business model. The complaint also alleged that Stewart and Packard made misleading statements to prospective investors about their track record and that of Apartments America, in an attempt to raise money for the new company. The SEC case has been partially settled, with Stewart and Packard agreeing to an injunction against committing further fraud and selling unregistered securities. The SEC is continuing to seek civil penalties.
Wednesday, January 29, 2014
Pastor Sentenced to Federal Prison for Wire Fraud in Connection with $5 Million Ponzi Scheme
DENVER—Pastor Charles Lawrence Kennedy, Jr., age 71, of Tampa, Florida, was sentenced last week by U.S. District Court Judge Christine M. Arguello to serve one year and a day in federal prison for one count of wire fraud, federal law enforcement announced. Following his prison sentence, Kennedy was ordered to serve three years on supervised release. He was also ordered to pay restitution of approximately $315,000 to the victims of his crime. Kennedy appeared at the sentencing hearing free on bond and was ordered to report to a facility designated by the U.S. Bureau of Prisons on a certain date.
Kennedy was indicted by a federal grand jury in Denver on March 22, 2012, along with co-defendants Stanley Wayne Anderson of Arvada, Colorado, and Edwin Alexander Smith of Denver, Colorado. Smith pled guilty to one count of wire fraud on August 27, 2013. Smith is scheduled to be sentenced by Judge Arguello on February 4, 2014. Anderson has a change of plea hearing scheduled for February 6, 2014.
According to the facts contained in the indictment, as well as the stipulated facts contained in the plea agreement, beginning in October 2005 and continuing through December 2008, Anderson, Smith, and Kennedy, together with each other, and aiding and abetting other persons known and unknown to the grand jury, devised a scheme to defraud investors.
Anderson and Smith resided in Colorado and conducted business through CFO-5 LLC and Trinity International Enterprises Inc, two companies they controlled. Trinity had no business operations apart from soliciting investment funds related to an investment program. Anderson was the chairman and chief executive officer of CFO-5 and Trinity. Smith was the secretary of CFO-5 and president of Trinity. Kennedy resided in Florida, where he worked as a pastor and conducted business through a company identified as Keys to Life Corporation. Kennedy, through a formal partnership with Trinity, assisted Anderson and Smith in soliciting investment funds.
They solicited investors’ funds for use in an investment program where significant profits would supposedly be generated through the trading of European medium term notes (MTN program), when, in fact, the MTN program did not exist. Furthermore, they represented that their MTN program would pay nearly immediate returns in amounts ranging from 200 to 1000 percent.
They raised approximately $5 million from approximately 100 investors nationwide over the course of the scheme. The investors’ funds were not used to trade in financial instruments but were instead misappropriated by Anderson, Smith, and Kennedy for unauthorized uses. Investors, with the exception of those who received Ponzi scheme-like payments (money taken from one investor to compensate another) lost their total investments. Anderson and Smith generally commingled and deposited investors’ funds into bank accounts controlled by Anderson and Smith.
Kennedy began soliciting investments in December 2005 from fellow pastors and members of their congregations through his company Keys to Life Corporation and falsely promised that for every $1,000 invested, the minimum return would be $1,000,000, which would be paid within 90 days. From December 2005 through April 2006, Kennedy collected $460,000 from nine investors and forwarded only $145,000 to Trinity for use in the investment pool and as a result has agreed to pay $315,000 in restitution. Kennedy in fact took a portion of investor funds for his own personal benefit.
“When a person abuses his position of trust to take fraudulent financial advantage of the people who trust him, he will face criminal consequences,” said U.S. Attorney John Walsh. “Pastor Kennedy will spend a year of his life in prison to reflect on his criminal conduct.”
“Honest and law-abiding citizens are fed up with the likes of those who use deceit and fraud to line their pockets with other people’s money,” said Stephen Boyd, Special Agent in Charge for IRS-Criminal Investigation, Denver Field Office. “Those individuals who engage in this type of financial fraud should know they will not go undetected and will be held accountable.”
“The investigation of investment fraud is an FBI priority,” said FBI Denver Division Special Agent in Charge Thomas P. Ravenelle. “We are confident the outcome of this case will deter others who seek to defraud innocent investors.”
“The defendants’ position of trust as a Religious Leader gave him the opportunity to prey on vulnerable victims causing them emotional and financial harm,” said Adam P. Behnen, Inspector in Charge, U.S. Postal Inspection Service, Denver Division. “It is important we stop this victimization and bring these perpetrators to justice.”
This case was investigated by the Internal Revenue Service-Criminal Investigation, the Federal Bureau of Investigation, and the United States Postal Inspection Service.
This case is being prosecuted by Assistant U.S. Attorney Timothy Neff.
Kennedy was indicted by a federal grand jury in Denver on March 22, 2012, along with co-defendants Stanley Wayne Anderson of Arvada, Colorado, and Edwin Alexander Smith of Denver, Colorado. Smith pled guilty to one count of wire fraud on August 27, 2013. Smith is scheduled to be sentenced by Judge Arguello on February 4, 2014. Anderson has a change of plea hearing scheduled for February 6, 2014.
According to the facts contained in the indictment, as well as the stipulated facts contained in the plea agreement, beginning in October 2005 and continuing through December 2008, Anderson, Smith, and Kennedy, together with each other, and aiding and abetting other persons known and unknown to the grand jury, devised a scheme to defraud investors.
Anderson and Smith resided in Colorado and conducted business through CFO-5 LLC and Trinity International Enterprises Inc, two companies they controlled. Trinity had no business operations apart from soliciting investment funds related to an investment program. Anderson was the chairman and chief executive officer of CFO-5 and Trinity. Smith was the secretary of CFO-5 and president of Trinity. Kennedy resided in Florida, where he worked as a pastor and conducted business through a company identified as Keys to Life Corporation. Kennedy, through a formal partnership with Trinity, assisted Anderson and Smith in soliciting investment funds.
They solicited investors’ funds for use in an investment program where significant profits would supposedly be generated through the trading of European medium term notes (MTN program), when, in fact, the MTN program did not exist. Furthermore, they represented that their MTN program would pay nearly immediate returns in amounts ranging from 200 to 1000 percent.
They raised approximately $5 million from approximately 100 investors nationwide over the course of the scheme. The investors’ funds were not used to trade in financial instruments but were instead misappropriated by Anderson, Smith, and Kennedy for unauthorized uses. Investors, with the exception of those who received Ponzi scheme-like payments (money taken from one investor to compensate another) lost their total investments. Anderson and Smith generally commingled and deposited investors’ funds into bank accounts controlled by Anderson and Smith.
Kennedy began soliciting investments in December 2005 from fellow pastors and members of their congregations through his company Keys to Life Corporation and falsely promised that for every $1,000 invested, the minimum return would be $1,000,000, which would be paid within 90 days. From December 2005 through April 2006, Kennedy collected $460,000 from nine investors and forwarded only $145,000 to Trinity for use in the investment pool and as a result has agreed to pay $315,000 in restitution. Kennedy in fact took a portion of investor funds for his own personal benefit.
“When a person abuses his position of trust to take fraudulent financial advantage of the people who trust him, he will face criminal consequences,” said U.S. Attorney John Walsh. “Pastor Kennedy will spend a year of his life in prison to reflect on his criminal conduct.”
“Honest and law-abiding citizens are fed up with the likes of those who use deceit and fraud to line their pockets with other people’s money,” said Stephen Boyd, Special Agent in Charge for IRS-Criminal Investigation, Denver Field Office. “Those individuals who engage in this type of financial fraud should know they will not go undetected and will be held accountable.”
“The investigation of investment fraud is an FBI priority,” said FBI Denver Division Special Agent in Charge Thomas P. Ravenelle. “We are confident the outcome of this case will deter others who seek to defraud innocent investors.”
“The defendants’ position of trust as a Religious Leader gave him the opportunity to prey on vulnerable victims causing them emotional and financial harm,” said Adam P. Behnen, Inspector in Charge, U.S. Postal Inspection Service, Denver Division. “It is important we stop this victimization and bring these perpetrators to justice.”
This case was investigated by the Internal Revenue Service-Criminal Investigation, the Federal Bureau of Investigation, and the United States Postal Inspection Service.
This case is being prosecuted by Assistant U.S. Attorney Timothy Neff.
Tuesday, December 24, 2013
Former Parker Man Sentenced to Serve 51 Months in Federal Prison in $1.7 Million Ponzi Scheme
DENVER—Shawon McClung, age 27, formerly of Parker, Colorado, was sentenced earlier this week by U.S. District Court Judge R. Brooke Jackson to serve 51 months in federal prison for wire fraud, U.S. Attorney John Walsh and FBI Denver Division Special Agent in Charge Thomas Ravenelle announced. Following his prison sentence, Judge Jackson ordered McClung to serve three years on supervised release. The defendant was also ordered to pay $1,756,750 in restitution to the 15 victims of his fraud. McClung was ordered to voluntarily surrender to the institution designated by the U.S. Bureau of Prisons within 15 days from the date of designation.
McClung was first charged by Information on June 12, 2013. He pled guilty before Judge Jackson on July 30, 2013. The defendant was sentenced on December 16, 2013.
According to court documents, including the stipulated facts contained in the plea agreement, in 2009, McClung began Flint‑McClung Capital LLC (FMC) in Indiana. In November 2010, McClung moved FMC from Indiana to Denver, Colorado. In early 2009, McClung entered into financing discussions with a software programmer for the development of proprietary software to make automated trades on the foreign currency (FOREX) market. The goal was to develop a software program that would perform numerous automated trades during a short time based on an algorithm designed to predict and exploit differences in foreign exchange rates. On December 15, 2010, an agreement was reached by McClung and the software programmer to provide funding for the software program. However, McClung only provided approximately $213,000 of the promised $614,790, and the software program was never developed and was never available for FMC’s use.
Despite the fact that the software program had not been developed, from approximately March 2009 to approximately April 2011, McClung solicited investor money by falsely representing that FMC owned and used a proprietary "massively parallel automated trading system" to trade currencies on the FOREX market. McClung falsely told investors that this proprietary software was already being used at FMC and had a history of success. Both verbally and in writing, McClung falsely represented to investors, potential investors, and others that investors in the investment programs he was offering "historically" received returns of 15 to 100 percent approximately every 14 to 30 days. In reality, as McClung well knew, the software program did not exist and had no history of success.
Both verbally and in written "Investment Contracts" and "Joint Venture Agreements," McClung falsely represented to investors, potential investors, and others that FMC guaranteed from loss the principal of the investment placed with FMC. McClung also falsely represented to investors, potential investors, and others that FMC would use their entire investment to trade in currencies using FMC’s proprietary system, which McClung knew did not exist. In fact, McClung did not place any of the investors’ money in trades.
McClung did make some promised payouts to early investors using money he received from other investors. Some of those early investors told other potential investors about their successful "investments" with FMC, which reassured others about investing their money with McClung and FMC.
After McClung and FMC failed to make promised payments to investors via e-mail and other forms of communication, McClung made a number of false excuses to investors and others regarding why the payments had not been made. He also made a number of false promises about future payments. In March 2011, McClung sent to several investors via e-mail a document entitled "Cancellation of Contract and Account Settlement" in which he falsely represented that FMC would return an amount of money specified in the document if the investor signed and released McClung and others of any liability. After receiving signed "Cancellation of Contract and Account Settlement" from many investors, McClung failed to make the promised payouts and failed to return the investors’ principal.
“All too often we see con men like the defendant in this tragic case who claim to have a super-secret method that enables them to make instant millions by manipulating or outwitting the financial markets,” said U.S. Attorney John Walsh. “That sort of claim always deserves the highest level of skepticism—if a deal promises sky-high returns with no risk, it’s too good to be true, and investors should run away.”
“In order to ensure our financial markets operate fairly, the FBI is committed to aggressively pursuing those who commit investment fraud,” said FBI Denver Division Special Agent in Charge Thomas P. Ravenelle. “We are confident the results of this investigation will deter others who engage in these types of fraudulent schemes.”
McClung was first charged by Information on June 12, 2013. He pled guilty before Judge Jackson on July 30, 2013. The defendant was sentenced on December 16, 2013.
According to court documents, including the stipulated facts contained in the plea agreement, in 2009, McClung began Flint‑McClung Capital LLC (FMC) in Indiana. In November 2010, McClung moved FMC from Indiana to Denver, Colorado. In early 2009, McClung entered into financing discussions with a software programmer for the development of proprietary software to make automated trades on the foreign currency (FOREX) market. The goal was to develop a software program that would perform numerous automated trades during a short time based on an algorithm designed to predict and exploit differences in foreign exchange rates. On December 15, 2010, an agreement was reached by McClung and the software programmer to provide funding for the software program. However, McClung only provided approximately $213,000 of the promised $614,790, and the software program was never developed and was never available for FMC’s use.
Despite the fact that the software program had not been developed, from approximately March 2009 to approximately April 2011, McClung solicited investor money by falsely representing that FMC owned and used a proprietary "massively parallel automated trading system" to trade currencies on the FOREX market. McClung falsely told investors that this proprietary software was already being used at FMC and had a history of success. Both verbally and in writing, McClung falsely represented to investors, potential investors, and others that investors in the investment programs he was offering "historically" received returns of 15 to 100 percent approximately every 14 to 30 days. In reality, as McClung well knew, the software program did not exist and had no history of success.
Both verbally and in written "Investment Contracts" and "Joint Venture Agreements," McClung falsely represented to investors, potential investors, and others that FMC guaranteed from loss the principal of the investment placed with FMC. McClung also falsely represented to investors, potential investors, and others that FMC would use their entire investment to trade in currencies using FMC’s proprietary system, which McClung knew did not exist. In fact, McClung did not place any of the investors’ money in trades.
McClung did make some promised payouts to early investors using money he received from other investors. Some of those early investors told other potential investors about their successful "investments" with FMC, which reassured others about investing their money with McClung and FMC.
After McClung and FMC failed to make promised payments to investors via e-mail and other forms of communication, McClung made a number of false excuses to investors and others regarding why the payments had not been made. He also made a number of false promises about future payments. In March 2011, McClung sent to several investors via e-mail a document entitled "Cancellation of Contract and Account Settlement" in which he falsely represented that FMC would return an amount of money specified in the document if the investor signed and released McClung and others of any liability. After receiving signed "Cancellation of Contract and Account Settlement" from many investors, McClung failed to make the promised payouts and failed to return the investors’ principal.
“All too often we see con men like the defendant in this tragic case who claim to have a super-secret method that enables them to make instant millions by manipulating or outwitting the financial markets,” said U.S. Attorney John Walsh. “That sort of claim always deserves the highest level of skepticism—if a deal promises sky-high returns with no risk, it’s too good to be true, and investors should run away.”
“In order to ensure our financial markets operate fairly, the FBI is committed to aggressively pursuing those who commit investment fraud,” said FBI Denver Division Special Agent in Charge Thomas P. Ravenelle. “We are confident the results of this investigation will deter others who engage in these types of fraudulent schemes.”
Friday, December 20, 2013
Former Agape Employees Charged in Massive Ponzi Scheme in Superseding Indictment
Earlier today, a 21-count superseding indictment was unsealed charging Bryan Arias, Anthony Ciccone, Diane Kaylor, Jason Keryc, and Shamika Luciano, former employees of Hauppauge-based Agape World Inc. (Agape) and Agape Merchant Advance (AMA), for their participation in a large-scale Ponzi scheme. The superseding indictment adds two new defendants, Arias and Luciano; a securities fraud charge; a mail fraud count; and two additional wire fraud counts. The defendants are scheduled to be arraigned on the superseding indictment this afternoon before United States Magistrate Judge A. Kathleen Tomlinson at the United States Courthouse in Central Islip, New York.
The charges were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York; George Venizelos, Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office (FBI); and Philip R. Bartlett, Inspector in Charge, United States Postal Inspection Service, New York (USPIS).
“Today’s superseding indictment is but the latest step in this office’s dismantling of the fraudulent business empire of Nicholas Cosmo,” stated United States Attorney Lynch. “The defendants charged were an integral part of Cosmo’s Ponzi scheme that defrauded thousands of people of hundreds of millions of dollars. The defendants actively promoted the Ponzi scheme, promising safe investments in low risk business ventures. Even when the business ventures began to fail, the defendants continued to peddle lies and deceit to the investors in order to keep money flowing into the scheme.” Ms. Lynch added that the government’s investigation is continuing.
“As alleged in the indictment, the defendants’ foundation for success was built on deception and sham investments using the victims’ money. Over time, as with all Ponzi schemes, the defendants’ lies began to unravel, leaving the collective investors millions of dollars out of pocket. Unfortunately, the public should be reminded that sometimes investment opportunities that are too good to be true are merely schemes designed to steal your money. The FBI, along with our law enforcement partners, will continue to aggressively investigate those who prey upon the public with illegal get-rich-quick plans,” stated FBI Assistant Director in Charge Venizelos.
“Today’s arrests should serve notice to criminals that postal inspectors will leave no stone unturned to bring to justice all parties involved in any crime that utilizes the U.S. mail to steal the hard earned money of consumers,” said Inspector in Charge Bartlett.
Nicholas Cosmo founded Agape and AMA in August 2000. According to the superseding indictment and court filings, between October 2003 and January 2009, Arias, Ciccone, Kaylor, Keryc, and Luciano, who worked as account representatives or brokers for Cosmo, played critical roles in the operation of a Ponzi scheme by soliciting and obtaining hundreds of millions of dollars from investors. To induce investments and discourage withdrawals, the defendants misled the investors by, among other things, (1) assuring investors that their investments would only be used to fund specific, short-term secured bridge loans to commercial borrowers or to make short-term loans to small businesses, (2) promising to pay investors unusually high rates of returns, and (3) representing that investing in Agape and AMA carried little or no risk of loss. The defendants allegedly raised significantly more money than was needed for the loans and lied to the investors when they assured them that their money would specifically be used to fund only a particular loan. For their efforts, Arias, Ciccone, Kaylor, Keryc, and Luciano received approximately $1.7 million, $10.7 million, $4.75 million, $16 million, and $275,000, respectively.
As alleged in the superseding indictment, Cosmo and the defendants actually ran a Ponzi scheme, paying returns to Agape and AMA investors not from any profits earned on investments but rather from existing investors’ deposits or money paid by new investors. In addition, unbeknownst to the investors, approximately $100 million of their money was used to trade high risk futures and commodities. Despite the fact that the defendants knew that Agape and AMA did not produce or earn rates of return that could support the exorbitant returns promised to investors, they allegedly continued to solicit money from investors.
As the fraudulent scheme began to unravel, the defendants allegedly lied to investors about the status of various Agape bridge loans. For example, on November 3, 2008, the defendants learned that all Agape’s 2007 bridge loans were in default or on extension but allegedly failed to disclose that information to existing or new investors. Instead, the defendants actively continued to solicit money from investors, obtaining an additional $25.6 million.
During the course of the Ponzi scheme, approximately 5,000 individuals invested a total of more than $400 million in Agape and AMA. Although some investors succeeded over the years in making full or partial withdrawals, particularly before the Ponzi scheme began to unravel, approximately 4,100 investors sustained actual losses totaling approximately $179 million.
On October 14, 2011, Cosmo was sentenced to a term of imprisonment of 25 years in United States v. Nicholas Cosmo, 09 CR 255 (DRH), for his role in the scheme.
If convicted, the defendants face a maximum sentence of 20 years’ imprisonment on each count.
The government’s case is being prosecuted by Assistant United States Attorneys Christopher C. Caffarone, Grace M. Cucchissi, and Vincent Lipari.
The charges announced today are merely allegations, and the defendants are presumed innocent unless and until proven guilty.
Defendants:
Bryan Arias
Age: 40
Maspeth, New York
Anthony Ciccone
Age: 41
Locust Valley, New York
Diane Kaylor
Age: 37
Bethpage, New York
Jason Keryc
Age: 36
Wantagh, New York
Shamika Luciano
Age: 31
Coram, New York
The charges were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York; George Venizelos, Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office (FBI); and Philip R. Bartlett, Inspector in Charge, United States Postal Inspection Service, New York (USPIS).
“Today’s superseding indictment is but the latest step in this office’s dismantling of the fraudulent business empire of Nicholas Cosmo,” stated United States Attorney Lynch. “The defendants charged were an integral part of Cosmo’s Ponzi scheme that defrauded thousands of people of hundreds of millions of dollars. The defendants actively promoted the Ponzi scheme, promising safe investments in low risk business ventures. Even when the business ventures began to fail, the defendants continued to peddle lies and deceit to the investors in order to keep money flowing into the scheme.” Ms. Lynch added that the government’s investigation is continuing.
“As alleged in the indictment, the defendants’ foundation for success was built on deception and sham investments using the victims’ money. Over time, as with all Ponzi schemes, the defendants’ lies began to unravel, leaving the collective investors millions of dollars out of pocket. Unfortunately, the public should be reminded that sometimes investment opportunities that are too good to be true are merely schemes designed to steal your money. The FBI, along with our law enforcement partners, will continue to aggressively investigate those who prey upon the public with illegal get-rich-quick plans,” stated FBI Assistant Director in Charge Venizelos.
“Today’s arrests should serve notice to criminals that postal inspectors will leave no stone unturned to bring to justice all parties involved in any crime that utilizes the U.S. mail to steal the hard earned money of consumers,” said Inspector in Charge Bartlett.
Nicholas Cosmo founded Agape and AMA in August 2000. According to the superseding indictment and court filings, between October 2003 and January 2009, Arias, Ciccone, Kaylor, Keryc, and Luciano, who worked as account representatives or brokers for Cosmo, played critical roles in the operation of a Ponzi scheme by soliciting and obtaining hundreds of millions of dollars from investors. To induce investments and discourage withdrawals, the defendants misled the investors by, among other things, (1) assuring investors that their investments would only be used to fund specific, short-term secured bridge loans to commercial borrowers or to make short-term loans to small businesses, (2) promising to pay investors unusually high rates of returns, and (3) representing that investing in Agape and AMA carried little or no risk of loss. The defendants allegedly raised significantly more money than was needed for the loans and lied to the investors when they assured them that their money would specifically be used to fund only a particular loan. For their efforts, Arias, Ciccone, Kaylor, Keryc, and Luciano received approximately $1.7 million, $10.7 million, $4.75 million, $16 million, and $275,000, respectively.
As alleged in the superseding indictment, Cosmo and the defendants actually ran a Ponzi scheme, paying returns to Agape and AMA investors not from any profits earned on investments but rather from existing investors’ deposits or money paid by new investors. In addition, unbeknownst to the investors, approximately $100 million of their money was used to trade high risk futures and commodities. Despite the fact that the defendants knew that Agape and AMA did not produce or earn rates of return that could support the exorbitant returns promised to investors, they allegedly continued to solicit money from investors.
As the fraudulent scheme began to unravel, the defendants allegedly lied to investors about the status of various Agape bridge loans. For example, on November 3, 2008, the defendants learned that all Agape’s 2007 bridge loans were in default or on extension but allegedly failed to disclose that information to existing or new investors. Instead, the defendants actively continued to solicit money from investors, obtaining an additional $25.6 million.
During the course of the Ponzi scheme, approximately 5,000 individuals invested a total of more than $400 million in Agape and AMA. Although some investors succeeded over the years in making full or partial withdrawals, particularly before the Ponzi scheme began to unravel, approximately 4,100 investors sustained actual losses totaling approximately $179 million.
On October 14, 2011, Cosmo was sentenced to a term of imprisonment of 25 years in United States v. Nicholas Cosmo, 09 CR 255 (DRH), for his role in the scheme.
If convicted, the defendants face a maximum sentence of 20 years’ imprisonment on each count.
The government’s case is being prosecuted by Assistant United States Attorneys Christopher C. Caffarone, Grace M. Cucchissi, and Vincent Lipari.
The charges announced today are merely allegations, and the defendants are presumed innocent unless and until proven guilty.
Defendants:
Bryan Arias
Age: 40
Maspeth, New York
Anthony Ciccone
Age: 41
Locust Valley, New York
Diane Kaylor
Age: 37
Bethpage, New York
Jason Keryc
Age: 36
Wantagh, New York
Shamika Luciano
Age: 31
Coram, New York
Wednesday, November 27, 2013
Former New Jersey Man Charged in $18 Million Ponzi Scheme
TRENTON, NJ—A former Monmouth County, New Jersey man was arrested today on a charge that he operated an $18 million Ponzi scheme involving victims from New Jersey, U.S. Attorney Paul J. Fishman announced.
Louis J. Spina, 56, formerly of Colts Neck, New Jersey, and now living in Miami, Florida, was charged by complaint with one count of wire fraud. He is scheduled to appear this afternoon before U.S. Magistrate Judge Lois H. Goodman in Trenton federal court for an initial appearance.
According to the complaint:
Between August 2010 and November 2013, Spina collected $18 million from 28 investors. Spina allegedly represented to the investors that he would invest their funds through his business, LJS Trading LLC, using algorithmic computer software, and that the investors would receive guaranteed monthly rates of return ranging from 9 to 14 percent. Spina commingled all of the investor funds together in one bank account. He only transferred $8 million of the investor funds to a trading account, which he then lost in unsuccessful trading. He allegedly used the remaining $10 million to pay the investors’ monthly interest payments, to return portions of some investors’ principals, and to pay for his own personal expenses, including car purchases/payments, luxury apartment rental payments, and a $400,000 donation to a private university.
The wire fraud count with which Spina is charged is punishable by a maximum potential penalty of 20 years in prison and a fine of $250,000 or twice the gross gain or loss from the offense.
U.S. Attorney Fishman credited the FBI, under the direction of Special Agent in Charge Aaron T. Ford, and U.S. Secret Service, under the direction of Special Agent in Charge James Mottola, for the investigation leading to today’s arrest.
The government is represented by Assistant U.S. Attorney Sarah M. Wolfe of the U.S. Attorney’s Office Criminal Division in Trenton.
Louis J. Spina, 56, formerly of Colts Neck, New Jersey, and now living in Miami, Florida, was charged by complaint with one count of wire fraud. He is scheduled to appear this afternoon before U.S. Magistrate Judge Lois H. Goodman in Trenton federal court for an initial appearance.
According to the complaint:
Between August 2010 and November 2013, Spina collected $18 million from 28 investors. Spina allegedly represented to the investors that he would invest their funds through his business, LJS Trading LLC, using algorithmic computer software, and that the investors would receive guaranteed monthly rates of return ranging from 9 to 14 percent. Spina commingled all of the investor funds together in one bank account. He only transferred $8 million of the investor funds to a trading account, which he then lost in unsuccessful trading. He allegedly used the remaining $10 million to pay the investors’ monthly interest payments, to return portions of some investors’ principals, and to pay for his own personal expenses, including car purchases/payments, luxury apartment rental payments, and a $400,000 donation to a private university.
The wire fraud count with which Spina is charged is punishable by a maximum potential penalty of 20 years in prison and a fine of $250,000 or twice the gross gain or loss from the offense.
U.S. Attorney Fishman credited the FBI, under the direction of Special Agent in Charge Aaron T. Ford, and U.S. Secret Service, under the direction of Special Agent in Charge James Mottola, for the investigation leading to today’s arrest.
The government is represented by Assistant U.S. Attorney Sarah M. Wolfe of the U.S. Attorney’s Office Criminal Division in Trenton.
Tuesday, November 5, 2013
Bergen County Man Sentenced to 33 Months in Prison for His Role in $3.5 Million Foreign Currency Investment Ponzi Scheme
CAMDEN, NJ—A Bergen County, New Jersey man claiming to run New Jersey-based hedge funds using a secret computer program to invest in foreign currency was sentenced today to 33 months in prison for his role in defrauding victims of more than $3.5 million, U.S. Attorney Paul J. Fishman announced.
Carmelo Provenzano, 31, of Garfield, New Jersey, and co-conspirator Daniel Dragan, 43, of Lebanon, New Jersey, previously pleaded guilty to separate informations charging them with wire fraud conspiracy before U.S. District Judge Jerome B. Simandle in Camden federal court. A third co-conspirator, George Sepero, 40, of Glen Rock, New Jersey, previously pleaded guilty to a superseding information charging him with wire fraud conspiracy, wire fraud, and tax evasion before Judge Simandle.
Dragan will be sentenced in December 2013. Sepero was sentenced to 100 months in prison on October 18, 2013.
According to documents filed in this and other cases and statements made in court:
Beginning in 2009, Dragan, Provenzano, and Sepero claimed to run a series of hedge funds in New Jersey, luring investors with the prospect of extraordinary profits in foreign currency trading. The defendants made numerous misrepresentations and omissions to induce their victims to invest in Caxton Capital Management and CCP Pro Consulting Inc. Dragan, Provenzano, and Sepero claimed they controlled a proprietary computer algorithm for trading foreign currencies; that they had used the algorithm to achieve returns of more than 170 percent in the prior two years; and that any investment funds would be highly liquid and could be withdrawn on a few days’ notice.
Relying on these and other misrepresentations, investors sent the defendants more than $3.5 million. Dragan, Provenzano, and Sepero invested little or no money in foreign currency or any other investment vehicle, instead diverting the vast majority of victims’ investments to pay prior victims in Ponzi-scheme style and to finance extravagant personal expenditures.
Dragan, Provenzano, and Sepero spent investor money on credit card bills averaging $25,000 per month; bar tabs of $18,241—including a $4,000 tip—and $14,034 on separate nights at Drai’s Hollywood nightclub in Los Angeles; and flights to Paris and elsewhere. Provenzano bought a luxury Range Rover Sport SUV costing more than $71,000 with a down payment of more than $65,000.
The defendants furthered the scheme by emailing victims fake statements showing their principal had been invested in the foreign currency markets and was achieving substantial results. Many of these e-mails were purportedly sent by an individual named “Mel Tannenbaum,” a fictional character of Provenzano’s invention.
The defendants also e-mailed to several investors screen shots of a computer-based trading program, which they claimed represented the investors’ funds being traded in the currency markets. In reality, the shots reflected trading in fictional accounts set up by the conspirators to dupe investors.
In addition to the prison term, Judge Simandle sentenced Provenzano to serve three years of supervised release and ordered him to pay restitution of $4,508,949.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Aaron T. Ford in Newark, for the investigation leading to today’s sentence. He also thanked the Commodity Futures Trading Commission’s New York Regional Office, under the direction of David Meister.
The government is represented by Assistant U.S. Attorneys Christopher Kelly and Zach Intrater of the U.S. Attorney’s Office Economic Crimes Unit and Evan Weitz of the Office’s Asset Forfeiture Unit in Newark.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.
Carmelo Provenzano, 31, of Garfield, New Jersey, and co-conspirator Daniel Dragan, 43, of Lebanon, New Jersey, previously pleaded guilty to separate informations charging them with wire fraud conspiracy before U.S. District Judge Jerome B. Simandle in Camden federal court. A third co-conspirator, George Sepero, 40, of Glen Rock, New Jersey, previously pleaded guilty to a superseding information charging him with wire fraud conspiracy, wire fraud, and tax evasion before Judge Simandle.
Dragan will be sentenced in December 2013. Sepero was sentenced to 100 months in prison on October 18, 2013.
According to documents filed in this and other cases and statements made in court:
Beginning in 2009, Dragan, Provenzano, and Sepero claimed to run a series of hedge funds in New Jersey, luring investors with the prospect of extraordinary profits in foreign currency trading. The defendants made numerous misrepresentations and omissions to induce their victims to invest in Caxton Capital Management and CCP Pro Consulting Inc. Dragan, Provenzano, and Sepero claimed they controlled a proprietary computer algorithm for trading foreign currencies; that they had used the algorithm to achieve returns of more than 170 percent in the prior two years; and that any investment funds would be highly liquid and could be withdrawn on a few days’ notice.
Relying on these and other misrepresentations, investors sent the defendants more than $3.5 million. Dragan, Provenzano, and Sepero invested little or no money in foreign currency or any other investment vehicle, instead diverting the vast majority of victims’ investments to pay prior victims in Ponzi-scheme style and to finance extravagant personal expenditures.
Dragan, Provenzano, and Sepero spent investor money on credit card bills averaging $25,000 per month; bar tabs of $18,241—including a $4,000 tip—and $14,034 on separate nights at Drai’s Hollywood nightclub in Los Angeles; and flights to Paris and elsewhere. Provenzano bought a luxury Range Rover Sport SUV costing more than $71,000 with a down payment of more than $65,000.
The defendants furthered the scheme by emailing victims fake statements showing their principal had been invested in the foreign currency markets and was achieving substantial results. Many of these e-mails were purportedly sent by an individual named “Mel Tannenbaum,” a fictional character of Provenzano’s invention.
The defendants also e-mailed to several investors screen shots of a computer-based trading program, which they claimed represented the investors’ funds being traded in the currency markets. In reality, the shots reflected trading in fictional accounts set up by the conspirators to dupe investors.
In addition to the prison term, Judge Simandle sentenced Provenzano to serve three years of supervised release and ordered him to pay restitution of $4,508,949.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Aaron T. Ford in Newark, for the investigation leading to today’s sentence. He also thanked the Commodity Futures Trading Commission’s New York Regional Office, under the direction of David Meister.
The government is represented by Assistant U.S. Attorneys Christopher Kelly and Zach Intrater of the U.S. Attorney’s Office Economic Crimes Unit and Evan Weitz of the Office’s Asset Forfeiture Unit in Newark.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.
Friday, November 1, 2013
Pastor Pleads Guilty to Wire Fraud in Connection with $5 Million Ponzi Scheme
DENVER—Pastor Charles Lawrence Kennedy, Jr., age 71, of Tampa, Florida, pled guilty before U.S. District Court Judge Christine M. Arguello yesterday to one count of wire fraud federal law enforcement authorities announced. Kennedy, who is free on a bond, is scheduled to be sentenced by Judge Arguello on January 22, 2014. Kennedy was indicted by a federal grand jury in Denver on March 22, 2012, along with co-defendants Stanley Wayne Anderson of Arvada, Colorado, and Edwin Alexander Smith of Denver, Colorado. Smith pled guilty to one count of wire fraud on August 27, 2013. Anderson’s trial is scheduled for January 13, 2014.
According to the facts contained in the indictment, as well as the stipulated facts contained in the plea agreement, beginning in October 2005 and continuing through December 2008, Anderson, Smith, and Kennedy, together with each other, and aiding and abetting other persons known and unknown to the grand jury, devised a scheme to defraud investors.
Anderson and Smith resided in Colorado and conducted business through CFO-5 LLC and Trinity International Enterprises Inc., two companies they controlled. Trinity had no business operations apart from soliciting investment funds related to an investment program. Anderson was the chairman and chief executive officer of CFO-5 and Trinity. Smith was the secretary of CFO-5 and president of Trinity. Kennedy resided in Florida where he worked as a pastor and conducted business through a company identified as Keys to Life Corporation. Kennedy, through a formal partnership with Trinity, assisted Anderson and Smith in soliciting investment funds.
They solicited investors' funds for use in an investment program where significant profits would supposedly be generated through the trading of European medium term notes ("MTN program"). The MTN program did not exist. Furthermore, they represented that their MTN program would pay nearly immediate returns in amounts ranging from 200 to 1,000 percent.
They raised approximately $5 dollars from approximately 100 investors nationwide over the course of the scheme. The investors' funds were not used to trade in financial instruments but were instead misappropriated by Anderson, Smith, and Kennedy for unauthorized uses. Investors, with the exception of those who received Ponzi scheme-like payments, that is, money taken from one investor to compensate another, lost their total investments. Anderson and Smith generally commingled and deposited investors' funds into bank accounts controlled by Anderson and Smith.
Kennedy began soliciting investments in December 2005 from fellow pastors and members of their congregations through his company Keys to Life Corporation and falsely promised that for every $1,000 invested, the minimum return would be $1,000,000, which would be paid within 90 days. From December 2005 through April 2006, Kennedy collected $460,000 from nine investors and forwarded only $145,000 to Trinity for use in the investment pool and as a result has agreed to pay $315,000 in restitution. Kennedy took a portion of investor funds for his own personal benefit.
“The defendant used his position as a pastor to solicit funds from investors with promises of substantial returns,” said U.S. Attorney John Walsh. “Instead of investing the funds, he and others used the money for unauthorized purposes. The defendant’s abuse of his position of trust led to 100 people losing their hard earned money, for which the defendant will now face the consequences.”
“Investors should always be wary and cautioned of investment proposals that promise high returns on their investment. ‘If it seems too good to be true,' it is probably an investment scheme,” said Stephen Boyd, Special Agent in Charge for IRS Criminal Investigation, Denver Field Office.
“The FBI has made protecting innocent investors a priority,” said FBI Denver Special Agent in Charge Thomas Ravenelle. “Therefore, we will vigorously investigate those who engage in schemes to defraud members of our communities.”
“Fraud schemes victimize honest hard working individuals,” said Adam P. Behnen, Inspector in Charge, U.S. Postal Inspection Service, Denver Division. “Our inspectors will take every action possible to ensure that people who use the mails for criminal gain are caught and brought to justice.”
Wire fraud carries a penalty of not more than 20 years’ imprisonment and up to a $250,000 fine per count.
This case was investigated by the Internal Revenue Service-Criminal Investigation, the Federal Bureau of Investigation, and the United States Postal Inspection Service.
This case is being prosecuted by Assistant U.S. Attorney Timothy Neff.
The charges in the indictment are only allegations, and the defendants are presumed innocent unless and until proven guilty.
According to the facts contained in the indictment, as well as the stipulated facts contained in the plea agreement, beginning in October 2005 and continuing through December 2008, Anderson, Smith, and Kennedy, together with each other, and aiding and abetting other persons known and unknown to the grand jury, devised a scheme to defraud investors.
Anderson and Smith resided in Colorado and conducted business through CFO-5 LLC and Trinity International Enterprises Inc., two companies they controlled. Trinity had no business operations apart from soliciting investment funds related to an investment program. Anderson was the chairman and chief executive officer of CFO-5 and Trinity. Smith was the secretary of CFO-5 and president of Trinity. Kennedy resided in Florida where he worked as a pastor and conducted business through a company identified as Keys to Life Corporation. Kennedy, through a formal partnership with Trinity, assisted Anderson and Smith in soliciting investment funds.
They solicited investors' funds for use in an investment program where significant profits would supposedly be generated through the trading of European medium term notes ("MTN program"). The MTN program did not exist. Furthermore, they represented that their MTN program would pay nearly immediate returns in amounts ranging from 200 to 1,000 percent.
They raised approximately $5 dollars from approximately 100 investors nationwide over the course of the scheme. The investors' funds were not used to trade in financial instruments but were instead misappropriated by Anderson, Smith, and Kennedy for unauthorized uses. Investors, with the exception of those who received Ponzi scheme-like payments, that is, money taken from one investor to compensate another, lost their total investments. Anderson and Smith generally commingled and deposited investors' funds into bank accounts controlled by Anderson and Smith.
Kennedy began soliciting investments in December 2005 from fellow pastors and members of their congregations through his company Keys to Life Corporation and falsely promised that for every $1,000 invested, the minimum return would be $1,000,000, which would be paid within 90 days. From December 2005 through April 2006, Kennedy collected $460,000 from nine investors and forwarded only $145,000 to Trinity for use in the investment pool and as a result has agreed to pay $315,000 in restitution. Kennedy took a portion of investor funds for his own personal benefit.
“The defendant used his position as a pastor to solicit funds from investors with promises of substantial returns,” said U.S. Attorney John Walsh. “Instead of investing the funds, he and others used the money for unauthorized purposes. The defendant’s abuse of his position of trust led to 100 people losing their hard earned money, for which the defendant will now face the consequences.”
“Investors should always be wary and cautioned of investment proposals that promise high returns on their investment. ‘If it seems too good to be true,' it is probably an investment scheme,” said Stephen Boyd, Special Agent in Charge for IRS Criminal Investigation, Denver Field Office.
“The FBI has made protecting innocent investors a priority,” said FBI Denver Special Agent in Charge Thomas Ravenelle. “Therefore, we will vigorously investigate those who engage in schemes to defraud members of our communities.”
“Fraud schemes victimize honest hard working individuals,” said Adam P. Behnen, Inspector in Charge, U.S. Postal Inspection Service, Denver Division. “Our inspectors will take every action possible to ensure that people who use the mails for criminal gain are caught and brought to justice.”
Wire fraud carries a penalty of not more than 20 years’ imprisonment and up to a $250,000 fine per count.
This case was investigated by the Internal Revenue Service-Criminal Investigation, the Federal Bureau of Investigation, and the United States Postal Inspection Service.
This case is being prosecuted by Assistant U.S. Attorney Timothy Neff.
The charges in the indictment are only allegations, and the defendants are presumed innocent unless and until proven guilty.
Tuesday, October 22, 2013
Frank Vennes Sentenced to 15 Years in Federal Prison for Lying to Investors About Petters’ Ponzi Scheme
MINNEAPOLIS—Earlier today in federal court in St. Paul, Frank Elroy Vennes, Jr. was sentenced to 180 months in prison in connection with fraudulently raising money from individuals and through hedge funds for investment in Petters Company Inc. (PCI). Vennes was a long-time associate of Thomas J. Petters, the Minnesota businessman who was convicted in 2009 of orchestrating a $3.65 billion Ponzi scheme. United States District Court Judge Richard H. Kyle sentenced Vennes, age 56, of Stuart, Florida, on one count of securities fraud and one count of money laundering. On July 11, 2011, Vennes was charged in a second superseding indictment, and on February 1, 2013, he pleaded guilty to those charges.
From 1995 through September of 2008, Vennes, individually and through his company, Metro Gem, obtained money from others for investment in PCI notes. He also assisted in the formation of hedge funds, known as the Arrowhead Funds, to help raise additional funds for that same purpose. Beginning in 2001 and proceeding through September 24, 2008, he aided and abetted individuals associated with the Arrowhead Funds in making fraudulent misrepresentations to investors regarding investments in PCI.
PCI was owned and operated by Tom Petters, who operated the Ponzi scheme by representing that money invested in PCI promissory notes would finance the purchase of electronics and other consumer merchandise. Purportedly, PCI would resell that merchandise for a profit to certain “big box” retailers, including Sam’s Club and Costco. In truth, however, no merchandise was bought or resold. Instead, Petters diverted hundreds of millions of dollars for his own benefit and the benefit of his co-conspirators. Petters’ Ponzi scheme unraveled in 2008, when federal agents executed search warrants at his business office and other locations.
Beginning in 2000, Vennes worked to form hedge funds to solicit investors in PCI, including Arrowhead Capital Partners II L.P. and Arrowhead Capital Finance Ltd., collectively known as the Arrowhead Funds; and Palm Beach Finance Partners L.P. and Palm Beach Finance II Ltd., collectively known as the Palm Beach Funds. Because he had a federal criminal record, having been previously convicted on federal narcotics, firearms, and money laundering charges, he had difficulty obtaining funding on his own. As a result, he worked through the Arrowhead Funds and the Palm Beach Funds when trying to solicit money from banks and institutional investors.
From 1999 through September 2008, all paperwork and communication between PCI and the Arrowhead Funds and Palm Beach Funds went through Vennes or one of his employees. At the same time, Vennes received “commissions” from Petters for brokering deals involving both Funds. His commissions were based on the amount of money he raised for Petters and PCI. Between 2001 and 2008, Vennes received more than $100 million in commissions.
During that same time period, Vennes knew that those acting on his behalf were making material misrepresentations and omissions to investors in the Arrowhead and Palm Beach Funds and did nothing to correct the situation. Investors were told, for example, that whenever a retailer purchased consumer electronics or other goods from PCI, those products were paid for by the retailer with funds directly deposited into a bank account under the control of a management company. Thus, investors were falsely assured that all PCI transactions were, in fact, taking place, and all money was secure. However, Vennes, among others, was well aware that no payments were ever received from retailers and, instead, came from PCI alone. Furthermore, investors were never informed of Vennes’ criminal record or his involvement in the Arrowhead and Palm Beach Funds’ transactions. And, finally, they were kept unaware that in late 2007 and early 2008, the PCI notes held by the Arrowhead and Palm Beach Funds were delinquent and were approaching default.
On October 11, 2013, Vennes’ co-defendant in this case, James Nathan Fry, age 60, of Orono, Minnesota, was sentenced to 210 months in prison on five counts of securities fraud, four counts of wire fraud, and three counts of making a false statement to the U.S. Securities and Exchange Commission during its investigation of investments in PCI by hedge funds under the management of Fry’s company, Arrowhead Capital Management. Fry was convicted on June 12, 2013.
On October 25, 2013, sentencing is scheduled for the investment managers of the Palm Beach Funds, who have pleaded guilty to committing fraud in connection to this scheme by making material misrepresentations to investors in their hedge funds concerning investments in PCI. David William Harrold, age 54, of Del Ray Beach, Florida, and Bruce Francis Prevost, age 53, of Palm Beach Gardens, Florida, await sentencing, each on four counts of securities fraud.
This case was the result of an investigation by the Federal Bureau of Investigation, the Internal Revenue Service–Criminal Investigation, and the U.S. Postal Inspection Service. It was prosecuted by Assistant U.S. Attorneys Timothy C. Rank, Kimberly A. Svendsen, and Robert M. Lewis.
This law enforcement action is in part sponsored by the interagency Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive attack on financial crimes. It includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement, who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force hopes to improve efforts across the federal executive branch and, with state and local partners, investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
The task force and the Minnesota U.S. Attorney’s Office want to remind people to protect themselves from securities fraud. For more information, visit http://www.stopfraud.gov/protect-securities.html.
From 1995 through September of 2008, Vennes, individually and through his company, Metro Gem, obtained money from others for investment in PCI notes. He also assisted in the formation of hedge funds, known as the Arrowhead Funds, to help raise additional funds for that same purpose. Beginning in 2001 and proceeding through September 24, 2008, he aided and abetted individuals associated with the Arrowhead Funds in making fraudulent misrepresentations to investors regarding investments in PCI.
PCI was owned and operated by Tom Petters, who operated the Ponzi scheme by representing that money invested in PCI promissory notes would finance the purchase of electronics and other consumer merchandise. Purportedly, PCI would resell that merchandise for a profit to certain “big box” retailers, including Sam’s Club and Costco. In truth, however, no merchandise was bought or resold. Instead, Petters diverted hundreds of millions of dollars for his own benefit and the benefit of his co-conspirators. Petters’ Ponzi scheme unraveled in 2008, when federal agents executed search warrants at his business office and other locations.
Beginning in 2000, Vennes worked to form hedge funds to solicit investors in PCI, including Arrowhead Capital Partners II L.P. and Arrowhead Capital Finance Ltd., collectively known as the Arrowhead Funds; and Palm Beach Finance Partners L.P. and Palm Beach Finance II Ltd., collectively known as the Palm Beach Funds. Because he had a federal criminal record, having been previously convicted on federal narcotics, firearms, and money laundering charges, he had difficulty obtaining funding on his own. As a result, he worked through the Arrowhead Funds and the Palm Beach Funds when trying to solicit money from banks and institutional investors.
From 1999 through September 2008, all paperwork and communication between PCI and the Arrowhead Funds and Palm Beach Funds went through Vennes or one of his employees. At the same time, Vennes received “commissions” from Petters for brokering deals involving both Funds. His commissions were based on the amount of money he raised for Petters and PCI. Between 2001 and 2008, Vennes received more than $100 million in commissions.
During that same time period, Vennes knew that those acting on his behalf were making material misrepresentations and omissions to investors in the Arrowhead and Palm Beach Funds and did nothing to correct the situation. Investors were told, for example, that whenever a retailer purchased consumer electronics or other goods from PCI, those products were paid for by the retailer with funds directly deposited into a bank account under the control of a management company. Thus, investors were falsely assured that all PCI transactions were, in fact, taking place, and all money was secure. However, Vennes, among others, was well aware that no payments were ever received from retailers and, instead, came from PCI alone. Furthermore, investors were never informed of Vennes’ criminal record or his involvement in the Arrowhead and Palm Beach Funds’ transactions. And, finally, they were kept unaware that in late 2007 and early 2008, the PCI notes held by the Arrowhead and Palm Beach Funds were delinquent and were approaching default.
On October 11, 2013, Vennes’ co-defendant in this case, James Nathan Fry, age 60, of Orono, Minnesota, was sentenced to 210 months in prison on five counts of securities fraud, four counts of wire fraud, and three counts of making a false statement to the U.S. Securities and Exchange Commission during its investigation of investments in PCI by hedge funds under the management of Fry’s company, Arrowhead Capital Management. Fry was convicted on June 12, 2013.
On October 25, 2013, sentencing is scheduled for the investment managers of the Palm Beach Funds, who have pleaded guilty to committing fraud in connection to this scheme by making material misrepresentations to investors in their hedge funds concerning investments in PCI. David William Harrold, age 54, of Del Ray Beach, Florida, and Bruce Francis Prevost, age 53, of Palm Beach Gardens, Florida, await sentencing, each on four counts of securities fraud.
This case was the result of an investigation by the Federal Bureau of Investigation, the Internal Revenue Service–Criminal Investigation, and the U.S. Postal Inspection Service. It was prosecuted by Assistant U.S. Attorneys Timothy C. Rank, Kimberly A. Svendsen, and Robert M. Lewis.
This law enforcement action is in part sponsored by the interagency Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive attack on financial crimes. It includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement, who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force hopes to improve efforts across the federal executive branch and, with state and local partners, investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
The task force and the Minnesota U.S. Attorney’s Office want to remind people to protect themselves from securities fraud. For more information, visit http://www.stopfraud.gov/protect-securities.html.
Tuesday, February 12, 2013
Hedge Fund Manager and CPA Administrator for $40 Million Ponzi Scheme Convicted by Jury
CHARLOTTE, NC—On Friday, February 8, 2013, a federal jury
in Charlotte convicted certified public accountant Jonathan D. Davey,
48, of Newark, Ohio, of four criminal charges relating to an investment
fraud conspiracy, announced Anne M. Tompkins, U.S. Attorney for the
Western District of North Carolina.
The federal indictment, returned in February 2012, charged Davey with serving as the “administrator” for numerous hedge funds for the Black Diamond Ponzi Scheme; with soliciting over $11 million from victims with his own hedge fund, “Divine Circulation Services”; and with tax evasion. The charges arise from the Black Diamond investigation, which has brought criminal charges against 11 individuals and CommunityONE Bank, relating to conduct between October 2007 and April 2007 that deprived over 400 victims of more than $40 million.
U.S. Attorney Tompkins is joined in making today’s announcement by Roger A. Coe, Acting Special Agent in Charge of the Federal Bureau of Investigation (FBI), Charlotte Division, and Jeannine A. Hammett, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation Division (IRS-CI).
According to evidence presented at trial, Davey lied to collect over $11 million from victims mainly in North Carolina, Virginia, and Ohio for his hedge fund by claiming, among other things, that he had done due diligence on Black Diamond and was operating a legitimate hedge fund with significant safeguards, when, in reality, neither claim was true. Then, as Black Diamond began to collapse, Davey and other hedge fund managers started a derivative Ponzi scheme using a so-called “cash account” that Davey controlled. Davey and his co-conspirators collected over $5 million from new victim investors for the cash account and used the new victim money to make Ponzi payments to old investors and themselves. The evidence at trial showed that, as administrator for the scheme, Davey controlled most funds and wires for the scheme and published a website for victims that reflected false returns. At trial, the government showed that by the end of the scheme, the website reflected over $120 million in supposed value for victim-accounts when Davey and the hedge fund managers in reality had less than $1 million total in their accounts.
According to evidence presented at trial, Davey used an elaborate network of shell companies to evade taxes and commit money laundering with the proceeds of the Ponzi scheme. In particular, Davey used an offshore shell company in Belize to funnel money to build a mansion in Ohio, creating a sham “loan” by pretending that investors had “loaned” investment money to the Belizean shell company that was then used to build Davey’s personal mansion.
Other defendants convicted in this case are set forth below.
Davey was convicted of all charges following a 45-minute jury deliberation. Davey faces a statutory maximum sentence of five years in prison for count one (securities fraud conspiracy) and a $250,000 fine, a maximum of 20 years in prison for count two (wire fraud conspiracy) and a $250,000 fine, a maximum of 20 years in prison for count three (money laundering conspiracy) and a $250,000 fine, and a maximum of five years in prison for count four (tax evasion) and a $250,000 fine. Davey has been released on bond and a sentencing date has not been set yet.
This matter is being prosecuted by Assistant United States Attorneys Kurt W. Meyers and Mark T. Odulio of the Western District of North Carolina, and the case against Jeffrey Muyres was prosecuted by Assistant United States Attorney Mark T. Odulio. The investigation is being handled by the FBI and the IRS.
The federal indictment, returned in February 2012, charged Davey with serving as the “administrator” for numerous hedge funds for the Black Diamond Ponzi Scheme; with soliciting over $11 million from victims with his own hedge fund, “Divine Circulation Services”; and with tax evasion. The charges arise from the Black Diamond investigation, which has brought criminal charges against 11 individuals and CommunityONE Bank, relating to conduct between October 2007 and April 2007 that deprived over 400 victims of more than $40 million.
U.S. Attorney Tompkins is joined in making today’s announcement by Roger A. Coe, Acting Special Agent in Charge of the Federal Bureau of Investigation (FBI), Charlotte Division, and Jeannine A. Hammett, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation Division (IRS-CI).
According to evidence presented at trial, Davey lied to collect over $11 million from victims mainly in North Carolina, Virginia, and Ohio for his hedge fund by claiming, among other things, that he had done due diligence on Black Diamond and was operating a legitimate hedge fund with significant safeguards, when, in reality, neither claim was true. Then, as Black Diamond began to collapse, Davey and other hedge fund managers started a derivative Ponzi scheme using a so-called “cash account” that Davey controlled. Davey and his co-conspirators collected over $5 million from new victim investors for the cash account and used the new victim money to make Ponzi payments to old investors and themselves. The evidence at trial showed that, as administrator for the scheme, Davey controlled most funds and wires for the scheme and published a website for victims that reflected false returns. At trial, the government showed that by the end of the scheme, the website reflected over $120 million in supposed value for victim-accounts when Davey and the hedge fund managers in reality had less than $1 million total in their accounts.
According to evidence presented at trial, Davey used an elaborate network of shell companies to evade taxes and commit money laundering with the proceeds of the Ponzi scheme. In particular, Davey used an offshore shell company in Belize to funnel money to build a mansion in Ohio, creating a sham “loan” by pretending that investors had “loaned” investment money to the Belizean shell company that was then used to build Davey’s personal mansion.
Other defendants convicted in this case are set forth below.
- Keith Franklin Simmons, 47, formerly of West Jefferson, North Carolina, was convicted following a jury trial of securities fraud, wire fraud, and money laundering. Simmons was sentenced to 50 years in prison on May 23, 2012.
- Bryan Keith Coats, 52, of Clayton, North Carolina, pleaded guilty on October 24, 2011, to conspiracy to commit securities fraud and money laundering conspiracy. Coats was sentenced to 15 years in prison on November 16, 2012.
- Deanna Ray Salazar, 55, of Yucca Valley, California, pleaded guilty on December 7, 2010, to conspiracy to commit securities fraud and tax evasion. Salazar was sentenced to 54 months in prison on May 23, 2012.
- Jeffrey M. Muyres, 37, of Matthews, North Carolina, pleaded guilty on May 17, 2011, to conspiracy to commit securities fraud and money laundering conspiracy. Muyres was sentenced to 23 months in prison on January 18, 2012.
- Roy E. Scarboro, 48, of Archdale, North Carolina, pleaded guilty on December 3, 2010, to securities fraud, money laundering, and making false statements to the FBI. Scarboro was sentenced to 26 months in prison on May 4, 2011.
- James D. Jordan, 49, of El Paso, Texas, pleaded guilty on September 14, 2010, to conspiracy to commit securities fraud. Jordan was sentenced to 18 months in prison on June 29, 2011.
- Stephen D. Lacy, 53, of Pawleys Island, South Carolina, pled guilty on December 9, 2010, to conspiracy to commit securities fraud. Lacy was sentenced to six months in prison on May 4, 2011.
- Chad A. Sloat, 34, of Kansas City, Missouri, pleaded guilty on October 17, 2012, to conspiracy to commit securities fraud and failure to file a tax return. Sloat is currently waiting to be sentenced.
- Jeffrey M. Toft, 50, of Oviedo, Florida, pleaded guilty on November 26, 2012, to conspiracy to commit securities fraud, conspiracy to commit wire fraud, and conspiracy to commit money laundering. Toft is currently waiting to be sentenced.
- Michael J. Murphy, 52, of Deep Haven, Minnesota, pleaded guilty on January 22, 2013, to conspiracy to commit securities fraud. Murphy is currently waiting to be sentenced.
Davey was convicted of all charges following a 45-minute jury deliberation. Davey faces a statutory maximum sentence of five years in prison for count one (securities fraud conspiracy) and a $250,000 fine, a maximum of 20 years in prison for count two (wire fraud conspiracy) and a $250,000 fine, a maximum of 20 years in prison for count three (money laundering conspiracy) and a $250,000 fine, and a maximum of five years in prison for count four (tax evasion) and a $250,000 fine. Davey has been released on bond and a sentencing date has not been set yet.
This matter is being prosecuted by Assistant United States Attorneys Kurt W. Meyers and Mark T. Odulio of the Western District of North Carolina, and the case against Jeffrey Muyres was prosecuted by Assistant United States Attorney Mark T. Odulio. The investigation is being handled by the FBI and the IRS.
Tuesday, February 5, 2013
Guilty Plea Entered by Two Individuals Charged in Plot to Conceal and Dispose of Assets in Connection with Rothstein Case
Wifredo A. Ferrer, United States Attorney for the
Southern District of Florida, and José A. Gonzalez, Special Agent in
Charge, Internal Revenue Service-Criminal Investigation Division
(IRS-CID), announced that Kimberly Wendell Rothstein, 38, and Stacie
Weisman, 49, pled guilty today to conspiracy to commit money laundering
in violation of Title 18, United States Code, Section 371, before the
Honorable Judge Robin S. Rosenbaum. Sentencing for Kimberly Rothstein
has been scheduled April 19, 2013 at 9:00 a.m. Sentencing for Stacie
Weisman has been scheduled for June 7, 2013, at 10:00 a.m.
Kimberly Rothstein and Stacie Weisman were charged, along with Scott F. Saidel, 45, in September 2012 in connection with certain crimes committed in furtherance of a plot to conceal and dispose of assets that were forfeitable as proceeds of a Ponzi scheme orchestrated by Scott W. Rothstein. At the same time, in September, Eddy Marin, 50, and Patrick Daoud, 54, were also charged in a separate but related matter with obstruction of justice and perjury, in violation of Title 18, United States Code, Sections 1512(k) and 1621.
According to the documents filed with the court, former Ft. Lauderdale attorney Scott W. Rothstein, who was the chief executive officer and chairman of the law firm of Rothstein, Rosenfeldt, and Adler, P.A. (RRA), used the funds obtained from the operation of a Ponzi scheme to purchase tens of millions of dollars of real estate, vehicles, vessels, business interests, luxury watches, jewelry, and sports memorabilia for himself, his wife Kimberly Rothstein, and others. As part of his plea agreement, Scott W. Rothstein agreed to forfeit to the government all assets acquired with funds derived through the aforesaid Ponzi scheme. On November 9, 2009, agents of the Internal Revenue Service-Criminal Investigations, went to the Rothstein residence, where Kimberly Rothstein assisted the agents in retrieving what was believed to be all of the available cash, jewelry, and luxury watches that had previously been purchased by Scott W. Rothstein with proceeds derived from the Ponzi scheme.
However, according to court documents, before, during, and after the aforesaid seizure by federal agents on November 9, 2009, Kimberly Rothstein, Stacie Weisman, and Scott F. Saidel knowingly took action to conceal certain items of jewelry, valued in excess of one million dollars, for the purpose of preventing the government from exercising its authority to take such property into its lawful custody and control. Thereafter, Kimberly Rothstein and Stacie Weisman sold and attempted to sell a portion of this jewelry to and through various persons, including Eddy Marin and Patrick Daoud.
The documents further allege that, in connection with civil proceedings instituted by the trustee in bankruptcy for RRA, all the defendants took steps to obstruct justice by concealing the true location of certain items of jewelry in order to prevent its availability for use in the bankruptcy proceedings. It is further alleged that Marin and Daoud committed perjury during depositions in connection with the bankruptcy proceedings and that Kimberly Rothstein, Stacie Weisman, and Scott F. Saidel sought to have Scott W. Rothstein testify falsely in connection with those proceedings.
Defendants Eddy Marin and Patrick Daoud are set to commence trial on April 8, 2013. Defendant Scott F. Saidel pled guilty on January 30, 2013, and is scheduled to be sentenced on June 7, 2013.
U.S. Attorney Ferrer commended the investigative efforts of IRS-CID and FBI. This case is being prosecuted by Assistant U.S. Attorneys Lawrence LaVecchio, Jeffrey Kaplan, Paul Schwartz, and Evelyn Sheehan.
Kimberly Rothstein and Stacie Weisman were charged, along with Scott F. Saidel, 45, in September 2012 in connection with certain crimes committed in furtherance of a plot to conceal and dispose of assets that were forfeitable as proceeds of a Ponzi scheme orchestrated by Scott W. Rothstein. At the same time, in September, Eddy Marin, 50, and Patrick Daoud, 54, were also charged in a separate but related matter with obstruction of justice and perjury, in violation of Title 18, United States Code, Sections 1512(k) and 1621.
According to the documents filed with the court, former Ft. Lauderdale attorney Scott W. Rothstein, who was the chief executive officer and chairman of the law firm of Rothstein, Rosenfeldt, and Adler, P.A. (RRA), used the funds obtained from the operation of a Ponzi scheme to purchase tens of millions of dollars of real estate, vehicles, vessels, business interests, luxury watches, jewelry, and sports memorabilia for himself, his wife Kimberly Rothstein, and others. As part of his plea agreement, Scott W. Rothstein agreed to forfeit to the government all assets acquired with funds derived through the aforesaid Ponzi scheme. On November 9, 2009, agents of the Internal Revenue Service-Criminal Investigations, went to the Rothstein residence, where Kimberly Rothstein assisted the agents in retrieving what was believed to be all of the available cash, jewelry, and luxury watches that had previously been purchased by Scott W. Rothstein with proceeds derived from the Ponzi scheme.
However, according to court documents, before, during, and after the aforesaid seizure by federal agents on November 9, 2009, Kimberly Rothstein, Stacie Weisman, and Scott F. Saidel knowingly took action to conceal certain items of jewelry, valued in excess of one million dollars, for the purpose of preventing the government from exercising its authority to take such property into its lawful custody and control. Thereafter, Kimberly Rothstein and Stacie Weisman sold and attempted to sell a portion of this jewelry to and through various persons, including Eddy Marin and Patrick Daoud.
The documents further allege that, in connection with civil proceedings instituted by the trustee in bankruptcy for RRA, all the defendants took steps to obstruct justice by concealing the true location of certain items of jewelry in order to prevent its availability for use in the bankruptcy proceedings. It is further alleged that Marin and Daoud committed perjury during depositions in connection with the bankruptcy proceedings and that Kimberly Rothstein, Stacie Weisman, and Scott F. Saidel sought to have Scott W. Rothstein testify falsely in connection with those proceedings.
Defendants Eddy Marin and Patrick Daoud are set to commence trial on April 8, 2013. Defendant Scott F. Saidel pled guilty on January 30, 2013, and is scheduled to be sentenced on June 7, 2013.
U.S. Attorney Ferrer commended the investigative efforts of IRS-CID and FBI. This case is being prosecuted by Assistant U.S. Attorneys Lawrence LaVecchio, Jeffrey Kaplan, Paul Schwartz, and Evelyn Sheehan.
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