Florida Securities Fraud Lawyer Blog

In what his counsel is characterizing as "a life sentence," Arthur Nadel has been sentenced to prison for 14 years, stemming from a $162 million Ponzi scheme. Nadel had pled guilty to 15 counts of securities fraud, mail fraud and wire fraud. The sentence is roughly in between the five-year term advocated by Nadel's counsel and the maximum 24-year term advocated by the prosecutor. Nadel will serve his term at a facility in North Carolina, the same facility currently housing Bernie Madoff. In determining the sentence, the judge considered Nadel's age and health, but also sought to impose a sentence that would deter future fraudulent conduct such as Nadel's scheme.

During the sentencing hearing in New York, Nadel gave a brief statement asking the judge for the hope of freedom. Nadel's wife was too ill to attend, and while his son was present in court, he did not give a statement. One of Nadel's many victims also spoke at the hearing. He called Nadel "evil" and pleaded with Nadel to reveal any more hidden assets, if he has any. When asked for a comment following the hearing, the victim thought Nadel's sentence was too light.

On October 22, 2010, the United States Department of Labor brought suit in federal court in Manhattan against four investment firms for their alleged failure to properly evaluate Bernard Madoff's business practices prior to investing hundreds of millions of dollars in pension funds with him.

The suit was brought on behalf of union-sponsored and single-employer benefit plan against Ivy Asset Management LLC, Beacon Associates Management Corp., J.P. Jeanneret Associates Inc., Andover Associates Management Corp. and their respective principals. The Labor Department seeks to have the court order the defendants to "restore to the plans all losses suffered" due to the fiduciary breaches by the named-defendants related to Madoff investments.

According to Hilda Solis, Labor Secretary, "These defendants chose their own financial interests over those of the plans whose assets they were duty bound to manage prudently."

Madoff, 72, is serving a 150-year prison term for conducting the largest Ponzi scheme in history. At the time of his arrest in December 2008, he was responsible for 4,900 accounts with $65 billion in non-existent investments, according to the Madoff bankruptcy trustee, Irving Picard.

According to a spokesman for the Ivy, Craig Brown, Ivy satisfied its duty to its clients.

"This lawsuit relates to a non-discretionary advisory business, where Ivy provided information to professional investment advisers, who in turn chose how to use that information and how and where to invest their clients' assets," Brown said.

Art Nadel has now started placing blame at the feet of the people who helped him orchestrate the fraud, in an effort to convince U.S. District Judge John Koeltl for leniency on his sentence. In February, Nadel plead guilty to 15 counts of fraud for running a ponzi scheme out of Sarasota, FL, where he scammed investors out of $162 million. Federal prosecutors have requested a sentence of 24 years in prison, while Nadel's lawyers, citing his failing health and remorse, have asked for five years. Nadel is now scheduled to be sentenced on Thursday, October 21, following three prior delays.

Nadel's lawyers paint this ponzi scheme as being greater than a one-man operation, and that Neil and Christopher Moody played integral parts despite not being criminally charged. In fact, Nadel's lawyers state the Moodys, not Nadel, were the primary parties responsible for inducing the victims to invest. Investors also place blame on Donald Rowe, who advertised the funds in his newsletter and received a commission. Nadel's attorneys also point out that the Moodys never once reviewed the funds' trading statements from Goldman Sachs, although counsel for the Moodys disputes this claim, stating Nadel kept the statements hidden.

The Moodys did settle charges brought against them by the SEC. They are banned from the securities industry for five years and must disgorge all profits made from the scheme.

On October 14, 2010, the Securities and Exchange Commission brought a civil action against two Florida-based hedge fund managers and their funds for defrauding investors out of approximately $1 billion. The SEC charged Palm Beach Capital Management and fund managers Bruce Prevost and David Harrold with committing federal securities fraud by misleading investors about the quality and nature of their investments with Thomas Petters, who was convicted of running a $3.65 billion Ponzi scheme.

The SEC complaint alleges that the fund managers were paid $58 million in fees from 2004 to 2008 when investing with Petters. According to the director of the SEC's Division of Enforcement, Robert Khuzami, "Prevost and Harrold portrayed themselves as guardians of their hedge fund investors while in fact they facilitated Tom Petters' fraudulent scheme through lies and deceit."

The SEC claimed that investors with the Palm Beach fund thought they were funding consumer electronic goods to be sold to big-box retailers and that the retailers, in turn, would pay the funds directly. In reality, the funds were supplied by Petters, which was raised from new investors. "Prevost and Harrold did not disclose this material fact to investors in the funds and instead continued to lie about the operation," according to the SEC.

The SEC also claimed that by 2008, as the Ponzi scheme was collapsing, Prevost and Harrold started to exchange old loan documents from Petters with new documents to make it appear that the business remained successful, while simultaneously telling investors that the funds were generating "the same steady profits" as before.

The SEC seeks permanent injunctive relief against Prevost and Harrold, disgorgement of illegal profits and an undisclosed financial penalty.

The SEC has settled with prior Countrywide Financial CEO Angelo Mozilo for $22.5 million in penalties to settle claims that he and two other former Countrywide executives misled investors about the subprime mortgage crisis. The settlement permanently prohibits Mozilo serving as an officer or director of a publicly traded company.

Mozilo's financial penalty is the largest ever paid by a public company's senior executive in an SEC settlement. Mozilo also agreed to $45 million in disgorgement of unjust profits to settle, totaling $67.5 million that will be returned to harmed investors.

The SEC alleged that Mozilo and Countrywide failed to disclose to investors the significant credit risk that Countrywide was taking on as a result of its efforts to build and maintain market share. Investors were misled by representations assuring them that Countrywide was primarily a prime quality mortgage lender that had avoided the excesses of its competitors. In reality, Countrywide was writing increasingly risky loans and its senior executives knew that defaults and delinquencies in its servicing portfolio as well as the loans it packaged and sold as mortgage-backed securities would rise as a result.

This is yet another example of the major fraud that occurred during the real estate boom with mortgage-back securities. There were numerous mortgages offered by Countrywide to borrowers in Florida during the boom.

Jury selection began on Tuesday for the trial of Vaughn Reeves, founder and owner of Alanar, Inc. Reeves faces 10 counts of securities fraud in Indiana. Alanar, Inc. was a company allegedly in the business of securing mortgages for church construction projects. Reeves and his three sons, all of whom have plead not guilty, convinced over 11,000 investors into investing around $120 million in the bonds securing the mortgages. In reality, the money was used to pay off older investors, while funding their own personal $6 million spending on planes, vacations and cars.

Investors in Alanar, Inc. were located in Florida, Indiana, Michigan, Oklahoma and Maryland. The company presented itself as the ideal investment for investors with strong religious beliefs, as exhibited in their corporate filings with the SEC. One couple, who still has not had $47,000 of their investment returned, believed they had done the appropriate research and found a good religious organization giving back to the religious community. Unfortunately, 20% of the banks who supposedly secured financing through Alanar, Inc. are now in default, and at least 8 of the 150 churches are in foreclosure. Alanar, Inc.'s corporate receiver has returned approximately $35 million of investor money, and expects to return another $10 million within the next year.

On October 1, a federal judge ruled in the SEC's favor in a trial against two Miami-based companies and its owners for fraudulently stealing investor money through large, undisclosed commissions and fees via their selling of mutual funds.

The Honorable Jose Martinez of the Southern District of Florida ordered U.S. Pension Trust Corp. and U.S. College Trust Corp. to pay more than $112 million, while the three individuals running the companies -- Iliana Maceiras, Leonardo Maceiras Jr., and Nildo Verdeja -- were ordered to pay $3.36 million collectively.

The Court found that U.S. Pension Trust and U.S. College Trust solicited investments from predominantly foreign investors into various multi-year investment plans beginning in 1995. The plans consisted of investing funds into a mix of U.S. mutual funds and insurance products. The Court's findings also included that: (a) the companies intentionally failed to disclose numerous commissions and fees, including 85 percent of first-year contributions in some plans; (b) the companies and the individuals misrepresented to investors that their products were registered and regulated by the SEC, the Federal Reserve Bank, and the Office of the Comptroller of the Currency; and (c) the companies and individuals acted as broker-dealers in selling their products, without registering with the SEC.

According to the Director of the SEC's Miami Regional Office, Eric I. Bustillo, "Under the federal securities laws, investors are entitled to full disclosure so they know how much of their investment is going toward commissions and fees. The outcome of this case makes that point loud and clear. We will continue to aggressively pursue those who take investors' money and fail to give a full picture of how they are using those funds."

Lawrence William Dunning, of Highland Beach, has been ordered by an Arizona federal court to pay approximately $2.9 million in restitution for his role in a Ponzi scheme, to be followed by three years of supervised release for mail fraud. Three of Dunning's co-defendants have already been sentenced for terms ranging from 60 days in federal prison to probation and supervised release. Two additional co-defendants have yet to be sentenced. Dunning and another co-defendant, Philip Eugene Vigarino, have civil judgments against them, obtained by the Arizona Corporation Commission, which includes a judgment for $22 million against Dunning.

Dunning perpetrated the scheme by creating Creative Financial Funding, a corporation seeking investors who wanted to fund "hard money lending." Two of the co-defendants acted as loan officers, while a third helped Dunning form American National Mortgage Partners ("ANMP"), another mortgage-lending entity. Both businesses made and negotiated loans for real property in Arizona. These corporations looked for individuals who could not obtain typical loans because of credit problems, then offered to find investors to fund the loans, with correspondening interest rates as high as 36%.

The borrower's personal interest in the property, secured by the loan, subsequently transferred into an "Illinois Land Trust," with ANMP as trustee, and individual investors for that particular loan as the beneficiaries. So long as the borrower paid the loan, the investors received monthly payments. Once borrowers began defaulting on the loans, AMNP would take the real estate, sell the property, and return the investors' funds. When the defaults started piling up, AMNP began paying its old investors with new investor money. AMNP also used the investor money to pay its overhead expenses.

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On September 30, 2010, the Securities and Exchange Commission charged two Florida companies and their CEOs for engaging in two separate pump-and-dump schemes involving the issuance of misleading press releases hyping the companies while the respective CEOs sold their stock for major gains.

The SEC claims that Quri Resources, Inc. and Jaime Santiago Gomez, Quri's CEO, of Miami issued numerous misleading press releases in 2009 falsely stating that Quri was involved in a mining project in Ecuador whereby it would likely find a gold reserve valued over $1 billion. The SEC separately charged Atlantis Technology Group and Christopher Dubeau, Atlantis' CEO, of Weston, Fla., for issuing false press releases boasting that the company had business relationships with television networks to sell their video and telecommunication services. Neither the services of relationships existed.

In addition to the alleged mining project, the SEC claims that Quri Resources also made several other misrepresentations, including that it was going to acquire two mining projects in Arizona, and that it was going to acquire two additional, valuable mining projects in Ecuador. The SEC further claims that Gomez reviewed and approved the misleading press releases, while repeatedly selling Quri stock as the press releases were issued.

According to the SEC's complaint against Atlantis Technology Group and Dubeau, Atlantis falsely claimed that Global Online Television Corporation - a subsidiary of Atlantis - offered Internet protocol television (IPTV) services and video phone services to consumers, and that Atlantis had relationships with television networks to offer such content to subscribers. The subsidiary, however, could not offer the IPTV or video phone services in 2009, and Atlantis never had any agreement with a television network to offer media content to customers.

The SEC further claims that Dubeau prepared, reviewed, and approved Atlantis's misleading press releases while at the same time knowing that Atlantis did not offer the advertised services or possess the business relationships identified in the press releases. During this time, Dubeau also sold over 60 million shares of Atlantis stock for approximately $240,000 in gains.