Florida Securities Fraud Lawyer Blog

A Ft. Lauderdale man, George Elia, who is currently under investigation by the Florida Office of Financial Regulation, is also facing a $4 million lawsuit alleging that he has been running a Ponzi scheme. In October 2011, Michael Imbesi of San Diego, along with his father, step-mother and sister, filed the Broward Circuit Court lawsuit against Elia and his company, International Consultants & Investment Group Limited Corp., after repeated requests to withdraw their money were met with delay tactics and excuses.

According to the Complaint, Elia promoted himself as an investment adviser able to generate annual profits of 20 percent on average. Court documents show that Michael Imbesi began investing with Elia in 2005 and for years, he received statements showing returns of 4 to 7 percent per quarter. Pleased with his returns, Imbesi recommended Elia to relatives, including his father and step-mother.

According to the Complaint, in the spring of 2011, Elia became inconsistent in distributing money, blaming the delays on medical issues and a hacked e-mail account. The Imbesis became nervous and asked for their principal back, but Elia only responded with excuses.

Court documents reflect that an audit of Elia's business records found significant irregularities, including the use of business funds to pay Elia's personal expenses. According to court records, the bank accounts for Elia's businesses were frozen pending the outcome of the litigation. At his deposition in November 2011, Elia answered standard questions about his background, but refused to answer additional questions, and invoked his Fifth Amendment right to remain silent.

According to a real estate broker who assisted Elia in securing a 3rd mortgage on his Ft. Lauderdale home in January 2012, within two weeks of securing the $125,000 mortgage, she discovered that Elia and his wife had moved out of the home during the night.

Investors nationwide who have been the victims of a Ponzi scheme, may contact the Florida securities arbitration lawyers at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or by e-mail to kelly@mccaberabin.com.

In the first trial related to Scott Rothstein's $1.2 billion Ponzi scheme, a Miami federal jury took less than a day to return a $67 million verdict against TD Bank, including $32 million in compensatory damages and $35 million in punitive damages.

The jury determined that TD Bank helped Rothstein defraud a group of Texas businessmen known as Coquina Investments ("Coquina"). The complaint alleged that TD Bank executives, former Vice President Frank Spinosa in particular, lied to the businessmen about the safety of their money and aided Rothstein in his fraud on investors. During the trial, Coquina's lawyers focused on a bank's obligation to know its customers and to detect fraud in accordance with the Bank Secrecy Act.

Scott Rothstein, a disbarred Fort Lauderdale lawyer, was sentenced to 50 years in prison for his $1.2 billion Ponzi scheme. He told potential investors they were buying interest in phony pre-lawsuit settlements for whistleblower and sexual harassment cases. In order to make his scheme work, Rothstein needed banks who did not ask questions about why he was moving large amounts of money between attorney trust accounts. Coquina's lawyers claimed that TD Bank should have asked questions, but didn't.

TD Bank will be on the defensive again as another Rothstein related case is set for trial in March in Broward County Circuit Court. One thing the plaintiffs in that case will have is Rothstein's December testimony that he bribed TD Bank employees. That testimony was not allowed in the Coquina case because of the timing.

Investors nationwide who have been the victim of investment fraud, may contact the Florida investment fraud attorneys at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or by e-mail to kelly@mccaberabin.com.

This week, FINRA announced that it has charged Merrill Lynch with failing to supervise one of its employees who successfully ran a Ponzi scheme using Merrill Lynch accounts. According to FINRA's findings, Bruce Hammonds misrepresented to investors that his company, B&J Partnership, invested in oil contracts, S&P index futures, and international hedge funds. Hammonds promised investors returns from 30 to 100 percent and told them that B&J was affiliated with Merrill Lynch. Instead, Hammonds invested less than 10% of the funds and pocketed the rest. Hammonds engaged in these fraudulent transactions undetected, attracting over $1 million in investments from eleven individuals, for over ten months. Hammonds was permanently barred from the securities industry in 2009.

Merrill Lynch never approved of Hammonds's activities, but the company approved his request to open an account in B&J's name. Hammonds told his employers that he was funding the account with proceeds from his house-flipping business. This representation was belied by B&J's partnership agreement, which stated that the firm was formed to conduct a securities business with Hammonds as president. Merrill Lynch never reviewed B&J's partnership agreement as part of the account approval process.

Until last year, Merrill Lynch used its Employee Activity Review System ("EARS") to monitor employee account activities. The flaw with EARS was that it monitored accounts opened using the employee's social security number or accounts that employees self-reported as "employee-interested." Hammonds opened B&J's account using its own tax identification number, not his social security number, and never indicated that B&J's accounts should be monitored by EARS.

FINRA found that EARS was inadequate to monitor and supervise employee accounts for compliance with NASD and FINRA rules. Specifically, FINRA concluded that Merrill Lynch should not have relied on employees to self-report their interests in accounts. Because the firm did not have a system in place to ensure that all employee-interested accounts were reviewed by EARS, Merrill Lynch failed to monitor roughly 40,000 employee and employee-interested accounts from 2006 to 2010. After the Bank of America takeover, Merrill Lynch transitioned to a new system to monitor employee accounts.

After Hammonds's fraud was discovered, Merrill Lynch reimbursed investors for their losses. FINRA levied a fine of $1 million. The firm neither admitted nor denied the charges but consented to the entry of FINRA's findings and conclusions.

On October, 6, 2011, the SEC received an emergency court order to stop a Ponzi scheme that promised investors high returns on water-filtering natural stone pavers, but defrauded them of over $26 million during a four-year period. The SEC's complaint states that, among others, convicted felon Eric Aronson bilked investors in PermaPave Companies, a web of companies based in Long Island, N.Y., and controlled by Aronson.

The scheme involved over 140 investors during 2006-2010, many of whom worked in the construction or landscaping business. Representations were made to investors that PermaPave Companies had a high volume of orders for the pavers, which would yield monthly returns to investors of 7.8% to 33%. In reality, there was not much demand for the pavers, and its cost far exceeded sales revenue.

Without the promised returns, Aronson and two other PermaPave Companies executives, Vincent Buonauro Jr., and Robert Kondratick, had to pay earlier investors with funds from new investors and then took a large portion of the funds for themselves. In doing so, they bought luxury cars, gambling trips to Las Vegas, and jewelry. Aronson also used investors' funds to satisfy court-ordered restitution payments to victims of an earlier scheme that he operated in 2000.

According to the SEC New York Regional Office's Director, George S. Canellos, "Aronson and his associates operated the PermaPave Companies as a classic Ponzi scheme. They created the façade of a profitable business, promised investors extraordinary rates of return, and used much of their investors' money to fund their own lavish lifestyle."

On Aug. 29, 2011, the SEC charged two Florida men for running a Ponzi scheme set up as an alleged private equity fund that fraudulently raised over $22 million from more than 100 investors, including many Florida teachers or retirees.

The SEC's complaint alleges that James Davis Risher of Sanibel handled the fund's trading operations, and Daniel Joseph Sebastian of Lakeland marketed the fund, including distributing offering materials and soliciting investors. Risher falsely informed investors that he had years of experience in trading equities and providing wealth and asset management services. Instead, Risher had no such experience but rather a vast criminal history, spending 11 of the last 21 years in prison.

The SEC claims that Risher and Sebastian falsely told investors that the "fund" generated annual returns between 14% and 124% percent by purchasing public equity securities. They sent investors fabricated account statements showing these inflated returns to support their misrepresentations. Indeed, only a small portion of the raised capital was actually invested, as Risher instead spent investor funds on personal, lavish gifts, such as jewelry, and property in North Carolina and Florida. Moreover, Risher and Sebastian also paid themselves millions of dollars in fake management and performance fees.

Based on the SEC's complaint, Risher and Sebastian solicited the "fund" using the names Safe Harbor Private Equity Fund, Managed Capital Fund, and Preservation of Principal Fund. They described themselves in offering documents as "two unique individuals" who had the necessary expertise to "create an investment vehicle that would allow investors to capitalize from both bull and bear markets."

In response to the $6.4 billion lawsuit filed by Irving Picard, the trustee for Bernie Madoff, JPMorgan Chase has stated that it had no legal obligation to discover Madoff was perpetrating a Ponzi scheme. The bank claims Picard is holding the bank to accountability standards not prescribed under the law. In addition to the purported non-existent standard to investigate clients, JPMorgan Chase is also challenging Picard's standing to bring this lawsuit. The bank believes the lawsuit is essentially a class action litigation, which should be in federal district court to be heard by a jury, and not in bankruptcy court.

Picard has alleged in his lawsuit, seeking $1 billion in fees and another $5.4 billion in damages, that the bank knew there were problems with Madoff's accounts. In support, Picard cites to emails and other documents where JPMorgan Chase employees expressed concerns over Madoff's operation and its unusual performance given the performance of the market. Despite these red flags, the trustee maintains the bank willfully ignored the fraud.

Following the 14-year prison sentence handed to Ponzi schemer Art Nadel, prosecutors are now seeking a longer sentence for a fellow Southwest Florida fraudster. Prosecutors will be asking the court to sentence Beau Diamond to between 17 ½ and 22 years in prison. This prison term will be in addition to the forfeiture money judgment of $37.7 million against Diamond. Prosecutors will also request the forfeiture order be incorporated into Diamond's sentence, and that the court retain jurisdiction over money or property which could serve as a substitute asset. The trustee in Diamond's bankruptcy case will be on a similar mission of finding assets for jilted investors.

Prosecutors cite to the egregiousness of Diamond's scheme and the profile of a large number of his investors as justification for the heavy recommended sentence. Among those investors highlighted by the prosecution were a husband and wife, battling multiple sclerosis and cancer, and whose sole source of income came from their investment in Diamond Ventures. Despite communications from the couple emphasizing the need for safety in their investments, Diamond continually lied, telling them that their money was "in the safest place in the world."

The SEC has charged two employees at Bernard L. Madoff Investment Securities LLC (BMIS) with participating in the largest Ponzi scheme in American history. Anette Bongioro created phony account statements for investors and took money for her personal gain. Joann Crupi conspired to cash out Madoff's friends and family as the fraud was collapsing and created fraudulent investor account statements.

The SEC alleges that Annette Bongiorno, who began working for BMIS in an administrative capacity in 1968, regularly created false books and records. She helped mislead investors in telephone conversations and through account statements and trade confirmations that reported securities transactions that never happened and positions that never existed. She also created false trades in her own BMIS accounts that enabled her to cash out millions.

The SEC alleges that JoAnn Crupi, who began working for BMIS in 1983 and later became responsible for supervising the primary bank account used in BMIS's investment advisory operations, helped facilitate the fraud and mislead investors, auditors, and regulators into believing that BMIS was a legitimate business. When the fraud was near collapse, Crupi decided which accounts should be cashed out and prepared checks for select investors, including Madoff's family and friends.

Bongiorno falsified trades in her own accounts, depositing approximately $920,000 and withdrawing approximately $14.5 million. She fabricated sham, backdated, and highly profitable "trades" to cover for these withdrawals.

Crupi supervised some lower-level BMIS employees and worked closely with Frank DiPascali, another high-level BMIS supervisor charged by the SEC. Crupi maintained exclusive control over two important aspects of the BMIS fraud: she handled the primary bank account used in the Ponzi scheme, and she created false trading portfolios and account statements related to a purported hedging strategy.

Shortly before the collapse, Crupi met with DiPascali to discuss that it was near the end. Yet, Crupi continued to process client deposits during this time period, depositing approximately $59 million of client checks into the Ponzi scheme bank account.

In the final days of the fraud, Crupi helped DiPascali review BMIS investor lists and identify which accounts should be cashed out. Madoff approved these actions and Crupi prepared checks for the selected investors totaling more than $350 million. Madoff was arrested and the checks were seized before they could be distributed.

These charges evidence how a Ponzi scheme rarely can last for so long or maintain the face of legitimacy without the participation of co-conspirators. It also appears that SEC now is working hard to redeem itself for a period of years spent sleeping at the wheel.

Sharon Carter, formerly married to Neil Moody, has surrendered in excess of $1.1 million in property to try and settle her case against Nadel's receiver. Moody was a business partner with ponzi-schemer Art Nadel. The $1.1 million, however, falls well short of the nearly $4 million the receiver claimed was transferred to Carter and her revocable trust via distributions and profits. While the receiver paints Carter as someone who profited from the scheme, Carter paints herself as a victim. She claims to have lost all of her money in one of Nadel's hedge funds, and she is now living off of Social Security. Her divorce from Moody was finalized this year.

At the top of the list of property surrendered is her Colorado home, which she owned prior to her marriage to Moody but made significant improvements with her ex-husband's money. An appraisal indicated between $450,000 and $500,000 in equity. The house is located in Evergreen, Colorado, in an exclusive foothills development. Another $350,000 will come from furniture, jewelry antiques and other personal property. Another $300,000 derives from the assignment of tax refunds Carter may claim from her investment in the hedge funds. A final $39,000 will be paid in cash.

NFL players are finding themselves abused by brokers with bad investments in Ponzi and other fraudulent schemes.

Hall of Fame Quarterback, John Elway, recently disclosed that he and his partner gave $15 million to a hedge fund manager, who was allegedly running a Ponzi scheme.
New Orleans Saint, Alex Brown, sued his financial advisors over $3.9 million in losses, alleging they had "abused the trust," including bad investments in airplane hangars.
Broker Mary Wong pleaded guilty to stealing more than $3 million from investors, including Eagles quarterback Michael Vick.

These cases come as the NFL Players Association, the union representing 1,800 players, looks to strengthen the screening process for its financial adviser program, which has come under attack in recent years.

Professional athletes are susceptible to being taken advantage of when it comes to investing their money. They often are unsophisticated investors and have a high net worth.

After adviser William "Tank" Black was convicted of stealing $11 million from players he represented, a program was started that requires advisers have appropriate financial qualifications, such as a certified financial planner mark or FINRA registration to be included on a select list for players.

These advisers must also undergo a background check, and pay $1,500 to be included on the list and $500 annually to remain on it. There are currently about 450 advisers on the list.

Pro athletes are considered targets for investment scams and unscrupulous brokers. Such athletes often place heavy reliance upon their advisors and do not pay attention to, or understand, the details of sophisticated investment products.

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.

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.