Articles Posted in Ponzi Scheme

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The United States Court of Appeals for the Eleventh Circuit recently held that “clawback actions brought by court-appointed receivers are not categorically exempt from the Federal Arbitration Act.”  Wiand v. Schneiderman, 2015 WL 525694 (C.A. 11 (Fla.)).  The appellate court affirmed the district court’s decision to decline to vacate an arbitration award in a clawback action.

The lower court case was one of approximately 150 clawback actions brought by the court-appointed receiver of six hedge funds involved in a Ponzi scheme orchestrated by Arthur Nadel.  The receiver initiated the clawback suits to recover “profits” received by an investor in Nadel’s Ponzi scheme so they could be redistributed among all the investors who lost money in the scheme.  Nadel, a former Florida fund manager was dubbed a “mini-Madoff” after admitting to defrauding investors out of $168 million in February 2010.  In October 2010 he was sentenced to 14 years in prison.  In 2012, Nadel died in prison at the age of 80.

The clawback action at issue was initiated in January 2010 in the U.S. District Court for the Middle District of Florida against the estate of Herbert Schneiderman.  Schneiderman invested $100,000 with Victory Fund, Ltd., one of the hedge funds connected with Nadel’s scheme.  Schneiderman received total payments from the fund in the amount of $263,660.  The receiver filed suit against Schneiderman’s estate to recover the fake “profits” of $163,660.  The estate moved to compel arbitration based on an arbitration provision contained in the Subscription Agreement and Limited Partnership Agreement between Schneiderman and the Victory Fund.  The district court granted the motion to compel arbitration.  The parties agreed to arbitrate before the American Arbitration Association (“AAA”). Thereafter, the AAA arbitrator granted the summary judgment motion filed by Schneiderman’s estate and entered a Final Order and Award dismissing the receiver’s claims as barred by the Florida probate statutes.  In addition, the arbitrator denied the receiver’s motion declaring the agreement containing the arbitration provision void.   Subsequently, the receiver moved to vacate the Award which was also denied.

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A Financial Industry Regulatory Authority (“FINRA”) hearing panel has expelled brokerage firm Success Trade Securities and ordered $13.7 million in restitution for alleged securities fraud and for running a Ponzi scheme.  In addition to expelling the Washington, D.C. based firm, the FINRA hearing panel also barred Success’ President and CEO, Fuad Ahmed, from any association with any FINRA member firm in any capacity.  Success and Ahmed were jointly and severally ordered to pay $13.7 million in restitution to 59 investors, the bulk of which are current and former professional athletes.

According to FINRA, it filed a complaint against Success and Ahmed in April 2013 asserting fraud in connection with the sales of $19.4 million worth of promissory notes issued by Success Trade, Inc. (“Success Trade”), Success’ parent company.   According to the hearing panel’s decision, the offering documents omitted material facts that would have shown that Success Trade was in financial trouble, having lost money every year for more than a decade, except for 2007.

FINRA claimed that Success and Ahmed also misrepresented to investors that the proceeds from the sale of the promissory notes would be used to promote Success Trade’s business when, in reality, investors’ funds were used to make unsecured personal loans to Ahmed and to make interest payments to earlier investors, in true Ponzi-scheme fashion. FINRA’s press release also reflects that Ahmed falsely represented to investors that the businesses were thriving and about to be listed on a European exchange and that he was soon going to acquire an Australian company for $15 million.

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According to the Securities and Exchange Commission (“SEC”), a federal judge in Florida has issued a temporary asset freeze against two companies and their owners for allegedly operating a Ponzi scheme that encouraged investors to make purported investments in virtual concierge machines (VCM’s).  According to the government, the companies, JCS Enterprises, Inc. (“JCS”) and T.B.T.I. Inc. (“TBTI”), and the principals, Joseph Signore and Paul L. Schumack, II, located in South Florida touted investments in VCM’s on You Tube, through e-mail solicitations, and investment seminars.  According to the companies’ You Tube video, a VCM is an ATM-like machine that could be placed in businesses such as hotels, restaurants, and stadiums to advertise available products and services via touch screen.  In addition, the machines could provide printable tickets and coupons. 

According to the government, the companies asserted that investors could purchase a VCM for as little as $3,500 and earn income through businesses paying to advertise on the machines. The SEC claims that the investors were promised guaranteed returns on the VCM’s which were to be located, placed and managed by JCS and TBTI.  The SEC’s press release claims the companies raised approximately $40,000,000 since 2011. The government contends that investors were promised that they would be informed as to the location of each VCM they purchased and would be provided online access to monitor the activity of their VCM.   In reality, the SEC alleges that investors’ funds were used to pay earlier investors, were diverted to unrelated business ventures, or used to pay personal expenses of Signore, Schumack and their families.  For example, the SEC claims that Signore diverted $2 million dollars directly to himself and his family members, in addition to $56,000 that was spent at restaurants, stores, and a tanning salon.  Schumack allegedly diverted around $4.8 million, in addition to spending around $23,000 on restaurants, stores, and a nutrition center.

The complaint filed by the SEC alleges violations of the federal securities laws and seeks the return of ill-gotten gains, interest, and penalties.  The order for temporary asset freeze requires the companies and principals to provide accountings and also appointed a receiver for JCS and TBTI.

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George Theodule, formerly of Wellington, Florida, was sentenced for orchestrating a Ponzi-like affinity fraud scheme on fellow Haitians residing in the United States.  In October 2013, Theodule agreed to plead guilty to one count of wire fraud in exchange for the government dropping the other 39 charges against him. 

According to the indictment, Theodule solicited individuals in the Haitian community, primarily in South Florida, to invest with his companies, Creative Capital Consortium and A Creative Capital Concepts.  Theodule allegedly told investors that he could double their money in 90 days by trading in stock options.  Theodule allegedly preyed on members of the Haitian community in a classic affinity fraud.

An affinity fraud is an investment scam that targets members of identifiable groups, such as religious or ethnic communities. Oftentimes, the fraudsters are members of the group. They typically enlist respected members of the group to spread the word about the scheme by convincing those people that a fraudulent investment is legitimate and worthwhile.

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The Securities and Exchange Commission has charged Yin Nan (Michael) Wang, Wendy Ko, and their company Velocity Investment Group (“Velocity”) of Pasadena, California with securities fraud and have obtained an emergency asset freeze.

According to the SEC’s complaint, Wang and Ko have raised over $150 million from approximately 2,000 investors since 2005. The investors purchased promissory notes issued by Velocity. According to the complaint, Velocity manages a series of funds called the Bio Profit Series that purport to make real estate loans in California.

The SEC alleges that Wang directed the falsification of financial records, and that Wang and Ko used transactions between the Bio Profit Series funds and another company, Rockwell Realty Management, to conceal the fraud. The SEC alleges that the defendants used later investors’ money to make Ponzi-like payments to the earlier investors.

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The Securities and Exchange Commission (“SEC”) has charged the former principals of now defunct Assured Capital Consultants, LLC, based in Clermont, Florida, with running a $25 million Ponzi scheme. Jenifer Hoffman, John Boschert, Bryan Zuzga have been charged with raising $25 million from investors by making false statements and creating fake documents about an investment program that did not exist.

According to the SEC’s Complaint, investors were told that their money would be invested in an offshore trading program that would then invest in medium term notes. Hoffman and Boschert allegedly enticed investors with promises of large profits and weekly returns of up to 50% and assurances that the investment was safe and guaranteed.

The Complaint states that investors were shown fictional bank documents purporting to verify that Assured Capital had $500 million on deposit at a Panamanian bank. The Complaint also claims that investors were told their funds would be secured in an escrow account, controlled by Zuzga – purportedly an escrow agent and a licensed attorney. According to the SEC, Zuzga was not an escrow agent and has never been a licensed attorney.

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The United States Attorney for the Southern District of Florida has announced that former Florida and Michigan resident Joseph Paul Zada has been indicted in connection with a $20 million investment scheme. The indictment charges Zada with mail fraud, wire fraud, interstate transportation of stolen property, and money laundering.

According to the Detroit Free Press, Zada scammed 28 investors, including former Red Wings hockey star Sergei Fedorov, out of approximately $20 million.

The government claims that Zada attracted investors to his scheme by pretending to be a successful businessman with ties to oil ventures in Saudi Arabia. To support his image of wealth and success, Zada hosted extravagant parties, drove expensive luxury cars, and had expensive homes in Wellington, Florida and Grosse Pointe, Michigan.

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The Securities and Exchange Commission (“SEC”) has charged a former Oklahoma investment advisor, who is also a local wedding singer, with securities fraud. According to the SEC, Larry Dearman, Sr., a former broker and investment advisor, and Marya Gray, a licensed realtor, swindled 30 of Dearman’s investment advisory clients out of $4.7 million.

According to the Complaint, Dearman told his clients that their money would be invested in entities owned or controlled by Gray, to wit: Bartnet Wireless Internet, Inc., The Property Shoppe, Inc., and Quench Buds Holding Company, LLC. In reality, the SEC claims that investors’ funds were used to pay Dearman’s and Gray’s personal expenses, gambling debts, and make Ponzi-type payments to earlier investors. The SEC claims that Dearman met many of his clients through his church and through his side job as a local wedding singer.

According to the SEC, the wrongdoing occurred from December 2008 to August 2012. Dearman’s BrokerCheck report reflects that he was a broker with Cambridge Legacy Securities, L.L.C. and a registered investment advisor with The Focus Group Advisors during this period.

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Attorney Ralph Janvey, the U.S. receiver of Stanford Financial Group, and accountants Marcus Wide and Hugh Dickinson, international liquidators of Stanford International Bank Ltd. (the “Bank”), have agreed to distribute up to $300 million of the Bank’s assets that have been frozen since regulators uncovered Stanford’s decade-long Ponzi scheme that defrauded investors of more than seven billion dollars.

The agreement, facilitated in large part by the U.S. Justice Department, follows years of litigation between the two sides over control of the Bank’s assets. After state and federal regulators uncovered the Ponzi scheme in 2009, the High Court of Antigua – exercising its jurisdiction over the Antiguan-based Bank – appointed Nigel Hamilton-Smith and Peter Wastell of the now-defunct accounting firm Vantis, Plc to oversee the liquidation of the Bank’s assets. At the same time, the United States Federal District Court in Dallas appointed Janvey the receiver to the U.S.-based Stanford Financial Group. Because Stanford’s Ponzi scheme centered on fraudulent certificates of deposit (CDs) issued by the Bank, both sides sought to control the Bank’s assets. Hamilton-Smith and Wastell were concerned, however, that foreign account holders who invested in the Bank’s fraudulent CDs would face difficulty filing claims if the Bank’s assets were left solely in the discretion of Janvey and the U.S. Justice Department. After Hamilton-Smith and Wastell were removed from their position, the Eastern Caribbean High Court at Antigua appointed Wide and Dickinson to oversee the Bank’s liquidation.

Now, the two sides have agreed to allow Wide and Dickinson to distribute ninety percent of the Bank’s frozen assets held in the UK, Canada, and Switzerland. Both courts in Antigua and Dallas have approved the agreement, but the parties have not yet disclosed when the defrauded investors will begin receiving checks, because many of the Bank’s assets remain tied to illiquid holdings like real estate. 

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A jury took only ten minutes to convict former Delray Beach Commissioner, Charlotte Durante, of orchestrating a $1.8 million Ponzi scheme that targeted more than 80 investors, most of whom were Haitian.

Durante was convicted of two felony counts – one count of money laundering and one count of organized scheme to defraud greater than $50,000. When sentenced, Durante faces up to 60 years in prison.

Durante, a long-time realtor, was the first African-American woman to serve on the Delray Beach City Commission when she was elected in 1978.