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By Kathy Bazoian Phelps
Ponzi Scheme Roundup: October 2017
Below is a summary of the activity reported for October 2017. The reported stories reflect: 4 guilty pleas or convictions in pending cases; over 153 years of newly imposed sentences for people involved in Ponzi schemes; at least 3 new Ponzi schemes worldwide; and an average age of approximately 47 for the alleged Ponzi schemers. Please feel free to post comments about these or other Ponzi schemes that I may have missed. And please remember that I am just relaying what’s in the news, not writing or verifying it.
Scott Allensworth, 64, and David Weddle were charged by the CFTC in an alleged Ponzi scheme. Allensworth runs Capital Growth Group Associates and E-Slate Inc. dba Cobra Development Group LLP, and Weddle is the majority owner of JustInfo LLC. Robert J. Fusco was also charged. Investors were solicited by JustInfo LLC and were allegedly lied to about a futures trading scheme. The scheme raised at least $2.84 million from at least 57 investors, and investors were promised 20% to 25% returns.
Steven Canady, 45, was sentenced to 6 to 18 years in prison in connection with a $7 million Ponzi scheme run through Alliance Warburg Capital Management. Canady had previously been accused of running a Ponzi scheme that promised 1000% returns in 30 days, which subject Canady and his company, Canady Holdings, to a cease and desist order and fines in 2006.
Marc A. Celello was sued by the SEC in connection with his role as general counsel for Credit Nation Capital LLC. Credit Nation and its CEO, James A. Torchia were accused of running a Ponzi scheme. Torchia consented to judgment in a related SEC civil lawsuit against him. The SEC alleges that Celello helped orchestrate the Ponzi scheme that involved unregistered promissory notes that falsely promised returns of 9%.
Chad Roger Deucher, 44, was sentenced to 7 years in prison and ordered to pay more than $16.5 million in restitution in connection with a Ponzi scheme run through Marquis Properties that defrauded investors out of $16 million. Deucher used direct solicitation, radio ads, a website and seminars to locate investors and promise them returns as high as 22%. He represented that the investors’ funds would be used to purchase and rehabilitate properties.
Homero Josh Garza and his company, GAW Miners, were the subject of a final judgment in favor of the SEC in the amount of $9.2 million plus $743,000 in interest. Garza previously pleaded guilty to a charge relating to the running of a Ponzi scheme involving virtual currency. Garza formed GAW Miners, ZenMiner, and ZenCloud to engage in the mining of virtual currencies.
Pedro Jaramillo aka Enrique Jaramillo, 49, was sentenced to 12 years in prison for a Ponzi-like commodities scheme. The scheme defrauded more than two dozen investors in countries in Latin America out of more than $1.2 million.
Andrew D. Kelley, 41, was sentenced to 41 years in prison and ordered to pay about $8 million in restitution in connection with an investment scheme run though his company, Blackbird Capital Partners. Kelley told investors he was a faithful member of The Church of Jesus Christ Latter-day Saints and that he would invest in various security and futures instruments. Kelly lost investor funds, first blaming the loss on Brexit and then admitting to Ponzi-like activity. He said, “I am delusional. I am a compulsive liar” and he tried to convince investors that he could “trade his way out of it” if they wouldn’t report him to authorities.
Rick Koerber again escaped charges that he ran a Ponzi scheme as a jury deadlocked and the judge declared a mistrial over the prosecutors’ most recent attempt to find Koerber guilty of running a Ponzi scheme. In 2015, a court dismissed the prosecutors’ case, finding that Koerber’s right to a speedy trial was violated and that prosecutors acted unethically. On appeal the case was remanded and prosecutors were allowed to refile charges. Prosecutors accused him of running a $100 million Ponzi scheme, but Koerber maintains that he was making legitimate investments.
Newegg, Inc., a computer parts and accessories retailer, was sued by four South Korean banks which allege that Newegg is operating a Ponzi scheme. The complaint alleges that Newegg, along with computer wholesaler ASI Corp. made fraudulent orders for home theater personal computers from Moneual, a Korean hardware manufacturer. Moneual is accused of masterminding the scheme and using the phony orders to secure financing from the banks.
Bernard Parker, 57, was sentenced to 87 months in prison and ordered to pay $1.2 million in restitution in connection with a Ponzi scheme that he ran through Parker Financial Services. Parker promised investors returns from contracts in which they would buy tax lien certificates for real estate in Florida, Arizona and Colorado.
Cleber Rene Rizerio Rocha, 28, pleaded guilty to his role in attempting to transfer some of the proceeds of the TelexFree Inc. Ponzi scheme. Rocha was caught at a restaurant handing $2.2 million in cash to a witness who was cooperating with the government and then led agents to $17 million that was hidden under a mattress.
Michael Scronic, 46, was charged in connection with an alleged Ponzi scheme that defrauded at least 45 investors out of more than $19 million. He advised investors that he was investing n publicly traded options and cash so he could meet any redemption requests in 2 business days. Scronic invested in risky investments and lost 88% of the investors’ principal.
Steven Simmons, 48, pleaded guilty to charges stemming from a Ponzi-like scheme that he ran with Joseph Meli in a ticketing scam. The scheme was a ticket reselling scheme for popular shows like “Hamilton.” Simmons solicited more than $6 million for the hedge fund, Sentinel Growth Fund Management LLC. Sentinel’s founder, Mark Varacchi, pleaded guilty in February.
Michael Wright, 30, pleaded guilty to commodities fraud charges in connection with a scheme run through his company, Wright Time Capital Group. The scheme raised $400,000 from investors for foreign exchange trades.
Regulators warned that Five Winds Asset Management and QW Lianora Swiss Consulting SA have been offering investment services in Belgium contrary to financial legislation and that the companies’ program resembles a Ponzi scheme. The companies seem to have ties with Questra World, Questra Holdings and Atlanta Global Asset Management, firms that have been the subject of public warnings.
Investors in the Virginia Tan Ponzi scheme sued HSBC Bank Canada in a class action lawsuit. Tan’s scheme defrauded victims out $30 million and promised them 12% to 24% returns.
Authorities continue to investigate OneCoin as an alleged Ponzi scheme.
Paul Clifford Hibbs, 49, pleaded guilty to charges that he ran a Ponzi scheme through Gladstone Investments Limited and Hansa Limited. Investors lost $17.5 million and many of them were elderly.
Shane Richard Scott, 60, pleaded guilty to charges that he ran a Ponzi scheme and he was sentenced to 4 years and 8 months in prison. Scott told investors he was investing in the diamond trade, deals brokered in Thailand, a chicken farm in New Caledonia, property developments, fertilizer export, importing and exporting heavy machinery, financing importers to pay duties or GST and credit provision.
Regulators warned the public against investing in Pluggle Incorporated, which is an online advertising website that is not authorized to solicit investments. Pluggle promises a return of 30% to 100% in 12 days. Pluggle responded that it is not an investment company and that “maybe some members misrepresented Pluggle when talking to people.”
Officials compared Bitcoin to the MMM Ponzi scheme, largely based on the amount of unqualified investors buying into cryptocurrency.
The Sixth Circuit affirmed the dismissal of a proposed class action brought against PNC Bank NA by investors in the William and Connie Apostelos Ponzi scheme. The scheme involved $70 million. Investors alleged that the bank should have known about the scheme and facilitated the scheme by allowing the perpetrators to use the bank’s infrastructure to sell promissory notes as part of the fraud. Cruz v. PNC Bank N.A., 2017 U.S. App. LEXIS 19591 (6th Cir. Oct 4, 2017).
A New Jersey appellate court reversed a jury verdict of more than $600,000 in favor of a client against his financial planner, Brian Patrick Carr. Everett C. Miller, the founder of Carr Miller Capital Investments LLC, had been sentenced to 10 years in prison in connection with an admitted fraudulent scheme. Carr was not criminally charged but was the only remaining defendant in a civil suit brought by Oleg Shtutman in connection with the fraudulent scheme. The appellate court found that Carr’s statements that the investment had low or no risk were “a vague expression of corporate optimism and puffery upon which no reasonably investor would rely.” Shtutman v. Carr, 2017 NJ. Super. Unpub. LEXIS 2507 (Oct. 4, 2017).
A court approved a $9.8 million settlement of a malpractice lawsuit against Greenberg Traurig in connection with the Mortgages Ltd. Ponzi scheme.
City National Bank NA and its senior vice president Patrick Brian Fitzwilliam were hit with a putative class action accusing them of aiding the ATM investment Ponzi scheme run through Nationwide Automated System by Joel Gillis, 77, and Edward Wishner, 78. The lawsuit alleges that the bank and manager helped to cover negative bank balances and vouched for the integrity of the program.
Financial advisers who sought to force arbitration of disputes in connection with the R. Allen Stanford Ponzi scheme lost their bid to overturn a Fifth Circuit decision ruling against them. The Supreme Court denied their petition claiming that the receiver of the Stanford scheme should be bound by arbitration clauses in the employment contracts.