Subscribe to LexTalk to stay on top of today’s legal issue and trends.
Catapult Your Career |
Industry Insights & Trends |
Product Training & Tips
By Kathy Bazoian Phelps
Below is a summary of the activity reported for March 2018. The reported stories reflect at least 10 new Ponzi schemes worldwide; over 16 years of newly imposed sentences for people involved in Ponzi schemes; 7 guilty pleas or convictions, and an average age of approximately 46 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. Check out the new cryptocurrency section at the end of the post.
Daniel Baker, 51, was convicted in Minnesota in connection with a contractor scheme that he ran through his company, Lifestyle Basements. Baker took down payments from clients, did some of the work he was asked to do, but failed to pay subcontractors and for materials. There were at least 14 victims.
William Bischoff, 76, pleaded guilty to charges that he stole more than $4.2 million from 26 investment clients in an 8-year Ponzi scheme run through his company, Genesis Investment Group. In one instance, Bischoff took $400,000 from clients who sold their home and gave the funds to him to purchase a new home. Bischoff bought the new home in his name, secretly took out a mortgage on it, and then deeded the house to the clients who were unaware of the mortgage. The bank ultimately foreclosed on the house because Bischoff was not making payments on the mortgage.
Bitcoin Funding Team and My7Network were shut down and their assets were frozen by the FTC. The companies were promising large returns in exchange for payment of bitcoin. Thomas Dluca, Louis Gatto and Eric Pinkston were also named in the action, and Scott Chandler was named as well, who pitched Jet-coin to investors promising a fixed rate of return on an initial bitcoin investment from supposed bitcoin trading.
Laurent Carrier and his company Carrier Financial Services, surrendered their Colorado securities licenses as a result of their involvement with Woodbridge Group of Companies LLC. Carrier allegedly sold $5.1 million in unregistered securities to at least 50 investors. Woodbridge has been accused of defrauding more than 8,400 investors in a $1.2 billion Ponzi scheme. Carrier denied being aware that the investments were securities but nevertheless agreed to surrender his license because he said he no longer manages “client brokerage money.”
Seth Adam Depiano, 36, pleaded guilty to charges that he ran a $24 million real estate Ponzi scheme in California. Depiano ran the scheme through The Rental Group, US Funding, Home Services LLC, and Draymond Homes, and promised investors returns from purchasing residential properties and either renting or reselling them for a profit.
Gary Alan Frank, 47, was arrested on charges that he was running a Ponzi scheme through Legal Coverage Group Ltd. The alleged scheme brought in $30 million in a loan fraud operation.
Nikolas M. Godfrey, 39, of South Carolina, was indicted in charges that his company, Coast to Coast Business Funding, was running a $1 million Ponzi scheme. Godfrey allegedly defrauded at least 20 victims by representing that he was generating revenue by providing short-term cash advances to businesses. Godfrey was also accused of tax evasion in connection with NJ Holdings, LLC which he used in connection with Coast to Coast. He promised investors returns of as much as 73.5%.
Mitchell Klein pleaded guilty to charges relating to a real estate investment fund running an alleged Ponzi scheme called FKF 3. Klein had previously refused to cooperate but recently entered into a plea agreement. Klein and his partners John Magee and Burton Dorfman formed FKF 3 in 2004 to borrow money from investors, loan it out at slightly higher interest rates and profit from the difference.
Jason Nissen, 45, pleaded guilty to running a $60 million Ponzi scheme that involved the fake resale of tickets to shows like “Hamilton” and other premium sporting events and concerts. The scheme was run through National Event Co. and investors were promised they would make a profit from buying and reselling tickets, but the money was used instead for personal purposes and to make payments to earlier investors.
Firoz Patel, 43, and Fehran Patel, 37, brothers who live in Canada, were charged in D.C. with operating a fraudulent scheme through their company, MH Pillars Ltd., dba Payza. They are accused of moving over $250 million of funds of criminal customers, including Ponzi scheme operators, through their accounts. Payza facilitated the purchase and sale of Bitcoin and other cryptocurrencies.
Jerry David Raines, Donna Lynn Barnard and H.D. Vest Investments Securities dba HD Vest Services were sued in Texas district court in connection with the Woodbridge Ponzi scheme. The defendants were accused of making “false and misleading representations” when describing the supposedly safe, low risk and conservative nature of the Woodbridge securities. Woodbridge has been alleged to be a more than $1.2 billion Ponzi scheme that raised funds from more than 8,400 investors.
Thomas David Renison, Timothy James Allcott and their firm, ARO Equity LLC, were accused by Massachusetts securities regulators of running a Ponzi scheme. The alleged scheme brought in more than $5.8 million and promised investors 8% to 12% returns over 3 to 5 years.
Niket Shah of New Jersey was the target of an SEC complaint seeking to freeze his assets on allegations that he stole more than $250,000 in a Ponzi scheme. Shah used Spark Trading Group LLC to defraud more than 15 investors.
Martin Shkreli, 35, was sentenced to 7 years in prison in connection with a Ponzi scheme he ran through MSMB Capital and MSMB Healthcare, as well as improperly repaying investors with Retrophin Inc. assets. Shkreli had previously made headlines when he bumped up the price of drugs by 5,000% through his pharmaceutical company Turig Pharmaceuticals.
Michael Scronic, 46, pleaded guilty to one charge relating to an alleged $22 million Ponzi scheme in New York. Scronic delivered bogus account statements to investors in his Scronic Macro Fund showing large returns when in fact he had lost or spent the investor funds. At least 46 investors were defrauded.
Kevin D. Wanner pleaded guilty to charges relating to a Ponzi scheme that defrauded 66 victims in North Dakota out of about $5 million. Wanner, doing business as Precision Financial Services, sold investors fictitious brokered certificates of deposit and unregistered interests in pooled investments. Wanner’s former brokerage firms have offered to pay $3 million in restitution.
Arnold Breitkreutz and his company, Base Finance, along with its office administrator, Susan Elizabeth Way, were determined by Alberta’s securities regulator to have committed a fraud on investors by operating a Ponzi scheme. The scheme raised more than $137 million from more than 250 investors. Investors were told that they were investing in mortgages held by the company, rather than in a loan to an undisclosed entrepreneur involved in U.S. oil and gas developments.
The Cayman Islands Court of Appeal issued a ruling on how funds connected the Bernard Madoff Ponzi scheme should be distributed. The ruling stems from a dispute between two Cayman-registered investment companies – the Primeo Fund and the Herald Fund – who disagreed on how remaining funds from the Madoff scheme should be distributed to investors. In determining that the funds should be distributed to members based on the shareholdings as they existed at the beginning of the liquidation, the court determined that is what the law requires in Cayman. The court did not find that it had authority to “rectify” the distribution so that the funds could be more equitably distributed.
Wu Xiaohu pleaded guilty to charges that he ran a £7.37 billion Ponzi scheme through Anbang Insurance Group.
Authorities issues a warning about Gainmax Capital, noting that the website looks like a classic Ponzi scheme.
Savana Brokerage, an online investment scheme, has caused thousands of customers losses as it has been shut down. Investors were promised 40%, 60%, or 100% returns depending on the package they selected.
Information was released that 184 of the people accused in financial scams, most of which are Ponzi schemes, have fled the country since 2015.
Police arrested Shriram Samudra and his wife Anagha Samudra for allegedly defrauding 3,060 investors out of Rs crore in a Ponzi scheme run through Sagar Investments. Cousin Kaivalya Samudra and Kaivalya’s mother, Supriti, were also held. The scheme offered 8% to 15% interest to investors.
Vikram Investment Company has been accused of defrauding over 800 people, including prominent personalities in the art and movie industries as well as in sports and politics. The owner of the company, Raghavendra Sreenath, along with agents Sutram Suresh, Narasimhamurthy, K C Nagaraj and Prahlad, have been arrested. The company had promised investors up to 40% returns on investments.
Authorities attached properties owned by Samruddha Jeevan Foods India Ltd. in connection with an alleged Ponzi scheme. The promoter of the scheme, Mahesh Kisan Motewar, has been accused of defrauding 20 lakh people.
Jamal Khan Khattak was arrested in connection with an alleged Ponzi scheme that defrauded investors out of Rs145 million.
Paul Hibbs, 49, was sentenced to 8 years in prison in connection with the $17.5 million Ponzi scheme that he ran through Cameron Gladstone Investments Limited and Hansa Limited. Hibbs had previously pleaded guilty to the fraud and his companies have been placed in liquidation.
The Central Bank of Nigeria has again cautioned Nigerians to be wary of investments in cryptocurrency, stating that virtual currencies are not legal tender in Nigeria.
Digital Currency suddenly shut its doors, leaving over 500 investors without their funds or the ability to collect them.
Sergei Mavrodi, a Russian operator of the MMM Ponzi schemes, died at the age of 62.
BTC Global is under investigation and is believed to have defrauded more than 27,500 investors in South Africa, the U.S. and Australia. Investors, who had to buy a minimum of $1,000 Bitcoin, were told that BTC Global was the marketing arm of Steven Twain, a binary, foreign exchange and commodities trader. The scheme involved cryptocurrency valued at more than $50 million.
Four more people were arrested in connection with an alleged Ponzi scheme run through Ciftlik Bank (Farm Bank). The CEO, Mehmet Aydin, 26, and his wife, Sila Aydin, were previously arrested. Ciftlik Bank collected more than $290 million from about 78,000 people.
Net losers have filed lawsuits against net winners in connection with the William Apostelos Ponzi scheme. There are 19 plaintiffs suing 56 defendants and a potential class of 100 others to try to get money back from those who benefitted from the scheme. Apostelos is serving a 15-year prison sentence for the scheme that raised at least $66.7 million from 350 investors.
The law firm of Sheppard Mullin Richter & Hampton LLP was sued for $4.3 million on theories of malpractice and fraud relating to a “gifting program” that was run by the firm’s client, Mary Carole McDonnell. The lawsuit accuses a lawyer of the firm of writing a letter on which the plaintiff relied, which misrepresented McDonnell’s financial situation.
Diane Abbott, the United Kingdom’s Shadow Home Secretary has called bitcoin “just a gigantic Ponzi scheme and is stressing the need for the UK to regulate cryptocurrencies. Abbott noted that “if everyone took their bitcoin money and tried to buy a new car all at once the whole thing would collapse.”
Matthew Lesko, the “free money guy,” who became famous in the 90s by writing books on how to get federal grants from the US government, called Bitcoin a “scam” and a “gamble”
Charlie Munger, a 94-year-old business partner of Warren Buffett and the vice president of the Berkshire Hathaway conglomerate, said that the idea of cryptocurrency is “totally asinine” and that it is “disgusting” that people buy Bitcoin.
Vlogger Trevon James (Bitcoin Tre) received a subpoena in connection with videos he made and promoted on YouTube regarding promotion of Bitconnect. Although James said that he is ignorant about Bitconnect and securities, many of his videos taught newcomers how to acquire and trade bitcoin and other cryptocurrencies. James promoted Bitconnect when he said he was an investor himself. Another YouTube promoter of Bitconnect, Cryptonick, has disappeared and has removed all of his Bitconnect related content. Craig Grant, called the “Godfather” of Bitconnect, has also been sued but continues to create YouTube content.
MasterCoin+ has been flagged as a potential scam. It is supposedly unrelated to MasterCoin now known as OMNI.
The court in CFTC v. McDonnell, 2018 WL 1175156 (E.D. N.Y. March 6, 2018), found that the CFTC is “one of the federal administrative bodies currently exercising partial supervision of virtual currencies.” The court identified the following 9 possibilities of how cryptocurrency should be regulated: (1) no regulation; (2) partial regulation through criminal law prosecutions of Ponzi-like schemes by the Department of Justice, or state criminal agencies, or civil substantive suits based on allegations of fraud; (3) regulation by the CFTC; (4) regulation by the SEC as securities; (5) regulation by the Treasury Department’s Financial Enforcement Network (“FinCEN”); (6) regulation by the IRS; (7) regulation by private exchanges; (8) state regulations; or (9) a combination of any of the above.