SEC CHARGES COMPANY, CEO WITH TARGETING CHINES-AMERICANS WITH PONZI-LIKE AND AFFINITY FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
07/06/2015 02:10 PM EDT

The Securities and Exchange Commission today charged a Bay Area oil and gas company and its CEO with running a $68 million Ponzi-like scheme and affinity fraud that targeted the Chinese-American community in California and investors in Asia, including some solicited as part of the EB-5 Immigrant Investor Program.

The SEC alleges that Bingqing Yang knew that Luca International Group was earning no profits and sinking under a mountain of debt, yet she made presentations to investors portraying a successful oil and gas operation with millions of barrels of oil reserves and billions of cubic feet in gas reserves.  Yang falsely projected outsized investment returns ranging from 20 to 30 percent annually.  She allegedly commingled investor funds to prevent the scheme from collapsing and used money from new investors to make sham profit payments to earlier investors.  Yang also allegedly diverted $2.4 million in investor funds through her brother’s company in Hong Kong, purportedly for the purchase of an oil rig, but instead used it to purchase a 5,600-square-foot home in an exclusive gated community in Fremont, Calif.  In addition, Yang allegedly spent investor funds on pool and gardening services, personal taxes, and a family vacation to Hawaii.

According to the SEC’s complaint filed in federal court in San Francisco, Luca International conducted seminars for investors at the company’s offices and hotel conference rooms in California.  Besides targeting investors in the Chinese-American community through advertisements in Chinese-language television, radio, and newspaper outlets, Yang and Luca International allegedly zeroed in on Chinese citizens who sought permanent U.S. residence through the EB-5 program, which provides a way for foreign investors to obtain a green card by meeting certain U.S. investment requirements.  Yang is alleged to have raised approximately $8 million from EB-5 investors purportedly to finance, through a loan to another Luca entity, jobs and development costs for eight oil and gas drilling projects.  Yang allegedly told these investors that loan was fully secured, but the Luca entity the EB-5 investors funded was hopelessly in debt and contrary to the rosy representations Yang made to investors, had no realistic possibility of ever repaying the loan.

“As alleged in our complaint, Yang falsely claimed that Luca International was a profitable oil and gas drilling operation when it was really a Ponzi-like scheme preying on Chinese-Americans and EB-5 investors who lost millions of dollars while Yang lined her pockets,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.

Others charged in the SEC’s complaint include Luca International’s former vice president of business development Lei (Lily) Lei, who allegedly sold securities to investors and helped Yang divert investor funds, and Yong (Michael) Chen, who allegedly raised investor funds for Yang through his company Entholpy EMC, which did business under the name Mastermind College Funding Group.  Luca International’s former CFO Anthony Pollace agreed to pay a $25,500 penalty to settle charges that he played a small role in the alleged fraud.

As part of a related administrative action instituted today, Hiroshi Fujigami and his company Wisteria Global agreed to settle charges that they acted as brokers to illegally sell securities of two Luca entities.  Fujigami and Wisteria must disgorge allegedly ill-gotten gains of more than $1.1 million and Fujigami agreed to be barred from the securities industry and from participating in any penny stock offering.

The SEC’s investigation was conducted by Alice Liu Jensen and Michael D. Foley of the San Francisco office and supervised by Steven D. Buchholz.  The SEC’s litigation will be led by Ms. Jensen, Sheila O’Callaghan, and John S. Yun.  The SEC appreciates the assistance of the U.S. Citizenship and Immigration Services, the Financial Industry Regulatory Authority, the Hong Kong Securities and Futures Commission, and the China Securities Regulatory Commission.

GOLD MINE PROMOTERS CHARGED WITH FRAUD, TARGETED SPANISH, PORTUGUESE COMMUNITIES IN U.S.

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
07/02/2015 01:10 PM EDT

The Securities and Exchange Commission announced fraud charges and an asset freeze against the operators of a pyramid and Ponzi scheme falsely promising a gold mine of investment opportunity to investors in Spanish and Portuguese-speaking communities in Massachusetts, Florida, and elsewhere in the U.S.

The SEC alleges that DFRF Enterprises, named for its founder Daniel Fernandes Rojo Filho, claimed to operate more than 50 gold mines in Brazil and Africa, but the company’s revenues came solely from selling membership interests to investors and not from mining gold.  With the help of several promoters, they lured investors with such false promises as their money would be fully insured, DFRF has a line of credit with a Swiss private bank, and one-quarter of DFRF’s profits are used for charitable work in Africa.  The scheme raised more than $15 million from at least 1,400 investors by recruiting new members in pyramid scheme fashion to keep the fraud afloat, and commissions were paid to earlier investors in Ponzi-like fashion for their recruitment efforts.  The SEC further alleges that Filho has withdrawn more than $6 million of investor funds to buy a fleet of luxury cars among other personal expenses.

“DFRF and its operators falsely claimed that they were running a lucrative gold mining business when in reality they were operating a Ponzi and pyramid scheme that preyed on investors in particular ethnic communities who stand to lose millions of dollars,” said John T. Dugan, Associate Regional Director of the SEC’s Boston Regional Office.  “Investors were not given the full story about the true value and security of their investments.”

According to the SEC’s complaint filed June 30 and unsealed today in federal court in Boston, Filho is a Brazilian native who lives in Winter Garden, Fla., and he orchestrated the scheme with assistance from six promoters also charged in the case: Wanderley M. Dalman of Revere, Mass.; Gaspar C. Jesus of Malden, Mass.; Eduardo N. Da Silva of Orlando, Fla.; Heriberto C. Perez Valdes of Miami; Jeffrey A. Feldman of Boca Raton; and Romildo Da Cunha of Brazil.

The SEC alleges that Filho and others began selling “memberships” in DFRF last year through meetings with prospective investors primarily in Massachusetts hotel conference rooms, private homes, and businesses.  DFRF promoted the investment opportunity through online videos in which Filho falsely claimed that the company had registered with the SEC and its stock would be publicly traded.  As DFRF’s marketing reach widened, membership sales dramatically increased from under $100,000 in June 2014 to more than $4 million in March 2015 alone.

The SEC’s complaint alleges that all defendants violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and registration provisions Section 5(a) and 5(c) of the Securities Act.

The SEC’s investigation was conducted by Caitlyn M. Campbell, Mark Albers, John McCann, Frank C. Huntington, and Michele T. Perillo of the SEC’s Boston Regional Office, and assisted by Carlos Costa-Rodrigues in the agency’s Office of International Affairs.

The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, the Boston field office of the Federal Bureau of Investigation, the Massachusetts Securities Division of the Massachusetts Secretary of Commonwealth’s office, the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico, the British Columbia Securities Commission, the Swiss Financial Market Supervisory Authority, the Financial Services Commission  of Barbados, and the United Kingdom Financial Conduct Authority.

SEC BRINGS CHARGES IN PONZI SCHEME INVOLVING FARM LOANS

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23246 / April 24, 2015

Securities and Exchange Commission v. Veros Partners, Inc., et al., Civil Action No. 15-cv-000659-JMS-MJD (S.D.Ind., filed April 22, 2015)

SEC Halts Fraudulent Farm Loan Scheme by Indianapolis Investment Adviser

The Securities and Exchange Commission today announced charges against an Indianapolis investment adviser, its president, two associates and several affiliated companies for engaging in two fraudulent farm loan offerings, in which they made ponzi scheme payments to investors in other offerings and paid themselves hundreds of thousands of dollars in undisclosed fees. The SEC obtained a temporary restraining order and emergency asset freeze to halt the scheme.

According to the SEC's complaint, filed in the U.S. District Court for the Southern District of Indiana, in 2013 and 2014, Veros Partners, Inc., its president, Matthew D. Haab, and two associates, attorney Jeffrey B. Risinger and Tobin J. Senefeld, fraudulently raised at least $15 million from at least 80 investors, most of whom were Veros advisory clients. The investors were informed that their funds would be used to make short-term operating loans to farmers, but instead, significant portions of the loans were to cover the farmers' unpaid debt on loans from prior offerings. According to the SEC's complaint, Haab, Risinger and Senefeld used money from the two offerings to pay millions of dollars to investors in prior farm loan offerings and to pay themselves over $800,000 in undisclosed "success" and "interest rate spread" fees.

In addition to Veros, Haab, Risinger, and Senefeld, the SEC charged Veros Farm Loan Holding LLC and FarmGrowCap LLC, the issuers of the offerings, and PinCap LLC. The SEC also charged registered broker-dealer Pin Financial LLC as a relief defendant.

The Honorable Jane Magnus-Stinson of the U.S. District Court for the Southern District of Indiana issued an asset freeze order against the defendants as well as a temporary restraining order prohibiting them from soliciting, accepting or depositing any monies from any actual or prospective investors, and in the case of Veros, any investors in private securities offerings. Judge Magnus-Stinson also ordered that a receiver be appointed. A preliminary injunction hearing has been scheduled for May 1, 2015.

The SEC's complaint charges the defendants with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and also charges Veros and Haab with violating Sections 206(1), 206(2) of the Investment Advisers Act, and Veros with violating Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-2. The SEC's complaint seeks permanent injunctions and disgorgement against all defendants and a financial penalty. The SEC's complaint names Pin Financial for the purposes of recovering proceeds it received from the fraud.

The SEC's investigation, which is continuing, has been conducted by Nicholas Eichenseer, Doressia Hutton, and Craig McShane and supervised by Kathryn Pyszka of the Chicago Regional Office. The litigation will be supervised by Robert Moye.

SEC CHARGES CAPITAL FUND MANAGER WITH USING INVESTMENT FUND MONEY TO PAY RETURNS ON DIFFERENT FUND

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission charged a purported venture capital fund manager in Buffalo, N.Y., with fraudulently using money from three investment funds to pay fictitious returns to investors in a different fund.  The SEC obtained an emergency asset freeze to halt the Ponzi-like scheme.

The SEC alleges that Gregory W. Gray Jr. and his firms Archipel Capital LLC and BIM Management LP solicited money for a fund created to invest in pre-IPO shares of Twitter that would be delivered to investors with profits once the company went public.  Gray raised nearly $5.3 million from investors, which was enough to purchase 230,000 pre-IPO Twitter shares under the terms of the fund’s offering documents.  However, only 80,000 shares were actually purchased before Twitter went public in November 2013.  Faced with increasing pressure from investors to deliver the promised shares and profits, Gray allegedly stalled and stole to make up the shortfall by tapping three other unrelated funds to pay investors in the Twitter-related fund.

According to the SEC’s complaint filed in the U.S. District Court for the Southern District of New York, the majority of money used to make these Ponzi-like payments came from one investor who was told he had bought the entirety of a fund supposedly investing in $5 million worth of stock in Uber Technologies.  In an attempt to show the investor that the fund had purchased Uber stock while his money actually was being used to pay other investors, Gray fabricated a document using the signature pages of an earlier legitimate stock purchase agreement for shares in a completely different company.  The alleged seller of the Uber shares never even owned Uber stock.

“Gray sold investors on a seemingly great idea to acquire pre-IPO shares of high-profile companies like Twitter and Uber at a low price.  But rather than come clean when he failed to invest as promised, Gray stole from investors to cover his misdeeds,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The SEC’s complaint charges Gray and his firms with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8.  Gray is additionally charged with aiding and abetting Exchange Act Section 10(b) and Rule 10b-5 violations.  The SEC’s complaint seeks, in addition to preliminary relief and a temporary restraining order, permanent injunctions and disgorgement against all defendants and a financial penalty.  The SEC’s complaint names several relief defendants associated with Archipel Capital and BIM for the purposes of recovering proceeds they received from the fraud.

The SEC’s investigation, which is continuing, has been conducted by Hane L. Kim, Victor Suthammanont, Steven G. Rawlings, Elizabeth Baier, George O’Kane, Debbie Chan, and Douglas Smith of the New York Regional Office.  The litigation will be led by Nancy A. Brown, Hane Kim, and Victor Suthammanont.  The case is being supervised by Sanjay Wadhwa.

SEC SHUTS DOWN ALLEGED PYRAMID AND PONZI SCHEME THAT USED 'TRIPLE ALGORITHM' AND '3-D MATRIX'

FROM:  U.S. SECURITIES  AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze against two operators of a Colorado-based pyramid and Ponzi scheme that promises investors extraordinary returns of 700 percent through a purported “triple algorithm” and “3-D matrix.”

In a complaint unsealed yesterday afternoon in federal court in Denver, the SEC alleges that Kristine L. Johnson of Aurora, Colo., and Troy A. Barnes of Riverview, Mich., have raised more than $3.8 million since April 2014 from investors they enticed into buying positions in their company Work With Troy Barnes Inc., which is doing business as “The Achieve Community.”  In Internet videos and other web promotions, investors were pitched “you and anyone you know can make as much money as you want” by purchasing positions that cost $50 each, and as they progress through the matrix they would receive a $400 payout on each position within three to six months.  Barnes claimed to have hired a seasoned programmer to perfect the triple algorithm investment formula supposedly generating the extraordinary returns.

The SEC alleges that while Johnson and Barnes explicitly claimed their program was not a pyramid scheme, their company has no legitimate business operations and they are merely paying purported investment returns to earlier investors as they receive funds from new investors.  Meanwhile, Johnson and Barnes have been making cash withdrawals of investor funds for such personal uses as buying a new car and paying credit card bills.

“Johnson and Barnes allegedly claim to be operating a successful investment program when in fact they are taking funds from new investors to pay phony profits to earlier investors,” said Julie Lutz, Director of the SEC’s Denver Regional Office.

The SEC’s complaint alleges that Work With Troy Barnes, Johnson, and Barnes violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC’s complaint names Achieve International LLC as a relief defendant for the purpose of recovering ill-gotten gains from the scheme in its accounts.  The Honorable Robert E. Blackburn, U.S. District Judge for the District of Colorado, granted a temporary restraining order that in part freezes the assets of Johnson, Barnes, and their company.  

The SEC’s investigation, which is continuing, is being conducted by Jeffrey Felder, Kerry Matticks, and Jay A. Scoggins in the Denver office.  The SEC’s litigation is being led by Nicholas Heinke of the Denver office.  The SEC appreciates the assistance of the Colorado Division of Securities.

$123 MILLION ALLEGED SCHEME INVOLVING ATM MACHINES IS SHUT DOWN BY SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23106 / October 8, 2014

Securities and Exchange Commission v. Nationwide Automated Systems, Inc. et al., Civil Action No. 14-Civ-07249 (SJO) (FFMx) (C.D. Cal., filed September 17, 2014)

SEC Shuts Down $123 Million Atm Ponzi Scheme in California

The Securities and Exchange Commission today announced charges against the perpetrators behind a California-based Ponzi scheme in which investors were told their money would be used to operate automated teller machines (ATMs) in popular public places and they would earn a significant share of the profits.

In a case unsealed yesterday in federal court in Los Angeles, the SEC has obtained an emergency court order to freeze the assets of Nationwide Automated Systems (NAS), located in the L.A. suburb of Calabasas, Calif.  The order also appointed a temporary receiver over NAS’s assets and froze the assets of the company’s owner Joel Barry Gillis and fellow officer Edward Wishner.

The SEC alleges that NAS raised more than $123 million in the past 18 months by telling investors they could purchase ATMs from NAS and then lease them back in return for “rent” of 50 cents per ATM transaction.  Investors were guaranteed an investment return of at least 20 percent per year in these sale-and-leaseback agreements.  However, the vast majority of NAS’s revenue is from new investor funds, and this money is being used to pay the promised returns owed to earlier investors.  NAS does not actually own most of the ATMs it claims to operate, a fact unknown to investors who were contractually forbidden in their agreements from contacting the locations where their ATMs were supposedly located.

According to the SEC’s complaint filed under seal on September 17, NAS, Gillis, and Wishner convinced investors to buy an ATM by paying a flat amount – typically $12,000 but in some cases $19,800.  They have claimed to operate some 31,000 ATMs in high-traffic retail locations like hotels, casinos, and convenience stores largely in the Midwest.  However, reports from the company’s third-party ATM servicers only identify approximately 235 ATMs currently serviced for NAS.

The SEC’s complaint charges NAS, Gillis, and Wishner with violating Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) as well as Sections 17(a)(1) and (3) of the Securities Act of 1933.  NAS and Gillis also are charged with violations of Rule 10b-5(b) of the Exchange Act and Sections 5(a), 5(c) and 17(a)(2) of the Securities Act.

The SEC’s investigation was conducted by Peter Del Greco, Sara Kalin, Roger Boudreau, and Marc Blau in the Los Angeles office.  The SEC’s litigation is being led by John Berry and Gary Leung.

3 TENNESSEANS PLEAD GUILTY IN PONZI SCHEME

FROM:  JUSTICE DEPARTMENT 
Friday, January 31, 2014

Three Tennessee Men Plead Guilty in $18 Million Ponzi Scheme

Top officers and a salesman for an investment company based in Nashville, Tenn., have pleaded guilty for their roles in an $18 million Ponzi scheme.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney David Rivera of the Middle District of Tennessee, Special Agent in Charge Todd McCall of the FBI’s Memphis Division and Special Agent in Charge Christopher Henry of the IRS-Criminal Investigation in Nashville made the announcement today after the pleas were accepted by U.S. District Judge Todd J. Campbell in the Middle District of Tennessee.

Terry Kretz, 61, of Gallatin, Tenn., the chief executive officer for Hanover Corporation, and Daryl Bornstein, 54, of College Grove, Tenn., a Hanover salesman, pleaded guilty today to securities fraud, money laundering, and conspiracy to commit securities fraud, wire fraud and mail fraud.   On Jan. 29, 2014, Hanover’s chief financial officer, Robert Haley, 54, pleaded guilty to the same charges.   Kretz and Haley also pleaded guilty to mail fraud.

“The three men who pleaded guilty today schemed, lied, and stole at the expense of innocent investors,” said Acting Assistant Attorney General Raman.  “They ran a classic Ponzi scheme until the bottom fell out, and their clients – people looking to provide stability for their families or save for their retirements – suffered serious financial harm.  We will stay vigilant to ensure that fraudsters like Kretz, Bornstein and Haley are held accountable.”

“Ponzi schemes typically leave unsuspecting investors in financial ruin and many have lost their life’s savings,” said U.S. Attorney Rivera.   “The U.S. Attorney’s Office and our law enforcement partners will continue to place a great emphasis on educating the public about investment fraud and will vigorously pursue those who prey upon unsuspecting investors.”

“It is a priority of the FBI to target fraudsters who use criminal investment and Ponzi schemes to scam innocent working families and retirees out of their hard earned money,” said FBI SAC McCall. “These pleas demonstrate the effectiveness of state and federal law enforcement working together to protect the public from financial fraudsters and bring those responsible to justice.”

“Promoters of Ponzi schemes prey upon trusting investors and then steal their hard earned money,” said IRS-CI SAC Henry.  “Investors should be wary of programs promising unbelievable returns and investments should be looked at carefully.   Remember the old cliché, ‘If it seems too good to be true, it probably is’.

The three men were indicted by a federal grand jury on July 27, 2011.   Sentencing is scheduled for April 2, 2014.

According to court documents, the defendants carried out the fraudulent scheme from October 2004 through August 2006.   During that period, Kretz and Bornstein offered clients the opportunity to invest in Hanover through promissory notes bearing high interest rates.   Through representations in the promissory notes, as well as their own discussions with investors, Kretz and Bornstein told clients that their money would be used for specific purposes, such as investing in stock options and startup companies.   In fact, as all three defendants knew, more than half the money invested in Hanover went to repay earlier investors, to pay Hanover’s salaries and overhead, or to benefit the defendants personally.   Such personal benefits included the purchase of a $600,000 residential building lot in the name of Kretz personally, contributing more than $176,000 to a church, and paying for golf memberships.

Kretz and Bornstein also issued Hanover promissory notes to reimburse individuals who had previously lost money investing in ventures recommended by Bornstein before he joined Hanover.   In some cases, these old investors contributed new money to Hanover, while in other cases, they invested nothing.   In both cases, money from new investors in Hanover was used to make payments on promissory notes issued to cover non-Hanover losses without the Hanover investors’ knowledge.

Haley, in his role as chief financial officer, furthered the fraud by sending note holders checks that purported to be for “interest” — but were in fact simply transfers of money recently taken in from new investors.   Haley also prepared a false balance sheet that overstated Hanover’s financial health and that he knew would be shown to note holders.

The case was investigated by the FBI, IRS-CI, the Tennessee Bureau of Investigation, and the Tennessee Department of Commerce and Insurance.   The case is being prosecuted by Assistant United States Attorney Scarlett S. Nokes of the Middle District of Tennessee and Trial Attorney Justin Goodyear of the Criminal Division’s Fraud Section.

A FAMILY WORKING TOGETHER IN A PYRAMID AND PONZI ENTERPRISE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Woman and Stepson for Involvement in Zeekrewards Pyramid and Ponzi Scheme; Parallel Criminal Charges and Plea Agreements Also Announced

On December 20, 2013, the Securities and Exchange Commission filed suit in the United States District Court for the Western District of North Carolina against Dawn Wright-Olivares and Daniel Olivares for their roles in perpetrating the fraudulent unregistered offer and sale of securities through Rex Venture Group LLC d/b/a ZeekRewards.com, an internet-based combined Ponzi and pyramid scheme. According to the Complaint, from approximately January 2011 until August 2012 when the ZeekRewards website was shut down, Rex Venture Group raised more than $850 million from approximately one million internet customers nationwide and overseas through the website. Both defendants have agreed to settle the Commission’s allegations against them, and their settlement papers were submitted to the Court for its consideration.

The Complaint alleged that defendants solicited investors through the internet and other means to participate in the ZeekRewards program, a self-described “affiliate advertising division” for the companion website, Zeekler.com, through which the defendants operated penny auctions. The ZeekRewards program offered customers several ways to earn money, two of which — the “Retail Profit Pool” and the “Matrix” — involved purchasing securities in the form of investment contracts. These securities offerings were not registered with the SEC as required under the federal securities laws.

According to the Complaint, Wright-Olivares and others lured investors to ZeekRewards by promising investors a share of the company’s daily net profits in the form of daily profit share awards. The company’s purported calculations consistently resulted in daily award averaging approximately 1.5 percent per day, fraudulently conveying the false impression that the company was extremely profitable. In fact, the daily award percentage was fabricated and investor payouts bore no relation to the company’s net profits. Approximately 98% of ZeekRewards’ total revenues and the “net profits” paid to investors were comprised of funds received from new investors in classic Ponzi scheme fashion. When the company was shut down in August 2012, it was teetering on collapse.

The Complaint further alleged that Wright-Olivares conceived of the idea for operating penny auctions, helped develop the technical specifications for the Zeekler.com program and its key features, marketed ZeekRewards to investors, managed some of RVG’s operations, and helped design and implement features that concealed the fraud. She was a principal spokesperson for ZeekRewards, and she also served as chief operating officer from September 2011 to June 2012. For the duration of the company’s existence, Olivares was the chief architect of the company’s computer databases that tracked all investments (including subscription and bid purchases), managed the electronic operations, and perpetuated the illusion of a successful retail business.

The Commission alleged that Wright-Olivares offered and sold securities in violation of the registration provisions of Section 5 of the Securities Act, and both defendants violated the antifraud provisions of the Section 17 of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The Complaint requested permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties against the defendants. Without denying the allegations—and while also admitting the facts set forth in the Factual Summary filed contemporaneously with their respective plea agreements in the parallel criminal case — both defendants have agreed to settle the Commission’s charges against them, and their settlement papers were submitted to the Court for its consideration. In particular, both consented to permanent injunctions against future violations of the respective registration and antifraud provisions with which they were each charged. Wright-Olivares also agreed to disgorge at least $8,184,064.94 and Olivares agreed to disgorge at least $3,272,934.58 — amounts that represent the entirety of their ill-gotten gains plus prejudgment interest. In light of their anticipated incarceration, no civil penalty will be imposed. The settlements are subject to approval by the court. In a parallel action, the U.S. Attorney’s Office for the Western District of North Carolina simultaneously announced criminal charges against, and plea agreements by, the pair.

The SEC acknowledges the assistance of the United States Attorney’s Office for the Western District of North Carolina and the United States Secret

SEC BRINGS CHARGES AGAINST ALLEGED PONZI SCHEMERS INVOLVED WITH OIL AND GAS PROJECTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today announced charges and an emergency asset freeze against the perpetrators of a Texas-based Ponzi scheme involving purported investments in oil and gas projects.

The SEC alleges that Robert A. Helms and Janniece S. Kaelin, who work out of an office in Austin, misled investors about their experience in the oil and gas industry while raising nearly $18 million for supposed purchases of oil and gas royalty interests.  Despite representations that nearly all of the money they raised would be used to make oil and gas investments, Helms and Kaelin actually used only a fraction of the offering proceeds for that purpose.  Instead, the vast majority of investor funds were used to make Ponzi payments and cover various personal and business expenses.

“Helms and Kaelin pretended to be in the oil and gas business when they were really in the business of fattening their own wallets,” said David R. Woodcock, director of the SEC’s Fort Worth Regional Office.  “They lied to investors about the use of offering proceeds, spent investor funds on personal expenses, and made Ponzi payments to give investors the false impression that they were earning returns in a profitable venture.”

The SEC’s complaint unsealed late yesterday in U.S. District Court for the Western District of Texas also charges Deven Sellers of Arvada, Colo., and Roland Barrera of Costa Mesa, Calif., with illegally selling investments for Helms and Kaelin without being registered with the SEC.  They also allegedly misled investors about the sales commissions and referral fees they were receiving.

According to the SEC’s complaint, Helms and Kaelin began offering investments in 2011 through Vendetta Royalty Partners, a limited partnership that they control.  They have since attracted at least 80 investors in more than a dozen states while promising in offering documents that they would use more than 99 percent of the investment proceeds to acquire a lucrative portfolio of oil and gas royalty interests.  The offering documents were fraudulent as Helms and Kaelin invested only 10 percent of the proceeds, and the oil and gas projects in which they actually did invest generated only minuscule returns.

The SEC alleges that Helms and Kaelin directed Vendetta Royalty Partners to make approximately $5.9 million in so-called partnership income distributions to investors.  They used money from newer investors to make the distributions to earlier investors.  Helms and Kaelin created the illusion that Vendetta Royalty Partners was a profitable enterprise when, in fact, it was a fraudulent Ponzi scheme.  Some offering documents touted Helms to have extensive oil-and-gas experience, misrepresenting that he had “worked with various mineral companies over the last 10 years advising management on issues involving the acquisition and management of royalty interests, mineral properties and related legal and financial issues.”  In fact, Helms’s oil-and-gas experience came almost entirely from operating Vendetta Royalty Partners and its affiliated or predecessor companies.

The SEC alleges that Helms and Kaelin misled investors about other important matters besides their business background and industry reputation.  They failed to disclose the existence of litigation against them and companies they control.  They misrepresented the performance of the limited oil-and-gas royalty investments actually under their management.  And they failed to inform investors that Vendetta Royalty Partners was behind on its line of credit.  The company ultimately defaulted.

According to the SEC’s complaint, Helms and Kaelin along with Sellers and Barrera told potential investors that any commissions or finder’s fees would be small. However, Sellers and Barrera each received more than $200,000 in such fees on one investment alone. Sellers and Barrera regularly solicited investments without being registered as brokers.

At the SEC’s request, the court entered an order temporarily restraining the defendants from further violations of the federal securities laws, freezing their assets, prohibiting the destruction of documents, requiring them to provide an accounting, and authorizing expedited discovery.

The SEC’s complaint alleges that the defendants violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The complaint further alleges that Sellers and Barrera acted as unregistered brokers in violation of Section 15(a) of the Exchange Act.  The complaint requests permanent injunctions and the disgorgement of ill-gotten gains plus prejudgment interest and penalties.

The SEC’s investigation was conducted by Chris Davis, Carol Hahn, and Joann Harris of the Fort Worth Regional Office.  The SEC’s litigation will be led by Timothy McCole.  The SEC appreciates the assistance of the Federal Bureau of Investigation, U.S. Secret Service, and Texas State Securities Board.

WOMAN CHARGED IN PONZI SCHEME THAT TARGETED MEMBERS OF COLOMBIAN-AMERICAN

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged a woman living in South Florida with defrauding investors in a Ponzi scheme and affinity fraud that targeted the local Colombian-American community and involved purported investments in immigration bail bonds.

The SEC alleges that Jenny E. Coplan told investors that her company Immigration General Services operated through an investment broker that would invest the funds she raised in immigration bail bonds and turn a profit.  Coplan promised interest payments ranging from 60 to 108 percent annually.  She also assured investors that their money was safe because it was insured by the Federal Deposit Insurance Corporation (FDIC).  However, Coplan never placed investor funds with any investment broker, and their money was never FDIC insured.  Instead, she paid supposed profits to earlier investors using funds from newer investors in classic Ponzi fashion, and she stole approximately $878,000 of investor money for her own personal use.

“Coplan deliberately misled investors into believing their investments were safe and secure when in reality she was lining her own pockets,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “Her predatory scheme exploited the trust and friendship of members of her own community by using empty promises to convince them to trust her with their hard-earned savings.”

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges against Coplan.

According to the SEC’s complaint filed in federal court in Miami, Coplan solicited investors through personal conversations over the phone and in person, and many of her targets were Colombian-Americans and Colombians living in Florida.  She raised approximately $4 million from more than 90 investors in Florida, California, Georgia, Texas, Canada, and Colombia.

The SEC alleges that Coplan created fictitious investor statements that she disseminated to hide her misuse of the money and lead investors to believe their investments were growing.  Furthermore, Coplan e-mailed one investor two purported FDIC statements reflecting insured balances of $107,000 and $250,000, lulling the investor to think the investment was particularly safe.  When her scheme began to unravel in 2011, Coplan blamed the purported investment broker for the delay in interest payments to investors, telling them the broker held the investors’ funds to cover deficiencies because Coplan had failed to meet certain monthly investment quotas.  Even though Immigration General Services had virtually no funds in its bank accounts and was unable to honor investors’ increasing redemption requests, Coplan tried in late 2011 to create a false appearance that the company was back to business as usual.  She issued non-sufficient fund checks to investors purporting to be their monthly profits.  Through her continued misstatements, Coplan was able to raise another $578,000 from new investors before the scheme collapsed entirely.

The SEC’s complaint against Coplan, who lives in Tamarac, Fla., seeks disgorgement of ill-gotten gains, financial penalties, and permanent injunctions.

The SEC’s investigation was conducted by Jorge L. Riera and Karaz S. Zaki in the Miami office and supervised by Elisha L. Frank.  The SEC’s litigation will be led by Amie Riggle Berlin.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida and the Federal Bureau of Investigation.

SEC CHARGES THREE IN PRIME BANK OFFERING AND PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission ("Commission") has charged Jenifer E. Hoffman and John C. Boschert, the former principals of Assured Capital Consultants, LLC - a now-dissolved Florida company - and Bryan T. Zuzga, the company's purported escrow agent, for their involvement in a fraudulent prime bank offering and Ponzi scheme.

According to the Commission's complaint, filed in U.S. District Court for the Middle District of Florida, between approximately January and September 2009, Assured Capital, through Hoffman, Boschert, and Zuzga, raised at least $25 million from investors, through false representations and fake documents. The complaint alleges that Hoffman and Boschert represented to investors that their money would be invested in Assured Capital's offshore, confidential trading program which, in turn, would invest in blocks of medium term notes. As the complaint further alleges, Hoffman and Boschert enticed investors with claims of exorbitant profits and with the illusion of safety by telling them that the investment would provide weekly returns of up to 50% and that it was performing, safe, and guaranteed. In addition, Hoffman and Boschert represented to investors their money would remain safe in an Assured Capital escrow account that would be used to secure a line of credit for investing in the company's offshore trading program. Furthermore, Hoffman, Boschert, and Zuzga told investors that Zuzga controlled the escrow account as Assured Capital's escrow agent and that he was a licensed attorney. Moreover, Hoffman provided investors with fake bank documents and a sham verification letter, notarized by Zuzga, purporting to confirm Assured Capital had $500 million at a Panamanian bank.

As the complaint alleges, none of these representations were true and the investment program was purely fictional. Zuzga was not Assured Capital's escrow agent and has never been a licensed attorney. Hoffman and Boschert used investor funds to make payments to other investors in Ponzi fashion, and stole investor funds along with Zuzga for their personal use. Assured Capital has since gone out of business.

The Commission's complaint alleges that Hoffman of Clermont, Florida, Boschert of Apopka, Florida, and Zuzga of Coldwater, Michigan, all violated Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission is seeking financial penalties, disgorgement of ill-gotten gains plus prejudgment interest, and permanent injunctions against all the defendants.

SEC CHARGES TD BANK & FORMER EXEC WITH VIOLATION OF SECURITIES LAWS IN FLORIDA-BASED PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today charged TD Bank and a former executive with violating securities laws in connection with a massive South Florida-based Ponzi scheme conducted by Scott Rothstein, who is now serving a 50-year prison sentence.

The SEC alleges that TD Bank and its then-regional vice president Frank A. Spinosa defrauded investors by producing a series of misleading documents and making false statements about accounts that Rothstein held at the bank and used to perpetuate his scheme.  Spinosa falsely represented to several investors that TD Bank had restricted the movement of the funds in these accounts when, in fact, Rothstein could transfer investor money however he desired.  Spinosa also orally assured investors that certain accounts held balances totaling millions of dollars, but each account actually held zero to $100.

TD Bank agreed to settle the SEC’s charges in an administrative proceeding and pay $15 million.  The SEC filed a complaint against Spinosa in U.S. District Court for the Southern District of Florida.

“Financial institutions are key gatekeepers in the transactions and investments they facilitate and will be held to a high standard of accountability when their officers enable fraud,” said Andrew J. Ceresney, Co-Director of the SEC's Division of Enforcement.  “TD Bank through a regional vice president produced false documents on bank letterhead and told outright lies to investors, failing in its gatekeeper role.”

Eric I. Bustillo, Director of the SEC’s Miami Regional Office, added, “Spinosa played a key supporting role in Rothstein’s Ponzi scheme by providing false comfort to investors that their money was safe and secure in the accounts at TD Bank.  He enabled Rothstein to con investors into believing he couldn’t move their money when he could, and that the bank was holding money that it wasn’t.”

In previous enforcement actions, the SEC has charged two feeder funds to the Rothstein Ponzi scheme.

According to the SEC’s order and complaint, Rothstein claimed to represent plaintiffs who had reached purported legal settlements that were confidential and payable over time by large corporate defendants.  He claimed that the purported plaintiffs were willing to sell their periodic payments to investors at a discount in exchange for one lump-sum payment.  The legal settlements were fake and the plaintiffs and defendants were not real.  Rothstein told investors that the purported defendants had deposited the entire settlement amounts into attorney trust accounts.  Rothstein opened 22 such accounts at Commerce Bank and TD Bank (the two merged in 2008) from November 2007 to October 2009.

The SEC alleges that as Rothstein’s scheme began to unravel in the fall of 2009, Spinosa made false statements to investors about the safety of their investments that enabled Rothstein to continue raising funds for the scheme.  Spinosa executed so-called “lock letters” from TD Bank purporting to irrevocably restrict Rothstein’s trust accounts.  Under these conditions, TD Bank could only distribute funds in the accounts to the investor’s bank account designated in the lock letter.  However, the representations were purely false as Spinosa did not apply any procedures to block the accounts or implement any system to restrict Rothstein from moving money out of the trust accounts.  Spinosa also misrepresented to Rothstein’s investors that the lock letters were commonplace at TD Bank when, in fact, they were never previously used by the bank.  In fact, when Spinosa instructed his assistant to prepare the letters on TD Bank letterhead, she questioned whether it was even permissible because she had never seen such a letter before.  Spinosa confirmed that she should prepare the letter for his signature anyway.  Later, a vice president and branch manager who reported to Spinosa noted to him shortly after the first lock letter went out in August 2009 that the “lock” instructions put onto an account would have no practical effect because Rothstein could still transfer the money without bank officials being alerted.  Spinosa dismissed those concerns.

The SEC further alleges that Spinosa provided false assurances to two different groups of investors that certain trust accounts held the multi-million dollar balances claimed by Rothstein.  On Aug. 17, 2009, Spinosa participated in a conference call with Rothstein and representatives of an investor group who asked how much money was in a particular account.  Spinosa responded that it held $22 million – the amount the investor was expecting to hear.  Spinosa had full access to the account information to know the actual account balance was no more than $100.  The following month, Spinosa met with the same group after it made additional investments with Rothstein, and falsely assured the investors that their money was safe because the provisions of the lock letter restricted the movement of their money.  Also in September 2009, a different investor group bought a purported $20 million settlement from Rothstein, and one of the investor group’s representatives obtained a TD Bank deposit slip that indicated a $0 balance as of that morning for the account that purportedly held the investor’s $20 million.  Rothstein falsely stated that the funds were indeed in the account, but the funds would not appear “available” on the deposit slip because they were in TD Bank’s “federal wire queue.”  Rothstein and representatives from the investor group met with Spinosa on Sept. 14, 2009, and Spinosa falsely represented that the $20 million did not appear as available funds for the same reason provided by Rothstein.  Spinosa falsely represented that the lock letter restricted the movement of their money.  In reality, TD Bank was not holding the money in such a queue, and the account didn’t contain the $20 million.

TD Bank consented to the entry of an administrative order finding that it violated Sections 17(a)(2) and (3) of the Securities Act of 1933.  Without admitting or denying the SEC’s findings, TD Bank agreed to pay $15 million and cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act.

The SEC’s complaint against Spinosa charges him with violating Sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.  Spinosa also is charged with aiding and abetting Scott Rothstein’s violations of Section 10(b) of the Exchange Act and Rule 10b-5.  The complaint seeks disgorgement plus prejudgment interest, financial penalties, and a permanent injunction.

The SEC coordinated the filing of its cases with the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network, which today announced their own actions against TD Bank.

The SEC’s investigation was conducted by Steven J. Meiner, D. Corey Lawson, and Tonya E. Tullis under the supervision of Chad Alan Earnst in the Miami Regional Office.  The SEC’s litigation against Spinosa will be led by Amie Riggle Berlin.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida, the Federal Bureau of Investigation, and the Internal Revenue Service.

MAN INDICTED IN $30 MILLION PONZI SCHEME THAT TARGETED HAITIAN-AMERICANS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Defendant Indicted in $30 Million Ponzi Scheme and Affinity Fraud Targeting Haitian-American Investors

On July 2, 2013, the United States Attorney’s Office for the Southern District of Florida filed criminal charges against George Louis Theodule, a defendant in a now settled SEC action. The 40-count indictment charges Theodule with securities fraud, wire fraud, and money laundering. According to the indictment, Theodule, among other things, falsely presented himself as a financial expert who would double investors’ funds within three months by placing trades through their investment accounts. The indictment also alleges that Theodule operated a Ponzi scheme that raised more than $30 million from thousands of investors. Theodule allegedly perpetrated the fraud through Creative Capital Consortium, LLC and Creative Capital Concept$, LLC (the “Creative Capital entities”), among other entities he controlled.

In December 2008, the Commission halted Theodule’s on-going fraud at Creative Capital when it filed an emergency civil enforcement action against him and his companies. The SEC’s complaint alleged that the defendants had raised more than $23 million from thousands of mostly Haitian-American investors through a fraudulent, unregistered offering of securities nationwide, and operated a Ponzi scheme, having lost at least $18 million trading stocks and options through a network of purported investment clubs. The SEC obtained a restraining order to halt the fraudulent activity, and thereafter a receiver was appointed by the United States District Court for the Southern District of Florida to identify and trace assets. In October 2009, the Court entered a Judgment of Permanent Injunction and Other Relief against Theodule. The Judgment entered by consent, enjoined Theodule from violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and also ordered Theodule to pay disgorgement with prejudgment interest and a civil penalty. In March 2010, the Court entered a Final Judgment ordering him to pay disgorgement in the amount of $5,099,512, prejudgment interest of $202,638 and imposed a civil penalty of $250,000.

The SEC's investigation was conducted by Linda S. Schmidt and Kathleen Strandell of the Miami Regional Office. The litigation was led by Amie Riggle Berlin and Robert K. Levenson. The SEC acknowledges the work of the United States Attorney’s Office for the Southern District of Florida, the Federal Bureau of Investigation, Miami Field Office, and the State of Florida’s Office of Financial Regulation this matter.

DEFENDANTS ORDERED TO PAY MILLIONS FOR OPERATING COMMODITY POOL PONZI SCHEME

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION

Federal Court in Florida Orders Defendants Philip Milton and Trade, LLC, and Four Relief Defendants to Pay Millions in Restitution, Disgorgement, and Civil Monetary Penalties for Operating a $28.4 Million Ponzi Scheme

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Daniel Hurley of the U.S. District Court for the Southern District of Florida entered supplemental consent Orders against Defendants Philip Milton of Palm Beach Gardens, Florida, and Trade, LLC, based in Palm Spring Gardens, Florida, requiring Milton to pay restitution of more than $10.8 million and a $7.6 civil monetary penalty and Trade, LLC, to pay restitution of over $11.4 million and a $28.4 million civil monetary penalty for operating a multi-million dollar Ponzi commodity pool scheme.

The court also required Relief Defendants BD, LLC, CMJ Capital, LLC, Center Richmond, LLC, and TWTT, LLC, all Florida corporations, to disgorge $545,200, $2,826,981.37, $1,253,862.62, and $100,000, respectively.

The CFTC filed a Complaint against Defendants Philip Milton, William Center, Gregory Center, and Trade, LLC on June 22, 2010, in the U.S. District Court for the Southern District of Florida. The Complaint charged the Defendants with fraudulently soliciting approximately $28.4 million from at least 2,000 customers to participate in a commodity pool to trade futures and securities and with misappropriating at least $9.6 million of pool funds for their personal use and to continue the scam. The complaint also named the four Relief Defendants, all corporations owned by the individual defendants, for receiving funds as a result of the defendants’ misappropriation to which they have no legitimate entitlement.

On, April 15, 2011, the court entered a consent Order of permanent injunction against Milton and entered a similar consent order against Trade, LLC and the Relief Defendants on September 6, 2011. These consent Orders found the consenting parties liable for the fraud and misappropriation, as charged in the CFTC’s complaint, and ordered them to pay restitution, disgorgement, and civil monetary penalties in amounts to be determined at a later day. The CFTC’s litigation continues against Defendants William Center and Gregory Center.

The CFTC appreciates the assistance of the U.S. Securities and Exchange Commission and the Florida Office of Financial Regulation.

CFTC Division of Enforcement staff members responsible for this case are Jason Mahoney, Timothy J. Mulreany, George Malas, and Joan Manley.

MAN SENTENCED TO PRISON AND WILL PAY $34.5 MILLION FOR ROLE IN SILVER BULLION PONZI SCHEME





FROM: COMMODITY FUTURES TRADING COMMISSION



CFTC Settles Charges against Ronnie Gene Wilson of South Carolina and His Company, Atlantic Bullion and Coin, for Operating a Multi-Million Dollar Silver Bullion Ponzi Scheme

Federal court in South Carolina orders Wilson to pay over $34.5 million dollars in restitution and a civil monetary penalty

In a parallel criminal action, Wilson pleaded guilty to mail fraud and was sentenced to 235 months in prison

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge J. Michelle Childs of the U.S. District Court for the District of South Carolina issued an Order requiring Defendant Ronnie Gene Wilson to pay a $23 million civil monetary penalty and $11,530,000 of restitution to defrauded investors in connection with a multi-million dollar silver bullion Ponzi scheme. The Consent Order of Permanent Injunction also imposes permanent trading and registration bans against Wilson and his company, Atlantic Bullion & Coin, Inc. (Atlantic Bullion), both of Easley, S.C., and prohibits them from violating the Commodity Exchange Act and CFTC Regulations, as charged.

The Order stems from a CFTC Complaint filed on June 6, 2012, charging violations under the CFTC’s new authority contained within the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) prohibiting the use of any manipulative device, scheme, or artifice to defraud in connection with a contract of sale of a commodity in interstate commerce. Wilson and Atlantic Bullion were charged with fraudulently selling contracts of sale of silver to investors in a nationwide scheme that spanned 11 years.

In the Consent Order, the court concludes that the Defendants fraudulently obtained at least $11.53 million from at least 237 investors for the purchase of contracts of sale of silver bullion between August 15, 2011, and February 29, 2012 (the relevant period), which corresponds to the time period during which the CFTC possessed jurisdiction over the Defendants’ actions pursuant to new provisions contained within the Dodd-Frank Act. The Order further finds that, during the relevant period, the Defendants failed to purchase any silver whatsoever. Instead, the Order concludes that the Defendants misappropriated the entirety of the investors’ funds and issued false account statements to investors in an attempt to conceal their fraud.

In a related criminal proceeding in November 2012, Wilson was sentenced to serve the maximum 235 months imprisonment under the applicable federal sentencing guidelines and ordered to pay $57,401,009 in restitution to his victims for his involvement in the Ponzi scheme (US v. Wilson, 8:12-00320, D. SC).

The CFTC appreciates the cooperation and assistance in this matter from the U.S. Attorney’s Office for the District of South Carolina (including Assistant U.S. Attorney George J. Conits and Assistant United States Attorney William J. Watkins, Jr.), the South Carolina Attorney General’s Office, and the U.S. Secret Service.

The CFTC Division of Enforcement staff responsible for this case are A. Daniel Ullman II, George H. Malas, Antoinette Chance, John Einstman, Richard Foelber, Paul G. Hayeck, and Joan M. Manley.

SOUTH FLORIDA MAN CHARGED IN PONZI SHEME

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Charges South Florida Man with Recruiting Victims of Ponzi Scheme
The Securities and Exchange Commission today charged a South Florida man with defrauding at least 14 investors by soliciting them to invest in a Ponzi scheme. A significant number of the victims were members of the gay community in Wilton Manors, Florida and included inexperienced, unaccredited investors.

In the complaint filed in the U.S. District Court for the Southern District of Florida, the SEC alleges that James F. Ellis, 69, a resident of Wilton Manors, Florida, fraudulently solicited investors for George Elia from 2004 to 2011. Elia operated pooled investment vehicles under the names Investor Funding Club and Vision Equities Funds. Elia purported to trade in stocks and earn annual returns as high as 26 percent, but was actually running a Ponzi scheme and paying returns to existing investors from new investor funds. In April 2012, the Commission charged Elia with securities fraud. See Litigation Release No. 22319 (April 6, 2012).

According to the Commission's complaint against Ellis, Ellis persuaded prospective investors by falsely telling them that he had personally invested with Elia at least $5 million that he had inherited from his parents. Ellis variously told investors that he earned 16% to 20% annual returns on his investment with Elia or that he earned $20,000 to $24,000 per month. Elia and his entities did in fact pay Ellis over $2.1 million over seven years. However, those payments were not investment returns because, as Ellis knew, he had not made an investment with Elia that would have returned such large sums of money. According to the complaint, Ellis also reassured prospective investors of the safety of the investment by falsely telling them that he had tested Elia by depositing a large amount of money with Elia, then asking for and receiving it back.

According to the complaint, Ellis bolstered his deceptive claims about the success of his investment with Elia with ostentatious displays of wealth, including expensive real estate, luxury cars, jewelry, opulent entertaining of his friends, and expensive cruises. Though Ellis claimed that his investments with Elia made his luxurious lifestyle possible, he failed to disclose to investors that his wealth derived not from legitimate investment returns but from the money that Elia paid him for fraudulently touting Elia's investment vehicles.

The Commission's complaint charges Ellis with securities fraud in violation of Section 17(a)(1), (2) and (3) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The complaint also alleges that Ellis violated the registration provisions of Sections 5(a) and (c) of the Securities Act. The Commission is seeking permanent injunctions against Ellis for violating the above provisions of the securities laws, disgorgement of ill-gotten gains plus pre-judgment interest, and civil penalties.

Separately, the United States Attorney's Office for the Southern District of Florida today announced criminal charges against Ellis for his conduct in the scheme.

The Commission thanks the U.S. Attorney's Office and the Federal Bureau of Investigation for their assistance in this matter.

PYRAMID AND PONZI FINANCIAL SCHEMES



Chart From:  U.S. Securities And Exchange Commission

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Pyramid Scheme

In the classic "pyramid" scheme, participants attempt to make money solely by recruiting new participants. The hallmark of these schemes is the promise of sky-high returns in a short period of time.

Pyramid scheme promoters may go to great lengths to make the program look like a multi-level marketing program selling legitimate products or services. But these fraudsters use money from new recruits to pay off early stage investors until eventually, the pyramid collapses. At some point, the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and people lose their money.

Typical "hook
Earn high profits by making one payment and finding a set number of others to become distributors of a product. The scheme typically does not involve a genuine product. The purported product may not exist or it may only be "sold" within the pyramid scheme

Interaction with original promoter

Must recruit new distributors to receive payments.

Payments

Sometimes none. New participants may enter scheme at a different level

Source of payments

From new participants – always disclosed.

　

Ponzi Scheme

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves.

With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.

Ponzi schemes are named after Charles Ponzi, who duped investors in the 1920s with a postage stamp speculation scheme.

Ponzi scheme "red flags"
Many Ponzi schemes share common characteristics. Look for these warning signs:
High returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any "guaranteed" investment opportunity.
Overly consistent returns. Investments tend to go up and down over time. Be skeptical about an investment that regularly generates positive returns regardless of overall market conditions.
Unregistered investments. Ponzi schemes typically involve investments that are not registered with the SEC or with state regulators. Registration is important because it provides investors with access to information about the company’s management, products, services, and finances.
Unlicensed sellers. Federal and state securities laws require investment professionals and firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.
Secretive, complex strategies. Avoid investments if you don’t understand them or can’t get complete information about them.
Issues with paperwork. Account statement errors may be a sign that funds are not being invested as promised.
Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put.
　
Typical "hook"

Earn high investment returns with little or no risk by simply handing over your money; the investment typically does not exist.

Payments

No recruiting necessary to receive payments.

Interaction with original promoter

Promoter generally acts directly with all participants.

Source of payments

From new participants – never disclosed.

FORMER HALL OF FAME COLLEGE FOOTBALL COACH CHARGED IN $80 MILLION PONZI SCHEME

FROM: U.S .SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Aug. 16, 2012 – The Securities and Exchange Commission today announced fraud charges against a former college football coach who teamed with an Ohio man to conduct an $80 million Ponzi scheme that included other college coaches and former players among its victims.
　
The SEC alleges that Jim Donnan, a College Football Hall of Fame inductee who guided teams at Marshall University and the University of Georgia and later became a television commentator, conducted the fraud with his business partner Gregory Crabtree through a West Virginia-based company called GLC Limited. Donnan and Crabtree told investors that GLC was in the wholesale liquidation business and earning substantial profits by buying leftover merchandise from major retailers and reselling those discontinued, damaged, or returned products to discount retailers. They promised investors exorbitant rates of return ranging from 50 to 380 percent. However, only about $12 million of the $80 million raised from nearly 100 investors was actually used to purchase leftover merchandise, and the remaining funds were used to pay fake returns to earlier investors or stolen for other uses by Donnan and Crabtree.
　
"Donnan and Crabtree convinced investors to pour millions of dollars into a purportedly unique and profitable business with huge potential and little risk," said William P. Hicks, Associate Director of the SEC’s Atlanta Regional Office. "But they were merely pulling an old page out of the Ponzi scheme playbook, and the clock eventually ran out."
　
According to the SEC’s complaint filed in federal court in Atlanta, the scheme began in August 2007 and collapsed in October 2010. Donnan recruited the majority of investors by approaching contacts he made as a sports commentator and as a coach. For instance, he capitalized on his influence over one former player by telling him, "Your Daddy is going to take care of you" … "if you weren’t my son, I wouldn’t be doing this for you." The player later invested $800,000.
　
The SEC’s complaint alleges that Donnan touted GLC’s success and profitability and told investors that the company could enter into even more merchandise deals with more capital. Donnan and Crabtree offered and sold investments that were short-term (2 to 12 months) and purportedly high-yield, with returns paid to investors in monthly or quarterly installments or in a one-time payment. Donnan told investors their money was being used to purchase specific items of merchandise that was often presold, so there was little to no risk to investing in any deal. However, much of the merchandise that GLC actually purchased was merely left unsold and abandoned in warehouses in West Virginia and Ohio.
　
The SEC alleges that Donnan typically assured investors that he was investing along with them in any merchandise deal that he offered. He touted that he and other prominent college football coaches had successfully and profitably invested in GLC. But by the time the scheme collapsed, Donnan had actually siphoned more than $7 million away from GLC, and Crabtree misappropriated approximately $1.08 million in investor funds.
　
The SEC’s complaint charges Donnan, who lives in Athens, Ga., and Crabtree, who resides in Proctorville, Ohio, with violations of the antifraud and registration provisions of the federal securities laws. The complaint also names two of Donnan’s children and his son-in-law as relief defendants for the purpose of recovering illicit funds that Donnan steered to them.
　
The SEC’s investigation was conducted in the Atlanta Regional Office by staff attorney Micheal D. Watson and Assistant Regional Director Stephen E. Donahue. The SEC’s litigation will be led by W. Shawn Murnahan.

MAN AND COMPANY ORDERED TO PAY RESTITUTION FOR COMMODITY POOL PONZI SCHEME FRAUD

FROM:  COMMODITY FUTURES TRADING COMMISSION
May 30, 2012
Federal Court in New Jersey Orders Victor Eugene Cilli and His Company, Progressive Investment Funds LLC, to Pay over $700,000 in Restitution and Penalty in Commodity Pool Ponzi Scheme

Cilli also pled guilty to related fraud and other criminal charges
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) has obtained a federal court consent order requiring defendants Victor Eugene Cilli and his company, Progressive Investment Funds LLC (Progressive), both formerly of Hackensack, N.J., to pay, jointly and severally, restitution of $243,000 and a $474,000 civil monetary penalty in connection with operating a commodity pool Ponzi scheme that defrauded investors of over $500,000 and misappropriated investor funds

The court’s order also finds that the defendants made false statements to the National Futures Association (NFA), failed to distribute required reports to pool participants, and failed to keep required books and records.

The consent order of permanent injunction, entered on May 29, 2012, by Judge William J. Martini, of the U.S. District Court, District of New Jersey (Newark), permanently prohibits Cilli and Progressive from engaging in any commodity-related activity, including trading, and from registering or seeking exemption from registration with the CFTC. The order also permanently prohibits the defendants from further violations of the Commodity Exchange Act and CFTC regulations, as charged.

The order finds that between September 2006 and September 2007, the defendants engaged in a Ponzi scheme and solicited $506,000 from four individuals to trade commodity futures (primarily E-mini S&P 500 futures contracts) in a pooled account. However, the defendants used only approximately $263,000 to trade futures and had net trading losses of approximately $201,168, according to the order. Instead of disclosing the losses, the defendants sent pool participants statements falsely showing trading profits. The defendants also sent two pool participants false IRS Form 1099s, which showed net profits instead of the actual net losses, the order finds. To conceal their scheme, defendants used pool participant funds to make purported profit payments to other participants, as is typical of a Ponzi scheme, the order finds.

Further, the order finds that the defendants failed to provide pool participants with quarterly and annual Net Asset Value reports, failed to retain required pool records, and falsely told the NFA that Progressive never had pool participants.

On October 3, 2011, Cilli pled guilty to criminal securities fraud (15 U.S.C. § 78j(b) and 78ff(a) and 18 U.S.C. § 2) in connection with the fraudulent scheme described above (United States v. Victor Cilli, Crim. No. 1-660 (AET) (D. NJ), and to other, unrelated charges. In the criminal case, Cilli agreed to pay $243,000 in restitution. The consent order in the CFTC’s case gives Cilli credit for any restitution payments made in the criminal action.

The CFTC thanks the U.S. Attorney’s Office for the District of New Jersey and NFA for their assistance.

The CFTC Division of Enforcement staff members responsible for this case are W. Derek Shakabpa, Judith M. Slowly, David Acevedo, Lenel Hickson, Stephen J. Obie, and Vincent McGonagle.

ROUNDING PRINCIPAL OF ROYAL WEST PROPERTIES, INC., SENTENCED IN$135 MILLION FRAUD CASE

FROM:  SEC
Royal West Properties, Inc. Founding Principal Sentenced In $135 Million Investor Fraud
On April 4, 2012, U.S. District Judge Kathleen Williams of the Southern District of Florida sentenced Gaston E. Cantens to five years’ imprisonment followed by three years of supervised release for conspiring to commit mail and wire fraud in violation of 18 U.S.C. §371 involving a $135 million securities offering fraud and Ponzi scheme targeting Cuban-American investors primarily from South Florida. Cantens, who is now 73, served as president of Royal West Properties, Inc. (Royal West), a Miami-based real estate developer that purchased and resold thousands of parcels of real estate on the west coast of Florida. Cantens funded Royal West by offering investors no-risk promissory notes that promised investors annual returns of 9% to 16% purportedly backed by recorded mortgage assignments. On January 25, 2012, Cantens pled guilty to a criminal Information filed by the United States Attorney for the Southern District of Florida. According to the Information, beginning in 2008, Cantens made numerous material misrepresentations to investors about the financial health of Royal West when Cantens knew that Royal West, among other things, paid existing investors with new investors’ funds, assigned the same collateral to multiple investors, assigned investors to non-performing or non-existing mortgages, and failed properly to record mortgages and other interests in the public records, causing investors to have unsecured legal interests in the mortgages and parcels.

On March 3, 2010 the SEC filed an injunctive action that named Cantens and his wife, Teresita Cantens, as defendants.  The SEC’s complaint alleged that Cantens and his wife violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. On March 24, 2011, both Cantens and Teresita Cantens each consented to entry of a Final Judgment of Permanent Injunction and Other Relief in the SEC action. In addition to being enjoined from further violations of the federal securities laws, Cantens and his wife were ordered to pay full injunctive relief and disgorgement of $5,276,750, along with prejudgment interest of $88,297.62. The Order forgoes seeking payment of civil penalties under Section 20(d) of the Securities Act and Section 21(d) of the Exchange Act based on the Cantens’s asserted inability to pay as evidenced by their sworn financial statements and supporting documents submitted to the Commission staff.