Ponzi Scams

Madoff Ponzi Scam Investors to Get $1.18B, Ernst & Young Found Liable in Auditing of Feeder Fund

Published on: November 19, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A federal bankruptcy court has approved plans to issue $1.18B to investors who lost money in Bernard Madoff’s multibillion-dollar Ponzi scam. This means that immediate distribution of the funds can take place to those whose claims for repayment have been approved by Madoff trustee Irving Picard.

This is the sixth distribution to date in the over $20B investment fraud run by Madoff, who is spending the rest of his life behind bars for his crimes. This latest round will bring the amount paid to his victims to about $91.13B. Another $320M is being held for investors whose claims are still pending or in litigation.

According to Securities Investor Protection Corp CEO Stephen Harbeck, ex-Madoff customers who invested up to $1.16M will get all of their lost funds back while those who invested more will get about 61 cents for every dollar.

Madoff, who ran his Ponzi scam for decades, used new investors’ money to pay earlier investors. He never conducted any securities trades but instead used a lot of the money to fund his lavish lifestyle. It wasn’t until 2008 that the scheme was uncovered. Thousands of retail investors, charities, celebrities, and others were among those who suffered devastating losses.

In other Madoff Ponzi scam-related news, a Washington State jury ruled that Ernst & Young is guilty of negligence because of the way it audited a feeder fund that sent money to Madoff’s company. The fund was overseen by FutureSelect Portfolio Management.

Ernst & Young audited for funds run by Rye Investment Management, which is a Tremont Group Holdings Inc. unit, and FutureSelect sued Ernst & Young in 2010 after losing over $195M in the Madoff Ponzi scam because it had invested in the Rye funds. Tremont, which is an OppenheimerFunds Inc, affiliate, already has settled charges against in this case. The terms of its settlement are confidential.

Financial Adviser is Sentenced in $1.2B Rothstein Ponzi Scam

Published on: October 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Michael Szafranski, the financial adviser of Ponzi mastermind Scott Rothstein, has been sentenced to two-and-a-half years in prison for wire fraud. Szafranski, who pled guilty, had already paid $6.5M of restitution to victims of the $1.2B financial fraud through the trustee handling the bankruptcy of Rothstein’s law firm Rothstein Rosenfeldt Adler.

The indictment against Szafranski referred to him as the “independent asset verifier” of the scam. He is accuse of persuading investors to put over $200M into the Ponzi scheme.

Meantime, Rothstein, an attorney, was sentenced to fifty years behind bars in 2010 for money laundering, wire fraud, and racketeering. He was accused of selling discounted stakes in bogus settlements of whistleblower and sexual harassment cases that ranged from hundreds of thousands to millions of dollars. Investors were told they would get the proceeds when the lawsuits were resolved. Instead, their money was used to bankroll his firm, pay for his expensive lifestyle, and purchase political influence. Rothstein would take newer investors’ money to pay older investors. He and co-conspirators allegedly generated bogus bank statements, settlements, and personal guarantees.

Also, according to InvestmentNews, Rothstein directed employees of his law firm to give some of the money to the campaigns of certain state, local, and federal politicians. These employees were told to do this in a way that allowed him to avoid limits on these types of donations while concealing where the money was coming from. After the allegations against Rothstein became known to the public, many of the campaigns returned the funds.
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SEC Case Headlines: New Jersey Fund Manager Faces Charges Over $1.1M Ponzi Scam, $32M Fraud Scam Involving Amber Mining is Halted, and Executives Face Charges for Allegedly Bilking Investor in Stock Fraud

Published on: October 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

NJ Fund Managers Faces SEC Fraud Charges
The Securities and Exchange Commission is charging William J. Wells and his Promitor Capital Management LLC with bilking investors in a $1.1 million Ponzi scam. According to the regulator, Wells falsely misrepresented himself as a registered investment adviser to some investors. However, rather than invest their money in specific stock as he told them he would, Wells and his firm placed most of the funds primarily in risky options that garnered poor results. He then allegedly hid the outcomes using bogus investor account statements that recorded performance figures that were severely inflated.

Wells also allegedly tried to conceal the investment loses by making Ponzi-like payments in which he paid earlier investors using the funds of new investors. By the end of this summer, fund brokerage accounts at Promitor held under $35 while the remainder were sucked dry from the Ponzi-like payment, trading losses, or transferred into Wells’ own bank account.

Meantime, the U.S. Attorney’s Office for the Southern District of New York has filed a parallel criminal action against Wells.

Regulator Files Charges, Obtains Asset Freeze in $32M Amber Mining Scam
The SEC has gotten asset freeze and file fraud charges against Steve Chen and 13 entities based in the state of California. According to the regulator, Chen falsely promised investors they would make money in an investment venture involving amber holdings.
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Ex-Aurelia Finance Managers Compensate Asset Managers Bilked in Madoff Ponzi Scam

Published on: September 19, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Five ex-Aurelia Finance wealth managers have paid “substantial compensation” to resolve criminal complaints related to the Bernard Madoff Ponzi scam. According to prosecutors, the Swiss-based private bank lost up to $800 million of client money that they put into the scheme.

Pascal Cattaneo, Jean Marc Weneger, Vladimir Stepczynski, Olivier Ador, and Laurent Mathysen-Gerst were charged with criminal mismanagement of the money because they put too much into a Madoff feeder fund. Among those who lost money through asset management units were Italy’s UniCredit, Santander (SAN.MC), and Swiss-based EFG International. Prosecutors claim that the ex-directors got rich on management fees, commissions, and finder fees paid for bogus returns that were never verified.

In total, the Madoff Ponzi scam cost its investors $17 billion. Those impacted included retail investors, celebrities, other wealthy private investors, and institutional investors.

Meantime, efforts to recover the money lost by Madoff’s victims continue.

Ex-NHL Star’s Financial Manager Convicted of Multimillion-Dollar Fraud, Ponzi Scam

Published on: September 5, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Joseph Zada, the man accused of bilking former Red Wings hockey player Sergei Fedorov of $43 million, was convicted of fifteen counts of mail fraud. Prosecutors say that Zada was involved in a $50 million Ponzi scam that went on for a decade.

Zada’s other victims included an ex-Olympic equestrian champion, a pawnbroker, a jeweler, a veterinarian, several hockey players, and dozens of others. He is accused of telling investors that he was placing their money in oil and currency trading via a secret board based in London. Instead, he spent their money on funding his expensive lifestyle.

Zada pretended to be a rich businessman with oil ventures in Saudi Arabia. He touted quick and substantial profits. When investors asked for their money back he claimed he was waiting for a billion dollar inheritance from Saudi Arabia’s royal family. He faces up to 20 years behind bars for each count of mail fraud.
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FSC Securities to Be Held Accountable for $1.2M FINRA Arbitration Award Issued to Victims of Ponzi Scammer Who Faked His Death

Published on: August 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority Inc. panel said that FSC Securities Corp. is responsible for a $1.2 million arbitration award for compensatory damages to investors that were bilked by Aubrey Lee Price, the infamous Ponzi scammer from Georgia who tried to fake his death to in 2012. FSC Securities is a broker-dealer with AIG Advisor Group (AIG).

The eight claimants contend that the brokerage firm did not supervise a number of brokers who sold them fraudulent securities that were part of Price’s $40 million Ponzi scam. According to their securities lawyer, Price and two other ex-FSC brokers persuaded clients to invest in the PFG fund, an unregistered investment fund, which was the main product of the scheme.

When the trading account sustained huge losses Price prepared account statements for investors that noted fake asset amounts and investment returns. The claimants believe that FSC failed to properly supervise its brokers and had numerous chances to detect that Price and the other brokers were selling away into the PFG fund while claiming “preposterous” return rates.

Price was an FSC broker from 2006 to 2008. Prior to that he worked at Citigroup Global Markets (C) and Banc of America Investment Services (BAC). Last year, a federal judge sentenced him to 30 years behind bars for bank fraud.
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Over 14,000 Massachusetts Investors Receive Checks for Losses in $1B TelexFree Ponzi Scam

Published on: August 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The first checks for compensation in the $1 billion global Ponzi scam involving TelexFree Inc. have gone out to over 14,000 investors in Massachusetts. Victims received $2.9 million in total as part of a settlement with Fidelity Cooperative Bank. This is only a small portion of the alleged losses.

About 1.9 million investors are still waiting to get any financial relief in the case, which affected not just people in the US as the scam spread globally and virally online and by word of mouth. The alleged Ponzi scam involved fraudsters selling inexpensive Internet phone service for long distance calls. They were recruited as members for $1,400 increments. Big financial returns were promised to investors for bringing in other investors and using Internet ads to market the business. While early investors made money, many others suffered substantial losses.

Telex-Free was shut down in Brazil in 2013, but the Ponzi operation continued in Massachusetts where it was headed up by James Merrill and Carlos Wanzeler. Both deny the criminal and civil charges.
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Houston-Area Business Man Charged with Running $114M Texas Ponzi Scam

Published on: August 5, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging Frederick Alan Voight with Texas securities fraud in running an alleged $114 million Ponzi scam that bilked investors. The regulator claims that the Houston-area man defrauded over 300 investors via multiple offerings of promissory notes that his companies DayStar Finding LP and F.A. Voight & Associates LP had issued.

In its complaint, the SEC said Voight recently raised $13.8 million that he claimed would be a loan to InterCore Inc., a company start up. The loan was supposed to fund the deployment of a DADS-a Driver Alertness Detection System.

Voight allegedly told prospective investors that the technology was to be installed in millions of buses and trucks. He promised 30 to 42% yearly interest rates on the promissory notes to be paid out by the company, which he said it could do “many, many times over.”

However, the Commission claims that Voight as aware he was making false claims because he was an InterCore board member and knew that the company was financially beleaguered and could not repay the loans. Voight allegedly used the money from new investors to pay off earlier investors or funnel them to InterCore via another two partnerships that belonged to him. The money would then be sent to subsidiary InterCore Research Canada, Inc.
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SEC Cases: Pennsylvania Lawyer is Charged with Insider Trading, San Diego Investment Adviser is Accused of Stealing Client Funds, and New York Man is Arrested for Fraud

Published on: August 2, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Accuses Pennsylvania Attorney of Insider Trading
The U.S. Securities and Exchange Commission is charging Herbert K. Sudfeld with insider trading ahead of the announcement that Nationwide Mutual Insurance Company and Harleysville were about to merge in a $760 million deal. The regulator contends that the Pennsylvania attorney illegally traded on the information, which caused Harleysville’s stock price to rise 87% when the announcement went public.

Sudfeld, who was a real estate partner at a law firm that gave Harleysville counsel on the merger, learned about the impending deal from a conversation involving a lawyer and the legal assistant they shared. That attorney was involved in the deal.

Sudfeld is accused of stealing the information and buying Harleysville stock. After the merger was announced, he purportedly sold the share he had bought, making about $79,000 in illegal profits. Prosecutors in Pennsylvania have filed a parallel criminal action against him.

San Diego Investment Adviser Accused of Stealing Client Money, Running Ponzi Scam
Paul Lee Moore and his now defunct investment advisory firm are charged with bilking client funds and operating a Ponzi scheme. According to the complaint filed by the SEC, Moore and Coast Capital Management raised $2.6 million from clients, and he allegedly siphoned almost $2 million for his personal spending.

The regulator said that Moore took the rest of the money and, in Ponzi scam-fashion, paid earlier clients with funds brought in by new clients. He is accused of sending out bogus account statements to clients, as well as sharing these statements with prospective clients. The California investment adviser purportedly lied about his educational background, employment history, as well as about how much Coast Capital managed in assets.
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Ex-Head of Chicago Investment Firm Gets 6-Year Sentence for $9M Ponzi Scam

Published on: July 31, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Neal Goyal, the former head of Caldera Investment Group and Blue Blue Horizon Asset Management, has been sentenced to six years behind bars for bilking over 40 investors of more than $9 million in a Ponzi scam. Prosecutors contend that over the eight years that the 34-year-old ran the scam, pretending to be a hedge fund manager, he made just limited trades and on only some of the funds. The majority of his victims were family and friends from his Hindu community.

Goyal told investors that the four private funds he managed would employ a long-short trading strategy. Instead, he ran a Ponzi scam, paying off earlier investors with new investors’ money.

He would go on to use over $2 million of their funds on his lavish lifestyle, including a $1.5 million home, luxury car leases, travel, and expensive dinners. He also put some of the money into his wife’s business ventures and his father-in-law’s failing tavern. He took his company staff on an all-expenses-paid vacation to the Dominican Republic. The group trip included a yacht and butler service at a five-star resort.
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