Ponzi Scams

SEC Roundup: Regulator Addresses CDS Portfolio Margin Program & Ex-Commission Officials Want DC Circuit to Grant SIPC Protection to Stanford Ponzi Scam Victims

Published on: May 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Commission Officials, Others Want DC Circuit to Grant Stanford Ponzi Scam Victims SIPC Protection

Former SEC Officials, law professors, and trade groups are among those pressing the U.S. Court of Appeals for the District of Columbia Circuit to reject the regulator’s bid to compel Securities Investor Protection Corporation coverage for the investors who were bilked in R. Allen Stanford’s $7 billion Ponzi scam. Inclusion under the Securities Investor Protection Act would allow the fraud victims to obtain reimbursement for losses.

However, SIPC, which is a federally mandated non-profit corporation, doesn’t believe that the Stanford investors, who purchased certificates of deposit from Stanford International Bank Ltd. in Antigua, fall under this protection. Following a failure to act on the SEC’s request to initiate liquidation proceedings for brokerage firm Stanford Group Co., the regulator asked the court for a novel order that would make the organization comply.

SEC Actions Roundup: Bridge Premium Finance Settles Over Alleged $6M Ponzi Scam, Ex-Lancer Group Hedge Fund Manager’s Lawyer Sues Over FOIA Request, & Private Equity Firm Ranieri Partners Settles Securities Allegations

Published on: March 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

SEC Settles with Bridge Premium Finance Over Alleged $6M Ponzi

The U.S. District Court for the District of Colorado has approved a proposed settlement between the SEC and Premium Finance LLC, William Sullivan, and Michael Turnock. The three of them are accused of selling financing so that small businesses could cover their insurance premiums. The alleged Ponzi scam purportedly cost investors $6 million, even as they were promised up to 12% in returns.

Judge John Kane had initially rejected the proposed settlement, which came with SEC’s standard language allowing defendants to resolve cases without denying or admitting to the allegations. Pointing to strong federal policy that favors consent judgments and the “limited and deferential” review the courts have over such agreements, last month the Commission asked the court to reconsider. It also noted that such admissions could hurt the regulator’s enforcement program, potentially causing harm to the public. Turnock and Sullivan also filed a response to the complaint and admitted to some of the allegations.

Massachusetts Ponzi Case Leads to Criminal Charges for Couple that Own Viking Financial Group. Inc.

Published on: March 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

At his arraignment this week, Steven Palladino, 55, pleaded not guilty to multiple criminal counts of larceny over $250, falsifying corporate books, and loan sharking, as well as one count of uttering. He and his wife Lori, 52, are accused of running a Massachusetts Ponzi scam. The victims of their alleged financial fraud are reportedly business associates and friends. Lori’s arraignment is scheduled for April.

Per the authorities, the couple used their firm, Viking Financial Group Inc. to pay investors interest and support their lavish lifestyle. Palladino allegedly told potential investors that the supposed private lending company had $25 million in assets and had never defaulted on a single loan. A closer look at Viking’s books, however, showed close to $2 million in bogus loans and nearly $756,000 in real loans. Also, loans made by the company were often purportedly done at such a high interest rate that the government believes these transactions were illegal.

While Palladino’s defense team claim that none of his clients investors were “out a penny” with everyone having “been paid,” the Suffolk County Prosecutor Benjamin Goldberger said he feared that investors’ losses could be in the millions of dollars. The government claims that between September 2009 and the end of 2012, Viking made $1.6 million in loans while taking in $4.6 million in new investments. Out of the money borrowed, at least $600,000 were allegedly loans made to the couple. (Also, although Palladino did repay one elderly senior, his 94-year-old aunt, whom he previously defrauded of real estate, the prosecution contends that the repayment of $350,000 came from the Ponzi scam.)

Houston-Based Receiver Files $1.8B Class Action Filed Against Law Firms Accused of Helping R. Allen Stanford Carry Out His $7B Ponzi Scam

Published on: December 5, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Ralph Janvey, the Stanford receiver based in Houston, has filed a putative class action lawsuit against Hunton & Williams LLP and Greenberg Traurig LLP, two law firms accused of playing roles that allowed R. Allen Stanford to execute his $7B Ponzi scam. The securities complaint, which was filed in the U.S. District Court for the Northern District of Texas, is seeking $1.8 billion in damages and $10 million that it claims Stanford gave to the law firms during their years of working together. The plaintiffs are contending Texas Securities Act violations, aiding and abetting participation in a fraud scam, aiding and abetting breach of fiduciary duty, and conspiracy.

Also named as a defendant is Yolanda Suarez, who was not only a former Greenberg Traurig associate but also she served as Stanford Financial Group’s general counsel and later as chief of staff. Janvey says that Stanford could not have kept his scam going for over 20 years without these parties’ help.

Per the Texas securities case, Carlos Loumiet, an ex-Greenberg Traurig partner who later went to work for Hunton & Williams (he is now a DLA Piper partner and is not a defendant in this lawsuit), had a “very close personal relationship” with Stanford and played a part in helping the now convicted fraudster run his global scam. This included helping him establish sales and marketing offices in the US. Loumiet and Greenberg Traurig also allegedly helped Stanford set up the transactions that would allow the Ponzi mastermind to use the money he took from Stanford International Bank Ltd. in Antigua and invest them in “speculative venture capital” deals and property in the Caribbean. The law firm is also accused of giving Stanford securities law counsel and advice on a regularly basis.

Texas Securities Fraud: Investors Bilked $68M Dallas Ponzi Scam Hoping To Recover Funds Via Rare Guitar Auction

Published on: October 25, 2012 | by Shepherd Smith Edwards & Kantas, LLP

One year after The Rand Family pled guilty to bilking over 200 investors in $68M Dallas Ponzi scam, a number of their expensive instruments are going up for auction. The money from the sales will go towards paying back their victims.

The Rand Family, who owned oil and gas owned Aspen Exploration, scammed investors into financing the operation and drilling of a number of Texas oil wells. At least a 40% return was promised. However, not all of the investors’ monies went to drilling oil. Instead, US Postal investigators discovered that the family was using some of the funds to pay for their expensive lifestyle, which included private jets, yachts, country club membership, and the purchase of real estate, jewelry, musical instruments, and an original Picasso.

Their company, Aspen, sold net revenue interests and working interests in a number of wells in the Rancho Blanco Corporation State Gas Unit in Texas. Prosecutors accused the Rands of making false representations, such as telling them that their money, which would only be commingled when necessary, would go toward testing, drilling, and completion of a well and that they would managerial rights. Instead, the money was moved out of Aspen’s bank accounts as the defendants spent it on personal expenses and to drill and pay for the operation of other wells.

Institutional Investment Fraud Roundup: Ex-Analyst Guilty in $61.8M Insider Trading Scheme, SLUSA Precludes Investor Class Action Over Hedge Funds that Failed After Madoff Ponzi, & Dark Pool Operator Settles Subscriber Info. Breach Charges

Published on: October 18, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Jon Horvath, an ex-research analyst at a New York hedge fund, has pled guilty to two counts of securities fraud and one count of conspiracy to commit securities fraud related to a $61.8 million insider trading scheme. Several other former hedge fund managers and analysts from different investment firms and hedge funds are also accused of allegedly trading key, nonpublic information about NVIDIA Corporation (NVDA), Dell, Inc. (Dell), and other publicly traded technology companies between 2007 and 2009. The information was obtained indirectly and directly from employees that worked at these companies.

Horvath admitted that when he received the insider information from the other analysts, he knew that they were all breaching their duties of loyalty. He caused certain trades to be executed based on such information. He also provided the other analysts with insider information about publicly traded companies.

In other securities fraud news, the U.S. District Court for the Southern District of New York has ruled that under California securities law, the Securities Litigation Uniform Standards Act bars a class action filed by investors in two hedge funds that failed after the Madoff Ponzi scheme was found out. The plaintiffs are contending that the defendants, investment advisor Tremont Partners and a number of affiliates, made misrepresentations and omissions connected with a covered securities’ sale. The case is Lakeview Investment LP v. Schulman.

US Supreme Court Considers Hearing Stanford Ponzi Lawsuits

Published on: October 3, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Supreme Court’s justices are looking to the Obama administration for advice about an appeal made to a ruling allowing the victims of R. Allen Stanford’s $7 billion Ponzi fraud can pursue law firms, insurance brokers, and outside parties for damages. The defendants, third party firms, want the court to stop the securities lawsuits, which are based on Texas and Louisiana law. If the court were to hear the appeals, it would put to test the Securities Litigation Uniform Standards Act, which was enacted so that if a class action lawsuit comes from a misrepresentation issued “in connection” with a covered security’s sale or purchase, investors cannot go to state courts to get around federal limits placed on such claims. The appeals is asking how close that connection has to be for a state lawsuit to be barred.

Investors have been trying to get back the money they lost in Stanford’s Ponzi fraud, which involved the sale of CDs from his Antigua bank. Numerous securities lawsuits have been filed, and at Shepherd Smith Edwards and Kantas, LTD, LLP, our Texas securities fraud lawyers represent victims of the Stanford Ponzi scam and other financial schemes.

Our Texas securities fraud law firm also continues to provide updates on the different Stanford-related securities litigation on our blog sites:

Institutional Investment Fraud Roundup: Ex-Hedge Fund Managers’ Guilty Plea Over Bilking Investors of Almost $1M Get 3-Year Prison Term, SEC Sues Investment Adviser Over Alleged $37M Ponzi, and SEC Files Lawsuit Over Purported “Fund of Funds” Scam

Published on: September 26, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Ex-hedge fund managers Christopher Fardella and Michael Katz have been sentenced to three years in prison after they pleaded securities fraud and conspiracy charges for defrauding investors of nearly $1 million. Per court documents, between April 2005 and November 2006, the two men, along with two co-conspirators, were partners in KMFG International LLC, which is a hedge fund.

They cold called investors throughout the US and provided them with misleading information about the fund, its principals, and financial performance even though KMFG actually lacked a track record and never generated any profit for investors. The defendants and co-conspirators lost and spent $981,000 of the $1,031,086 that was given to them by investors.

Meantime, another hedge fund manager, Oregon-based investment advisor Yusaf Jawad, is being sued by the Securities and Exchange Commission over an alleged $37 million Ponzi scam. The securities lawsuit against him and attorney Robert Custis was filed in the U.S. District Court for the District of Oregon.

St. Louis Rams Quarterback AJ Feeley and US Soccer Player Heather Mitts Are Among Professional Athletes Allegedly Targeted in Ponzi Scam

Published on: September 7, 2012 | by Shepherd Smith Edwards & Kantas, LLP

St. Louis Rams Quarterback AJ Feeley, US Soccer Player Heather Mitts, Philadelphia Eagles Tight End Brent Celek, and NFL player Kevin Curtis have filed a securities lawsuit against their former financial advisor William Crafton Jr. for allegedly defrauding them in the Westmoore Capital Ponzi scam and other financial schemes and causing them to lose millions of dollars. Crafton controlled and oversaw over $7.5 million of their funds. The plaintiffs are also suing Martin Kelly Capital Management, Suntrust Bank, and CSI Capital Management (as well as 50 John Does) for their negligent hiring and supervision of Crafton at the relevant times material to this lawsuit.

According to their Ponzi scam complaint, Crafton is the financial representative for at least 20 professional athletes, including members of the NFL, MLB, and NHL. The plaintiffs said that he often referred to these relationships to solicit new pro athlete clients. When he became the plaintiffs’ financial adviser, he managed nearly all of their assets and incomes that they’d obtained through their professional contracts until their relationship with him ended. They say that the three defendant firms also affiliated themselves with having professional athlete clients.

The plaintiffs maintain that from the beginning of their working relationship with Crafton, they each made it clear that they wanted to employ a conservative investment approach involving a portfolio of assets that were liquid and would help preserve their money. They claim that while Crafton assured them that he was a low risk taker and conservative money manager, in 2005 he began putting their money in risky, alternative investment that were either Ponzi scams or other fraudulent investments that were created or run by individuals that Crafton knew. These investments were not liquid and unsuitable for the plaintiffs and Crafton allegedly either had a financial stake or undisclosed relationship with each investment that they did not know about.

The plaintiffs are accusing Crafton of knowingly making false and material misrepresentations to them, providing them with poor quality wealth management services, placing their funds in unsafe investments, misappropriating their money for his personal purposes, and taking inappropriate steps to conceal the fraud scams he was committing against them. They believe that the defendant companies failed in their independent fiduciary duty when they let Crafton invest, in some instances, over 60% of the Plaintiffs’ assets in illiquid, risky, Ponzi scams and alternative investments.

The plaintiffs say they were never required to fill out investment objective statements or client profiles and customized investment programs were never developed for them. They also contend that their financial risks were not defined for them and industry standards allegedly weren’t followed to determine their risk tolerances or set up an appropriate plan for them. They are seeking disgorgement of management fees, compensatory damages, punitive damages, and legal fees.

Snookered in a Ponzi, Pro Athletes Say, Courthouse News, August 15, 2012

Read the Complaint (PDF)

More Blog Posts:
Securities and Exchange Commission Charges Former UGA Football Coach Jim Donnan Over Alleged $80M Ponzi Scam, Stockbroker Fraud Blog, August 16, 2012 Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012

Madoff Trustee Files Clawback Lawsuits Collectively Seeking Over $1B For BLMIS Feeder Fund Transfers, Institutional Investor Securities Blog, June 12, 2012 Continue Reading ›

SEC Securities Law Roundup: First Whistleblower Award Under New Program is Announced, Internet-Based Investment Adviser Seeks Regulator’s Recognition, & the Commission Stops Alleged $600M Online Ponzi Scheme

Published on: August 29, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has made its first award to a whistleblower under its new program created under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Informants who give the commission “original information” leading to action resulting in $1 million or greater in penalties are entitled to receive 10-30% of whatever sanctions the regulator collects.

The SEC announced that it would pay $50,000 to this particular tipster for assistance provided in stopping a “multi-million dollar fraud.” This person gave “significant information” and documents, which helped speed up the agency’s probe. Now, the defendants in the securities case must pay about $1 million in penalties, of which the Commission has collected about $150,000. The $50,000 is about 30% of that amount. If a final judgment is issued against other defendants, the whistleblower could receive a larger amount.

In other SEC-related news, Larry Eiben the co-founder of Moxy Vote, an investment web site, wants the Commission to put into effect rules that recognize a new investment adviser category. He wants investors to be able to use a “neutral Internet voting platform” to get information about investments, as well as be able to not just vote shares during corporate meetings, but also “designate as the recipient of proxy materials” for transmission by companies with SEC-registered stock.

Eiben believes the rule changes is necessary because under existing regulations, retail investors cannot use the Internet to vote their shares or collect and get information through means that they might find most helpful when determining how to vote. He says the change will tackle what he considers an ongoing issue: “low participation by retail investors in voting shares of their portfolio companies.”

Unfortunately, the Internet continues to prove an effective tool for perpetuating financial fraud. Earlier this month, the SEC obtained an emergency asset freeze order stopping an alleged $600 million Ponzi scam that was about to collapse. The defendants are Rex Venture Group and its owner Paul Burkes, who is an online marketer.

Per the Commission, the two of them raised money from over one million clients on the Internet using ZeekRewards.com. They allegedly gave customers several options for earning money through a rewards program. Two of them involved the purchase of investment contracts. However, none of these securities were SEC registered, which they are required to be under federal securities laws. Meantime, investors were promised up to half of the company’s daily net profits via a profit sharing system. Also, despite the defendants’ allegedly giving them the impression that the company was profitable, investors received payouts that were unrelated to such profits, and instead, in typical Ponzi scam fashion, the money paid to them came from the newer investors.

The SEC said its order to freeze assets will allow the Ponzi scam victims to recoup more of their money so whatever is left of what they invested with ZeekRewards can be used as payouts to them. Burkes has agreed to settle the Commission’s allegations without denying or admitting to wrongdoing. He will, however, pay a $4 million penalty.

Whistleblower Program, SEC

S.E.C. Pays Out First Whistle-Blower Reward, The New York Times, August 21, 2012

Read Eiben’s Petition to the SEC (PDF)

MoxyVote (PDF)

Read the SEC complaint in its case against Rex Venture Group (PDF)

More Blog Posts:
Merrill Lynch Agrees to Pay $40M Proposed Deferred Compensation Class Action Settlement to Ex-Brokers, Stockbroker Fraud Blog, August 27, 2012

Majority of Non-Traded REITs Underperform Compared to Benchmarks, Reports New Study, Stockbroker Fraud Blog, August 25, 2012

Ex-Fannie Mae Executives Have to Defend Against SEC Lawsuit Over Their Alleged Involvement in Understating Mortgage Company’s Exposure Risk, Institutional Investor Securities Blog, August 25, 2012 Continue Reading ›