Ponzi Scams

Investors of Robert Bentley Ponzi Scam Suffer Setback as Court Overturns $32.7 Million Verdict Against Brokerage Firm and Investment Bank

Published on: January 6, 2010 | by Shepherd Smith Edwards & Kantas, LLP

On Monday, the victims of Robert Bentley’s $1 billion Ponzi scam suffered a setback when a federal appeals court overturned a $32.7 million jury verdict against Peninsula Bank of Delray Beach, its ex-executive vice president, Joseph Marzouca, Southeastern Securities, Inc., and its president Theodore Benghiat. The defendants are accused of helping to keep Bentley’s Ponzi scheme going.

Per court documents, Entrust Group and Bentley Financial Services Inc. misled investors by making them believe they were buying federally insured CD’s when they were actually buying unregistered IOU’s. David H. Marion, the receiver of Bentley’s companies in Paoli, Pennsylvania, says the Ponzi scam would have fallen apart much sooner without the defendants’ help.

The jury found that the brokerage firm and the bank either helped or conspired with Bentley to defraud investors. They said Southeastern Securities and Benghiat should pay almost $19.7 million and Peninsula and Marzouca should pay approximately $13.1 million.

Number of Ponzi Scam Collapses Increased Significantly Last Year

Published on: January 4, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The number of Ponzi scams that fell apart increased by nearly four times in 2009, compared to the year, before resulting in over $16.5 billion in investor losses. This figure comes from the Associated Press, which analyzed Ponzi schemes in all US states.

Additional findings from the AP analysis:

• Over 150 Ponzi schemes fell in 2009 • 40 scams collapsed in 2008 • Allen Stanford’s $7 billion international Ponzi scam and Scott Rothstein’s $1.2 billion scheme were among the larger plots that fell apart last year
Bernard Madoff’s $65 billion Ponzi scam wasn’t calculated into last year’s figures because he was arrested at the end of 2008.

In addition to increased enforcement efforts, the economic collapse can be credited with the discovery of many schemes that may have otherwise gone undetected. The number of people willing to invest in new ventures went down in 2009 while current investors rushed to pull out their money. As Ponzi scammers rely on new investors to not only pay the old investors but also fund their expensive lifestyles, many schemes collapsed. The discovery of Madoff’s Ponzi scam has also made investors more wary and regulators more alert.

Another scam of note is Tom Petters’ $3.65 billion scheme. Petters used Petters Group Worldwide, LLC to run his Ponzi scam. He is in prison waiting to receive his sentence. He could be sentenced to a life prison term.

In 2009, the Federal Bureau of Investigation opened over 2,100 securities fraud probes. That’s 350 more investment fraud investigations than the number of investment probes that were opened in 2008. The FBI had 651 agents working on high-yield investment fraud investigations last year. Also in 2009, the US Securities and Exchange Commission issued 82% more restraining orders against securities fraud cases than they did in 2008. Ponzi scams now compromise 21% of the SEC’s enforcement workload-up from 9% in 2005.

The number of civil actions (31) that the Commodity Futures Trading Commission filed last year has more than doubled since 2008. Many securities fraud cases from last year have not yet gone to trial.

Related Web Resources:
AP: Ponzi collapses nearly quadrupled in ’09, Yahoo, December 28, 2009
2009: The Year of the Ponzi, ABC News
Charles Ponzi
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Texas Securities Fraud: SEC Freezes Assets of Fourth Person Involved in Alleged $485 Million Ponzi Scheme

Published on: December 23, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Earlier this month, the US Securities and Exchange Commission was able to get a temporary restraining order to the freeze the assets of Joseph Blimline, the fourth person accused of masterminding a $485 million Ponzi scheme involving Provident Royalties LLC. The SEC charged three other individuals, Brendan Coughlin, Paul Melbye, and Henry Harrison, in July. Their assets were also frozen.

In its amended complaint, the SEC alleged that Provident, owned by the four defendants, advanced approximately $93 million of investor funds to Blimline and entities that he controlled for the purchase of gas and oil interests. The fund repayments and the title, however, frequently did not go to Provident. The SEC also accuses Blimline of failing to disclose that he received the funds, was involved with Provident management, and had been sanctioned in the past by Michigan securities authorities.

The SEC’s amendment complaint charges the four men with violating the Securities Act of 1933 (Section 17a) and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC is seeking preliminary and permanent injunctions, financial penalties, disgorgement of ill-gotten gains, and prejudgment interest.

Director and officer bars are also being sought against the four defendants for allegedly committing Texas securities fraud. 36 affiliated entities are named as relief defendants for disgorgement purposes.

Stifel, Nicolaus & Co. and AXA Advisors Broker Charged in Ponzi Scheme Victimizing Church Members

Published on: November 5, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Former Stifel, Nicolaus & Co. and AXA Advisors broker Kenneth Neely has pled guilty to one count of mail fraud for setting up a Ponzi scheme that targeted at least 16 investors. Yesterday, Missouri Secretary of State Robin Carnahan announced that she has shut down the scam.

The 56-year-old St. Peters, Missouri broker got his clients to invest in a bogus St. Charles real estate investment trust. He promised high return rates and “no risk,” raising over $640,000 in investor funds. Federal prosecutors say clients paid about $3,000/share or unit.

At the time Neely was committing securities fraud (from 2001 – July 2009) he worked for broker dealers AXA Advisors and Stifel, Nicolaus & Co. He told clients to make checks payable to him and his wife.

Missouri Securities Law makes it illegal for a broker to “sell away,” which involves selling investments off a firm’s books.

Neely has 30 days to respond to Missouri’s cease-and-desist order. Federal brokers have barred him from working as a broker. Investor victims that lost some $400,000 included people that belonged to his church, friends, relatives, and acquaintances. Some people lost their savings because of the Ponzi scheme. Nealy used some of the money to pay for his personal expenses and debt.

Neely’s sentencing is scheduled for January 2010. He faces up to 20 years in prison, restitution, and up to $250,000 in fines.

Related Web Resources:
Carnahan Uncovers Ponzi Scheme in Saint Charles, SOS.Mo.Gov, November 4, 2009
St. Peters broker admits Ponzi scheme, St. Louis Business Journal, November 4, 2009
FINRA Permanently Bars Former Broker for Stifel, Nicolaus & Co. Inc and AXA Advisors For Ponzi Scheme, Stockbroker Fraud Blog, August 3, 2009 Continue Reading ›

FINRA Permanently Bars Former Broker for Stifel, Nicolaus & Co. Inc and AXA Advisors For Ponzi Scheme

Published on: August 3, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has permanently barred a former Stifel, Nicolaus & Co. Inc. and AXA Advisors broker from operating. Kenneth George Neely has admitted to running a ponzi scheme involving clients of both broker-dealers, as well as friends, family members, and fellow church members.

According to federal regulators, Neely acted fraudulently when he induced at least 25 clients to take part in the “St. Louis Investment Club” and invest in “St Charles REIT. Both the investment club and the real estate investment trust are bogus.

To cover up the Ponzi scheme, Neely had investors issue payments to his wife in $2,000 and $3,000 increments so that banks wouldn’t get suspicious when funds were turned into cash. He also created bogus invoices that looked like official ownership certificates for REIT purchases. These certificates listed names of a “President” and a “Secretary” who were both fictitious. Neely promised investors that their investments would be taken care of.

For example, he promised one friend a high return rate on a bogus St. Charles REIT investment. The friend had invested $154,000. Neely would end up returning $10,000 to this person and using the rest of the funds to pay for some of his own personal expenses and debt.

He also persuaded a fellow church member to invest $35,000. He promised a 5% return rate. Small interest payments later dried up and Neely used the balance for his personal spending.

Neely improperly utilized over $600,000 of his investors’ assets. He converted over half the amount to his own use and returned about $300,000 to some investors.

It wasn’t until FINRA spoke with the St. Louis broker about his bogus real estate investment trust that he stopped collecting funds. AXA terminated his employment after he admitted what he’d done to FINRA.

FINRA enforcement chief Susan Merrill says that it is disturbing that in addition to taking advantage of clients at the brokerage firms where he’d worked, Neely also exploited relatives, friends, and acquaintances and took their “hard-earned savings.”

FINRA Permanently Bars Broker Operating Ponzi Scheme Involving Customers of Broker-Dealers, FINRA, July 27, 2009
Former AXA broker barred by FINRA for Ponzi scheme, Reuters, July 27, 2009 Continue Reading ›

Provident Royalties Faces $485 Million Texas Securities Fraud, Says SEC

Published on: July 26, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has charged Provident Royalties, LLC, Provident Asset Management LLC, and founders Brendan Coughlin, Paul Melbye, and Henry Harrison with Texas securities fraud over their alleged involvement in a $485 million investment scam. The SEC claims the defendants used the ponzi scheme to defraud thousands of natural gas and oil investors.

According to the SEC civil complaint, Provident allegedly made a series of fraudulent offerings of limited partnership interests and preferred stock from at least June 2006 through January 2009 and persuaded about 7,700 US investors to invest half a billion dollars. The Texas-based firm allegedly promised yearly returns of more than 18% and misrepresented the way the funds were going to be used. The SEC is also accusing broker-dealer Provident Asset Management, LLC of making direct retail securities sales, as well as soliciting unaffiliated retail broker-dealers to submit placement agreements for each offering.

The SEC contends that investors thought that 86% of the funds would be used in gas and oil investments, mineral rights, leases, exploration, and development. While less than 50% of the investors’ funds were actually used to acquire and develop gas and oil exploration, the SEC claims the other funds were used to pay previous investors of Provident Royalties.

Coughlin, Harrison, and Melbye have been charged with orchestrating the ponzi scam. Also named in the SEC complaint are the 21 entities that sold securities to investors.

The SEC is charging the defendants with violating the Securities Exchange Act of 1934, Rule 10b-5 thereunder, and the Securities Act of 1933. The SEC is seeking preliminary and permanent injunctions, a temporary restraining order, financial penalties, and disgorgement of ill-gotten gains in addition to prejudgment interest. An emergency freeze on the assets has been issued and a receiver has been appointed.

Related Web Resources:
SEC Obtains Asset Freeze in $485 Million Nationwide Offering Fraud, SEC, July 7, 2009
Read the SEC Complaint (PDF)
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Texas Securities Fraud Lawsuit Against Former EnergyTec CEO Can Move Forward, Says District Court

Published on: July 22, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Northern District of Texas says it won’t dismiss the securities fraud lawsuit against Frank Cole, the former head of Energytec Inc. The plaintiffs are accusing Cole, Energytec, and others of taking part in a fraudulent oil investment scam that cost investors millions of dollars.

In their securities fraud complaint, the plaintiffs say that Energytec developed 250 “Income Programs” with oil well working interests, in addition “Purchase Agreements” and “Evaluation Reports” for each program. Frank W. Cole Engineering prepared the evaluation reports, which were offered to investors, along with the purchase agreements, in connection with the sale of income program securities.

According to the plaintiffs, the evaluation reports and the purchase agreements contained material misrepresentations. They also claim that there were material omissions in the documents. For example, Energytec failed to disclose that a corporate officer had a prior criminal conviction and did not reveal that monthly payments were in fact advance payments that Energytec would later recoup.

Jomar Oil, the lead plaintiff in the investment fraud case, says Energytec’s Income Program 225 had unregistered brokers who sold securities and that this violated the Connecticut Uniform Securities Act and the Securities Exchange Act. The plaintiffs are accusing Energytech and Cole of lying to investors and filing SEC reports that were misleading.

The Texas court declined Cole’s motion to dismiss the securities fraud lawsuit accusing him of playing a key role in the Ponzi scheme. The judge noted that the plaintiffs had met applicable pleading requirements and had gone beyond pleading ‘positional scienter’ in regards to Cole.

Related Web Resources:
Ex-CEO Loses Bid to Exit Energytec Ponzi Suit, Securities Law 360, July 13, 2009
Judge Allows Suit Over Alleged Energytec Scam, Courthouse News Service, July 13, 2009 Continue Reading ›