Bank Failure Brings 2009 Total To 99; Foreclosures Pile Up In California, Florida; Prosecutors Battle Mortgage Fraudsters And Ponzi Schemers

Andy Bowdoin

Andy Bowdoin

UPDATED 1:33 P.M. EDT (U.S.A.) The failure yesterday of San Joaquin Bank in Bakersfield, Calif., brought the total of bank failures in the United States this year to 99.

With weeks remaining in the year, it is a virtual certainty that failures will top the 100 mark. Banks have been failing at an average rate of slightly less than 10 per month in 2009. Last year, 25 banks failed in the United States. In 2007, only three banks failed.

As many as 416 names of other troubled banks appear on a confidential list maintained by the Federal Deposit Insurance Corp. (FDIC). The hemorrhage of bank failures — in large measure caused by a severe recession, consumer and business defaults, a collapse of real-estate prices in many parts of the country, brazen fraud in the mortgage sector and a contraction of development — is not over.

Although banks and the government are working together to find ways to curb an explosion in the mortgage-foreclosure rate, foreclosures continue to suck wealth from the economy.

“Bank repossessions, or REOs, jumped 21 percent from the second quarter to the third quarter, corresponding to jumps in defaults and scheduled auctions in the previous two quarters,” said James J. Saccacio, chief executive officer of RealtyTrac.

RealtyTrac tracks foreclosure activity in the United States. On Oct. 14, the company said foreclosures in the third quarter set a record and were up 23 percent from the total reported in the third quarter of 2008.

Foreclosure filings, default notices, scheduled auctions and bank repossessions totaled 937,840 in this year’s third quarter, RealtyTrac reported.

Although foreclosure filings in September totaled 343,638 — a 4 percent decrease from August’s total — the number still represented a 29 percent increase from September 2008.

September’s monthly total was among the highest figures reported since January 2005, trailing only July and August of this year.

“REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts and high volumes of distressed properties,” Saccacio said.

Florida, California Battered By Foreclosures

Six states — California, Florida, Arizona, Nevada, Illinois and Michigan — accounted for 62 percent of the foreclosure total in the third quarter, RealtyTrac reported. Foreclosures in the six states totaled 579,541.

Foreclosures in California totaled 250,054 in the third quarter; Florida posted 156,924 foreclosures, a 23 percent increase from the total reported in the third quarter of 2008.

Because Florida is an attractive state for retirees — and because those retirees have friends and loved ones in all corners of the United States — the state is an attractive target for scammers.

Florida also has a large population of immigrants, another attractive target of scammers.

Agencies Battle Florida Ponzi Fraud

In the past 72 hours alone, the SEC, the CFTC, the FBI, the U.S. Postal Inspection Service, and federal prosecutors have announced three Florida Ponzi scheme prosecutions, a conviction in a separate Ponzi case — and a conviction in a fraud case in which a Florida man created more than 260 identities on eBay and fleeced customers out of $717,000.

On the Florida Ponzi front:

  • David F. Merrick, Traders International Return Network (TIRN), MS Inc., GTT Services Inc., MDD Consulting Inc. and Go ! Tourism Inc. were named defendants in emergency actions in U.S. District Court for the Middle District of Florida. Merrick, 61, of Apopka, is accused of operating a $22 million Ponzi scheme with ties to Panama, Mexico, Malaysia, Switzerland and the Netherlands.
  • HomePals Investment Club LLC, HomePals LLC (Home Pals), Ronnie Eugene Bass Jr., Abner Alabre and Brian J. Taglieri were charged in South Florida with securities fraud, conspiracy to commit securities fraud, wire fraud and money laundering. The defendants were accused of targeting Haitian-Americans in a $14.3 million Ponzi scheme that promised investment returns of 100 percent every 90 days. The scheme gathered money from as many as 64 “investment clubs,” the SEC said.
  • Sean Healy, 38, of Weston, Fla., was charged in a 55-count indictment unsealed in Pennsylvania with multiple counts of wire fraud, mail fraud, money laundering and obstruction of justice. The Florida-based scheme led to at least $14.6 million in losses in Pennsylvania alone, prosecutors said, adding that Healy purchased “numerous exotic vehicles and sport cars, including a Bentley and several Ferraris, Lamborghinis and Porsches worth over $2.3 million.” Healy also bought a $2.4 million waterfront mansion furnished with more than $2 million of home improvements, plus $1.5 million in men’s and women’s jewelry, prosecutors said.
  • Michael Riolo, 38, of Boca Raton, was sentenced to more than 24 years in prison for bilking investors in a $44 million Ponzi scheme. Prosecutors accused Riolo of cooking the books and sending false statements to investors that reported “consistent trading profits and increasing account balances.” In reality, Riolo “misdirected money he received from some investors to make distributions to other investors who sought to withdraw money from their investment accounts,” prosecutors said.
  • Andy Bowdoin, 74, of Quincy, Fla., continued his efforts to get back into a Ponzi case in which he had already submitted to the forfeiture of tens of millions of dollars seized last year by the U.S. Secret Service in an international wire-fraud and money-laundering probe. Bowdoin, who submitted to the forfeiture in January, fired his attorneys and began to file as his own attorney in February. In April, federal prosecutors announced that Bowdoin had signed a proffer letter in the case prior to acting as his own attorney and acknowledged his company, AdSurfDaily Inc., had been operating illegally. “Mr. Bowdoin also confirmed that the revenue figures of the enterprise were managed to make it appear to prospective members that the enterprise called Ad Surf Daily was a consistently profitable, and brilliant, passive income opportunity,” prosecutors said. Despite his own acknowledgments of illegal conduct, despite the proffer — and despite the fact Bowdoin had asked the court to grant his request to submit to the forfeiture and that the court granted Bowdoin’s request — Bowdoin climbed back on the litigation saddle. “Mr. Bowdoin says that after discussing this case with his supporters, and concluding that they were smarter than his attorneys, he has changed his mind,” prosecutors said.

Total funds gathered in the alleged Bowdoin, Merrick, Bass, Alabre, Taglieri and Healy Ponzi schemes in Florida are estimated at $156.3 million, during a period in which U.S. banks are failing, the U.S. economy is confronting the worst business conditions since the Great Depression and mortgage foreclosures are piling up across the country, including hard-hit Florida.

With the Riolo conviction added to the estimate, the number totals $200.3 million. The estimate does not reflect the massive, $65 billion Ponzi fraud of Bernad Madoff, who wiped out clients in Florida and elsewhere. Nor does it take into account allegations that Arthur Nadel, another man implicated in a large-scale fraud in Florida, may be responsible for tens — if not hundreds — of millions of dollars of Ponzi pain.

“During these tough economic times, it is more important than ever that those who lie to and steal from the investing public be held accountable for their misconduct,” said Jeffrey H. Sloman, Acting U.S. Attorney for the Southern District of Florida, commenting on the 24-year prison sentence Riolo received.

“The United States Attorney’s Office will continue to investigate and prosecute those who perpetrate these large-scale fraud schemes,” Sloman said.

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11 Responses to “Bank Failure Brings 2009 Total To 99; Foreclosures Pile Up In California, Florida; Prosecutors Battle Mortgage Fraudsters And Ponzi Schemers”

  1. But, Patrick, you forgot.. Andy said the State of Florida dropped the Ponzi charge, along with many other charges. He said so in a conference call, so it has to be true.. right??

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  2. From Feb:
    The Ponzi State; Florida’s foreclosure disaster. George Packer, The New Yorker
    http://www.knowledgeplex.org/news/3016881.html

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  3. The giant Ponzi scheme that is Florida
    http://www.cbc.ca/world/story/2009/03/10/f-rfa-macdonald.html

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  4. Hi Don,

    Don: But, Patrick, you forgot.. Andy said the State of Florida dropped the Ponzi charge, along with many other charges. He said so in a conference call, so it has to be true.. right??

    As you’re aware, many strange things occurred at ASD last fall. Bowdoin made the assertion that Ponzi allegations had been dropped in Florida. Some ASD members raced to forums to share the good news.

    Florida Attorney General Bill McCollum, whom some ASD members said should be charged with Deceptive Trade Practices for opining about ASD, then announced through a spokeswoman that ASD had never even been accused of Ponzi fraud in Florida — a fact most people following the case already knew.

    McCollum’s office stressed that it had brought the case as a Pyramid sales scheme under Deceptive and Unfair Trade Practices and Deceptive, Unconscionable and Unfair Trade Practices statutes — another fact most people following the case already knew.

    So, Andy’s statement that Ponzi allegations had been dropped caused some of his supporters to get egg on their faces. They simply passed along what he said, without performing so much as a threadbare check.

    Of course, ASD — while it was awaiting an evidentiary-hearing ruling from Judge Collyer on the Ponzi issue and on issues of solvency — suddenly announced a $200 million revenue infusion from Praebius Communications, a penny-stock company.

    Again ASD members raced to forums to share the good news. “Praebius venture!” one crowed. Some doubters emerged, and ASD then removed the Praebius announcement from the website.

    During this same period in the fall, Surf’s Up hinted of a secret weapon to come — and then ASDMI was announced, claiming that it would litigate against the government even if the government was behaving legally and suggesting that prosecutors also might be charged criminally.

    Patrick Moriarty, a co-founder of ASDMI, instructed ASD visitors to his personal website to make checks and money orders for $50 payable to “P.M.G.Int.,” which stands for Pacific Ministry of Giving International, Curtis Richmond’s Utah-based entity.

    Moriarty instructed participants in a mail campaign against the prosecutors and Secret Service to mail the checks and money orders to him in Missouri, The $50 fee would be used to defray the costs of notarization, “several certified mailings, typing, paper and other necessary administrative costs.”

    ASDMI itself charged a $20 fee for its own version of presumptive litigation against the government.

    Things got stranger still as winter approached, with Bowdoin, who’d just had a dramatic court ruling go against ASD, telling members that they could sign up for VOIP phone service for $20 a month as a gift from the company.

    Around the same time, Surf’s Up received ASD’s official endorsement, the ASD Breaking News site stopped being updated — and AVG started being pitched.

    Patrick

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  5. Some good reading in those links, Tony. Thanks.

    Patrick

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  6. Thanks for a fascinating article Tony. It gives a good insight into the change in mentality worldwide, but US led, that has affected the whole of western society. We are now suffering the consequences of living too many decades in the “entitlement era” and the legitimizing of opportunism.

    President Obama talks of a new era of responsibility and, in my view, he has hit the nail on the head. Only a renewed sense of personal responsibility from the top downwards can save us from the continuance and then later a recurrence of this downward spiral. Lax regulation, or lack of intervention only works when there is self regulation and that relies on a sense of reponsiblity. If there isnt any sense of responsibility to self regulate, then you are left with very little alternative but to legislate to impose one.

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  7. Another one on the same theme:
    Has the Gulf Coast become a Ponzi haven?
    http://www.heraldtribune.com/article/20090920/article/909201020?Title=Has-the-Gulf-Coast-become-a-Ponzi-haven-

    State investigators say there are likely dozens more schemes in various stages of unraveling in Florida.

    But this region has already moved onto the national stage as the home of some of the most notorious suspected scams, leaving some asking: Why here and why now?

    Southwest Florida’s appeal for scammers is no different than for their victims: a sun-drenched, artsy and laid-back lifestyle.

    Those qualities, in combination with high per-capita wealth and old age, make for good pickings, says Mark Mathosian, a Florida Office of Financial Regulation supervisor who manages a team of investigators digging through illicit ventures throughout South Florida.

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  8. What’s the excuse for all the scams coming out of Utah?

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  9. I believe that there are thousands of guilty parties that should have their pictures right along side Mr Bowdoin’s for participating in the ponzi market. Ignorance of the law is no excuse for breaking the law. It is each persons responsibility to do the necessary due diligence before getting involved in these schemes.The investment schemes can’t exist and prosper withour those who are searching for and wanting a free easy ride to fame and wealth.

    My suggestion Mr Attorney General is to go after every person involved!

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  10. Privat i: I believe that there are thousands of guilty parties that should have their pictures right along side Mr Bowdoin’s for participating in the ponzi market. Ignorance of the law is no excuse for breaking the law. It is each persons responsibility to do the necessary due diligence before getting involved in these schemes.The investment schemes can’t exist and prosper withour those who are searching for and wanting a free easy ride to fame and wealth.My suggestion Mr Attorney General is to go after every person involved!

    In a perfect world, your assertions could, perhaps, be valid.

    Unfortunately, as with all things involving human beings, there’s a vast difference between what “coulda, shoulda, woulda” and what simply “is”

    AdSurf Daily claimed a membership of between 100,000 and 118,000. Whatever figure eventually turns out to be accurate, certainly allows for a large number of reasons for members’ participation.

    I find it highly unlikely that a single reason for participating could be applied to such a number of people with any certainty of accuracy.

    I think it far more likely there are nearly as many reasons as there are members.

    e.g. ponzi “players” naive, greedy, desperate, gamblers, criminals, selfish, ponzi “playas” (i.e. serial organizers) silly, true believers, intellectually disadvantaged and just plain “crazies”

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  11. Whip: What’s the excuse for all the scams coming out of Utah?

    I have no hard proof but something of a theory. First of all it is astounding how many scams are based out of Utah, to the point where a Utah registration is almost a red flag. I harbor no particular opinions about anyone’s religion and every group of people will have a few bad members, but by and large the majority of self identified Mormons that I have met were notably honest, salt of the earth type people.

    I suspect that the mind frame of a scammer is sufficiently alien to the Utah voting public that they don’t properly identify the scope of the problem. I have no insight into Utah electoral politics but it’s clear that there’s insufficient political will to pass and enforce stronger consumer protection laws. Until they do Utah will be known for more than just Mormons.

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