PatrickPretty.com

Day: January 8, 2010

  • SHOCKING: SEC Says Illinois Investment Adviser And Movie Producer Raided Account Of 96-Year-Old Nursing Home Patient With Dementia; Steve Salutric Ponzi Diverted $321,000 To His Church

    A federal judge has frozen the assets of Illinois investment adviser Steve Salutric in a Ponzi scheme case in which the allegations are shocking.

    Salutric, 51, a church treasurer who took a stab at the fim business and co-produced the 2005 movie “Madison” starring Jim Caviezel and Bruce Dern, raided the account of a 96-year-old woman last year to keep his Ponzi scheme going, according to a complaint filed today by the SEC.

    The woman lived in a nursing home and was suffering from dementia, the SEC said, adding that Salutric’s act toward her was “particularly egregious.”

    Salutric misappropriated more than $400,000 of the woman’s funds, the SEC said, identifying her only as “Client A.” Other client accounts also were raided.

    “Client A has no current memory, cannot retain information for more than 5 minutes, and resides in a nursing home,” the SEC said in the complaint filed in U.S. District Court for the Northern District of Illinois.

    In recent weeks, fearing his fraud was about to be exposed, Salutric began to approach clients with offers to pay them “hush money,” the SEC said.

    “Client funds thus are apparently being used in effort to conceal Salutric’s previous misconduct and are being used in a Ponzi-like fashion as ‘hush’ money,” the SEC argued today to U.S. District Judge William J. Hibbler. “Unless emergency action is taken, Salutric may attempt to further dissipate client funds by paying clients with misappropriated funds in an effort to gain ‘cooperation’ from some of his defrauded clients.”

    Hibbler froze Salutric’s assets.

    Salutric, of Carol Stream, Ill., co-founded the investment advisory firm Results One Financial LLC, the SEC said. Results One, which has more than 1,000 clients and more than $160 million under management, was identified in the complaint as a “relevant party,” not a defendant in the case.

    Salutric is accused of misappropriating “at least” $1.8 million in clients’ funds by raiding their Charles Schwab accounts, and he “did not have discretionary authority to withdraw funds from client accounts at Schwab,” the SEC said.

    Among the allegations, which listed one shocking claim after another, were that Salutric forged signatures to gain access to the Schwab accounts and “transferred approximately $1.2 million of client funds to entities with apparent ties to Salutric,” the SEC said.

    Among the entities to which he directed misappropriated funds was his church, where Salutric is the treasurer and has signatory authority over the church’s bank accounts, the SEC said.

    The church received $321,000, the SEC said.

    A film-distribution company known as Celluloid Distribution LLC received $610,000, the SEC said.

    Meanwhile, a Yorkville, Ill., restaurant in which Salutric holds an ownership interest received “about $45,000,” the SEC said, and a now-shuttered restaurant in Carol Stream received $214,000.

    “This restaurant went out of business in 2009,” the SEC said. “One of Salutric’s clients is the agent for the restaurant’s corporate entity, and the owner is the brother-in-law of one of Salutric’s defrauded clients.”

    Clients who were fleeced were not aware of the transfers and did not approve them, the SEC said.

    At one point, Salutric spent down the account of the 96-year-client with dementia to the point that it less than $10,000. The SEC did not say precisely how much had been in the account, but noted the misappropriation exceeded $400,000.

    A $50,000 Ponzi payment was made to another fleeced investor from the elderly client’s account, the SEC said. Salutric lied to the client’s daughter in the summer of 2009 about the amount of money in the account and continued to steal from it after telling the lie, the SEC said.

    Salutric is listed as a co-producer of the hydroplane-racing movie “Madison,” which starred Caviezel and Dern. The movie had a limited run in 2005, after being completed in 2001 and sitting on the shelf for nearly four years prior to release.

  • SEC: Man Switches Company Name For Offering, Buys Autodialer And Database For 17K, Targets Wealthy Investors, Racks Up $1.4 Million Before Scheme Collapses

    UPDATED 6:15 P.M. ET (U.S.A.) A California man ordered by five states to cease and desist from selling unregistered securities started using a different corporate name, bought an autodialer and database with the names of wealthy investors for $17,737 and used it for at least six months to fleece clients before the scheme collapsed in December 2009, the SEC said.

    The scheme, which targeted investors in the United States and Canada, raised at least $1.4 million — some apparently before the database acquisition in June 2009.

    The SEC now has gone to court to stop Thomas L. Labry and his company, Cherokee Gas Systems, from fleecing investors in a fraudulent oil-and-gas scheme at a property in Oklahoma known as the “Walters Field Priddy Sand Unit.”

    The assets of Labry and Cherokee have been frozen and a receiver has been appointed, the SEC said.

    While operating by a different name — Iron Horse Petroleum Inc. — Labry was ordered by five states to cease selling unregistered securities: Illinois, Pennsylvania, Wisconsin, Alabama and Arizona, the SEC said. Some of the orders date back to 2000.

    In addition, Labry was sued in California under RICO statutes for fraud, and the plaintiffs secured a judgment of $647,776.12 in a 2006 case.

    Cherokee was incorporated in Oklahoma in 1991, and conducted business from Costa Mesa, Calif., the SEC said. It is not registered to sell securities. Labry lives in Newport Beach. The Cherokee website was registered in January 2009, according to web records.

    The website appears to use a shared server that hosts 3,751 other sites, which may lead to questions about why a company that charged investors $25,000 per unit and purported that each unit would return $725 a month at a minimum did not use dedicated hosting.

    “In approximately December 2008, Cherokee began soliciting potential investors throughout the United States, including through the use of cold calling,” the SEC said.

    Investors received a brochure from Cherokee that was “almost identical to the brochure previously disseminated by Iron Horse . . . except that the Cherokee brochure refers to ‘Cherokee’ rather than ‘Iron Horse,’” the SEC said.

    The Oklahoma corporate registration of Iron Horse was suspended in August 2006 for failure to pay franchise taxes, records show.

    In December 2008, Labry began to use the name of Cherokee in an investment offer, according to the SEC.

    “To facilitate this general solicitation, Labry, using Cherokee investor monies, purchased dialing software that can automatically place outbound calls from a preloaded database of numbers,” the SEC said. “In these calls, Cherokee representatives offer investors the opportunity to purchase units in oil and gas wells purportedly owned by Cherokee located on Walters Field in Oklahoma, for $25,000 per unit. In instances where an investor does not want to purchase an entire unit, Cherokee allows the investor to purchase a fraction of a unit. Cherokee representatives tell investors that they will start receiving returns on their investments, paid monthly, within 45 to 60 days of the investment.”

    In June 2009, Labry purchased a database that targets telephone numbers of  “Homeowners Age 60+ with income $100K and up” and “Homeowners Age 60+ with wealth 1 million,” the SEC said.

    Cherokee represented that investors would receive returns of 35 percent a month.

    Although investors did not get paid, the attorney who represented Labry in the California lawsuit filed by investors did — as did a convicted felon, the SEC said.

    The attorney received cashier’s checks totaling $105,000, the SEC said.  The attorney has not been accused of wrongdoing.

    Investigators identified the felon as Gary Maddux, whom the SEC said was convicted of wire fraud and mail fraud in 1998. Maddux received cashier’s checks totaling $221,195, the SEC said.

    Maddux was charged in 1997 with bilking elderly investors in a fraudulent telemarketing scheme known as “Prizewinners.” In the Prizewinners case, people were told they had won a sweepstakes and could collect their winnings for a fee.

    Since December 2008, the SEC said, Labry withdrew at least $268,000 in cash from the Cherokee bank account, as well as $466,283 that was used to purchase cashier’s checks for “various individuals who were not investors.”

    Labry also “made withdrawals totaling $148,126 that were used to purchase cashier’s checks made out to ‘SCS,’ one or more of which he then cashed,” the SEC said.

    When investors questioned why they weren’t getting paid, they were “falsely told by Cherokee agents that oil production is ‘behind’ and that they will receive payment within a certain number of weeks or by a certain date.”

    The payments were not made, the SEC said.

  • KA-BOOM! SEC Files Emergency Action In Alleged Richard Elkinson ‘Uniform’ Ponzi Scheme; U.S. Attorney General Warns Fraudsters, ‘You Are Writing Your Ticket To Jail’

    Ka-boom! A federal judge has frozen the assets of alleged Ponzi schemer Richard Elkinson, accused of fleecing investors in Massachusetts by telling them he brokered deals for government uniforms and uniforms worn by Olympic athletes.

    Meanwhile, the attorney general of the United States ventured to Florida today and gave a dramatic speech at the Forum Club of the Palm Beaches. The speech was important symbolically — indeed, Florida is awash in a sea of Ponzi and mortgage-fraud schemes — and Holder wanted to reassure the noontime crowd of 700 that the government was doing everything it could to restore faith in the markets.

    But the speech also was important politically. The Obama administration wanted to showcase its new Interagency Financial Fraud Enforcement Task Force, which the President announced in November, and Holder chose Florida to drive home the message that Ponzi schemers, mortgage fraudsters and financial criminals are going to have many sleepless nights in the months ahead.

    “To those who see the victimization of others as an avenue to wealth, take notice,” Holder warned. “If you fabricate a financial statement, if you propagate an investment scheme, if you are complicit in an act of financial fraud, you are writing your ticket to jail.”

    Even as Holder was delivering his remarks, the SEC announced that it had sued Elkinson in an emergency action in Massachusetts that complemented the FBI’s criminal action in the case, dubbed a “Mini-Madoff” because it allegedly was both a Ponzi scheme and a case of affinity fraud that targeted Jewish investors.

    Court records show that the FBI was working the case on Christmas Eve, even as the government was shutting down for the holidays. Records also show that Massachusetts Secretary of State William Galvin sent a team of investigators to conduct interviews and to get to the heart of the matter while Massachusetts residents were doing their last-minute holiday shopping.

    State and federal agencies now have filed three separate actions in the Elkinson case. Elkinson, 76, was arrested at a casino in Biloxi, Miss., fresh off a trip to casinos in Las Vegas. The FBI said he had conducted at least $3.7 million in transactions at the Las Vegas casinos since 1998 and that investors in his Ponzi scheme were out $29 million.

    The SEC said today that Elkinson had “no relationship” with a uniform manufacturer based in Japan. Elkinson had told investors he had an exclusive arrangement and that only he was permitted to do business with the manufacturer.

    “Unfortunately, it was all make-believe,” the SEC said in its complaint. “Elkinson had no
    relationship with a Japanese uniform manufacturer, and there were no contracts to purchase uniforms. While some investors did receive payments of principal and interest, those payments were made using funds obtained from other investors, and Elkinson was able to keep the scheme going as long as most of the investors kept rolling over their investments.”

    Elkinson’s purported contracts to provide uniforms for government workers also were “fictitious,” the SEC said.

    The current attack on financial crime by law enforcement may be unprecedented. Holder said today that the FBI is investigating 2,800 cases of mortgage fraud, up a staggering 400 percent from 2005 case totals.

    In his Palm Beach remarks, Holder also dropped the names of Ponzi schemers.

    “Palm Beach is, in many respects, ground zero for the $65 billion Ponzi scheme perpetrated by Bernard Madoff — the largest investor fraud case in our nation’s history,” the attorney general said. “Before the house of cards Madoff built collapsed in 2008, before he was sentenced to 150 years in prison last June, before he became a notorious criminal on the cover of newspapers around the world, he was one of your neighbors.

    “His former home sits just north of us,” Holder continued. “An 8,700-square-foot mansion that’s worth . . . well, we’ll know what its worth once the U.S. Marshals Service auctions it off and the proceeds are distributed to Madoff’s victims.”

    Holder also mentioned the Ponzi cases of Tom Petters of Minnesota, Allen Stanford of the United States and Antigua and disbarred Florida attorney Scott Rothstein of Fort Lauderdale.

    “I’m proud that these men, along with more than 450 others convicted of corporate and securities fraud in 2009, have been taken out of the game,” Holder said.

    In Massachusetts, U.S. District Judge Joseph L. Tauro issued a temporary restraining that froze Elkinson’s assets. Tauro also entered an order freezing all proceeds of the misconduct held by others, and an order prohibiting the acceptance of additional investor funds.

    At the same time, Tauro ordered an accounting of assets and issued an order prohibiting the alteration or destruction of documents.

    The orders in the SEC case — as well as the legal action filed earlier this week by Galvin — bottle up any profits made by people who helped Elkinson promote the scheme.

    Holder said the law-enforcement community is fighting back against people who have licensed themselves to steal.

    “They’ve robbed people of their homes and their economic security,” Holder said.  “They’ve depleted bank accounts and pension funds.  In some places, they’ve dried up philanthropic giving and shuttered charities.  They’ve placed unfair challenges before cash-strapped governments, local police departments, small businesses, and American workers and consumers.”

  • News, Notes And Updates: Jailed And Disbarred, Former Massachusetts Attorney Who Fleeced 95-Year-Old Client Arrested On New Charges

    EDITOR’S NOTE: This post distills recent news and development on the fraud and Ponzi fronts.

    CHARGED: Six people — including a disbarred attorney already in prison — have been charged in Massacuusetts in an elaborate mortgage-fraud scheme.

    Bruce Namenson, the former lawyer, was charged with 18 counts of of larceny for arranging bogus loan closings, sham notarizations and pocketing fraudulent proceeds from real-estate deals.

    Namenson, 47, of Walpole, Mass., already was in prison when arrested on the mortgage-fraud charges. In an earlier case, he was convicted of operating a complex scam in which both clients and insurance companies were bilked.

    One of the victims in the insurance-fraud case was a 95-year-old man, Massachusetts Attorney General Martha Coakley said.

    In the insurance case, which involved victims young and old, Namenson defrauded the 95 year-old client out of a $20,000 bodily injury settlement check.

    “The client had been injured in a car accident, and instead of paying the client a portion of the settlement, Namenson forged the client’s signature on a settlement release and settlement check, kept the money, and repeatedly told the client that his case had never been settled,” Coakley’s office said in 2008.

    Namenson also fleeced an injured, 15-year-old client out of most of a $100,000 settlement, prosecutors said.

    Charged in the new case with Namenson were Joshua Brown, 29, of Brockton, Mass; Brian Frank, 32, of New Hartford, N.Y.; John Sweetland, 28, of Yorba Linda, Calif; Linda Defeo, 28, of Springfield, Mass; and Brian Arrington, 39, of Boston.

    Brown, Frank and Sweetland are real-estate investors, Coakley’s office said yesterday. Defeo and Arrington are mortgage brokers.

    The real-estate scheme fleeced banks and borrowers out of $12.5 million, and involved bogus appraisals, submissions of bogus loan documents and misrepresentations to virtually every party in transactions tied to 26 distressed properties, prosecutors said.

    Brown, Frank and Sweetland skimmed $2 million from corrupt transactions, Coakley’s office said. Defeo and Arrington arranged for bogus loans, and Namenson presided over corrupt closings and pocketed money that was supposed to pay for title insurance.

    INDICTED: If you’re a Forrest Gump fan, this case might be one to add to a Bubba Blue list of the various ways to have a Ponzi scheme, instead of the various ways to have shrimp.

    John D. Terzakis, 52, of Hinsdale, Ill., and Robert E. Estupinian, 47, of San Jose, Calif., have been indicted in California on 12 felony counts of wire fraud, money laundering, and conspiracy to commit wire fraud and money laundering.

    A company operated by Terzakis and  Estupinian — Vesta Strategies of San Jose — was a Ponzi scheme, U.S. Attorney Joseph P. Russoniello said. Terzakis was the majority owner of Vesta and controlled its business activities. Estupinian, was the chief executive officer and minority owner of Vesta until December 2007.

    The scheme, according to prosecutors, involved the business of being a “qualified intermediary” in tax-deferred, real-estate exchanges under section 1031 of the Internal Revenue Service Code.

    “In general, a Section 1031 exchange allows taxpayers to avoid paying tax on capital gains by depositing the proceeds from an investment real estate sale, that would otherwise qualify as a taxable capital gain, with a qualified intermediary for up to 180 days,” prosecutors said.  “Under Section 1031, if the taxpayer purchases another investment property within those 180 days, the proceeds from the first sale may be rolled over into the new investment without being taxed as capital gains.”

    Although Vesta promised to hold funds as a qualified intermediary, Terzakis and Estupinian “stole client funds for their own use” and and also “used new client deposits to pay redemptions owed to earlier clients,” prosecutors said.

    Terzakis was arrested in Illinois. He made an initial appearance before a judge, who placed him on home confinement with electronic monitoring, pending a second appearance Jan. 13. Estupinian was arrested in California. He also made an initial appearance before a judge, and was placed on home confinement with electronic monitoring secured by a $1 million bond. His next appearance is scheduled Jan. 20.

    CONVICTED: Oren Eugene Sullivan, 63, of Rock Hill, S.C., has pleaded guilty to mail fraud in a Ponzi scheme.

    U.S. Attorney Walt Wilkens said Sullivan admitted that he ran a Ponzi scheme between 1995 and 2008 in which he sold false investments to 35 different individuals or groups of investors.

    “Sullivan told clients that he was managing their investment accounts, and paid small dividends to his investors,” prosecutors said. “However, he was actually converting their invested money for his own use, and paying the dividends with money he received from new investors. Over the course of the scheme, Sullivan took in approximately $2.5 million from unwitting investors.”