PatrickPretty.com

Tag: SIPC

  • ‘SURF/HYIP HELPERS BEWARE: Woman Who Helped Tennessee Ponzi Schemer Cover Up Fraud Sentenced To 6 Years In Federal Prison; Donna Jones’ Role In $12.3 Million Caper Outlined By Jailed Boss In Court After Investigators ‘Follow The Paper Trail’

    EDITOR’S NOTE: Although Donna Jones did not run an autosurf or online HYIP fraud, the case against her is instructive. Indeed, prosecutors said, Jones was an insider who was aware of the Ponzi scheme being conducted by her boss, Michael J. Park. And Jones took an active role in the scheme, encouraging customers to invest, hustling cash even as the scheme was unraveling, creating bogus “spreadsheets” and fabricating information given to investors.

    It is common for autosurf and HYIP insiders to solicit funds for fraud schemes, use spreadsheets with bogus or illusory information to reel in and (later) lull prospects, siphon investor funds and simply lie to maintain their ability to keep drinking from a criminal well.

    At least seven federal, state and local agencies became part of an intense probe to reverse-engineer the Park scheme. In the end, Park himself testified against his former employee.

    UPDATED 9:58 A.M. EDT (U.S.A.) A woman employed by a Tennessee Ponzi schemer added $19,000 in new clothes to her wardrobe, withdrew $225,000 in cash and spent more than $300,000 on home renovations, federal prosecutors said.

    Now, Donna Jones has been sentenced to 72 months in federal prison. Jones, 37, of Dickson, Tenn., also was ordered to pay nearly $8.2 million in restitution to victims.

    Jones was the office manager of Park Capital Management Group (PCMG), a Brentwood, Tenn.-based business operated by Michael J. Park. Park, who is serving a 96-month prison sentence, testified about Jones’ knowledge of the scheme at her sentencing hearing, prosecutors said.

    Federal, state and local law-enforcement agencies worked together to expose the fraud, prosecutors said.

    Among the agencies working the criminal probe were the U.S. Attorney’s Office, the FBI, the U.S. Postal Inspection Service, the IRS, the Tennessee Bureau of Investigation and the Brentwood (Tenn.) Police Department. The SEC sued Park in a civil case.

    “Jones repeatedly encouraged people to invest by falsely promising security, growth and inflated returns on their money, but instead the investors lost their savings as part of an elaborate Ponzi scheme,” said U.S. Attorney Jerry E. Martin of the Middle District of Tennessee.

    Park advised U.S. District Judge Aleta Trauger that Jones used a “spreadsheet” to keep track of “fictitious” PCMG accounts and that he and Jones “pooled” investor funds and used them as “their own personal bank account,” prosecutors said.

    “This case further demonstrates how effectively IRS Criminal Investigation agents work jointly with our federal and state law enforcement partners in investigating complex financial crimes,” said Darryl Williams, acting special agent in charge of the IRS Criminal Investigation unit in Nashville.

    “IRS Criminal Investigation agents were able to use their expertise to conduct a complex financial investigation, follow the paper trail, and unravel violations of federal law,” Williams said.

    It also was Jones’ idea to use the seal of the Securities Investor Protection Corp. (SIPC) to create the illusion that investing with PCMG was safe, according to Park’s testimony.

    But “PCMG was not a member of the SIPC, and the SIPC provided no protection for PCMG investors,” prosecutors said.

    Jones, who also was accused of concealing the scheme by fabricating documents and soliciting funds to cover shortfalls, pleaded guilty to mail fraud and money-laundering in January.

    Among the documents were IRS 1099 forms, but “none of the funds listed in PCMG investment accounts were ever invested,” according to Park’s testimony.

    It is common in the autosurf and HYIP spheres for purveyors to claim an “opportunity” is legitimate because the company gathers tax information and sends 1099 forms.

    Park also was the subject of a 2008 complaint filed by the SEC, bringing the number of state and federal agencies involved in PCMG-related litigation to at least seven.

    “Park used investor funds, among other things, to help purchase a $1 7 million home, pay for expensive golf memberships, to purchase a Porsche automobile and to purchase a Mercedes Benz sedan worth more than $90,000,” the SEC said in September 2008.

  • Bowdoin/Madoff Alleged Ponzis: Just ‘Andy’ And ‘Bernie’

    UPDATE 1:03 PM EST (U.S.A.): Quoting Stephen Harbeck, president and chief executive officer of the Securities Investor Protection Corp. (SIPC), Bloomberg News is reporting that Bernard Madoff’s financial records are “utterly unreliable.” We’ve added a link at the bottom of the post.

    Here, below, our earlier post . . .

    If you’ve been following the Ad Surf Daily/Andy Bowdoin Ponzi scheme case, you’re missing out if you haven’t been following the Bernard Madoff case.

    The cases are similar in that both ASD and Bernard L. Madoff Investment Securtites have been accused of using incoming funds to pay off older participants, thus the “Ponzi” terminology. Affinity fraud also is an element: ASD was popular among people who defined themselves Christians, and Madoff’s offer appealed to members of the Jewish community.

    Both ASD and Madoff had a worldwide client base (in Madoff’s case, European financial managers appear to have steered clients’ money to Madoff, while ASD sold directly to clients in Europe and elsewhere). Both companies also had Florida clientele, with ASD conducting “rallies” for less-affluent people to drum up business in the state and Madoff preferring the Country Club approach in Palm Beach.

    One principal difference is that ASD defined itself as an “advertising” company that offered “rebates” on ad purchases of up to 125 percent of the customers spend in about four months. Put $10,000 in ASD, and four months later you’d have $12,500. Madoff didn’t uses wordplay in the ASD sense in a bid to avoid regulatory scrutiny, but clients expected their investments to grow 10 percent to 12 percent a year, based on Madoff’s published “results.”

    Another difference is the degree of the alleged Ponzi. ASD, whose assets were seized by the U.S. government in August, is expected to top out at roughly $100 million; prosecutors in the Madoff case fear losses could top $50 billion, based on Madoff’s own words.

    Yet another difference is customers’ views in the hours after the word “Ponzi” was associated with Bowdoin and Madoff: Many ASD customers blasted the government, arguing that things would have been just fine had prosecutors not meddled in ASD’s affairs. Madoff’s investors, however, were furious with Madoff. They wanted to know why the government hadn’t detected the fraud earlier and stopped it before it mushroomed globally.

    What’s strikingly similar about the cases, though, is the degree to which Bowdoin and Madoff traded on their innate charisma: Bowdoin in a folksy, Southern way, and Madoff in a confident, aloof way with a pinch of “regular Joe” thrown in. Bowdoin was “Andy” to his fans; Madoff was “Bernie.”

    People waited in line to give them money and let them do their magic. ASD collected tens of millions of dollars from “advertisers” in just several weeks last summer. Some ASD members took out second mortgages and cashed out savings to qualify for matching bonuses at rallies. In Madoff’s case, some people felt genuinely humble that a Wall Street titan had agreed to manage their money.

    Roger and Diane Peskin of Bethlehem, Pa., entrusted $3 million earned over a lifetime to Madoff, after having waited six months for the privilege of having their money accepted by Madoff. The couple also took $400,000 from the sale of their home and passed it along to Madoff, according to the Allentown Morning Call.

    Unlike Bowdoin, Madoff hadn’t been accused of previous securities felonies. But he traded on a lifetime of supposed business acumen, something Bowdoin did as well. Bowdoin got in trouble with the government after some of his promoters made the claim that he’d received a special award from President Bush for career accomplishments. It turned out the award Bowdoin received was the “Medal of Distinction,” which is handed out by the National Republican Congressional Committee for campaign contributions. An Ohio drug addict got the same award. He, too, claimed close ties to the White House.

    Madoff was hailed a trading legend. He’d been chairman of Nasdaq and had a supposed reputation for transparency — except, apparently, when it came down to his own securities company, which people now say was run in secretive fashion.

    Person after person has claimed they’d performed “due diligence” on both Bowdoin and Madoff. Since prosecutors seized ASD’s assets in August, however, the company hasn’t published an audited balance sheet. U.S. District Judge Rosemary Collyer ruled last month that ASD had not demonstrated it was a legal business and not a Ponzi scheme at a Sept. 30-Oct. 1 evidentiary hearing. It is not known if the firm even employed an auditor.

    Madoff, it turns out, seems to have used a three-person auditing firm that operated out of a 13-by-18-foot office in a suburban plaza. He, too, seems to have a problem on the accounting front. Like ASD, it raises the question if due diligence claims are credible in the absence of verifiable financial data.

    Bowdoin has yet to be charged criminally, but his attorneys say that might be coming. Madoff has trouble on the civil and criminal fronts, his reputation in tatters. He had a list of celebrity clients. Jewish charities already have been forced to suspend operations, and the town of Fairfield, Conn., has lost a bundle in its pension fund — money that was supposed to take care of civil servants in their retirement years.

    Andy Bowdoin is not Bernie Madoff, and Bernie Madoff is not Andy Bowdoin. Regardless, they are two men from very different backgrounds who had one thing in common: The power to draw money like a magnet and to disarm doubters by putting their individual charms on full display — Bowdoin in Internet videos that reminded people of a sort of Southern Mr. Rogers, and Madoff in Wall Street’s power corridors and the country clubs of Palm Beach: Bernie being Bernie, and Andy being Andy, their critics disarmed, their investors’ financial lives now in shambles.

    Bloomberg News: Madoff’s Financial Records ‘Utterly Unreliable’

  • SIPC To Liquidate Bernard L. Madoff Investment Securities

    A federal judge has appointed a trustee to liquidate Bernard L. Madoff Investment Securtites under the auspices of the Securities Investor Protection Corp. (SIPC).

    SIPC went to court earlier today to seek liquidation. Irving H. Picard will serve as trustee. The law firm of Baker & Hostetler will serve as counsel to Picard.

    “I will work with SIPC to do what the law allows to ameliorate losses to customers,” Picard said.

    It will not be an easy job because insurance likely won’t put a dent in the staggering losses, which may total $50 billion or more.

    Stephen Harbeck, president and chief executive officer of SIPC, said Picard was the person for the job, but cautioned that the scope of the misappropriation and the state of Madoff’s records will make the task harder than most prior brokerage-firm insolvencies.

    “It is unlikely that SIPC and [Picard] will be able to transfer the customer accounts of the firm to a solvent brokerage firm,” Harbeck said.

    The state of the firm’s records “may preclude a transfer of customer accounts,” SIPC added in a News Release. “Also, because the size of the misappropriation has not yet been established, it is impossible to determine each customer’s pro rata share of ‘customer property.’”

    SIPC insures accounts up to $500,000 per customer. The insurance covers only money missing from brokerage accounts. It does not insure against investment losses.

    Learn more about SIPC.