THE GREAT PONZI PAPER CHASE: Playing Field Spans Globe, Judge Says; SEC Notes Cook/Kiley Banking Ties In Antigua, Europe, Middle East

The ruling by a federal judge yesterday that put alleged Minnesota Ponzi schemer Trevor Cook behind bars until he surrenders tens of millions of dollars in offshore bank accounts includes some interesting details.

For one, Cook, accused by the SEC and the CFTC in a $190 million fraud, had access to a bank account in Antigua. Money connected to Cook was transferred to Antigua Overseas Bank LTD, according to an exhibit Chief U.S. District Judge Michael Davis cited in the case.

AdSurfDaily, a Florida firm implicated in a $100 million Ponzi scheme, also had money in Antigua. ASD, according to court filings, had at least $1 million in a bank on the Caribbean island — in an account under a different name. The name of ASD’s bank has not been disclosed. Neither has the name under which the account was opened.

Meanwhile, Cook also had access to bank accounts in “Denmark, the Middle East, Sweden, Switzerland, Germany and Central America,” according to court filings.

Gold Nugget Invest (GNI), an online HYIP that recently went bust, also purportedly relied on Eurpoean banks. One of GNI’s principals purportedly is named “Jurgen,” and GNI cited a problem with deposits at a “Correspondent Bank” of Yesilada Bank. Money GNI purportedly relied on was frozen “by the German Authorities,” GNI participants said, relying on a convoluted email from the company as their source.

“This particular frozen account contains all of Yesilada’s client’s foreign exchange funds,” GNI said in a lengthy message to members. It did not identify the “Correspondent Bank.”

No public documents suggest Cook’s operations were connected to GNI or ASD. But do you wonder just how many players these alleged schemes have in common?

The documents in the Cook case outline an alleged elaborate fraud that occurred internationally and involved multiple international banks. Those elements have become common in Ponzi scheme probes, some of which are giving new meaning to the phrase “paper chase.”

Willfull Blindness

Members of GNI appear not even to know for certain what business the company is in and appear not even to be certain about with whom they’re actually doing business, a sort of willful blindness. Members seem to believe that GNI is in the sports “arbitrage” business, which apparently uses a hedging system to minimize betting risk, but the company also has made references to forex trading.

GNI members receive nothing that resembles proof of what the company does with investors’ money. Some members suggest that the only thing that mattered to them was that GNI “paid” — before it stopped paying earlier this month, that is.

GNI began to show signs of an impending failure in the days after Judge Davis froze the assets of the alleged Cook/Pat Kiley scheme in Minnesota, though no linkage has been established between the Cook/Kiley operations and GNI.

Actions the SEC and federal prosecutors took last year against Antigua banking magnate Allen Stanford — himself implicated in an international Ponzi scheme that perhaps involved as much as $8 billion — appear to have had a ripple effect across the world of online autosurfs and HYIPs.

Several failed in the wake of the federal actions against Stanford, who is jailed in Texas. The BizAdSplash (BAS) autosurf, for example, reported problems in the aftermath of the alleged Stanford Ponzi.

Incredible Challenge For Investigators

What does it all mean? The big picture is far from clear. The autosurf and HYIP landscape is littered with carcasses from one side of the world to another. This universe is dominated by spectacularly corrupt businesses and individuals, many of whom exist in the shadows.

Last year, the Obama administration announced an initiative to crack down on offshore fraudsters. Some of the litigation that has emerged — or already was in the pipeline when the initiative was announced — produces legal tales that hardly can be believed. The litigation also demonstrates the incredible amount of investigative work and reverse-engineering that is required to prepare a case against defendants.

Here are some examples from the Cook/Kiley case, which is still very much an investigation in progress:

There are multiple defendants or relief defendants that allegedly received ill-gotten gains from the scheme, including Cook and Kiley, UBS Diversified Growth LLC, Universal Brokerage FX Management LLC, Oxford Global Advisors LLC, Oxford Global Partners LLC, Basel Group LLC, Crown Forex LLC, Market Shot LLC, PFG Coin and Bullion, Oxford Developers, S.A., Oxford FX Growth LP, Oxford Global Managed Futures Fund, L.P., UBS Diversified FX Advisors LLC, UBS Diversified FX Growth L.P., UBS Diversified FX Management LCC, Clifford and Ellen Berg and other unspecified individuals and companies.

Note the multiple references to company names that use the word “Oxford” and references to famous corporate initials such as UBS, which investigators believe is a bid to create the appearance of legitimacy by milking off the names of legitimate companies.

Notice also the reference to PFG Coin and Bullion. Many recent scams have included references to precious minerals or precious metals. Other schemes have mixed purported forex trading — notice the FX references — and gambling in one form or another.

The task of unraveling the Cook/Kiley network has fallen chiefly to Scott Hlavacek, an SEC accountant.

Here are some words from Judge Davis, citing allegations and Hlavacek’s early work on the case, a paper chase if ever there was one:

“From his review of bank records and other documents, Mr. Hlavacek determined that from July 2006 through July 2009, the Defendants’ bank accounts received at least $190 million from at least 1,000 investors,” Davis said, citing records. “Mr. Hlavacek further determined that from August 2006 through July 2009, Cook and Kiley used $108 million of the investors’ money to fund banking and trading accounts, and to trade in foreign currencies.”

The judge continued (emphasis added):

“Hlavacek further determined that Cook and Kiley used $42.8 million of investors’ money for their own use: $18 million was diverted to buy ownership interests in two trading firms; $12.8 million to finance the construction of a casino in Panama; $4.8 million that Cook lost through gambling; $2.8 million that Cook used to acquire the Van Dusen mansion [in Minneapolis]; $2.7 million withdrawn in cash and cashier’s checks; $1.3 million to make payments to lawyers; $1 million to a private investment firm; and $1 million to pay personal credit cards and bank payments.”

Cook, according to investigators, had a Barclay’s credit card that he used to purchase hard-to-trace gift cards after the asset freeze.

“On December 1, 2009, Cook obtained $2,700 in gift cards from the Cub Foods store in Eagan [Minn.] by charging such purchase to a Barclay’s credit card,” Davis said, citing records. “On December 3, 2009, Cook incurred purchases at the same Cub Foods store totaling $2,784.51 using the Barclay’s credit card.

“Thousands of dollars were charged to Target Stores to obtain gift cards using the same Barclay’s credit card used at the Cub Foods Store,” Davis said. “On October 20, 2009, Cook sold a car to Morrie’s Motors and received a cashier’s check in the amount of $37,500. Neither the money nor an accounting was turned over to the Receiver as required by the Agreed Orders.

“On October 15, 2009, Cook sold a car to Premier Marketing and received a cashier’s check in the amount of $16,500. Neither the money nor an accounting was turned over to the Receiver as required by the Agreed Orders,” the judge said.

“On July 2, 2009, Cook withdrew $600,000 from the Oxford Global FX, LLC account at Associated Bank. Neither the money nor an accounting was turned over to the Receiver as required by the Agreed Orders.”

Worn out yet? If so, you likely won’t gain any comfort from the fact that the litigation is only two months old and that the investigation still is in its early stages — with the world as the stage.