Federal judges in California, New York, Tennessee and Arizona last week ordered spectacular financial penalties against Forex and commodities fraudsters.
Dennis R. Bolze was assessed a penalty of more than $36.6 million and ordered to pay restitution of more than $13 million to investors he scammed. The orders were entered by Chief U.S. District Judge Curtis L. Collier of the Eastern District of Tennessee.
Bolze was sentenced last year to more than 27 years in federal prison by U.S. District Judge Thomas A. Varlan, also of the Eastern District of Tennessee.
Meanwhile, Robert D. Bame was assessed restitution and a financial penalty totaling $46.9 million by U.S. District Judge R. Gary Klausner of the Central District of California.
In May 2009, Bame was sentenced to 97 months in federal prison for wire fraud and engaging in monetary transactions with property derived from specified unlawful activity.
The cases against Bame and Bolze alone resulted in monetary sanctions of more than $96.6 million.
Separately, a restitution order and penalty totaling more than $1.1 million was entered against Helmut H. Weber by U.S. District Judge David G. Campbell of the District of Arizona. Weber was indicted in October 2008 by state authorities for fraud and the misappropriation of customer funds.
In New York, meanwhile, Jeffrey Shalhoub was ordered to pay more than $700,000 in restitution and penalties. Those orders were entered by U.S. District Judge Joanna Seybert of the Eastern District of New York.
The CFTC, which brought the civil cases against each of the defendants referenced in this story, said Shalhoub ran a Ponzi scheme, using customers’ money to “pay for computer and golfing equipment, clothing, car payments on a Land Rover and a $3,500 tab at a Manhattan restaurant.”
Bolze, one of the earliest of the so-called “mini-Madoffs,” also ran a Ponzi scheme. Bolze bolted from Tennessee in December 2008, the same month the Madoff Ponzi was exposed.
After his arrest in Pennsylvania, Bolze asked for an opportunity to recoup the money he had fleeced from victims. All he needed, he argued to a federal judge, was the Internet, a computerized program — and a little time.
Bame, the CFTC said, “diverted about $19 million of investors’ money either to pay off other investors or for his personal use, such as purchasing automobiles or traveling in private jets.”
In the case of Weber, the CFTC said, “the majority of the funds were misappropriated to pay for [his] lavish lifestyle.”
We highly recommend an even-handed series the Salt Lake Tribune published on the subject of multilevel marketing in Utah. (Link appears at bottom of post.) The series includes comments from MLM enthusiasts, the Direct Selling Association, attorneys for well-known MLM companies, MLM critics and the FTC.
Meanwhile, the series shows that MLM has some political clout, and points out that Utah has more MLM firms per capita than any other place in the United States. It also publishes data supplied by a number of companies.
The series is accessible through a “State of the Debate” Blog entry by George Pyle, a longtime journalist who was a finalist in 1998 for the Pulitzer Prize in Editorial Writing. Don’t miss the cartoon that accompanies Pyle’s presentation of the links to the stories. The cartoon pokes fun at the ready supply of over-the-top MLM sales pitches.
Pyle’s Blog entry does not hold forth on the subject of MLM; it simply introduces the series. Readers can draw their own conclusions after clicking on the links and reading the stories
The series consists of articles by Tribune reporters Steven Oberbeck, Matt Canham, Tom Harvey and Kirsten Stewart.
MLM Fans (Again) Demonstrate Lack Of PR Savvy
As often is the case when media outlets tackle the subject of MLM, the post-publication opinions of the Tribune’s readers were strongly divided. MLM perhaps always will be a “scam” to one side in the long-running debate — and a marvelous thing to the other. One of the best things about the series is the comments submitted by readers. The PP Blog believes the comments submitted by MLM enthusiasts are the most instructive.
Although the PP Blog publishes relatively few stories about MLM, the ones it has published have been met with organized (and bizarre) resistance. After publishing a series of stories on the MPB Today “grocery” MLM last summer and fall, supporters of the firm arrived on the Blog to call MPB Today’s critics “roaches,” “IDIOTS,” “clowns,” “terrible” people, “misleading” people, people who have led a “sheltered life,” people who have been “chained up in a basement,” people who have “chips” on their shoulders, spewers of “hot air,” “naysayers,” “complainers,” “trouble maker[s]” and “crybabies.” (See this editorial.)
They were doing this on behalf of a business that had any number of reps who apparently licensed themselves to film commercials inside Walmart stores and to use Walmart’s intellectual property to drive dollars to MPB Today. At least two reps declared it best to do business with them because other MPB Today affiliates were lying scammers. Meanwhile, another MPB rep sought to drive business to the firm by creating a script that depicted President Obama and Michelle Obama as welfare recipients aspiring to eat dog food. The President and Secretary of State Hillary Clinton were cast as Nazis, with Obama subordinate to Clinton, who also was cast as a drunk.
One thing that continues to drive criticism of MLM is the bizarre behavior of some of its supporters. This behavior can be described fairly as cult-like, Stepfordian, incongruous, supremely awkward and monumentally ham-handed. It is utterly predictable, and the lack of PR savvy contributes to the industry’s poor reputation.
In response to Oberbeck’s story, which referenced the disclosure statements of a number of well-known companies and reported that “nearly all” distributors “will fail,” one reader surmised in a Comments thread that the Tribune reporter was “broke” and driven by “negativity.” It was a familiar refrain.
Naturally the comment precluded the possibility that the reporter had any pure motives such as enlightening the Tribune’s readership about some of the realities of MLM. How the industry ever could hope to elevate the debate by attacking the messenger — in this case, Oberbeck — is left to the imagination.
What happened at the Tribune, however, is hardly unique.
After the U.S. Secret Service seized tens of millions of dollars in the AdSurfDaily Ponzi MLM case in 2008, some ASD affiliates advanced theories that the agency’s work was the work of “Satan” and that a Florida television station should be charged with Deceptive Trade Practices for carrying news unflattering to the company. They later complained that reporters seemed disinclined to put much stock in their point of view.
Prosecutors said ASD created as many as 40,000 victims while gathering at least $110 million in a classic Ponzi scheme put together by Andy Bowdoin, a recidivist felon. Rather than distancing themselves from Bowdoin, some ASD members reportedly sent him brownies and delicious baked goods. Others signed a petition calling for the prosecutors to be investigated. Still others advanced a theory that the U.S. Secret Service was guilty of interference with commerce. The key prong of the theory was that all commerce is legal as long as both parties to a contract agree it is legal, a position that would legalize (and legitimize) Ponzi schemes, slavery, human trafficking and narcotics trafficking, among other crimes.
Len Clements Lectures Tribune Reporter
Well-known MLM aficionado Len Clements, who advertises his IQ of 155, apparently believed that Oberbeck’s story in the Tribune deserved a response in the form of a five-page “open Response Letter.”
Clements noted in his “open Response Letter” to Oberbeck that he assumed the reporter had been “duped” by MLM critics Robert FitzPatrick and Jon Taylor — and Tracy Coenen before them.
In his “open Response Letter,” Clements accused Fitzpatrick, Taylor and Coenen, a forensic accountant, of being “anti-MLM antagonists” who were “slathering” the profession with misplaced criticism.
“Slathering” is a good and powerful word. It doesn’t describe the efforts of FitzPatrick, Taylor and Coenen to educate the public about the perils of endless-chain recruiting schemes, but it’s a good word nonetheless. We’re glad that Clements, who advertises his IQ of 155, used it; it gives us a chance to use the word “unctuous.”
Indeed, we view Clements’ “open Response Letter” as “unctuous.” It begins with a doozy of a misplaced modifier, but that’s only worth a brief mention — and only because Clements advertises his IQ of 155. Plenty of people with high IQs don’t have command of grammar, which likely bores them to tears.
The reason we’re using the word “unctuous” to describe Clements’ “open Response Letter” is that it practically drips with stinking, vomitous verbal slime. It’s the sort of passive-aggressive letter in which the insult is deeply embedded in the vomit of the opening lines, with the vomit theoretically neutralized later with softer words that are supposed to demonstrate Clements’ sincere desire to be helpful.
Any “professional journalist” should be interested in “accurately, fairly and responsibly” presenting the topics they write about, Clements unctuously points out at the top of the letter, setting himself up as a journalism cop. After implying that Oberbeck isn’t a pro and hasn’t done his homework, Clements goes on to trash the story and the MLM-unfriendly sources used in the story.
The roadmap to professional reporting about MLM as provided by Clements in his “open Response Letter” includes at least 10 footnotes. It was submitted to the newspaper in the form of a link to a PDF that contains multiple link’s to Clements’ website. The document is unctuously titled “OberbeckResponse” and asserts that Oberbeck’s reporting “seem[s] to betray any objective research and analysis of the subject.”
Clements, who started out by lecturing Oberbeck on what constitutes professional journalism, eventually positions himself as the sincere cure for what purportedly had dragged down the quality of the reporter’s work.
“Should you ever need assistance in researching any topic related to the field of multilevel marketing I sincerely hope you will contact me,” Clements un-vomits to Oberbeck at the conclusion of the “open Response Letter,” after earlier coming out of the gate with embedded slime, a lecture on professionalism and an attack on sources used by the reporter as “remarkably ignorant” people and the purveyors of “flimflam.”
At least Clements didn’t summon his advertised IQ of 155 to call them “roaches” or to declare that Oberbeck was “broke.” He merely relied on his unctuousness. In doing so, he demonstrated once again that MLM often is its own worst enemy.
A five-page, de facto letter to the editor — one filled with slime reimagined as a sincere effort to be helpful and 10 footnotes? This is supposed to beneficial to the trade?
Little wonder that MLM finds itself the topic of constant criticism.
Tigard, a small city in Oregon, was home to Victor Kaganov. Kaganov has pleaded guilty to operating an unlicensed money-transmitting business that funneled $172 million to at least 50 countries. Prosecutors said he established "shell companies" for Russian clients. PHOTO: Wikipedia
An Oregon man living in a small town set up “numerous” shell companies for Russian clients and funneled more than $172 million to at least 50 countries, prosecutors said.
Victor Kaganov, 69, of Tigard, has pleaded guilty to charges of operating an unlicensed money-transmitting business. Tigard is small city whose population is about 47,000.
Kaganov was born in Russia. He moved to the United States in 1998 and became a naturalized citizen, prosecutors said.
At least one of the shell companies purported to have a tie to Cyprus, according to records. At least three of the companies used the word “Fishing” in their corporate names. Some used the word “Financial.”
The announcement of the guilty plea was made in Washington by Assistant Attorney General Lanny A. Breuer, the head of the Criminal Division of the U.S. Department of Justice.
Using stark language, Breuer said U.S. investigators followed the money to expose the crime and were committed to exposing similar crimes. The FBI has repeatedly warned Congress about a “shadow” banking system and shell companies set up to disguise crimes.
“Now more than ever, we are determined to bring to justice those who attempt to hide funds in U.S. financial institutions,” Breuer said.
The probe was led by the office of U.S. Attorney Dwight C. Holton of the District of Oregon. Holton, like Breuer, also used stark language when describing the Oregon caper.
“When shell corporations are illegally manipulated in the shadows to hide the flow of tens of millions dollars overseas, it threatens the integrity of our financial system,” Holton said. “Sunshine kills the stink of corruption — our laws aim to bring the sunshine in, and we will enforce these laws vigorously.”
Holton and Breuer were backed by Oregon’s top FBI agent, who also used stark language.
“We will not allow Oregon to be used like the corner ATM for people in foreign countries,” said Arthur Balizan, special agent in charge. “Crimes like these eat away at the stability and prosperity of the American financial system.”
Agents determined that Kaganov made at least 4,200 illegal wire transfers.
“In order to move money in and out of the United States, Kaganov created various shell corporations under Oregon law, and then opened bank accounts into which he deposited money he received from his Russian clients,” prosecutors said. “Kaganov admitted he would then wire the money out of the accounts based on wire instructions he received from his clients.”
Kaganov’s operation complied with neither Oregon law nor U.S. law, prosecutors said.
In a case apt to plague Wall Street with questions about whether people on Main Street should trust it, the SEC has accused one of the world’s foremost business consultants with providing illegal “insider trading” tips that lined the corporate pockets of one of the richest men in the world.
Rajat K. Gupta is accused of providing confidential information about the earnings reports of Goldman Sachs and Procter & Gamble to Raj Rajaratnam and also disclosing to Rajaratnam a plan by Warren Buffett’s Berkshire Hathaway to invest $5 billion in Goldman.
Gupta allegedly gleaned the information while serving on the boards of Goldman Sachs and Procter & Gamble. Rajaratnam, the head of Galleon Management, used it virtually immediately either to generate illegal trading profits of millions of dollars or to avoid losing millions of dollars, the SEC charged.
Rajaratnam, who is facing a criminal trial in the Galleon insider-trading case, was listed as No. 236 on the 2009 Forbes magazine list of the 400 richest Americans. Forbes reported that Rajaratnam had assets of $7 billion in 2009.
Gupta, meanwhile, is the chairman of the International Chamber of Commerce, a special adviser to the United Nations, an adviser to the Bill & Melinda Gates Foundation, an adviser to prominent academic institutions in the United States and India — and a board member or former board member of some of the most famous companies in the world. By virtually all accounts, he built a stunningly successful international business career after starting out at McKinsey & Co. in 1973.
Today, though, the SEC accused him of betraying the trust he had built up over decades.
“Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “Directors who violate the sanctity of board room confidences for private gain will be held to account for their illegal actions.”
Gupta “voluntarily resigned” from P&G’s board today, the company said in a statement. He left the board of Goldman Sachs last year.
One of the problems with illegal insider trading is that it undermines the public’s confidence in the fairness and integrity of securities markets, the SEC says. It is illegal to trade on material, nonpublic information about a security and to breach a fiduciary duty.
Read the stunning allegations against Gupta, who denies them.
A Florida man who operated a website known as “Forex Futures Trader” to drive business to his Ponzi scheme has been sued for fraud in an emergency action, the CFTC said.
Some of the cash was routed through a firm that continued to do business despite the fact it was dissolved by the state in 2005, the CFTC said. At the same time, the agency alleged, customers were told to send money to a firm in the holistic health business, not in the Forex business.
Named defendants were David L. Ortiz of Vero Beach, Goyep International Inc. of Vero Beach, and Royal Returns Inc. of Hollywood. Neither Ortiz nor the firms was registered with the CFTC, and a federal judge has frozen their assets, the agency said.
Royal Returns was “involuntarily dissolved” by the state of Florida in 2005 after being operational for less than a year, but continued to do business after the dissolution, the CFTC said.
In May 2008, after Royal Returns had been dissolved for nearly three years, it began soliciting money for a Forex program, the CFTC said. Despite advertising the Forex program, Ortiz told some customers to send their money to a company known as Natural Health Matters LLC, which purported to be in the business of “holistic health care and freelance services.”
Natural Health Matters has been named a relief defendant in the case because it allegedly received ill-gotten gains. Loredana Ortiz also was named a relief defendant.
At least 10 investors plowed at least $420,000 into the scheme, which the CFTC described as a Ponzi in which at least $232,000 was misappropriated for things such as shopping trips, travel, resort hotels, restaurants, utility bills, car payments and making payments on personal credit cards.
Investors were lured by promises of guaranteed returns of 10 percent a month, the CFTC said.
One customer tried to close her account and be reimbursed in August 2009, but met resistance from David Ortiz, who explained reimbursement was not possible “due to multiple factors beyond his control,” the CFTC charged.
Ortiz then ignored the woman’s “repeated” emails and calls for weeks, but eventually sent her a bad check. After that, the CFTC said, Ortiz “wired a refund to this customer from funds from another investor.”
Another customer was paid purported “profits” on his investment, but the funds came from the man’s own investment principal, the CFTC alleged.
Other customers falsely were told not to withdraw principal or profits because doing so “would result in significant trading losses due to a premature liquidation of open trading positions,” the CFTC alleged.
Ortiz also told a lie that he was registered with the SEC and had 30 years’ investment experience, the CFTC said.
In reality, Ortiz had no SEC registration, had traded Forex for less than three years, had a record of futility — and covered up his losses by providing bogus statements to customers, the CFTC said.
EDITOR’S NOTE: Lower in this story, the names of AdSurfDaily President Andy Bowdoin and other individuals appear. They are NOT the individuals referenced in the government communiqué described below.
UPDATED 12:50 P.M. ET (U.S.A.) The name of a person known to have used at least two names and to have AdSurfDaily ties appears in a law-enforcement communiqué issued in 2009 by the counter-terrorism arm of a U.S. government agency that employs a method of monitoring both domestic extremists and individuals with known links to international terror groups, the PP Blog has learned.
At least one communication from the person was intercepted by the government and used as part of a raw intelligence report that includes summaries on the actions of dozens of individuals with alleged ties to al-Qaida, Hezbollah or homegrown extremist groups in the United States. The communication does not reference ASD, but includes a reference to a second person known to have an ASD tie.
The sender of the communication was described as a provider of fraudulent documents typically associated with tax schemes operated by antigovernment extremists. Meanwhile, the intended recipient was an individual known to have promoted various forms of financial fraud, including a scheme in which prospects were told they could qualify for Medicaid by hiding assets and making themselves artificially poor.
Medicaid is a federal health-services program for low-income Americans. It is administered by the states.
The PP Blog established the identities of both individuals with ASD ties by examining a variety of public records and other documents.
ASD's Andy Bowdoin
Neither person is in state or federal custody, but it is clear that both the federal and state governments are aware of their activities and have worked to disrupt them. The intended recipient of the communication is in federal custody for a crime unrelated to ASD.
Both individuals with ASD ties have a tie to a third person with ASD links, according to the Blog’s analysis of records.
Owing to the sensitive nature of the communiqué, the Blog is declining to identify the individuals with ASD links and the agency. It also is declining to publish specific details such as quoted material, dates, times, telephone numbers and addresses. The communiqué demonstrates that the United States has identified particular areas in which it believes terrorism could fester and is monitoring oral, electronic and printed communications in a specific context.
The communiqué devotes more than a full page to the topic of the communication intercepted from the individual with ASD ties.
Based on its research, the Blog is reporting today that the person with ASD ties whose communication was intercepted is an American believed to have ties to a network of domestic extremists immersed in a sea of organized corruption. The person has an arrest record for a nonviolent crime, but also has been associated with bids to intimidate people and cause them financial harm. Records show that the person has used at least two names.
News of the disturbing developments comes even as some ASD members are blindly asserting that ASD was a wholesome enterprise and making broad claims that any ties to terrorism have been ruled out. ASD has been implicated in an alleged international Ponzi scheme that gathered at least $110 million.
Despite an alleged concession by ASD President Andy Bowdoin that the company was operating illegally and a new assertion by the government that Bowdoin and unnamed “others” ventured to Costa Rica in the spring to 2008 to get the lay of the land for an upstart “autosurf” enterprise, some members are soliciting funds to challenge a U.S. Secret Service affidavit that led to the seizure of tens of millions of dollars from Bowdoin’s personal bank accounts in August 2008.
Bowdoin’s own bid to challenge the affidavit failed in November 2008, more than two years ago.
In December 2010, federal prosecutors asserted that ASD had the ability to accept money from e-Bullion, a shuttered California payment processor whose operator — James Fayed — has been charged with arranging the contract murder of his wife.
Pamela Fayed, who was stabbed to death in a parking garage, was a potential witness against her husband. James Fayed is believed to have used e-Bullion to facilitate multiple Ponzi schemes, including a scheme hatched by a New York man — Abdul Tawala Ibn Ali Alishtari — who later pleaded guilty to financing terrorism.
Like ASD’s Bowdoin, Ali Alishtari claimed to have received an important award for his business acumen. And Ali Alishtari’s scheme, known as FEDI, was pushed by an individual convicted in a separate Ponzi scheme and sentenced to federal prison. Payments from the scheme were called “rebates,” the same terminology adopted by ASD to describe payments to members.
“In enriching himself, Alishtari displayed a deliberate disregard for the financial and personal security of others,” U.S. Attorney Preet Bharara of the Southern District of New York said in September 2009.
e-Bullion’s name also is referenced in court filings in the Gold Quest International (GQI) Ponzi scheme, which gathered up to $29 million, according to U.S. and Canadian regulators. GQI, which operated from Las Vegas, falsely claimed to be immune to U.S. law and to enjoy purported “sovereignty” extended by a North Dakota “Indian” tribe.
One of the unusual elements of the GQI case was a claim that the purported sovereignty was portable, shielding the purveyors from prosecution anywhere.
A New Plan To Do Battle With The Government
ASD member Todd Disner, one of dozens of unsuccessful pro se litigants in the civil portion of the ASD case in U.S. District Court for the District of Columbia, now wants ASD members to come up with money to fund a lawsuit in Florida that would challenge the U.S. Secret Service affidavit in the District of Columbia that led to the seizure of $80 million in the ASD case, according to a recording of a Feb. 22 conference call.
“We were dragged down the river by our government agents, and the rest is history,” Disner told listeners.
“There might be an opportunity for us to throw a few punches of our own,” Disner said. “We’ve been on the ropes for three years now, and we’d like to start swinging back if we could.”
The opportunity to battle back after a fatiguing and demoralizing three years on the ropes would cost ASD members a combined total of about $10,000, according to people who listened to the call.
After the call, some ASD members received an email that purported that an ASD “terrorism connection has been ruled out.” The email, sent by an ASD member who did not use a full name, did not describe who within the government had ruled out a terrorism link.
Disner, who claimed he was “excited” about the prospect of suing the government to overturn the ASD forfeiture, also claimed he’d been advised on the complex legal issues by Dwight Schwetizer, whom he described as a fellow ASD member, friend and “very accomplished attorney” who is “not practicing law now.”
“They’re just going to try and try to keep that money,” Disner asserted. “They seized the money improperly, and if they release it then everybody’s included.”
The government, however, already has put in place a restitution program that would compensate crime victims from seized funds. An apparent linchpin of the new strategy outlined by Disner is a theory that the government restitution program somehow opens the door for ASD members not only to reverse the judicially declared forfeiture, but also to receive damages for an unwarranted government intrusion. Schweitzer also provided commentary on the call.
For its part, the government says ASD was engaging in felonious wire fraud and securities fraud by disguising itself as an “advertising” business while operating a $110 million Ponzi scheme from Florida that had affected tens of thousands of people globally. Just last week prosecutors advised a federal judge that Bowdoin, who was arrested in December, had ventured to Costa Rica in the spring of 2008 to look for a way to start an offshore Ponzi scheme.
Disner’s conference call was held just a few days after the latest damaging claims against ASD became public. The government filed the new claims against ASD on Feb. 18, the same day it announced a major prosecution against an alleged Costa Rican money-laundering operation that was accused of engaging in international securities fraud and siphoning millions of dollars in penny-stock schemes.
The U.S. government, using its individual agencies and the Financial Fraud Enforcement Task Force created by President Obama in 2009, has been targeting various forms of fraud, including HYIPs, penny-stock capers, Forex schemes, tax schemes and domestic and offshore crime targeted at U.S. citizens.
In some cases, victims have been counted by the tens of thousands — enough to fill the nation’s largest sports stadiums. ASD was purported to have 120,000 members.
Some ASD members have called for a “militia” to storm Washington, D.C. Others have called for a federal prosecutor to be placed in a medieval torture rack. Still others have called for prosecutors and investigators to be charged criminally and sued civilly for their efforts to disrupt what the government has described as a classic Ponzi scheme operated by Bowdoin, a recidivist felon.
EDITOR’S NOTE: You might feel a chill after reading the story below about Bertram A. Hill and co-defendants implicated by the SEC in an international fraud scheme that ensnared investors in the United States and Europe. The SEC case includes an allegation that U.S. retail brokers were solicited to push unqualified clients to a murky Massachusetts firm that funneled business to Hill, who was suspended by FINRA in 2002, had an unpaid FINRA fine of $5,000 and yet somehow was operating under the radar. If that’s not shocking enough, Hill already had been implicated by Jamaican authorities in a Ponzi scheme that allegedly gathered hundreds of millions of dollars — and yet allegedly still was able to line up millions of dollars from new investors more than two years after being charged criminally with fraud in Jamaica. Records show the case in Jamaica was brought in April 2008. The new scheme, according to the SEC, began in December 2010, about two months ago. Accounts from Jamaican media in 2008 noted that “heavily armed police officers” were patrolling the grounds during a court appearance by Hill and his brother, Carlos Hill, in 2008. A “handful” of protesters unhappy that arrests had been made demanded that Carlos Hill, the alleged mastermind of the Jamaican scheme, be set free, according to the Jamaica Observer. (See link at bottom of story.)Among the victims in the later-to-emerge scheme, which the SEC alleged was unrelated to the Jamaican scheme, were a “boarding school for boys” in Brandon, Fla., a retired school teacher from California, an unidentified U.S. investor who plowed about $250,000 into the scheme, an investor in the United Kingdom who plowed at least $1.3 million into the scheme and an investor in Switzerland who plowed more than $1.8 million into the scheme.
“[T]hese securities were fictitious and nearly $3 million of investor funds were quickly wired out of the country to accounts in Latvia and Jamaica,” the SEC charged.
BULLETIN: The SEC has filed an emergency action in federal court in New Jersey to halt a “Swiss debentures” scheme allegedly operated in the United States by a man charged criminally in Jamaica with laying waste to investors in a $326 million Ponzi scheme.
U.S. District Judge Anne E. Thompson has frozen the assets of the defendants in the U.S. case, while also ordering the repatriation of assets and expedited discovery.
The Jamaican scheme, which was exposed in 2008, is known as “Cash Plus.” It has become the subject of global intrigue and an international money-chase, playing out not only in the Caribbean but also in venues such as Europe and the emirate of Dubai in the Persian Gulf. Dubai is one of seven emirates of the United Arab Emirates.
The alleged U.S.-based scheme appears to have begun in late 2010 and has the hallmarks of a prime-bank/HYIP hybrid that promised spectacular returns of up to 100 percent monthly, according to the SEC complaint.
Investigators said the U.S. case against Bertram A. Hill was “unrelated” to the alleged Jamaican fraud for which he faces trial this year, but that millions of dollars had been “spirited” to Latvia and Jamaica from bank and brokerage accounts in the United States without investors’ knowledge or permission.
Hill, according to the SEC allegations, was booted by the Financial Industry Regulatory Authority (FINRA) amid customer complaints 2002. FINRA, the SEC said, leveled a $5,000 fine against Hill that remains unpaid
Hill, whose age was not immediately known, resides in Red Bank, N.J., according to court filings. The SEC said he presided over a company known as Secure Capital Funding Corp. (SCF), which purported to be a subsidiary of a firm known as “ST Underwriters.”
ST Underwriters, the SEC said, held itself out as a “private banking group” operating out of Panama and as a subsidiary of a company known as “Secure Trust.”
Although Secure Trust “purports to be a business operating in Switzerland,” the SEC said, it “is not authorized by the Swiss Financial Markets Supervisory Authority . . . to do financial business in Switzerland and is on FINMA’s published “black list.”
A mysterious company known as PP&M Trade Partners, which purported to be located in Elkart Ind., also was part of the fraud, the SEC alleged. PP&M was under the control of Kiavanni Pringle of Metheun, Mass., according to the agency.
Pringle, whose age was not immediately known, also has been named a co-defendant in the case. Despite the assertion PP&M was operating as a financial-services business in Indiana, the Indiana location proved to be a “warehouse where another business with which Mr. Pringle was previously associated stores televisions and other merchandise,” the SEC said.
PP&M actually was operating from Pringle’s home in Massachusetts and had “no clients” prior to November 2010, the SEC said.
Pringle and PP&M used “multiple, detailed websites” to engage retail brokers to find investors for the scheme, the SEC alleged. The brokers were offered “commissions” of up to 4 percent from purported “gains” enjoyed by clients.
“None of the offerings and sales of purported Swiss debentures made by Defendants beginning in December 2010 have been registered with the Commission by an issuer in accordance with the federal securities laws,” the SEC said. “At least some of the sales made by Defendants have been made to persons who did not qualify as ‘accredited investors’ so as to exempt Defendants from the obligation to register the securities offerings and make required disclosures. None of the Defendants ever sought or obtained an exemption from the registration requirements.”
Read the stunning SEC complaint, which asserts that at least some of the investors didn’t even know with whom they were doing business because the “true identities” of the alleged schemers were not disclosed.
Read a 2008 story in the Jamaica Observer that outlines allegations made against Hill nearly three years before a new scheme allegedly took root in the United States.
BULLETIN:UPDATED 9:29 P.M. ET (U.S.A.) Prosecutors have advised a federal judge that AdSurfDaily President Andy Bowdoin and unnamed “others” traveled to Costa Rica in the spring of 2008 to get the lay of the land for an offshore autosurf that would be “another version” of ASD.
The alleged trip occurred less than two years after the SEC accused 12DailyPro, an autosurf based in North Carolina, of selling unregistered securities in the form of investment contracts, prosecutors said.
The explosive claim Bowdoin ventured offshore to pursue the creation of an ASD satellite may signal that the government views ASD not only as a Ponzi scheme, but as a business that deliberately sought to dial up its efforts to circumvent U.S. laws and create an even greater Ponzi war chest by establishing a footprint outside the United States.
Since at least February 2006, the SEC has described the autosurf business model as anathema and a form of obvious securities fraud. Bowdoin was well aware of the SEC lawsuits and scrutiny domestic autosurfs such as 12DailyPro, PhoenixSurf and CEP had sparked in 2006 and 2007, prosecutors said.
Meanwhile, investigators have evidence that shows ASD’s internal software system described payments to members as “ROI,” an acronym that that means “return on investment,” prosecutors said.
The assertions by prosecutors — if proven true — may undermine ASD’s defense strategy of arguing it was an “advertising” program, not an “investment” program.
Prosecutors did not identify by name the surf allegedly contemplated for Costa Rica. In late 2008 and early 2009, a surf with close ASD ties known as AdViewGlobal (AVG) debuted. The launch occurred about four to five months after the U.S. Secret Service seized $65.8 million from the personal bank accounts of Bowdoin in August 2008.
Bowdoin’s trip to Costa Rica occurred before the ASD seizure, prosecutors said. If true, the claim could be used to prove ASD was seeking an exit plan even before the Secret Service raid. In 2008, prosecutors asserted that Bowdoin had moved millions of dollars offshore and talked about purchasing a home in another country.
AVG purported to operate from Uruguay, but had servers that resolved to Panama. Some ASD members have said Bowdoin was a silent partner in AVG.
Prosecutors described the “ROI” development as just another ASD incongruity, advising U.S. District Judge Rosemary Collyer that Bowdoin was well aware that a serious securities challenge could be made against his firm and chose to ignore the risk and misinform members.
Beginning as early as January 2007, “[O]thers warned Bowdoin that ASD was nothing more than an investment scheme and that the program needed to be changed if it were to operate legally,” prosecutors argued in a brief to Collyer. “Bowdoin did not heed that advice and continued unabated in offering members higher returns than banks or brokerage firms. Moreover, based on his prior criminal experience, Bowdoin was well aware of the securities regulations and knew he was offering a security.”
Any argument that ASD was not offering “investment contracts” as defined under the Howey Test should be dismissed, prosecutors said, arguing that ASD meets all three prongs of the Howey Test.
Bowdoin sought about three weeks ago to have the criminal charges filed against him dismissed, arguing that ASD met none of the three Howey prongs.
Nonsense, prosecutors said.
ASD’s advertising was “merely a cover for Bowdoin’s sale of a get rich quick scheme,” prosecutors said.
And prosecutors also cited other alleged proof that ASD was running an investment program — namely that some employees were being paid in ASD “ad packs.”
“Bowdoin and the employees of ASD treated the ‘ad packages’ as shares from which they could expect to earn returns,” prosecutors argued.
Prosecutors also pointed out a section of ASD’s Terms of Service that stated the firm “will” pay members 125 percent of the money they paid in. At the same time, prosecutors quoted video evidence of Bowdoin wooing members by focusing on ASD as a money-making opportunity.
Bowdoin, prosecutors said, eventually limited the amount of money investors could pay ASD “because he did not want any one member dominating the return pool.”
The prosecution’s assertions occurred against the backdrop of dozens of competing claims by ASD members who filed pro-se pleadings in the civil portion of the case that asserted the government had no “EVIDENCE.”
Members made the claim despite the fact that some of the evidence against ASD had been part of the public record for more than a year at the time the claims were made in 2009.
In a footnote to Collyer, prosecutors said they’d be happy to present the actual video of Bowdoin making various claims instead of simply quoting from a transcript.
“[T]he government’s review of ASD’s bank records revealed that of the approximately $31 million ASD paid out to early members, more than 98% of that money came from monies paid to ASD by other members,” prosecutors said.
Although ASD claimed to have funding sources beyond advertising payments made by members — things such as banner ad sales and ebooks — those outlets provided only de minimis revenue, prosecutors argued.
“Each night, there was nothing more than new members funds to divide among existing members,” prosecutors argued. “Moreover, Bowdoin himself admitted, on video, that members funds are pooled and they will share in the profits and losses equally.
“Specifically, Bowdoin, in the ‘New Member Success Video,’ claimed that “[w]hen sales increase, the rebates increase. When sales decrease the rebates decrease . . .”
“Clearly Bowdoin, through ASD, was pooling all of the member’s funds which allowed him to make the requisite return payments,” prosecutors said.
Prosecutors also argued that the ASD case should remain in Collyer’s courtroom in the District of Columbia. Bowdoin argued that the case should be transferred to Florida, in part because he and many witness live there.
Although prosecutors agreed that many prospective witnesses live in Florida, they argued that witnesses reside in multiple jurisdictions because of the national and international scope of the case.
In addition to Floridians, witnesses the government may present hail from the District of Columbia, North Carolina, Nevada, Oklahoma, Iowa and elsewhere, prosecutors asserted.
ASD also had members from at least 18 countries, and conducted “rallies” in Illinois and Minnesota, among other states, prosecutors said.
Read Bowdoin’s claims that the charges against him should be dismissed and that ASD did not meet any of the three Howey Test prongs.
Jonathan R. Curshen, one of six people charged criminally by federal prosecutors and sued civilly by the SEC last week in Southern Florida in an alleged penny-stock, securities fraud, wire-fraud and money-laundering caper, once was a purported “consulate” to the bizarre, nonexistent nation of “New Utopia,” according to web records.
New Utopia was a fanciful “tax haven” allegedly dreamed up by Lazarus R. Long, an American who declared himself a “prince” and hatched a plan to form a “new country” that would “rise from the Caribbean on giant concrete platforms built on an underwater land mass,” according to filings in a 1999 case brought by the SEC.
Long also is known as Howard Turney. He invited investors “to become charter citizens of the new country,” the SEC alleged 12 years ago.
New Utopia continues to have a website — one from which a purported “Prince Lazarus” holds forth. Last month, according to the site, the prince ventured that 2011 would be a big year for the nonexistent state, which oddly claims that it is accepting preorders for a coin “Currently out of production.”
The coin is positioned as a limited “commemorative” worth 250 U.S. dollars. The site also solicits citizens to purchase the purported national flag of New Utopia for $80 and an “International Drivers license” issued by New Utopia for $140.
One of the problems with the flag and New Utopia driver’s license is that the country itself does not exist and holds no dry land even if it did exist. Indeed, according to court records, the nonexistent principality is said to be located undersea “approximately 115 miles west of the Cayman Islands” and would rise out of the water only after concrete stilts were erected and an above-sea base were anchored to a submerged land base.
Despite the bizarre incongruities, including the apparent assertion that New Utopia driver’s licenses are valid in all jurisdictions worldwide, citizens may use PayPal to purchase the items from New Utopia, according to the website. Other New Utopia trinkets, including a purported “ornament” bearing the likeness of Prince Lazarus, also are available from the purported nation’s online store.
“I would like on this most auspicious New Years day to thank our citizens and other well wishers for their support throughout our years of struggle,” Prince Lazarus reportedly noted. “It has been a hard and challenging effort, which will be soon justified. I am not at liberty to disclose details, but this is the year when the building of the infrastructure of our great City/State will begin.”
See earlier story on Curshen. See FBI new release on the charges filed against Curshen, Michael Simon Krome, 49, a securities attorney from Long Island, New York.; Ronald Salazar Morales, aka “Ronny Salazar,” 39, of Costa Rica; Robert Lloyd Weidenbaum, 44, of Miami; and Eric Ariav Weinbaum, 37, and Izhack Zigdon, 47, of Israel.
EDITOR’S NOTE: If you’re pushing Ponzi schemes on MoneyMakerGroup, TalkGold and other criminal forums, allegations brought by the Ontario Securities Commission (OSC) against geographically localized promoters of Gold Quest International (GQI) may interrupt your delusions of invincibility over the next several weeks.
Upline and downline networks within Gold Quest International (GQI), a bizarre company taken down by the SEC just three months before the U.S. Secret Service raid on AdSurfDaily in 2008, are in the news in the Canadian province of Ontario.
The Ontario Securities Commission (OSC) will conduct a hearing March 24 to consider taking provincial action against local promoters of GQI, which already has been ruled a Ponzi scheme, pyramid scheme and “sham” investment by the Alberta Securities Commission.
OSC pointed out that GQI “has never been registered in any capacity with the Commission” and alleged that its promoters within the province also were not registered.
The case is important because it signals that Ontario regulators have backtracked millions of dollars of GQI transactions that originated in the province, segregated the source of the money to specific groups of promoters within the province and now intend to hold them accountable for spreading financial misery to their fellow citizens.
The odds of the respondents avoiding sanctions after the hearing may be low. One Ontario man implicated in the GQI scheme already has filed bankruptcy and has been ordered to pay $652,000 in disgorgement and penalties for his role in GQI. The man, Donald Iain Buchanan, allegedly was introduced to GQI by some of the promoters who are the subject of the hearing next month.
And the odds may be weighted even more heavily against the promoters prevailing at the hearing because of the bizarre claims of GQI itself, which purported to have a “Lord” among its key managers and said it was immune to regulatory oversight because it was an extension of a North Dakota sovereign “Indian” tribe and was permitted to operate untouched from Las Vegas.
GQI, which gathered about $29 million in a long-running scheme by promising returns of 87.5 percent a year and huge commissions, sought unsuccessfully to sue the SEC for the astronomical sum of $1.7 trillion. A U.S. federal judge dispatched U.S. marshals to haul key players into court for ignoring court orders, and vast sums of money appear to have gone missing down ratholes in Europe and New Zealand.
Some of the money also is tied up as a result of criminal allegations — including murder — against James Fayed, the operator of the now-shuttered E-bullion payment processor.
In its statement of allegations, OSC accused Simply Wealth Financial Group Inc., Naida Allarde, Bernardo Giangrosso, K&S Global Wealth Creative Strategies Inc., Kevin Persaud, Maxine Lobban and Wayne Lobban of promoting unregistered securities. All of the accused companies and individuals have Ontario addresses, according to OSC.
“During the Material Time, Simply Wealth, Allarde, Giangrosso, K&S, Persaud, Maxine Lobban and Wayne Lobban . . . promoted securities in Gold-Quest to Ontario residents,” OSC charged.
About 94 Ontario residents plowed $1.6 million into GQI “as a result of promotional activities conducted by Allarde, Giangrosso and Simply Wealth,” OSC charged. “These activities included recommending investment in Gold-Quest, providing information regarding the nature of the investment in Gold-Quest, facilitating the process of investing in Gold-Quest, and, in certain cases, facilitating the transfer of funds to Gold-Quest on behalf of investors.”
K&S and Persaud, meanwhile, caused about nine Ontario investors to plow about $69,000 into the GQI scheme. Among their alleged customers was Buchanan, who also became a promoter and caused his customers to bring $1.8 million more into the scheme, according to OSC.
Maxine Lobban and Wayne Lobban also became promoters and caused investors to bring “at least $675,000” into the GQI scheme, the OSC alleged.
The math of the scheme was doomed to fail, but purveyors were lured by titles and promised both spectacular investment earnings and commissions. Promoters were categorized in upline/downline tiers, the OSC alleged.
“Individuals who introduced an investor to Gold-Quest would receive the title ‘Administrative Manager’ for the new investor,” OSC alleged. “Administrative Managers would receive an up-front commission of ten percent of that investor’s original investment and then a further four percent per month for a year (for a total commission of 58 percent of the principal invested).
“The individual who had introduced the Administrative Manager to Gold-Quest would receive the title ‘Managing Director’ for the new investor and would receive a commission of 1.5 percent per month for a year (for a total of 18 percent of the principal invested),” the OSC continued.
“Lastly, the individual who introduced the Managing Director to Gold-Quest would receive the title ‘Supervisory Managing Director’ for the new investor and would receive a commission of one percent per month for a year (for a total of 12 percent of the principal invested).
“In sum, when a new investor sent funds to Gold-Quest, 88 percent of the investor’s funds were earmarked for commissions to be paid to the investor’s Administrative Manager, Managing Director and Supervisory Managing Director over the course of a year,” OSC alleged.
In November 2010, OSC ordered penalties and disgorgement of $652,000 against Buchanan for his role in the GQI scheme.
“Buchanan’s conduct warrants a substantial administrative penalty,” OSC said. “He was involved in two investment schemes in which Ontario investors invested approximately US $4.3 million.”
Although commission staff had recommended an administrative penalty of $150,000 against Buchanan, who is bankrupt, OSC doubled the amount to $300,000, saying Buchanan had shown no remorse and that the smaller penalty would not serve as a deterrent.
BULLETIN: Two days after Southern Florida’s top federal prosecutor warned that offshore fraudsters who targeted Americans had no safe haven, six people from various parts of the world who allegedly ran or contributed to a pump-and-dump scheme that used the services of a money-laundering operation in Costa Rica have been charged criminally, authorities said.
The SEC, meanwhile, charged seven people civilly. An attorney has been charged both criminally and civilly, the SEC said. The cases were brought in the Southern District of Florida, which has been a hotbed of financial crime.
Defendants in the cases hail from Costa Rica, Great Britain, Canada, Israel and the United States, according to the SEC. The criminal charges include conspiracy to commit securities, mail and wire fraud; wire fraud; mail fraud; violating the securities regulation laws and obstruction of justice.
Jonathan R. Curshen, a convicted felon awaiting sentencing in an earlier securities and bribery scheme, has been charged both criminally and civilly in the new case. Curshen, 46, a dual U.S. and British citizen and the one-time “honorary counsel” of St. Kitts-Nevis to Costa Rica, presided over a Costa Rican company known as Red Sea Management Ltd.
Red Sea “effected fraudulent pump-and-dump schemes on behalf of its clients and laundered millions of dollars in illegal trading proceeds out of the United States to its clients overseas,” the SEC charged.
Also charged criminally and civilly were attorney Michael S. Krome, 49, of Lake Grove, N.Y; Ariav “Eric” Weinbaum, 37, of an unspecified city in Israel; Yitzchak Zigdon, 47, of Tel Aviv; Ronny Morales Salazar, 39, of San Jose, Costa Rica; and Robert L. Weidenbaum, 44, of Coral Gables, Fla.
Krome and Weidenbaum (as distinct from Weinbaum) are Americans.
Weinbaum, according to records, has dual U.S. and Israeli citizenship. He previously lived in Boca Raton, Fla., but now is living in Israel, the SEC said. The SEC alleged that Weinbaum has a “network of operatives he uses to perpetrate pump-and-dump stock manipulations.”
Zigdon is an “Israeli accountant and the business partner of Weinbaum,” the SEC said.
David C. Ricci of San Jose, Costa Rica, was charged civilly, and already has settled with the SEC. Ricci is a citizen of Canada who was living in Costa Rica, according to the SEC charging documents.
“This group of illicit stock promoters sought to hide their scheme behind offshore entities, but their misconduct was exposed by the excellent cooperation of law enforcement agencies here and abroad,” said Cheryl Scarboro, associate director in the SEC’s Division of Enforcement.
On Feb. 16, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida warned offshore scammers and criminals that the United States would not tolerate crime aimed from abroad at its citizens.
“International law enforcement cooperation eliminates safe havens for those who cheat American citizens from overseas,” Ferrer said.
“Curshen directed Red Sea to open numerous nominee brokerage accounts with U.S. and Canadian broker-dealers to enable the firm to engage in coordinated manipulative trading and conceal its illegal activity,” the SEC charged, alleging that Ricci and Salazar had trading authority over the nominee accounts.
The scheme for which the charges were brought centered on a “sham” company known as CO2 Tech Ltd., which purported to be in the business of reversing global warming, the SEC said.
Purportedly based in London, the company claimed to have a relationship with Boeing, the aircraft-maker, and traded on the Pink Sheets.
“There were no communications, correspondence or understandings between CO2 Tech and Boeing,” the SEC said flatly, alleging that CO2 Tech was a “sham” that had no “significant assets or operations.”
Krome, the lawyer, “issued a fraudulent opinion letter” to enable Weinbaum and Zigdon to advance the scheme, and “Weinbaum hired Weidenbaum” to distribute false information through websites, spam e-mails and fax blasts, the SEC charged.
“Weidenbaum enlisted a group of stock promoters who then executed illegal ‘matched orders’ with Red Sea’s nominee brokerage accounts in order to ‘jump-start’ the market and increase the price of the stock,” the SEC charged. “As a result of the false media campaign and the illegal matched orders, the market price of CO2 Tech stock increased 81 percent increase in one day and trading volume increased 1,573 percent.”
Ricci and Salazar sold the stock through Red Sea, and the “coordinated misconduct enabled stock sales at artificially inflated prices for profits of more than $7 million at the expense of unsuspecting investors,” the SEC charged.
Cooperating in the case were the U.S. Department of Justice, the FBI, and the U.S. Postal Inspection Service, FINRA, the Costa Rican Police, the British Columbia Securities Commission, the Israel Securities Authority, the United Kingdom Financial Services Authority and The City of London Police Department, the SEC said.
In recent days, federal prosecutors also have filed charges against more than 100 people associated with Armenian Power, an international organized-crime group with ties to Russia and Armenia.
Federal judges in California, New York, Tennessee and Arizona last week ordered spectacular financial penalties against Forex and commodities fraudsters.
