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  • Beyond Diamonds Investments Inc., Darial Chatman Subjects Of ‘Cease And Desist’ Order In South Carolina; State Says Firm Was Selling Unregistered Securities And Claiming To Be ‘SEC Compliant’

    UPDATED 12:52 P.M. EDT (USA) A South Carolina man previously ordered by Pennsylvania to stop selling unregistered securities for a real-estate business now has been ordered by South Carolina to stop selling unregistered securities for yet-another business, authorities said.

    Darial Chatman, also known as Darrell Chatman and Darrell Chapman, was ordered by the Pennsylvania Securities Commission in May 2009 to halt the selling of securities for his business, Dream Builders of South Carolina LLC. He also was issued a cease-and-desist order in South Carolina for the same company, according to records.

    Now the office of South Carolina Attorney General Henry McMaster has ordered Chatman to stop selling unregistered securities for a company known as Beyond Diamonds Investments Inc. (BDI), amid allegations it “advertised investment opportunities earning 30% annually” and made statements that were “materially misleading or false.”

    South Carolina authorities said they believed BDI was not registered to do business in any state, but had placed postcards in “newspaper boxes at some residences in the area of Columbia” and mailed postcards to other prospects.

    Among the assertions on the postcard was that BDI was “SEC Compliant.” The company claimed it “Will Financially Out Perform (sic) Your Current Brokerage or Investment Firm,” authorities said, noting that BDI’s postcard advertised an “Account Minimum” of $5,000 and claimed to charge no fees.

    BDI operates a website filled with grammar, spelling and usage errors to recruit investors, South Carolina investigators said. They added that the company claims not to divulge its method of making money.

    “We all know there are hundreds of other ways to make money outside of stocks, mutual funds, cd’s ect ect (sic),” the state quoted the firm as saying. “We have the experience to make you money using all those other ways. Sorry, we do not discuss our methods.”

    Among the other assertions:

    • “Our principle (sic) has over 15 years experience in aggressive investing in high risk projects.”
    • “[O]ur principle (sic) has fifteen years experience in this field and has earned millions of dollars for people just like you[.]”
    • “We can guarantee that you will not lose money working with us.”
    • “[W]e are … still in the process of getting proper compliance with the state. However, we can still get your account set-up and start working for you.”
    • “We are also involved with the Securities Industry Association in the continuing enhancement and standardization of industry practices.”

    But McMaster’s office said it did not believe BDI was a member of the Securities Industry Association, a trade group based in Alexandria, Va.

    On July 12, according to investigators, a person identifying himself as Chatman replied to a message left at the phone number provided on BDI’s postcard.

    “Chatman stated that the investments in question involved organizing and capitalizing concerts by ‘big’ acts in South Carolina, and he specifically cited a concert he claimed to have organized in Florence, South Carolina, with John Michael Montgomery as the headline act,” South Carolina authorities said. “Chatman stated he made only $6,000 on that concert at one dollar per ticket.”

    Investigators said they believed the concert Chatman referenced sold fewer than 700 tickets and that “Chatman continues to owe approximately $6,000 in expenses to the Florence Civic Center.”

    Moreover, authorities said, the concert was promoted as a fundraiser for a charity known as Donate A Blessing Foundation Inc. The charity uses the same address as BDI, and Chatman is listed as its chief executive officer.

    BDI also promotes a purported “scholarship” program on its website, which uses a tag line of, “If it makes since (sic) to us, it makes money for you.”

    Read the South Carolina cease-and-desist order against BDI and Chatman. The order was brought by the Securities Division of McMaster’s office.

  • SEC: ‘Offshore Does Not Mean Off-Limits’; Agency Charges Famous U.S. Firm With Violating Foreign Corrupt Practices Act In Alleged Bribery Scheme

    Cheryl Scarboro, SEC.
    Cheryl J. Scarboro, SEC

    BULLETIN: The Securities and Exchange Commission has charged General Electric Co. and two foreign subsidiaries in an alleged kickback scheme with the Iraq government “to win contracts to supply medical equipment and water purification equipment.”

    Robert Khuzami, director of the SEC’s Division of Enforcement, did not mince words when announcing the charges and a settlement in the case.

    “Bribes and kickbacks are bad business, period,” said Khuzami. “This case affirms that law enforcement is active across the globe — offshore does not mean off-limits.”

    GE, which neither admitted nor denied the allegations, agreed to pay $23.4 million to settle the case. The SEC said GE cooperated in the probe, which crossed into Europe and the Middle East. The United Nations assisted the SEC and the U.S. Department of Justice in the probe.

    “GE failed to maintain adequate internal controls to detect and prevent these illicit payments by its two subsidiaries to win Oil for Food contracts, and it failed to properly record the true nature of the payments in its accounting records,” said Cheryl J. Scarboro, chief of the SEC’s Foreign Corrupt Practices Act Unit.

    For its part, GE said the conduct “did not meet our standards, and we believe that it is in the best interests of GE and its shareholders to resolve this matter now, without admitting or denying the allegations, and put the matter behind us.”

    “GE is committed to the highest standards of conduct in all transactions in all of the jurisdictions where we do business throughout the world,” the company said.

    “In this case, the SEC has identified 18 contracts under the Oil-for-Food Program that it alleges were not accounted for or controlled properly. Fourteen of these transactions involve businesses that were not owned by GE at the time of the transactions,” the company said.  “The SEC alleges that, in acquiring these companies, GE acquired their liabilities as well as their assets.  The other four transactions relate to GE Healthcare units in Europe.  These units declined to make cash payments to the Iraqi Ministry of Health, but they acquiesced when their agent offered instead to make in-kind payments of computer equipment, medical supplies, and services to the Iraqi Health Ministry, and then failed to reflect the transactions accurately in their books and records.”

    Read the SEC civil complaint.

    The case against GE and the subsequent settlement may be seen as a blow to other types of business pursuits that fall under the SEC’s purview. Ventures such as autosurfs and HYIPs  routinely claim that “offshore” locations shelter them from U.S. law enforcement, and commission-based shills and hucksters use the claim to recruit investors.

    GE is an iconic company that traces its roots to 1890, when inventor Thomas Alva Edison founded Edison General Electric Co.

  • INetGlobal Loses Court Appeal; Judge Says Magistrate Judge’s Ruling On Treatment Of Witnesses Was Correct

    Steve Renner

    INetGlobal, a Minneapolis-based autosurf firm under investigation by the U.S. Secret Service and the IRS, has lost an appeal.

    On May 28, U.S. Magistrate Judge Franklin Noel issued an order that permitted investigators to make contact with witnesses in the case under certain conditions.

    Paul Engh, an attorney who said he represented INetGlobal employees, filed an appeal, saying the Noel was misinterpreting the law and that INetGlobal employees are entitled to protection from “isolated and surprise contact” by the government.

    U.S. District Judge Paul A. Magnuson now has affirmed Noel’s ruling, saying the magistrate had applied the law correctly.

    “Because Magistrate Judge Noel’s May 28, 2010, Order is neither clearly erroneous nor contrary to law, the Court affirms the Order,” Magnuson ruled.

    Noel’s ruling permitted the government to continue to contact both former and current INetGlobal employees as the probe into its business practices continues.

    “Before interviewing current and former employees of Inter-Mark and iNetGlobal, law enforcement shall first ask each individual if he or she is represented by an attorney,” Noel wrote in the order.

    “If the individual responds that he or she is not represented by counsel, the interview may proceed,” Noel continued. “If, however, the individual indicates that he or she is represented by an attorney, law enforcement shall ask that individual for the name of his or her lawyer; at that time, questioning must immediately cease until such a time as the Government’s attorney obtains the consent of the lawyer named, whether Mr. Engh or otherwise, to communicate with the individual ‘about the subject of the representation.’”

    Magnuson said the order was valid.

    “Because any individual who has chosen to be represented by counsel will not be questioned, the Government’s contact certainly is not ‘so egregious that it impairs the fair administration of justice,’” Magnuson ruled.

    “Defendants’ Appeal is denied,” Magnuson ruled.

    INetGlobal members have said in recent days that the company is in the process of relaunching. Steve Renner, who formerly operated the firm, began an 18-month term in federal prison last month for tax evasion.

    In February, the Secret Service said it believed INetGlobal was operating a Ponzi scheme. Renner has denied wrongdoing.

  • MAXIMUM KABOOM? Woman Found Guilty On 122,000 Counts In Pyramid Case; Tells Psychologist She Could Have Saved Firm Had Government Not Interfered

    Is it the maximum case of Kaboom! — coupled with the maximum case of denial?

    The government of South Africa hit Maritjie Prinsloo with a whopping 122,000 counts of fraud, racketeering and money-laundering in a pyramid-scheme case that involved an estimated $205 million. (R1.5 billion.)

    Prinsloo was found guilty last month. South African media now are reporting that she is blaming the government and an accounting firm for interfering in her business affairs while at once insisting she could have turned things around.

    It was not immediately clear if the filing of 122,000 counts established a record. Prinsloo has been referred to in local reports as the “Pyramid Scheme Queen” and the “Krion swindler.” Members of her family also have been implicated in the scheme.

    It is not unusual for Ponzi and pyramid schemers to blame the government for their legal predicaments and to claim the government made matters worse by taking action to stop a scheme before it could consume even greater sums of money. Online Ponzi forums, for example, are filled with claims that operators can turn things around if given more time, and victims routinely are discouraged, ridiculed and threatened with banishment by operators and their shills for contacting authorities and filing complaints.

    A psychologist told the the Pretoria High Court that Prinsloo believes she did nothing wrong and could have turned around the business had the government not filed charges, according to this account in the Daily Dispatch.

    Prinsloo was charged with more counts than there are seconds in a day (122,000 counts/86,400 seconds in a day). Had she been charged in the United States — and had she not waived the reading of the complaint — the court official tasked with the duty of ticking off the counts would have left voiceless.

    Had the judge ordered one count read per second — and had the employee magically been able to comply with the order — the employee would have consumed 24 straight hours in reading the counts and still been left 35,600 counts short of finishing the job. The job then would have carried over to consume almost 10 straight hours of a second day, at one count per second.

    During the first 24 hours of the reading of the complaint at the impossible rate of one count per second, the world’s population would have increased by about 220,000, according to estimates.

    In the often bizarre and incongruous world of Ponzi and pyramid schemes, the fact that the world’s birth rate exceeds its death rate has been seized upon by some advocates as purported “proof” that it is impossible to operate such schemes and the government therefore cannot “prove” that a Ponzi or pyramid scheme exists.

    Such claims were made by at least one member of AdSurfDaily, which the U.S. Secret Service described as a Ponzi scheme. Some members of ASD defended the firm by claiming that no Ponzi existed and that the government was interfering with commerce.

    ASD President Andy Bowdoin, meanwhile, told members that the government had seized their money. In court filings, however, he told the presiding federal judge that the money belonged to him.

    Prosecutors called Bowdoin “delusional.”

  • DNA Now Says It Is Selling ‘Protective Spray’ To Block ‘Wrongful Ticketing’ From Red-Light Cameras; Simultaneously Announces ‘Alert Button’ To Protect Abducted Children

    A Florida multilevel marketing (MLM) company that says its license-plate data system can help law enforcement and the AMBER Alert program locate abducted children now says it is working against cities “worldwide” in their efforts to enforce traffic laws.

    Data Network Affiliates (DNA) announced that it was offering “DNA Protective Spray” by the case to distributors. The spray is applied to license plates to obscure the view of cameras that take photographs of cars that run red lights. DNA said the spray protected against “wrongful ticketing by city cameras worldwide.”

    DNA did not explain the incongruity of saying it supported law enforcement in its efforts to locate abducted children while at once working against law enforcement in its efforts to enforce traffic laws.

    Even as DNA was announcing the availability of its purported “Protective Spray,” the company announced it soon would adopt a browser-based “DNA World Wide Alert Button” to let members know when a “child is reported missing in your immediate area.”

    DNA purports also to be in the mortgage-reduction business, claiming it is the “MORAL OBLIGATION” of churches to spread the word about the money-making program and perhaps use it to raise church funds.

    This morning the Federal Trade Commission announced three settlements in cases that banned “deceptive marketers” from selling mortgage-relief services. In one of the cases, a judgment of $11.5 million was entered against one of the marketers. A judgment of $6.2 million was entered in the second case, and a judgment of nearly $5.3 million was entered in the third case.

    DNA said distributors would be able to order its protective spray “very soon.”

    “This product has sold millions for $29.95 a can which is good for up to 3 or 4 applications when done properly,” DNA said.

    The product falls under the umbrella of a series of products that purportedly can help DNA members “RETIRE BY CHRISTMAS 2010,” the company said.

    DNA also said it soon would offer “The New DNA Phone & Fax Module,” which purportedly “will make MAGIC JACK & SKYPE OBSOLETE.”

    In April, DNA announced that it was offering an “unlimited” cell-phone plan with a free phone for $10 a month. The company later withdrew the offer, acknowledging it had not studied cell-phone pricing before announcing it had become the world’s low-price leader.

    Some DNA members have implied the company was backed by Oprah Winfrey, Donald Trump and Apple Inc. No evidence to support the claims has emerged.

    DNA has compared itself favorably to Walmart, Google, Facebook and Amway. Curiously, the company once claimed it offered a Business Benefit Package, which it dubbed the BBP. The company now appears to be referring to the package as the BBB, using the acronym associated with the Better Business Bureau.

  • Clawback Actions Begin In Trevor Cook Case; Receiver Says Millions Of Dollars Of ‘Preferential Transfers’ To Investors Occurred After SEC Paid ‘Surprise’ Visit

    EDITOR’S NOTE: R.J. Zayed, the court-appointed receiver in the Ponzi and Forex fraud case brought by the SEC and CFTC against Trevor Cook and Pat Kiley, has said many investors were made destitute by the scheme. Not all investors lost their money, however. Yesterday Zayed filed petitions to claw back millions of dollars in “preferential transfers”  made to investors as the scheme allegedly was unraveling.

    Zayed, who is seeking to make victims as whole as possible, also filed actions against two banks to recover mortgage payments made by Cook on two Minnesota properties. All in all, the clawback actions are targeted at 22 individuals or entities on the legal theory they are not entitled to benefit from proceeds that flowed from Cook’s illegal scheme. The precise number entities or people who allegedly received tainted money is not known. One of the investors named in the clawback actions was the grandmother of a Cook employee, according to court filings.

    Chief U.S. District Judge Michael J. Davis has given Zayed the authority to pursue “any third party recipient of asset transfers from Cook or any named Receivership entity,” meaning more clawback actions could be in the offing as the probe by the receivership continues.

    Here, now, the clawback story . . .

    Acknowledged Ponzi swindler Trevor Cook knew in 2008 that Crown Forex S.A., a Swiss entity in which the CFTC alleged Cook held a majority ownership stake, “was insolvent and incapable of paying its investors,” according to new petitions filed by the court-appointed receiver in the case.

    And Cook also knew that the Financial Industry Regulatory Authority (FINRA) was asking questions as early as April 2009. “No later” than May 2009, according to receiver R.J. Zayed, Cook knew Swiss regulators had placed Crown Forex S.A. in “liquidation.”

    On June 22, 2009, according to Zayed, “the SEC conducted a surprise investigation of the scheme’s headquarters and personally served Cook with a subpoena.”

    Up to six SEC attorneys and accountants were poking around in Minneapolis for five days in June 2009. The clamor surrounding the scheme set in motion a series of events in which certain investors with links to Clifford Berg, a carpet salesman and Cook’s father-in-law, suddenly began to receive back their money, according to court filings.

    Neither Berg nor the investors has been accused of wrongdoing. Events in the case demonstrate the risks that confront both investors and individuals who drive business to Ponzi schemes and other forms of investment fraud. Neither Ponzi principal nor interest is safe because the money comes at the expense of other investors, not as a result of legitimate commerce. Zayed is seeking to force Berg, his wife and the investors to return money traced to the scheme. The Bergs already have agreed to return $948,848.36.

    Clifford Berg worked as a Cook recruiter and brought investors’ money into the scheme, according to court filings. The Bergs also were investors.

    One of Cook’s investors is believed to be the husband of Berg’s dental hygienist, who learned of the purportedly profitable trading program from Berg. Other investors are believed to have known Berg from the carpet business, according to Zayed.

    On June 29, seven days after the SEC appeared unannounced in Minneapolis, the investor married to the dental hygienist received two checks totaling $916,570 from the scheme, according to court filings. The investor had placed $785,162.44 in the program and did not complete paperwork for the withdrawal.

    Some of the investors received calls from Berg. One of the investors placed $147,233 in the program. Although he did not request a withdrawal, he received a check for $360,700 on June 29, 2009, a week after the SEC appeared, according to Zayed.

    Another investor believed to be an acquaintance of Berg placed $1,519,999.51 in the program. This investor called Cook “during the last week in June 2009” to inquire about investing money for his nephew, according to court filings.

    Cook told the investor that there were problems in “another part” of the company, according to Zayed.

    On the very next day, according to Zayed, the investor called Cook and requested withdrawal of his money, but did not complete paperwork for the withdrawal.

    Regardless, Berg “delivered” a check to the investor at his place of business “[s]everal days later,” according to Zayed. The investor’s wife also was an investor and also received a check. Together the couple had placed more than $1.62 million in the program. The total paid to the couple exceeded their outlay, according to Zayed.

    Another investor believed to be a Berg acquaintance from the carpet business placed $618,000 in the program. This investor — in late June 2009 — received a call from Berg during which Berg told him that there were “problems with the company,” according to Zayed.

    “Berg also mentioned a possible investigation,” Zayed said.

    The investor then went to Berg’s house to pick up a check for $747,500, according to Zayed. The check was dated June 29, a week after the SEC came to town. The investor then received three smaller checks, including a check for $2,200 drawn on a gold and bullion business, a check for $2,100 drawn on the bank account of Cook’s brother and a check for $2,100 drawn on the account of Oxford Global Partners LLC.

    Another married couple believed to be acquaintances of Berg invested $243,500 in the program, according to Zayed. Although the husband and wife requested no withdrawals, Berg contacted them in late June 2009, telling the husband that accounts had been closed and that checks were in the mail, according to Zayed.

    This couple received a total of $280,950 in three separate checks after the SEC came to Minneapolis, Zayed said.

    On June 28, another Berg acquaintance received a call from Berg. This person had placed $375,000 in the program and did not complete paperwork for a withdrawal.

    Berg told this investor that there was going to be “some sort of investigation,” according to Zayed. The investor later received a check for $413,600. The check was dated June 29, seven days after the SEC appeared in Minneapolis.

    Yet another investor believed to know Berg from the carpet business plowed $752,134 into the program, according to Zayed.

    This investor had “received a call from Berg” and was told  “that there was some kind of investigation” and that Berg had “cashed everyone out,” according to Zayed.

    Berg then “delivered” two checks totaling $795,911.53 to the investor, according to Zayed.

    It appears as though Berg’s supervisor also was an investor, and placed $250,000 in the program, according to Zayed. The grandmother of a Cook employee also was an investor, placing $102,000 in the program.

    When the grandmother “saw a newspaper article regarding the Receivership Entities and mentioning lawsuits filed against them,” she called her grandson  “and told him to get her money out,” according to Zayed.

    Each of the investors named clawback targets “received payments preferentially over hundreds of other investors who were defrauded by Cook and unable to withdraw the money they had invested in the Trading Program,” Zayed said in court filings.

    Read the clawback petition filed by Zayed against 20 investors. Read an earlier filing against the Bergs.

  • PONZI NEWS/NOTES: Judge Says Matthew Pizzolato ‘Swindled The Salt Of The Earth’; Feds Allege New Scheme In New York; Henri Zogaib Arrested Again In Florida

    EDITOR’S NOTE: The briefs below summarize recent developments in Ponzi cases or actions in new Ponzi cases.

    Sentenced: Matthew B. Pizzolato, 26, Tickfaw, La. Ripped off senior citizens in Ponzi scheme.

    In sentencing Pizzolato to 30 years in federal prison, U. S. District Judge Lance M. Africk said Pizzolato “stole from hard working Americans” and “swindled the salt of the earth,” prosecutors noted.

    “[B]ecause of you,” the judge noted, “many must find ways to pay for their daily bread.”

    Prosecutors called the 30-year sentence “powerful.”

    “[The] powerful 30-year federal prison sentence handed down by U. S. District [Judge] Africk against convicted swindler Matthew Pizzolato will hopefully serve as a stark deterrent to those calculating predators who, like Pizzolato, may seek to prey on the trust and innocence of hard working citizens,” said U.S. Attorney Jim Letten. “The human wreckage of broken lives, dreams, and peace of mind — as well as stolen life savings — is shockingly evident in this case and in the tragedies of the victims whom Pizzolato hunted. Our hope is that these decent, trusting victims can begin to find some sense of justice and peace knowing that this criminal will not steal again.”

    A veteran FBI agent said members of the public would serve themselves well by imagining how a Ponzi scheme aimed at senior citizens could cripple entire families.

    “Mr. Pizzolato targeted senior citizens for his own gain,” said David Welker, FBI special agent in charge. “Personalizing this — what if it was your own mother, father or grandparent? Mr. Pizzolato’s actions were reprehensible and his punishment reflects the seriousness of his crime.”

    The IRS is well-equipped to peel back layers of the Ponzi onion, a criminal investigator said.

    “Special Agents of IRS Criminal Investigation are highly trained investigators who specialize in financial crimes of greed,” said Michael J. De Palma, special agent in charge of the IRS Criminal Investigation Unit. “We are committed in our efforts and will continue to work with our Law Enforcement partners and the United States Attorney’s Office to pursue evidence of criminal activity wherever it leads.”

    Postal inspectors have prioritized the investigation of crimes against senior citizens, an official said.

    “Frauds against the elderly are a priority for the Postal Inspection Service and we will continue to work closely with our partners to aggressively investigate these types of crimes,” said Keith E. Milke, U. S. postal inspector in charge.

    Accused: Laurence M. Brown, a certified public accountant in Armonk, N.Y. Brown was arrested on allegations of securities fraud, wire fraud and money-laundering. Prosecutors said he fleeced investors in a $2 million Ponzi scheme involving a purported gas pipeline in Tennessee. Brown was sued separately by the SEC.

    One need not pull off a Bernard Madoff-sized fraud to get the attention of the Feds, a top prosecutor said.

    “Laurence Brown allegedly concocted a scheme that fleeced clients and fattened his own wallet,” said U.S. Attorney Preet Bharara. “[The] charges show that you do not have to be a billion-dollar Ponzi schemer to get our attention. We are committed to rooting out financial fraud wherever it may hide.”

    Investors were duped into putting money into a company known as Infinity Reserves-
    Tennessee Inc. The SEC also charged Ronald J. Mangini in its civil case, saying he and Brown fraudulently sold securities and misappropriated the money for their own use. Mangini also is an accountant, the SEC said.

    “In fact,” the SEC said, “the securities Brown and Mangini sold were fictitious.

    “Infinity Reserves is the name of a company owned by one of their clients, and the company’s principal asset is a now defunct natural gas pipeline in Tennessee,” the agency continued. “Without the knowledge or authorization of the client, who is the sole shareholder of Infinity Reserves, Brown and Mangini have been falsely holding themselves out to investors as senior officers of Infinity Reserves with authority to sell the phony securities at issue.”

    Arrested: Former Grand Am racecar driver Henri Zogaib has been arrested again after making bail in the original case filed against him in Florida, WFTV reports.

    As the original Ponzi probe progressed, investigators discovered other victims, including NASCAR drivers, the station reported.

    Zogaib’s bail now has been upped to $2.2 million, and there may be other victims, the station reported. Bail on the original arrest was set at $100,000.

    Guilty plea: Donald Anthony Young, 38, of Palm Beach, Florida, has pleaded guilty to one count of mail fraud and one count of money laundering. Federal prosecutors charged him in a $25 million fraud scheme involving companies operating in Pennsylvania.

    “He solicited individuals to invest with him, claiming that their funds would be invested in the stocks of large stable companies,” prosecutors said. “Ultimately, Young obtained more than $95 million from his investors. Instead of investing all of these funds as promised, Young allegedly diverted more than $25 million of investor funds for his own use, purchasing, among other things, luxury homes for himself in Palm Beach, Florida, Coatesville, Pennsylvania, and Northeast Harbor, Maine.

    “When investors requested redemptions, Young was forced to liquidate other investors’ funds to make the pay outs,” prosecutors said.

    Young also tried to obstruct the SEC probe, prosecutors said.

    “When the United States Securities and Exchange Commission opened an investigation into Young’s business, Young attempted to obstruct the investigation by providing false and misleading information to the SEC and by refusing to provide the SEC documents, to which it was legally entitled.”

    Young used $1.9 million in funds stolen from investors “to purchase his luxury home in Palm Beach,” prosecutors said.

    In January, U.S. Attorney General Eric Holder ventured to the Palm Beach area, warning fraudsters they were writing their own tickets to jail.

    Young faces up to 30 years in prison when sentenced in October, prosecutors said.

  • LockInYourFreeSpot.com A ‘New DNA URL,’ Company Says: Will Members Transfer Their Prospect Lists To MLM Firm?

    Data Network Affiliates (DNA) is asking members to drive traffic to yet-another URL: LockInYourFreeSpot.com.

    LockInYourFreeSpot.com is at least the third URL DNA has featured this year in bids to recruit members into a multilevel-marketing (MLM) program that purportedly offers everything from license-plate data to cell-phone service and juices.

    Why DNA, which says it is launching Aug. 9 even though it actually launched in March, wants members to pump traffic to another website was not immediately clear.

    Such approaches have been associated with a controversial marketing practice that is a form of email harvesting — i.e., a company instructs its member database to spotlight a “free” opportunity, and then existing members email their individual databases and prospect lists, in effect transferring their lists to the company fishing for names to add to its database.

    The results can be painful:

    • Marketing lists of existing customers — whether the customers have big lists or small ones — can become less effective or rendered wholly ineffective because prospects’ names have, in effect,  been transferred to the bigger organization.
    • The bigger organization can use the names it gleaned from its own customers to sell against them or get the first “crack” at prospects when something new comes along.
    • Marketers large and small who, in effect, transfer their lists to the bigger organization by promoting its “free” opportunity can lose credibility, especially if the bigger organization pounds its ever-expanding database with offers that are not credible or if people whose names have been transferred discover that the “free” offer is worthless or that the word “free” was used to lure them into spending money.
    • Longtime relationships can become fractured when a prospect realizes a company or individual marketer with whom he or she has an existing relationship put no thought into a promotion for a “free” opportunity for a larger organization and subjected the prospects to a barrage of email from the larger organization.
    • The marketing “noise” level increases and the effectiveness of email marketing decreases — i.e., prospects lured by the “free” offer eventually realize they’ve joined yet another marketing list at the suggestion of someone who put no thought into the action of extending the invitation. Less and less email actually gets opened and read because prospects find themselves in a never-ending state of getting pitched.
    • Marketers make less money because they’ve diluted their own lists and angered prospects by effectively transferring their names to a bigger company. The bigger company then brags about the size of its list, positioning it as social proof of legitimacy even through the means of acquiring the list might have been underhanded.

    Unlike DNA’s two principal domains — DataNetworkAffiliates.com and TagEveryCar.com — the new LockInYourFreeSpot.com uses a U.S. address in its domain registration. The other domains use an address in the Cayman Islands. DNA  previously explained that the Grand Cayman domain registration was a bid to prevent management from having to put up with “stupid” calls.

    LockInYourFreeSpot.com lists an address in Fort Lauderdale, Fla. The domain name is registered to Data Network Affiliates Inc.

    At the moment, Florida records appear to show no company named Data Network Affiliates Inc. operating in the state. A company known as Data Network Affiliates LLC is registered in Nevada.

    In an email to members, DNA pointed out that its LockInYourFreeSpot.com domain is not yet working, but suggested it “should be operational in a few days . . .  if not sooner.”

    DNA suggested a number of “SIMPLE MESSAGES” its existing members could send to prospects in their individual databases. Here, in part, is one of them (italics added):

    DNA SAVE YOUR HOME PROGRAM
    DNA DEBT REDUCTION PROGRAM
    LOCK IN YOUR FREE SPOT
    LAUNCHES 08/09/2010
    100 PRODUCTS @ $19.95 EACH
    OVER $12 GOES TO 10 TIER PAYOUT
    PAYS 100% MATCHING BONUSES
    Takes Only 2 Questions & 2 Minutes
    (your username . lockinyourfreespot .com)

    In recent weeks, DNA has claimed churches had the “MORAL OBLIGATION” to pitch its purported mortgage-reduction program. It was not immediately clear if the “SAVE YOUR HOME PROGRAM” referenced in the email above was the same program as the mortgage-reduction program.

    DNA also suggested that its existing members, when emailing their databases, should tell prospects that LockInYourFreeSpot.com will “PUT 100,000 PEOPLE IN YOUR POWER LEG GUARANTEED.”

    At the same time, DNA said LockInYourFreeSpot.com can help prospects “RETIRE BY CHRISTMAS 2010.”

    Another suggestion positioned LockInYourFreeSpot.com favorably with “FACE BOOK” and
    “GOOGLE” and “WALMART,” describing it as “AMWAY ON STEROIDS.”

  • ‘Sports Arbitrage’ Betting Program Was Investment Scam, Feds Say; Yul Na Indicted For Wire Fraud, Money-Laundering; Faces Up To 890 Years In Prison

    A man has been indicted in Las Vegas for stealing nearly $1 million from investors by telling them they were participating in a “sports arbitrage” betting program and could not lose, federal prosecutors said.

    An arrest warrant has been issued for Yul Na. He was charged in a criminal indictment with 30 counts of wire fraud and 29 counts of money laundering. Na faces up to 890 years in prison if convicted on all counts.

    Prosecutors said Na used investors’ funds to do his own personal gambling in Las Vegas.

    Some of the claims Na allegedly made were similar to claims made by the now-defunct Gold Nugget Invest (GNI) HYIP, which also purported to offer sports arbitrage. GNI tanked earlier this year.

    “Na allegedly began marketing an investment opportunity to individuals involving the technique of ‘sports arbitrage’ for placing and accepting sports wagers,” prosecutors said. “Na claimed that investors would not lose money if they invested in this technique.

    “Na defined the sports arbitrage program to the investors as ‘middling,’ because it involved the combination of betting both sides of the same event, as well as the use of specific timing for the placement of the sports wagers,” prosecutors continued.  “[He] represented that opposing bets were placed at different times to capitalize on the movement in wagering lines by the sports books.  Na represented that this placing of bets at different lines or payout ratios created an opportunity for profit.”

    Part of the scheme featured a claim from Na that he had “an exclusive and binding agreement with Mandalay Bay Resort and Casino to accept large lay-off wagers” at a reduced rate of 18 percent, prosecutors said.

    A layoff wager is a wager one bookmaker makes with another to balance bets and reduce risk.

    Na told investors that, in order to minimize their risk, he had “contracted with an off-shore sports book to bet the other side of the same events for which he had accepted wagers from Mandalay Bay,” prosecutors said.

    Because the offshore bookmaker purportedly charged a 10 percent premium on all wagers, Na “claimed that regardless of the outcome of an event, his sports arbitrage program would always achieve an overall net gain of 8 percent on all lay-off wagers accepted from the Mandalay Bay sports book,” prosecutors said.

    Na’s claims were false, prosecutors said.

    “[He]  knew that he did not have in place any system to place bets for the purpose of ‘middling’ sports events and did not have any exclusive agreement with Mandalay Bay to accept lay-off wagers at a discount rate of 18 percent,” prosecutors said.

    In furtherance of the scheme, Na advised investors to transfer their money electronically to Mandalay Bay’s bank account, instructing them to add “notations for the funds to be applied to[his]  personal casino account,” prosecutors said.

    “Na told investors that the funds had to be wired to his personal account because the casino could not accept wagers from any entity other than an individual,” prosecutors said.

    Investors wired $962,350 to Na through this process, and he  “withdrew the funds and used them to gamble at Mandalay Bay instead of using them for the sports betting investment program,” prosecutors said.

    Gold Nugget Invest collapsed in January. It told members on its website that sports arbitrage was a “market phenomenon based on pure mathematics.”

    The government of Belize issued a warning on GNI in November.

    GNI’s critics were accused of suffering from “mental illness.” Detractors also were told they did not understand that the program, which advertised a return of 7.5 percent a week and later reduced the purported payout to 20 percent a month with a “No Risk Wager,” was “real.”

    After the collapse, GNI explained that its problems were caused in part by “catastrophic script failure(s)” and “potentially catastrophic hackers.”

  • Idaho Sues 4 Men Amid Allegations Of ‘Upline’ And ‘Downline’ Fraud From Scheme Within A Scheme; State Seeks Return Of More Than $2.1 Million, Alleging Sale Of Unregistered Securities

    EDITOR’S NOTE: The story below outlines civil allegations filed in Idaho against Brock Bruegeman, Brian Birch, Brandon Johnson and Sonny Jensen in which the state alleges they operated a pyramid scheme tied to what federal prosecutors have alleged was an upstream, $100 million Ponzi scheme operated in Utah by Rick Koerber. Koerber, who has denied wrongdoing, was charged with crimes such as mail fraud, money laundering, wire fraud, securities fraud and tax evasion in a 22-count, superseding indictment handed up by a federal grand jury in November 2009. He initially was charged in a three-count indictment in May 2009.

    Idaho’s lawsuit against Bruegeman, Birch, Johnson and Jensen demonstrates the perils of jumping aboard investment ships state and federal regulators say never should set sail. The men are accused of withholding crucial information from investors and of selling unregistered securities totaling more than $2.1 million — in essence, operating their own pyramid scheme to feed Koerber’s alleged Ponzi scheme.

    Here, now, the story of an alleged pyramid scheme within an alleged Ponzi scheme . . .

    Although Utah businessman Rick Koerber called it “equity milling” — a process by which investors could profit through real estate — federal prosecutors called it a $100 million Ponzi scheme.

    Now, four men have been accused in Idaho of funneling money to Koerber’s alleged Ponzi scheme by operating a pyramid scheme. Sued civilly by the state of Idaho were Brock Bruegeman, Brian Birch, Brandon Johnson and Sonny Jensen.

    The state is seeking the return of more than $2.1 million that passed through uplines and downlines, calling the sum the proceeds of a securities swindle that packaged money to be sent to Koerber’s company, Franklin Squires.

    “Investor money was sent ‘upline’ through a series of companies before it eventually arrived at Franklin Squires,” according to the Idaho lawsuit. “Franklin Squires made ‘interest’ payments ‘downline’ back through the companies.”

    The scheme, according to the lawsuit, worked this way: Franklin Squires offered a 60 percent annual return to the “layer of companies immediately ‘downline’ from it. Each succeeding layer took part of the payment — often 1 percent — “and passed the rest on to the next lower layer,” thereby making a purported profit. Idaho investors were promised an annual return of 24 percent.

    Among the problems with the scheme, according to federal prosecutors, was that Koerber advertised safe returns even though “Franklin Squires did not make a profit in 2005, 2006, and 2007 and, in fact, lost money those years, that the 1-5% paid on investors’ money came from other investors’ money, and the money invested was not safe.”

    A Koerber company known as Founders Capital also was part of the scheme, federal prosecutors charged.

    “Koerber operated Founders Capital and other related entities as a [P]onzi scheme to convince earlier investors that their funds were earning money and to convince potential investors that the program was working and earning money,” federal prosecutors said. “The [P]onzi payments created the false impression that the businesses were profitable, investments were safe, and interest was being paid. Koerber obtained approximately $100 million in investor funds and over $50 million of those investor funds were used to make [P]onzi payments.”

    Meanwhile, back in Idaho, Bruegeman, Birch, Johnson and Jensen were selling unregistered securities and duping investors by “failing to provide required material information,” the state alleged.

    “Rick Koerber and Franklin Squires paid Jensen 5% monthly,” the state alleged. “Jensen paid Johnson 3-3.5% monthly. Johnson paid Birch and Bruegeman 2.5% to 3% monthly. Birch and Bruegeman paid their investors 2% monthly.”

    Among the information withheld from investors was that Koerber was the subject of a securities action in Wyoming, that Koerber and Birch both had declared bankruptcy and that Bruegeman had unpaid money judgments.

    Investors needed that information to make informed investment decisions, the state said.

    At the same time, the state alleged that not all of the money had been sent to Franklin Squires. Some of it was used to “repay earlier investors” and for “personal purchases.”

    “Bruegeman and Birch continued to solicit new investor money” even though their “upline” payments had ceased, the state charged, adding that they “did not tell potential investors that the ‘upline’ payment stream had dried up.”

    Franklin Squires or Jensen’s company, TSS Investments LLC of Utah, ceased making payments “in or around” May 2007, Idaho securities officials alleged in the lawsuit.

    Birch, of Rigby, Idaho, conducted business as Idaho Quadrant Holdings LLC, according to the state. Bruegeman, of Idaho Falls, Idaho, conducted business as Quadrant Holdings and Development LLC and as Quadrant Holdings LLC, and Johnson, also of Idaho Falls, conducted business as Premiere Holdings Inc.

    The Idaho portion of the scheme addressed in the lawsuit began as early as August 2006 and continued through October 2007, state authorities alleged.

    Only four of the 19 investors identified by the state cooperated fully in the probe, authorities said.

    To gain favor with prospects, the Idaho defendants showed them “opulent cabins in Island Park, luxurious homes in the Idaho Falls area, expensive new cars that they were driving and and new snowmobiles and other items they had recently purchased,” Utah authorities charged.

    Read the Idaho lawsuit.

  • BULLETIN: Beau Diamond Found Guilty On All 18 Counts In Florida-Based Forex Scheme; Office Of U.S. Attorney A. Brian Albritton Is Tackling A Number Of HYIP Schemes

    BULLETIN: Beau Diamond, the Florida man accused of fleecing investors out of millions of dollars in a Forex Ponzi scheme, has been found guilty of all 18 counts against him.

    Diamond, 32, was the operator of Diamond Ventures LLC of Sarasota. He was arrested by the Pinellas County Sheriff’s Office in September 2009, after a probe by the FBI and Internal Revenue Service. The CFTC filed civil charges in the case.

    In an unusual but not unprecedented approach, a sitting U.S. Attorney actually argued elements of the criminal case against Diamond in the courtroom instead of simply supervising the government’s case.

    U.S. Attorney A. Brian Albritton is presiding over the prosecution of two highly complex HYIP schemes, including Traders International Returns Network (TIRN) and the alleged Evolution Marketing Group/FinanzasForex fraud case.

    TIRN operator David Merrick pleaded guilty in May to money laundering and conspiracy to commit wire fraud and securities fraud in the TIRN Ponzi scheme.

    In the Evolution Marketing Group/FinanzasForex case, prosecutors said investigators had tied some of the money collected in the alleged scheme to the international narcotics trade. Court filings in the case paint a picture of an incredibly elaborate maze of companies and bank accounts set up to confuse both investors and law enforcement. At least 59 bank accounts, 294 bars of gold and nine luxury vehicles have been seized in the case. One of the cars was a 2008 Lamborghini Murcielago valued at more than $430,000.

    The EMG/Finanzas allegations are explosive because they showcase the now-undeniable fact that people who promote programs such as HYIPs and autosurfs because such programs may pay “commissions” to recruit new members may be operating as fronts or conduits for international drug dealers and money-launderers.

    Albritton also is tackling the epidemic of mortgage fraud in Florida, which has one of the highest foreclosure rates in the United States and is experiencing a rash of bank failures.

    As filed by prosecutors and the CFTC, some of the allegations against Diamond read like discussions commonly seen on HYIP Ponzi forums.

    Among other things, the CFTC alleged that Diamond urged members not to call authorities when the scheme was going belly-up because involving the government only would make matters worse.

    The Diamond Ventures enterprise quit paying in December 2008, telling some members they had not received checks because it took longer for the U.S. Postal Service to deliver mail near the holidays, CFTC said.

    Other members were told Diamond had a problem with Bank of America and was transferring his accounts to JP Morgan Chase, CFTC said.

    By Jan. 7, 2009, Diamond was explaining to customers that a “serious situation” had emerged. On Jan 9, he told customers that “the funds have been lost” due to a downturn in the world economy and unprecedented volatility, CFTC said.

    What Diamond did not tell customers was that he had lost huge sums in forex trades, had sent customers bogus account statements showing they were money to the good — and blew a tremendous sum on gambling, air travel, jewelry and hotel accommodations, CFTC said.

    By Jan 22, 2009, CFTC said, Diamond was urging customers not to “initiate a federal investigation” because such an event would lead to a situation in which “no one will see a penny, and I most likely will be behind bars,” CFTC said.

    Visit the Sarasota Herald-Tribune to learn more about the Beau Diamond case.

    With today’s convictions, Diamond potentially faces decades in prison.