PatrickPretty.com

Author: PatrickPretty.com

  • INetGlobal Employees Ask Judge For Order That Blocks Secret Service From Interviewing Them; Claim Government Has ‘Superiority’ Mentality

    The litigation against INetGlobal amid Ponzi scheme allegations is turning into a legal slugfest in multiple venues. On one side, federal prosecutors are seeking to disqualify INetGlobal attorney Mark Kallenbach, claiming that he is attempting to be both a lawyer and a witness in the same case.

    Now, employees of INetGlobal are seeking a protective order that effectively would block the U.S. Secret Service and other law-enforcement agencies “from contacting these represented individuals and requesting interviews.”

    Attorney Paul Engh filed the motion in federal court on behalf of INetGlobal’s 70 employees, arguing that he is the gatekeeper for the employees’ legal interests and that the government has approached an unspecified number of employees without going through him.

    “These approaches have been made on a cold-call basis, at [employees’] homes, at night or in the early morning hours, and all without notice to counsel,” Engh said in a brief.

    His request that the practice stop was “refused,” Engh argued, asserting that the government claims “that since the employees are on laid off status. . . they are no longer employees.”

    “Having been an employee is a status that doesn’t disappear because the Government wants it to,” Engh asserted. “None were fired.”

    At least one employee — Donald Allen, a former vice president of a company related to INetGlobal and its operator Steve Renner — said earlier this week that he had his own attorney and was cooperating with the Secret Service and federal prosecutors.

    Allen said he was approached by the Secret Service, which appeared at his home unannounced a week ago today, and was asked by the agency if he wanted an attorney. Allen said that he answered yes, and described his first meeting with the agency as “excellent.”

    Allen said he was advised he had “exposure” in the case. He denied he had done anything wrong, saying he was not privy to INetGlobal’s internal financial workings.

    On Tuesday, Allen said he had a second meeting with the Secret Service April 26, adding that he is cooperating in the investigation “100 percent.”

    Also on Tuesday, Steve Renner went to Hennepin County Court in Minneapolis and obtained a restraining order against Allen, claiming that Allen was harassing and threatening him and trying to extort $100,000 from the company.

    Allen said that what Renner claimed to be extortion was actually an attempt to work out a severance package.

    The extortion claim was the second against a former INetGlobal employee. Former CEO Steven Keough was accused in court filings by Renner last month of trying to extort $500,000 from the company. Keough may be the government’s star witness in the case. The Secret Service said Keough had come to believe that Renner had hired him to be a “good face” for the company and that Renner had fired him for asking too many questions.

    Engh argued in his brief yesterday that the government appeared to be ignoring his duty as counsel to INetGlobal employees “on some federalist notion of superiority or entitled sense of un-accountability.”

    Separately, some members of INetGlobal have asserted the government is not playing fair. Similar claims were made in the prosecution of the assets of the AdSurfDaily autosurf. The government ultimately won three separate orders of forfeiture totaling more than $80 million in the ASD case.

    ASD President Andy Bowdoin, whose company has been linked to international fugitive Robert Hodgins, who allegedly laundered money for a Colombian drug cartel, has filed an appeal. The ASD case has been in litigation since the Secret Service raided the company’s Florida headquarters in August 2008. The ASD case is referenced in filings by the prosecution in the INetGlobal case that allege an undercover agent was introduced to INetGlobal by an ASD member who promoted the program despite describing it as a wink-nod enterprise.

    Renner, who was convicted in December of four felony counts of income-tax evasion and is awaiting sentencing, has not been charged in the INetGlobal case. The government seized about $26 million in its investigation into Renner’s business practices, and prosecutors have argued that Renner is attempting to get the government to expose its case before a formal action is brought.

    Renner has denied wrongdoing, and the companies have said they are legitimate enterprises.

  • EDITORIAL: Congratulations, Naysayers. Narc That Car Promoter ‘Jah’ Says You Deserve Additional Recognition As ‘Scammers’

    Narc That Car promoter “Jah,” who previously declared that repping for the company was like working for the “Census Bureau” and that his downline group would cap earnings claims in check-waving videos on YouTube at three figures because “we’re not going to be out here flashing, you know, five-figure checks” now suggests at Scam.com (see link below) that the firm’s critics merit a promotion.

    If you criticize Narc That Car, which also is known as Crowd Sourcing International, you’re no longer a simple “naysayer.” According to Jah, you’re a “naysayer scammer.”

    It was not immediately clear if other Narc That Car promoters or promoters of other questionable business opportunities would follow Jah’s lead and add the word “scammer” after the word “naysayer” in their efforts to cloud issues and discredit critics.

    Also unclear is whether Jah had come to believe that the word “naysayer” alone had run out of steam and needed a boost from a word that packed an extra wallop.

    At one time, Jah incorporated a strategy of actually calling Narc That Car a scam to refute claims that the company might be using a questionable business model associated with pyramid schemes. That approach apparently fizzled. His NarcThatCarIsAScam.info website has not been updated since it bashed the Better Business Bureau March 27, and Jah apparently has turned to an approach that labels NarcThatCar critics as scammers, as opposed to calling the company itself a scam to prove his point that it is not.

    It is too soon to tell whether “naysayer scammer” will gain traction and emerge as a sort of perfect insult that will cause critics to acknowledge they’d lost both the PR war and the intellectual confrontation before retreating and scattering to the winds to nurse their wounds in private.

    Jah also is persistently attacking the Better Business Bureau, which gave Narc That Car an “F” rating. And he has attacked the PP Blog, repeatedly asserting that the Blog lied about Narc That not being affiliated with Code Amber in a bid to discredit the company.

    The PP Blog never asserted NTC had no relationship with Code Amber, which means Jah is arguing against a claim the Blog never made. The Blog reported that the U.S. Department of Justice denied that the federally managed AMBER Alert program, which NTC referenced in a promotional video, had any affiliation with NTC.

    Jah previously has dismissed critics as simple “naysayers” and “haters.” He has never explained how such terms were consistent with a professional approach to public relations. Oddly, Jah persistently attacks critics for producing what he describes as hearsay — all the while attempting to bolster his hearsay case against critics by passing along third-party assertions purportedly from his upline.

    Narc That Car says it is in the business of paying people to record license-plate numbers for entry in a database purportedly used by companies in the business of repossessing automobiles. Tactics employed by some repo companies are controversial, and the National Consumer Law Center has linked the repo trade to six deaths since 2006.

    Meanwhile, the repo business has ties to to so-called “buy here, pay here” business in which used-car lots finance purchases for high-risk borrowers, often in areas of high poverty and unemployment.

    Millions of dollars were stolen from three pension funds in the Detroit area when they were invested in such a used-car lot in Metropolitan Atlanta, according to the SEC.

    Like members of the AdSurfDaily, AdViewGlobal and AdGateWorld autosurfs, Jah has seized on the name of the PP Blog to discredit it, describing it on the WorkAtHomeForum as authored by “Patrick the pretty guy.”

    Other critics of the Blog have referred to it as “Pretty Patrick.” Some have suggested it should be dismissed because its author either is gay or confused about his gender. Among other things, the author had been called a “fag,” an “it” and just plain “ugly.” One critic of the Blog suggested the world might have been a better place had the author’s mother aborted him.

    Virtually all of the Blog’s critics have purported to be professional business people. Regardless, many of them have raced from one scam to the next, dragging their downlines with them and subjecting themselves and their downline members to both civil and criminal prosecution.

    Visit Scam.com to observe Jah toiling with the critics.

  • PONZI NEWS/UPDATES: Fire Destroys ‘3 Hebrew Boys’ Ponzi Headquarters; Minnesota Man Gets Nearly 10 Years In Prison In Ponzi Case; California Man Gets 25

    Sign of the apocalypse? The headquarters of the “3 Hebrew Boys” Ponzi scheme in Columbia, S.C., was gutted in a fire Monday and Tuesday. Firefighters spent 19 hours over two days battling the blaze, but the “building and all contents . . . were completely destroyed,” according to Beattie B. Ashmore.

    Ashmore is the court-appointed receiver in the case. Proof-of-claim forms for victims of the $80 million Ponzi swindle became available April 15, only 11 days before the fire broke out. The cause of the fire is under investigation, and the building was an asset of the receivership estate.

    “All computers and documents have been stored off-site since the Receiver took possession of the building in October 2007,” Ashmore said. “The building was being managed by a reputable property management company, fully insured and continuously monitored by a security company. The Receiver will make a claim immediately with the Hartford Insurance Company for the full value of the building with the insurance proceeds going to the benefit of the victims.”

    The 3 Hebrew Boys case is one of the strangest in the United States, drawing comparisons to the alleged AdSurfDaily Ponzi scheme owing to elements of affinity fraud and antigovernment rhetoric.

    Joseph Brunson, Tim McQueen and Tony Pough were convicted in November of swindling tens of millions of dollars in a bogus debt-relief “ministry.” The purported aim of the program was to free people from government “bondage,” and the investigation was referred to as “Satan’s handiwork.”

    In the earliest days of the 3 Hebrew Boys case, more than 100 people protested on behalf of the scheme at a rally in Columbia, saying the government did not understand the program, had overreached in its prosecutorial efforts, refused to deny it was wrong and had chosen to move forward with the case in a bid to save face.

    In an approach similar to one used by the AdViewGlobal (AVG) autosurf, members were forced to agree to a confidentially clause that purportedly prohibited them from discussing the company outside the confines of meeting places. Participants were threatened with a $1 million penalty for sharing information.

    AVG, which has close ties to ASD, morphed into a “private association” in February 2009. Members were scolded for sharing information and calling the autosurf an “investment” program. As the company appeared to be collapsing in May and June, members were threatened with copyright-infringement lawsuits for sharing information published by the firm.

    Brunson, McQueen and Pough are jailed awaiting sentencing. After they were found guilty of 174 counts mail fraud, money-laundering and transporting stolen goods, the men filed documents accusing former U.S. Attorney Walt Wilkins of treason and committing acts of war by prosecuting them.

    The men became known as “3 Hebrew Boys” after operating a website with the same name, which is based on a biblical story of believers who escaped a furnace by relying on their faith. The Ponzi scheme operated under the name Capital Consortium Group LLC.

    Minnesota Ponzi Sentencing

    A Ponzi scheme operator in Rosemount, Minn., has been sentenced to 117 months in prison and ordered to pay $21.8 million in restitution to victims.

    Charles “Chuck” E. Hays, 56, has been detained since his arrest in February 2009. He pleaded guilty last year to one count of mail fraud, one count of wire fraud and one count of structuring transactions to avoid financial reporting requirements.

    Among the items seized in the case was a $3 million yacht acquired with investors’ money. Hays operated a firm known as Crossfire Trading LLC and bilked investors out of more than $20 million by operating a Ponzi scheme.

    “Hays told potential investors he was a day trader in stock index futures and other futures contracts,” federal prosecutors said.

    Investors plowed money into the scheme based on lies told by Hays, and he “admitted he diverted and converted those funds for his personal use and other unauthorized purposes,” prosecutors said.

    The sentencing judge in the case was U.S. District Judge Donovan Frank.

    California Ponzi Sentencing

    Milton Retana, 46, of Huntington Park, was sentenced to 25 years in prison for a $62 million Ponzi scheme that bilked mostly Spanish-speaking investors out of at least $33 million.

    The case became known as the “Best Diamond case.” Retana operated a purported real-estate investment company known as Best Diamond Funding. It was yet another instance another in which the name of a precious metal or mineral was used in a Ponzi scheme.

    Evidence of the fraud was hidden in the back of a religious bookstore operated by Retana’s wife, prosecutors said. When investigators searched the bookstore, they found millions of dollars in cash. Best Diamond was located next door to the bookstore.

    The scheme — like many other Ponzi schemes — featured an appeal to religion, prosecutors said.

    “Best Diamond Funding solicited money through advertisements in Spanish-language magazines, on the Internet, and during weekly investment seminars at locations across Los Angeles. The raucous investment seminars often had as many as 300 potential investors and incorporated religious messages,” prosecutors said.

    “Retana guaranteed returns as high as 84 percent each year, claiming that he would purchase properties in bulk at below-market prices and immediately sell them for a profit,” prosecutors said. “However, records obtained by federal investigators showed that Retana used only a tiny fraction of the victims’ money to purchase real estate and that his company was actually losing money.”

    The sentencing judge in the case was U.S. District Judge R. Gary Klausner.

  • Steve Renner Fires, Gets Restraining Order Against Donald Allen; Says Former VP Harassed Him, Tried To Extort $100,000

    Steve Renner

    Former INetGlobal CEO Steven Keough now has some company on the list of people alleged to have tried to extort money from the Steve Renner family of companies.

    Renner went to court yesterday in Minnesota to seek a restraining order prohibiting Donald Allen from harassing him. The order was granted after Renner asserted Allen tried to extort $100,000 and had engaged in a pattern of abusive behavior, including raising “havoc” with employees, threatening “to destroy him and his family,” posting libelous and defamatory material on the Internet and engaging in verbal harassment.

    Allen also was accused to taking pictures of Renner’s offices and employees without their consent.

    “[Allen] has attempted to extort $100,000 from Petitioner’s businesses [and] if not paid will go to the FBI and Secret Service,” Renner asserted.

    A judge ordered Allen not to harass Renner, not to have any contact with Renner and to stay away from Renner’s home. The judge also ordered Allen to stay one “city block” away “in all directions” from Renner’s businesses in Minneapolis.

    Should Allen violate the order, he could be arrested, jailed for up to 90 days and fined up to $1,000, according to the order. Subsequent violations of the order could result in stiffer measures, including the filing of felony charges that could land Allen in jail for for up to 10 years and force him to pay a fine of up to $20,000.

    Allen is referred to in court papers as a previous employee of a Renner company.

    In a story published yesterday on the PP Blog, Allen said he was cooperating with the U.S. Secret Service “100 percent” in a probe of Renner’s business practices. The Secret Service said in February that it believed Renner was operating a Ponzi scheme and engaging in wire fraud and money laundering.

    Renner has not been charged with a crime and denies wrongdoing. Allen was vice president at V-Newswire, one of the “V” entities in the Renner family of companies. The Secret Service said in February that Allen had given confusing information to a customer of INetGlobal, another Renner entity.

    Allen denies wrongdoing, and now says he has met with the Secret Service twice and is cooperating fully in the Ponzi probe. The first meeting with the Secret Service occurred Friday, after agents showed up unannounced at his home, Allen said yesterday.

    In March, Renner accused Steven Keough, the former CEO of INetGlobal, of trying to extort $500,000 from the company. Keough may be the government’s star witness if charges are filed.

    “This is the same move they tried on Steve Keough,” Allen said this morning.  “I never tried to extort anything.”

  • No Stranger To Controversy, Donald Allen Says He Is Cooperating With Secret Service In INetGlobal Probe And Has ‘One Hell Of A Story’ To Tell

    Donald Allen

    UPDATED 6:08 P.M. ET (U.S.A. JAN. 20, 2011.)

    EDITOR’S NOTE: The story below includes an assertion by Donald Allen that his IBNN.org website was knocked offline Sunday by a company with ties to INetGlobal. Moments before the story was set for publication, the IBNN website returned. The story does not reflect this later event, and it is possible that the site is not viewable in all parts of the world owing to an apparent change in nameservers. Events surrounding the apparent change in nameservers are unclear.

    Acknowledging he had been advised that he potentially has “exposure” in the INetGlobal Ponzi scheme investigation, Donald Allen II said this morning that he had nothing to hide and would cooperate with the U.S. Secret Service and federal prosecutors “100 percent.”

    That cooperation already has begun, Allen said. He added that his thinking about INetGlobal has evolved since the Feb. 23 raid of company headquarters in Minneapolis, and he insisted he was out of the loop on INetGlobal’s financial affairs and that his efforts to promote the firm were legitimate.

    “Let me make it perfectly clear,” Allen said this morning. “I did the Global News Distribution and was never let in to the ‘workings’ of iNetGlobal. I met with the US Secret Service and [its] position is that I ‘shielded’ [Steve Renner] to operate a Ponzi, which is untrue.”

    Allen, a vice president with V-Newswire, an entity in the INetGlobal family controlled by Renner, claimed this morning that the company had blocked his access and the access of readers to a public-affairs Blog he operates. The Blog is known as the Independent Business News Network (IBNN).

    The company, Allen asserted, was penalizing him “for coming forward to answer ANY questions the Government has regarding iNetGlobal.”

    Renner has not been charged with a crime and has denied wrongdoing. The Secret Service said in court documents filed in February that “there is probable cause to believe that Renner is operating a large, Internet-based, Ponzi scheme through his umbrella corporation, InterMark, and some of its subsidiaries, particularly Virtual Payment Systems [LLC of Wisconsin/Brackets Denoting the LLC Designation added Jan. 20, 2011], V-Media, Cash Cards International, and V-Local.”

    NOTE IN BOLD ADDED JAN. 20, 2011: An Indianapolis-based company known as Virtual Payment Systems Inc. has contacted the PP Blog to let it know it is not affiliated with the Renner company Virtual Payment Systems LLC of Wisconsin, which is referenced in the paragraph above.

    The Secret Service alleged INetGlobal was the “primary vehicle for the perpetration of this fraud.”

    INetGlobal, which features an advertising rotator, is the so-called “autosurfing” platform of the Renner companies. The government has prosecuted several autosurf companies in recent years, saying they were selling investment programs disguised as advertising programs and engaging in wire fraud and money-laundering.

    Renner’s company has a high concentration of Chinese members who may have limited or no facility in English, the agency said. At least one INetGlobal member has said Americans flocked away from Renner’s autosurfing enterprise after the Secret Service, in August 2008, raided a similar company in Florida known as AdSurfDaily (ASD).

    The ASD litigation is referenced in court papers in the INetGlobal case.

    Allen said this morning that he also had performed work for V-Media and V-Local — both of which the Secret Service said had ties to the alleged INetGlobal fraud — but he insisted that he had done nothing wrong.

    “I wasn’t privileged to know anything about the compensation program” of InetGlobal, Allen said. “I could not explain it to this day.”

    An error message that reads “This Account Has Been Suspended: Please contact the V-Webs.com billing/support department as soon as possible” now appears on the IBNN site. In the early hours after Allen lost control of the Blog, the site would not return a ping and produced a “bad destination” error message, according to records.

    Even though Allen moved the content of the site from a hosting company controlled by Renner weeks ago, Renner controlled the domain registration and thus has the ability to block access, Allen asserted this morning.

    Allen’s access to the site was blocked sometime after “noon on Sunday,” two days after he met with the Secret Service, Allen said.

    Agents appeared at his home Friday unannounced, Allen said.

    He described his initial meeting with agents as “excellent.” Allen added that he is consulting with an attorney.

    “[The Secret Service] asked me if I would like legal representation,” Allen said. “I said yes.”

    A second meeting with the Secret Service occurred yesterday. Allen said he was consulting with his attorney again today, saying a characterization that described him as cooperating with the agency was “totally accurate.”

    The move to block IBNN also followed on the heels of a letter Allen gave to Renner April 22, Allen said. The letter claimed that Allen had “clear and documented” evidence of violations of the Federal Equal Employment Opportunity laws in a hiring decision it made.

    In the letter, Allen suggested he was not given an opportunity to interview for a job that went to an INetGlobal member with a large downline. The letter also questioned the operations of the company’s board of directors and claimed an INetGlobal “receptionist” was performing “confidential” work that should have been handled by the firm’s Human Resources department.

    Moreover, Allen said this morning that nothing in his employment contract with the Renner entity permitted the company to block access to the IBNN site. He claimed that the company now wants him to sign an agreement not to write about INetGlobal and also to inspect his computer.

    Allen Questions INetGlobal’s Operations

    Allen said this morning that he questioned how the company was paying its bills in the aftermath of the federal seizure of its assets. He claimed a member of INetGlobal with a Chinese name had received a promotion to a position that purportedly paid $120,000 a year after the seizure. This member, Allen said, also may have a seat on the board of directors and also purportedly had a downline organization in the company that purportedly paid $10,000 a day.

    His first question for Renner, Allen said, is “how is that possible with the current funds frozen by the US Government?”

    Allen said his position with the company was supposed to pay $75,000, but that he had not seen “a penny.”

    “I’m a little upset, a little traumatized by this attempt to shut me down, because I had one hell of a story,” Allen said. “I’m kind of devastated; I have a civil-rights Blog. A lot of people read it.”

    No Stranger To Controversy

    Allen and his IBNN Blog have been the subjects of controversy. He used an offshoot of the Blog to claim in March that “federal officials” were leaking information about the INetGlobal case to the PP Blog. After the PP Blog began to report on INetGlobal, Allen began to post comments on the PP Blog without initially identifying himself as a Renner employee, claiming that the PP Blog was “minor league” and engaging in a “witch hunt.”

    Separately, Allen used the IBNN Blog to attack the Star Tribune newspaper of Minneapolis St. Paul for its coverage of the INetGlobal raid. Meanwhile, Allen’s name is listed in the Secret Service affidavit filed in February to obtain search warrants at the firm’s headquarters. In the affidavit, the agency painted Allen as a person who provided confusing information to an INetGlobal prospect at a January event in Flushing, N.Y.

    Undercover agents attended the Flushing event, and one agent’s observations of Allen are noted in the affidavit.

    An INetGlobal prospect “stated she was struggling to understand how the business worked and explained that the person who brought her to the conference was not able to explain it either,” the agency said in the affidavit. “She asked what would happen if she sold iNetGlobal products to someone who had a website and they did not see an increase in their profits.

    “Donald Allen asked her what type of products the person was selling and the woman gave the example of beauty products,” the agency continued in the affidavit. “Donald Allen replied that if she was advertising beauty products and not selling any, then maybe she should be in a different business. The woman further challenged Donald Allen on people not truly viewing the websites, just simply opening them. Patricio Diez, iNetGlobal’s marketing director for Spanish-speaking countries, then stated that ‘that doesn’t matter for you.’

    “When the woman pressed further, stating that it does matter to whomever she sold the package to, Donald Allen simply stated ‘we have solutions for that’ but failed to expand upon those solutions,” the agency said.

    After the raid at INetGlobal’s offices in Minneapolis, Allen used the IBNN Blog to criticize both the media and the government for what he described as unfair treatment of the company — without disclosing his tie to the firm. Allen later told the PP Blog he should have disclosed the tie.

    Allen said this morning that his thinking about INetGlobal has evolved. He added that he also had revisited certain events at INetGlobal and had come to believe that things were not quite right.

    At an event in Las Vegas last year, for example, Allen was not given time to talk to attendees about V-Local, he said. In recent days he has publicly questioned why few if any members were interested in purchasing the company’s editorial products.

    “I can’t recall ever selling a press release to a Chinese member of iNetGlobal,” Allen said in a comment on the PP Blog April 23. “My yearly budget was in-part based on iNetGlobal members buying a press release from V-Newswire — hasn’t happened yet.”

    Meanwhile, Allen said this morning that he was sympathetic to Steven Keough, INetGlobal’s former chief executive officer and potentially the government’s star witness in the case. The company has claimed Keough tried to hatch an extortion plot after he was dismissed for incompetence.

    “Keough understood that INetGlobal members needed to buy the products,” Allen said this morning. “Steven Keough was the best thing that ever happened to that company,” adding that he believed Keough saw “noncompliance” with laws and was dismissed for pointing them out.

    See earlier story.

  • BULLETIN: Donald Allen Says He Will Cooperate With Secret Service In INetGlobal Probe; VP Of Renner Entity Claims Former CEO Was Maligned By Company After Raid

    BULLETIN: The vice president of marketing and public relations for V-Newswire — an entity in the Steve Renner family of companies — said he will cooperate “100 percent” with federal prosecutors in the INetGlobal Ponzi scheme investigation.

    Donald W.R. Allen II said this morning that he has met with the U.S. Secret Service twice in recent days. Allen added that he believed INetGlobal had maligned former company CEO Steven Keough in the days following a Feb. 23 raid at the company’s offices in Minneapolis.

    “I respect [Keough] highly,” Allen said. “Keough had the corporate skill . . . to make sure everything was in compliance,” but the company saw him as a “threat,” Allen said.

    Allen said this morning that he had an “excellent” meeting Friday with the Secret Service after agents showed up unannounced at his home.

    “I have nothing to hide,” Allen said. “I will cooperate 100 percent.”

    A full story will appear in a separate post later this morning . . .

  • Is Trevor Cook Lying To Ponzi Investigators In $190 Million Case After Accepting Plea Deal? Investors Say Story Too Incredible To Believe

    EDITOR’S NOTE: Some of the investors in the Trevor Cook/Pat Kiley Ponzi scheme in Minnesota say they believe Cook is lying to investigators about the whereabouts of assets and perhaps other elements of the probe.

    “We do not believe this much money could be totally lost in such a short period of time,” an investor told the PP Blog this evening.

    The comment followed on the heels of a grim statement issued today by R.J. Zayed, the court-appointed receiver in lawsuits brought against Cook by the SEC and CFTC in November. Cook, 37, pleaded guilty to criminal charges earlier this month and is required to cooperate in unraveling the money mystery as part of his plea agreement.

    Zayed said he met with Cook April 23 — and Cook shed little new light on the probe.

    Here is the verbatim statement of the receiver (coloring added to distinguish Zayed’s statement from the PP Blog’s Editor’s Note):

    The Receiver met with Trevor Cook on April 23, 2010 at the United States Attorney’s office in Minneapolis, Minnesota for about 4½ hours for the purposes of identifying, locating, and retrieving assets belonging to the Receivership Estates. Also present at the meeting were representatives of the SEC, the CFTC, the FBI, the IRS, and the United States Attorney’s Office.

    Other than the $362,700 in cash and the collection of “Fabergé” eggs or purses resembling “Fabergé” eggs that Cook caused to be turned over to FBI on April 12, 2010, and which were identified at Cook’s change-of-plea hearing on April 13, 2010, Cook provided the Receiver with little new information with respect to the nature and location of any Receivership assets. Almost all of the information that Cook provided to the Receiver was already known to the Receiver as a result of the Receiver’s own investigation in this matter.

    Cook informed the Receiver that he had no submarines, houseboats, or hidden cash. He also identified no real estate, personal property, cash, bank accounts, safe-deposit boxes, jewelry collections, art collections, bonds, stocks, precious metals, buried treasures, or assets of any kind that were not already known to the Receiver. Cook further informed the Receiver that he has not given any assets to others to hold or hide for him. In sum, Cook identified little more than what the Receiver had previously identified, through the Receiver’s investigation, as assets belonging to the Receivership Estates.

    Cook identified three gambling accounts that were not included in the public Receiver reports; however, the Receiver already was aware of them. Those accounts contain over $100,000, but the Receiver has not been able to retrieve the money because the accounts are located in places outside of the Receiver and the Court’s authority (Costa Rica, Cyprus, and Jamaica). With Cook’s cooperation, these funds may be recoverable.

    According to Cook’s plea agreement, “his currency trading during the period from July 1, 2006 through August 31, 2009 at PFG in Chicago generated trading losses in excess of $35 million.” Cook also filed a claim against Crown Forex, S.A. for $67 million in investor funds that he claims were being held by Crown Forex, S.A. Crown Forex, S.A., however, is insolvent. Therefore, the timing and the amount of any potential recovery is speculative, uncertain, and unknown.

    R. J. Zayed
    Court-Appointed Receiver for Trevor Gilson Cook et al.

  • UPDATE: Data Network Affiliates Gets More Bizarre By The Day; MLM Firm Now Says It Was Snookered In $10 ‘Unlimited’ Cell-Phone Deal

    The PP Blog attempts to write serious stories about serious subjects. In recent weeks, we have reported very little on events at Data Network Affiliates (DNA). Perhaps the biggest reason we have published fewer updates on events at DNA was because things had gotten so strange that sharing news with readers almost seemed like a disservice.

    In our view, nothing that DNA says should be taken seriously. The company plays into every negative stereotype about multilevel marketing (MLM), seems neither to notice nor to care, and has reinvented itself more times than Elizabeth Taylor has been married — and this in a compressed time frame of only weeks.

    DNA, which started its MLM journey earlier this year by telling members it was the business of paying them to record the license-plate numbers of cars for entry in a database because 100 million plate numbers could equate to $1 billion in revenue, sold itself as a sort of “free” Narc That Car.

    DNA, though, oversold the “free” part. It then tried to inspire members to buy a $127 upgrade by telling them its free module to enter plate data was a clunker. Its affiliates have done other strange things, such as attempting to persuade prospects that Oprah Winfrey and Donald Trump endorsed the company.

    DNA has a history of making bizarre announcements.

    Narc That Car (referenced above) is another MLM company that collects plate data. Like Narc That Car, DNA said it saw itself as an excellent tool for law enforcement and the AMBER Alert program for missing children. At first, DNA suggested AMBER Alert, which is administered by the Department of Justice and the National Center for Missing & Exploited Children, was doing a poor job.

    DNA then backed away from that claim, went through a phase it which it positioned itself as an anti-Narc That Car, and finally got around to saying that its database would have limited utility when it came either to helping law enforcement or abducted children and their families.

    All of this was done in the name of MLM profits. It also went through a phase in which it threatened reporters with lawsuits. After Dean Blechman, its original CEO, resigned and later said the company was sending out “bizarre” communications authored by a “back door guy,” DNA sought to regroup. Before long, it announced it was in the cell-phone business.

    All of this came on the heels of claims by the company that church parking lots and the parking lots of doctors’ offices were wonderful places to record license-plate numbers if for some reason you couldn’t get to Walmart to get your supply. Coupled with the cheerleading on conference calls, it was enough to make a person wonder whether MLM had reached a new low.

    DNA Cell-Phone Plan Now DOA

    DNA now says it was snookered into believing it could offer an unlimited cell-phone talk and text plan for $10 a month and, for $19.95 a month, could offer unlimited talk, unlimited text and 20 MB of data.

    Yes, unlimited for $10 a month.

    By comparison, Walmart offers an unlimited talk and text program with unlimited mobile web access called Straight Talk for $45 a month. Straight Talk is part of the Tracfone Wireless Inc. companies. The system runs on the Verizon network, and the pricing has electrified U.S. customers accustomed to paying much higher rates. Walmart has reported that more than 1 million people have joined the Straight Talk program.

    If you are a DNA member, did you really believe that DNA, which changes its message like children consume jellybeans at Easter, was going to sell an unlimited plan for $35 a month less than Walmart does through its Straight Talk affiliation and Tracfone’s buying clout with Verizon? Tracfone itself does not undercut the pricing. It has Walmart’s huge economies of scale, its own Straight Talk marketing arm and ample access to the Verizon network behind it now. The program, which started regionally, now has gone national.

    An email sent by DNA today — weeks after members were lured by all the talk about cell-phone plans priced four and a half times under Straight Talk and other low-price leaders — confirms that the DNA pricing is impossible. DNA blamed an exuberant reseller for making it believe the pricing was possible.

    The pricing was obviously impossible — weeks ago. We try not to be rude on this Blog, but there is just no way to be gentle with this one: If you believed DNA, you are a fool. The crap it sends to your inbox is exactly that: crap. DNA’s crap from the very beginning has been uniquely ripe.

    The DNA email was a thing of wretched beauty. The company furiously tried to spin its announcement as good news, but the announcement was just another in a long line of strikingly pungent missives from the firm.

    Oh, by the way, the company also announced that Phil Piccolo was involved in DNA. The note announcing both the death of the cell-phone plan and the presence of Piccolo was signed by DNA’s CEO George Madiou. DNA said it was happy to have Piccolo on board.

    Here are some highlights (italics added):

    We had a call came in from one of our PRO Leaders and asked if we would consider the cellular industry for one of our divisions. She had information that a BIG “MVNO” VENDOR (a reseller of cell service) was not happy where he was and that he not only could bring in the best and lowest prices but that he could bring in thousands of affiliates into our program. We agreed to meet with him.

    After meeting [the reseller,] everything seemed to be too good to be true. The names he was tossing around and the prices he said he could deliver were just unbelievable. Let’s face it a $10 a month unlimited talk and text plan, a $19.95 a month unlimited talk & text with 20 MB of DATA plan, were two unbelievable products that got us very excited, and we knew it would get our affiliates thrilled also. The excitement was contagious and we immediately put our full I.T. Division along with our entire Web team on the DNA Cellular Project.

    Well the dream turned into a nightmare. After selling hundreds, or should we say thousands of cellular agreements, [the reseller] said he could not deliver either product. He stated that Sprint had terminated his reseller agreement. In fact further investigation on our part, of [the reseller] and his so called $10 and $19.95 monthly service agreements, we found that there are no such service plans to be found by any carrier, anywhere on the planet, by any company in the industry. He also said his good friend of 20 years [name deleted] of Sprint found out that “DNA Affiliates” were raiding the Liberty International, WOW Mobile downline groups. He also stated that [name deleted] found out that “Phil Piccolo” is the lead consultant to the corporate team.

    [The reseller] even provided what seemed to be personal e-mails directly from [name deleted], [title deleted] of Sprint to DNA. D.N.A. even received an e-mail supposedly from [name deleted] of Sprint. This entire series of correspondence immediately seemed fraudulent. We plan on contacting [name deleted] because we at D.N.A. feel that there may be foul play with all of these so called [name deleted] communications that are going around.

    How would the D.N.A. management be fooled like this? When you believe you are talking to the [title deleted] of Sprint, when you believe you are receiving legitimate email communication with the [rank deleted] of Sprint, it’s easy to be fooled at first. Thankfully there was enough red flags that this foolishness was quickly exposed for what it was.

    Addressing the allegation of D.N.A. Affiliates raiding the Liberty International WOW downline, this is another untrue comment. It would be impossible to have 120,000 Affiliates (from D.N.A.) who would not know any WOW Affiliates, so there was a lot of discussion in the field from both companies. There is a very open relationship and mutual respect for Randy Jeffers the owner of WOW Mobile and myself.

    In regard to Phil Piccolo, it is no secret that Phil Piccolo is a lead consultant to the D.N.A. corporate team and we are happy to have him on our team. As far as my D.N.A. Corporate team is concern, we do not judge people by what others say about a person, especially on the wild wild west of the Internet, but by the content of their character and their accomplishments. We hired Mr. Piccolo for his genius ability to develop the best compensation plan for our affiliates and his incredible leadership and customer relationship ability. I have also known Mr. Piccolo personally for years and know him as a man of integrity and have watched him help 3 different companies reach the billion dollar level. He is an industry expert that goes back 34 years and we are proud to have him on our team to spear head us to a million affiliates by years end.

    We were blinded by excitement and did not believe the rumors that flooded into D.N.A. about [the reseller]. Not only from hundreds of affiliates but from other owners of companies. We thought at first they were just jealous of our newest, greatest and latest deal with [the reseller]. However now with personal experience along with written, documented facts backed up with recorded conference calls, e-mail and voice mail messages. We can truly say that [the reseller] is a fraud and we have cut all ties with him. We are also looking at all legal options to protect D.N.A. from this man including to see if there are any criminal and civil charges that can be explored.

    We plan to turn over all of our evidence to the proper authorities. Our intent is to make sure all of our D.N.A. affiliates are fully protected from unethical characters like this man.

    We also apologize for [the resellers’] crude language on our conference calls. You have our word that this will never happen again. That anyone we expose to our D.N.A. Family will be 100% checked out and vetted by a very high standard.

    Again, we are very excited about being in the cellular industry and we are pleased with the development of D.N.A. Cellular becoming it’s own MVNO in full control of our wireless future! Stay tune for some more great news in the days to come.

  • SPECIAL REPORT: SEC Says Detroit Pension Funds Looted By Outside Manager, Used-Car Dealer; Agency Alleges Elaborate Fraud Into Which Millions Dumped Into Firms That Financed High-Risk Loans In Metro Atlanta

    EDITOR’S NOTE: The story below is about a compelling case in which nearly $16 million in public-pension funds from the Detroit area allegedly ended up in the control of an Atlanta-area, used-car dealership that operates in a business segment commonly known in the auto trade as “buy here, pay here.” Research shows that the dealership is situated more than 700 miles from Detroit and seeks business from high-risk borrowers who cannot qualify for bank loans. Three pension funds entrusted the money to a start-up, outside investment-advisory business that operated as a sort of venture-capital firm, according to records. The SEC now says the vast majority of the pension funds’ investment was plowed into the dealership and its in-house lending arms — and that the dealership and its financial arms are controlled by a “friend” of the outside adviser. More than $3 million invested by the funds was stolen in a highly complex fraud scheme, according to the SEC.

    If you’re already scratching your head and thinking that plowing millions of dollars in public funds earmarked for Midwest retirees in their Golden Years into a high-risk “buy here, pay here” car lot hundreds of miles away in the Southeast would be imprudent if not impossible, you’re not alone.

    Intrigued? Your mind may fairly well bubble over with questions when you discover that, not only did the “second-chance” car lot allegedly end up with the money, the outside money manager who persuaded the pension funds to trust him was viewed by at least one of the funds as too inexperienced to handle the job. The doubting fund, however, later decided to go ahead with the investment after the outside manager provided it a document the SEC now says was forged to dupe the pension fund into getting on board.

    Here is a question for readers to ponder: Given the astonishing level of corruption investigators are exposing in U.S. financial markets — and given the fact that one of the assertions in the case outlined below is that public pension funds for Detroit and Pontiac, Mich., municipal workers ended up being directed to an Atlanta-area used car dealer — is it possible that pension funds from other U.S. cities are being used to finance high-risk car loans and perhaps subsequent repossessions if the owners default?

    Beyond that, is it possible that used-car lots that provide in-house financing in other areas of the country have been capitalized with public money or are serving as illicit conduits for private investment capital? Could a silent party be under way with venture-capital funds at corrupt “buy here, pay here” dealers that are not linked to a retirement system, setting the stage for shady operators to siphon and squander money investors believed was earmarked for legitimate purposes?

    There are no early answers, and few people would argue against legitimate venture capitalism that provides a return on investment and the opportunity for entrepreneurs to create wealth and jobs. Regardless, the prospect of pensioners’ money or pooled investment capital not linked to a pension fund being used to capitalize “buy-here, pay-here” car lots and other inherently risky businesses raises intriguing questions.

    As always, one of the questions is this: What constitutes “legitimate” and who’s minding the store? Remember: This is the era of Scott Rothstein, the disbarred Fort Lauderdale attorney and Ponzi operator who managed to recruit investors by packaging nonexistent legal settlements in sexual-harassment cases as securities. Americans have seemed willing to buy into all sorts of extremely speculative, highly dubious or just downright illicit schemes in recent years.

    Here are a few things you should know about the “buy here, pay here” business and the repossession business that often accompanies it.

    Disreputable “buy here, pay here” firms have been known to sell grossly overpriced cars to financially strapped consumers amid promises of “easy” weekly or monthly payments — and then take extreme measures to repossess the cars if the owner defaults, thus potentially creating a second tier of business for in-house or contract repo men. (See subhead titled “National Consumer Law Center Describes Underbelly Of Repo Business” in this post.) The NCLC says the “self-help” repo business is dangerous for low-income consumers and has been linked to six deaths in recent years.

    Some of the companies in the “buy here, pay here” business position dealerships in areas of high poverty and unemployment,  buy cars at auction prices, sell them at inflated retail prices, require large down payments, tack on usurious interest rates of 20 percent or higher, equip the cars with technology that disables the motor if a payment is late (thus, for example, potentially stranding a mother with young children in a supermarket parking lot during freezing weather or making it impossible for the mother to get to her job), and then dispatch the repo man and sell the car all over again to another consumer with money troubles.

    The “buy here, pay here” business also may be spawning offshoots and cottage industries, including one in which members are told they can earn money by helping repo companies seize collateral for clients.

    At least one U.S. company — Narc That Car, also known as Crowd Sourcing International — says it is paying members to record license-plate numbers for entry in a database that will be used by companies in the repo business. Narc That Car is believed to have ties to companies and individuals in the “buy here, pay here” business. There have been no allegations of wrongdoing against the company, although critics have questioned its business model and promoters of the firm have made one vague claim after another.

    Narc That Car, which operates as a multilevel marketing firm and is promoted by members as a way to make money by recruiting other members, says “lien holder” companies are interested in purchasing the license-plate data.  Questions have been raised about whether Dallas-based Narc That Car is operating a pyramid business model to pay members or has an investment angel or angels with ties to the title-loan and repo businesses.

    Critics also have raised privacy concerns and questioned the propriety, safety and legality of neighbors recording the plate numbers of neighbors and entering the information in a database. Narc That Car, which scored an “F” rating from the Better Business Bureau, operates in a shroud of mystery. The company recently said it had signed a “multi year, six figure contract is to lease our growing Data Base to a Texas Based Lien Holder Company,” but did not name the company.

    The business of providing in-house financing and following up with repossessions when car buyers default can be downright unseemly. That public funds from the Detroit area allegedly were passed to an Atlanta-area used-car dealer that had at least 38 bank accounts and multiple affiliated entities is a matter for great introspection. There also are allegations of forgery and siphoning in the case. A look at the websites of two of the entities allegedly involved reveals the need for a good editor — and yet millions of dollars of public money changed hands in what the SEC described as an elaborate fraud.

    The allegations in the SEC’s case against Onyx Capital Advisors LLC, investment adviser Roy Dixon Jr., and Michael A. Farr., who operates used-car lots that provide in-house financing, are mind-numbing. The 24-page complaint in the civil case includes charts that reverse-engineer the alleged fraud and hundreds and hundreds of words that paint a picture of an astonishing, highly complex theft involving multiple companies in multiple venues. The story below does not address in detail the issue about how Detroit municipal pension funds ended up in the control of a used-car dealer in Greater Atlanta, although the media in Detroit are asking some very tough questions. Hats off to the Detroit Free Press.

    Here, now, the story of the allegations against Oynx Capital Advisors, Dixon, Farr and related entities in the pension case . . .

    A former wide receiver for the Detroit Lions has been named a defendant in a complex fraud and theft scheme in which the SEC alleges that pension funds belonging to Detroit-area municipal workers were given to a used-car company in Metropolitan Atlanta that provides a type of financing commonly known as “buy here, pay here.”

    Michael A. “Mike” Farr, who played three seasons for the Lions (1990-1992) and hails from a family whose name is synonymous with football and the car business in Greater Detroit, is the owner of Second Chance Motors Inc., which sells used cars in Marietta and Conyers, Ga., according to its website.

    Farr’s father, uncle and older brother all played in the NFL. Mel Farr Sr., the father, was named NFL Rookie of the Year by the Associated Press in 1967 and went on to become one of the most prominent Ford dealers in the United States after he retired from football.

    The senior Farr’s story was one of African American success. He last played professional football in 1973, entered the car business in 1975 and became famous for his homemade, low-budget commercials in which he wore a Superman-like cape. On the downside, some customers later sued him for outfitting cars with devices that disabled them if payments were missed. The shut-off devices are legal, but some consumer advocates oppose them.

    Like his father, Michael Farr entered the car business after his NFL career ended. The younger Farr set up shop in Michigan, Georgia, North Carolina and Texas, according to records.  His NFL career is not mentioned on the website of Second Chance Motors, although Farr’s name and his company’s name is listed in business records in Texas and on the website that promotes athletics at UCLA. Farr played for UCLA in college.

    Also named defendants were Onyx Capital Advisors LLC and its founder Roy Dixon Jr., whom the SEC described as as a money manager and investment adviser to the pension funds and a friend of Farr’s. Onyx Capital directed nearly $16 million from the Onyx Fund to Farr-controlled entities, according to the SEC. Onyx describes itself as a sort of venture-capital firm that “invests private equity capital into small and medium sized companies primarily located in the Midwest through the Southeast United States and Canada.”

    The recipients of capital from Onyx are “stable” companies that “possess superior products or management know-how,” according to the company’s website. Parts of the website feature vague claims, along with grammar and usage errors.

    Farr, 42, lives in Atlanta, according to the SEC. He also controls SCM Credit LLC and SCM Finance LLC, Georgia companies that provide financing support to Second Chance, the SEC said. Farr and his wife also own another Georgia company known as 1097 Sea Jay LLC.

    Second Chance’s website says the company is “not only in the business of selling cars; we are in the business of helping people. With our strong banking relationship with SCM Credit, we can guarantee your approval the spot!”

    In essence, the Michael Farr-controlled car dealer appears to have boasted about a strong “banking relationship” with another Farr-controlled entity — SCM Credit — one of its lending arms. Georgia corporation records suggest that Farr was affiliated with as many as 10 entities that use or used the “Second Chance” name, and Farr is listed as the registered agent for SCM Credit and SCM Finance.

    “We are not in the repossession business; therefore our experienced financial staff at SCM Credit will take a look at your credit history and recommend a car and payment that fits your budget and your style,” the Second Chance website says.

    How the company handles repossessions if customers default was not immediately clear.

    At issue in the SEC case is the alleged chain of events that occurred prior to the dealership coming into possession of the money and what happened to the money after it was advanced to Farr’s companies.

    Roy Dixon Jr. And Oynx Capital

    Dixon, 46, resides “primarily” in Atlanta, and is “the owner and founding member of Onyx Capital, a private equity firm based in Detroit,” the SEC said. The agency said Dixon owns “numerous” rental properties in Detroit and Pontiac, and an insurance business known as Oynx Financial Group LLC.

    Dixon used money from the scheme to make mortgage payments on more than 40 rental properties in Detroit and Pontiac, and Dixon, Farr and related entities “stole more than $3 million” invested by the Detroit-area pension funds, the SEC charged.

    “These public pension funds provided seed capital to the Onyx [F]und, and Dixon betrayed their trust by stealing their money,” said Merri Jo Gillette, director of the SEC’s Chicago Regional Office. “Farr assisted Dixon by making large bank withdrawals of money ostensibly invested in Farr’s companies, and together they treated the pension funds’ investments as their own pot of cash.”

    The SEC’s use of the phrase “ostensibly invested” may be a key to the case because it suggests the investment was a sham from the start, even though the Oynx Fund ended up owning majority stakes in SCM Credit and SCM Finance. At the end of 2009, the Oynx Fund owned 80 percent of SCM Credit, and 52 percent of SCM Finance, the SEC said.

    Dixon and his company raised $23.8 million from the pension funds, the SEC said, accusing Dixon of misappropriating money soon after it came under his control in 2007.

    “Between 2007 and 2009, Dixon and Onyx Capital misappropriated approximately $3.11 million from the Onyx Fund,” the SEC charged. “They took more than $2.06 million in excess management fees. In addition, Farr assisted Dixon and Onyx Capital in misappropriating almost $1.05 million through the Onyx Fund’s purported investments in companies Farr controlled.

    “Dixon used the proceeds from his and Onyx Capital’s misappropriations to pay personal and business expenses,” the SEC said in its complaint. “These expenses included payments for the construction of Dixon’s multimillion-dollar house in Atlanta, Georgia, and mortgage payments on more than forty rental properties Dixon owns in Detroit and Pontiac, Michigan.”

    On at least 15 occasions, the SEC said, “Dixon withdrew investor money from the Onyx Fund’s bank accounts to cover overdrafts in his own personal accounts, or Onyx Capital’s bank accounts.”

    Dixon also took “advances” against unearned management fees, overbilled the fund by $1.74 million for fees to which he was not entitled and, in at least one instance, double-billed for fees that already had been withdrawn from the fund and placed in Dixon’s personal bank account, the SEC charged.

    Pension Funds Allegedly Denied Access To Records

    “Dixon and Onyx Capital have taken a number of steps to prevent the pension funds from discovering their misappropriations from the Onyx Fund,” the SEC charged. “Among other things, Dixon and Onyx Capital have disregarded the requirements of the partnership agreement and have failed to provide the pension funds with copies of the Onyx Fund’s tax returns for 2007 and 2008.

    “Those tax returns identified some of the excess management fees taken by Onyx Capital as a related party receivable,” the agency charged. “Dixon and Onyx Capital also sent each of the pension funds an annual Investor’s Report in August 2008, and several quarterly account statements, which falsely stated that Onyx Capital had been paid only the management fees that it was entitled to receive under the partnership agreement.”

    Michael Farr’s Alleged Role In $15.7 Million Scheme

    Dixon and Michael Farr were friends “since before Dixon started Onyx Capital” in 2006, the SEC said. “In fact, Dixon selected Farr’s father to serve on the Onyx Fund’s initial advisory board.”

    The senior Farr is not named a defendant in the SEC complaint.

    Michael Farr’s Second Chance dealership and related financing arms initially received $4.25 million from the Oynx Fund, the SEC said.

    “However,” the agency charged, “after entering into these agreements, Dixon and Onyx Capital transferred funds in excess of agreed amounts to SCM Credit and SCM Finance. The Onyx Fund did not execute new investment agreements, showing an additional debt or equity investment with these two entities, until the end of 2008 and the end of 2009.

    “The Second Chance entities treated the money obtained from the Onyx Fund as if it was a line of credit,” the SEC alleged. “By the end of 2009, Dixon and Onyx Capital had transferred approximately $15.7 million to the Second Chance entities.”

    Farr knew that the money had come from public pension funds and even attended a meeting conducted by one of the funds, the SEC said. Regardless, he used the money to aid and abet Dixon in a fraud, the agency charged.

    The pension funds’ exposure to loss was not immediately clear. What is clear is that money was diverted and siphoned in a whirlwind of transactions, some involving cash, according to the complaint.

    “Beginning in 2008, Dixon coordinated additional misappropriations from the Onyx Fund with Farr,” the SEC alleged. “In total, Dixon and Farr misappropriated approximately $1.05 million of the money the Onyx Fund purportedly invested in Farr’s companies.”

    The fraud mushroomed, the agency charged.

    “Between June 2008 and November 2009, Farr transferred approximately $2.34 million from the Second Chance entities to Sea Jay, a company owned by Farr,” the SEC said. “Sea Jay’s only asset was a piece of real property leased to one of Second Chance’s used car dealerships for $10,000 per month. Sea Jay had the right to receive a total of $230,000 from the Second Chance entities for this purpose. The Second Chance entities had no legitimate business purpose to transfer an additional $2.11 million to Sea Jay.

    “Farr assisted Dixon in misappropriating approximately $948,000 of the investor funds which had been transferred to Sea Jay,” the SEC continued. “Farr later returned $1.16 million of the money transferred into Sea Jay to the Second Chance entities. Of the approximately $948,000 which Dixon and Farr misappropriated, $719,000 was used to benefit Dixon and $229,000 was used to benefit Farr.

    “Between October and December 2008, Farr made approximately $522,000 in payments from Sea Jay’s bank account to three construction companies that performed work on Dixon’s new house in Atlanta,” the SEC charged. “On December 30, 2008, Farr and Dixon executed a promissory note pursuant to which Dixon was not required to repay any amount to Sea Jay for six years.

    “During December 2008, Farr also made a series of cash withdrawals from Sea Jay’s bank account at approximately the same date and time, and in the same locations, as Dixon made cash deposits,” the SEC alleged. “Over the course of approximately two weeks, Farr and Dixon made at least 25 corresponding cash transactions in banks near Atlanta, Georgia and Naples, Florida where they both own homes. On many of these days, Farr and Dixon made similar withdrawals and deposits of cash on the same day.

    “In addition, Farr misappropriated at least $100,000 of the money invested in his businesses by the Onyx Fund through one of Second Chance’s used car dealerships, Second Chance Motors of Houston, LLC (‘SCM Houston’),” the agency said. “On December 29, 2008, Dixon transferred $125,000 from the Onyx Fund to SCM Credit for investment purposes. Farr immediately transferred $100,000 of that money to SCM Houston. The next day, Farr withdrew $100,000 in cash from SCM Houston’s account at a bank in Estero, Florida and Dixon deposited $130,000 in cash into Onyx Capital’s account at a bank located approximately 20 miles away.”

    The fraud was in part designed to cover tracks, the SEC charged.

    “Dixon used most of the December 2008 cash deposits so that it would appear to the Onyx Fund’s auditor that Onyx Capital had repaid the excess management fees it had withdrawn from the Onyx Fund during 2008,” the agency charged. “In this manner, Dixon and Onyx Capital were able to avoid reporting any excess management fees as a related party receivable on the Onyx Fund’s tax return and audited financial statements for 2008.

    “Finally,” the agency said, “Farr commingled the funds invested by the Onyx Fund among the three Second Chance entities and Sea Jay — which between them maintained at least 38 bank accounts at seven separate banks. On several occasions, Farr made at least ten transfers between and among these bank accounts in a single day.”

    Oynx compounded the fraud by sending a “forged letter to one of the pension funds misrepresenting the principals of Onyx Capital,” the SEC said. The letter was used to allay the fund’s concerns that Dixon was too inexperienced to manage the investments, the SEC said.

    U.S. District Judge Denise Page Hood of the Eastern District of Michigan has frozen the assets of the defendants and issued a temporary restraining order.

    Read the SEC complaint.

  • Alleged Cyber-Extortionist Indicted: Feds Say Anthony Digati Tried To Chill, Defame Business On Internet To Extract $200,000 In Bizarre Social-Networking Plot

    Unhappy with an entity with which you have a dispute? Want to chill them to get your way by threatening to use keyword targeting and social networking? Want to start a wild spin campaign to misinform the public and slime people and entities you perceive to be your enemies?

    Want to suggest a person or entity submits to your demands or else? Want to suggest you’ll be aided in your efforts to get what you want by thousands — if not tens of thousands — of like-minded, online acquaintances and colleagues?

    A California man has been indicted in New York on federal charges of extortion through interstate communications. Federal prosecutors also are seeking the forfeiture of Anthony Digati’s computer and other equipment alleged to have been used in an ever-escalating bid to extort money from New York Life Insurance Co. because he was unhappy with a product purchased from the firm.

    U.S. District Judge Denny Chin — the judge who presided over the Bernard Madoff case — has been assigned to hear the Digati case. Digati, 52, of Chino, Calif., faces a maximum of two years in federal prison and a fine of up to $250,000 — or twice the gross pecuniary loss or gain derived from the offense — if convicted.

    Digati registered a domain in February that used New York Life’s name in its URL, according to records. He then embarked a relentless hectoring campaign aimed at fashioning “false public statements” and threatening to transmit millions of spam emails “in an effort to damage the reputation of New York Life and cost the company millions of dollars in revenue,” according prosecutors.

    The intent, according to prosecutors, was not to inform or educate. Rather, it was to “extort” money from New York Life by keeping it in a constant state of threat and suggesting the demand for a payment of $198,303.88 would escalate into a demand for $3 million if the lower demand was not met.

    New York Life called the FBI.

    Part of Digati’s strategy, according to prosecutors, was to “drag [New York Life’s] company name and reputation . . .  through the muddiest waters imaginable.”

    Digati’s website included this text, according to records:

    • These things, unless you honor the below claim, WILL HAPPEN on March 8, 2010.
    • As you have denied my claim I can only respond in this way. You no longer have a choice in the matter, unless of course you want me to continue with this outlined plan. I have nothing to lose, you have everything to lose.
    • My demand is now for $198,303.88. This amount is NOT negotiable, you had your chance to make me an offer, now I call the shots.
    • I have 6 MILLION emails going out to couples with children age 25-40, this email campaign is ordered and paid for. 2 million go out on the 8th and every two days 2 million more for three weeks rotating the list. Of course it is spam, I hired a spam service, I could care less, The damge [sic] will be done.
    • I am a huge social networker, and I am highly experienced. 200,000 people will be directly contacted by me through social networks, slamming your integrity and directing them to this website within days.
    • I think you get the idea, I am going to drag your company name and reputation, through the muddiest waters imaginable. This will cost you millions in lost revenues, trust and credibility not to mention the advertising you will be buying to counter mine. Sad thing is it’s almost free for me!
    • The process is in motion and will be released on March 8th, 2010. If you delay and the site goes live, The price will then be $3,000,000.00.

    Meanwhile, prosecutors said Digati flooded the company with email directed at executives, employees and a board member.

    “[H]e directed the recipients to his website and stated, ‘I HIGHLY suggest you visit this website and contact me afterwards,’” prosecutors said.

    Later, according to prosecutors, Digati sent an email that said the “[c]lock is ticking” and prompted New York life employees, executives and a board member again to visit his website.

    A grand jury returned the indictment after Digati was arrested by the FBI in March. The original case was filed via criminal complaint.

    “In this computer age, cyber-extortion has become an emerging tool for criminals to hold businesses at virtual gunpoint, threatening them with widespread spamming and other Internet-based attacks,” U.S. Attorney Preet Bharara said in March, after Digati’s arrest.

    “With the assistance of the FBI, our Office will work to safeguard the Internet and prosecute computer-savvy criminals who seek to harm the well-being of businesses and our economy,” Bharara said.

  • NEWS/UPDATES: Feds Say $900 Million Nevin Shapiro Ponzi ‘Perfect Example Of Greed Run Amok’; Colorado Charges Bela Geczy, Michael Kass With Racketeering In Fraud Case

    The acts of Nevin Shapiro — a Florida man arrested in New Jersey yesterday on charges of orchestrating a $900 million Ponzi scheme — represent a “perfect example of greed run amok,” an FBI agent said.

    Separately, a grand jury in Colorado has charged two men under the state’s organized-crime statute with operating an $18 million securities-fraud scheme that affected at least 270 investors.

    Arrested in Colorado were Bela Geczy, 57, of Longmont, and Michael Brian Kass, 48, of Boulder. Authorities said they orchestrated a massive Ponzi scheme involving domestic and offshore business opportunities.

    The court docket in the cases against Geczy and Kass shows two dozen felony counts, including violations of the Colorado Organized Crime Control Act, conspiracy to commit securities fraud, securities fraud by fraud or deceit and securities fraud by untrue statement or omission.

    Like Florida, Minnesota, Washington, New York, South Carolina, California, Michigan and other states, Colorado has been plagued by Ponzi and fraud schemes. No fewer than five major Ponzi or financial fraud probes are under way in Colorado. Records suggest the highly complex frauds involved more than $100 million.

    In New York alone this week, two major financial-fraud cases were filed. The schemes involved in the neighborhood of $101.5 million, according to court filings. Meanwhile, U.S. Attorney Jenny A. Durkan of the Western District of Washington outlined five major Ponzi probes in various states of completion in the Greater Seattle area. These cases involve tens of millions of dollars, according to records.

    At the same time, the main page of the website of U.S. Attorney B. Todd Jones of the District of Minnesota features links to three major Ponzi cases in various stages of investigation. One of the cases is the Tom Petters’ Ponzi case. Petters was sentenced this month to 50 years in federal prison for presiding over a $3.65 billion fraud.

    Jones’ website also includes information on a Ponzi case involving at least $190 million. Trevor Cook pleaded guilty to mail fraud and tax evasion in the fraud earlier this month, and is awaiting sentencing. The website also includes information on the investigation into the business practices of Steve Renner in an alleged autosurf Ponzi scheme case involving tens of millions of dollars.

    Florida/New Jersey Cases Against Nevin Shapiro

    Shapiro, 41, was a prominent Miami Beach businessman. Authorities now say he was operating a Ponzi scheme since 2005 that rivaled the $1.2 billion Scott Rothstein scheme in dollar volume. Rothstein pleaded guilty in his massive fraud case earlier this year.

    Like Rothstein, Shapiro liked to chum around with sports figures and live large, according to records.

    Shapiro used “stolen funds to purchase a pair of diamond-studded handcuffs, which he gave as a gift to a prominent professional athlete,” prosecutors said. He also spent more than $400,000 for floor seats to watch the Miami Heat, a team in the NBA.

    At the same time, prosecutors said, he spent about $26,000 per month on mortgage payments on his $5.3 million residence in Miami Beach, while directing about $7,250 per month for payments on a $1.5 million dollar Riviera yacht and roughly $4,700 per month for the lease of a Mercedes-Benz.

    Viewed on a yearly basis, the payments on the residence, yacht and car alone consumed more than $450,000 — and yet Shapiro’s purported business produced no sales.

    A veteran FBI agent said the case was about naked greed.

    “This case is a perfect example of greed run amok,” said FBI Special Agent in Charge Michael B. Ward. “In pursuit of wealth and a lifestyle he was otherwise unable to attain, Mr. Shapiro allegedly preyed upon unsuspecting investors looking to secure a safe place to maximize their investments.  Instead, their futures have been irrevocably damaged.”

    Although purportedly in the business of buying groceries in a lower-priced market and selling them wholesale in markets in which they would fetch higher prices, Shapiro’s company largely was a mirage that conducted virtually no legitimate business after 2004 and sustained itself by paying investors with the money of other investors, prosecutors said.

    “Nevin Shapiro is charged with tricking investors with false documents and false promises,” said U.S. Attorney Paul J. Fishman of the District of New Jersey. “He spent tens of millions of their money on gambling debts, lavish gifts and a luxury lifestyle built on a house of cards.”

    Authorities gave credit for the Shapiro criminal collar and an accompanying civil action by the SEC to the combined investigative efforts of the Financial Fraud Enforcement Task Force. President Obama formed the Task Force in November 2009.

    Shapiro, prosecutors said, diverted at least $38 million in investors’ funds for his own use, and investors now are out tens of millions of dollars.

    A girlfriend received goods totaling $116,000 from a charge card, which Shapiro used to rack up $640,000 in personal purchases, according to court records.

    The IRS is part of the investigative team in the Shapiro case.

    “Scammers, con artists and swindlers will do and say anything to get you to buy into their scheme,” stated William P. Offord, Special Agent in Charge, IRS-Criminal Investigation.

    Like his investigative colleagues in other Ponzi cases, Offord reuttered the age-old adage:

    “Remember the old cliche,” he said.  “If it’s too good to be true, it probably is.’”