PatrickPretty.com

Author: PatrickPretty.com

  • BULLETIN: Tom Petters, Minnesota Ponzi Scheme Figure, Sentenced To 50 Years In Federal Prison

    BULLETIN: (UPDATED 12:21 P.M. EDT (U.S.A.) Tom Petters, whom federal prosecutors said presided over a $3.65 billion Ponzi scheme, has been sentenced to 50 years in prison.

    The fraud was one of the largest in U.S. history — though still significantly smaller than the Bernard Madoff scheme, estimated to have involved $65 billion.

    Prosecutors had sought a sentence of more than 300 years. Petters’ attorneys countered with an argument that an appropriate sentence was in the range of four years.

    U.S. District Judge Richard Kyle bridged the gap, sentencing Petters to 50 years — 100 years fewer than the sentence Madoff received, but more than 12 times the sentence sought by the defense.

    Minnesota has been plagued by Ponzi schemes and rocked by allegations of Ponzi schemes.

    Three links on the main page of the website of U.S. Attorney B. Todd Jones lead to information about major Ponzi scheme prosecutions or Ponzi investigations undertaken by the office, including the Petters’ case, the case against Trevor Cook and Pat Kiley, and the investigation into the business practices of Steve Renner, who is alleged by prosecutors to have operated an autosurf Ponzi scheme known as INetGlobal.

  • RECEIVER: Cook/Kiley Ponzi ‘Incredible Tragedy’; Some Investors ‘Destitute’; Management So Screwed Up That Historic Van Dusen Mansion Was Not Insured; Assets ‘Sent All Over The World’

    EDITOR’S NOTE: As is the case with other Ponzi schemes, the alleged Trevor Cook/Pat Kiley scheme in Minnesota is proving to be an incredible paper chase that is consuming hundreds of hours of manpower as attorneys, investigators and support staff work to reverse-engineer what authorities say was an epic, international fraud.

    Want to be a Ponzi receiver? Expect to be criticized — and also expect to put in long hours, perhaps for months or even years. It simply is not an easy job, especially if a scheme has fleeced investors by the hundreds or thousands. Simply put, there is no way to make all parties happy. Perhaps all one can hope for is to contain the devastation of a Ponzi scheme.

    This is part of the story of R.J. Zayed, as told through court filings and a statement before Chief U.S. District Judge Michael J. Davis March 29. Zayed is the receiver in the Cook/Kiley case . . .

    Investor losses will be huge in the alleged Trevor Cook/Pat Kiley Ponzi scheme in Minnesota, the court-appointed receiver in the case said.

    Painting a picture that deception was the rule and not the exception in the alleged $190 million fraud, receiver R.J. Zayed said that money was moved “all over the world” and that $139 million of investor funds was “spent or hid.”

    Management of the scheme was so screwed up that Trevor Cook, whom Zayed described as the “architect,” reportedly paid $2.6 million from investors’ resources in 2008 for the historic Van Dusen mansion in Minneapolis — but then did not bother to maintain property insurance or even to maintain the property.

    Zayed’s early findings are alarming, and his statement and reports to Chief U.S. District Judge Michael J. Davis  cannot be ignored. Indeed, Zayed suggested, Cook used investors’ money to buy the mansion, but put the entire purchase price at risk and potentially invited catastrophic downstream liabilities by not insuring the property and letting it fall into a state of disrepair.

    Welcome to the bitter world of the Ponzi. Easy come, easy go.

    Although Cook purchased an island property in Canada for $250,000, a contractor who performed work for Cook has filed a “lien for unpaid work.” The filing of the lien added another layer of complexity to an already-complex case that involves multiple international jurisdictions.

    “We are working to get that issue resolved and clear title to the land,” Zayed said, noting that he has hired lawyers in Canada to help navigate the jurisdictional issues. The receivership estate also is working to convert assets in Panama to cash.

    Cook, 37, was charged criminally with mail fraud and tax evasion March 30. It is believed he may enter a guilty plea during a court appearance April 13.

    The Van Dusen mansion, which was used as a headquarters for the alleged $190 million scheme, quickly became a white elephant to the receivership estate, Zayed said.

    “Ongoing expenses, such as utilities and property maintenance, cost approximately $12,000 per month,” Zayed said. “In addition, we had to obtain property insurance (there was none under Mr. Cook’s management).”

    Moreover, Zayed said, the mansion’s furnace was not working and its security system had been “dismembered.”

    “Numerous individuals had ‘worked,’ lived, and socialized throughout the house,” Zayed said. “The property was littered with trash and paraphernalia from these activities. Evidence had to be preserved and the remainder had to be cleaned out — this was a tremendous task.”

    Spectacular Sums Collected, But No Books Kept

    Cook and Kiley both were charged civilly by the SEC and the CFTC in November. Kiley, 71, is a former host on Christian radio. Cook was a purported money manager.

    “The damage that Trevor Cook and Pat Kiley have done is nothing short of devastating to each of over 1000 investors who trusted and invested their life savings with these individuals,” Zayed said.

    In many cases, individual investors lost their life savings, Zayed said. Some of them had borrowed against the value of their homes.

    “Many of these investors are so destitute that they cannot afford to hire private counsel to represent their interests,” Zayed said.

    He described the scheme as an “incredible tragedy” that has been “nothing short of devastating” to investors, saying he is aware that some people believe the receivership estate has billed “extensive fees and costs.”

    Zayed, though, said he had arranged for discounted billings with key personnel such as attorneys and professional investigators and, in some cases, was relying on recent law-school graduates and criminal-law students to perform work for the estate to contain costs.

    WayPoint Inc., a professional investigations firm whose staff consists of former FBI and IRS agents and a former postal inspector, has performed some work at no charge because it recognizes the grave circumstances confronting Cook/Kiley investors, Zayed said.

    “It is the right thing to do,” Zayed said, quoting Rick Ostrom, one of WayPoint’s principals. Ostrom is well-known in Greater Minneapolis. He spent 26 years with the FBI.

    “WayPoint has been instrumental in cost containment,” Zayed said. “For example, to effectuate a proper distribution plan, the Receiver has to have as complete a list as possible of all investors who have lost money in this scam. Approximately 580 investors have registered claims with the Receiver — this is about half of the individuals who are believed to have invested with the Defendants.

    “In an effort to identify the remaining individuals in the most cost-effective manner possible, WayPoint interviewed and engaged local criminal-law students to review Defendants’ investor files to create a list that is complete and as accurate as possible,” Zayed continued. “These students reviewed 75 boxes of investor files and are in the process of updating the investor database with the information they reviewed. This work was performed at no cost to the Receivership, except that we paid for these students to park downtown while they worked at the U.S. Attorney’s Office.”

    Moreover, Zayed said his own firm, Carlson, Caspers, Vandenburgh & Lindquist (CCVL), cut its billing rate by 15 percent. The firm’s CFO has been working as a “de facto CFO” for the estate “without a single of her many hours billed.”

    Meanwhile, Zayed said, the “entire administrative staff of CCVL has also worked on behalf of the Receivership, often with late hours at the expense to their family and home lives, without billing a single hour.”

    At the same time, the firm’s technical staff also contributed to the Receivership, constructing a separate part of the firm computer infrastructure to handle the tremendous volume of electronic documentation that the Receivership has collected and created.”

    ‘Complicated Web’ Of Deceit

    Management of the Cook/Kiley entities was an unqualified disaster, Zayed said.

    “[T]he scope and depth of this fraud are so severe . . .  that the recovery in this case will be nowhere near the loss,” Zayed said. “The Defendants’ construction of this Ponzi scheme and their maintenance of the fraud lured investors into a scheme that produced a complicated web through which assets were sent all over the world.”

    Although investors filed lawsuits last summer and the SEC and the CFTC launched probes that resulted in the filing of the civil charges, the scheme continued to consume investors’ money even after the allegations were filed, Zayed said.

    “Trevor Cook was spending tens of thousands of dollars to buy gift cards around the city for his own personal gain,” Zayed said. He added that the receivership estate, the SEC, the CFTC and federal prosecutors in Minnesota worked to preserve assets and that the consequence to Cook was that he was jailed in January for not cooperating.

    “Suffice it to say that there was no legitimate book keeping of the Defendants and Relief Defendants,” Zayed said. “There were no accounting systems in place, or even a general ledger.”

    Read Zayed’s full statement.

  • Government Scores Clean Sweep In ASD Forfeiture Litigation, But That May Not Be The Biggest News: Is A Separate Legal Drama Playing Out In Background?

    Andy Bowdoin

    UPDATED 11:57 A.M. EDT (U.S.A.) Federal prosecutors have won the second forfeiture case against assets tied to Florida-based AdSurfDaily, meaning the government now holds title to 100 percent of the money and assets seized in the autosurf Ponzi scheme, wire fraud and money-laundering investigation.

    U.S. District Judge Rosemary Collyer issued a final order of forfeiture March 30 in a case brought in December 2008. On Jan. 4, Collyer issued a final order of forfeiture in a case brought in August 2008. The government now has control over more than $80 million seized in the cases, along with real estate, cars, marine equipment, computers and other property.

    But that may not be the big news.

    Grand Jury Probe

    Indeed, the big news may be that a hidden legal drama is playing out behind the scenes. Appeal documents filed by attorneys for ASD President Andy Bowdoin in the August 2008 case reference two separate matters filed “under seal” and say that attorneys for unnamed “defendants” were called to testify before a grand jury.

    The filings suggest — but do not state plainly — that prosecutors subpoenaed at least two attorneys involved in the defense of ASD-related property to testify and that a federal judge ordered the attorneys to comply.

    Charles A. Murray, an attorney for ASD President Andy Bowdoin, referenced two sealed court cases when informing the appeals court about litigation “related” to ASD.

    “Only one case related to this matter is currently pending before this Court, an interlocutory appeal alleging that the court below erred in ordering the defendant’s attorneys to testify before a grand jury,” Murray wrote.

    Murray identified the case as “Grand Jury Subpoena, Case No. 09-3118 (Under Seal).”

    “This related appeal arose from an ongoing grand jury investigation, In re: Possible Violations of Title 18, United States Code, Sections 1341, 1343, and 1349, Misc. No. 09-270 (Under Seal),” Murray wrote.

    The sections of federal law cited in Murray’s appeal brief pertain to mail-fraud, wire-fraud and conspiracy statutes. The attorneys are not named, and the brief does not identify the targets of the grand-jury probe.

    Details Unclear

    Why the attorneys were called to testify is unclear. Also unclear are the identities of the attorneys’ clients, the nature of the information the government sought from the attorneys, whether the attorneys sought to invoke attorney-client privilege and whether they actually testified before the interlocutory appeal filed under seal was brought.

    An interlocutory appeal is an appeal to a higher court of a ruling by a lower court that is made before the trial in the lower court has concluded.

    Such appeals, which higher courts are reluctant to entertain, may be filed when a party believes a lower court’s ruling is severely prejudicial and turns to an appeals court to stop it in its tracks, instead of following the customary procedure of waiting for the case to conclude before filing an appeal.

    Racketeering Case Cited

    Murray also identified as a “related” matter a racketeering lawsuit filed against Bowdoin and ASD attorney Robert Garner by three ASD members in January 2009. The racketeering lawsuit, which alleges ASD was a criminal enterprise as defined under federal statutes, has been placed on hold until issues in the federal case are resolved.

    In June 2009, attorneys for the parties suing Bowdoin and Garner referenced the AdViewGlobal (AVG) autosurf, an entity with close ties to ASD. In September 2009, federal prosecutors made a veiled reference to AVG in a filing that suggested that Bowdoin and family members initially planned to “move to another country and profit from a knock-off autosurf program that Bowdoin funded and helped to start.”

    The assets seized in the December 2008 forfeiture case identified Bowdoin family members as beneficiaries of ASD’s illegal conduct. Members of AVG later identified George and Judy Harris as AVG’s owners, with Bowdoin as a silent partner.

    George Harris is the son of Bowdoin’s wife, Edna Faye Bowdoin, who also was named in the December 2008 complaint as a beneficiary of ASD’s illegal conduct.

    AVG crashed and burned in June 2009, taking an unknown sum of money paid by members with it by exercising its version of a “rebates aren’t guaranteed” clause. There were reports that $2.7 million was stolen from AVG, which purportedly operated from Uruguay.

    Among AVG’s most noteworthy promoters were former ASD members, including some of the moderators of the now-defunct Pro-ASD Surf’s Up forum. Surf’s Up suddenly went missing in the earliest days of 2010.

    Bowdoin, 75, has been portrayed by prosecutors as “delusional.” He pleaded guilty in Alabama during the 1990s to felony securities charges, according to court records. A decade later, he associated with Clarence Busby, the operator of Golden Panda Ad Builder, the so-called “Chinese” option for ASD members.

    Bowdoin and Busby, according to court filings by Busby, talked about forming Golden Panda in April 2008 while on a “relaxing fishing trip” to a Georgia lake.

    Busby, identified by the title “Rev.” at least 120 times in autosurf-related litigation, was implicated by the SEC in three prime-bank schemes in the 1990s, according to records. Golden Panda has ceded more than $14.6 million to the government in the ASD case, including $646,266.13 formally ordered forfeited by Collyer last week, and more than $14 million Collyer ordered forfeited in July 2009.

    In his court filings, Busby said he didn’t know Bowdoin “had prior run ins with the law” and had been arrested in Alabama for defrauding investors.

    Busby did not say if he told his fishing partner about his own run-ins with the law: The SEC said Busby defrauded investors in the 1990s “by offering and selling investment
    contracts in connection with three different prime bank schemes.”

    “Using misrepresentations and omissions in each of the three schemes, Busby raised money for purported programs in ‘prime bank’ notes by fraudulently representing to investors that the investments were risk-free and that the ventures would pay returns ranging from 750% to 10,000%. In total, Busby raised nearly $1 million from more than 70 investors. None of the investors earned the exorbitant returns promised by Busby,” the SEC said.

    Busby went on to operate an autosurf known as Biz Ad Splash, which also crashed and burned, reportedly taking members’ money with it. All of the notable autosurfs that dominated the stage in the aftermath of the ASD seizure — MegaLido, AdGateWorld, BAS, Ad-Ventures4U, Noobing and others — have now either died or are in a serious state of decay.

    Last month, the U.S. Secret Service, which conducted the probes into ASD, Golden Panda and LaFuenteDinero, asserted that INetGlobal, a company operated by Steve Renner, was operating an autosurf Ponzi scheme and targeting Chinese participants.

    The IRS is involved in both the ASD case and the INetGlobal case, according to court filings.

    Steve Renner was convicted of income-tax evasion in December 2009. Federal prosecutors described the INetGlobal case last week as a “major fraud and money laundering investigation.”

    Renner has denied the government’s allegations.

    Bowdoin now says he is appealing the forfeiture order issued by Collyer last week in the December 2008 case. If Bowdoin does appeal the order, it will be his second appeal. He also is appealing the forfeiture order in the August 2008 case.

  • REPORT: AdSurfDaily Mainstay ‘Professor’ Patrick Moriarty Sentenced To Year In Federal Prison In Tax Case; Claimed To Be Tax ‘Specialist’ Also Skilled In ‘Karma Restoration’

    “Professor” Patrick Moriarty, a mainstay in the AdSurfDaily Ponzi scheme story, has been sentenced to a year in federal prison for filing a false tax return, according to KMOX.com.

    Details about the sentencing were not immediately available.

    Moriarty, 62, pleaded guilty in January to filing a false return for the year 2003. Prosecutors said he caused a tax loss of $135,697.

    He initially was charged with filing false returns for the years 2002, 2003, 2004 and 2005, but pleaded guilty to a single count. Prosecutors alleged that he claimed a false deduction of $30,000 for “legal fees” for the tax year 2003 and claimed a false amount of $23,533 withheld for the tax year 2004 and a false amount of $23,433 withheld for the tax year 2005.

    After the August 2008 federal seizure of tens of millions of dollars from the bank accounts of ASD President Andy Bowdoin amid wire-fraud and money-laundering allegations, Moriarty fashioned a theory that the government was interfering with commerce.

    Moriarty also espoused the legal theories of Curtis Richmond, another mainstay in the ASD story. Richmond, a pro se litigant in the ASD case, was a member of a sham Utah “Indian” tribe known for filing vexatious litigation, including litigation that resulted in a successful counter-suit brought by Utah public officials under federal racketeering statutes.

    The “tribe” derisively became known as the “Arby’s Indians” because it held a meeting in an Arby’s restaurant in Provo, Utah, in 2003. The “tribe” used the address of a Utah doughnut shop as the address of its “Supreme Court,” and once issued “bench warrants” for the arrests of sitting judges and litigation opponents in legitimate courts.

    Although not a lawyer, Richmond holds the unusual distinction of having been banned from the practice of law in Colorado. In the ASD case, he accused a federal judge of “TREASON” and of operating a “Kangaroo Court,” accused another federal judge of operating a “Kangaroo Court” — and accused federal prosecutors of theft.

    Moriarty, along with other ASD members and members of the Pro-ASD Surf’s Up forum, started a nonprofit entity dubbed ASD Members International (ASDMI). One of ASDMI’s claims was that it would litigate against the government in the ASD case — even if the government was acting lawfully.

    ASDMI, which was formed in 2008 and collected contributions from at least 167 ASD members, never brought any litigation and quickly dissolved.

    Moriarty and Surf’s Up later spearheaded an effort to get the U.S. Senate to investigate the ASD prosecutors. Moriarty and Surf’s Up members also participated in a certified-mail campaign in which — as Moriarty described it — more than 50 “individual and notarized DEMAND[S] FOR LEGAL EVIDENCE” were sent to two federal prosecutors and a U.S. Secret Service agent.

    In 2006, Moriarty formed a nonprofit for a Missouri man accused (now convicted) of breaking into a woman’s home and shooting her to death in cold blood. Moments earlier, the man had shot a police officer four times. Moments later, he shot another man eight times.

    The shootings occurred on June 2, 2006. Moriarty started the nonprofit on Oct. 2, four months to the day after the rampage.

    Moriarty also claimed to be a minister and “Tax Return Specialist” who also is skilled in “Karma Restoration.”

    Read the Moriarty story on KMOX.com.

  • PROSECUTION: Renner Has No Standing To Contest Corporate Seizures In INetGlobal Case; ‘Major’ Fraud And Money-Laundering Probe Under Way; IRS Involved; No Media ‘Leak’ Occurred

    Steve Renner has no standing to contest the seizure of “the vast majority”  of the money and assets in the INetGlobal autosurf Ponzi case because the seized property was owned by corporations, not Renner, federal prosecutors said.

    Only $151,100 of the $26 million seized in the case came from accounts in Renner’s name, prosecutors said, arguing that bids to release the money were premature and that only an attorney for Renner — and not the companies — has filed a notice of appearance in the case.

    Meanwhile, in its response to Renner’s motion last week to challenge the seizure on Constitutional grounds and have $25 million returned, the prosecution said yesterday that his bid was a “thinly veiled attempt to force the government to reveal facts relating to an on-going criminal investigation.”

    A “major fraud and money laundering investigation is under way bearing serious criminal consequences,” prosecutors said.

    The government probe, which prosecutors now say includes the IRS, is in its early stages. Investigators to date have filed neither a civil forfeiture complaint nor criminal charges that seek the forfeiture of the funds, “and much of the evidence has only recently been seized and is needed for the investigation,” prosecutors said.

    “If the seized evidence is returned, it will not be available for the ongoing investigation,” prosecutors argued.

    Moreover, they argued, “If the Court orders the return of the seized funds, the money will be spent, and will be unavailable for future return to victims” should the government prevail.

    Prosecutors made similar arguments in the AdSurfDaily autosurf prosecution — and the arguments prevailed. In filings yesterday, the government once again cited the successful ASD prosecution, along with the successful prosecutions of the 12DailyPro and PhoenixSurf autosurfs.

    “iNetGlobal is not a one-of-a-kind scam, nor is it the first of its kind,” prosecutors said yesterday.

    Steve Renner was convicted on four felony counts of income-tax evasion in December, and is awaiting sentencing in the tax case.

    No ‘Leak’ Occurred: Gov’t Acknowledges Timing ‘Error’ In Posting Of Affidavit

    Prosecutors denied an assertion by Renner last week that the government had leaked the search-warrant affidavit in the INetGlobal case to the media.

    Under a bold subhead titled “The ‘Leak,’” prosecutors said the claim the document was leaked “is false, and has no bearing on the issues presented in this motion.”

    They added that the posting of the document on the government website was intended as a means of informing victims and witnesses efficiently, while trying to avoid a circumstance that occurred in the AdSurfDaily case: switchboards in prosecutors’ offices becoming inundated with telephone calls from people seeking information.

    Prosecutors said the government had explained its point of view to INetGlobal on Feb. 26, almost a month prior to Renner’s “leaking” claim filed last week. Renner’s claim specifically cited the PP Blog.

    “[T]he U.S. Attorney’s Office had planned, once the search and seizure warrants in this case were filed with the clerk’s office, to post a link to the affidavit on the website of the U.S. Attorney’s Office,” prosecutors said. “The U.S. Attorney’s Office for the District of Columbia was inundated with calls following their execution of warrants in the AdSurf Daily case, and the U.S. Attorney’s Office in Minnesota hoped to avoid this by efficiently getting information to victims, witnesses, and other interested parties by referring them to the affidavit.”

    “Through an error, an employee of the U.S. Attorney’s Office’s Community Relations Division mistakenly believed that the time had come to post the affidavit when it had not,” prosecutors said. “The affidavit was posted on the late afternoon or early evening of February 24th, and was taken down the following morning when the error came to light.

    “During the night, apparently, a single blogger found the affidavit and wrote a story about it,” prosecutors continued. “That story is reprinted in Mr. Renner’s motion papers. As noted, all of this was explained to Counsel immediately after the fact, and Counsel did not raise the issue of the premature release of the affidavit again until this motion was filed.”

    IRS Enters INetGlobal Probe

    Filings by the prosecution yesterday confirmed that the IRS has entered the case. An affidavit by an IRS criminal investigator asserts that an entity known as VMedia Marketing LLC opened a checking account at Premier Bank Minnesota on March 1, six days after the Secret Service executed search warrants in the INetGlobal case.

    “Steven M. Renner reserved sole signature authority on the account upon inception,” the IRS agent said. “On or about March 6, 2010, Matthew D. Renner was added to have signature authority on the account.”

    Matthew Renner is Steve Renner’s son. He has not been accused of wrongdoing.

    A total of $47,400 was deposited in the account, the IRS agent said. He listed the names of sources of the deposits. Two individuals with Chinese names wired individual deposits of $7,400 and $8,500 into the account.

    “Official checks” drawn on Wells Fargo bank and totaling $16,500 also were deposited in the account. These checks were made out to “V-Media or U-Media,” the IRS agent said.

    Meanwhile, the agent said, “a check made payable to Steve Renner in the amount of $15,000.00 from The Toronto-Dominion Bank was also deposited into the account.”

    At least 23 withdrawals were made from the account, the IRS agent said. He noted that the majority of these checks have either ‘week 3/1 – 3/5″ or ‘3/1 – 3/5 written on the memo line. In addition, one check was made payable to MEDA (Metropolitan Economic Development Assoc.) in the amount of $2,000.00. The memo section of the check made payable to MEDA stated ‘250 SECOND AVE #106A RENT.’”

    That address was one of the business addresses searched by the Secret Service Feb. 23.

    Prosecutors, saying Renner made “sweeping” assertions last week that he had no cash to pay employees, argued that the investigation by the IRS agent into the Premier Bank Minnesota account opened after the raid suggested otherwise.

    “Renner subsequently wrote 23 checks that appear to be payroll checks, plus a check for the rent on Suite 106A, 250 Second Avenue,” prosecutors said.

    Because the $15,000 deposit drawn on Toronto-Dominion bank was held until March 19, “several” withdrawals by check initially were returned to Premier Bank Minnesota, the IRS agent said.

    “Later on, Steven Renner came into Premier Bank Minnesota and had cashier’s checks issued to the same names indicated on the checks that had previously been returned to the bank,” the IRS agent said. “On or about March 23, 2010, the above indicated account was closed.”

    INetGlobal disclosed “none of this” in its arguments last week to release funds, prosecutors said.

    Moreover, prosecutors said the government “is attempting to work with the company” on the issue of payroll.

    Prosecution: INetGlobal ‘Omitted’ Names Of Employees

    “[T]here is concern that the company continues to have access to unseized funds with which to make payroll,” prosecutors said. “In addition, the first list of employees submitted to the government omitted several names of people the Secret Service had identified as employees of the company during the execution of the search warrants on February 23, 2010. A request that this issue be addressed elicited a response that was confusing; the government requested clarification and is awaiting a response.”

    Meanwhile, prosecutors claimed that Renner had placed “factual inaccuracies” in the record of the case, arguing that Renner’s claim that the seizure was “unreasonable” and that the Secret Service allegedly told “intentional and reckless falsehoods” in securing the warrant could not stand up to judicial scrutiny.

    “Such is the unsurprising reaction of a company accused of running a Ponzi scheme,” prosecutors said.

  • Ponzi Suspect Michael Greenberg Commits Suicide, Police Say; Florida Man Stood Accused Of Bilking Parents, Investors, Banks In New Scheme That Emerged After Prison Release

    Michael Greenberg, charged last week in a Ponzi scheme that allegedly bilked members of his family, investors, banks, a law firm and the U.S. Small Business Administration, has committed suicide.

    Greenberg hanged himself inside his home, police in Clearwater, Fla., told the Tampa Tribune. His body was found Wednesday. News of the suicide broke in the newspaper, which reported Greenberg was out on a signature bond of $50,000 after he was charged last week.

    On March 25, the U.S. Secret Service alleged that Greenberg was operating a Ponzi scheme that involved nine different company names and scammed investors and businesses out of more than $24 million.

    Among the victims in the case were Greenberg’s parents, the Secret Service said.

    Records show that Greenberg had been charged in a previous Ponzi scheme that bilked his father out of more than $1 million and resulted in a 46-month prison sentence.

    Within two years of his release from federal custody in 1996 — and while still on supervised probation — Greenberg started another scheme.

    Hiding behind a proxy and forming a corporation fraudulently, Greenberg ultimately was able to gather $53 million from investors and businesses and persuade banks to make loans, the Secret Service said.

    Greenberg stole his parents’ identities to get the loans, and also forged his wife’s signature on documents, the Secret Service said. The agency said the case also involved the theft of a notary’s stamp, forgery of the notary’s signature and the formation of “sham” corporations that existed “on paper.”

    Elizabeth Watts, a spokeswoman for the Clearwater Police Department, was not immediately available Friday afternoon to answer questions about whether the suicide investigation was closed.

    Greenberg used at least nine different corporations or business names to pull off the scheme, according to the Secret Service. He is accused of fleecing at least 30 investors and banks, and also is accused of swindling the U.S. Small Business Administration.

    Among the victims were a real-estate developer and a law firm whose office manager invested the company’s line of credit of $119,000 in the scheme, according to the complaint.

    Based on Greenberg’s fraud — and elaborate measures to cover it — he duped the Small Business Administration into backing $1.5 million in loans, according to the complaint.

  • NEWS/UPDATES: Feds Charge Donald Young In Massive Ponzi In Pennsylvania; Matthew Pizzolato Pleads Guilty In Louisiana; Jeffrey Mowen Loses Cars In Utah; ‘Today’ Show Interviews Daughter Who Turned In Mom For Ponzi

    A grand jury has returned an indictment against a suburban Philadelphia man, accusing him of operating a Ponzi scheme that gathered at least $95 million and fleeced investors of more than $25 million.

    Charged criminally with mail fraud and money-laundering was Donald Anthony Young, who also has been sued by the SEC.

    Meanwhile, Matthew Pizzolato has pleaded guilty in a separate Ponzi case targeting senior citizens in Louisiana, prosecutors said.

    Pizzolato, 26, of Tickfaw, pleaded guilty to 21 counts of mail fraud, three counts of money-laundering, and single counts of wire fraud, securities fraud and witness tampering. In all, Pizzolato pleaded guilty to 27 felonies. He also was sued by the CFTC.

    At the same time, accused Ponzi schemer Jeffrey Lane Mowen has lost his monstrous collection of vehicles in Utah. The U.S. Marshals Service began selling the 210-vehicle collection at auction yesterday — April Fool’s Day.

    Marshals were authorized to sell the cars because the bill to store them cost $21,000 a month. Mowen, 47, was arrested in Panama in 2009, extradited to the United States and jailed in Utah on Ponzi charges. He later was charged in an alleged murder-for-hire plot in which he was accused of trying to recruit a fellow prisoner to kill witnesses in the Ponzi case.

    The auction had been delayed twice, but proceeded yesterday. It was billed by Erkelens & Olson Auctioneers as the “Largest collection of Muscle, Collector & Exotic vehicles ever [offered] in Utah!”

    Elsewhere, NBC’s “Today” show this morning featured a daughter who turned in her mother in a Ponzi scheme. The mother ultimately was not charged because authorities came to view her as a victim who had been recruited to sell the scheme.

    Authorities busted the California scheme, operated by Pastor Robert Jennings and Henry Uliomereyon Jones, a magnetic figure. The affinity-fraud scheme involved investments in coal and a bogus international gold deal.

    Jones was arrested in Hong Kong and extradited to the United States. He and Jennings were convicted last year.

    Kim Flanigan told Today that she reached her limit when she observed her mother, a widow, trying to recruit a widow with nine children into the Ponzi scheme. Both widows attended the same church.

    “That was my breaking point,” Flanigan told Today. (See link to story below. NBC’s “Dateline” program will feature Flanigan tonight 9 EDT.)

    In the Donald Anthony Young case in Pennsylvania, prosecutors said Young stole from investors so he could live in the lap of luxury.

    “Ponzi schemes are usually a vehicle for an unscrupulous person to live high off of someone else’s wealth,” said U.S. Attorney Michael L. Levy. “According to the indictment, this defendant helped himself to others’ fortunes, living a life of luxury, with little or no regard for the damage to our financial markets, our economy, and the reputation of the investment advisors who follow the rules.”

    A veteran FBI agent said the agency was committed to destroying Ponzi fraud.

    “The FBI views these types of financial investment Ponzi fraud schemes as significant criminal problems, because of the devastating effect they have not only on the individual victims who are preyed upon but also the effect they have on financial markets and on the overall economy,” said Janice K. Fedarcyk, special agent-in-charge of the Philadelphia Division of the FBI.

    Prosecutors and agents involved in the Pizzolato case, meanwhile, also said Ponzi fraud will not stand in the United States.

    “[Pizzolato’s]  plea demonstrates our resolve, along with our partners in federal law enforcement, including the FBI, IRS and U.S. Postal Inspection Service, to aggressively investigate and pursue those economic predators who seek to take advantage and prey upon the most vulnerable among us, including our senior citizens who most desperately need our protection,” said U.S. Attorney Jim Letten.

    Letten thanked the Office of the Louisiana Commissioner of Securities for its assistance in the Pizzolato case.

    An FBI agent said the case sends a signal.

    “This guilty plea represents once again, the FBI’s resolve to aggressively investigate financial crimes which victimize our most vulnerable citizens,” said David Welker, special agent in-charge. “It is reprehensible that Mr. Pizzalotto would target senior citizens and defraud them of their life’s savings. The FBI, along with our law enforcement partners, will continue to identify and investigate frauds such as this.”

    An IRS investigator said authorities would leave no stone unturned to expose financial fraudsters.

    “This investigation shows that the appearance of success can be a mask for a tangled financial web of lies,” said Michael J. DePalma, special agent in-charge of the IRS New Orleans’ office.

    “No matter what we call this type of crime, the bottom line is that Mr. Pizzolato robbed over a hundred investors of more than $19 million and spent just about all of it,” DePalma said. “Special Agents of IRS Criminal Investigation will continue to work with our federal and state law enforcement partners and the United States Attorney’s Office to pursue evidence of criminal activity wherever it leads, leaving no financial stone unturned.”

    Visit the Today show site to read about Flanigan’s experience.

  • SEC: ‘Sham Operation’ Run By Convicted Felon In U.K. Took $10.2 Million From Investors; U.S. Investment Adviser Charged With Fraud

    Want international, real-life intrigue? It’s in there. Want venues from the United States to the United Kingdom and Switzerland? They’re in there. Want allegations that a mysterious criminal in Britain used two identities and operated a sham investment company?

    Today’s your lucky day. They’re in there, too.

    Now, a former investment adviser from Arizona has been charged with fraud by the SEC for arranging a sweetheart deal, starting a secret company and setting the stage for his clients to be fleeced by putting millions of dollars in the hands of a convicted felon using a temporary office.

    Charged by the SEC was Kevin H. Blood, of Scottsdale. Blood formerly was  president and chief executive officer of Capital Wealth Management Inc. (CWM), which formerly was a registered investment adviser.

    Meanwhile, Patrick Danison, who also is known as Eric F. Danison, has been jailed in the United Kingdom on criminal charges. Danison was the president of a mysterious firm known as Amkel Capital, which had a Swiss bank account and received $10.2 million in a deal arranged by Blood through a conduit known as Adelaide Partners LLC.

    The SEC said Amkel was “a purported financial services firm.” It is listed as an “unauthorised” firm by the U.K.’s Financial Services Authority, which regulates markets, exchanges and firms in the United Kingdom.

    Blood has settled the SEC charges without admitting or denying the allegations. Based on his sworn financial statements and other documents and information submitted to the SEC, a civil penalty was not imposed, the agency said.

    The scheme began in February 2009, when Blood recommended that his clients provide a $10.2 million loan to Adelaide, which would invest the money with Amkel in the United Kingdom, the SEC said.

    Blood formed a hedge fund with 20 of his clients, dubbing the fund ABC-CWM Inc.

    “Blood represented to these clients that any investment opportunity that ABC-CWM made would be backed by a legitimate bank guarantee or other form of collateral,” the SEC said.  “[He] also allegedly represented that their principal would never be at risk and that he would not personally profit from any transaction he recommended to them other than his CWM management fee.”

    Clients were told “ABC-CWM would receive a bank guarantee in exchange for the $10.2 million loan and earn 20% per month for two months,” the SEC said.

    When recommending the investment, Blood did not tell clients he had arranged “a side compensation agreement with Adelaide Partners wherein he would receive 85% of any excess profits resulting from the investment,” the SEC said.

    To siphon the excess profits, Blood started a company “using his wife’s name,” the SEC said. This company was known as LWJR Group Inc.

    Adelaide ‘s role “was to act as the middleman and transfer the $10.2 million to Amkel Capital in exchange for [a] $200 million line of credit to trade in Amkel Capital’s medium term notes,” the SEC said.

    A Meeting In London

    As part of what the SEC described as “purported due diligence,” Blood traveled to the United Kingdom and met with Danison in London on Feb. 10, 2009.  He then caused Adelaide Partners to transfer the $10.2 million to an Amkel Capital bank account in Switzerland without ever securing a bank guarantee or any other form of collateral, the SEC said.

    At that point, Blood had no control over his clients’ money. By April 2009, Blood had lost contact with Amkel and his clients’ $10.2 million loan to Adelaide was delinquent.

    “Amkel Capital’s alleged U.K. headquarters was only a short-term rental space,” the SEC said. “Eric Danison, the president of Amkel Capital, has a criminal record, and he is currently incarcerated in the U.K. pending criminal prosecution.”

    The agency noted that “Blood’s clients have not received the return of any of their $10.2 million investment” and that Danison’s operation was a “sham.”

  • SHOCKING FRAUD AND PRIVACY ALLEGATIONS: FTC, Florida Say Alcoholism Cure Corp. Used .Org Domains, Threatened To Disclose Members’ Drinking Problems If They Canceled Program

    The FTC and Florida Attorney General Bill McCollum have charged a Florida company that “touted a phony cure for alcoholism” with false advertising claims, false efficacy claims, false privacy claims, false claims about professional qualifications, unauthorized billing and deceptive trade practices.

    Among the allegations in a civil lawsuit against Alcoholism Cure Corp. were that it offered tiered programs depending on the severity of a member’s involvement with alcohol — and if a member wanted to pull out of the program, the company threatened to expose the member’s alcohol dependence publicly.

    Alcoholism Cure Corp. also did business as Alcoholism Cure Foundation and used at least two .org websites to sell its program, according to court filings.

    Among the other allegations in the case were that the company disclosed health information about its customers to bill collectors, credit-card companies and the Better Business Bureau in a bid by the firm to win cases when customers disputed charges.

    The company, which is operated by Robert Douglas Krotzer, also placed restrictions on how clients could cancel.

    “Defendants require consumers to submit ‘Proof of Continued Drinking’ to prove that they are not cured,” the FTC and McCollum said in court filings. “Defendants state the submission should include, among other items, notarized notes from the consumer’s doctor and five friends stating that the consumer continues to drink, liquor receipts from the previous two months, and several kinds of laboratory testing.

    “Unless consumers meet all the requirements set forth in this paragraph, Defendants deem them ‘cured’ and claim the consumers owe the full cost of the Program, which differs by consumer but generally ranges from $9,000 to more than $20,000,” the complaint alleged.

    Litigation threats against customers occurred routinely, according to the complaint.

    “Defendants warn consumers that failure to pay the demanded amount could result in litigation and the attendant ‘unwanted publicity,’” the complaint alleged. “In fact, Defendants have filed at least eleven cases in Jacksonville, Florida small claims court against consumers who registered for the ‘Permanent Cure’ Program seeking several thousand dollars each. In the cases, Defendants reveal the consumers’ personal and health information, including the fact they are alcoholics, by not filing the court pleadings in a nonpublic manner.”

    Customers were billed when canceling or attempting to cancel the program, according to the complaint.

    “Defendants bill consumers’ credit card or PayPal account consecutive times without authorization, often in amounts far exceeding the monthly subscription fee, until the account will no longer accept charges,” the complaint alleged. “When consumers reverse or dispute the unauthorized charges, in numerous instances Defendants disclose consumers’ personal and health information to consumers’ credit card company or to PayPal in an effort to discredit consumers and retain the money obtained as a result of the unauthorized charges.”

    The company also disclosed members’ health information to the Better Business Bureau if they lodged a complaint, prosecutors said.

    Even bill collectors hired by the company were given access to members’ health information, prosecutors said.

    “In some instances, when Defendants have referred a consumer to a debt collection agency for collection, Defendants have disclosed to debt collection agents the personal and health information of all the consumers who have registered for the ‘Permanent Cure’ Program,” the complaint alleged.

    “Defendants disclose the information by giving the debt collection agents full access to the unencrypted email account where Defendants store consumers’ personal and health information and instructing the debt collection agents to search through all the consumers’ personal and health information until they find the information related to the particular consumers at issue,” the complaint alleged.

    Krotzer, the FTC said, was referred to as “Dr. Doug” — even though he is not a physician.

    The program pitched monthly subscriptions for what it dubbed the “Heavy Drinker” program ($59.96 for the first month and $179.96 per month thereafter) or the “Very Heavy Drinker program” ($99.96 for the first month and $269.96 per month thereafter), the FTC said.

    Sales totaled at least $693,000 between 2005 and 2009, the FTC said.

    Four websites were used to pitch the program: AlcoholismCure.org,
    DetoxificationThatWorks.com, Healthy-HighAlcoholSubstitute.com, and
    AlcoholFree.org.

    The program also was advertised “on online search engines, such as Google and Yahoo; through dissemination of newsletters via email distribution lists; and via individual emails,” the complaint alleged.

    “Permanent Cure” relied on “concoctions of dietary supplements such as vitamin C, St. John’s wort, and niacin,” the FTC said.

    Read the FTC/McCollum complaint.

  • Moved By Gesture Of Kansas Mayor, Google Changes Its Name To ‘Topeka’; Search Giant Not Worried About Loss Of Brand Identity; Announcement Also Honors Maddy

    Search-engine and advertising giant Google has changed it name to “Topeka,” the company said today.

    The company did so in tribute to the city of Topeka, Kan. Topeka’s mayor, Bill Bunten, wants to call the city “Google” for a spell.

    Google’s announcement about its name change came one year to the day after it announced the debut of its Gmail Autopilot by Cadie. Cadie purportedly was designed to automatically send the “perfect” response to scammers who spam gmail accounts.

    For two years now, Google has timed critical business announcements to coincide with Maddy’s birthday. Maddy’s second birthday is today.

    She was born April 1, 2008. April 1, of course, always has been one of the most important dates on the calendar. Maddy’s birth only made the date more important.

    Maddy became an international sensation and Google star on Christmas Eve 2008, when she rocketed to the top of search results for the phrase “Maddy Santa world debut” — without the quotes. People the world over clever enough to search under that precise string learned part of the story of Maddy’s first Christmas.

    It was kind of Google — and now “Topeka” — to tie its key business decisions to Maddy’s birthday. Maddy also is known the world over as “The Wonder Puppy.” She owns an entire search category under the string, “Maddy The Wonder Puppy” — with the quotes.

    Happy Birthday to Maddy — and we wish Google our best with its shift to Topeka!

    Read about Google’s Gmail Autopilot by Cadie announcement, which occurred on Maddy’s birthday last year.

  • Royal Canadian Mounted Police Announces Charges In Alleged $60 Million Ponzi Scheme, Asks Victims To Come Forward

    Supt. Eric Mattson of RCMP's 'K' Division asks victims of an alleged $60 million Ponzi scheme in Canada and the United States to come forward. The number to call is: 403-699-2581

    The Royal Canadian Mounted Police (RCMP) have charged three men and a woman in an alleged $60 million Ponzi scheme.

    Canada’s famous police agency, known informally as the Mounties, has asked victims to come forward.

    Charged in the case were Murray Stark, 73, Robert Fyn, 62, Garth Bailey, 57, and Katherine Rodrique Bailey, 53. Bailey formerly was an attorney who was suspended, according to records. He also has been referenced in U.S. securities litigation. The scheme operated from Alberta, and there may be thousands of victims in the United States and Canada.

    A company known as HMS Financial Inc. is at the heart of the scheme, authorities said. Victims and persons with information are asked to call the RCMP Commercial Crime Section at 403-699-2581.

    View a YouTube video that includes remarks from Supt. Eric Mattson of RCMP’s “K” Division. The video was produced by the Calgary Herald. Read a story by the Herald.