So, you want to offer a money-services business to U.S. customers and not take international fraud seriously?
Be prepared to pony up $18 million to settle fraud claims when they start rolling in.
In a stunning announcement today, the Federal Trade Commission said “at least 79 percent of all MoneyGram transfers of $1,000 or more from the United States to Canada over a four-month period in 2007 were fraud-induced.”
MoneyGram International Inc. is the second-largest money-transfer service in the United States. The Minnesota-based company has agreed to pay $18 million in “consumer redress” to settle claims it turned a blind eye to fraud and permitted “fraudulent telemarketers to bilk U.S. consumers out of tens of millions of dollars,” the FTC said.
Using pointed language, an FTC official said MoneyGram simply could not say no to fees it earned from scammers, including scammers its agents employed.
“Money transfer services have a responsibility to make sure their systems don’t become conduits to rip people off,†said David C. Vladeck, director of the FTC’s Bureau of Consumer Protection. “In this case, MoneyGram not only ducked this responsibility, but also looked the other way while its agents took part in the scams.â€
Con artists knew a good thing when they saw it, the FTC said.
“MoneyGram operates through a worldwide network of approximately 180,000 agent locations in 190 countries and territories,” the FTC said. “Con artists prefer to use money transfer services because they can pick up transferred money immediately, the payments are often untraceable, and victimized consumers have no chargeback rights or other recourse.”
In 2007, 72 percent of all complaints received by the FTC involving Canadian-based fraud reported using money transfer services to make payments, the agency said.
And it was not a small sampling of complaints, the FTC stressed.
“Based on the more than 20,600 fraud complaints MoneyGram itself received, U.S. consumers lost more than $44 million to cross-border money-transfer frauds between 2004 and 2008 alone,” the FTC said. “When combined with losses reported by U.S. consumers on money transfers within the United States, that number grows to $84 million.”
At least 65 MoneyGram agents have been charged by Canadian or U.S. authorities or are under investigation in the United States for fraud, the FTC said.
MoneyGram made excuses as complaints piled up, the agency said.
“MoneyGram ignored warnings from law enforcement officials and even its own employees that widespread fraud was being conducted over its network, claiming that proposals to deal with the problem were too costly and were not the company’s responsibility,” the FTC said.
“The company even discouraged its employees from enforcing its own fraud prevention policies or taking action against suspicious or corrupt agents,” the FTC said. “Some employees who raised concerns were disciplined or fired.”
Read the stipulated settlement in which MoneyGram does not acknowledge wrongdoing but agrees to pay $18 million to settle the case and to implement a comprehensive anti-fraud and agent-monitoring program.
UPDATED 3:52 P.M. EDT (U.S.A.) A federal judge has issued an order that permits Michael R.N. McDonnel, a Florida attorney, to appear in U.S. District Court for the District of Columbia on behalf of AdSurfDaily President Andy Bowdoin.
U.S. District Judge Rosemary Collyer issued the order this afternoon in response to a request by Charles A. Murray, another Bowdoin attorney.
“Michael R.N. McDonnell is hereby permitted to practice and appear before this Court on behalf of claimant Thomas A. Bowdoin in this matter,” Collyer wrote, in a minute order.
Murray asked for the order last week, in the aftermath of dramatic filings by the prosecution that claimed Bowdoin was trying to lie his way back into the civil-forfeiture case and that Murray was engaging in “fantasy.”
Prosecutors claimed Murray had filed documents at odds with affidavits filed by Bowdoin Sept. 14 and 15. On Sept. 25, prosecutors made a veiled reference to the AdViewGlobal autosurf, saying, “Maybe Bowdoin thought that before the government brought its charges he (like some of his family members) could move to another country and profit from a knock-off autosurf program that Bowdoin funded and helped to start.â€
On Sept. 28, prosecutors filed a U.S. Secret Service transcript of a recording Bowdoin had made earlier in the month, calling the transcript evidence that “this con man cannot manage to keep his stories straight.â€
Bowdoin has maintained in court filings that money seized in the Secret Service investigation into ASD belonged to him. In the transcript, Bowdoin said the money belonged to ASD members, putting him at odds with his own court filings.
Murray, too, had filed motions at odds with Bowdoin’s claims, prosecutors asserted.
“Mr. Murray’s apparent suggestion that Bowdoin made a mistake because he was ‘hoodwinked’ by his prior defense counsel is belied by Bowdoin’s own affidavits,†prosecutors said.
Murray, though, says Bowdoin believes in his innocence.
Stewart David Nozette was arrested by the FBI yesterday for attempted espionage. Though Nozette was not formally charged with the Constitutional crime of treason — the only crime specifically described in the Constitution — the crime of espionage is viewed by the public as an act of treason against the United States because selling secrets can be viewed as a form of “levying War” against the country or giving “Aid and Comfort” to an enemy.
Officials said Nozette accepted $11,000 in cash — with the inference more would follow — and used manila envelopes to pack up secrets. He asked for payment and delivered the secrets to, of all places, a U.S. Post Office.
Nozette wanted his payments to be kept below $10,000 to keep the prying eyes of government away, prosecutors said. In the first two transactions, Nozette allegedly sold out his country for the price of a used car.
Nozette thought he had been recruited by the Mossad, Israel’s spy agency. In reality, he had been targeted in an FBI sting because the government had gotten the idea he just might be willing to sell out the United States to a foreign government or entity for a fee. Prosecutors said he had left the United States in January with two computer thumb drives. Inspectors could not find the drives when he returned.
The government of Israel was not involved in wrongdoing, authorities said.
A thumb drive was left at the Post Office in September by Nozette, when he thought he was doing business with the Mossad, prosecutors said.
Prosecutors from the U.S. Attorney’s office led by Acting U.S. Attorney Channing Phillips in the District of Columbia are assisting in the case, which will be heard in U.S. District Court for the District of Columbia. The same court is the venue from which the the civil-forfeiture case against tens of millions of dollars seized from AdSurfDaily Inc. in an international Ponzi scheme probe is being prosecuted.
The Nozette case demonstrates that grave matters of national security come to the attention of prosecutors in Phillips’ office and judges in the district. Sometimes the matters include elements of international intrigue, as the Nozette case again demonstrates.
Judge Rosemary Collyer, the judge in the ASD case, presided over an extremely complex case involving former U.S. Secretary of State Henry Kissinger, once National Security Adviser to President Richard M. Nixon. The case dated back to the early 1970s and involved the complicated issue of “sovereign immunity.”
How complex were the legal issues in the case? Collyer’s own words provide a glimpse:
“This lawsuit challenges covert actions allegedly directed by high-level United States officials in connection with an attempted coup in Chile in 1970 designed to prevent the election of Dr. Salvadore Allende as Chile’s first Socialist President,” Collyer wrote in 2004.
In a ruling dismissing the case, Collyer said Kissinger could not be held responsible for the death, even if the assertions against Kissinger and the U.S. government were true.
“The plaintiffs’ claims present a non-justiciable political question on foreign policy
decisions undertaken by the Executive Branch in 1970,” Collyer said. “[T]he Court finds that Dr. Kissinger was properly certified as acting within the scope of his employment vis-a-vis the relevant events. The United States will be substituted for him as the sole defendant. With this substitution, the amended complaint is barred by the doctrine of sovereign immunity.”
Whether or not one agrees with the ruling, one must agree that Collyer was tasked with the responsibility to reduce extremely complex issues of both law and U.S. foreign policy to their essence — and view them in the framework of Constitutionality. No critic interested in fair or logical debate would dismiss her as an intellectual lightweight.
Words Mean Things
The reason for this column is to point out a couple of things: First, that the responsibility of federal prosecutors is to advocate in the interests of the people of the United States. Some of the same people criticizing the ASD prosecutors in excessive fashion — and even extreme fashion — perhaps will be less vocal or not vocal at all in their criticism of Phillips’ office for its role in the prosecution of Nozette.
It is, after all, an espionage prosecution, and the American public does not take kindly to acts that speak of treason, whether it’s the treason spelled out in the Constitution or the treason inferred from the act of selling government secrets for a fee.
And this brings us to the use of extreme language by some supporters of ASD — language directed at both the prosecution and Judge Collyer.
Collyer, a sitting federal judge appointed by a President of the United States and confirmed by the U.S. Senate — and a federal judge who presides over issues of national security and the affairs of state, as the Nixon/Kissinger case demonstrates — was described by an ASD member as “brain dead or taking a payoff†if she ruled against ASD.
No such comment can be viewed as reasonable.
Other examples of extreme language directed at Collyer can be found in this court filing by ASD mainstay Curtis Richmond. The filing uses words such as “treason” and phrases such as “Willfully Violated Her Judicial Oath” thus being “Guilty of Perjury of Oath, a Felony.”
Richmond asserted that Collyer perhaps was guilty of as many as 60 felonies.
No such language can be viewed as reasonable.
Prosecutors haven’t fared much better. Dozens of pro se litigants using a pro se template practically screamed their assertions that prosecutors had “failed” to do this and “failed” to do that on matters pertaining to the production of “EVIDENCE” and “WITNESSES” and “VICTIMS” and that the ASD “action was based solely on the OPINIONS of the U. S. Government agents.”
How reasonable is it to scream in court filings? The judicial process is designed deliberately to ensure decorum precisely to guarantee that no side gets shouted down and that issues are decided in an atmosphere of dignity.
Moreover, the record of the ASD case plainly shows that the prosecutors have produced evidence, prior even to introducing evidence at the evidentiary hearing last fall. Eight government exhibits of evidence were included in the August 2008 filing of the complaint. It’s all in the public record — and was in the public record long before the pro se litigants shouted that no “EVIDENCE” had been produced.
With respect to the screamed claim that the government relied exclusively on the “OPINIONS” of its agents, the record also plainly shows that even the ASD side agrees with some of those opinions. Here are just two purported “opinions” that both the ASD side and the government side agree on:
That ASD advertised that rebates “will” be paid until members received back 125 percent of their “advertising” spend.
That the government seized the money from Andy Bowdoin and that the money belonged to Andy Bowdoin, not ASD members.
Bowdoin officially has held that position since August 2008, just days after the seizure. It is a theme in his court filings. Recently, though, he told ASD members in a conference call that the seized money belonged to them. The claim put him at odds with his own arguments in court, which the prosecution now claims is evidence of his willingness to lie to members he claims to be serving, while also lying to a federal judge.
With respect to the shouted claim by the pro se litigants that the government “has failed” to produce any “VICTIMS” or “WITNESSES,” the claim is disingenuous to its core. A trial date has not even been scheduled in the case. The evidentiary hearing was exactly that — a hearing, not a trial. The hearing was held at ASD’s request. Collyer granted it in “the interests of justice.” Prosecutors were not required to try their case at the hearing. Nor were they duty-bound to produce their witnesses. It was ASD’s hearing.
Nozette’s arrest yesterday quickly became an international story. The story will play out in some of the same venues the ASD case is playing out. It will be argued by highly skilled, highly trained prosecutors. A highly skilled, highly trained federal judge appointed by the President of the United States and approved by the U.S. Senate will preside over the proceeding “in the interests of justice” for all parties, including Nozette.
There will no reckless claims of judicial treason or of violating a judicial oath or of operating a “Kangaroo Court” — as has been the claim in the ASD case, against both Judge Collyer and her supervising judge, Royce Lamberth.
The Nozette case is, after all, an espionage case, one in which the public outside the courtroom will discuss the real meaning of the word treason — something some of the ASD supporters should have been doing all along.
The ASD case is, was and always has been about national security. If you doubt it, ask yourself if you really know who your autosurfing neighbor is — and then ask yourself if you can guarantee that all ASD members were pure as the driven snow and not interested at all in using a vehicle provided by Andy Bowdoin for criminal purposes.
The FBI has arrested a Maryland man in a sting and charged him with attempting to pass U.S. defense and space secrets to Israel.
Stewart David Nozette, 52, of Chevy Chase, Md., accepted $11,000 in payments from the FBI, believing the payments had come from the Mossad, Israel’s spy agency. The payments actually came from the FBI as part of the sting, and Israel was not involved, authorities said.
Nozette once worked for the White House. He is among a group of scientists credited with discovering water on the moon in a project known as “Clementine,” and also has vast experience in weapons systems, including the Strategic Defense Initiative, where he worked in the Office of Survivability, Lethality, and Key Technologies, according to his resume.
The Strategic Defense Initiative, which came into being under President Reagan, was known as “Star Wars.”
“Those who would put our nation’s defense secrets up for sale can expect to be vigorously prosecuted,†said Channing D. Phillips, Acting U.S. Attorney for the District of Columbia. “This case reflects our firm resolve to hold accountable any individual who betrays the public trust by compromising our national security for his or her own personal gain.â€
Phillips is the boss of the prosecutors handling the AdSurfDaily Ponzi prosecution. His office will co-prosecute Nozette, along with the Counterespionage Section of the Justice Department’s National Security Division.
The prosecution will occur in U.S. District Court for the District of Columbia, the same venue in which the civil-forfeiture case against ASD’s assets is being heard. The identity of the judge assigned to hear the case was not immediately clear.
U.S. District Judge Rosemary Collyer, the judge in the ASD case, is one of the judges in the district.
Nozette, who was charged with attempted espionage, faces a maximum sentence of life in prison, if convicted. The case is a reminder of the grave matters of national security that come to the attention of prosecutors in Phillips’ office, with Washington, D.C., being the center of government in the United States.
“The conduct alleged in this complaint is serious and should serve as a warning to anyone who would consider compromising our nation’s secrets for profit,†said David Kris, assistant Attorney General for National Security.
“The FBI is committed to protecting the nation’s classified information and pursuing those who attempt to profit from its release or sale,†said Joseph Persichini Jr., assistant director for the FBI’s Washington Field Office.
On Sept. 3, prosecutors said, “Nozette was contacted via telephone by an individual purporting to be an Israeli intelligence officer, but who was in fact an undercover employee of the FBI.”
“During that call, Nozette agreed to meet with the [undercover agent] later that day at a hotel in Washington D.C. According to the affidavit, Nozette met with the [undercover agent] that day and discussed his willingness to work for Israeli intelligence,” prosecutors continued.
“Nozette allegedly informed the [undercover agent] that he had, in the past, held top security clearances and had access to U.S. satellite information,” prosecutors said. “Nozette also allegedly said that he would be willing to answer questions about this information in exchange for money.”
An undercover agent “explained to Nozette that the Israeli intelligence agency, or ‘Mossad,’ would arrange for a communication system so that Nozette could pass information to the Mossad in a post office box,” prosecutors said. “Nozette agreed to provide regular, continuing information to the [undercover agent] and asked for an Israeli passport.”
On Sept. 4, Nozette and the undercover agent met again in the same hotel, prosecutors said.
During the meeting, Nozette told the agent that, although he no longer had legal access to any classified information at a U.S. government facility, “he could, nonetheless, recall the classified information to which he had been granted access, indicating that it was all still in his head,” prosecutors said.
Nozette inquired about getting paid, saying “he preferred to receive cash amounts ‘under ten thousand’ [dollars] so he didn’t have to report it,” prosecutors said.
At the conclusion of the Sept. 4 meeting, Nozette said to the undercover agent, “Well I should tell you my first need is that they should figure out how to pay me . . . they don’t expect me to do this for free,†prosecutors said.
Undercover FBI agents left $2,000 in cash in a letter in a designated post office box for Nozette on Sept. 10, prosecutors said.
“In the letter, the FBI asked Nozette to answer a list of questions concerning U.S. satellite information,” prosecutors said. “The serial numbers of the bills were recorded. Nozette retrieved the questions and the money from the post office the same day.”
On Sept. 16, agents captured Nozette on videotape as he left “a manila envelope in the designated post office box in the District of Columbia. The next day, FBI agents retrieved the sealed manila envelope that Nozette had dropped off and found, among other things, a one-page document containing answers to the questions posed by the undercover agents and an encrypted computer thumb drive.
“One of answers provided by Nozette contained information classified as Secret, which concerned capabilities of a prototype overhead collection system,” prosecutors said. “In addition, Nozette allegedly offered to reveal additional classified information that directly concerned nuclear weaponry, military spacecraft or satellites, and other major weapons systems.”
On Sept. 17, undercover FBI agents left a second letter in the post office box for Nozette.
“In the letter, the FBI asked Nozette to answer another list of questions concerning U.S. satellite information,” prosecutors said. “The FBI also left a cash payment of $9,000 in the post office box.”
Nozette retrieved the questions and the cash from the post office box later that same day, prosecutors said.
On Oct 1, undercover agents videotaped Nozette “leaving a manila envelope in the post office box,” prosecutors said. “Later that day, FBI agents retrieved the manila envelope left by Nozette and found a second set of answers from him. The answers contained information classified as both Top Secret and Secret that concerned U.S. satellites, early warning systems, means of defense or retaliation against large-scale attack, communications intelligence information, and major elements of defense strategy.”
A 68-year-old Texas woman has been charged with running a $500,000 Ponzi scheme.
Julia Ann Schmidt was indicted in Waco. She now joins a roster of other senior citizens recently implicated in alleged Ponzi schemes or convicted of crimes in which a Ponzi was the modus operandi.
Federal prosecutors said today that Schmidt posed as an agent for Fortis Investments.
Between April 2007 and May 2009, Schmidt “solicited money from clients promising to generate an approximate 30% return on their investments,” prosecutors said. “Schmidt informed clients that portions of their investments would involve the Texas Ranger Museum, Hillcrest Hospital and the Waco Riverwalk Project.”
Unsuspecting investors were fleeced out of more than $500,000, prosecutors said. The FBI is handing the probe. Investors who believe they were scammed by Schmidt are asked to call the Waco office at 254-772-1627, according to Acting U.S. Attorney John E. Murphy.
Some Recent Ponzi Schemes Featuring Seniors
Topping the list of seniors implicated in Ponzi schemes, age-wise, is Richard Piccoli, the alleged operator of the Gen-See Ponzi in the Buffalo, N.Y., area. Piccoli is 82.
Arthur Nadel, implicated in Florida amid allegations more than $300 million in investor funds went missing in a Ponzi scheme, is 76.
Andy Bowdoin, who presided over the alleged $100 million AdSurfDaily Ponzi scheme in Quincy, Fla., is 74.
Bernard Madoff, convicted in an alleged $65 billion Ponzi, is 71. In June, Madoff was sentenced to 150 years in prison.
Ronald Keith Owens, 73, was sentenced in January to 60 years in prison for operating a “prime bank†Ponzi scheme that allegedly was set up in the Bahamas and elsewhere.
James Blackman Roberts, 71, of Heber Springs, Ark., was sentenced in January to 15 years in prison for running a $43.5 million Ponzi scheme.
Larry Atkins, 65, was convicted of swindling investors of $3 million in a North Dakota Ponzi scheme. In February, he was sentenced to eight years in prison.
Judith Zabalaoui, 71, was accused in February of swindling Greater New Orleans clients out of more than $3.2 million in an elaborate Ponzi fraud. In August, she was sentenced to eight years in prison.
Zabalaoui established a bogus entity known as Paragon Co., which actually was a mailbox Zabalaoui rented at a UPS store in Montrose, Colo., prosecutors said.
Part of the scheme was to call the mailbox a “suite,” prosecutors said.
Zabalaoui also set up a fake company known as Omni Clearing, this time using a UPS store in Dover, Del. Prosecutors said she invented “fictitious people,†claiming they were employees, fabricated emails using the names of fictitious employees, and she set up a phone, fax and email systems to help perpetrate the fraud.
She collected millions in the the scheme by promising “safe†and “guaranteed†returns ranging from 13 percent to 26 percent, prosecutors said.
UPDATED 4:30 P.M. EDT (U.S.A.) No shares of Vana Blue were reported traded today. No trades have occurred since Oct. 8, a period encompassing seven full trading days. Some shares of Praebius did trade today, so its string of no trading since Oct. 9 ended.
Here, below, our earlier post . . .
Two Pinksheet penny stocks whose names became associated with the so-called autosurf “industry” have not recorded any trading of shares for days.
No shares of Vana Blue have traded hands since Oct. 8, a period that includes six full trading days and part of a seventh. No Praebius Communications shares have traded hands since Oct. 9.
In news releases, Vana Blue identified itself as the owner of eWalletPlus, a payment processor later linked to the AdViewGlobal (AVG) autosurf.
Vana Blue, which used mailing services in Phoenix and Las Vegas as its address, is a registered corporation in Nevada. Its website now resolves to a server that beams ads.
The company has claimed to own a company that variously has been described as TMS Corp. and TMS Association, which purportedly developed eWalletPlus. In January, Vana Blue also claimed to own a company that variously has been described as Karveck Corp. or Karveck International, a purported advertising and media company.
In February, Vana Blue reported that Karveck had posted $1.8 million in revenue in January — the month AVG was in prelaunch.
In an August news release, Vana Blue said it “has canceled all agreements with Karveck Int’l and has no affiliation with [the] company or its affiliates.â€
The company claimed to own Karveck International in February 2009, declaring it a “newly acquired asset†that had produced $1.8 million in revenue in January. Karveck was described as a company that “specializes in internet advertising and promotion in a search engine and ad clicking type environment.â€
Vana Blue’s August news release, however, said the deal once described as completed never was finalized and that the cancellation came as a result of “further due diligence.â€
AVG, an autosurfing company with close ties to AdSurfDaily Inc., suspended member cashouts in June. The U.S. Secret Service seized tens of millions of dollars from ASD President Andy Bowdoin in August 2008, amid allegations of wire fraud, money-laundering and operating an international Ponzi scheme.
On Sept. 30 and Oct. 1 of last year, an evidentiary hearing in the ASD forfeiture case was held in U.S. District Court for the District of Columbia. The hearing centered on the Ponzi allegations, ASD’s “rebate” program and issues of income streams and solvency.
In August, prosecutors said ASD was insolvent.
“According to its own records, ASD sold ad packages worth approximately $39 million during the Miami rally, worth over $29 million from the Tampa convention, and worth over $27 million from the Chicago rally,” prosecutors said. “Even without including ad ‘sales’ that occurred over the Internet and the bonuses offered to rally participants, ASD would need assets of more than $118 million to pay these individuals their 125% return,” prosecutors said.
At the evidentiary hearing, ASD introduced an unaudited balance sheet that showed it had posted approximately $100.88 million in revenue in the first seven months of 2008. Prosecutors countered by saying ASD had promised to pay out more money than it had taken in, producing evidence showing ASD “will” pay rebates until members received 125 percent of what they had paid for “advertising.”
U.S. District Judge Rosemary Collyer did not make a ruling from the bench at the conclusion of the hearing, instructing attorneys from both sides to prepare additional briefs and noting she would take the testimony and evidence introduced by both sides at the hearing under advisement.
During the period in which Collyer was deliberating the Ponzi and solvency issues, ASD announced on its Breaking News website that it expected a $200 million capital infusion from Praebius. Some ASD members raced to forums and websites covering the ASD case to share the news about the purported Praebius venture.
Some ASD members, however, questioned the news. ASD then removed its announcement about Praebius from the Breaking News website.
Shares of Vana Blue traded hands during 11 straight trading days between Sept. 10 and Sept. 24. After Sept. 24, shares traded hands in six of the 10 trading days through Oct. 8. No trades have posted since Oct. 8.
UPDATED 9:39 P.M. EDT (U.S.A.) A thread at the Pro-AdSurfDaily Surf’s Up forum went missing this morning after a days-long debate in which federal prosecutors were called “goons” and a member repeatedly insisted that a government attorney had acknowledged that ASD was not a Ponzi scheme.
The thread was titled “William Cowden Resigned.”
Various Surf’s Up posters have claimed for a more than a year that ASD prosecutor William Cowden, now in private practice, had said ASD wasnot a Ponzi scheme. The claim was made prior even to an evidentiary hearing held on Sept. 30 and Oct. 1 of last year, and has been made repeatedly since then.
On Oct. 10, 2008, nine days after the evidentiary hearing had concluded, for example, ASD mainstay Robert Fava circulated an email in which the claim was made. Fava’s email contained an analysis of the evidentiary hearing and post-hearing filings by attorneys from both sides by an ASD member named “Ken.”
“Everything really hinges on the fact that it was not a Ponzi and the AG has already admitted to the fact that it WAS NOT A PONZI,” Fava’s email quoted “Ken” as saying. Another section of the email noted that Judge Rosemary Collyer would have to be “brain dead or taking a payoff” if she ruled against ASD.
The claim appears to be part of a disinformation campaign to keep hope alive that the government does not believe in its own case and that the Ponzi elements could unravel at any moment, thus voiding the prosecution’s claim that ASD had engaged in wire-fraud and money laundering.
Some Surf’s Up members have asserted that, if the government can’t prove a Ponzi, then it cannot prove other crimes occurred inside ASD.
At the same time, some Surf’s Up posters have claimed prosecutors are guilty of an Unconstitutional money-grab and denying ASD due process. The claims have been made repeatedly, even though a federal judge reviewed search-warrant applications before approving them and issued warrants to “arrest” ASD’s assets — and even though ASD has argued its case in the forfeiture proceeding in court — a court open to the public and a court in which ASD members themselves attended the proceeding.
Despite the claim against Cowden, nothing in the record of the case suggests he ever said ASD was not a Ponzi scheme. In fact, the hearing on the Ponzi issues was held without objection from Cowden.
Then-prosecutor Cowden even cross-examined ASD’s expert witness — MLM attorney Gerald Nehra — who asserted ASD was not a Ponzi scheme.
Cowden cross-examined Nehra on Nehra’s opinion ASD was not a Ponzi scheme and on the subject of ASD’s “rebate” program. Cowden demonstrated in the courtroom — with Nehra on the witness stand — that ASD had said rebates “will” be paid until a customer received 125 percent of his or her ad spend — in other words, 25 percent more than the customer had paid ASD for “advertising.”
“Now,” Cowden asked Nehra, who was on the witness stand, “have you ever seen in the ASD rebate program the representation that [ASD] makes that rebates will (emphasis added) be paid up to a hundred and twenty-five percent, correct?”
“We have discussed that in the — ” Nehra answered.
“Is that correct?” Cowden asked, returning to his question about whether ASD had said rebates “will” be paid.
“Yes,” Nehra reponded, “I have seen that.”
“Mr. Nehra, yes or no answer, that’s what it says, rebates will be paid up to a hundred and twenty-five percent?” Cowden asked again, in a bid to solidify the answer for the record.
“It does say that, counselor,” Nehra answered.
“One hundred twenty-five percent is more money than you put in, right?” Cowden asked.
“Yes,” Nehra answered.
Months after the evidentiary hearing concluded, dozens of ASD pro se litigants filed templated court documents that accused the government of not producing “any EVIDENCE of alleged wrongdoing.”
The government, however, introduced evidence at the evidentiary hearing, including evidence upon which Nehra had been cross-examined by Cowden. The government also introduced video evidence and written evidence. The first government filing of evidence occurred on Aug. 5, 2008, and included eight separate exhibits.
Had Cowden or the government told a federal judge or ASD’s attorneys that ASD was not a Ponzi scheme — before the hearing or after — one of the key prongs of the government’s strategy in the case would have collapsed. There would have been no reason for Cowden to cross-examine Nehra on the Ponzi elements. Bowdoin’s attorneys would have had Cowden for lunch.
It does not seem even to have occurred to the ASD members making the claim about Cowden that, in the early hours after the hearing concluded, they also snickered about Cowden returning again and again to the subject of ASD paying a rebate of 125 percent. One of the key issues of the 125 percent promise was how ASD was funding the payouts. The prosecution always has argued that the payouts were made in classic Ponzi fashion, with money taken from new members to pay earlier members.
By snickering about Cowden’s consistent return to the 125 percent theme, the ASD members were disproving their own argument that Cowden had said ASD was not a Ponzi scheme.
Not only did the Ponzi theory not collapse, the government used information gleaned from the testimony at the evidentiary hearing in a second forfeiture complaint filed against ASD’s assets. The second complaint was filed more than two months after the Surf’s Up posters first asserted that Cowden had said ASD was not a Ponzi scheme — and Cowden signed the December complaint, arguing again that ASD had operated as a Ponzi.
“ASD operated as a ‘Ponzi’ operation whereby it took money from investors — it termed its investors ‘members’ and ‘advertisers’ — by promising its investors that it would pay to those investors 125% of their out-of-pocket investment,” argued Cowden in December, along with former U.S. Attorney Jeffrey Taylor and Assistant U.S. Attorney Vasu B. Muthyala.
The court filing was verified by Roy Dotson, a special agent for the U.S. Secret Service.
Cowden, Taylor and Dotson — at various times — became the subjects of a certified-mail campaign by ASD members to discredit them. They also became the subjects of a letter-writing campaign to Sen. Patrick Leahy in which the senders asked the U.S. Senate to investigate not an alleged $100 million Ponzi scheme, but the public servants who stopped the scheme before it could mushroom globally.
In the fall of 2008, Surf’s Up hinted that a secret weapon against the government soon would come into play. In October, ASD Members International (ASDMI) was formed. ASDMI’s founders consisted of Surf’s Up members.
“Professor” Patrick Moriarty was listed in Missouri records as the registered agent of the organization, which had registered as a nonprofit. Surf’s Up Mod Barb McIntyre was listed as Secretary.
ASDMI solicited money from ASD members to do battle with the government. The organization made the odd claim that it would litigate against the government even if the government was behaving legally.
If civil litigation did not work, ASDMI suggested, it would see about having the prosecutors charged with crimes.
Patrick Moriarty, a co-founder of ASDMI, instructed ASD visitors to his personal website to make checks and money orders for $50 payable to “P.M.G.Int.,†which stands for Pacific Ministry of Giving International, Curtis Richmond’s Utah-based entity.
Moriarty instructed participants in a mail campaign against the prosecutors and Secret Service to mail the checks and money orders to him in Missouri. The $50 fee would be used to defray the costs of notarization, “several certified mailings, typing, paper and other necessary administrative costs.â€
ASDMI itself charged a $20 fee for its own version of presumptive litigation against the government.
Richmond, who said in court filings that Pacific Ministry of Giving International had lost $41,000 as a result of the government seizure of ASD’s funds, is associated with a Utah “Indian” tribe a federal judge in a separate case ruled a “complete sham.” At least two people who used the services of a sham “arbitration” panel connected to the tribe to litigate against the Internal Revenue Service or other creditors were convicted of federal crimes such as tax evasion and mail fraud and sentenced to prison.
Moriarty was a key participant in a certified-mail campaign involving the ASD prosecutors, asking ASD members to make checks and money orders payable to Richmond’s Pacific Ministry of Giving International, which is registered in Utah as a “Corporation – Sole” under “Religious Organizations.”
In March 2009, Moriarty was indicted in Missouri for alleged tax crimes that occurred between 2002 and 2006. In February 2009 — at Surf’s Up — he was positioned as the leader of a letter-writing campaign to Leahy
“Over 50 individual and notarized DEMAND[S] FOR LEGAL EVIDENCE were sent to Jeffrey Taylor, US Attorney; William Cowden, Assistant US Attorney; and Roy Dotson, Special Agent, US Secret Service,†Moriarty said in a letter to Leahy, D.-Vermont. “Not once did any of these three Government Servants respond.â€
Leahy is chairman of the Senate Judiciary Committee.
“Innocent Americans have suffered and continue to suffer because of these incredulous and despicable acts†by prosecutors, Moriarty said.
Screen shot: Snapshot of section from Government Exhibit 3, which has been in the public record since Aug. 5, 2008. The exhibit reproduces the AdSurfDaily Terms of Service as the document existed on July 24, 2008, in the opening weeks of a U.S. Secret Service investigation into the company's business affairs. The exhibit shows ASD advertised that advertisers "will be paid rebates until they receive 125% of their ad purchases" and that "Your ad purchase will expire when you receive a 125% rebate of your advertising cost."
Despite the August 2008 forfeiture complaint in which the U.S. Secret Service and federal prosecutors first made the Ponzi claim — and despite the fact ASD asked for a hearing to demonstrate it was not a Ponzi and that the prosecution did not object to the hearing — and despite the fact Cowden cross-examined Nehra on the Ponzi issues and that Nehra acknowledged on the stand that ASD said rebates “will” be paid up to 125 percent — some Surf’s Up members continue to argue that Cowden said ASD was not a Ponzi scheme.
Perhaps most striking of all is that the government, including Cowden, reasserted the Ponzi argument in the December complaint (filed 10 months ago tomorrow) — and some Surf’s Up members still are arguing that Cowden had said ASD was not a Ponzi scheme.
All of the court information contained in this post is in the public record of the case.
Judge Rosemary Collyer’s ruling that ASD had not demonstrated at the evidentiary hearing that it was a lawful business and not a Ponzi scheme — coincidentally, 11 months old tomorrow — is in the public record. The August 2008 filing in which the government reproduced the ASD Terms of Service showing the surf had said rebates “will” be paid up to 125 percent is in the public record. So are the initial eight exhibits of government evidence against ASD.
ASD was permitted to continue to sell advertising after the seizure of its assets, but chose not to do so. It is not illegal to sell advertising online. One of the key issues of the ASD case is how the company funded rebates — which generally are not illegal — but can become illegal if a company is skirting securities laws by purporting to be an “advertising” company when it actually is an unregistered issuer of securities sold as investment contracts.
But the securities allegation is just one of allegations against ASD. Prosecutors said the company was engaging in wire fraud and money-laundering. Meanwhile, private litigants have accused the company of racketeering.
ASD President Andy Bowdoin has never responded to the racketeering complaint, which was filed in Florida November 2008, in the immediate aftermath of Collyer’s ruling against the firm. The initial racketeering lawsuit was dismissed by the plaintiffs in Florida and refiled in U.S. District Court for the District of Columbia in January 2009, in the immediate aftermath of Bowdoin’s decision to submit to the government forfeiture.
Attorneys for the racketeering plaintiffs — consisting of three ASD members who seek class-action certification in the lawsuit against Bowdoin — referenced the AdViewGlobal (AVG) autosurf in a June filing, saying the surf was the next iteration of ASD and employed individuals who worked for ASD.
On Sept. 25, the government made a veiled reference to AVG in court filings.
Both ASD and AVG potentially face a ton of trouble in the coming weeks and months — but more than a year after the evidentiary hearing was held, some Surf’s Up posters continue to argue that the government itself, despite all the evidence to the contrary, had said ASD was not a Ponzi scheme.
At the same time, posts and entire threads continue to go “poof” at Surf’s Up, perhaps especially when other posters argue that the government just might have a legitimate point of view.
Two Maryland men were charged and arrested, amid allegations they fleeced 21 Michigan churches out of $660,000 in a Ponzi and affinity fraud scheme in which pastors were duped into giving a leasing company access to church bank accounts.
Authorities said the men perhaps targeted more than 160 churches in 13 states and the District of Columbia. Investigations in multiple jurisdictions are under way.
Meanwhile, a Pennsylvania man has been charged with bilking credit unions in three counties out of $2 million in a Ponzi scheme involving certificates of deposit.
In the Michigan case, Michael J. Morris and William T. Perkins were charged Oct. 5, but remained at large. They were arrested Oct. 9, and arraigned in Wayne County, Mich.
Morris and Perkins were charged with multiple felonies, including one count of Conducting a Criminal Enterprise (Racketeering); one count of Conspiracy to Commit False Pretenses Over $20,000; four counts of False Pretenses Over $20,000; and four counts of Fraudulently Obtaining a Signature.
Michigan Attorney General Mike Cox said Morris and Perkins were representatives of Television Broadcasting Online and Urban Interfaith Network.
The scheme involved obtaining money from leasing companies and making churches responsible for repayment of the funds through brazen deceit, Cox said in a statement.
Morris and Perkins “approached Michigan churches and offered to provide electronic kiosks free of charge for use in religious education, community events and fundraising,” prosecutors said. “The pastors were told that a ‘national sponsor’ would cover all costs in exchange for advertising that would run on the machines.”
Churches then were “convinced to sign leases, described as a formality, on each kiosk,” prosecutors said. “In reality, the churches unknowingly became responsible for the full purchase price of the kiosk.”
Although the kiosks were worth about $2,000, the scammers inflated the price to $27,000 and sold the agreements they’d fleeced the churches into signing to a leasing company, prosecutors said.
Despite the fact Morris and Perkins promised the churches a “national sponsor,” no such sponsor existed, prosecutors said. The fraud morphed into a Ponzi scheme when the duo took some of the proceeds and applied them to initial payments due on the machines, pocketing the rest, prosecutors said.
“When the defendants later stopped making payments, the leasing companies, following the terms of the leasing contracts, demanded payment directly from the churches,” prosecutors said. “In some cases, the contracts allowed leasing companies to take funds directly from church bank accounts, leaving churches in economic distress.”
Targeted churches included:
Charity Lutheran Church (Detroit)
Emmanuel Institutional Church of God in Christ (Detroit)
Epiphany Lutheran Church (Highland Park)
Faith Redemption Center Church of God in Christ (Detroit)
The Spirit and Truth Christian Ministries (Detroit)
El-Shaddai MBC Church (Ferndale)
Pentecostal Temple Church – God (Inkster)
All Nation Church of God in Christ (Port Huron)
New Jerusalem Full Gospel Baptist Church (Flint)
Greater Coleman Temple Church of God in Christ (Saginaw)
Grace Fellowship Church of God in Christ (Ypsilanti)
Mount Olive Church of God in Christ (Ypsilanti)
Whitehead Memorial Church of God in Christ (Ypsilanti)
Cox said the crime was disgraceful.
“In this difficult economy, families depend more and more on good works provided by local churches, ” Cox said. “By essentially pilfering the bank accounts of these ministries the defendants didn’t just violate the sanctity of the church, they stole form the entire community.”
Pennsylvania Case
Eugene D. Miley, 58, of Beaver, defrauded credit unions in Armstrong, Westmoreland and Luzerne counties out of $2 million in a Ponzi scheme, said Pennsylvania Attorney General Tom Corbett.
Miley served as a financial broker for clients, “offering to locate and purchase high-interest-rate certificates of deposit (CDs) for those institutions,” prosecutors said.
“Instead of purchasing CDs, Miley allegedly diverted the funds for his own personal use, depending on new credit union purchases to pay-off older fictitious ‘investments,’” prosecutors said.
It was all smoke and mirrors, Corbett said.
“Miley claimed to be helping his clients earn a good return on their investments, but this was simply an illusion,” Corbett said. “As with other Ponzi schemes, the money received from new clients was used to pay-off older investors, or siphoned off for personal use, until the flow of new money stopped — causing the operation to collapse and leaving victims with nothing more than empty promises.”
Miley, prosecutors said, sold $2,080,000 in fictitious CDs between 2006 and 2008, including $1,387,000 to Moonlight Credit Union in Worthington, Armstrong County; $594,000 to VANtage Trust Credit Union in Wilkes-Barre, Luzerne County; and $99,000 to Stanwood Area Credit Union, in New Stanton, Westmoreland County.
The scheme centered on Miley’s ability to trade on trust, Corbett said, noting that Miley had longtime business relationships with each of the credit unions.
Investigators determined that Miley was not licensed to operate as a financial investment company, financial adviser or financial products dealer in Pennsylvania.
He was charged with multiple felonies, including one count of securities fraud; one count of selling unregistered securities; and three counts each of theft by deception and theft by failure to make required disposition of funds.
Although Miley posted bail, which had been set at $50,000, he was placed on electronic monitoring and ordered not to leave Pennsylvania.
UPDATED 1:33 P.M. EDT (U.S.A.) The failure yesterday of San Joaquin Bank in Bakersfield, Calif., brought the total of bank failures in the United States this year to 99.
With weeks remaining in the year, it is a virtual certainty that failures will top the 100 mark. Banks have been failing at an average rate of slightly less than 10 per month in 2009. Last year, 25 banks failed in the United States. In 2007, only three banks failed.
As many as 416 names of other troubled banks appear on a confidential list maintained by the Federal Deposit Insurance Corp. (FDIC). The hemorrhage of bank failures — in large measure caused by a severe recession, consumer and business defaults, a collapse of real-estate prices in many parts of the country, brazen fraud in the mortgage sector and a contraction of development — is not over.
Although banks and the government are working together to find ways to curb an explosion in the mortgage-foreclosure rate, foreclosures continue to suck wealth from the economy.
“Bank repossessions, or REOs, jumped 21 percent from the second quarter to the third quarter, corresponding to jumps in defaults and scheduled auctions in the previous two quarters,†said James J. Saccacio, chief executive officer of RealtyTrac.
RealtyTrac tracks foreclosure activity in the United States. On Oct. 14, the company said foreclosures in the third quarter set a record and were up 23 percent from the total reported in the third quarter of 2008.
Foreclosure filings, default notices, scheduled auctions and bank repossessions totaled 937,840 in this year’s third quarter, RealtyTrac reported.
Although foreclosure filings in September totaled 343,638 — a 4 percent decrease from August’s total — the number still represented a 29 percent increase from September 2008.
September’s monthly total was among the highest figures reported since January 2005, trailing only July and August of this year.
“REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts and high volumes of distressed properties,†Saccacio said.
Florida, California Battered By Foreclosures
Six states — California, Florida, Arizona, Nevada, Illinois and Michigan — accounted for 62 percent of the foreclosure total in the third quarter, RealtyTrac reported. Foreclosures in the six states totaled 579,541.
Foreclosures in California totaled 250,054 in the third quarter; Florida posted 156,924 foreclosures, a 23 percent increase from the total reported in the third quarter of 2008.
Because Florida is an attractive state for retirees — and because those retirees have friends and loved ones in all corners of the United States — the state is an attractive target for scammers.
Florida also has a large population of immigrants, another attractive target of scammers.
Agencies Battle Florida Ponzi Fraud
In the past 72 hours alone, the SEC, the CFTC, the FBI, the U.S. Postal Inspection Service, and federal prosecutors have announced three Florida Ponzi scheme prosecutions, a conviction in a separate Ponzi case — and a conviction in a fraud case in which a Florida man created more than 260 identities on eBay and fleeced customers out of $717,000.
On the Florida Ponzi front:
David F. Merrick, Traders International Return Network (TIRN), MS Inc., GTT Services Inc., MDD Consulting Inc. and Go ! Tourism Inc. were named defendants in emergency actions in U.S. District Court for the Middle District of Florida. Merrick, 61, of Apopka, is accused of operating a $22 million Ponzi scheme with ties to Panama, Mexico, Malaysia, Switzerland and the Netherlands.
HomePals Investment Club LLC, HomePals LLC (Home Pals), Ronnie Eugene Bass Jr., Abner Alabre and Brian J. Taglieri were charged in South Florida with securities fraud, conspiracy to commit securities fraud, wire fraud and money laundering. The defendants were accused of targeting Haitian-Americans in a $14.3 million Ponzi scheme that promised investment returns of 100 percent every 90 days. The scheme gathered money from as many as 64 “investment clubs,†the SEC said.
Sean Healy, 38, of Weston, Fla., was charged in a 55-count indictment unsealed in Pennsylvania with multiple counts of wire fraud, mail fraud, money laundering and obstruction of justice. The Florida-based scheme led to at least $14.6 million in losses in Pennsylvania alone, prosecutors said, adding that Healy purchased “numerous exotic vehicles and sport cars, including a Bentley and several Ferraris, Lamborghinis and Porsches worth over $2.3 million.†Healy also bought a $2.4 million waterfront mansion furnished with more than $2 million of home improvements, plus $1.5 million in men’s and women’s jewelry, prosecutors said.
Michael Riolo, 38, of Boca Raton, was sentenced to more than 24 years in prison for bilking investors in a $44 million Ponzi scheme. Prosecutors accused Riolo of cooking the books and sending false statements to investors that reported “consistent trading profits and increasing account balances.” In reality, Riolo “misdirected money he received from some investors to make distributions to other investors who sought to withdraw money from their investment accounts,” prosecutors said.
Andy Bowdoin, 74, of Quincy, Fla., continued his efforts to get back into a Ponzi case in which he had already submitted to the forfeiture of tens of millions of dollars seized last year by the U.S. Secret Service in an international wire-fraud and money-laundering probe. Bowdoin, who submitted to the forfeiture in January, fired his attorneys and began to file as his own attorney in February. In April, federal prosecutors announced that Bowdoin had signed a proffer letter in the case prior to acting as his own attorney and acknowledged his company, AdSurfDaily Inc., had been operating illegally. “Mr. Bowdoin also confirmed that the revenue figures of the enterprise were managed to make it appear to prospective members that the enterprise called Ad Surf Daily was a consistently profitable, and brilliant, passive income opportunity,” prosecutors said. Despite his own acknowledgments of illegal conduct, despite the proffer — and despite the fact Bowdoin had asked the court to grant his request to submit to the forfeiture and that the court granted Bowdoin’s request — Bowdoin climbed back on the litigation saddle. “Mr. Bowdoin says that after discussing this case with his supporters, and concluding that they were smarter than his attorneys, he has changed his mind,” prosecutors said.
Total funds gathered in the alleged Bowdoin, Merrick, Bass, Alabre, Taglieri and Healy Ponzi schemes in Florida are estimated at $156.3 million, during a period in which U.S. banks are failing, the U.S. economy is confronting the worst business conditions since the Great Depression and mortgage foreclosures are piling up across the country, including hard-hit Florida.
With the Riolo conviction added to the estimate, the number totals $200.3 million. The estimate does not reflect the massive, $65 billion Ponzi fraud of Bernad Madoff, who wiped out clients in Florida and elsewhere. Nor does it take into account allegations that Arthur Nadel, another man implicated in a large-scale fraud in Florida, may be responsible for tens — if not hundreds — of millions of dollars of Ponzi pain.
“During these tough economic times, it is more important than ever that those who lie to and steal from the investing public be held accountable for their misconduct,” said Jeffrey H. Sloman, Acting U.S. Attorney for the Southern District of Florida, commenting on the 24-year prison sentence Riolo received.
“The United States Attorney’s Office will continue to investigate and prosecute those who perpetrate these large-scale fraud schemes,†Sloman said.
There has been nonstop news about Florida Ponzi schemes in the past 48 hours. Several indictments have been announced, the latest involving Sean Healy of Weston.
Healy, 38, was charged in a 55-count indictment unsealed in Pennsylvania with multiple counts of wire fraud, mail fraud, money laundering and obstruction of justice.
Prosecutors said Healy “spent the money to fund a lavish lifestyle.”
Purchases included “numerous exotic vehicles and sport cars, including a Bentley and several Ferraris, Lamborghinis and Porsches worth over $2.3 million,” prosecutors said.
Obstruction of justice was charged because Healy thwarted a grand jury by providing “phony bank statements and phony trading records, indicating that the Pennsylvania investor’s money was used for legitimate trading activity in stocks and commodities,” prosecutors said.
“When the authentic records were obtained, they revealed that Healy had simply spent the money on his extravagant lifestyle and used some of it to pay back earlier investors who he defrauded between 2003 and 2008,” prosecutors said.
The grand-jury probe began in March, after an investor who had been scammed in Pennsylvania sued Healy and his wife, Shalese Rania Healy, in U.S. District Court in the Southern District of Florida, alleging that Pennsylvania investors had lost $14.6 million with Healy between April 2008 and February 2009.
In July, the SEC and CFTC sued Healy in a case that alleged massive fraud. Also named in the complaints was Healy’s company, Sand Dollar Investing Partners LLC. Healy’s wife was named a relief defendant, meaning investigators believed she had received ill-gotten gains from the scheme.
CFTC said investor funds also were used to purchase gold bullion and “to lease a luxury suite at Miami’s BankAtlantic Arena.”
The sky was the limit, said an SEC official.
“Rather than investing the money as he promised, Sean Healy used investor funds to finance an extravagant lifestyle for himself and his family,†said Antonia Chion, associate director of the SEC’s Division of Enforcement.
The July complaint by the SEC also alleged that Healy provided false information to the U.S. Attorney’s Office for the Middle District of Pennsylvania, which brought the obstruction charges and the other charges. The indictment was unsealed yesterday in Harrisburg, Pa.
Dennis Pfannenschmidt, U.S. Attorney for the Middle District of Pennsylvania, cataloged the spectacular purchases Healy allegedly made with investors’ funds.
In addition to the automobles, Healy also bought a $2.4 million waterfront mansion furnished with more than $2 million of home improvements, plus $1.5 million in men’s and women’s jewelry, Pfannenschmidt’s office said.
To many residents of Florida, Michael Riolo was their Bernard Madoff.
Riolo, 38, of Boca Raton, was sentenced to more than 24 years in prison (293 months) today for bilking investors in a $44 million Ponzi scheme. The scheme began in 1999 and collapsed in 2008.
“During these tough economic times, it is more important than ever that those who lie to and steal from the investing public be held accountable for their misconduct,” said Jeffrey H. Sloman, Acting U.S. Attorney for the Southern District of Florida. “The United States Attorney’s Office will continue to investigate and prosecute those who perpetrate these large-scale fraud schemes.â€
Riolo’s sentence was imposed by U.S. District Judge Kenneth A. Marra.
Police officers were among victims of Sterling Wentworth Currency Group Inc. and LaSalle International Clearing Corp., Riolo’s companies.
“From August 1999 to December 2008, Riolo caused more than 80 investors to invest approximately $44 million, based on materially false statements and omissions of material facts,” prosecutors said today.
Like Madoff, Riolo cooked the books.
“To encourage participating investors to keep their investments with the defendant, he would prepare and distribute to investors monthly profit and loss statements that falsely reported consistent trading profits and increasing account balances,” prosecutors said.
“In furtherance of the scheme, Riolo misdirected money he received from some investors to make distributions to other investors who sought to withdraw money from their investment accounts.”
Riolo took money from new investors to pay old ones in classic Ponzi fashion, prosecutors said.
“[He] disbursed more than $29.5 million to investors as a purported return of principal and profits, when in fact, most of the returns paid by the defendant to the investors came directly from new investment monies, not profits,” prosecutors said.
Investigators have exposed two significant Ponzi schemes in Florida in the past 48 hours alone. The alleged schemes occurred on the heels of Madoff’s massive, $65 million Ponzi fraud, and allegations that Florida residents Arthur Nadel and Andy Bowdoin has schemed hundreds of millions of dollars from investors in Ponzi frauds.
Read story about another Florida Ponzi case Sloman’s office is prosecuting.
Florida’s real-estate market has been battered by the recession. The state has one of the highest mortgage-foreclosure rates in the United States, and some counties have high concentrations of residents vulnerable to scams, including senior citizens and immigrant populations.
Despite the fact senior citizens are vulnerable to Ponzi schemes, some members of the Pro-AdSurfDaily Surf’s Up forum discussed a plan to ask AARP, an association that advocates for seniors, to advocate on behalf of ASD.
AARP later joined with Florida Attorney General Bill McCollum in an effort to strengthen securities laws in the state.
