Renee Marie Brown, the Minnesota woman accused by the SEC last year of orchestrating a bizarre fraud known as “Fund X,” has been indicted on criminal charges of securities fraud, wire fraud and money laundering.
Brown, 47, of Golden Valley, presided over a company known as Investors Income Fund X LLC, which the SEC described as a “sham” bond fund that promised investors annual returns of 8 percent or 9 percent.
Federal prosecutors now say that Brown lied to investors when she told them she had put $200,000 of her own money into the purported fund.
“Fund X never was a bond fund, and Brown never invested any of her own money in Fund X,” prosecutors said. “Moreover, Brown allegedly used more than $500,000 of the investors’ funds for her personal use, including the purchase of a condominium and the payment of credit card bills. Allegedly, the ‘returns’ distributed to investors merely were transfers from Fund X investors’ funds, not legitimate returns from investments.”
Money-laundering came into play because Brown transferred $85,000 in fraud proceeds into the account “of another one of her companies,” prosecutors said.
And securities fraud and wire fraud occurred because she fraudulently induced investors to give her money and electronically communicated with financial institutions and her marks, prosecutors said.
Brown potentially faces decades in prison if convicted of all counts in the indictment. The case was brought by elements of the Financial Fraud Enforcement Task Force created by President Obama in November 2009.
Minnesota has been home to a number of massive fraud capers in recent years. Brown’s assets were frozen on the very same day in 2010 that Ponzi schemer Tom Petters was sentenced to 50 years in federal prison.
Michael S. Goldberg, the Connecticut man who lured investors into bogus deals in part by creating websites that traded on the name of JPMorgan Chase Bank and other companies, has been sentenced to 10 years in federal prison.
Goldberg, 40, stole more than $30 million from investors over a period of 12 years in a scheme that gathered more than $100 million, U.S. Attorney David B. Fein of the District of Connecticut said. Goldberg was charged last year, and pleaded guilty to three counts of wire fraud in September.
Elements of the prosecution were brought by the Connecticut Securities, Commodities and Investor Fraud Task Force, an arm of the interagency Financial Fraud Enforcement Task Force created by President Obama in November 2009.
“As a result of this defendant’s decade-long fraud scheme, many victims lost their homes, retirement security or college savings for their children,” Fein said.
As is the case in most Ponzi schemes, victims will not emerge with much, Fein said.
“Despite the best efforts of the FBI and the receiver who has been appointed by the court to recover funds, it is unlikely that most of these victims will ever be made whole,” he said. “The lengthy prison term imposed [May 16] is an appropriate one for an individual who caused financial misery for so many, and should deter others from seeking to prey upon innocent investors.”
Goldberg, a purported diamond and real-estate expert, used a virtual playbook for fraud, according to records.
Part of his caper featured domain-name fraud in which websites were created in the name of JPMorgan Chase and others to sanitize his scheme and disarm skeptics, according to records.
Although Goldberg claimed to buy distressed assets from Chase, no such business relationship existed, prosecutors said.
If the bogus websites were not enough, Goldberg also “often created false documents and other items to induce investors to believe that his business relationships were legitimate,” the Task Force said.
Bogus inventories, manifests, contracts, business checks, bank statements, business cards and company identification cards were part of the scam, the Task Force said.
And Goldberg did not invest in “diamond contracts” as he purported, prosecutors said.
U.S. District Judge Robert N. Chatigny ordered Goldberg to pay more than $31 million in restitution and to report to prison on July 18. Various authorities continue to unravel the scam, prosecutors said.
Thanh-Viet “Jeremy” Cao, the California Ponzi schemer later accused in Nevada of filing fraudulent liens for enormous sums against public officials and identified by the Anti-Defamation League as a “sovereign citizen,” once threatened to torture and kill his business partner and the partner’s wife and family, federal prosecutors said.
To keep victims in a state of terror, Cao said he knew people who previously had “chopped up” a baby in front of the baby’s parents, and then killed the baby’s mother,” prosecutors said.
Those threats led to an extortion and firearms case brought by the state of California.
And Cao dialed up the terror by referencing an “assassination” and “fatal car accident.” When he was arrested, “he possessed a loaded firearm, and body armor and other firearms were found at his residence,” prosecutors said.
Cao, who was convicted in the state-level extortion case in 2009, was convicted Monday in the federal Ponzi case, which was brought after an investigation by the U.S. Secret Service. He was sentenced by U.S. District Judge Larry A. Burns to 30 years in prison and ordered to pay victims $12.4 million in restitution. He is scheduled to stand trial in the false-liens case later this year.
Victims in the liens case included four federal judges, staff members of the U.S. Attorney’s Office for the Southern District of California and employees of the SEC, the Secret Service and the IRS, federal prosecutors in Nevada said year.
The IRS Criminal Investigations unit brought the Nevada case, prosecutors said.
Cao filed at least 22 fraudulent liens for astronomical sums, according to records. He turned to filing bogus financial claims after law enforcement, acting with the authority of a court order in the California Ponzi case, seized a $200,000 Bentley Cao had acquired with investor funds and sought to equip with armor.
“Cao is a financial predator who will stop at nothing to cheat his victims out of their life savings,” said U.S. Attorney Laura E. Duffy of the Southern District of California.
“He continues to show no remorse for his actions, which destroyed the finances of many innocent and hardworking people,” Duffy said. “When law enforcement and the federal judiciary stepped in to stop this fraud, Cao retaliated by trying to ruin their finances through the filing of false liens. The sentence in this [Ponzi] case demonstrates how dangerous predators like Cao can be.”
A veteran Secret Service agent said bids to injure victims and the U.S. financial system would not be tolerated.
“The U.S. Secret Service has more than 140 years of experience in investigating criminals like Cao, who target the stability of this country’s financial systems and prey on innocent victims,” said Gregory J. Meyer, special agent in charge.
Cao faces a maximum sentence of 223 years if convicted of all counts in the false-liens case. He was indicted by a federal grand jury in Las Vegas in July 2010.
As part of his liens fraud, Cao developed a “hit list” in which he promised to obtain certain personal information of government offcials “so he could ruin them financially,” prosecutors said.
He also filed for bogus tax refunds, according to records.
Cao’s purported business career was one marked by “cheating” that got him fired from his job for “fraud and misconduct,” prosecutors said, describing him as a “career criminal.”
“When victims asked Cao what happened to their investments, Cao taunted them with profanity,” prosecutors said. “Cao’s victims lost their life savings, retirement funds, and their homes.”
About 190 victims were affected in the Ponzi scheme, prosecutors said, describing his 30-year sentence as one of the longest in a white-collar case in the history of Southern California.
BULLETIN: In the third such action in the United States since March 30, the CFTC has gone to federal court in Florida to block what it described as a “precious metals” scam that incorporated fictitious trading.
Charged with fraud in the case were Sammy J. Goldman of Delray Beach, Fla., and Harry Robert Tanner Jr. of Lake Worth, Fla. Their Florida-based firm — American Precious Metals LLC (APM) — also was charged.
Tanner was the subject of two previous actions by the National Futures Association for misconduct and was permanently barred by NFA in 2006, the CFTC said.
Goldman, also has been the subject of regulatory actions, according to records.
The CFTC case was filed under seal May 10. Investigators today described APM’s operations it as a “massive fraudulent scheme” that purportedly gathered more than $23 million since July 2007 as part of a “boiler room”telemarketing scam.
APM’s website has been seized by the court-appointed receiver, David R. Chase. U.S. District Judge William Zloch is presiding over the case and issued a Temporary restraining Order after the CFTC filed an emergency petition.
The CFTC’s allegations read like an impossible work of fiction.
APM purported to offer a “Leveraged Precious Metals Investment Program” through which the firm sold metal to customers and arranged financing through a firm known as Global Asset Management (GAM), which purportedly received “interest,” the CFTC said.
The metal purportedly was stored in “independent depository,” the CFTC said.
Along the troubles with the claims was APM did “not purchase or sell physical precious metals on behalf of its leverage program customers,” the agency charged.
“Further, APM does not arrange for or provide loans for the purchase of physical precious metals by its customers,” the agency continued. “APM customers have no physical precious metals stored in any independent depository, and since no loan has been disbursed, no interest accrues on any loan.”
Here is what actually happens through the boiler room, the CFTC charged.
“[A]fter charging commissions of approximately 40% of customers’ funds, APM sends customer funds to GAM, which also does not purchase or sell physical precious metals on behalf of APM leverage program customers.
“Instead,” the agency alleged, “GAM pools the funds received from APM with funds received from similar boiler room telemarketing firms, takes a portion of the funds as its own profit, and deposits the rest in margin accounts held in GAM’s name with various United Kingdom-based firms where GAM trades over-the-counter (‘OTC’) precious metals derivatives. APM discloses none of GAM’s actual activity to its customers.”
Customers further get ripped off through “enormous commissions” APM takes off the top, along with a “3-5% mark-up on the price of the physical precious metals purportedly sold to the customer, account opening fees and the monthly ‘interest’ GAM charges on the financing purportedly provided to the customers,” the CFTC charged.
How corrupt was the scheme?
“[A]s of January 7, 2010, APM’s approximately 396 then-existing leverage program customers purportedly owned gold, silver, platinum, and palladium with a total value of $23,834, 108,” the agency said.
However, “neither APM, GAM nor any secure depository held any physical precious metals for those customers,” the CFTC charged.
“When a customer makes an order to purchase precious metal, APM simply records the transaction on paper and deducts an ‘administrative fee’ equal to 15% of the total value of the metal being purchased, which is equivalent to approximately 40% of the customer’s total cash outlay,” the CFTC charged. “APM divides the administrative fee among the firm’s management personnel and the employees responsible for soliciting the customer. APM pools the remaining customer funds in APM’s own bank accounts with funds received from other customers and sends a portion of its pooled customer funds to GAM on a weekly basis.”
Separately, the Federal Trade Commission has charged Tanner and his wife, Andrea Tanner, with telemarketing fraud.
BULLETIN: UPDATED 3:50 P.M. EDT (U.S.A.) The FTC has gone to federal court to halt what it described as a $467 million, online fraud scheme operating across international borders. The scheme was exposed through international cooperation among the FTC, the Canada Competition Bureau, Service Alberta, the Royal Canadian Mounted Police, the Alberta Partnership Against Cross Border Fraud, the Edmonton Better Business Bureau and the BBB of Southern Nevada, officials said.
Charged in the case were Jesse Willms, Peter Graver, Adam Sechrist, Brett Callister, Carey L. Milne and several companies.
Willms, a Canadian, released a statement on his website that described the FTC case as a “disagreement.”
“We believe our business practices are compliant with the law and are working to resolve this disagreement with the appropriate government agencies,” the statement attributed to Willms read in part.
The FTC had a far different take.
Part of the scheme falsely traded on the names of Oprah Winfrey and Rachael Ray while also making false claims of cancer cures and weight loss, the FTC charged. In fact, the FTC said, Winfrey has sued Willms.
Named corporate defendants by the SEC were: 1021018 Alberta Ltd., also doing business as Just Think Media, Credit Report America, eDirect Software, WuLongsource and Wuyi Source; 1016363 Alberta Ltd., also doing business as eDirect Software; 1524948 Alberta Ltd., also doing business as Terra Marketing Group, SwipeBids.com and SwipeAuctions.com; Circle Media Bids Limited, also doing business as SwipeBids.com, SwipeAuctions.com, and Selloffauctions.com; Coastwest Holdings Ltd.; Farend Services Ltd.; JDW Media LLC; Net Soft Media LLC, also doing business as SwipeBids.com; Sphere Media LLC, also doing business as SwipeBids.com and SwipeAuctions.com; and True Net LLC, also doing business as Selloffauctions.com.
In addition to using the names of Winfrey and Ray, the scheme also traded on the famous names of CNN, USA Today, CBS, the “60 Minutes” television show and other brands, the FTC said.
“None of these entities have endorsed or positively reported on any of the 10 Willms defendants’ products,” the FTC said. The agency added that financial service-providers were duped and manipulated into processing payments for the alleged scam, in part through the creation of “dummy” websites designed to sanitize the scheme.
“Shell corporations” also were used to hoodwink service-providers, the FTC alleged. Consumers were fleeced out of at least $412 million in the scam, which netted nearly half a billion dollars, the agency charged.
The heart of the scheme was a continuity-billing fraud in which consumers who responded to “free” trial offers were billed for products and services they never requested, the agency said.
“The defendants used the lure of a ‘free’ offer to open an illegal pipeline to consumers’ credit card and bank accounts,” said David C. Vladeck, director of the FTC’s Bureau of Consumer Protection. “‘Free’ must really mean ‘free’ no matter where the offer is made.”
A Canadian official said cross-border cooperation was vital as agencies combat online fraud schemes.
“Internet fraud is a global problem that requires an international enforcement response,” said Lisa Campbell, deputy commissioner of competition for the Competition Bureau of Canada. “International cooperation ensures that fraudsters can’t hide behind borders.”
Auction fraud also was part of the massive scam, the FTC said.
“Willms and 10 companies he controls used deceptive tactics in offering ‘free trials’ for various products online, including acai berry weight-loss pills, teeth whiteners, and health supplements containing resveratrol (the supposedly healthful ingredient in red wine), as well as for a work-at-home scheme, access to government grants, free credit reports, and penny auctions,” the FTC said.
Penny auctions, the agency said, are “online auctions in which consumers must purchase bids, usually for $0.50 to $1 each. Regardless of whether a consumer actually wins a penny auction, the consumer has paid for each bid he or she placed during the auction. However, each bid that is placed raises the price of the auctioned item by a penny.”
“Willms and his companies obtained consumers’ credit or debit card account numbers, by enticing them with bogus ‘free’ or ‘risk-free’ trial offers that supposedly required only small shipping and handling fees, and also promised phony ‘bonus’ offers just for signing up,” the FTC said.
Consumers, though, often were “charged for the ‘free’ trial plus a monthly recurring fee, typically $79.95,” the agency said.
Making matters worse, the agency alleged, consumers also were “charged monthly recurring fees for the so-called bonus offers,” the agency said.
A purported money-back guarantee was no remedy because “consumers were often unsuccessful in canceling the charges or obtaining refunds, and the process involved time-consuming phone calls and other steps that made the deals far from risk-free.”
Meanwhile, the “penny auctions” were corrupt, the agency charged.
“The complaint charges that the defendants’ penny auction offers falsely indicated consumers would receive free ‘bonus’ bids, but those who provided credit or debit card numbers to facilitate future auction buying were hit with charges they did not know about, including $150 for introductory ‘bonus’ bids and $11.95 per month for ongoing ‘bonus’ bids,” the FTC charged.
Winfrey and Ray never endorsed the program, despite the appearance that they had, the FTC said.
Affiliate marketers in pursuit of commissions helped the massive fraud scheme go viral, affecting consumers in the United States, Canada, the United Kingdom, Australia and New Zealand, the FTC said. Important details were buried in the “fine print,” the agency charged.
The complaint was filed in federal court in Seattle. Willms resides in Alberta, according to the complaint. Graver, Callister and Milne are from Utah. Sechrist lives in Pennsylvania.
Some of the corporate defendants are from Canada. Others are from England, Cyprus, Utah, Idaho and Nevada, according to the complaint.
“Offshore merchant banking services” were used as part of the scam, the FTC said.
“Because these corporate defendants have operated as a common enterprise, each of them is jointly and severally liable for the acts and practices,” the FTC said.
This May 1 promo for Club Asteria describes its as an "investment company" and instructs prospects that "you will not again anything unless you invest." The promo advertises returns of up to 7 percent a week. "I am happy because even if I am not doing anything I still manage to earn from it," the promo claims.
P2P was promoted on the TalkGold and MoneyMakerGroup Ponzi forums.
A little over a month later, in July 2010, the Financial Industry Regulatory Authority (FINRA) described the HYIP sphere as a “bizarre substratum of the Internet” and issued a fraud alert. FINRA also referenced the P2P case. At the same time, it pointed to the collapsed Genius Funds Ponzi, believed to have consumed $400 million.
Genius Funds also was promoted on TalkGold and MoneyMakerGroup.
In December 2010, the interagency Financial Fraud Enforcement Task Force led by U.S. Attorney General Eric Holder specifically warned the public to be wary of social-networking sites and chat forums. The warning was part of “Operation Broken Trust,” a law-enforcement initiative in which investigators described more than $10 billion in losses from recent fraud cases.
One of the cases described was the SEC’s action against Imperia Invest IBC, a murky offshore business accused of stealing millions of dollars from the deaf.
Imperia Invest also was promoted on TalkGold and MoneyMakerGroup.
Last week, promoters of a Virginia-based company known as Club Asteria (CA) announced on the Ponzi boards that PayPal had frozen CA’s funds and blocked its access to the PayPal system. Although CA has been presented as a wholesome “opportunity” recognized by the Internal Revenue Service as a nonprofit organization (see graphic below), the CA promoter who announced the PayPal news last week on MoneyMakerGroup simultaneously was promoting two “programs” that purportedly pay 60 percent a month.
Some CA promoters claim CA pays 520 percent a year. Even jailed Ponzi schemer Bernard Madoff would blush at such advertised rates of return.
MoneyMakerGroup is referenced in federal court filings as a place from which Ponzi schemes are promoted. So is TalkGold, another well-known forum in the HYIP world.
This morning — also on the MoneyMakerGroup — a different CA promoter announced that CA’s Andrea Lucas had responded to last week’s PayPal news. Even as the CA member was announcing on a known Ponzi scheme and criminals’ forum that Lucas had issued a statement on the PayPal matter, he simultaneously was promoting two HYIPs and something called One Dollar Riches.
“OneDollarRiches allows you to parlay a small investment of just one dollar into a constant stream of cash, day in and day out!” according to its ad. “You can make 100 times your investment in just a few days by following our simple step by step instructions.”
The mere presence of CA promotions on the Ponzi boards leads to questions about whether the firm’s receipts are polluted by Ponzi proceeds. Paying members from such proceeds would put CA members in possession of tainted money — and banks into which they deposited those proceeds also would be in possession of tainted money.
Lucas, according to the CA website, now has publicly acknowledged last week’s actions by PayPal. Details, though, were spartan. CA did not say how much money PayPal had frozen. Meanwhile, the firm instructed members to fund their accounts by using offshore processors.
At the same time, CA urged members not to spread bad news about the company on forums. Members who shared negative information were subject to having their CA accounts revoked, according to the company.
“Members shall not publically (sic) disparage, demean or attack Club Asteria, its members, services or charitable activities,” CA remarks attributed to Lucas on the CA website read. The remarks were dated May 16 and appeared in the “News” section of the site.
In the same announcement, Lucas acknowledged that a “small group” of CA members “used their PayPal accounts to cheat fellow members.”
The company claimed it had turned the members “over to the authorities,” but did not identify the authorities or say whether they were based in the United States or elsewhere.
CA, which said PayPal was “acting with integrity,” then counseled its members to rely on offshore processors.
“First, if you have been paying for your membership through PayPal, please discontinue your subscription with PayPal immediately and start using one of the other approved payment processors AlertPay, Towah or CashX to ensure that your membership stays current,” the remarks attributed to Lucas read.
“Second, Do NOT use online forums, websites or social networks to lodge blame or complaints about PayPal or your Club Asteria team,” the remarks continued. “There is no benefit or purpose in this, and it only serves to create discord and spread rumors. Not only that, doing so is a direct violation of Code of Ethics & Conduct, Rule 8 and can result in immediate revocation of your membership.”
CA’s bizarre announcement occurred against the backdrop of thousands of bizarre promos for the firm that appear online. Some promos claim $20 spent with CA monthly turns into a lifetime income of $1,600 a month. Others claim CA is a “passive” investment opportunity, which raises questions about whether CA — whose members claim the program typically pays out about 3 percent to 4 percent a week or up to 208 percent a year — is selling unregistered securities as investment contracts.
Lucas has been referred to in promos as a former “chairman” and “vice president” of the World Bank. Several promos have described her as a Christian “saint.”
CA’s claims that only a “small group” of members is causing problems may be dubious. Wild claims have been made in promo after promo for the firm, which says it is not in the investment business.
This promo for CA contains a link that resolves to an active CA affiliate site. The affiliate site has a low affiliate ID number, suggesting the affiliate was one of CA's earliest members. The promo claims CA is a 501 (c)(3) nonprofit organization recognized by the IRS.
BULLETIN: Convicted Ponzi schemer Thanh-Viet “Jeremy” Cao, who also was accused of filing false liens against federal officials and has been linked to the “sovereign citizen” movement by the Anti-Defamation League, has been sentenced to 30 years in prison in the Ponzi case.
Cao was convicted in December 2010. The U.S. Secret Service and the IRS handled the probe.
In July 2010, Cao was charged criminally with filing false liens for tens of millions of dollars against federal officials. He also was accused of filing for a false tax refund for the astronomical sum of $82 billion.
Some of you may experience availability issues today and tomorrow as the PP Blog performs maintenance. Intermittent outages may occur in the next 24 to 48 hours.
Although the Blog is expected to be largely available, it may not be accessible in all areas until the maintenance is completed.
UPDATED 9:37 A.M. EDT (U.S.A.) A post on the MoneyMakerGroup Ponzi scheme and criminals’ forum claims that PayPal has frozen funds of Club Asteria (CA), a Virginia-based firm that trades on the name of the World Bank and does not publish verifiable financial data.
There was no independent confirmation of the claim on CA’s landing page or the news section of its website this morning, which leads to questions about whether prospects contemplating joining the “opportunity” know about the purported PayPal development and its negative effect on CA’s operations.
Whether CA’s current members have been instructed by the company to let prospects know about the purported PayPal development is unclear. If the PayPal news is true, prospects denied access to it at sign-up could create problems for the company and its promoters, potentially setting the stage for a flood of refund requests.
Under PayPal’s user agreement, the company reserves the right to hold funds and limit account access for up to 180 days if it detects unusual or fraudulent activity. CA, according to the MoneyMakerGroup post, now is urging members to use offshore processors.
CA, according to the MoneyMakerGroup post, said it had done nothing wrong — but pointed the finger of blame for the purported freeze at certain members who allegedly had “fraudulently misused their Club Asteria membership and PayPal accounts.”
MoneyMakerGroup member “10BucksUp,” who is promoting CA alongside “programs” known as JSS Tripler and Ad2Million amid claims that JSS and Ad2Million pay 60 percent a month, attributed the news of the PayPal freeze to Andrea Lucas, CA’s managing director.
“Last week PayPal has discontinued their services to our members due to no fault of Club Asteria,” the remarks attributed to Lucas read.
“Unfortunately their immediate action was to discontinue our services without further consideration and freeze all of the funds that our members had paid to Club Asteria via PayPal,” the remarks attributed to Lucas read.
The MoneyMakerGroup post suggests that CA withheld the PayPal news from members for a week while apparently still collecting fees from existing and incoming members through offshore processors such as AlertPay, CashX and Towah. The amount purportedly frozen by PayPal was not specified.
Regardless, the purported PayPal freeze “occurred when approximately 50 members fraudulently misused their Club Asteria membership and PayPal accounts and we asked PayPal for assistance in dealing with this issue,” the remarks attributed to Lucas read. “PayPal’s response to our request for help was to discontinue their service to us.”
When the ASAMonitor Ponzi scheme and criminals’ forum mysteriously shut down last fall, its website initially was set to redirect to CashX. Like the MoneyMakerGroup and TalkGold forums, ASA Monitor also is referenced in federal court filings as a place from which Ponzi schemes are promoted.
The current CA thread on MoneyMakerGroup consists of 200 pages; the current CA thread on TalkGold has 120 pages. The degree to which CA is being promoted on known Ponzi and huckster forums leads to questions about whether its revenue stream is polluted by fraud proceeds.
Whether CA reported the purported PayPal hijinks of its members to law enforcement was unclear. Also unclear was how CA apparently had arrived at the conclusion that “approximately 50” of its members had engaged in fraud.
What is clear, according to forum posts at MoneyMakerGroup and elsewhere, is that “earnings” from Club Asteria plunged to 0.66 percent this week in the aftermath of the purported PayPal freeze. Members of CA have claimed on the Ponzi boards in recent weeks that the company typically paid 3 percent to 4 percent a week. Members also have said that CA threatened to file lawsuits against some promoters.
Despite the purported dip to 0.66 percent, one MoneyMakerGroup member — “akledba” — speculated that CA would “give” 7 percent next week.
“Everything is intelligently calculated,” akledba ventured. He did not say whether his analysis was based on an examination of CA’s books or explain how he had arrived at the conclusion that next week’s payout would increase more than tenfold.
In any event, akledba noted that he was not worried.
“For me I have nothing to loose (sic) as I got the break even 3 months ago,” akledba wrote. “Thank God for the profit!”
Some CA members have published spreadsheets and earnings projections that claim CA pays up to 10 percent a week. Other members have said or implied that a simple monthly payment of $20 to Club Asteria is enough to elevate members out of poverty and create a cash cow that will pay $1,600 a month in less than two years.
An unidentified lawyer for CA was interacting with PayPal to restore services, according to the remarks attributed to Lucas. The remarks expressed disappointment at PayPal’s actions and noted that “[o]ur revenue this week has been severely affected and gone down substantially as a result of both our members and e-commerce clients not being able to purchase our goods and services by paying with PayPal.
“In fact,” the remarks attributed to Lucas continued, “many of their purchases had to be returned because payment could not be accepted.” The MoneyMakerGroup post did not specify how many purchases were reversed and the degree to which the reversals had affected CA’s cash flow.
Whether CA had a duty to inform prospects visiting its website about the purported PayPal freeze to aid them in making an informed decision about joining the “opportunity” was not addressed in the remarks attributed to Lucas.
Members have described Lucas as a former “chairman” and “vice president” of the World Bank. CA has been operating for about a year. The World Bank said in March that a person named Andrea Lucas last was employed by the institution in 1986, nearly 25 years ago. The bank described Lucas as a former department head.
Only members who signed off on the CA’s two-week-old “Code of Ethics and Conduct, Terms of Service and Policies and Procedures, have kept their subscription up to date and have read the [Club Asteria] News within the past 5 days, have participated in today’s revenue sharing,” the remarks concluded.
The remarks were dated May 12. The number of CA members who did not receive a payout this week was not disclosed. Some CA members have said the firm has more than 300,000 members and is surging toward 500,000.
If the claim on the notorious MoneyMakerGroup board is true, it may mean that CA is unable to access PayPal funds, accept incoming payments for purchases through PayPal or send money via PayPal. The PP Blog reported on April 4 that legions of CA members were promoting the program as a “passive” investment opportunity. Such promos raise a question about whether CA and its affiliates are selling unregistered securities as investment contracts.
In bizarre promotions for CA, many members have preemptively claimed that the firm is not operating a Ponzi scheme.
On May 1, the Blog reported that a YouTube video promoting CA encouraged members to fund their accounts with PayPal. The text portion of the YouTube promo asserted that CA pays members “$400 USD EVERY WEEK,” and the video portion appears to have violated the copyright of Warner Music Group (WMG).
PayPal’s Acceptable Use Policy expressly bans items that “support pyramid or ponzi schemes, matrix programs, other ‘get rich quick’ schemes or certain multi-level marketing programs,” according to the policy.
PayPal customers that act as a money transmitter, sell stored value cards, securities and investment interests require preapproval from the processing giant, according to the policy. Although CA has insisted it is not in the investment business, thousands of its own members appear to disagree. Promos for the firm have claimed a $20 monthly payment turns into an annual income of more than $20,000 in less than two years — with the money doubling if there is a second account in a household.
One promo for CA viewed by the PP Blog this morning used two bullet points and the language of the investment trade to coach members and prospects:
Invest only what you can afford to loose (sic).
Don’t put all of your eggs in one basket.
Although the promo reproduced the information attributed to Lucas on the MoneyMakerGroup board, the promo appeared on a Blog separate website titled the “DoNothingMoney Blog.”
PayPal’s policy also bans purchases associated with “off-shore banking” and transactions that involve “currency exchanges.” CA members say their electronic “earnings” payouts bear the name of a Hong Kong entity and that CA is in the business of facilitating money exchanges. Virginia-based CA says on its website that its Terms of Service “are governed by the laws of Hong Kong.”
If the “redemption” scams in which delusional hucksters tell enraptured prospects that the government maintains secret accounts Americans can tap to qualify for multimillion-dollar tax refunds and pay for everything from cars to speeding tickets haven’t caused your brain to shut down from suspending too much disbelief, you now may have another opportunity to fry your mind.
The Justice Department has filed a lawsuit in federal court in the District of Columbia to halt what it described as a “Sham Cemetery” tax-shelter scam operated through “shell companies” controlled by Michael A. Strauss of Herndon, Va.; Patrick B. Strauss, of Washington, D.C.; and Joseph C. Barreiro of Poughkeepsie, N.Y. Patrick Strauss is the son of Michael Strauss.
Investigators identified the shell companies as Burial Specialists LLC, Memorial Specialists LLC and Dignified Charitable Burials.
The Strausses and Barreiro promoted “illegal tax schemes,” received “millions of dollars from their customers and concocted approximately $35 million in fake partnership losses and phony charitable contribution deductions, which they falsely told their customers could be used to offset their federal income taxes,” the Justice Department said.
Customers were falsely promised they’d receive $5 in tax benefits for every dollar that they ‘invested,’” the agency said.
As part of the scheme, the Justice Department said, customers also were falsely told that “Burial Specialists had bought a ‘license’ worth more than $90 million from a company called Southern Dorchester LLC using a $90 million ‘promissory note.’
“The license purportedly gave Burial Specialists the right to future profits from performing funeral services at a purported cemetery in Spotsylvania County, Va.,” the Justice Department said.
And “the defendants also falsely claimed that Burial Specialists could annually deduct a portion of the license’s supposed value and then pass on millions of dollars in losses to the customers,” the agency said.
But the Justice Department “contends that there was no arm’s-length sale by Southern Dorchester and that Michael Strauss and Barreiro fabricated the $90 million ‘license’ value, along with the accompanying $90 million ‘promissory note,’ to generate fake tax benefits,” the agency said.
“The defendants also allegedly used the fictitious promissory note to siphon off, for their personal benefit, funds that they told their customers were being ‘invested,’” the Justice Department said.
A virtually identical scheme hatched by the three men also was under way involving “a supposed cemetery in Lloyd, N.Y.,” the agency said.
BULLETIN: A recidivist securities offender in Florida and his business partner in New York have been charged by the SEC with fraud in a case that alleges they pumped an IPO that never happened.
Charged in the civil case were George Garcy, 54, of Aventura, Fla., and Angelo Cuomo, 62, of Staten Island, N.Y. Garcy also is known as Jorge Garcia, and was charged by the SEC in 1997 with improperly selling stock, the SEC said.
Today’s case was brought in federal court in the Eastern District of New York. It involved an offering fraud for a company known as E-Z Media Inc., the SEC said.
“Garcy and Cuomo conducted an offering fraud that was rife with false statements and omissions to entice unsuspecting investors,” said George S. Canellos, director of the SEC’s New York Regional Office. “Instead of using the offering proceeds to develop their business, Garcy and Cuomo treated E-Z Media’s bank account as a personal slush fund and diverted millions of dollars to line their pockets.”
Both Garcy and Cuomo failed to tell investors of E-Z Media Inc. about Garcy’s previous encounter with regulators when he was a California resident, the SEC charged.
As part of the newly detected fraud, E-Z Media investors were told the firm had “contracts” with Heineken, Anheuser Busch and Aramark Corp. for its beverage and -food carrier product, but no contracts existed, the SEC said.
Investors also were lured by the promise of a profitable IPO, but E-Z Media “never took even the basic steps to prepare” for an IPO, the agency said.
The scheme attracted “at least” 200 investors and gathered about $8 million between April 2003 and March 2009, the SEC charged.
Garcy and Cuomo diverted about half of the scheme proceeds to themselves and family members, the agency charged.
A carrier patent E-Z Media purportedly held also was used to lure investors, but the patent was contingent upon a $14.5 million payment to Cuomo and may not have been valid to begin with because “Cuomo had previously transferred his ownership rights” to his sister, the agency charged.
Cuomo’s sister, Judith Guido, 55, received at least $1.7 million from the scheme, the SEC said. She has been named a relief defendant, as have two sons of Cuomo: Ralph Cuomo, 37, and Vincent Cuomo, 31.
The Cuomo brothers received a combined total of at least $240,500 from the scheme, the SEC said.
Also named a relief defendant was attorney Joseph Lively, 55, of Farmingdale, N.Y. Lively received at least $120,000, the SEC said.
The SEC described the payments to the relief defendants as ill-gotten gains, saying none of the relief defendants had any legitimate claim to the money.
Renee Marie Brown, the Minnesota woman accused by the SEC last year of orchestrating a bizarre fraud known as “Fund X,” has been indicted on criminal charges of securities fraud, wire fraud and money laundering.
