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  • URGENT >> BULLETIN >> MOVING: Raj Rajaratnam Guilty In Insider-Trading Case; Sentence Potentially Could Exceed Madoff’s 150 Years

    BULLETIN: Raj Rajaratnam has been found guilty of all 14 counts of conspiracy and securities fraud filed against him in the Galleon Group insider-trading case.

    The verdict came on the 12th day of jury deliberations. It deals a devastating blow to Rajaratnam, but is a major win for prosecutors. The case was brought by the office of U.S. Attorney Preet Bharara of the Southern District of New York.

    Rajaratnam, 53, once was listed by Forbes magazine as one of the wealthiest men in the United States. Prosecutors said that crime ultimately became his business model. Wiretaps and recordings were used to convict him.

    The Justice Department has said it recent months that tools traditionally used in organized-crime investigation have been helpful in exposing white-collar fraud.

    “Raj Rajaratnam, once a high-flying billionaire and hedge fund manager, is now a convicted felon, 14 times over,” Bharara said. “Rajaratnam was among the best and the brightest — one of the most educated, successful and privileged professionals in the country. Yet, like so many others recently, he let greed and corruption cause his undoing. The message today is clear — there are rules and there are laws, and they apply to everyone, no matter who you are or how much money you have.”

    Insider trading “cheats the ordinary investor, victimizes the companies whose information is stolen, and is an affront not only to the fairness of the market, but the rule of law,” Bharara said.

    Rajaratnam traded illegally in the stock of Goldman Sachs, Clearwire, Akamai, AMD, Intel, Polycom and PeopleSupport, prosecutors said, describing the case as the “largest hedge fund insider trading scheme in history.”

    He potentially faces up to 205 years in federal prison. Sentencing is scheduled for July 29. Prosecutors said he gained nearly $64 million by trading on material, nonpublic information culled from fellow cheaters.

    Rajaratnam remains free pending sentencing. He has been placed on electronic monitoring.

    The SEC provided “extraordinary assistance,” Bharara said. The FBI led the criminal probe and also received praise from Bharara.

  • BULLETIN: Google Says Justice Department Is Investigating Its Advertising Program; Search Giant Sets Aside $500 Million, Notes ‘Potential Resolution’

    DISCLOSURE: Until Jan. 9 of this year, the PP Blog displayed Google ads. See this post.

    BULLETIN: Google disclosed in a regulatory filing yesterday that its advertising program was under investigation by the U.S. Department of Justice. The company announced that it has taken a charge of $500 million “in connection with a potential resolution.”

    The Mountain View, Calif.-based firm provided few details of the probe, and did not say whether the investigation was targeting AdWords, AdSense or another facet of its advertising platform. The charge reduced Google’s first-quarter net income to about $1.8 billion.

    AdWords is an auction-based system that enables advertisers to place ads on the Google network; AdSense is a program that distributes the ads. AdSense publishers earn fees when website visitors click on the ads.

    This ambiguous note appeared in the filing:

    “In May 2011, in connection with a potential resolution of an investigation by the United States Department of Justice into the use of Google advertising by certain advertisers, we accrued $500 million for the three month period ended March 31, 2011. Although we cannot predict the ultimate outcome of this matter, we believe it will not have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.”

    Google did not identify the “certain” advertisers, say whether the advertisers also were under scrutiny or were viewed by the government as potential victims. Nor did the firm say when it had come under investigation or how long it had known about the probe.

  • Man, 85, Accused Of Selling Unregistered Securities In ‘Shipwreck’ Venture; Recidivist Huckster Hawked Sunken-Treasure Offer While Banned Because Of Previous Misconduct, BCSC Says

    Ten years ago, when John Arthur Roche McLoughlin was about 75 years old, the British Columbia Securities Commission accused him of selling unregistered securities in a venture known as Grandby Development Corp., a purported fertilizer company.

    BCSC imposed a five-year ban that prohibited McLoughlin from acting as a director or officer of any issuer. Because McLoughlin did not meet the requirements to lift the ban, including paying a $25,000 assessment, the ban remained in effect, according to records.

    Now, at 85, McLoughlin has been accused of selling unregistered securities in a purported Irish venture in which investors were told they’d receive a share of treasure recovered from shipwrecks. The scheme, according to records, raised about $312,00 for the company, known as Blue Lighthouse Ltd.

    McLoughlin initially protested the $20,000 penalty BCSC sought to impose for his conduct in the treasure-salvaging venture, which he sold as an agent for Blue Lighthouse through a British Columbia firm known as MCL Ventures Inc., according to records.

    BCSC then increased the penalty by $30,000 and banned McLoughlin for 15 years. He next could seek to sell securities when he was approximately 100 years old, according to the ruling.

    “As McLoughlin engaged in the same misconduct for which he had previously been sanctioned and continued to breach the orders against him in spite of repeated warnings from BCSC staff, the panel increased the $20,000 fine sought by the commission to $50,000,” the agency said.

    BCSC also “cease-traded MCL Ventures Inc.,” the agency said.

  • RECOMMENDED READING/VIEWING: Washington Post/Bloomberg Report On ‘The Ponzi Schemer Next Door’; FINRA/AARP Share Tale Of Purported ‘Bank President’ Who Lured Victims While ‘Craving Cocaine’ At Pay Phones From Which He Set Up Marks

    This man purported to be a bank president. In reality, he was an investment fraudster who used pay phones to lure people into scams as he was craving cocaine, according to a remarkable video airing on the Internet and PBS stations.

    The Washington Post and Bloomberg published Bob Carden’s story about how smart people get sucked into investment scams. The story is titled, “Investment fraud isn’t relegated to Wall Street: Beware the Ponzi schemer next door.”

    Carden produced the video “Tricks of the Trade: Outsmarting Investment Fraud.” Editor John Warnock assembled the package, which shows some of the things FINRA and AARP are doing to educate the public about the plague of fraud schemes and how to avoid them.

    Read the story here.

    And make sure you set aside some time to watch Carden’s pointed video (below), which is running on New Hampshire Public Television and elsewhere. The video shows footage of actual scammers talking about how they plied their trade and includes audio of scammers making pitches, including rude ones. You’ll learn about the buttons they push, the manipulation tactics they employ and how people who would seem to know better get duped.

    The video features commentary from psychologist Robert Cialdini, commentary from fraud victims, commentary from fraud perpetrators and commentary from fraud-busters, including Joe Borg of the Alabama Securities Commission.

    Borg, among other things, is famous for prosecuting the case against Greater Ministries International, a colossal Ponzi scheme that traded on faith and operated from Florida.

    Among the many interesting things in the video is footage from the old Candid Camera TV show in which passersby were persuaded the entire state of Delaware was “closed.”

    Watch the full episode. See more Making Sense New England.

  • MOTHER’S DAY FANTASY POST: Legendary MLM Scammer Phil Pumpernickel Says He’ll Package ‘Troll Spray’; Fraudster Announces He’ll Coax Affiliates To Trade On Donald Trump’s Name To Reel In The ‘Birthers’

    EDITOR’S NOTE: The “story” below is not real. The PP Blog occasionally presents fantasy posts, parody and satire as a means of advancing the discussion about issues in the world of online crime and marketing schemes.

    SOUTH FLORIDA (PPBlog) — Phil Pumpernickel, the unapologetic scammer who once started an “opportunity” that hawked caskets MLM-style after telling the world he was moved to do so after being reduced to tears by the “fine Christian” conducting his “sainted grandmother’s” funeral, is getting in the “troll spray” business.

    Pumpernickel said he decided to “seize the moment” and launch a new frauduct after being impressed by a photographic depiction of troll spray used as an avatar on Scam.com by a fellow MLM aficionado doing battle with critics.

    “Those people who speak out against MLM and all the so-called ‘scams’ are just a bunch of bigots,” Pumpernickel said. “They’re all a bunch of mindless trolls. Many of them not only are anti-MLM, but are anti-American.

    “I mean, they actually think Obama was born in the United States,” he protested. “I’m so glad I saw that avatar. It’s important for trolls to be put in their place and dressed down in public. All the best MLMers are doing that now — that and coming up with great, highly descriptive terms such as ‘bigots’ and ‘haters’ and ‘whiners’ to describe the self-appointed critics. All of these things are helping  to paint MLM in the most favorable light. The pro-MLMers at Scam.com are PR geniuses, I’ll tell you, and I can’t thank them enough. In any event, I decided to build an entire new scam around a ‘troll-spray’ theme.”

    Although the MLM casket business failed during “prelaunch” in no small measure “because of the trolls,” Pumpernickel said, the troll-spray business would be different.

    “What I’m going to do,” he said, “is plant the seed that affiliates should use more pictures of Donald Trump this time to help sanitize the opportunity. I can get the ‘Birthers’ that way, and make people believe Trump has endorsed the program.”

    The failure of affiliates to take full advantage of Trump’s celebrity to hawk the casket “opportunity” was one of its biggest shortcomings, Pumpernickel conceded.

    “People can call me a lot of things — and I’m well aware of my reputation as a serial scammer — but they’ll never be able to claim this time that my affiliate’s efforts to trade on Trump’s name without authority were insufficient,” the celebrated scammer said. “My fellow scammers made it perfectly clear to me that I need to ‘Trump’ up my next fraud scheme, and I listened.”

    Pumpernickel added that he was considering advice from a “group” of fellow scammers who recommended he add the names and images of Oprah Winfrey and former Presidents Bill Clinton and George W. Bush to the troll-spray promos. He declined to name members of the group, except to say “they are all veteran scammers who’ve made millions and millions and millions.”

    But Pumpernickel hinted that there is some early dissension in the ranks about how best to proceed with the troll-spray scam.

    “Some of these people are convinced that trading on Oprah’s name without permission ‘works’ because of the chain-letter scams and the impressive success of the recent acai-berry scams,” Pumpernickel said. “My take is a bit different at the moment, given what the FTC did in the acai cases, but I’ve agreed to take the matter under advisement. In this early, pre-prelauch stage, though, I’m given to believe that Oprah may be a little too hot right now. The FTC is playing hardball.”

    Pumpernickel said he was less concerned about using the names of the former presidents.

    “Hey,” he said, “the Mantria people used Clinton. And the AdSurfDaily people used Bush. No one can doubt the success of those schemes — and the scams are old enough now that trotting out the Presidents again to plant the seed that they endorse troll spray just might be viewed as a fresh approach.”

    Among the lies he intended to make go viral were that the troll-spray product not only was useful in keeping anti-MLM trolls at a distance in person and on forums, but also could be used to improve a car’s gas mileage, grow apples the size of “Washington state” and cure cancer, Pumpernickel said.

    “What I’ll do,” he revealed, “is simply plant the seed that the product has all of these benefits. My affiliates have proven over time that they can be relied upon to do no checking or independent research whatsoever. Marketing online is beautiful in this way. They’ll take the ideas I plant, and before it’s all over, they’ll have Trump as the president of the company, Bush as director emeritus and a famous cancer hospital not only saying the product cures the disease, but also that the entire hospital staff is warding off the disease by consuming apples that are bigger than pumpkins.”

    Ultimately, Pumpernickel said, “the goal of any good scam is to plant the seed that fabulous wealth is possible.

    “We’ll do that, too, of course,” he promised. “I’ve had success in the past by rambling on and on about commissions 10 levels deep and talking about the ‘millions’ I’ve made. But the best viral scams are the ones that mix those elements with what I call the ‘Real Unreal.’

    “For example, Trump is a ‘real’ person,” Pumpernickel said, “but it’s ‘unreal’ that he”ll be involved in the troll-spray product. My best promoters will be the ones who make the best use out of all the ‘Real-Unreal’ elements out there. I mean, the possibilities are endless.”

    Pumpernickel said he was in the process of negotiating with a vendor to brand and package the troll spray, which a newly created shell company likely would market for $19.95 per can, with volume discounts if the product is purchased by the case.

    Prospects will be told they can join the opportunity for “free” and will be encouraged to invite their mothers to do so.

    “It’s always best when we have a good group of mothers helping us market our scams,” Pumpernickel said. “We should be ready to start the prelaunch by Father’s Day next month. If something goes wrong with the actual prelaunch and launch and people don’t get paid, I’ll just change the rules and tell the folks to pretend it never happened. I learned that by observing the launch and prelaunch of Data Network Affiliates last year.

    “And if people ask too many questions,” he concluded, “I’ll plant the seed that I know leg-breakers and call all the critics ‘bigots.’ It’s great PR.”

  • UPDATE: Promo For Club Asteria Says Earnings ‘1000% Guaranteed,’ Introduces ‘Benefactor’ Program; Pitches Purportedly Show How To Earn ‘Huge Amount Without Doing Nothing’

    At least 20 charts showing a scenario for progressive Club Asteria earnings appear in this Blog promo. The promo, which is hosted on Blogger, Google's free Blogging service, was the subject of a forum post two days ago that appears to have been deleted. Although the forum post is missing, the Blog and the promo remain.

    Club Asteria, a Virginia-based company that acknowledged last week that it had liars selling its “opportunity,” appears to be having difficulty controlling its own members. A multisite promo that includes a promise of guaranteed earnings coupled with a “benefactor” program that encourages members to pay prospects’ fees to join the program now has surfaced.

    A forum post that appeared Friday claimed Club Asteria earnings were “1000% Guaranteed.” The post included a link to a Blog and videos that promote Club Asteria. Although the forum post itself appears to have been deleted, the Blog and videos remain.

    Among the text claims in the promo is that Club Asteria members can be “100% passive” and earn money. It also claims that benefactoring members into Club Asteria by paying their fees for fives months is something “we expect.”

    Such claims lead to questions about whether Club Asteria is selling unregistered securities as investment contracts and whether members are bribing prospects to join while at once encouraging new members also to bribe prospects in an endless cycle.

    How much can a person earn by paying Club Asteria $20? Here are the answers, according to the promo. (Verbatim.)

    • Without any work Your Guaranteed Earnings are as Follows (A short List) : –

    12th months: $683.72
    18th months: $4,746.11
    20th months: $7,933.50
    From 19th months onward, you earn $400/wk
    Giving you an Annual income of: $20,800
    Benefactor Focus: Upon reaching a point of financial comfort, we expect each of our members to benefactor a minimum of 10 people by paying their $20 Gold Membership Fee for 5 months. At that time their membership fee will be fully funded by their progressive earnings from within our system. Our desire is to have One Million people benefiting from our club within 5 years and for you to become financially free within 2 years. This automatically happens as your spirit of generosity spreads throughout the world.

    "Guaranteed" earnings and a "Benefactor" program are being outlined in this current promo for Club Asteria.

    In addition, the promo preemptively claims “Club Asteria is NO PONZI.” It also features at least 20 charts that outline progressive earnings during a 20-month window and notes that “spread sheets with various combinations as to how 100% passives too can make money to the tune of $400 and above every week” are available.

    The Club Asteria referral ID in the promo is a number in excess of 300,000. Members have said the program, which trades on the name of the World Bank, is on its way to recruiting 500,000 members, with 1 million members the ultimate, short-term goal.

    At least one other thing about the promo is incongruous: Although it claims earnings are guaranteed, it also claims the earnings “scenario” presented is “based on present conditions” and that earnings are not guaranteed.

    See earlier story.

    Although this forum post promoting Club Asteria appears to have been deleted, a Blog promo to which it linked remains. The forum post promised "1000% Guaranteed" earnings of $1,600 a month," claiming members can make "huge" sums "without doing nothing." The Blog post is at odds with itself in that it both promises "Guaranteed" earnings and says earnings are not guaranteed.

  • ‘SURF/HYIP HELPERS BEWARE: Woman Who Helped Tennessee Ponzi Schemer Cover Up Fraud Sentenced To 6 Years In Federal Prison; Donna Jones’ Role In $12.3 Million Caper Outlined By Jailed Boss In Court After Investigators ‘Follow The Paper Trail’

    EDITOR’S NOTE: Although Donna Jones did not run an autosurf or online HYIP fraud, the case against her is instructive. Indeed, prosecutors said, Jones was an insider who was aware of the Ponzi scheme being conducted by her boss, Michael J. Park. And Jones took an active role in the scheme, encouraging customers to invest, hustling cash even as the scheme was unraveling, creating bogus “spreadsheets” and fabricating information given to investors.

    It is common for autosurf and HYIP insiders to solicit funds for fraud schemes, use spreadsheets with bogus or illusory information to reel in and (later) lull prospects, siphon investor funds and simply lie to maintain their ability to keep drinking from a criminal well.

    At least seven federal, state and local agencies became part of an intense probe to reverse-engineer the Park scheme. In the end, Park himself testified against his former employee.

    UPDATED 9:58 A.M. EDT (U.S.A.) A woman employed by a Tennessee Ponzi schemer added $19,000 in new clothes to her wardrobe, withdrew $225,000 in cash and spent more than $300,000 on home renovations, federal prosecutors said.

    Now, Donna Jones has been sentenced to 72 months in federal prison. Jones, 37, of Dickson, Tenn., also was ordered to pay nearly $8.2 million in restitution to victims.

    Jones was the office manager of Park Capital Management Group (PCMG), a Brentwood, Tenn.-based business operated by Michael J. Park. Park, who is serving a 96-month prison sentence, testified about Jones’ knowledge of the scheme at her sentencing hearing, prosecutors said.

    Federal, state and local law-enforcement agencies worked together to expose the fraud, prosecutors said.

    Among the agencies working the criminal probe were the U.S. Attorney’s Office, the FBI, the U.S. Postal Inspection Service, the IRS, the Tennessee Bureau of Investigation and the Brentwood (Tenn.) Police Department. The SEC sued Park in a civil case.

    “Jones repeatedly encouraged people to invest by falsely promising security, growth and inflated returns on their money, but instead the investors lost their savings as part of an elaborate Ponzi scheme,” said U.S. Attorney Jerry E. Martin of the Middle District of Tennessee.

    Park advised U.S. District Judge Aleta Trauger that Jones used a “spreadsheet” to keep track of “fictitious” PCMG accounts and that he and Jones “pooled” investor funds and used them as “their own personal bank account,” prosecutors said.

    “This case further demonstrates how effectively IRS Criminal Investigation agents work jointly with our federal and state law enforcement partners in investigating complex financial crimes,” said Darryl Williams, acting special agent in charge of the IRS Criminal Investigation unit in Nashville.

    “IRS Criminal Investigation agents were able to use their expertise to conduct a complex financial investigation, follow the paper trail, and unravel violations of federal law,” Williams said.

    It also was Jones’ idea to use the seal of the Securities Investor Protection Corp. (SIPC) to create the illusion that investing with PCMG was safe, according to Park’s testimony.

    But “PCMG was not a member of the SIPC, and the SIPC provided no protection for PCMG investors,” prosecutors said.

    Jones, who also was accused of concealing the scheme by fabricating documents and soliciting funds to cover shortfalls, pleaded guilty to mail fraud and money-laundering in January.

    Among the documents were IRS 1099 forms, but “none of the funds listed in PCMG investment accounts were ever invested,” according to Park’s testimony.

    It is common in the autosurf and HYIP spheres for purveyors to claim an “opportunity” is legitimate because the company gathers tax information and sends 1099 forms.

    Park also was the subject of a 2008 complaint filed by the SEC, bringing the number of state and federal agencies involved in PCMG-related litigation to at least seven.

    “Park used investor funds, among other things, to help purchase a $1 7 million home, pay for expensive golf memberships, to purchase a Porsche automobile and to purchase a Mercedes Benz sedan worth more than $90,000,” the SEC said in September 2008.

  • BULLETIN: John Bravata, Figure In Alleged ‘Billionaire Boys Club’ Ponzi Scheme In Michigan, Arrested At JFK Airport After Return From Italy

    BULLETIN: John Bravata, who was sued by the SEC in July 2009 in a Ponzi Scheme case that became known as the “Billionaire Boys Club” case, has been arrested at JFK International Airport in New York, the FBI said.

    Bravata was arrested on an inbound flight from Italy, prosecutors said.  He is charged with wire fraud.

    The Bravata civil case has been marked by oddities, including the November 2009 indictment of his defense attorney on charges he was running his own fraud scheme. The attorney, Gregory Bartko, was convicted last year.

    Separately, Bravata was accused in 2009 by the SEC of violating the asset freeze in the civil Ponzi case by taking loans against life-insurance policies. Judge David M. Lawson ordered Bravata to repay the money.

    Now Bravata has been charged criminally. He will be prosecuted in the Eastern District of Michigan.

    From 2006 through 2009, the FBI said, “Bravata knowingly participated in a scheme to defraud investors. Bravata and those working on his behalf made multiple misrepresentations to numerous prospective investors, including misrepresentations regarding how their investment funds would be utilized, the security of funds invested with BBC, and the returns that could be expected by investors of BBC.

    “Bravata also misled investors by telling them that managers of BBC would not earn money unless BBC was profitable,” the FBI said. “He also represented that the managers of BBC did not take fees, commissions, or a salary. In reality, Bravata and others received lucrative compensation from BBC and related entities despite that fact that BBC was never profitable. Bravata also used investor funds to pay for the construction of his roughly 18,000 square foot personal home and to pay for other personal expenses.”

    A California Ponzi scheme in the 1980s also was known as “The Billionaire Boys Club.”

    Bravata’s company is known as BBC Equities LLC.

  • RECEIVER: ‘Insiders And Related Parties’ Of Commodities Online Took Out Twice What They Put In; Shuttered Florida Firm Had Office With ‘Boiler Room’; Winners Received ‘Fraudulent Transfers’

    James Clark Howard III: At the center of three Florida fraud investigations. (Photo source: Boca Raton Police Department,)

    The court-appointed receiver unraveling the affairs of a Florida firm accused by the SEC of operating a $27 million commodities fraud and selling unregistered securities says the company had “insiders and related parties” who took out twice what they put in.

    Clawback actions are anticipated against unspecified “targets” because the money they received constituted “fraudulent transfers,” receiver David S. Mandel advised a federal judge.

    Meanwhile, Mandel says Commodities Online shared office space with a law firm. On the second floor of the shared space was a “boiler room” with 12 cubicles, phone lines and computers.

    At the same time, Mandel says an early analysis of records shows that the company had at least five bank accounts, including accounts at Bank of America, Fifth Third Bank, JP Morgan Chase, PNC Bank and Wachovia.

    The insiders at Commodities Online put more than $5.36 million into the firm between Jan. 1, 2010, and April 1, 2011, and took out more than $10.84 million, according to the early analysis.

    “[T]he Receiver was able to identify potential targets who received fraudulent transfers under §726.101 of the Florida Statutes,” Mandel said. “In the upcoming weeks, the Receiver intends to send letters to each of these targets demanding the disgorgement of profits and the recovery of fraudulent transfers.”

    Although the firm operated only for about 16 months and allegedly told investors they would “earn 5% or more per month without price speculation,” Mandel’s preliminary analysis suggests more than $885,000 was allocated for “salaries” and more than $523,000 was allocated for “Legal and Professional” fees.

    The firm was not registered with the SEC, according to court filings. Mandel said a forensic analysis continues and that records, including computer records, are being scoured for clues.

    “Existing email from the Defendants has been downloaded and is being searched for potential transfers of funds or other related activity that may yield additional assets to be acquired for the receivership estate,” Mandel said.

    And, he noted, there are “preliminary indications” that Commodities Online “may own a substantial quantity of iron ore located in Mexico,”  but that ownership has not been verified.

    “The Receiver has retained Mexican counsel to attempt to determine if the Defendants do, in fact, own the iron ore, and if so, to take whatever steps are required to safeguard the ore for later sale or liquidation, for the benefit of the receivership estate,” Mandel said.

    At least two persons associated with Commodities Online have criminal records for offenses ranging from “narcotics and firearms felonies” to bank fraud and “transmitting a threat to injure,” according to the SEC.

    Although the SEC did not identify the individuals, records show that Commodities Online figures James Clark Howard III and Louis Gallo were charged with the offenses. Implicated in a drugs and weapons case, Howard was sentenced to 57 months in federal prison in the 1990s.

    Gallo was implicated bank-fraud and threats cases, and was on supervised release while the firm operated.

    Howard is at the center of at least three financial storms in Florida, including the SEC case against Commodities Online. Separately, private litigants — including SSH2 Acquisitions, a company that listed former AdSurfDaily (ASD) member and Surf’s Up Mod Terralynn Hoy as a director — alleged last year that Howard was part of a separate Ponzi scheme that gathered at least $39 million.

    Florida authorities charged him criminally in 2010 in a fraud scheme that allegedly targeted the Haitian American community.

    ASD was implicated by the U.S. Secret Service in an alleged $110 million Ponzi scheme. Hoy has not been accused of wrongdoing.

    See earlier story.

  • BULLETIN: Arthur Ferdig, Operator Of Collapsed Tradex Ponzi Scheme, Sentenced To Federal Prison For Tax Evasion; IRS Says Money Diverted To Offshore Accounts And Shell Companies

    Arthur A. Ferdig

    BULLETIN: Arthur Allen Ferdig, a California man who owned a collapsed Forex Ponzi scheme known as Tradex and claimed to have conversed with angels and the “Christ Energy,” has been sentenced to 18 months in federal prison for tax evasion.

    Ferdig, 71, admitted he practiced “sophisticated concealment” and stashed Tradex cash in offshore accounts and various ventures, including a Las Vegas firm known as Industrial Metals and Mining, according to court documents.

    And Ferdig also admitted he hid $529,000 in income for the 2002 tax year and did not file a tax return. A plea agreement requires him to pay taxes on the money, and Ferdig will be placed on probation for three years after his prison release.

    “Individuals who intentionally use foreign bank accounts and shell companies to conceal income and assets offshore from the IRS risk criminal prosecution,” said Leslie P. DeMarco, IRS Criminal Investigation special agent in charge of the Los Angeles Field Office.

    The prosecution of Ferdig destroyed a common myth in the  HYIP and autosurf worlds that “offshore” venues insulate the ventures and participants from prosecution. Tradex operated from the Caribbean island of Dominica, and Ferdig, a U.S. citizen, lived in Jamaica and the Bahamas.

    Ferdig claimed to have met his first angel, Metatron, on Sept. 22, 2002, while Ferdig was peering over rocky sea cliffs in Negril, Jamaica. He later met Gabriel, Michael, Uriel, Ezrael, Ariel, Raphael, Muriel, Bethany “and other wonderful and loving angels and spirits of light,” according to his website.

    People who followed Ferdig were called “Truth-Seekers,” according to records.

    His non-Forex product lineup included “Angel Tears,” defined as “an all-natural, bio-trace mineral tincture developed to enhance human health and vitality.”

    Although Tradex purported to have millions of dollars under management, missives to investors were signed “The TRADEX Management and Staff” or “The Tradex Management.”

  • BULLETIN: SEC Files Emergency Action In California To Halt Alleged Day-Trading Scheme Targeting Senior Citizens; Assets Of Robert C. Butler Frozen After ‘Hedge Fund’ That Purported To Have $8.9 Million Had Only $22, Agency Says

    BULLETIN: A man running a day-trading and hedge-fund scheme lied about being a graduate of the Massachusetts Institute of Technology (MIT) and was ripping off senior citizens in the area of Indio, Calif., by dazzling them with technology and high-sounding company names, the SEC said in an emergency court filing.

    At least 17 investors were defrauded, the SEC said.

    Robert C. Butler of Bermuda Dunes, Calif., has been charged with fraud. U.S. District Judge Margaret Morrow of the Central District of California froze his assets after the SEC claimed a hedge fund purported to contain $8.9 million contained only $22.

    Butler, 44, also did not disclose to investors that he filed for bankruptcy in 1998, prior to hatching the day-trading scheme. Even as his scheme was collapsing and investors were not receiving their funds, Butler was raising new money, the SEC charged.

    The scheme raised at least $3.3 million by promising returns of up to 10 percent a month, the SEC charged. The fraud operated through purported funds titled the Butler Private Investment Fund, the BTl Fund and something called Hawk Performance Thrust Vector Application.

    Butler accessed some of the investors’ cash at casinos, the SEC charged, alleging that Butler received “leads” from his father-in-law, who lives in the same “retirement community” as “several” of Butler’s victims. The agency did not name the father-in-law, who has not been charged.

    And Butler dazzled prospects with talk about his purported “proprietary trading program” and tours of his at-home trading center that featured “multiple computer monitors,” the SEC said.

    Some “notes” Butler issued to investors suggested they would receive a “guaranteed” return of 8 percent, but Butler “orally represents that that is the minimum return and that they can expect as much as 10% monthly returns,” the SEC charged.

    “Butler never earned these exorbitant returns,” the SEC charged. “To the contrary, he continually loses money through his securities trading. Butler’s short-term trades and options investments are largely unsuccessful. Butler lost money in 24 of the 27 months between January 2009 and March 2011. Between January 1, 2009 and March 31, 2011, Butler’s securities trading lost approximately $1.9 million.”

    Part of the scheme traded on Butler’s purported academic credentials earned at MIT, the SEC said.

    But Butler “neither attended nor graduated from MIT,” the SEC said.

    Read the SEC’s emergency complaint.