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  • PROSECUTION BOMBSHELL: Accused Ponzi Schemer Andy Bowdoin Traveled To Costa Rica In 2008 To Explore Option For Offshore ‘Autosurf’ Firm; AdSurfDaily’s Internal Software System Identified Member Payouts As ‘ROI,’ Despite ASD Claim It Was Not Offering Investments

    Andy Bowdoin

    BULLETIN: UPDATED 9:29 P.M. ET (U.S.A.) Prosecutors have advised a federal judge that AdSurfDaily President Andy Bowdoin and unnamed “others” traveled to Costa Rica in the spring of 2008 to get the lay of the land for an offshore autosurf that would be “another version” of ASD.

    The alleged trip occurred less than two years after the SEC accused 12DailyPro, an autosurf based in North Carolina, of selling unregistered securities in the form of investment contracts, prosecutors said.

    The explosive claim Bowdoin ventured offshore to pursue the creation of an ASD satellite may signal that the government views ASD not only as a Ponzi scheme, but as a business that deliberately sought to dial up its efforts to circumvent U.S. laws and create an even greater Ponzi war chest by establishing a footprint outside the United States.

    Since at least February 2006, the SEC has described the autosurf business model as anathema and a form of obvious securities fraud. Bowdoin was well aware of the SEC lawsuits and scrutiny domestic autosurfs such as 12DailyPro, PhoenixSurf and CEP had sparked in 2006 and 2007, prosecutors said.

    Meanwhile, investigators have evidence that shows ASD’s internal software system described payments to members as “ROI,” an acronym that that means “return on investment,” prosecutors said.

    The assertions by prosecutors — if proven true — may undermine ASD’s defense strategy of arguing it was an “advertising” program, not an “investment” program.

    Prosecutors did not identify by name the surf allegedly contemplated for Costa Rica. In late 2008 and early 2009, a surf with close ASD ties known as AdViewGlobal (AVG) debuted. The launch occurred about four to five months after the U.S. Secret Service seized $65.8 million from the personal bank accounts of Bowdoin in August 2008.

    Bowdoin’s trip to Costa Rica occurred before the ASD seizure, prosecutors said. If true, the claim could be used to prove ASD was seeking an exit plan even before the Secret Service raid. In 2008, prosecutors asserted that Bowdoin had moved millions of dollars offshore and talked about purchasing a home in another country.

    AVG purported to operate from Uruguay, but had servers that resolved to Panama. Some ASD members have said Bowdoin was a silent partner in AVG.

    Prosecutors described the “ROI” development as just another ASD incongruity, advising U.S. District Judge Rosemary Collyer that Bowdoin was well aware that a serious securities challenge could be made against his firm and chose to ignore the risk and misinform members.

    Beginning as early as January 2007, “[O]thers warned Bowdoin that ASD was nothing more than an investment scheme and that the program needed to be changed if it were to operate legally,” prosecutors argued in a brief to Collyer. “Bowdoin did not heed that advice and continued unabated in offering members higher returns than banks or brokerage firms. Moreover, based on his prior criminal experience, Bowdoin was well aware of the securities regulations and knew he was offering a security.”

    Any argument that ASD was not offering “investment contracts” as defined under the Howey Test should be dismissed, prosecutors said, arguing that ASD meets all three prongs of the Howey Test.

    Bowdoin sought about three weeks ago to have the criminal charges filed against him dismissed, arguing that ASD met none of the three Howey prongs.

    Nonsense, prosecutors said.

    ASD’s advertising was “merely a cover for Bowdoin’s sale of a get rich quick scheme,” prosecutors said.

    And prosecutors also cited other alleged proof that ASD was running an investment program — namely that some employees were being paid in ASD “ad packs.”

    “Bowdoin and the employees of ASD treated the ‘ad packages’ as shares from which they could expect to earn returns,” prosecutors argued.

    Prosecutors also pointed out a section of ASD’s Terms of Service that stated the firm “will” pay members 125 percent of the money they paid in. At the same time, prosecutors quoted video evidence of Bowdoin wooing members by focusing on ASD as a money-making opportunity.

    Bowdoin, prosecutors said, eventually limited the amount of money investors could pay ASD “because he did not want any one member dominating the return pool.”

    The prosecution’s assertions occurred against the backdrop of dozens of competing claims by ASD members who filed pro-se pleadings in the civil portion of the case that asserted the government had no “EVIDENCE.”

    Members made the claim despite the fact that some of the evidence against ASD had been part of the public record for more than a year at the time the claims were made in 2009.

    In a footnote to Collyer, prosecutors said they’d be happy to present the actual video of Bowdoin making various claims instead of simply quoting from a transcript.

    “[T]he government’s review of ASD’s bank records revealed that of the approximately $31 million ASD paid out to early members, more than 98% of that money came from monies paid to ASD by other members,” prosecutors said.

    Although ASD claimed to have funding sources beyond advertising payments made by members  — things such as banner ad sales and ebooks  — those outlets provided only de minimis revenue, prosecutors argued.

    “Each night, there was nothing more than new members funds to divide among existing members,” prosecutors argued. “Moreover, Bowdoin himself admitted, on video, that members funds are pooled and they will share in the profits and losses equally.

    “Specifically, Bowdoin, in the ‘New Member Success Video,’ claimed that “[w]hen sales increase, the rebates increase. When sales decrease the rebates decrease . . .”

    “Clearly Bowdoin, through ASD, was pooling all of the member’s funds which allowed him to make the requisite return payments,” prosecutors said.

    Prosecutors also argued that the ASD case should remain in Collyer’s courtroom in the District of Columbia. Bowdoin argued that the case should be transferred to Florida, in part because he and many witness live there.

    Although prosecutors agreed that many prospective witnesses live in Florida, they argued that witnesses reside in multiple jurisdictions because of the national and international scope of the case.

    In addition to Floridians, witnesses the government may present hail from the District of Columbia, North Carolina, Nevada, Oklahoma, Iowa and  elsewhere, prosecutors asserted.

    ASD also had members from at least 18 countries, and conducted “rallies”  in Illinois and Minnesota, among other states, prosecutors said.

    Read Bowdoin’s claims that the charges against him should be dismissed and that ASD did not meet any of the three Howey Test prongs.

  • UPDATE: Suspect Arrested Friday In Alleged Pump-And-Dump Scheme And Costa Rican Money-Laundering Caper May Have Link To Bizarre Underwater ‘Nation’ That Sells ‘Driver’s Licenses’ For $140

    Jonathan R. Curshen, one of six people charged criminally by federal prosecutors and sued civilly by the SEC last week in Southern Florida in an alleged penny-stock, securities fraud, wire-fraud and money-laundering caper, once was a purported “consulate” to the bizarre, nonexistent nation of “New Utopia,” according to web records.

    New Utopia was a fanciful “tax haven” allegedly dreamed up by Lazarus R. Long, an American who declared himself a “prince” and hatched a plan to form a “new country” that would “rise from the Caribbean on giant concrete platforms built on an underwater land mass,” according to filings in a 1999 case brought by the SEC.

    Long also is known as Howard Turney. He invited investors “to become charter citizens of the new country,” the SEC alleged 12 years ago.

    The SEC settled with Long years ago, and a federal judge ordered him to stop selling bonds and to pay $24,000 in disgorgement of ill-gotten gains. The penalty was waived because of his financial condition.

    New Utopia continues to have a website — one from which a purported “Prince Lazarus” holds forth. Last month, according to the site, the prince ventured that 2011 would be a big year for the nonexistent state, which oddly claims that it is accepting preorders for a coin “Currently out of production.”

    The coin is positioned as a limited “commemorative” worth 250 U.S. dollars. The site also solicits citizens to purchase the purported national flag of New Utopia for $80 and an “International Drivers license” issued by New Utopia for $140.

    One of the problems with the flag and New Utopia driver’s license is that the country itself does not exist and holds no dry land even if it did exist. Indeed, according to court records, the nonexistent principality is said to be located undersea “approximately 115 miles west of the Cayman Islands” and would rise out of the water only after concrete stilts were erected and an above-sea base were anchored to a submerged land base.

    Despite the bizarre incongruities, including the apparent assertion that New Utopia driver’s licenses are valid in all jurisdictions worldwide, citizens may use PayPal to purchase the items from New Utopia, according to the website. Other New Utopia trinkets, including a purported “ornament” bearing the likeness of Prince Lazarus, also are available from the purported nation’s online store.

    “I would like on this most auspicious New Years day to thank our citizens and other well wishers for their support throughout our years of struggle,” Prince Lazarus reportedly noted. “It has been a hard and challenging effort, which will be soon justified. I am not at liberty to disclose details, but this is the year when the building of the infrastructure of our great City/State will begin.”

    See earlier story on Curshen. See FBI new release on the charges filed against Curshen, Michael Simon Krome, 49, a securities attorney from Long Island, New York.; Ronald Salazar Morales, aka “Ronny Salazar,” 39, of Costa Rica; Robert Lloyd Weidenbaum, 44, of Miami; and Eric Ariav Weinbaum, 37, and Izhack Zigdon, 47, of Israel.

  • BULLETIN: Gold Quest International (GQI) UPLINE/DOWNLINE Groups Will Be Subject Of Hearing By Ontario Securities Commission; Case Alleges Respondents Were Both Investors And Promoters Who Pushed Unregistered Securities Of Bizarre Firm

    EDITOR’S NOTE: If you’re pushing Ponzi schemes on MoneyMakerGroup, TalkGold and other criminal forums, allegations brought by the Ontario Securities Commission (OSC) against geographically localized promoters of Gold Quest International (GQI) may interrupt your delusions of invincibility over the next several weeks.

    Upline and downline networks within Gold Quest International (GQI), a bizarre company taken down by the SEC just three months before the U.S. Secret Service raid on AdSurfDaily in 2008, are in the news in the Canadian province of Ontario.

    The Ontario Securities Commission (OSC) will conduct a hearing March 24 to consider taking provincial action against local promoters of GQI, which already has been ruled a Ponzi scheme, pyramid scheme and “sham” investment by the Alberta Securities Commission.

    OSC pointed out that GQI “has never been registered in any capacity with the Commission” and alleged that its promoters within the province also were not registered.

    The case is important because it signals that Ontario regulators have backtracked millions of dollars of GQI transactions that originated in the province, segregated the source of the money to specific groups of promoters within the province and now intend to hold them accountable for spreading financial misery to their fellow citizens.

    The odds of the respondents avoiding sanctions after the hearing may be low. One Ontario man implicated in the GQI scheme already has filed bankruptcy and has been ordered to pay $652,000 in disgorgement and penalties for his role in GQI.  The man, Donald Iain Buchanan, allegedly was introduced to GQI by some of the promoters who are the subject of the hearing next month.

    And the odds may be weighted even more heavily against the promoters prevailing at the hearing because of the bizarre claims of GQI itself, which purported to have a “Lord” among its key managers and said it was immune to regulatory oversight because it was an extension of a North Dakota sovereign “Indian” tribe and was permitted to operate untouched from Las Vegas.

    GQI, which gathered about $29 million in a long-running scheme by promising returns of 87.5 percent a year and huge commissions, sought unsuccessfully to sue the SEC for the astronomical sum of $1.7 trillion. A U.S. federal judge dispatched U.S. marshals to haul key players into court for ignoring court orders, and vast sums of money appear to have gone missing down ratholes in Europe and New Zealand.

    Some of the money also is tied up as a result of criminal allegations — including murder — against James Fayed, the operator of the now-shuttered E-bullion payment processor.

    In its statement of allegations, OSC accused Simply Wealth Financial Group Inc., Naida Allarde, Bernardo Giangrosso, K&S Global Wealth Creative Strategies Inc., Kevin Persaud, Maxine Lobban and Wayne Lobban of promoting unregistered securities. All of the accused companies and individuals have Ontario addresses, according to OSC.

    “During the Material Time, Simply Wealth, Allarde, Giangrosso, K&S, Persaud, Maxine Lobban and Wayne Lobban . . . promoted securities in Gold-Quest to Ontario residents,” OSC charged.

    About 94 Ontario residents plowed $1.6 million into GQI “as a result of promotional activities conducted by Allarde, Giangrosso and Simply Wealth,” OSC charged. “These activities included recommending investment in Gold-Quest, providing information regarding the nature of the investment in Gold-Quest, facilitating the process of investing in Gold-Quest, and, in certain cases, facilitating the transfer of funds to Gold-Quest on behalf of investors.”

    K&S and Persaud, meanwhile, caused about nine Ontario investors to plow about $69,000 into the GQI scheme. Among their alleged customers was Buchanan, who also became a promoter and caused his customers to bring $1.8 million more into the scheme, according to OSC.

    Maxine Lobban and Wayne Lobban also became promoters and caused investors to bring “at least $675,000” into the GQI scheme, the OSC alleged.

    The math of the scheme was doomed to fail, but purveyors were lured by titles and promised both spectacular investment earnings and commissions. Promoters were categorized in upline/downline tiers, the OSC alleged.

    “Individuals who introduced an investor to Gold-Quest would receive the title ‘Administrative Manager’ for the new investor,” OSC alleged. “Administrative Managers would receive an up-front commission of ten percent of that investor’s original investment and then a further four percent per month for a year (for a total commission of 58 percent of the principal invested).

    “The individual who had introduced the Administrative Manager to Gold-Quest would receive the title ‘Managing Director’ for the new investor and would receive a commission of 1.5 percent per month for a year (for a total of 18 percent of the principal invested),” the OSC continued.

    “Lastly, the individual who introduced the Managing Director to Gold-Quest would receive the title ‘Supervisory Managing Director’ for the new investor and would receive a commission of one percent per month for a year (for a total of 12 percent of the principal invested).

    “In sum, when a new investor sent funds to Gold-Quest, 88 percent of the investor’s funds were earmarked for commissions to be paid to the investor’s Administrative Manager, Managing Director and Supervisory Managing Director over the course of a year,” OSC alleged.

    In November 2010, OSC ordered penalties and disgorgement of $652,000 against Buchanan for his role in the GQI scheme.

    “Buchanan’s conduct warrants a substantial administrative penalty,” OSC said. “He was involved in two investment schemes in which Ontario investors invested approximately US $4.3 million.”

    Although commission staff had recommended an administrative penalty of $150,000 against Buchanan, who is bankrupt, OSC doubled the amount to $300,000, saying Buchanan had shown no remorse and that the smaller penalty would not serve as a deterrent.

  • KABOOM! SEC, Feds Target Alleged Money-Laundering Operation In Costa Rica; 6 People From Various Countries Charged Criminally; 7 Charged Civilly In Coordinated Probe Of ‘Pump And Dump’ Schemes

    BULLETIN: Two days after Southern Florida’s top federal prosecutor warned that offshore fraudsters who targeted Americans had no safe haven, six people from various parts of the world who allegedly ran or contributed to a pump-and-dump scheme that used the services of a  money-laundering operation in Costa Rica have been charged criminally, authorities said.

    The SEC, meanwhile, charged seven people civilly. An attorney has been charged both criminally and civilly, the SEC said. The cases were brought in the Southern District of Florida, which has been a hotbed of financial crime.

    Defendants in the cases hail from Costa Rica, Great Britain, Canada, Israel and the United States, according to the SEC. The criminal charges include conspiracy to commit securities, mail and wire fraud; wire fraud; mail fraud; violating the securities regulation laws and obstruction of justice.

    Jonathan R. Curshen, a convicted felon awaiting sentencing in an earlier securities and bribery scheme, has been charged both criminally and civilly in the new case. Curshen, 46, a dual U.S. and British citizen and the one-time “honorary counsel” of St. Kitts-Nevis to Costa Rica, presided over a Costa Rican company known as Red Sea Management Ltd.

    Red Sea “effected fraudulent pump-and-dump schemes on behalf of its clients and laundered millions of dollars in illegal trading proceeds out of the United States to its clients overseas,” the SEC charged.

    Also charged criminally and civilly were attorney Michael S. Krome, 49, of Lake Grove, N.Y; Ariav “Eric” Weinbaum, 37, of an unspecified city in Israel; Yitzchak Zigdon, 47, of Tel Aviv; Ronny Morales Salazar, 39, of San Jose, Costa Rica; and Robert L. Weidenbaum, 44, of Coral Gables, Fla.

    Krome and Weidenbaum (as distinct from Weinbaum) are Americans.

    Weinbaum, according to records, has dual U.S. and Israeli citizenship. He previously lived in Boca Raton, Fla., but now is living in Israel, the SEC said. The SEC alleged that Weinbaum has a “network of operatives he uses to perpetrate pump-and-dump stock manipulations.”

    Zigdon is an “Israeli accountant and the business partner of Weinbaum,” the SEC said.

    David C. Ricci of San Jose, Costa Rica, was charged civilly, and already has settled with the SEC. Ricci is a citizen of Canada who was living in Costa Rica, according to the SEC charging documents.

    “This group of illicit stock promoters sought to hide their scheme behind offshore entities, but their misconduct was exposed by the excellent cooperation of law enforcement agencies here and abroad,” said Cheryl Scarboro, associate director in the SEC’s Division of Enforcement.

    On Feb. 16, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida warned offshore scammers and criminals that the United States would not tolerate crime aimed from abroad at its citizens.

    “International law enforcement cooperation eliminates safe havens for those who cheat American citizens from overseas,” Ferrer said.

    “Curshen directed Red Sea to open numerous nominee brokerage accounts with U.S. and Canadian broker-dealers to enable the firm to engage in coordinated manipulative trading and conceal its illegal activity,” the SEC charged, alleging that Ricci and Salazar had trading authority over the nominee accounts.

    The scheme for which the charges were brought centered on a “sham” company known as CO2 Tech Ltd., which purported to be in the business of reversing global warming, the SEC said.

    Purportedly based in London, the company claimed to have a relationship with Boeing, the aircraft-maker, and traded on the Pink Sheets.

    “There were no communications, correspondence or understandings between CO2 Tech and Boeing,” the SEC said flatly, alleging that CO2 Tech was a “sham” that had no “significant assets or operations.”

    Krome, the lawyer, “issued a fraudulent opinion letter” to enable Weinbaum and Zigdon to advance the scheme, and “Weinbaum hired Weidenbaum” to distribute false information through websites, spam e-mails and fax blasts, the SEC charged.

    “Weidenbaum enlisted a group of stock promoters who then executed illegal ‘matched orders’ with Red Sea’s nominee brokerage accounts in order to ‘jump-start’ the market and increase the price of the stock,” the SEC charged. “As a result of the false media campaign and the illegal matched orders, the market price of CO2 Tech stock increased 81 percent increase in one day and trading volume increased 1,573 percent.”

    Ricci and Salazar sold the stock through Red Sea, and the “coordinated misconduct enabled stock sales at artificially inflated prices for profits of more than $7 million at the expense of unsuspecting investors,” the SEC charged.

    Cooperating in the case were the U.S. Department of Justice, the FBI, and the U.S. Postal Inspection Service, FINRA, the Costa Rican Police, the British Columbia Securities Commission, the Israel Securities Authority, the United Kingdom Financial Services Authority and The City of London Police Department, the SEC said.

    In recent days, federal prosecutors also have filed charges against more than 100 people associated with Armenian Power, an international organized-crime group with ties to Russia and Armenia.

  • BULLETIN: Another Alleged Forex Ponzi Scheme — This One In Texas; CFTC Says Convicted Felon And Known Securities Swindler Ran New Scam By Trading In Accounts In Wife’s Name

    A Texas man with federal convictions two decades ago in Utah on charges of securities fraud, mail fraud, making false statements and conspiracy started a Forex Ponzi scheme in 2008 and stole at least $750,000 from investors, according to a CFTC complaint originally filed under seal earlier this month.

    U.S. District Judge Richard Schell of the Eastern District of Texas now has frozen the assets of Larry Benny Groover of Gunter, and the seal on the case has been lifted.

    Groover, 70, consented to a judgment in a 1986 registration and antifraud case brought by the SEC, and was the recipient of a five-year civil ban in 1987 from associating with a broker, dealer or investment adviser, the CFTC said.

    Criminal charges were brought against him in 1989, resulting in his 1991 conviction and a jail sentence of two years, the CFTC said.

    His wife, Joanne Groover, has been named a relief defendant in the new CFTC action, and the agency is seeking the return of what it described as ill-gotten gains.

    Like her husband, Joanne Groover never has been registered with the CFTC “in any capacity,” the CFTC said.

    The agency advised Schell that it believed Larry Groover “needed Mrs. Groover’s name” to open forex trading accounts because of his past encounters with regulators and his prison record.

    While on five years’ federal probation after his criminal conviction, Groover’s probation was revoked in 1997 for not making good on a $16,000 restitution order, the CFTC said. Federal records show he was released from prison in 1999.

    Investor funds were commingled with the personal funds of both Groover and his wife in Groover’s most recent scam, the CFTC charged.

    One of Groover’s customers formed a company and plowed $250,000 into the scheme, the CFTC alleged.

    On Aug. 21, 2008, Groover faxed the customer an account statement indicating that the customer’s funds had grown “5% monthly” over a sustained period and that the customer now had a balance of $393,378.09.

    “This account statement was completely false,” the CFTC charged. “In reality, in less than a month’s time, Groover lost nearly the full balance of the . . . account trading forex.”

    The CFTC charged in the complaint that the customers account actually had incurred “$211,505 in trading losses and $17,226 in fees.”

    Some it not “all” of Groover’s customers were not “eligible contract participants” because they lacked sufficient assets, the CFTC alleged.

  • SEC: 77-Year-Old Amish Man Ran $33 Million Fraud Scheme Targeted At Fellow Amish; Meanwhile, CFTC Says North Carolina Pastor And Colleague Ran Forex Ponzi Scheme

    UPDATED 2:50 P.M. ET (U.S.A.) A 77-year old Amish man in Sugarcreek, Ohio, ran a fraud scheme that gathered at least $33 million and affected 2,600 investors in 29 states, the SEC has alleged.

    Monroe L. Beachy’s long-running scheme mostly targeted fellow Amish, the agency charged. The scheme, which operated under the name of A&M Investments and began in 1986 during the Reagan administration, eventually got out of control and resulted in a June 2010 bankruptcy filing by Beachy.

    “Because Beachy’s offer and sale of investment contracts continued for such a long period of time, some members of the older generation of Amish investors recommended to their children that they invest with Beachy,” the SEC said. “Amish children did in fact purchase investment contracts from Beachy.”

    Investors opened accounts by hand-delivering money to Beachy or sending checks and cash in the mail.

    “At the time of the investment, Beachy did not give his investors any documents regarding the investment other than a handwritten receipt showing the amount invested,” the SEC alleged.

    Meanwhile, the CFTC has gone to federal court in North Carolina to accuse a church pastor and his business colleague of operating a Forex Ponzi scheme that used a business address at a UPS store.

    It was at least the second time since November that the CFTC has alleged that a pastor presided over a Forex Ponzi scheme.

    Charged in the North Carolina case were Timothy Bailey, the pastor of Mount Olive AME Zion Church in Monroe, and Michael Hudspeth of Statesville.

    Bailey and Hudspeth operated a company known as PMC Strategy LLC.

    While Hudspeth solicited funds for the scheme and interacted with customers, Bailey performed the trading as losses mounted, the CFTC charged.

    Neither man was registered with the CFTC in “any capacity,” the CFTC charged.

    The scheme began in 2008 and ultimately involved at least 22 investors while raising about $669,000, the CFTC charged. Hudspeth, Bailey and the firm “misappropriated” $129,000 of customer funds for their personal use, according to the CFTC.

    A federal judge has frozen their assets. The CFTC alleged the defendants concealed their losses and sent “false profit checks to customers.”

    “As recently as November 2010, the defendants were still soliciting funds from current and prospective customers, but since February 2010, they failed to make promised monthly customer payments and to honor customers’ redemption requests,” the CFTC charged.

    In November, the CFTC accused Rev. Ronald E. Satterfield, the now-former pastor of St. John’s Reformed Episcopal Church in Charleston, S.C., of operating a Forex Ponzi scheme from inside the historic church facility.

    Satterfield, 63, was arrested last month on criminal charges of bank fraud.

    Satterfield claimed he traded Forex between 3 a.m. and 6 a.m., went back to bed until 8 a.m., and then resumed trading until 10 a.m. or 11 a.m., according to court records.

    Mixing Forex trading with his ministry worked well, Satterfield wrote in a letter to a federal judge, because most church activities were in the afternoon or evening. And because Forex is a 24-hour activity, he advised the judge, he had the “ability to respond even in the morning hours if a pastoral need or commitment emerged.”

    Beachy, the alleged Amish fraudster, told his investors that he was purchasing “risk-free U.S. government securities,” the SEC charged.

    In reality, the SEC charged, Beachy plowed the money into junk bonds and made speculative investments in mutual funds and stocks.

    He settled the SEC case without admitting or denying the allegations. The agency said Beachy’s illegal investment-contract scheme ultimately put him upside down to the tune of $15 million and that his assets were under the control of a bankruptcy trustee.

    “During at least the last decade of Beachy’s scheme, based on the loss of investor principal, Beachy would not have had the ability to meet redemptions if there were a ‘run on the bank,’” the SEC said.

    “Beachy did not disclose his losses to investors,” the SEC said. Instead, he issued “fabricated statements” and “maintained the charade that the investors were making money.”

  • MIND-BOGGLER: Forex Scammer Who Never Traded Forex Charged In $35 Million Ponzi Scheme; CFTC’s Real-Life Complaint Against Keith F. Simmons And Co-Defendants Reads Like Bizarre Fiction

    And people actually are questioning President Obama’s November 2009 decision to create the interagency Financial Fraud Enforcement Task Force when things such as this are going on?

    An unregistered North Carolina company that churned tens of millions of dollars in a long-running shell game and described itself as a Forex dealer was operated by a now-convicted felon who worked with another now-convicted felon and told the FBI he never actually traded Forex, the Commodity Futures Trading Commission has alleged in court filings that only can be described as alarming.

    Black Diamond Capital Solutions LLC, operated by convicted felon Keith F. Simmons of West Jefferson, N.C., became a cancer on the legitimate Forex landscape, the CFTC charged. The firm and associated companies combined to create a sales force consisting of scammers who ultimately stole from investors and each other, pocketing huge sums to fund businesses not disclosed to investors and to pay for things such as luxury cars, real estate, maid service and sky-diving vacations.

    One of the alleged scammers — Deanna Salazar, a purported alternative-investments specialist and the owner of Life Plus Group LLC of Yucca Valley, Calif. — herself is a now-convicted felon. She has been linked to multiple fraud schemes, including a local one in California in which investors allegedly were told they were financing B-movies, and now has been linked by the CFTC to Simmons’ spectacular Forex Ponzi scheme.

    Salazar, according to the CFTC, never conducted “any due diligence” on Simmons or his Black Diamond companies. Instead, she simply passed along his bogus claims, including a claim that Simmons used an “exclusive” computerized trading system that had led to an “actual result” of $5,000 turning into $194,340 in three years.

    In 2008 alone, according to the bogus “actual” trading results, an account-holder purportedly enjoyed monthly Forex returns that ranged between 4.765 percent and 13.357 percent, according to the CFTC.

    Two other alleged Simmons’ associates — Bryan Coats of Clayton, N.C., and Jonathan Davey, a CPA from Newark, Ohio — also blindly followed Simmons and helped him orchestrate the massive Ponzi scheme, the CFTC alleged.

    Davey, according to records, organized a Belize company known as Divine Circulation Services Ltd. that assisted Simmons in pulling off the scam, which the CFTC alleged traded on religion. Davey also was at the helm of a Belize firm known as Sovereign Grace Inc., a firm that benefited from the scam, the CFTC said.

    Coats, meanwhile, was at the head of companies known as Genesis Wealth Management LLC and Genesis Wealth Partners LP, both of Delaware.

    Multiple companies with high-sounding names were created by the defendants and either assisted in pulling off the scam or benefited from the scam, the CFTC said. Among the names of the companies were Safe Harbor Ventures Inc., owned by Shari Davey, Davey’s wife, and Safe Harbor Wealth Inc.

    Salazar’s husband — Lawrence Salazar — also benefited from the scheme, the CFTC alleged.

    All in all, the CFTC charged, the scheme netted at least $35 million from at least 240 investors. It is believed that most if not “all” of the customers were not even eligible to become investors in the purportedly private program because they lacked assets totaling at least $5 million and thus were not “eligible contract participants.”

    Adding yet-another layer of the bizarre, Simmons allegedly told the FBI and the CFTC that Black Diamond did not engage in Forex — despite the fact it had gathered tens of millions of dollars by holding itself out as a Forex company and customers received statements showing their purported gains, the CFTC charged.

    When the Ponzi began to collapse in early 2009 — and with Black Diamond never having done any actual Forex trading — Salazar, Coats and Davey continued either to work for the firm or to steer business to it, the CFTC alleged.

    On March 19, 2009 Simmons sent an email to Salazar and Coats, instructing them that the company “would be shutting down for restructuring” and that all accounts would be liquidated with investors profits paid out, the CFTC alleged.

    Incredibly, the CFTC alleged, Simmons claimed a month later — in April 2009 — that Black Diamond’s trading was only hypothetical, despite the fact customers had sent in tens of millions of dollars to conduct real trading and received statements showing their gains.

    A months-long round of excuse-making about why customers weren’t getting paid then began, starting with Simmons’ assertion that a restructuring was under way. Coinciding with the restructuring claim were bank statements showing  that Black Diamond had “less than $200,000” in its accounts, the CFTC alleged.

    The CFTC, alleging that Simmons had purported to be an active Forex dealer who’d turned $5,000 from one investor into more than $194,000 and then insisted he had not executed a single trade despite issuing account statements showing gains of more than 13 percent a month, then defaulted to a strategy of claiming multiple “accounting reviews” were under way.

    He then claimed “excessive withdrawal requests by customers were causing delays in the return of funds.”

    Simmons also claimed a “non-existent German liquidity provider by the name of Klaus was attempting to provide $120 million to Black Diamond to payout customers and replace Black Diamond on the purported platform, but his alleged transfer of funds was frozen by bank or regulatory procedures,” the CFTC charged.

    At the same time, Simmons said “interventions” by the Federal Reserve, the U.S. Department of the Treasury and the CFTC had led to a situation that made it impossible for Black Diamond to pay customers, the CFTC alleged.

    Simmons made excuses from March 2009 through Dec. 17, 2009, the date he was arrested on criminal charges to which he already has pleaded guilty.

    Salazar, Coats and Davey strung customers along while Simmons was piling on excuses that were becoming increasingly “complex and outrageous,” the CFTC alleged.

    By passing on the excuses after earlier having performed no due diligence — and by continuing to forward the excuses to investors — Salazar, Coats and Davey “recklessly failed to ascertain the cause of the funding problem at Black Diamond” and helped perpetuate lies, the CFTC alleged.

    Salazar even helped Simmons shape the lies, according to the CFTC.

    In July 2009, Salazar worked with Simmons “to draft the excuse” about why Black Diamond wasn’t making payments, the CFTC charged.

    Coats, meanwhile, also worked with Simmons on creating an excuse that payments were not immediately forthcoming because of “stricter capital requirements imposed on our banking system,” the CFTC charged.

    Davey informed customers that payouts could not be made because the Federal Reserve had forced Simmons to fill out “anti-money laundering” forms and had frozen $16 million until he completed the task.

    In an approach often employed on Ponzi scheme and criminals’ forums such as TalkGold and MoneyMakerGroup, Simmons and Coats warned investors not to contact regulators or attempt to interfere with payment facilitators.

    “Simmons threatened certain customers that if they contacted the alleged paymaster, Black Diamond would lose access to the paymaster services and the payout to customers would be jeopardized,” the CFTC alleged.

    The agency did not identify the alleged paymasters in the complaint.

    And in an act reminiscent of some of developments in the AdSurfDaily Ponzi scheme case, Coats allegedly warned investors that the CFTC was “randomly calling all Forex . . . clients across the America to try and identify possible Madoff scams,” the CFTC alleged.

    It was Coats’ “suggestion,” the CFTC alleged, that “members not have any discussions with the Commission.” The suggestion occurred while Black Diamond was refusing to return clients’ money.

    In the ASD case, members were urged not to cooperate with the U.S. Secret Service and not to fill out forms that would identify them as victims of a scam.

    Salazar, Coats and Davey continued to solicit funds for Black Diamond even though the company was not paying out and was engaged in chronic excuse-making, the CFTC alleged.

    Despite assertions that Black Diamond had a miraculous trading platform and expert software developers, “the so-called system developers and the Black Diamond trading platform never existed, the CFTC charged.

    Although Salazar’s customers plowed more than $7 million into the scheme — including more than $2 million paid directly to Salazar that was supposed to go to Black Diamond — she “failed to send Black Diamond approximately $1.5 million,” the CFTC charged.

    Black Diamond transmitted more than $1.9 million to Salazar, but she returned only $600,000 of that sum to customers and kept $1.3 million for herself, the CFTC alleged.

    Of the $2.8 million Salazar cherry-picked in the scam, the CFTC alleged, she used more than $400,000 to purchase cars and took “expensive personal trips.”

    Coats’ customers plowed more than $27 million into the scam, and Coats took purported management fees or owner gains of more than $400,000, including about $200,000 after Black Diamond quit paying customers, the CFTC alleged.

    Customer funds were used by Coats to acquire an “expensive car,” maid service, home improvements and “a sky diving trip,” the CFTC said.

    Davey used customer funds to make $1.3 million in “loans” to his “Sovereign Grace” firm and other companies he controlled. He also bought 47 acres of land and built a “lavish home,” the CFTC charged.

  • Southern Florida’s Top Federal Prosecutor Says Offshore Biz-Op Fraudsters Have No Safe Havens; United States Throws Down Gauntlet To Criminal Hucksters

    A top federal prosecutor said today that the United States would vigorously investigate and prosecute “business opportunity” fraudsters who target Americans.

    “This is true even if they operate from outside of the United States,” said Wifredo A. Ferrer, U.S. Attorney for the Southern District of Florida.  “International law enforcement cooperation eliminates safe havens for those who cheat American citizens from overseas.”

    Ferrer’s remarks came in response to guilty pleas entered by Silvio Carrano and Gregory Britt Fleming after an intense investigation by the U.S. Postal Inspection Service.

    And Ferrer’s words were backed up by the head of the civil division of the U.S. Department of Justice.

    The United States “will continue to aggressively prosecute those who defraud Americans in an effort to make a quick buck,” said Assistant Attorney General Tony West.

    Carrano and Fleming were among a group of defendants who tricked customers into believing the “opportunities” they presented were based entirely in the United States. The businesses actually were operating from Costa Rica and were criminal scams that resulted in multiple prosecutions against multiple people peddling everything from vending machines and coffee to greeting cards and bogus claims of assistance, prosecutors said.

    Customers paid thousands of dollars each to join the programs based on profitability lies and tales of financial success told by the schemers. Shills helped sell the schemes, prosecutors said.

    Carrano and Fleming pleaded guilty to conspiracy to commit mail and wire fraud for their roles in the schemes, which operated for months, prosecutors said.

    “After one company closed, the next opened,” prosecutors said, identifying the businesses as Apex Management Group Inc., USA Beverages Inc., Twin Peaks Gourmet Coffee Inc., Cards-R-Us Inc., Premier Cards Inc., The Coffee Man Inc. and Nation West Distribution Co.

    Also recently pleading guilty to conspiracy to commit mail and wire fraud was Donald Williams, who was sentenced to 78 months in federal prison. Co-defendant Patrick Williams, meanwhile, pleaded guilty to conspiracy to commit mail and wire fraud, 10 counts of mail fraud and three counts of wire fraud.

    Sentencing for Patrick Williams is scheduled for March 30. Sentencing for Carrano and Fleming is scheduled for April 20.

    Read the statement by Ferrer, West  and Henry Gutierrez, the top postal inspector in Miami.

  • URGENT >> BULLETIN >> MOVING: Deputy U.S. Marshal Shot And Killed In West Virginia Attack; 2 Others Wounded; Assailant Killed By Return Gunfire

    BULLETIN: A deputy U.S. marshal was shot and killed this morning while serving an arrest warrant in a drug case at a home in Elkins, W. Va., a law-enforcement official said.

    Two other deputy marshals were wounded in the attack. Their conditions were not immediately known. Charles E. Smith, the alleged assailant, reportedly was killed by return fire from law enforcement.

    Smith, 50, used a shotgun in his attack on the marshals, officials said.

    The attack on the marshals in West Virginia followed by a day an attack on two U.S. Immigration and Customs Enforcement (ICE) agents in Mexico.

    Special Agent Jaime Zapata was shot and killed in the attack, and a second ICE agent was wounded by gunfire. The agents were assigned to ICE’s attaché office in Mexico City, and were ambushed while driving between Monterrey, Mexico, and Mexico City, officials said.

    ICE is an agency within the U.S. Department of Homeland Security (DHS).

    “[A]ny act of violence against our ICE personnel — or any DHS personnel — is an attack against all those who serve our nation and put their lives at risk for our safety,” said DHS Secretary Janet Napolitano.

    Elkins, a city of about 7,000 in North Central West Virginia, is about 163 miles south of Pittsburgh, Pa.

  • Judge Says Ponzi And HYIP Operator Who Swindled Mother Of Fallen U.S. Marine Deserves More Jail Time Than Specified In Plea Bargain, Sentences Juan Rangel To 22 Years; Rangel’s Son Wanted By FBI In Bribery Caper

    ON THE LAM: This is a 2008 photo of Harold Rangel, now 22, who is wanted in a bribery case and is believed to have been involved in his father's HYIP and mortgage-fraud scam in the Los Angeles area. Harold Rangel may have ties to the region of Pachuca, Mexico, the FBI said. Source: FBI.

    EDITOR’S NOTE: Although this story largely focuses on the sentencing of Juan Rangel, his son — Harold Rangel — is wanted by the FBI in a bribery case and is believed to have helped his father pull off a massive HYIP and Ponzi scheme.

    Although federal prosecutors offered a plea bargain to Ponzi and HYIP operator Juan Rangel that would jail him for 15 years, U.S. District Judge S. James Otero said Rangel deserved more time behind bars and sentenced him to 22 years.

    Otero upped the sentence by seven years after hearing from victims, including the mother of a U.S. Marine who was killed in Iraq. The grieving mother was persuaded to invest money she received after her son’s death with Rangel.

    Rangel, 47, of Downey, Calif., maintained a $2.5 million mansion and bought a Lamborghini with victims’ money, according to records. Investigators said Rangel, a Mexican national, wired $1 million to Mexico when the Ponzi was collapsing and that the scheme generated up to $250,000 a day.

    A former Rangel employee told the FBI that Rangel was involved in “multiple fraud schemes” and paid an “associate” to intimidate investors who complained about not getting their promised returns, according to records.

    Prosecutors called Rangel’s actions “depraved.” Otero also used descriptive language when sentencing Rangel, saying that “taking investment money from the mother of a fallen soldier” was an example of the “callous disregard” he displayed for his fellow human beings.

    Rangel originally was jailed in August 2008 after investigators discovered his $30 million Ponzi and HYIP scheme and a companion mortgage-fraud and equity-stripping scheme that caused borrowers to lose their homes and lenders to issue more than $10 million in fraudulent loans.

    Rangel used “recruiters” and Spanish-speaking “street teams” to line up investors, prosecutors said.

    The mortgage scheme largely was targeted at Latino homeowners facing foreclosure. Rangel “drained the equity out of the properties” instead of assisting the distressed borrowers, and then sold the properties out from under them to “straw buyers,” using bogus documents to trick lenders into approving loans, prosecutors said.

    Rangel ran a company known as Financial Plus Investments that promised annual returns of up to 60 percent. He used infomercials and newspaper ads to promote his schemes and created more than 500 victims, according to records.

    “The victim-investors were mostly working-class families, and nearly all of them invested money that they could not afford to lose,” prosecutors said. “[Rangel] encouraged them to invest as much as possible and advised people against putting their money in the bank.”

    Otero is still determining the amount of restitution due victims and will conduct a hearing in May to determine the final sum.

    Rangel was convicted in a separate case in May 2009 of bribing a bank employee to help him pull off a scam. Rangel’s son, Harold Rangel, 22, also was charged in the bribery case. Because Harold Rangel did not show up for a pretrial hearing, a warrant has been issued for his arrest and he has been placed on the FBI’s “Wanted” list.

    Here is the “Wanted” poster for Harold Rangel, who purportedly has ties to Pachuca, Mexico. After failing to show for the hearing, Harold Rangel was charged with unlawful flight to avoid prosecution.

  • BULLETIN: Bench Warrant Issued For Ponzi Schemer Who Ran Commodities Caper, Ripped Off Condo Association To Keep Scheme Afloat And Appeared On CNBC As Trading Analyst, CFTC Says

    Brian Kim appeared on CNBC repeatedly and offered commentary on Asian derivatives and other matters, according to a photo exhibit in the CFTC case filed today and information published on Kim's website.

    BULLETIN: A federal judge has frozen the assets of a trader and television analyst charged criminally by a New York County grand jury with multiple felonies in an alleged commodity-pool Ponzi scheme and charged civilly by the U.S. Commodity Futures Trading Commission in the same caper.

    Brian Kim, 35, is a “fugitive,” declared Manhattan District Attorney Cyrus R. Vance Jr., noting that the criminal and civil charges announced today were not Kim’s first encounter with the law.

    Indeed, Vance said, Kim failed to appear for his January trial in New York State Superior Court after being charged in late 2009 with stealing $430,000 from Christadora House, the New York condominium complex at which he resided.

    In the civil filings today, the CFTC accused Kim of taking the money from the condo association by forging documents and using the cash to keep his long-running fraud scheme afloat. The theft allegedly occurred in June 2008, months prior to appearances Kim made on an American television network to offer commentary on issues such as the Dubai debt crisis, derivatives trading in Asia and so-called “dark pools” that provide institutional investors outlets to trade anonymously in murky conditions.

    The commodities scheme continued while Kim was free on bail and awaiting trial on the charges of ripping off the  condo association, the CFTC charged, alleging that Kim also lied to the National Futures Association about his business practices.

    “The defendant induced his clients to make risky and speculative investments by portraying himself as an accomplished trader and money manager,” said Vance. He added that a bench warrant has been issued for Kim’s arrest.

    It was not immediately clear if either Vance or the CFTC knew Kim’s current whereabouts. Manhattan investigators said he stole about $4 million from “at least” 45 investors.

    Vance is the current, real-life embodiment of the fictitious Manhattan district attorney portrayed on the long-running “Law & Order” crime drama on the NBC television network. Adding to America’s real-life Ponzi drama and its often bizarre nature, Kim has appeared multiple times on CNBC, a prominent business channel, as an expert financial commentator.

    Kim, the operator of a hedge fund known as Liquid Capital Management LLC, appeared on CNBC at least three times in 2009, according to his website.

    While reporters were asking Kim to analyze marketplace developments and share his thoughts with the TV audience, he was at the helm of a complex, ongoing Ponzi and fraud scheme and presiding over a cover-up, according to court filings.