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  • Wayne McLeod Becomes Subject Of FBI Probe; Agency Asks Victims, Witnesses To Come Forward

    EDITOR’S NOTE: This story originally was published June 30. The PP Blog later encountered a database problem, which caused the site to go down and resulted in the temporary loss of some data. The data now has been retrieved.

    The FBI in Jacksonville has opened a probe into Kenneth “Wayne” McLeod, the Florida man who appears to have committed suicide last week when his alleged $34 million Ponzi scheme was exposed by the SEC.

    In a statement on its website, the FBI confirmed an investigation was under way and asked victims and witnesses to come forward.

    “Victims and other individuals with knowledge of FEBG are encouraged to call the FBI’s Jacksonville Field Office at (904) 248-7000 or to contact us via e-mail at Jacksonville@ic.fbi.gov and include “FEBG” in the e-mail subject line,” the agency said.

    Individuals are asked to provide the following:

    1. Their full name, address, and contact information.
    2. Their point of contact at Federal Employee Benefits Group (FEBG), McLeod’s company, and how they learned of the company and the investment opportunity.
    3. Their understanding of the terms of their investment(s).
    4. The total dollar amount of their investment(s).
    5. A description of any records they have in their possession that confirm their investment(s) — for example, statements, correspondence, etc.

    “Clients of FEBG should be aware that not all of the firm’s investments are at risk,” the FBI said. “However, individuals who invested in the ‘FEBG Bond Fund’ or ‘FEBG Special Fund’ may be victims of investment fraud and are welcome to contact the FBI.”

    McLeod was 48 when he died June 22. The SEC said his Jacksonville company was paid “up to” $15,000 by government agencies for seminars conducted by McLeod.

    The SEC alleged last week that McLeod was operating a Ponzi scheme dating back to at least 1988. The scheme was alleged to have gathered “at least” $34 million.

    McLeod’s company conducted seminars at various federal agencies, and also used the Federal Law Enforcement Training Center (FLETC) in Glynco, Ga., as a seminar outlet, according to the firm’s website.

    FLETC is operated by the Department of Homeland Security and serves as an interagency law-enforcement training organization for 88 federal agencies.

    If the company’s seminar schedule is accurate, FEBG completed a seminar for U.S. Immigration and Custom Enforcement (ICE) at the FLETC facility in Georgia June 8 — 14 days prior to McLeod’s death. Another ICE seminar was listed for July 2 at the same FLETC facility.

    Seminars for the Federal Air Marshals Service (FAMS) were scheduled July 7-9 in Miami. Dual seminars were scheduled for July 21 — one at the Georgia FLETC facility for ICE, and another in San Antonio for “SSA – OIG,” which stands for Social Security Administration, Office of the Inspector General.

    Seminar schedules dating back to 2006 appear on the site, featuring names such as the FBI, WIFLE (Women in Federal Law Enforcement), the DEA, the IRS, the U.S. Census Bureau, USSS (United States Secret Service), the U.S. Forest Service, USPS (United States Postal Service), ATF (the Bureau of Alcohol, Tobacco, Firearms and Explosives), NAADHS (National Association of African-Americans in the Department of Homeland Security, US Bankruptcy Court and US District Court, the Federal Public Defenders Office, the National Park Service, the US Fish & Wildlife Service, NABNA (National Association of Black Narcotics Agents), DCIS (Defense Criminal Investigative Service), NCIS (Naval Criminal Investigative Service) and others.

    It was not immediately clear if members of each of the agencies or employee associations invested in the alleged scheme. Also unclear was the total exposure of investors to losses.

  • SEC Charges Man Described As ‘Recidivist’ And ‘Felon’ In Alleged Philadelphia Ponzi And Fraud Scheme; Separately, CBS-3 Reports Feds Raid Offices Of Robert Stinson Jr., Life’s Good Inc.

    UPDATED 9:06 P.M. EDT (U.S.A.) A man who filed for bankruptcy twice, has an unpaid federal judgment for running a fraud scheme in the 1990s and managed to rack up convictions for crimes such as grand larceny, wire fraud, mail fraud and bank fraud during his purported business career has been charged by the SEC with operating a $16 million Ponzi and fraud scheme in Philadelphia.

    Separately, CBS-3 in Philadelphia is reporting that federal agents raided the man’s offices earlier today.

    In an emergency action, the SEC has charged Robert Stinson Jr. with fraud. U.S. District Judge Berle M. Schiller of the Eastern District of Pennsylvania has frozen Stinson’s assets, along with the assets of five relief defendants who allegedly received ill-gotten gains from the scheme.

    Relief defendants include Stinson’s wife, Susan L. Stinson, his son, Michael G. Stinson and his ex-wife, Laura Marable. Also named relief defendants were Christine A. Stinson, whose relationship to Stinson was not immediately clear, and First Commonwealth Service, a company associated with Stinson.

    Several Stinson-associated companies were named defendants, including Life’s Good Inc., Life’s Good STABL Mortgage Fund LLC, Life’s Good Capital Growth Fund LLC, Life’s Good High Yield Mortgage Fund LLC, JA Capital Fund LLC and Keystone State Capital Corp.

    “Stinson falsely claimed that the Life’s Good Funds generated annual returns of 10 to 16 percent by originating more than $30 million in commercial mortgage loans, and other investment income gained on the sale of foreclosure and investment properties,” the SEC charged.

    In reality, “Stinson has been stealing investor funds for his personal use, transferring money to family members and others, and using new investor proceeds to make payments to existing investors in the nature of a Ponzi scheme,” the agency said.

    The scheme gathered at least $16 million from more than 140 investors.

    “This fraud is ongoing,” the SEC charged. “Of the $16 million raised since 2006, at least $12.1 million was raised between April 2009 and May 2010. In May 2010 alone, Stinson raised approximately $2.3 million from at least 30 investors.”

    The allegations include a reference to a purported accounting firm — Johnson and Johnson Public Accountants Inc. — that prepared “Consolidated Financial Statements,” but the SEC said there is “no record” of a firm licensed by that name in Pennsylvania.

    Web search results show a domain titled “JohnsonJohnsonCPA.com,” which purports on the site to be a company founded in Philadelphia in 1978. Domain records show the site was registered in the name of “Robert Stinson” of Sunnyvale, Calif., in April 2009.

    Whether that “Robert Stinson” was the Robert Stinson Jr. charged in the SEC complaint was unclear. The SEC noted several accounting miscalculations and irregularities in the purported consolidated statements.

    Stinson Jr. has a long-running criminal record.

    In 1986, he was convicted of wire fraud and larceny in U.S. Court in Delaware, according to records. In 1987, he was convicted of forgery and larceny in New Jersey state court. During the same year, he was convicted of mail fraud in U.S. District Court for the Eastern District of Pennsylvania.

    Meanwhile, in 1996, he was convicted of criminal conspiracy in state court in Pennsylvania. In 2001, he was convicted of bank fraud in U.S. District Court for the Eastern District of Pennsylvania.

    Stinson filed two bankruptcy petitions in 1999, one in October and another in December, according to records.

    Nine years earlier, in 1990, he was charged with fraud by the SEC. He was ordered to pay a judgment of $7,680, but the judgment remains unpaid, according to court filings.

    Read the CBS-3 report.

  • BULLETIN: Now, A Multimillion-Dollar ‘Penny-Stock’ Scheme Operating On Facebook, Twitter; SEC Charges Two Canadians In ‘Scalping Scam’

    UPDATED 1:58 P.M. EDT (U.S.A.) The SEC has obtained an emergency order to freeze the assets of two Montreal residents, alleging they were pushing a penny-stock scheme through their website and on Facebook and Twitter.

    Named defendants in the alleged scheme were Carol McKeown and Daniel F. Ryan, whom the SEC described as a Canadian “couple.” The agency said it worked with the Quebec Autorité des marchés financiers (AMF), which also has obtained an emergency freeze, along with a “cease trade order.”

    The stocks were touted through a website known as PennyStockChaser.com, the SEC said. McKeown is 44; Ryan’s age was not immediately known.

    “As alleged in our complaint, McKeown and Ryan used all the modern methods to communicate with investors including the PennyStockChaser website, e-mail, text messages, Facebook, and Twitter yet failed to adequately communicate that their rosy predictions for touted stocks were accompanied by their sales of those very same stocks,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.

    The U.S. complaint is filed in U.S. District Court for the Southern District of Florida.

    McKeown and Ryan received millions of shares of touted companies through two corporations — Downshire Capital Inc. and Meadow Vista Financial Corp. — which also were named defendants, the SEC said.

    Both McKeown and Ryan were compensated for pumping the stock, while “PennyStockChaser simultaneously predicted massive price increases for the issuers, a practice known as ‘scalping,’” the SEC charged.

    “McKeown, Ryan and one of their corporations failed to disclose the full amount of the compensation they received for touting stocks on PennyStockChaser,” the SEC charged, saying that the couple and their corporations “have realized at least $2.4 million in sales proceeds from their scalping scheme.”

    The PennyStockChaser website was throwing a server error at the time of this post. Meanwhile, the Twitter site appeared to be locked. The Facebook site appeared to be operational, with a posted dated Sunday that blared, “How many newsletters put their money where their mouth is? PSC will be buying another 500,000 shares on Monday.”

    It was not immediately clear what stock the Facebook site was pumping Sunday because the link led to a page on the PennyStockChaser site that generated a server error.

    It has become somewhat common for scammers to use social-networking sites to hawk investment-fraud schemes and murky businesses. Some fraudsters even have claimed that the so-called autosurf “industry” in which purported “advertisers” get paid for viewing websites is a new form of social networking and that the autosurf sites are building on the success of brands such as Twitter, Facebook and others.

    Read the SEC complaint to see the names of some of the other stocks the agency says the defendants recently have pumped.

  • California Man, 72, Sentenced To 110 Months For HYIP Rip-Off; Richard M. Hersch Also Ordered To Pay ‘At Least’ $9.2 Million In Restitution

    First, Richard M. Hersch, 72, told investors they’d earn up to 6 percent a week by plowing money into his company, All States ATM Inc.

    He then explained the company had “contracts” with major horse-racing tracks in California and elsewhere to operate Automated Teller Machines (ATMs) on the “back side” of the tracks.

    Ordinary horse-racing fans could not use the ATMs, according to Hersch, because the “backside” was off-limits to the general public and situated for the convenience of racetrack employees, horse owners, horse trainers and others — his own, highly profitable niche.

    Hersch then made the investments appear to be even more lucrative by explaining “the racetracks allowed him to operate a check-cashing or loan service on the back side of the track for the exclusive use of those with access to that area,” prosecutors said.

    To further disarm skeptical prospects, “Hersch claimed that he had 160 employees and hundreds of ATMs and that his company was in its eighth year of business,” prosecutors said.

    But the tracks Hersch said used his ATM and check-cashing business “reported having no contracts with him or All States ATM to provide financial services of any sort,” prosecutors said.

    Hersch was charged with mail fraud and structuring, and was arrested last year by the FBI and IRS. Investigators determined he had coaxed more than 150 people to invest about $25 million in his company.

    He pleaded guilty in November and was sentenced yesterday, acknowledging he operated an HYIP fraud and conspired with others to structure 15 transactions totaling $141,500 to evade currency-reporting requirements. Prosecutors said he and co-conspirators withdrew cash from a bank account in amounts between $9,000 and $9,500 because they knew that withdrawals of cash over $10,000 triggered the reporting requirements.

    U.S. District Judge John A. Houston sentenced Hersch to 110 months in federal prison and to pay “at least” $9.2 million in restitution.

    “[Hersch’s] sentencing should remind the public of the financial perils associated with high yield investment fraud scams,” said Keith Slotter, FBI special agent in charge.

    HYIP schemers will get caught, a veteran IRS investigators warned.

    “Currency-report information filed by banks and financial institutions provides a paper trail, or roadmap, for investigations of financial crimes and illegal activities, including tax evasion, embezzlement, and money laundering,” said Leslie P. DeMarco, special agent in charge of the IRS Criminal Investigation unit in the agency’s Los Angeles Field Office.

    “Individuals who deliberately break down cash withdrawals into amounts less that $10,000, so as not to trigger a bank’s reporting requirement, are committing a financial crime,” said DeMarco. “In this investigation, IRS special agents used their financial expertise to uncover Mr. Hersch’s intentionally structured cash withdrawals, designed to hide his investment fraud scheme.”

    U.S. Attorney Laura E. Duffy of the Southern District of California said Hersch’s sentence sent a message to financial fraudsters who are duping investors.

    “[The] sentence demonstrates our commitment to investigating and prosecuting those individuals who prey upon innocent victims in our community through fraudulent investment schemes,” Duffy said.

    Hersch now joins the ranks of Bernard Madoff, 71, (New York/Florida); Richard Piccoli, 83, (New York); Andy Bowdoin, 75, (Florida); Julia Ann Schmidt, 68, (Texas); Judith Zabalaoui, 71, (Louisiana); Arthur Nadel, 77, (Florida/NewYork); Ronald Keith Owens, 73, (Texas); James Blackman Roberts, 71, (Arkansas); Larry Atkins, 65, (North Dakota), Richard Taft Johnson, 67, (Michigan), Maxwell B. Smith, 69, (New Jersey) and others as senior citizens implicated in large financial frauds.

  • BULLETIN: High Court Orders 3 Accused HYIP Swindlers To Pay $173 Million To U.K.’s Financial Services Authority; Case May Be Largest Ponzi Scheme In British History

    A court in the United Kingdom has ordered three individuals accused of operating a colossal Ponzi scheme to pay £115m — roughly the U.S. equivalent of $173 million.

    The alleged Business Consulting International fraud is believed to be the largest Ponzi swindle in British history.

    As a criminal investigation proceeds, John Anderson, Kenneth Peacock and Kautilya Nandan Pruthi were ordered to pay the spectacular sum to the Financial Services Authority (FSA), the U.K. equivalent of the U.S. Securities and Exchange Commission.

    Pruthi was ordered to pay £89,798,938.42 (US$135.1 million); Anderson £13,197,076.15 (US$19.8 million); and Peacock £11,645,052.99 (US$17.5 million).

    FSA accused the defendants of unlawfully accepting deposits. Despite the favorable ruling, victims likely will not recover much, the agency warned.

    “[T]his case again emphasises the importance of taking care to ensure that any firm or individual consumers deal with are authorised or approved by the FSA,” said Margaret Cole, director of enforcement and financial crime. “Authorisation offers consumers valuable protection and access to complaints and compensation arrangements should anything go wrong.”

    Cole noted that the court decision validated the agency’s intervention last year to stop the scheme from mushrooming further.

    “As the Judge commented in his ruling the FSA took quick and decisive action against Pruthi, Anderson and Peacock and was entirely justified in intervening, using the full force of the legislation, to bring the scheme to a speedy conclusion and prevent further consumers being cheated,” Cole said.

    FSA noted that it would seek to make investors as whole as possible.

    “The FSA will be seeking to enforce the judgment and return money that can be retrieved to investors who had dealings with Pruthi, Anderson and Peacock,” the agency said.

    The London Police Department said last year that some of the victims in the mammoth fraud did not want to believe they had been fleeced. A criminal probe continues.

  • Detectives Arrest Staten Island Man For Bilking Clients In Forex Scheme; Thomas Carson Ran .ORG Site; Allegedly Used Money For ‘Luxurious Lifestyle,’ Cigars, Treatment Of Varicose Veins

    Detectives from the office of Richmond County District Attorney Daniel M. Donovan Jr. have arrested a Staten Island man on charges of stealing $2.5 million from investment clients.

    Separately, a New York newspaper is reporting that Thomas Carson used some of the money to pay for 30 separate treatments for varicose veins on his legs. Carson is being called a “mini-Madoff.”

    Still smarting from the $65 billion Bernard Madoff Ponzi scheme, New Yorkers can be downright hostile to accused financial fraudsters. One reader of SILive.com, the website of the Staten Island Advance, left a comment that inmates at New York’s famous Rikers Island prison facility were apt to be impressed by Carson’s cosmetically altered legs.

    Donovan said Carson, 45, operated TDML Inc. and a .org website that bore the company’s name to defraud clients in a securities and forex scheme.

    “[Carson], while not quite rising to the level of a Bernard Madoff, is alleged to have stolen $2.5 million from his investors, who also happened to be friends and social acquaintances,” Donovan said.

    “Instead of making the agreed-to investments, the defendant is alleged to have used the funds to underwrite a luxurious lifestyle, including expensive cigars, cosmetic medical treatments, and trips to resorts in Las Vegas and the Caribbean islands,” he continued. “It is further alleged that he attempted to conceal this fraud and deceive his victims by manufacturing phony account statements with fictitious transactions and balances.”

    Donovan’s Detective Investigators Squad arrested Carson yesterday. He was charged with felony counts of Grand Larceny, Criminal Possession of Stolen Property and Criminal Possession of a Forged Instrument. Carson was listed this morning as an inmate at Otis Bantum Correctional Center, one of 10 jails on Rikers Island.

    Seven friends and social acquaintances gave Carson $4 million to invest, Donovan’s office said.

    “The funds were to be invested into an account at a New Jersey-based foreign currency exchange trading firm,” Donovan’s office said. “Instead, the defendant is alleged to have diverted $2.5 million for his personal use, while investing $1 million in his own accounts at TDML and later returning $500,000 to his investors.”

    The reaction of New Yorkers — and residents of many other cities — to financial fraudsters is in stark contrast to the reactions of members of a bizarre subculture that actually advocates for the legalization of Ponzi schemes.

    Instead of applauding the U.S. Secret Service in August 2008 for halting the alleged AdSurfDaily Ponzi scheme in Florida, some members of the ASD autosurfing enterprise directed forum catcalls at agents and prosecutors, calling them “Satan” and comparing them to the 9/11 terrorists who killed 3,000 people.

    When the SEC acted against a $28 million Ponzi scheme known as Gold Quest International in May 2008, participants in the scheme reacted by attempting to sue the agency for $1.7 trillion.

    If Richmond is convicted of the felony counts in New York, he potentially faces decades in prison.

    Read the story on SILive.com.

  • ‘SURF, HYIP HELPERS BEWARE: Woman Who Let Richard Piccoli Pull Off Ponzi Scheme Hit With $25 Million Restitution Order; Kathleen Fuoco Pleads Guilty To ‘Misprision Of Felony,’ Faces Prison Time, Fine

    An elderly Ponzi schemer who fleeced Catholic priests, parishioners and senior citizens in a long-running scam in Buffalo was aided by a comparatively youthful assistant who was ordered to make the victims whole, federal prosecutors said today.

    Kathleen Fuoco, 60, of West Seneca, N.Y., pleaded guilty today to misprision of a felony and willful failure to file tax returns while she was helping Richard Piccoli, 83, pull off the scheme.

    Fuoco was hit with a $25 million restitution order — the total of victims’ losses — and also faces a maximum penalty of four years in federal prison and a $250,000 fine. She is cooperating with prosecutors to identify victims and losses, authorities said.

    “Financial fraud is an important priority in my office and the public should know that if you attempt to defraud any hard working citizen or turn a blind eye while someone else is committing fraud, you will be caught and prosecuted to the fullest extent of the law” said U. S. Attorney William J. Hochul of the Western District of New York.

    Known as “Kitty,” Fuoco was “the only employee in the offices of Gen See Capital,” Piccoli’s business, prosecutors said.

    “In her plea, Fuoco admitted that she came to realize that the business was a scam, but still kept working there and failed to notify authorities about the criminal nature of the business,” prosecutors said.

    Misprision of a felony is a crime the government can use to prosecute underlings who engage in willful blindness and participate in an enterprise even when they know it is a fraud.

    As the Fuoco case demonstrates, the penalties can be steep. At age 60, she has been held responsible for making the victims of the fraud whole — and even may serve time in jail.

    Serial promoters and staff members of autosurf Ponzi schemes and HYIP frauds who turn a blind eye potentially are at risk of being charged with misprision of a felony. So are forum operators and shills who flog such programs.

    The Piccoli scheme operated for decades. He was sentenced in October 2009 to 20 years in prison — effectively a life sentence, given his age.

    Here is how “misprision of felony” reads under Section 4 of the U.S. Code:

    “Whoever, having knowledge of the actual commission of a felony cognizable by a court of the United States, conceals and does not as soon as possible make known the same to some judge or other person in civil or military authority under the United States, shall be fined under this title or imprisoned not more than three years, or both.”

    In November, misprision of felony was used in Georgia against Saundra McKinney Pyles, who was accused of concealing a Ponzi scheme operated by her friend, Gary Sheldon Hutcheson. Hutcheson pleaded guilty to mail fraud and money laundering.

    In essence, Pyles was accused of choosing not to report Hutcheson, even though she knew he was operating an investment scheme and committing mail fraud.

    Pyles was sentenced to 14 months in prison, and made equally responsible with Hutcheson to pay $1.6 million in restitution to victims. Hutcheson was sentenced to five years in prison.

    Fuoco is scheduled to be sentenced Oct. 22 by Chief U.S. District Judge William M. Skrenty.

    The Piccoli case featured elements similar to the AdSurfDaily Ponzi case: a senior citizen as the operator, appeals to religion, the sale of unregistered securities, commingling of funds, seized assets and advertising materials that promised a payout.

    After the U.S. Secret Service raided ASD in August 2008, some participants loyal to ASD President Andy Bowdoin started an autosurf known as AdViewGlobal (AVG). Bowdoin was said to have been a silent partner in AVG and to have contributed start-up capital.

  • BULLETIN: SEC Halts Alleged $105 Million Ponzi Scheme Operating ‘Offshore’; Daniel Spitzer Charged In Complex International Fraud Case; Several Agencies Credited With Assisting Probe

    Saying his offshore Ponzi scheme was on the verge of collapse but still collecting money, the SEC has charged a resident of the U.S. Virgin Islands with fraud.

    Several international authorities assisted in the probe, the SEC said.

    Daniel Spitzer, a U.S. citizen who resides in St. Thomas, was charged in the scheme. The SEC said the scheme netted $105 million and roped in 400 investors, dating back “at least” to 2004.

    Spitzer is 51, and “desperate for money” to keep the scheme afloat, the SEC charged, describing him as a “purported fund manager.”

    “Daniel Spitzer ran an elaborate Ponzi scheme that he disguised by moving investor money through a complex network of foreign bank and brokerage accounts,” said Merri Jo Gillette, director of the SEC’s Chicago Regional Office. “He deceived investors into believing that he was using a sophisticated investment strategy that didn’t really exist.”

    In an emergency action in Illinois, the SEC said the scheme was on the verge of collapsing and that Spitzer still was collecting money in March to prevent its collapse. Earlier, Spitzer spent more than $900,000 “in cash at the Wynn Las Vegas Casino,” the agency said.

    “Since at least August 2009 and continuing through to the present, Spitzer has attempted to delay and avoided paying requested investor redemptions,” the SEC charged. “Spitzer is desperate for money and has continued to prey on victims.”

    Spitzer was spending money at the casino in October 2009, even as he was delaying payments to investors, according to court filings.

    Also named defendants in the case were these Spitzer-connected companies: Kenzie Financial Management Inc. of St. Thomas; Kenzie Services LLC of Nevis; Draseena Funds Group Corp., an Illinois corporation with offices in Clearwater, Fla., and Stateline, Nev.; DN Management Co. LLC of Nevada; Aneesard Management LLC, also known as Nerium Management Co. LLC of Nevada; Nerium Management Co. of Illinois; Arrow Fund LLC of Nevada; Arrow Fund II LLC of Nevada; Conservium Fund LLC of Nevada; Nerium Currency Fund LP of Nevada; Senior Strength Q Fund LLC of Nevada; SSecurity Fund LLC of Nevada; Three Oaks Advanced Fund LLC of Nevada; Three Oaks Currency Fund LP of Nevada; Three Oaks Fund 25 LLC of Nevada; Three Oaks Senior Strength Fund LLC of Nevada; and USFirst Fund LLC of Nevada.

    Just three months ago, the SEC said, Spitzer railroaded an investor for $100,000 by telling the investor the money would be used “in one of Spitzer’s more conservative investment funds.

    “Rather than invest in said fund, in April 2010, Spitzer used this investor’s money to make $9,492 in Ponzi payments to four other investors, transferred $27,102 to the First Bank of Puerto Rico, and paid $26,257 for third party expenses,” the SEC charged.

    Assisting in the probe were the U.S. Commodity Futures Trading Commission, the Irish Financial Regulator, Danish Financial Supervisory Authority, Autorité des marches financier in France, the Ontario Securities Commission and the Financial Intelligence and Investigations Unit Attached to the Royal Anguilla Police Force in Anguilla, the SEC said.

  • BULLETIN: FTC Paints Picture Of Spectacular, International Fraud Involving At Least 16 ‘Sham’ Companies, More Than 100 Bogus Merchant Accounts And 14 ‘Money Mules’; More Than 1.3 Million People Fleeced

    PP BLOG BULLETIN >>> MOVING >>>

    More than 1.3 million debit or credit-card numbers have been compromised in an international micro-payments scheme that resulted in fraudulent charges totaling more than $10 million.

    The money appears to have been whisked offshore to bank accounts in Lithuania, Estonia, Latvia, Bulgaria, Cyprus, and Kyrgyzstan, the FTC said.

    At the moment, the agency said it believed the fraudsters opened more than 100 bogus merchant accounts, formed 16 “dummy” corporations and relied on a network of 14 “money mules” recruited in a spam campaign to raid the cardholder accounts of small amounts that created a large amount in the end.

    Part of the deception was to create “phony company names” resembling the names of real companies, the FTC said.

    “The FTC believes the defendants may have run credit checks on the identity theft victims first, to be sure they were creditworthy,” the agency said, describing the deception as monumentally elaborate.

    Chillingly, the agency added that the perpetrators “cloaked each fake merchant with a virtual office address near a real merchant’s location, a phone number, a home phone number for the ‘owner,’ a Web site pretending to sell products, a toll-free number consumers could call, and a real company’s tax number found on the Internet.”

    It is likely that the scam was designed to scrape small amounts from cardholders’ accounts to minimize the chance of getting caught and to permit the scammers to stay under the radar and emerge with a huge sum, the FTC said.

    “None of the consumers affected by the scam had contact with any of the defendants. Most consumers either didn’t notice the charges on their bills or didn’t seek chargebacks because of the small amounts — charges ranged from 20 cents to $10,” the FTC said.

    “Consumers who called the toll-free numbers that appeared on their bills either found them disconnected or heard recorded messages instructing them to leave a message, but no calls were returned,” the agency said.

    Each of these companies (below) is a “sham” and has been named a defendant, the FTC said. NOTE: Remember, one of the allegations is that the perpetrators used “phony company names” that resembled the names of real companies. The information below reflects the names of the bogus firms, as reproduced from court records the FTC released today:

    1. API Trade LLC, a Pennsylvania limited liability company incorporated in 2006.
    2. ARA Auto Parts Trading LLC, a limited liability company.
    3. Bend Transfer Services LLC, a Nevada limited liability company incorporated in 2006.
    4. B-Texas European LLC, a Texas limited liability company incorporated in 2006.
    5. CBTC LLC, a Delaware limited liability company incorporated in 2007.
    6. CMG Global LLC, a Pennsylvania limited liability company incorporated in 2006.
    7. Confident Incorporation, a California company incorporated in 2002.
    8. HDPL Trade LLC, a Pennsylvania limited liability company incorporated in 2008.
    9. Hometown Homebuyers LLC, a Texas limited liability company incorporated in 2002.
    10. IAS Group LLC, a California limited liability company incorporated in 2008.
    11. IHC Trade LLC, a New York limited liability company incorporated in 2007.
    12. MZ Services LLC, an Arizona limited liability company incorporated in 2004.
    13. New World Enterprizes LLC, a New Jersey limited liability company incorporated in 2005.
    14. Imports LLC, a Louisiana limited liability company incorporated in 2006.
    15. SMI Imports LLC, a Florida limited liability company incorporated in 2006.
    16. SVT Services LLC, a New York limited liability company incorporated in 2008.

    Also named a defendant is “John Doe,” described as “one or more individuals or entities whose true name and address of residence are unknown to the FTC at this time.”

    How The Scheme Worked (From March Court Filing The FTC Released Today; Italics, Coloring, Indentations Added)

    Defendant(s) Doe have hired under false pretenses a group of at least fourteen individuals in the U.S., referred to here as the “money mules.” Defendant(s) Doe then direct the money mules to form companies and to open one or more U.S. bank accounts in the name of those entities.

    A group of sixteen companies formed by the money mules are named as defendants in this action and will be referred to here as the “Money Cashing Defendants.” In addition to the Money Cashing Defendants, Defendant(s) Doe themselves also have created over a hundred fake companies using false identities. These fictitious companies — some of which purport to be located in [the Northern District of Illinois] — are the “merchants” that place the unauthorized charges on consumers’ accounts.

    With this infrastructure in place, Defendants have proceeded to assess unauthorized charges to consumers’ accounts and to deposit the funds into the U.S. bank accounts of the Money Cashing Defendants. Defendant(s) Doe then direct the money mules to wire the funds to offshore accounts in Lithuania, Estonia, Latvia, Bulgaria, Cyprus, and Kyrgyzstan, where the funds presumably end up in the hands of the Doe Defendants. In this way, Defendants have essentially stolen over $10 million. More than 1000 consumers have filed complaints with the FTC about these illegal practices.

    The defendants’ assets have been frozen.

    Investigators said the scheme, which had been operating since 2006, relied on stolen records to proliferate. (Citations omitted by PP Blog):

    “In setting up the fake companies, Defendant(s) Doe use names that sound similar to legitimate companies and provide addresses located in the vicinity of the legitimate companies,” the FTC said. “Defendant(s) Doe purchase ‘virtual office addresses through a company that sells business address services. All mail sent to these office addresses is then forwarded to another company that scans the mail and uploads it onto a secure server so that Defendant(s) Doe can view it electronically from any location.

    “The fake companies also use Employer Identification Number (‘EIN’) tax numbers of the legitimate companies. Defendant(s) Doe also create a website for each fake company so that the company appears to credit card processors to be a legitimate online merchant. These web sites appear to only operate for a short period of time, probably just long enough for a credit card processor to . . . perform due diligence on the account application . . . The websites of the fake companies purport to sell some kind of product such as electronics and office supplies. Each fake company also has a toll-free telephone number, as well as a ‘home’ telephone number for the ‘owner’ of the company. The toll-free numbers forward to a cell phone number registered in Belarus.”

  • Two-Thirds Of Poll Respondents Rate Data Network Affiliates’ Pitch A ‘Complete Failure’; Nearly 90 Percent Rate It ‘Poor’ Or Worse

    UPDATED 11:53 A.M. EDT (U.S.A.) The sales pitch of a multilevel-marketing (MLM) company that plucks the heartstrings of members by suggesting it can help law-enforcement and the AMBER Alert program locate abducted children has been rated  a “Complete Failure” by 66 percent of respondents in a PP Blog Poll.

    Meanwhile, 88 percent of respondents rated Data Network Affiliates’ message “Poor” or worse.  Only 12 percent rated the sales pitch either “Good,” “Very good” or “Exceptionally professional.”

    Separately, some DNA members said the firm, which had been barraging them with sales pitches, has been less communicative in recent days. The company has been mysterious from the start, registering its domain name behind a proxy in the Cayman Islands while incongruously suggesting its services could be beneficial to the U.S. government.

    DNA initially explained that its domain was registered privately in the Caymans to prevent management from having to “put up with 100 stupid calls a day.”

    Customer service has been conducted via a free Gmail address for months, although the firm in recent weeks has published a street address in Boca Raton, Fla.

    Fifty votes were cast in the PP Blog Poll, which was unscientific. Despite the low turnout, the poll results suggest that respondents were deeply turned off by the DNA sales pitch — to the point of revulsion. Regardless, 8 percent of respondents rated the pitch an “A,” meaning they viewed at as “Exceptionally professional.”

    Some PP Blog posters have speculated that voters might have rated the pitch “Exceptionally professional” because it deliberately was crafted by MLM hucksters to recruit members into an insidious lead-capture system through which they’d be pitched relentlessly on products other than DNA’s purported database product.

    Under this theory, the pitch was deemed “Exceptionally professional”  because it achieved the dubious purpose of lining up people by the tens of thousands to be fleeced.

    DNA, whose members have claimed Donald Trump and Oprah Winfrey endorse the company even though there is not a shed of evidence that the claim is true, purportedly has attracted more than 130,000 members. It is possible that some or all of the 8 percent of respondents who rated the sales pitch “Exceptionally professional” believe the pitch has merit beyond its ability to suck people into an insidious system.

    The database product purportedly is being built by members who appear in the parking lots of doctors’ offices, churches and giant retailers such as Walmart and Target to write down license-plate numbers or take photos with cell phones or video cameras of license plates for entry in the database.

    One of DNA’s leading pitchmen on conference calls has described the parking lots of medical facilities, places of worship and retail stores as wonderful places to gather data. He further suggested that members should behave in an inconspicuous fashion when gathering the data.

    DNA delayed its launch date twice in February. After its “free” data-collection program purportedly got under way in March, the company quickly began pitching other products to members, including a $127 upgrade that purportedly would improve the ability of “free” members to enter license-plate data into the system.

    The company said its “Pro” data-entry module was better than its “free” module. Prior to the introduction of the “Pro” module, “free” members did not know they would be receiving a data-entry tool the company itself described as a clunker.

    News about the “Pro” module began to spread March 10, only days after DNA told members who listened to an “Oscar” night conference call that the company’s “free” affiliates would “receive the same kind of commitment and respect from our DNA management team” as paid members received.

    DNA said its “Pro” module was part of a Business Benefits Package (BBP).

    “Upon close inspection of the B.B.P. you will find a minimum of 10 times the cost of such package to the end user in value savings and benefits,” DNA said in an email to members. “The two that stand out the most is (sic) the FREE 1000 REWARD DOLLARS with FREE REFILLS and the $402 Travel Agent Value Package for only $49.”

    In recent weeks, DNA mysteriously referred to its BBP package as the “BBB” package. Precisely why DNA would change the acronym of its package to the acronym associated with the Better Business Bureau was unclear.

    “6 OF THE 10 WILL BUY THE B.B.B. AND GET 1 OTHER TO BUY THE B.B.B. WITHIN 24 HOURS,” DNA declared earlier his month.

    Earlier, in April, the company announced that it was in the cell-phone business. The announcement came out of nowhere, and DNA boldly declared, “GAME OVER — WE WIN.”

    Without doing any checking, members raced to YouTube and Craigslist to announce that DNA was offering an unlimited cell-phone talk and text plan for $10 a month and, for $19.95 a month, was offering unlimited talk, unlimited text and 20 MB of data.

    DNA, which had no experience in the cell-phone business and yet declared it had slayed all competitors, later announced it had not researched pricing prior to announcing the plan.

    “[W]e found that there are no such service plans to be found by any carrier, anywhere on the planet, by any company in the industry,” DNA said in an email to members that un-announced the announcement weeks earlier of the $10 unlimited plan.

    DNA insisted it would have a new plan by May, but May passed without such a plan. The company then said it would have a plan in June. No such plan has emerged.

    A video on YouTube implied that DNA had a branding deal with Apple’s iPhone and that the phone would be called the “DNA iPhone.” The video asserted that DNA is the “ONLY Network Marketing Company With Branded iPhones.”

    Meanwhile, a separate YouTube video implied that DNA not only had an iPhone, but that the iPhone came with a “No Term Contract” for $10 a month.

    “You are Not in Kansas Anymore!” the second video screamed. “This is Global Baby!”

    Apple, which is known to defend its brand and intellectual property vigorously, did not respond to the PP Blog’s request for comment on the claims.

    DNA also has bragged about something called “RETIRE BY CHRISTMAS 2010 with DNA
    in “3″ to “6″ steps . . .” and various guarantees, including a purported “$100,000 DNA Minimum Income Guarantee” and a purported “$1,000,000 DNA Minimum Income Guarantee.”

    It is possible that the purported “income guarantee” exceeds the revenue DNA has posted to date. Like Narc That Car (Crowd Sourcing International), DNA’s purported Dallas-based competitor, the company publishes neither revenue figures nor the names of purported clients of the database product.

    The BBB has raised pyramid concerns about Narc/CSI.

    DNA also has urged members to imagine themselves driving 10,000 miles a year in pursuit of their DNA businesses to qualify for an IRS tax write-off of $5,000.

    In 2009, an MLM company known as YourTravelBiz (YTB) was enjoined in California from making tax claims under the terms of settlement of a pyramid-scheme lawsuit by Attorney General Jerry Brown that ordered the firm to pay $1 million.

    DNA has acknowledged that Phil Piccolo is part of its organization, and web records suggest Piccolo was actively involved in YTB. Separately, Narc That Car President Jacques Johnson was a director in YTB, according to court filings.

  • RECEIVER: Trevor Cook’s Story ‘Does Not Make Sense’; Ponzi Losses Expected To Top $139 Million; America’s Sad, Stunning Ponzi Tale Continues

    One of the Trevor Cook homes. From court filings in the SEC/CFTC case.

    Some of the investors in the Trevor Cook/Pat Kiley Ponzi scheme are none too pleased with Cook’s plea deal, which may place a ceiling of 25 years on any prison sentence he receives while tens of millions of dollars remain missing.

    One investor has told the PP Blog that a group of investors is seeking a meeting with prosecutors either to overturn the plea deal or delay Cook’s sentencing until more information becomes known. Cook, 38, is scheduled to be sentenced in Minneapolis July 26, one month from today.

    Cook pleaded guilty in April to mail fraud and tax evasion. Under the terms of the agreement, he is required to cooperate with authorities and R.J. Zayed, the court-appointed receiver, to unravel the scheme. Although Cook has met with both the government and Zayed, investors are concerned that he is incapable of telling the entire truth. Their concerns are based on his history of telling spectacular lies and thumbing his nose at both investors and the court by spending investors’ funds even after his assets were frozen in November 2009.

    Records from the National Futures Association (NFA) show that Cook has a history of scamming. In 2006, NFA fined Cook $25,000, saying he had committed a “very serious violation” in the manner in which he treated funds entrusted to him by an 80-year-old woman who was the guardian over her elderly sister. The case featured assertions of side-dealing and fabricated signatures on account documents. Read more about Cook’s NFA encounter here. Read more on yet-another case in which Cook’s name was referenced by NFA here.

    Before we get into the details of some of recent events in the Cook case, we’d like to provide a short capsule based on court filings. It has become clear that the Cook Ponzi scheme has caused financial pain for hundreds of people, including loved ones, and also has resulted in frustration — some of it of the needless and senseless variety.

    Such frustration surfaces in virtually all Ponzi cases, in part because the crimes can be extraordinarily elaborate even though the basic concept of a Ponzi is simple: tricking people into believing everything is on the up-and-up by using cash from new investors to pay earlier investors or duping people into rolling over their investments instead of taking distributions to keep the cash from drying up — all while the Ponzi schemer siphons funds and glad-hands and back-slaps with investors, politicians, bankers and others to create the illusion of success.

    At the end of the day, however, Ponzis are about people. They cause pain and frustration for every person and institution they touch.

    • Cook’s in-laws, Clifford and Ellen Berg of Apple Valley, Minn., received $948,848.36 from the scheme. Zayed recovered $726,650.38 of that sum, and then effectively sued the Bergs by seeking a court order for the balance of $222,197.98. The SEC, which had named the Bergs relief defendants in the case for receiving ill-gotten gains, backed Zayed in his efforts to recover the balance. Records show that the Bergs raised $194,000 to pay the receivership estate through the sale of two cars, the tapping of an IRA account and by taking out a mortgage on their cabin. They were given credit by the receivership for $13,500 from the sale of another vehicle, but still came up nearly $15,000 short of the sum needed to retire the receivership balance. If the shortage is not paid by Sept. 15, a judgment will be entered against the Bergs, who have retained the right to be treated as victims of their son-in-law and to file a claim for the principal they invested with Cook.
    • Zayed effectively had to sue Wells Fargo by seeking a court order to force it to turn over the relatively small sum of $9,275.22 from Cook’s bank accounts. This document is worth reading because it paints a picture of a receiver — Zayed — encountering frustrating resistance in his bid to round up assets for victims. Although the Cook/Kiley Ponzi is extremely serious business that has altered the lives of more than 1,000 people, the document linked to above is almost dolefully comedic. Zayed eventually had to file a 12-page legal document to force the return of the sum. Just 13 days after Zayed asked a federal judge to order Wells Fargo to return the money, he filed a three-page document advising the judge that the bank finally had turned over the sum — something he’d been trying to get it to do for months.
    • If you’re a victim of a Ponzi scheme or a loved one of a Ponzi schemer — such as Gina Cook, Trevor Cook’s wife — this document shows that your life may start to revolve around attorneys. No matter how you slice it, the result is conflict — legal, emotional or otherwise.

    Can Cook Be Trusted In Any Context?

    As noted above, some investors fear that Cook is incapable of telling the full truth. There is fear that he has stashed money and covered his tracks so well that he could emerge from prison and benefit from his crime — or perhaps permit insiders or unknown criminal colleagues to benefit from the fraud while he is jailed.

    International litigation can be an extremely complex thing. The Cook case, according to Zayed, has required the notarization of documents “under the Hague Convention standards.”