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  • BULLETIN: KABOOM x 1,215! Feds Announce ‘Operation Stolen Dreams’ Mortgage-Fraud Sweep; 1,215 Defendants Charged In Largest Mortgage Scammer Takedown In U.S. History

    Attorney General Eric Holder announced the creation of the Financial Fraud Enforcement Task Force last year.

    BULLETIN: UPDATED 1:10 P.M. EDT (U.S.A.) At least 1,215 criminal defendants have been named in “Operation Stolen Dreams,” which U.S. Attorney General Eric Holder described as a “three and a half month takedown of mortgage fraud schemes throughout the country.”

    The mortgage-fraud operation began March 1 and is the largest-such undertaking in U.S. history, Holder said.

    “The staggering totals from this sweep highlight the mortgage fraud trends we are seeing around the country,” Holder said. “We have seen mortgage fraud take on all shapes and sizes — from schemes that ensnared the elderly to fraudsters who targeted immigrant communities. We have seen cases that have resulted in dozens of foreclosures and millions in losses, as well as fraudsters who have bankrupted entire companies and national lenders who were not playing by the rules.

    Holder said the defendants caused more than $2.3 billion in losses. “Operation Stolen Dreams” was brought as part of President Obama’s interagency Financial Fraud Enforcement Task Force. The attorney general was joined in the announcement by Sallie Cooper, deputy director of the IRS Criminal Investigation Unit;  Ken Jenkins, special agent in charge of the U.S. Secret Service Criminal Investigative Division;  FTC Commissioner Edith Ramirez; Ken Donohue, inspector general of the U.S. Department of Housing and Urban Development; FBI Director Bob Mueller;  Illinois Attorney General Lisa Madigan;  Chief Postal Inspector Bill Gilligan; and Jim Freis, director of the Treasury Department’s Financial Crimes Enforcement Network.

    Investigators did not limit the operation to criminal cases.

    “[T]he operation involved 191 civil enforcement actions through which more than $147 million has been ordered recovered, with still millions more pending court approval,” Holder said.

    “This represents the largest collective enforcement effort ever brought to bear in confronting mortgage fraud,” he noted. “The success of this operation is a direct result of our unprecedented focus not just on federal criminal cases, but also on civil enforcement, recovering funds for victims and increasing cooperation with state and local partners.”

    Mueller said the FBI was “tracking” fraudsters aggressively.

    “From home buyers to lenders, mortgage fraud has had a resounding impact on the nation’s economy,” Mueller said. “Those who prey on the housing market should know that hundreds of FBI agents on task forces and their law enforcement partners are tracking down your schemes and you will be brought to justice.”

    Fraudsters lining their pockets at the expense of others have plenty to worry about, said Donohue.

    “The last several years have seen enormous and damaging developments in the mortgage and housing markets, and the government has stepped in to bolster unstable marketplaces and devastated communities,” Donohue said. “The HUD-OIG, in partnership with other agencies, is deeply committed to ensuring that scarce resources are not diverted to those who seek to enrich themselves at the expense of those who so desperately need assistance today.”

    Holder, who ventured to Florida in January and warned fraudsters that they were writing their own tickets to jail, also noted that law-enforcement had broken up yet another Ponzi- and affinity-fraud scheme in the state.

    Suspects were arrested in the case yesterday, which targeted Haitian-Americans in South Florida.

    Arrested were Maxo Francois, also known as “Max Francois,” Jean Fritz Montinard, Aiby Pierre-Louis and Maguy Nereus, also known as “Maguy Jean-Louis.”

    The scheme involved businesses known as Focus Development Center Inc. and Focus Financial Group Inc., also known as Focus Financial Associates Inc.

    Investors were promised annual returns of 15 percent, but it was a Ponzi scheme, authorities said.

    The fraudsters used church presentations to pitch the scheme, prosecutors said.

  • KABOOM! KABOOM! KABOOM! KABOOM! KABOOM! 5 Separate Federal Probes Lead To Dozens Of Fraud Arrests In Multiple States; 1 Case Alleges Nearly $2 Billion Scheme

    Lanny Breuer, assistant attorney general and head of the Criminal Division of the U.S. Department of Justice

    BULLETIN: The U.S. government has announced charges against at least 43 defendants in five separate financial-fraud schemes, the largest of which allegedly involved $1.9 billion and contributed to the collapse last year of a bank with 346 branches and a mortage-lending company in Florida.

    Smaller schemes in cases outlined by federal prosecutors today involved tens of millions of dollars, including a New Jersey real-estate Ponzi scheme that netted $45 million, a California mortgage-fraud scheme that netted at least $5.5 million, a second California scheme that netted an unknown amount and another real-estate fraud scheme in New Jersey that netted at least $5.5 million.

    The youngest defendant charged in the cases was 27; the oldest 77.

    Law-enforcement operations were centered in the states of Florida, New Jersey, Virginia and California, and involved multiple agencies working under the umbrella of the Financial Fraud Enforcement Task Force established by President Obama in November.

    Lee Bentley Farkas, former chairman of Taylor, Bean & Whitaker (TBW), was arrested last night in Ocala, Fla. Farkas was named in a 16-count indictment filed in Virginia that accused him of presiding over a $1.9 billion fraud scheme that contributed to the failures last year of Colonial Bank, one of the 50 largest banks in the United States, and TBW, one of the nation’s largest privately held mortgage-lending companies.

    “The fraud alleged here is truly stunning in its scale and complexity,” said Lanny Breuer, head of the Criminal Division of the U.S. Department of Justice.

    “According to the indictment, the fraud began as early as 2002 in an effort to conceal significant TBW operating losses,” Breuer said. “It then evolved over the course of seven years as Mr. Farkas and his co-conspirators sought to misappropriate hundreds of millions of dollars from Colonial Bank and Ocala Funding, a mortgage lending facility that was controlled by TBW and financed by large banks.”

    Farkas and unnamed coconspirators compounded the fraud by asking for bailout funds from the federal Troubled Asset Relief Program (TARP), prosecutors said.

    “That [TARP] application included materially false information, and no TARP funds were released,” said Breuer.

    The case was brought by the office of U.S. Attorney Neil MacBride of the Eastern District of Virginia.

    “Taxpayers have paid a hefty price for the crimes related to the current financial crisis, and investors in Colonial and Ocala Funding were among those directly affected by this conspiracy,” said MacBride.

    Neil Barofsky, the Special Inspector General of the TARP program (SIGTARP), said the banking scheme was unprecedented.

    “Due to the efforts of SIGTARP agents, our law-enforcement partners, and the SEC, this scheme was stopped dead in its tracks, taxpayers were protected, and Lee Farkas has joined the growing list of financial industry executives who have been charged with TARP-related frauds,” Barofsky said.

    In one of the separate alleged schemes in New Jersey, 28 people were charged. (See link below to read the names of the defendants in the cases, which involve at least $5.5 million.)

    “These cases demonstrate just how pervasive the mortgage fraud problem is in New Jersey,” said U.S. Attorney Paul J. Fishman.  “Mortgage fraud is not limited to people who steal millions at a time.  It is more insidious.  It is more pernicious.  And it is more prevalent. Mortgage fraud is often done at a retail level, and involves many different people playing many different roles.  No matter what your role, if you participate in this kind of scheme, you will be held accountable.”

    Among the 28 defendants are 12 real estate agents, four investors, four mortgage consultants, three individuals who allegedly created fraudulent documents, two accountants, a real-estate appraiser, a bank employee and a mortgage broker.

    A veteran FBI agent described the New Jersey cases as a battle in an ongoing war against fraud.

    “Today’s arrests do not signify the culmination of a single investigation, but rather serve as notice that law enforcement is aggressively pursuing mortgage fraud schemes in New Jersey,” said Michael B. Ward, special agent in charge.

    In the second New Jersey case, Antoinette Hodgson, 58, of Montclair, was arrested on charges of operating a $45 million Ponzi scheme involving false tales of property-flipping. (See earlier story.)

    Meanwhile, 13 people were charged in a California real-estate fraud cases. U.S. Attorney Benjamin B. Wagner announced the indictments of Hoda Samuel, 58, of Elk Grove, Calif.; Connie Devers, 40, of Elk Grove; Dana Faulkner, 43, of Oakland; Charles Robert Maness, 32, of Elk Grove; Tracy Painter, 50, of Lodi, Calif.; Sean Patrick Gjerde, 34, of Elk Grove; Ronald Burris, 36, of Elk Grove; Ygnacia Bradford, 34, of Oakland; Nicole Dawson, 40, of Oakland; and Daniel Harrison, 40, of San Diego.

    Gjerde is an attorney;  Samuel a licensed real estate broker and the head of Liberty Real Estate and Investment Co. and Liberty Mortgage Co. of Elk Grove .

    “From April 2006 through February 2007, Liberty was involved in approximately 30 residential real estate transactions in which the mortgage lenders were given false information as to the income of the purchasers and/or the value of the homes being purchased,” prosecutors said.

    “At least 28 of the properties have since gone into foreclosure, resulting in a loss to lenders of over $ 5.5 million,” prosecutors said.

    Also in California, Eric Ray Hernandez, 34, Monica Marie Hernandez, 29, and Evelyn Brigget Sanchez, 27 were indicted in a mortgage-fraud case. Each of the defendants lists an address in Bakersfield.

    Link to names of New Jersey defendants.

  • New Jersey Woman Charged In Alleged $45 Million Ponzi Scheme; Antoinette Hodgson Faces Decades In Prison If Convicted

    A New Jersey woman was arrested this morning on charges she fleeced more than 20 Greater New York investors by engineering  a $45 million Ponzi scheme involving purported real- estate flips, the FBI said.

    Antoinette Hodgson, 58, of Montclair, New Jersey, was accused of conspiracy and wire fraud amid allegations she recruited clients by telling them they were investing in her real-estate business, which purportedly acquired residential properties and then resold them at a profit or rented them before being sold at a profit.

    In fact, according authorities, Hodgson spent “hundreds of thousands of dollars at casinos in Atlantic City and Las Vegas,” gave “tens of thousands of dollars” to family and friends and used investors funds to buy a Dunkin Donuts franchise in Arizona for $700,000.

    Of the $45 million she gathered in the scheme, only $6 million went toward residential real estate. Most of the money was used immediately to repay investors in “classic” Ponzi fashion, authorities said.

    “Antoinette Hodgson allegedly has already proved she’s a lousy gambler by losing the investor’s money in the casinos,” said George Venizelos, acting FBI special agent in charge. “She has now gambled with her future and faces serious charges for a plot of her own making.”

    U.S. Attorney Preet Bharara, who put his Complex Frauds Unit on the case,  warned investors that high-dollar scammers are on the prowl for their cash.

    “What Antoinette Hodgson allegedly promised to investors seemed too good to be true and that’s because it was,” said Bharara. “This case is a further reminder that whether the real estate market is up or down, innocent investors can be and will be targeted by unscrupulous fraudsters.”

    Prosecutors encouraged victims and witnesses to come forward by contacting Wendy Olsen-Clancy, the Victim Witness Coordinator at the United States Attorney’s Office for the Southern District of New York. Olsen-Clancy can be reached at (866) 874-8900 or via email at Wendy.Olsen@usdoj.gov.

    Here is the website for victims and witnesses:

    http://www.usdoj.gov/usao/nys/victimwitness.html

    The case was brought as part of the undertakings of President Obama’s Financial Fraud Enforcement Task Force.

    “The FBI will continue to seek out those who engage in all types of fraudulent real estate deals, bringing about certain justice for them and clearing a path for those who work hard to uphold the standards of our justice system,” Venizelos said.

    Fraudsters “in every sector of our nation’s economy” are being pursued for prosecution, Bharara said.

  • INetGlobal Operator Steve Renner In Custody Of U.S. Marshals Service To Begin Sentence In Tax Case

    Steve Renner

    Steve Renner is in the custody of the U.S. Marshals Service, the agency said this afternoon.

    Renner, 55, was the operator of the INetGlobal autosurf. He was convicted of income-tax evasion in December 2009. On May 5, he was sentenced by U.S. District Judge Donovan Frank to 18 months in prison, although Renner was not immediately jailed after sentencing and was given permission to report on a date uncertain.

    His prison term appears now to have begun.

    Renner is listed by the Federal Bureau of Prisons as “in transit” to a federal detention facility. The name and location of the facility were not immediately clear, and the Marshals Service said it could not provide any additional details.

    INetGlobal continues to be under investigation by the U.S. Secret Service amid allegations Renner was operating an autosurf Ponzi scheme. Renner’s tax case was separate from the INetGlobal probe.

    Renner was indicted on the tax charges in September 2008, about a month after the Secret Service raided the Florida headquarters of AdSurfDaily, another alleged autosurf Ponzi scheme.

  • INetGlobal Enters Objection To Magistrate Judge’s Ruling Permitting Government To Approach ‘Current And Former’ Employees In Ponzi Probe

    Steve Renner

    The investigation into the business practices of INetGlobal is turning into a legal slog reminiscent of the AdSurfDaily autosurf Ponzi scheme case.

    In April, attorney Paul Engh filed a motion, saying he represented INetGlobal employees. Among other things, Engh sought an order that effectively would have blocked the U.S. Secret Service from interviewing the employees, as the agency’s Ponzi probe into the company moved forward.

    Engh asserted that, by contacting employees on a cold-call basis, the government was  conducting the investigation “on some federalist notion of superiority or entitled sense of un-accountability.”

    Prosecutors shot back in May, claiming INetGlobal was trying to derail the probe.

    “Mr. Engh indicates that he ‘was hired’ to represent these employees, but refrains from indicating who it was who hired him,” prosecutors said. They added that “many of [Engh’s] purported clients seem to have never spoken with him.”

    On May 28, U.S. Magistrate Judge Franklin L. Noel issued an order that required Engh to compile  “a complete list of the names of current and former Inter-Mark and iNetGlobal employees whom he purports to represent” and permitted the government to continue to contact both current and former employees.

    “Before interviewing current and former employees of Inter-Mark and iNetGlobal, law enforcement shall first ask each individual if he or she is represented by an attorney,” Noel wrote in the order.

    “If the individual responds that he or she is not represented by counsel, the interview may proceed,” Noel continued. “If, however, the individual indicates that he or she is represented by an attorney, law enforcement shall ask that individual for the name of his or her lawyer; at that time, questioning must immediately cease until such a time as the Government’s attorney obtains the consent of the lawyer named, whether Mr. Engh or otherwise, to communicate with the individual ‘about the subject of the representation.’”

    Last week, Engh filed an “appeal from the order,” saying the judge is misinterpreting the law and that INetGlobal employees are entitled to protection from “isolated and surprise contact” by the government.

    In February, the U.S. Secret Service said it believed INetGlobal operator Steve Renner was running an international Ponzi scheme through his affiliated companies that largely targeted Chinese members, including members from Mainland China. No criminal charges have been filed, but the government has seized about $26 million in the case, alleging wire fraud and money-laundering.

    Prosecutors later filed filed a forfeiture complaint against a San Diego property allegedly acquired for $595,000 by Inter-Mark in August 2009 with criminal proceeds from a Ponzi, wire-fraud and money-laundering scheme.

    Inter-Mark is INetGlobal’s Las Vegas-based parent company. INetGlobal operates from Minneapolis. Renner has denied wrongdoing.

    Donald Allen

    In late April, Donald W.R. Allen II, a former Renner employee, said he’d been contacted by the Secret Service and was cooperating in the probe “100 percent.”

    Allen complained that the company had blocked access to a public-affairs Blog he published and that he was being punished by the firm “for coming forward to answer ANY questions the Government has regarding iNetGlobal.”

    Renner then got a restraining order against Allen, asserting that Allen tried to extort $100,000 from the company and had engaged in a pattern of abusive behavior, including raising “havoc” with employees, threatening “to destroy him and his family,” posting libelous and defamatory material on the Internet and engaging in verbal harassment.

    Allen also was accused to taking pictures of Renner’s offices and employees without their consent.

    “[Allen] has attempted to extort $100,000 from Petitioner’s businesses [and] if not paid will go to the FBI and Secret Service,” Renner asserted.

    Allen denied Renner’s claims, saying Renner had made similar extortion claims against Steven Keough, INetGlobal’s former chief executive officer and potentially the government’s star witness in the case.

    Ponzi litigation against assets tied to AdSurfDaily has been under way for nearly two years. The government has been awarded title to tens of millions of dollars seized in the ASD case, but ASD President Andy Bowdoin has filed an appeal.

  • Richard Elkinson Ordered To Pay $29 Million In Ponzi Case; 77-Year-Schemer Still Jailed After Arrest At Mississippi Casino In January

    A 77-year-old man who fleeced clients by telling them he brokered contracts for a Japanese company that provided uniforms for the Winter Olympics, the Pan American games and the government has been ordered to pay $29 million in a civil case brought by the SEC.

    Richard Elkinson is jailed in Massachusetts after being arrested at a Mississippi casino in January. He is facing charges that effectively could lead to a life sentence, if convicted.

    Elkinson’s case drew headlines at the beginning of the year, after both state and federal investigators worked over the Christmas holiday in 2009 to expose the $28 million Ponzi scheme, according to records.

    “The investors received promissory notes signed by Elkinson, with terms that generally required payment within 300 to 330 days and with an interest rate that ranged from 9% to 13%,” the SEC said.  “Elkinson had no relationship with a Japanese uniform manufacturer, and there were no contracts to purchase uniforms.”

    It is possible that the scheme operated for at least 20 years before flaming out just prior to Christmas last year.

    The FBI was working the case on Christmas Eve, according to the criminal complaint. After securing purchase orders claiming the states of Connecticut and Georgia were among Elkinson’s customers, an agent called the phone numbers on the purported purchase orders.

    “In each instance, I encountered ‘disconnected’ messages,” the agent said.

    The investigation also revealed that Elkinson had an affinity for Las Vegas and claimed to have credit lines of $25,000 each at the Venetian, MGM Grand and Caesars Palace casinos.

    Elkinson, 76, of Framingham, was charged criminally with mail fraud. The Securities Division of the Massachusetts Secretary of State also is investigating Elkinson.

    Records in Las Vegas casinos show that Elkinson had “conducted a total of more than $3.7 million in transactions over $10,000″ since 1998, prosecutors said. The Ponzi scheme began to collapse last year, and Elkinson missed a meeting with investors in December, and stopped answering his phone.

    See earlier story.

  • Long Prison Terms Ordered In California Ponzi Scheme Cases In Which Operators Threatened Or Attempted Suicide; Roberto Heckscher Gets 20 Years; Patricia Morgen Gets Nearly 16 Years

    EDITOR’S NOTE: This is a brief on two Ponzi cases in California that led to suicide attempts or threats. Among other things, the case of Roberto Heckscher demonstrates both the danger to life that collapsing Ponzi schemes pose and the fallacy that no Ponzi scheme exists as long as people are getting “paid.” The fallacy routinely is perpetuated on Internet Ponzi boards such as MoneyMakerGroup, TalkGold, ASAMonitor and MyCashForums. Indeed, the Heckscher investment-fraud and Ponzi scheme dates back to at least 1979, perhaps making it the longest-running scheme on the Feds’ radar screens. Meanwhile, the Ponzi case against Patricia Morgen and Chicago Development and Planning also mixes in elements of mortgage fraud. Among other things, the Morgen case demonstrates that Ponzi = Pain. Indeed, Morgen initially fled to Mexico when she came under investigation. She later returned — and threatened to jump from the top of a multistory building in Chicago.

    Two Ponzi schemers whose cases were brought in federal court in Northern California have been sentenced to long prison terms. The unrelated cases of Roberto Heckscher and Patricia Morgen destroy myths, expose secret lives and demonstrate that Ponzi schemes can separate purveyors from their senses.

    Roberto Heckscher, 55, projected himself during the business week as a mild-mannered accountant and strategist who served elderly and middle class clients in the San Francisco area. On weekends, however, he morphed into a Las Vegas gambling “whale” treated to the best amenities by the casinos.

    Heckscher conned family, friends and clients into providing money that purportedly would be used to provide short-term commercial loans to clients. Investors were told they’d earn interest on the loans.

    The scheme, which gathered up to $100 million, dated back to 1979, prosecutors said. At least 292 investors lost a total of at least $52 million in the scheme.

    “For nearly three decades, Roberto Heckscher made his livelihood by stealing the hopes and dreams of the people he knew,” said U.S. Attorney Joseph P. Russoniello.

    Heckscher’s sentence of 20 years for mail fraud “should send a strong message to everyone” that “preying on the trust of hardworking people for personal gain will land you in prison,” Russoniello said.

    But Heckscher almost did not live to see the long-running scheme exposed in the plain light of day. That’s because he tried unsuccessfully to kill himself in June 2009 by overdosing on sleeping pills.

    U.S. District Court Judge Susan Illston handed down the sentence. Heckscher, who owned Irving Bookkeeping & Taxes, was charged criminally and pleaded guilty in October 2009, about four months after he tried to take his own life.

    Patricia Morgen, meanwhile, was sentenced to 15 years and eight months in prison after admitting she created a real-estate Ponzi scheme that solicited investors for Chicago Development and Planning. She also was ordered to pay more than $9 million in restitution. The case has more than 400 victims.

    Investors were promised “substantial, guaranteed return profit payments,” prosecutors said.

    In addition to the real-estate Ponzi scheme, Morgen also engaged in mortgage fraud, prosecutors said.

    “Morgen and a co-defendant submitted fraudulent loan applications to acquire more than 20 properties, most of which were occupied, rent-free, by Chicago Development and Planning employees, including Morgen herself,” prosecutors said.

    Morgen, 63, initially fled to Mexico. She was indicted in November 2008. Although she later returned to the United States, Morgen hid from authorities.

    She was arrested in Chicago in June 2009, after threatening to jump off a multistory building, prosecutors said. Her son, Shalom Gibson, was indicted in Nevada for destroying evidence in the case, and remains at large.

    U.S. District Judge Charles R. Breyer sentenced Morgen, who pleaded guilty in December 2009 to wire fraud, mail fraud, and money-laundering.  Breyer described Morgen as “a very dangerous person,” prosecutors said.

    The sentence “underscores the severity and impact of this sort of crime on our entire community,” said Stephanie Douglas, FBI special agent in charge.

    “Ms. Morgen betrayed the trust of hundreds of investors, injected bad debt into the economy, and fled the country when faced with the prospect of being held accountable for her actions,” Douglas said.

    Greedsters running investment-fraud schemes have plenty to worry about, said an IRS criminal investigator.

    “Your greed will not go undetected and unpunished,” said Scott O’Briant, special agent in charge of the IRS-Criminal Investigation unit.

    In recent weeks, at least three suicide attempts by Ponzi schemers have been outlined in federal cases.

  • Now, A ‘Belgian Royalty’ Ponzi Scheme; SEC Says Guy Albert de Chimay Used Investors’ Funds To Pay Divorce Lawyer, ‘Massive’ Credit-Card Bills, Rent, Payroll

    UPDATED 9:31 A.M. EDT (U.S.A.) Saying Guy Albert de Chimay and his unregistered investment-advisory business “simply stole” clients’ funds while telling investors their money was safe with the “U.S. investment arm of the Chimay royal family of Belgium,” the SEC has gone to court in New York to halt what it described as a massive fraud.

    Separately, Chimay, 47, was arrested in North Carolina after being indicted by prosecutors in New York on charges of forgery and grand larceny. Chimay claims to be a cousin to a Belgian prince, according to court documents.

    In an emergency action, the SEC is seeking to freeze the assets of Chimay and Chimay Capital Management Inc. and obtain an order to repatriate assets to the United States. The SEC has advised a federal judge that Chimay was operating a fraudulent “bridge loan” scheme in which investors were told their money would be used to make loans to creditworthy borrowers locked out of the banking system owing to the “credit crisis.”

    “Chimay used the trappings of royalty to perpetrate the most common of frauds,” said George S. Canellos, director of the SEC’s New York Regional Office. “Chimay blatantly lied to investors about nonexistent investments and then used their money to bankroll his exorbitant personal and business debts.”

    Although the number of victims is not yet known, the scheme netted Chimay and his company at least $6 million. Some of the money instantly was used in “classic Ponzi scheme fashion” and “diverted to payoff disgruntled counterparties in Defendants’ other business ventures,” the SEC charged.

    In some cases, the SEC said, money sent in by investors lured by the promise of an annual return of 12 percent was diverted the very same day it was received.

    On April 21, 2009, a client the SEC described as “Investor A” wired an initial BLF [Bridge Loan Facility] investment of $500,000 to a Chimay-controlled account at Goldman Sachs Execution and Clearing,” the SEC said. “The GSEC account had been opened in March 2009 and contained only $10,000 when Investor A’s funds were deposited. At the time of his investment, Defendants represented to Investor A that the size of the ‘bridge loan’ pool into which he would be depositing his funds was $50 million.

    “On the same day Investor A transmitted his funds to Defendants, the SEC continued, “Chimay instructed his introducing broker to direct GSEC to wire the bulk of Investor A’s investment to three external accounts: (i) $289,000 for “legal fees – re Chimay” to the . . . account of the New York law firm representing Chimay in a divorce proceeding in New York state court; (ii) $61,000 to a TD Bank account maintained by Chimay Capital for purported use as generic ‘working capital’; and (iii) $100,000 to another entity to satisfy Chimay Capital’s unrelated contractual obligation to provide operating capital to the entity.”

    Wanting to invest more with Chimay less than a month later, Investor A wired an additional sum of $170,000 to the GSEC account on May 12, 2009, the SEC said.

    On the very same day, Chimay “directed that $140,000 be wired to a Chimay Capital (Int’l) account at TD Bank,” the SEC said. “Later that day, after the $140,000 had been received at TD Bank, $90,000 of Investor A’s investment were transferred to Chimay’s personal account at TD Bank, where it was thereafter used to subsidize Chimay’s costly personal and living expenses, including his mortgage, car payment, credit card payments, utilities and cash withdrawals.”

    A client described by the SEC as “Investor B” entrusted more money to Chimay than did Investor A, and was fleeced in similar fashion, the SEC said. The agency added that the transaction was routed through Bermuda, and that the Bermuda Monetary Authority had provided assistance in the probe.

    “Investor B invested $2 million in the BLF in October 2008 by wiring his investment to an account at Butterfield Bank in Bermuda,” the SEC said. “Among other things, Investor B’s funds were used to fund a $200,000 personal check made out to Defendant Chimay, which he deposited the same day into his personal checking account at TD Bank.

    “Chimay thereafter used Investor B’s money to make tens of thousands of dollars in rapid fire payments to Chrysler Finance, American Express, Indymac Bank, and Capital One,” the SEC charged. “Investor B’s funds were also used to pay $330,000 to another investment firm to meet Defendants’ contractual agreement to provide operational capital to the firm, and to pay Chimay Capital’s rent and payroll in November 2008.”

    Described as “[o]blivious to the fact that his money had been diverted for improper purposes, and still under the belief that he would receive safe and steady returns of 12%, Investor B entrusted another $2 million to Chimay in January 2009, the SEC said.

    “The day after Investor B wired his second $2 million investment to Butterfield Bank on January 29, 2009, Defendants transferred approximately $1.8 million from the account to another Butterfield account controlled by Chimay. Chimay thereafter immediately used Investor B’s funds to make a payment of $250,000 to his divorce counsel, and to fund the $643,000 redemption of an investor in a Chimay Capital hedge fund.”

    Other investors identified by the SEC with a letter of the alphabet suffered similar fates, the agency said.

    One of the investors — “Investor D” — became worried, and asked Chimay to provide proof the money had been invested as advertised, the SEC said.

    “In order to reassure Investor D that Defendants had ample liquidity, and that Investor
    D’s BLF investment was safe, on October 5, 2009, Chimay provided Investor D with a bank
    account statement from Butterfield Bank purporting to show liquid assets of approximately $14 million,” the SEC said.

    “The Butterfield statement was fraudulent; the actual account balance was zero,” the agency said.

    In reverse-engineering Chimay’s dealings with Investor D, the agency discovered that nearly all of the $1 million investment made in August 2009 had been misappropriated, the SEC said.

    “Defendants misappropriated Investor D’s funds by, among other things, using them to make a $500,000 payment to a third party that had loaned Defendants approximately $1.4 million in July 2009 to purchase shares in a technology company,” the SEC said. “Defendants also misappropriated Investor D’s funds to make a $339,000 payment to the firm that had served as the custodian of the Spartan Mullen funds, which Defendants claimed to have liquidated in March 2009.”

    In July 2009, Chimay and his company claimed to have $200 million under management and to have served as custodian for the Bermuda-based Spartan Mullen Chimay funds, which the SEC described as “now-defunct hedge funds.”

  • UPDATE: PP Blog Stories Lost In Migration To New Hosting Platform Retrieved; Some Problems Related To Platform Migration Still Unresolved

    Dear Readers,

    As we noted here, our migration to a new hosting platform — undertaken by our hosting company on Friday — resulted in some problems.

    In the hours after the migration, we were unable to retrieve data on posts between June 2 and June 11 that somehow went missing. We reassembled data on these posts this morning and re-posted them manually.

    Although we have re-published the posts, they are not at their original URLs. At the moment, it is unclear if and when a fix will be provided that returns the posts to their original URLs. We are expecting that the host will  restore the database to its former state through an automated process.

    Here are a few things you should know:

    • Those of you who subscribe to our email feed may receive content that you’ve already viewed because we republished the lost posts at different URLs. We expect that this will happen just once — tonight — but cannot rule out that it will happen again if the database is restored to its former state.
    • Some database “clutter” — strange-looking symbols, etc. — may appear in the republished posts. We sought to edit out the clutter during the republishing phase, but there was a lot of it.
    • The act of republishing the posts brought with it certain issues that could be confusing. For example, the posts may use words such as “today” or “Wednesday” or “tomorrow,” but because the republication date lists today’s date, the references could be confusing.
    • We thought it best to republish the posts, and will add a note to them that asks readers to check this thread for an explanation on why the posts might not reflect current events.
    • It is possible that the republished posts as they currently appear are not the final versions that appeared when they were published originally. We had to examine many pages of data to republish the posts. It is possible that we missed the “final update.” For example, if we published a post on a Tuesday, learned more information on Wednesday, and added an “UPDATE” line and additional details to the post, it is possible that the republished post does not include this information.

    Meanwhile, our Contact Form — which also was affected by the migration — still is not working. At the same time, our ability to retrieve email has been affected to a degree. For now, we are unable to retrieve email through our normal means, and are relying on a secondary retrieval system.

    It appears as though we’ll be able to resume a normal publishing schedule, now that we’ve manually restored the “lost” stories. There are still some glitches, however.

    Comments that once appeared below the stories when they were published at their original URLs remain in the database. We likely will not seek to restore them to place them below the new URLs because the process will be too time-consuming. It is our hope that all the original URLs of the stories and the comments will be restored in the coming days.

    We regret the inconvenience this has caused readers and posters, and we apologize for that inconvenience. The problems started Friday evening and basically knocked us offline for several hours.

    We have been able to make some manual “repairs,” but still do not have the functionality we enjoyed prior to the migration.

    Patrick

  • Affiliate Links Show That Surf’s Up Mod And ASD Members Hold High Positions In Upstart Surf: Things To Consider If You Are Tempted To Join AdPayDaily

    Alfred E. Neuman: From Wikipedia.

    Dear Readers,

    We have received a few inquiries about a new surfing program called AdPayDaily (APD). Our initial take is that the program is a dressed-up version of AdSurfDaily, AdViewGlobal, BizAdSplash and AdGateWorld and that the operators are persuaded they’ve found a word combination and legal structure that will neutralize critics and law enforcement should concerns about the sale of unregistered securities and a Ponzi and pyramid scheme be raised.

    AVG, BAS and AGW were positioned by former ASD members as offshore “clones” of ASD. APD, like ASD, appears to be operating in the domestic United States.

    In our view, APD’s presentation raises numerous red flags. At a minimum, it is starting out as an MLM absurdity, if not a potential monstrosity. To get a flavor of the absurdity, imagine that Walmart was clueless enough to start an autosurf and provide a corporate-approved greeter who says, “Welcome to Walmart Pay Daily. We count all the money out of sight in the back room at midnight to determine how much you get, and keep 50 percent of the cash for ourselves. Don’t worry. We have excellent lawyers, and we’ve instructed the money-counter not to rip you off.”

    That’s effectively what APD is saying.

    Another red flag is the fax number listed on a document APD refers to on its website as “Ad Pay Daily’s Conference Registration Form For July 30th and 31st 2010.” The fax number is listed online as a number used by a Kansas real-estate flipping company billed as National Flips. Like APD, the National Flips domain registration is hidden behind a proxy, although the website says this: “To learn how to become a Hard Money Lender and earn 30+% per annum, call [a telephone number] . . .”

    Meanwhile, the invitation for the APD conference that uses the National Flips fax number says this — not once, but twice: “Any person who does not provide photographic proof of identity will not be permitted to attend this event, so don’t forget your photo ID.”

    Why a photo ID would be required to attend a sales pitch for an advertising company is left to the imagination. Undercover Secret Service agents have been known to attend such functions, however.

    Virtually every autosurf that has come along has used strange approaches or applied language tweaks designed to skirt securities laws, disarm critics and sanitize the “opportunities” for prospects. Serial autosurf promoters are infamous for telling prospects that a particular surf has found the magic pill that makes everything legal. Historically they rely on the surf operators to provide a legal cover. When things go south, they claim no one can blame them for promoting the schemes. After all, they relied on the assertions of the operators that everything was above-board and legal. They have been disingenuous in the same way that Alfred E. Neuman, Mad magazine’s fictional mascot, was disingenuous.

    “What, me worry?”

    Worry, however, appears to be front-and-center at APD, which is preemptively denying in multiple places that it is a Ponzi scheme. This strikes us as a big red flag. There are others.

    ASD, Surf’s Up Members Become APD Players

    During its early research into APD, the PP Blog has determined that a number of members of the alleged AdSurfDaily autosurf Ponzi scheme have high positions in the APD venture. Some of the former ASD members hold more than one position in the top 80 positions in APD, including a former Surf’s Up Mod who appears to hold positions 76 and 77. It is possible that another Surf’s Up Mod also is high up in the pecking order of APD affiliates at No. 56.

    The Blog determined the names of APD promoters by researching the method by which APD creates affiliate links. At least one ASD member who made himself part of the ASD Ponzi litigation by submitting pro se pleadings holds positions 9 and 10 in APD, according to the affiliate links.

    Surf promoters are not fond of pointing out the pain of previous prosecutions of autosurfs and the time-consuming and expensive litigation involving both the government and court-appointed receivers that may occur when a surf collapses. It is not uncommon for millions of dollars to go missing in a surf.

    ASD’s Andy Bowdoin has told members that he has spent more than $1 million in his legal defense. Nothing (other than GIGO passed along by promoters) suggests Bowdoin was a man of means prior to the Secret Service raid on ASD’s headquarters in August 2008. His money for his defense appears to have come from ASD members. On a side note, Bowdoin tried to persuade members in September 2009 that the million dollars he dropped to keep himself out of prison was for their benefit. At the same time, he claimed his fight with the government was inspired by a former Miss America.

    ASD gathered at least $65.8 million. When the sum seized in the Golden Panda Ad Builder action, which is part of the ASD litigation, is factored in, the number surges to more than $80 million. That’s a big number, of course — one that shows why others want to start surfs and just tweak and tweak and tweak in search of the elusive magic pill.

    APD’s website was registered on Nov. 18, 2008. That’s just one day before U.S. District Judge Rosemary Collyer ruled that ASD had not demonstrated it was a lawful business and not a Ponzi scheme. APD’s domain-registration date also coincides with a string of registration dates by the so-called ASD clones:

    • Aug. 18, 2008: Domain name for AdGateWorld registered. (About two weeks after the ASD raid by the U.S. Secret Service, which is working in concert with the IRS and federal prosecutors.)
    • Sept. 22, 2008: Domain name for AdViewGlobal registered. (AVG had very close ties to ASD.)
    • Nov. 7, 2008: Domain name for BizAdSplash registered. (ASD and Golden Panda figure Clarence Busby purportedly was both the “chief consultant” and owner of BAS.)

    APD’s domain was registered just 11 days after the BAS domain was registered and only a couple of weeks before ASD declared that the now-defunct Surf’s Up forum was its official organ for ASD news. Surf’s Up became infamous for shilling for Bowdoin, fracturing the facts of the ASD wire-fraud and money-laundering case and misinforming members.

    Each of the surfs in the bullet points above failed spectacularly. Each of them blamed members for their problems. Each of them had promoters and members in common with ASD. Each of them also offered various “bonuses” to join — something APD is doing at the moment.

  • BULLETIN: SEC Accuses Four Canadian Businessmen, Two Florida Attorneys Of Perpetrating $300 Million Ponzi Scheme

    Question: What’s the second-largest Ponzi scheme in the news in South Florida this week?

    Answer: The alleged $300 million Ponzi scheme perpetrated by Milowe Allen Brost, Gary Allen Sorenson and Bradley Dean Regier of Calgary; Ward K. Capstick, a Canadian citizen who lives in Snohomish, Wash; Larry Lee Adair of Fort Lauderdale, Fla., and Martin M. Werner of Boca Raton, Fla.

    Adair, 62, is a Florida attorney who served as president of Syndicated Gold Depository Inc. (SGD), one of the companies implicated in the alleged scheme. Adair was SGD’s president between December 2001 and at least December 2003, and “continued to act in furtherance of the scheme through at least March 2007,” the SEC said.

    He is accused of using his trust account to manage “the flow of investors’ funds” to Sorenson.

    Despite the alleged dollar volume of $300 million in the scheme, it was only the second largest Ponzi case in the news in South Florida this week. Scott Rothstein, also a Fort Lauderdale attorney, was sentenced to 50 years in prison for his Ponzi scheme yesterday.

    It has been an embarrassing week for the legal community in Florida.

    Werner, 53, also is a Florida attorney. He became SGD’s president in 2007 and is accused of being present at meetings in which “the insiders discussed and implemented the scheme,” the SEC charged.

    The SEC announced the spectacular civil allegations against the six men today. Also named defendants in the complaint were four companies: SGD, Merendon Mining Corp. Ltd., Merendon Mining (Nevada) Inc., and the Institute for Financial Learning Group of Companies Inc.

    Brost, 56, and Sorenson, 66, are the principal defendants. Capstick, 44, was accused of being a so-called “structurist” who recruited other structurists to pitch the allegedly bogus offerings.

    Regier, 40, was a bookkeeper and accountant for a Brost-created marketing entity, the SEC said.

    Sorenson’s wife and daughter were named relief defendants, meaning the SEC believes they were on the receiving end of ill-gotten gains from the scheme.

    The scheme began in 1999, the SEC said.

    “Brost and Sorenson orchestrated a complex, far-reaching fraud disguised by a labyrinth of companies and foreign bank accounts they used to hide their misconduct from investors and law enforcement,” said Donald M. Hoerl, director of the SEC’s Denver Regional Office.

    “Unbeknownst to investors, they were actually investing in shell companies owned or controlled by Brost or Sorenson,” the SEC said. “Investor funds were often transferred multiple times through numerous bank accounts held as far away as Asia, Europe and South America, and then ultimately used to make ‘interest payments’ to investors, fund the few unprofitable companies that actually had operations, and personally enrich Brost, Sorenson and others involved in the scheme.”

    Investor money “whirled through accounts located in the U.S. and Canada as well as the Bahamas, Belize, Bermuda, Ecuador, Honduras, Malaysia, Panama, Peru, Portugal, and Venezuela,” the SEC said. “Brost and Sorenson diverted investor funds for their personal benefit, using millions of dollars to purchase and renovate extravagant homes, ranches, and recreational vehicles. Sorenson also purchased and outfitted a luxury fishing resort in South America.”

    More than 3,000 investors were fleeced in the scheme, the SEC said.

    On two occasions in recent months, FBI Director Robert Mueller has warned Congress about the emergence of shell companies as outlets to perpetrate fraud.

    Read the SEC complaint.

    Read a brief story from December 2009 that references allegations against Brost and Sorenson in Canada.

    NOTE: This story has been republished at a URL that is different than its original URL. Although this post reflects a date of June 13, it is not the original publication date. Click here to read why.