AdSurfDaily mainstay “Professor” Patrick Moriarty has pleaded guilty in federal court in Missouri to filing a false tax return, federal prosecutors said.
“The total tax loss admitted by [Moriarty] is $135,697,” prosecutors said.
Prosecutors initially brought multiple tax-fraud counts against Moriarty, saying in March 2009 that he had filed false returns for the years 2002, 2003, 2004 and 2005. He pleaded guilty to the 2003 count, and faces a maximum sentence of three years in prison and a fine of up to $250,000.
Moriarty’s trial had been set to get under way this week, but he entered a plea instead. Prior to trial, prosecutors said they had “voluminous†evidence, including seven 4-inch binders of records and records from an unspecified casino.
Moriarty entered the plea before U.S. District Judge Jean C. Hamilton of the Eastern District of Missouri, according to Acting U.S. Attorney Michael W. Reap.
Along with members of the Pro-AdSurfDaily Surf’s Up forum, Moriarty formed a nonprofit organization known as ASD Members International (ASDMI) in October 2008. Among ASDMI’s claims was that it would litigate against the government in the ASD case, even if the government was behaving legally.
At least 167 ASD members gave money to ASDMI, but no litigation ever was filed. ASDMI disbanded in January 2009, less than three months after organizing.
Moriarty, who once sold fake academic degrees on eBay, explaining they were gag gifts, used the title “Rev†and purported to be the “minister†of the Universal Life Church (ULC) of Troy, Mo. He listed his qualifications as a Ph.D. and a D.D., and noted he also is an accountant and “Tax Return Specialist.â€
The credentials were listed on a church-provided website, which included a link by Moriarty to MLM opportunities.
ULC has been the subject of controversy. The church ordains up to 10,000 individuals per month, without charging a fee or holding any classes. Advanced degrees can be obtained for as little as $29.95 with little academic effort, according to ULC’s Wikipedia entry.
Moriarty advanced the legal theories of Curtis Richmond in the ASD case. Among Richmond assertions were that prosecutors were guilty of interference with commerce for disrupting ASD’s operations.
Dubbed a “hero” on Surf’s Up, Richmond is associated with a Utah “Indian” tribe a federal judge ruled a sham in a separate case. Public officials successfully sued Richmond and other “tribe” members under federal mail fraud and racketeering statutes, saying they had been targeted in a vexatious legal campaign that resulted in a bogus judgments for spectacular sums being placed against the officials.
A bogus judgment of $250 million was placed against a local prosecutor in the Utah case.
Richmond signed a bogus “arbitration” award of more than $300,000 against a family-services worker, according to court records.
Moriarty and Surf’s Up led a letter-writing campaign to Sen. Patrick Leahy, chairman of the Senate Judiciary Committee. The campaign sought Leahy’s support in advocating for ASD, an alleged Ponzi scheme, and sought the Senate’s help in investigating the ASD prosecutors.
Prior to his Senate career, Leahy had been named one of the top three local prosecutors in the United States. Even as Moriarty and Surf’s Up members were writing letters, Leahy was calling for U.S. fraud laws to be strengthened.
See this story from February 2009 about the Moriarty/Surf’s Up letter-writing campaign to Leahy. In a letter to Leahy, Moriarty claimed that “[o]ver 50 individual and notarized DEMAND[S] FOR LEGAL EVIDENCE were sent to Jeffrey Taylor, US Attorney; William Cowden, Assistant US Attorney; and Roy Dotson, Special Agent, US Secret Service.â€
EDITOR’S NOTE: These briefs are based on information from recent Ponzi or fraud schemes. As noted yesterday and previously, the United States has formed a Financial Fraud Enforcement Task Force. Cases such as the ones below are part of the reason why.
SOUTH CAROLINA AND TENNESSEE: Among the more than 30 victims in the Oren Eugene Sullivan Ponzi scheme case in South Carolina were five widows, two Alzheimer’s patients and an individual with developmental impairments, the Financial Industry Regulatory Authority (FINRA) reported.
Separately, The Herald newspaper of Rock Hill, S.C., reported that one of the victims was a “woman in a wheelchair, legs amputated, who is retired from a Christmas ornament plant.
“She gave Sullivan tens of thousands of dollars,” the newspaper reported.
“At least eight of the affected clients were over 80 years old and another four were over 70 years of age,” FINRA reported. “Numerous victims considered Sullivan a close family friend.”
Sullivan’s case “shocks the conscience,” said Susan L. Merrill, FINRA executive vice president and chief of enforcement.
At the same time FINRA banned Sullivan, it also banned William Walter Spencer Sr., of Franklin, Tenn.
Over 11 years, Spencer “borrowed” nearly $2 million in a promissory notes Ponzi scheme from elderly members of his church and from customers of his employing broker-dealer, Wiley Bros.-Aintree Capital LLC, FINRA said.
“All of the individuals from whom Spencer borrowed funds were of modest means,” FINRA said.
Among his targets was a 62-year-old school bus driver for special-needs children who gave Spencer $60,000 after her husband’s death.
“Spencer used the loan to repay other customers,” FINRA said. “Another customer faced the threat of foreclosure on his home due to Spencer’s failure to repay the $12,250 loan he made. To avert the pending foreclosure, Spencer used funds from another customer to make the payment owed. An 80-year-old customer loaned Spencer $20,500. She later needed to make repairs to her home, but was unable to do so because of Spencer’s failure to repay the principal and interest due.”
Merrill did not mince words when describing the Spencer and Sullivan schemes.
“The misconduct of these brokers was nothing short of egregious — and their financial exploitation of the elderly, the infirm and people who considered them trusted friends shocks the conscience,” she said.
OKLAHOMA: On Nov. 25, we published an early report on an alleged financial and affinity-fraud scheme in Oklahoma that targeted ethnic Chinese. Named in litigation by the CFTC was Kenneth Lee, who was imprisoned between 1996 and 2001 after being convicted in Texas of two financial felonies.
Lee also had a $3 million civil judgment placed against him in the 1990s in a fraud case, CFTC said. Also named in the complaint was Lee’s alleged business partner, Simon Yang, who was accused of hatching a new scheme with Lee in 2003 that targeted members of Yang’s church in Edmond, Okla.
Information shown prospects to get them to join the scheme claimed Lee was an exceptional trader. But when investigators reverse-engineered literature about Lee’s alleged prowess, they discovered that Lee was in prison during a time in which Lee and Yang claimed Lee was “achieving great returns,†CFTC said.
Investors were told accounts were “insured,” CFTC said. It’s a common claim in various fraud schemes, and sometimes the schemers claim or imply that banks, other lending institutions and even the government protects individual investment accounts against trading or investment losses.
Or, put simply, the schemers say or imply there is no way an individual investor can lose because a lending institution or the government backs the program. Such claims were present in both the alleged Lee/Yang fraud scheme in Oklahoma and the alleged AdSurfDaily Ponzi scheme in Florida.
In ASD’s case, an upline group implied that the FDIC insured individual members’ ASD accounts. The same upline group also claimed that ASD provided “shelter” from the FTC and the SEC.
The Edmond Sun newspaper — as part of its reporting on the alleged Lee/Yang fraud — interviewed experts who said such claims should be viewed as a red flag.
“There are never any kind of guaranteed investment returns associated with any investment account and no investment account of any kind is ever FDIC insured by the financial institution,â€Â Nick Massey told the newspaper.
Massey is regional vice president of Edmond, Householder Group Financial Advisors.
“If anyone ever suggests that, you should turn around and run, and then run to the authorities to report it,†Massey said.
See this story to get a free PDF that compiles President Obama’s Executive Order forming the Financial Fraud Enforcement Task Force and a speech by Attorney General Eric Holder.
UPDATED 11:50 A.M. ET (U.S.A.) There were reports yesterday that things have become so strange at Florida-based AdSurfDaily that a convicted sex offender has emerged as a sort of PR voice for the company. ASD is implicated by the Department of Justice in a $100 million Ponzi scheme, amid allegations of wire fraud, money-laundering and the sale of unregistered securities. Two forfeiture complaints filed against the firm in 2008 also cite a racketeering statute.
After 17 months, more than 165 court filings — some of which can only be described as bizarre — and more than $1 million spent on legal fees by ASD President Andy Bowdoin, the company lost one of the forfeiture cases this week. It was filed by federal prosecutors and the U.S. Secret Service in August 2008, and is the “bigger” of the two cases.
“Bigger,” of course, is a relative term. For the purposes of this post, “bigger” is defined only as involving more money. A second forfeiture case filed by federal prosecutors and the Secret Service in December 2008 involves less money — but is equally grave. In some ways, the second case, which had not been adjudicated to conclusion but may be soon, is even graver than the August 2008 case. The December case defines Bowdoin family members and unnamed others as the beneficiaries of ASD’s fraud. The December case puts the alleged beneficiaries of the fraud squarely in the sights of a potential criminal prosecution for felonies that could lead to prison time.
We believe Bowdoin is more worried about the December case than he is the August case — even though no claims ever were filed in the December case. The names of his wife, his stepson and his stepson’s wife are mentioned repeatedly and prominently in the December case. Prosecutors also have hinted that they are very well aware of the AdViewGlobal (AVG) autosurf, which has Bowdoin family and promotional ties and rose to early prominence after ASD’s assets were seized, a racketeering lawsuit was filed against Bowdoin, a key court ruling went against ASD — and after Bowdoin had chosen to surrender his claims to the money seized in the August 2008 complaint.
Bowdoin then changed his mind, attempting to reassert his claims to the money seized in the August complaint by re-entering the case as a pro-se litigant. Bowdoin’s former paid counsel — a prominent law firm — informed the court that Bowdoin did not consult with it before filing the series of pro se motions.
None of Bowdoin’s pro se motions made an ounce of sense. They were so unclear, in fact, that the judge had to construe a meaning, which is to say what Bowdoin was attempting to do was not clear on the face of the motions. At one point, he appears to have attempted to reverse a decision he never made — namely, to submit to the forfeiture outlined in the December 2008 case. Bowdoin did not file a single document to gain standing in the December case or to make a claim — in fact, no potential claimant did.
And yet Bowdoin seems initially to have tried to overturn a forfeiture to which he never had submitted. Only later did Bowdoin file a specific pro se motion to overturn the August forfeiture. ASD members were so fixated on the August complaint — the “bigger” one in money terms — that they missed the nuclear danger of the December complaint. Lots of potential jail time is described in the December complaint.
Here is Bowdoin’s initial pro se filing to rescind the forfeiture, which was entered into the record Feb. 27, 2009. This motion addresses only property seized in the December 2008 complaint. Bowdoin never even established standing in the December case. Neither he nor attorneys employed by him or family members filed a single document in the case. So, as noted above, Bowdoin initially tried to overturn a forfeiture in a case in which he had no standing and perhaps would have trouble even gaining standing.
His pro se motions were a trainwreck and created even more problems for ASD. The judge ordered Bowdoin’s soon-to-be-former counsel to state their intentions and to instruct Bowdoin on important matters of law before asking for formal permission to withdraw from the case. One of the important matters was that corporate litigants cannot proceed pro se. Corporate litigants must use professional counsel. It is clear from the filings that Bowdoin’s pro se helpers overlooked this obvious flaw in the initial filings. Bowdoin later hired two new paid lawyers to help him navigate the choppy waters and to attempt to undo some of the damage caused by the pro se pleadings.
Now, it’s important to point out here that the Pro-ASD Surf’s Up forum — now suddenly defunct — championed Bowdoin’s pro se pleadings and was positively giddy for days after he attempted to re-enter the case. Bowdoin was heaped with praise. Prayers went out. People cheered him on as though his pro se advisers had scored some sort of dramatic win. As always was the case on Surf’s Up, the prosecution was condemned. Bowdoin urged ASD members to write to President Obama to gain his support in Bowdoin’s fight against the Secret Service.
The disconnect was both startling and troubling.
At some point during the late summer or early fall of 2009, someone apparently sympathetic to Bowdoin’s cause started this site at IContact; it’s called “Official ASD Update” and, from what we can tell, has all of one post. One of the names referenced on the site is “Edna Bowdoin” — the name of Bowdoin’s wife — but it is not clear that Ms. Bowdoin ever was at the site. Even so, her name appears in this Dec. 28, 2009, reference.
On some days, it is hard to quantify all the sadness associated with the ASD case.
One thing that is not hard to quantify is the madness. That madness finally eroded the lion’s share of Bowdoin’s support base. Prosecutors deserve a lot of credit for neatly undermining the wink-nod nature of autosurfs in a series of court filings. These filings showed the autosurf “industry” for what is: a cesspool that relies on the repetition of lies to suck new money into the schemes.
The IContact site, which perhaps was conceived as a new channel through which Bowdoin would communicate with members to keep them on his side as his court challenge continued, never emerged as a “voice” for Bowdoin. The madness had driven away the vast, vast majority of the ASD constituency. He even had lost much of the Surf’s Up crowd — something he must have realized. Why even start a second site if you’re confident in the existing communications network?
These days Bowdoin appears to be relying on a small network of insiders to stay in communication with the troops. Surf’s Up is gone. The second forum never gained a following.
Now, according to members, a person with a conviction for sex crimes involving children, is doing PR work for ASD. Whether it’s “official” or not is beside the point. The mere fact it is being done puts the madness associated with ASD on full display for any person on the email list of the promoter to see.
Yesterday (and previously) we wrote about the Interagency Financial Fraud Task Force established by President Obama in November 2009. We also wrote about a speech yesterday by Attorney General Eric Holder outlining responsibilities of the Task Force. Holder gave the speech in Florida, which was no accident. Florida is Ground-Zero for mortgage fraud, Ponzi schemes and various forms of securities and financial fraud — not that other states also do not have the same problems.
We compiled the President’s Executive Order establishing the Task Force and Holder’s speech into a PDF. The document includes the entire Executive Order and the entire speech.
We’ve titled the document, “So, You Want To Join A Ponzi Scheme? Two Good Reasons To Say ‘No’ When A Friendly Upline Sponsor Approaches You In Person Or Via Email And Asks You To Join A Paid-To-Click ‘Advertising’ Program Online Or A ‘High-Yield Income Program’ (HYIP).”
Many, many people have turned their backs on the so-called autosurf “industry” because of their experiences with Andy Bowdoin and ASD. That’s a good thing, of course: Ponzi = Pain. We write about the pain caused by Ponzi schemes every day on this Blog.
Despite the daily news on Ponzi schemes and financial fraud, however, many, many people continue to participate in the schemes. They do so at their own peril, as Holder said yesterday. The White House and the Justice Department clearly have thrown down the gauntlet on mortgage fraud, securities fraud, Ponzi schemes and other types of financial fraud that can undermine local, regional and national economies — and the economy in the homes of families across the world.
What the government is doing is dreadful news to the Ponzi pushers — but it is good news for the global economy and to families across the world. We provide the document in the spirit of education, and sincerely hope that it can make at least a small difference in the lives of people who continue to believe there is something noble about collecting commissions for selling people into misery.
Thank you, Readers, for your daily visits.
Patrick
P.S. In case you missed the link above to the PDF, here it is again. Forum owners are invited to make a copy of this document and post the document in their respective forums.
A federal judge has frozen the assets of Illinois investment adviser Steve Salutric in a Ponzi scheme case in which the allegations are shocking.
Salutric, 51, a church treasurer who took a stab at the fim business and co-produced the 2005 movie “Madison” starring Jim Caviezel and Bruce Dern, raided the account of a 96-year-old woman last year to keep his Ponzi scheme going, according to a complaint filed today by the SEC.
The woman lived in a nursing home and was suffering from dementia, the SEC said, adding that Salutric’s act toward her was “particularly egregious.”
Salutric misappropriated more than $400,000 of the woman’s funds, the SEC said, identifying her only as “Client A.” Other client accounts also were raided.
“Client A has no current memory, cannot retain information for more than 5 minutes, and resides in a nursing home,” the SEC said in the complaint filed in U.S. District Court for the Northern District of Illinois.
In recent weeks, fearing his fraud was about to be exposed, Salutric began to approach clients with offers to pay them “hush money,” the SEC said.
“Client funds thus are apparently being used in effort to conceal Salutric’s previous misconduct and are being used in a Ponzi-like fashion as ‘hush’ money,” the SEC argued today to U.S. District Judge William J. Hibbler. “Unless emergency action is taken, Salutric may attempt to further dissipate client funds by paying clients with misappropriated funds in an effort to gain ‘cooperation’ from some of his defrauded clients.”
Hibbler froze Salutric’s assets.
Salutric, of Carol Stream, Ill., co-founded the investment advisory firm Results One Financial LLC, the SEC said. Results One, which has more than 1,000 clients and more than $160 million under management, was identified in the complaint as a “relevant party,” not a defendant in the case.
Salutric is accused of misappropriating “at least” $1.8 million in clients’ funds by raiding their Charles Schwab accounts, and he “did not have discretionary authority to withdraw funds from client accounts at Schwab,” the SEC said.
Among the allegations, which listed one shocking claim after another, were that Salutric forged signatures to gain access to the Schwab accounts and “transferred approximately $1.2 million of client funds to entities with apparent ties to Salutric,” the SEC said.
Among the entities to which he directed misappropriated funds was his church, where Salutric is the treasurer and has signatory authority over the church’s bank accounts, the SEC said.
The church received $321,000, the SEC said.
A film-distribution company known as Celluloid Distribution LLC received $610,000, the SEC said.
Meanwhile, a Yorkville, Ill., restaurant in which Salutric holds an ownership interest received “about $45,000,” the SEC said, and a now-shuttered restaurant in Carol Stream received $214,000.
“This restaurant went out of business in 2009,” the SEC said. “One of Salutric’s clients is the agent for the restaurant’s corporate entity, and the owner is the brother-in-law of one of Salutric’s defrauded clients.”
Clients who were fleeced were not aware of the transfers and did not approve them, the SEC said.
At one point, Salutric spent down the account of the 96-year-client with dementia to the point that it less than $10,000. The SEC did not say precisely how much had been in the account, but noted the misappropriation exceeded $400,000.
A $50,000 Ponzi payment was made to another fleeced investor from the elderly client’s account, the SEC said. Salutric lied to the client’s daughter in the summer of 2009 about the amount of money in the account and continued to steal from it after telling the lie, the SEC said.
Salutric is listed as a co-producer of the hydroplane-racing movie “Madison,” which starred Caviezel and Dern. The movie had a limited run in 2005, after being completed in 2001 and sitting on the shelf for nearly four years prior to release.
UPDATED 6:15 P.M. ET (U.S.A.) A California man ordered by five states to cease and desist from selling unregistered securities started using a different corporate name, bought an autodialer and database with the names of wealthy investors for $17,737 and used it for at least six months to fleece clients before the scheme collapsed in December 2009, the SEC said.
The scheme, which targeted investors in the United States and Canada, raised at least $1.4 million — some apparently before the database acquisition in June 2009.
The SEC now has gone to court to stop Thomas L. Labry and his company, Cherokee Gas Systems, from fleecing investors in a fraudulent oil-and-gas scheme at a property in Oklahoma known as the “Walters Field Priddy Sand Unit.”
The assets of Labry and Cherokee have been frozen and a receiver has been appointed, the SEC said.
While operating by a different name — Iron Horse Petroleum Inc. — Labry was ordered by five states to cease selling unregistered securities: Illinois, Pennsylvania, Wisconsin, Alabama and Arizona, the SEC said. Some of the orders date back to 2000.
In addition, Labry was sued in California under RICO statutes for fraud, and the plaintiffs secured a judgment of $647,776.12 in a 2006 case.
Cherokee was incorporated in Oklahoma in 1991, and conducted business from Costa Mesa, Calif., the SEC said. It is not registered to sell securities. Labry lives in Newport Beach. The Cherokee website was registered in January 2009, according to web records.
The website appears to use a shared server that hosts 3,751 other sites, which may lead to questions about why a company that charged investors $25,000 per unit and purported that each unit would return $725 a month at a minimum did not use dedicated hosting.
“In approximately December 2008, Cherokee began soliciting potential investors throughout the United States, including through the use of cold calling,” the SEC said.
Investors received a brochure from Cherokee that was “almost identical to the brochure previously disseminated by Iron Horse . . . except that the Cherokee brochure refers to ‘Cherokee’ rather than ‘Iron Horse,’” the SEC said.
The Oklahoma corporate registration of Iron Horse was suspended in August 2006 for failure to pay franchise taxes, records show.
In December 2008, Labry began to use the name of Cherokee in an investment offer, according to the SEC.
“To facilitate this general solicitation, Labry, using Cherokee investor monies, purchased dialing software that can automatically place outbound calls from a preloaded database of numbers,” the SEC said. “In these calls, Cherokee representatives offer investors the opportunity to purchase units in oil and gas wells purportedly owned by Cherokee located on Walters Field in Oklahoma, for $25,000 per unit. In instances where an investor does not want to purchase an entire unit, Cherokee allows the investor to purchase a fraction of a unit. Cherokee representatives tell investors that they will start receiving returns on their investments, paid monthly, within 45 to 60 days of the investment.”
In June 2009, Labry purchased a database that targets telephone numbers of “Homeowners Age 60+ with income $100K and up” and “Homeowners Age 60+ with wealth 1 million,” the SEC said.
Cherokee represented that investors would receive returns of 35 percent a month.
Although investors did not get paid, the attorney who represented Labry in the California lawsuit filed by investors did — as did a convicted felon, the SEC said.
The attorney received cashier’s checks totaling $105,000, the SEC said. The attorney has not been accused of wrongdoing.
Investigators identified the felon as Gary Maddux, whom the SEC said was convicted of wire fraud and mail fraud in 1998. Maddux received cashier’s checks totaling $221,195, the SEC said.
Maddux was charged in 1997 with bilking elderly investors in a fraudulent telemarketing scheme known as “Prizewinners.” In the Prizewinners case, people were told they had won a sweepstakes and could collect their winnings for a fee.
Since December 2008, the SEC said, Labry withdrew at least $268,000 in cash from the Cherokee bank account, as well as $466,283 that was used to purchase cashier’s checks for “various individuals who were not investors.”
Labry also “made withdrawals totaling $148,126 that were used to purchase cashier’s checks made out to ‘SCS,’ one or more of which he then cashed,” the SEC said.
When investors questioned why they weren’t getting paid, they were “falsely told by Cherokee agents that oil production is ‘behind’ and that they will receive payment within a certain number of weeks or by a certain date.”
Ka-boom! A federal judge has frozen the assets of alleged Ponzi schemer Richard Elkinson, accused of fleecing investors in Massachusetts by telling them he brokered deals for government uniforms and uniforms worn by Olympic athletes.
Meanwhile, the attorney general of the United States ventured to Florida today and gave a dramatic speech at the Forum Club of the Palm Beaches. The speech was important symbolically — indeed, Florida is awash in a sea of Ponzi and mortgage-fraud schemes — and Holder wanted to reassure the noontime crowd of 700 that the government was doing everything it could to restore faith in the markets.
But the speech also was important politically. The Obama administration wanted to showcase its new Interagency Financial Fraud Enforcement Task Force, which the President announced in November, and Holder chose Florida to drive home the message that Ponzi schemers, mortgage fraudsters and financial criminals are going to have many sleepless nights in the months ahead.
“To those who see the victimization of others as an avenue to wealth, take notice,” Holder warned. “If you fabricate a financial statement, if you propagate an investment scheme, if you are complicit in an act of financial fraud, you are writing your ticket to jail.”
Even as Holder was delivering his remarks, the SEC announced that it had sued Elkinson in an emergency action in Massachusetts that complemented the FBI’s criminal action in the case, dubbed a “Mini-Madoff” because it allegedly was both a Ponzi scheme and a case of affinity fraud that targeted Jewish investors.
Court records show that the FBI was working the case on Christmas Eve, even as the government was shutting down for the holidays. Records also show that Massachusetts Secretary of State William Galvin sent a team of investigators to conduct interviews and to get to the heart of the matter while Massachusetts residents were doing their last-minute holiday shopping.
State and federal agencies now have filed three separate actions in the Elkinson case. Elkinson, 76, was arrested at a casino in Biloxi, Miss., fresh off a trip to casinos in Las Vegas. The FBI said he had conducted at least $3.7 million in transactions at the Las Vegas casinos since 1998 and that investors in his Ponzi scheme were out $29 million.
The SEC said today that Elkinson had “no relationship” with a uniform manufacturer based in Japan. Elkinson had told investors he had an exclusive arrangement and that only he was permitted to do business with the manufacturer.
“Unfortunately, it was all make-believe,” the SEC said in its complaint. “Elkinson had no
relationship with a Japanese uniform manufacturer, and there were no contracts to purchase uniforms. While some investors did receive payments of principal and interest, those payments were made using funds obtained from other investors, and Elkinson was able to keep the scheme going as long as most of the investors kept rolling over their investments.”
Elkinson’s purported contracts to provide uniforms for government workers also were “fictitious,” the SEC said.
The current attack on financial crime by law enforcement may be unprecedented. Holder said today that the FBI is investigating 2,800 cases of mortgage fraud, up a staggering 400 percent from 2005 case totals.
In his Palm Beach remarks, Holder also dropped the names of Ponzi schemers.
“Palm Beach is, in many respects, ground zero for the $65 billion Ponzi scheme perpetrated by Bernard Madoff — the largest investor fraud case in our nation’s history,” the attorney general said. “Before the house of cards Madoff built collapsed in 2008, before he was sentenced to 150 years in prison last June, before he became a notorious criminal on the cover of newspapers around the world, he was one of your neighbors.
“His former home sits just north of us,” Holder continued. “An 8,700-square-foot mansion that’s worth . . . well, we’ll know what its worth once the U.S. Marshals Service auctions it off and the proceeds are distributed to Madoff’s victims.”
Holder also mentioned the Ponzi cases of Tom Petters of Minnesota, Allen Stanford of the United States and Antigua and disbarred Florida attorney Scott Rothstein of Fort Lauderdale.
“I’m proud that these men, along with more than 450 others convicted of corporate and securities fraud in 2009, have been taken out of the game,” Holder said.
In Massachusetts, U.S. District Judge Joseph L. Tauro issued a temporary restraining that froze Elkinson’s assets. Tauro also entered an order freezing all proceeds of the misconduct held by others, and an order prohibiting the acceptance of additional investor funds.
At the same time, Tauro ordered an accounting of assets and issued an order prohibiting the alteration or destruction of documents.
The orders in the SEC case — as well as the legal action filed earlier this week by Galvin — bottle up any profits made by people who helped Elkinson promote the scheme.
Holder said the law-enforcement community is fighting back against people who have licensed themselves to steal.
“They’ve robbed people of their homes and their economic security,” Holder said. “They’ve depleted bank accounts and pension funds. In some places, they’ve dried up philanthropic giving and shuttered charities. They’ve placed unfair challenges before cash-strapped governments, local police departments, small businesses, and American workers and consumers.”
EDITOR’S NOTE: This post distills recent news and development on the fraud and Ponzi fronts.
CHARGED: Six people — including a disbarred attorney already in prison — have been charged in Massacuusetts in an elaborate mortgage-fraud scheme.
Bruce Namenson, the former lawyer, was charged with 18 counts of of larceny for arranging bogus loan closings, sham notarizations and pocketing fraudulent proceeds from real-estate deals.
Namenson, 47, of Walpole, Mass., already was in prison when arrested on the mortgage-fraud charges. In an earlier case, he was convicted of operating a complex scam in which both clients and insurance companies were bilked.
One of the victims in the insurance-fraud case was a 95-year-old man, Massachusetts Attorney General Martha Coakley said.
In the insurance case, which involved victims young and old, Namenson defrauded the 95 year-old client out of a $20,000 bodily injury settlement check.
“The client had been injured in a car accident, and instead of paying the client a portion of the settlement, Namenson forged the client’s signature on a settlement release and settlement check, kept the money, and repeatedly told the client that his case had never been settled,” Coakley’s office said in 2008.
Namenson also fleeced an injured, 15-year-old client out of most of a $100,000 settlement, prosecutors said.
Charged in the new case with Namenson were Joshua Brown, 29, of Brockton, Mass; Brian Frank, 32, of New Hartford, N.Y.; John Sweetland, 28, of Yorba Linda, Calif; Linda Defeo, 28, of Springfield, Mass; and Brian Arrington, 39, of Boston.
Brown, Frank and Sweetland are real-estate investors, Coakley’s office said yesterday. Defeo and Arrington are mortgage brokers.
The real-estate scheme fleeced banks and borrowers out of $12.5 million, and involved bogus appraisals, submissions of bogus loan documents and misrepresentations to virtually every party in transactions tied to 26 distressed properties, prosecutors said.
Brown, Frank and Sweetland skimmed $2 million from corrupt transactions, Coakley’s office said. Defeo and Arrington arranged for bogus loans, and Namenson presided over corrupt closings and pocketed money that was supposed to pay for title insurance.
INDICTED: If you’re a Forrest Gump fan, this case might be one to add to a Bubba Blue list of the various ways to have a Ponzi scheme, instead of the various ways to have shrimp.
John D. Terzakis, 52, of Hinsdale, Ill., and Robert E. Estupinian, 47, of San Jose, Calif., have been indicted in California on 12 felony counts of wire fraud, money laundering, and conspiracy to commit wire fraud and money laundering.
A company operated by Terzakis and Estupinian — Vesta Strategies of San Jose — was a Ponzi scheme, U.S. Attorney Joseph P. Russoniello said. Terzakis was the majority owner of Vesta and controlled its business activities. Estupinian, was the chief executive officer and minority owner of Vesta until December 2007.
The scheme, according to prosecutors, involved the business of being a “qualified intermediary” in tax-deferred, real-estate exchanges under section 1031 of the Internal Revenue Service Code.
“In general, a Section 1031 exchange allows taxpayers to avoid paying tax on capital gains by depositing the proceeds from an investment real estate sale, that would otherwise qualify as a taxable capital gain, with a qualified intermediary for up to 180 days,” prosecutors said. “Under Section 1031, if the taxpayer purchases another investment property within those 180 days, the proceeds from the first sale may be rolled over into the new investment without being taxed as capital gains.”
Although Vesta promised to hold funds as a qualified intermediary, Terzakis and Estupinian “stole client funds for their own use” and and also “used new client deposits to pay redemptions owed to earlier clients,” prosecutors said.
Terzakis was arrested in Illinois. He made an initial appearance before a judge, who placed him on home confinement with electronic monitoring, pending a second appearance Jan. 13. Estupinian was arrested in California. He also made an initial appearance before a judge, and was placed on home confinement with electronic monitoring secured by a $1 million bond. His next appearance is scheduled Jan. 20.
CONVICTED: Oren Eugene Sullivan, 63, of Rock Hill, S.C., has pleaded guilty to mail fraud in a Ponzi scheme.
U.S. Attorney Walt Wilkens said Sullivan admitted that he ran a Ponzi scheme between 1995 and 2008 in which he sold false investments to 35 different individuals or groups of investors.
“Sullivan told clients that he was managing their investment accounts, and paid small dividends to his investors,” prosecutors said. “However, he was actually converting their invested money for his own use, and paying the dividends with money he received from new investors. Over the course of the scheme, Sullivan took in approximately $2.5 million from unwitting investors.”
If this were Forrest Gump and the subject were Ponzi schemes instead of shrimp, Benjamin Buford “Bubba” Blue might say something along these lines:
There are ‘advertising’ Ponzi schemes, ‘printing’ Ponzi schemes, CD Ponzi schemes, ‘billboard’ Ponzi schemes, Ponzi schemes claiming that ‘uniforms’ are being purchased for prisons and police agencies, ‘Big-Box Retailer’ Ponzi schemes, real-estate Ponzi schemes, ‘kiosk’ Ponzi schemes, ‘autosurf’ Ponzi schemes, ‘HYIP’ Ponzi schemes, ‘Charitable Giving’ Ponzi schemes, commodities-trading Ponzi schemes, precious-metal Ponzi schemes, and insurance Ponzi schemes. That . . . that’s about it.
Except the FBI said today it was not.
Today the FBI announced a “concert” Ponzi scheme, saying Miko Dion Wady, 34, of Chandler, Ariz., and others gathered at least $50 million from 250 investors by telling them he promoted concerts for some of the top acts in the world.
Here is the short list:
The Rolling Stones.
U2.
Barbara Streisand.
Faith Hill.
Tim McGraw.
Mariah Carey.
George Strait.
Billy Joel.
Jamie Foxx.
Jimmy Buffet.
Mary J. Blige.
Pearl Jam.
The trouble with the claim, the FBI said, was that Nady “had no association or contractual arrangement with any of the significant concerts or tours.”
In fact, the FBI said, “Wady appears to have actually promoted fewer than 10 concerts, all involving only local or lesser known artists.”
Victims may be out $25 million, the FBI said.
Wady, according to the FBI, represented that he “operated and had an ownership interest in various business enterprises that purportedly were engaged in the business of promoting concerts or tours of well known entertainers and artists.”
Among the enterprises were Dezert Heat Entertainment Inc.; Dezert Heat Inc.; Dezert Heat Worldwide LLC; NATO Enterprises LLC; and NATO Entertainment LLC. Investors typically were promised interest rates of 4 percent per month for a maximum of six months or 24 percent for one promoted event, the FBI said.
When the Ponzi scheme collapsed in 2007, about 140 victim investors still had not been repaid their outstanding “investment†loans of approximately $25 million, the FBI said.
Between 2004 and March 2007, the FBI said, “Wady used no less than $3 million of victim investor funds to pay for a lavish personal lifestyle.”
Wady bought at least 30 vehicles for himself and others, including a Lamborghini, a Ferrari and a Bentley, the FBI said. He also purchased a $175,000 luxury boat and $800,000 in real estate.
Wady was arrested yesterday in Tempe, Ariz. He was indicted on 37 counts of wire fraud and transactional money laundering.
Surf's Up wore its heart for ASD on its site: Was there complete intellectual detachment — or was it for the love of money or for another reason?
On Nov. 27, 2008, just eight days after a federal judge ruled that Florida-based AdSurfDaily had not demonstrated it was a lawful business and not a Ponzi scheme, ASD gave its official endorsement to the Surf’s Up forum, which suddenly went missing last week after shilling for ASD President Andy Bowdoin 24/7 for more than a year.
After the endorsement, Bowdoin, whom federal prosecutors said was at the helm of a $100 million autosurf Ponzi scheme that had moved “several million” dollars offshore, then largely ceased having direct contact with ASD members. His infrequent messages were released through Surf’s Up.
Surf’s Up was famous for enforcing what it described as a “Poof!” penalty that caused countless posts to be deleted if readers shared unflattering opinions of Bowdoin or provided links to external sources of information to help others shape their opinions. On one hand, Surf’s Up railed against Big Brother; on the other, it served as the Thought Police.
In the end, though, Surf’s Up proved to be expendable without notice — apparently even without notice to the members or all of the Mods. There is a chance that some of the Mods had been lying to the other Mods all along, perhaps never revealing that the forum itself would go missing one day.
The “Poof!” penalty, in the end, applied even to Surf’s Up. The whole of it — 1,005 threads that had managed to survive — simply vanished like so many posts from individuals who dared to question Bowdoin or the ASD enterprise. Someone — and it’s unclear if that person was acting as an individual or at the behest of ASD or another entity or person — had the power of maximum “Poof!” and made the decision that the forum had outlived its usefulness.
The root of the word usefulness is “use.” Indeed, the forum’s rank-and-file members were viewed as simpletons and used as pawns in a concerted effort to confuse and cloud the issues. After they were misinformed and used, the entire forum was discarded — just like the ASD “ad-packs” that Bowdoin was permitted to display after the seizure of tens of millions of dollars from the firm amid Ponzi, money-laundering, wire-fraud and securities allegations.
Bowdoin never displayed the ads. ASD simply put them on ice and shoved them in a corner. It was as though they never existed; it was as though the plan all along was to use as many members as possible for as long as possible — until they became expendable en masse, until they became something that could be poofed like a critical post about Bowdoin on Surf’s Up.
ASD’s endorsement of Surf’s Up always had more than just a whiff of a plan. The “tell” was that Surf’s Up embraced the endorsement, rather than repudiating it. Why would any person or entity that values intellectual honesty ever accept the endorsement of a man with a felonious history, a man surrounded by felons when he was operating the company, a man surrounded by more than just a few scofflaws, a man consumed by trouble, a man who was the target of an active criminal investigation by the top law-enforcement agencies in the United States?
Andy Bowdoin deserved only the same business loyalty accorded Bernard Madoff, which is to say none. Madoff had no apologists. Bowdoin had them by the hundreds — in the earliest days by the thousands. The disconnect was so stunning it almost defied description.
The clear purpose of some of the Mods and members was to shill voluntarily and unapologetically for a man implicated in a criminal investigation by the U.S. Secret Service, the IRS and the Justice Department. The frequent deletions were just another form of shilling.
Bowdoin also was under investigation by the state of Florida. Just days before Surf’s Up accepted the endorsement, Bowdoin was sued in Florida for racketeering by three ASD members seeking class-action status. The Florida RICO case later was dismissed by the plaintiffs — only to be refiled in the District of Columbia. Bowdoin never responded to the complaint, and yet the shilling continued.
It also is believed that the Securities and Exchange Commission and state-level securities regulators and attorneys general are at least tangentially involved in the ASD probe. Their involvement might be deeper than is commonly believed. It is known, for example, that the SEC has information on at least four ASD members who had previous run-ins with the agency.
To say Bowdoin has trouble no matter which way he looks is to state the obvious. His legal and PR dangers are clear and present. They are obvious to all observers, including his supporters, apologists and the Mods at the Surf’s Up forum.
This, of course, begs the question of why any person would have chosen to champion Bowdoin. To do so was just plain madness, especially given the fact that Bowdoin was arrested in Alabama in the 1990s for fleecing investors and entered guilty pleas to felonies. A business partner, Clarence Busby of Georgia, was implicated by the SEC in a prime-bank scheme in the 1990s.
In the Busby case, the SEC said he fraudulently represented to investors that the investments in three prime-bank schemes were risk-free and that the ventures would pay returns ranging from 750 percent to 10,000 percent.
Yes, three prime-bank schemes. Yes, 10,000 percent.
“In total, Busby raised nearly $1 million from more than 70 investors,” the SEC said. “None of the investors earned the exorbitant returns promised by Busby.”
The answer to the question of why any person would shill for Bowdoin under these exceptionally weighty circumstances might be simple: total intellectual detachment/dishonesty or money or the promise of money to come. After ASD endorsed Surf’s Up, some of the Mods and members peeled off and created a cheerleading site for the AdViewGlobal (AVG) autosurf.
Some ASD members now say Bowdoin was the silent head of AVG, which launched after two forfeiture cases and a racketeering lawsuit were brought against ASD. Public records show that AVG launched after Bowdoin had met with federal prosecutors and members of law enforcement over a period of at least four days in December 2008 and January 2009 to discuss a possible plea deal in an ASD criminal prosecution.
AVG itself listed Bowdoin family members George and Judy Harris as its owners. AVG’s onetime chief executive officer was Gary Talbert, an ASD executive who filed sworn court documents in the ASD case. The two surfs had other employees, promoters and members in common, including the Surf’s Up Mods who peeled off to start the AVG forum.
In June 2009 — after earlier having provided a tortured explanation that bizarrely both confirmed and denied that ASD and AVG were interconnected — AVG ceased paying members. ASD, in at least one previous iteration, had done the same thing, according to members.
Surf’s Up deleted post after post about the AVG autosurf, thus shielding Bowdoin family members and perhaps Bowdoin himself from criticism. Few people seem to believe there was anything that approached an arm’s length between ASD and AVG. No one has said precisely how much money AVG took in and how much members lost through a second potential entanglement with a Bowdoin enterprise — an entanglement promoted by some of the Surf’s Up Mods.
The operative word is “some.” At least one of the Surf’s Up Mods appears not to have become entangled in AVG, but the fact remains that none of the Mods publicly divorced themselves from the ASD circus. Rarely in life is one witness to such a circus. It is almost impossible to contemplate the circus without cracking a smile, even though the ASD case is an extremely serious matter. Various efforts to defend ASD were just plain bizarre.
An organization known as ASD Members International (ASDMI) was launched with the stated mission of litigating against the government even if it was behaving legally. There were efforts to destroy the careers of civil servants, career prosecutors and political appointees.
Various letter-writing campaigns ensued — all aimed at neutralizing public officials charged with the responsibility to investigate and prosecute ASD. If a person brought up the subject of AVG on Surf’s Up, the post was deleted. If a person raised the prospect of forming a militia and storming Washington with guns, the post stood — unless the entire thread later got deleted because someone had the temerity to take his or her brain out for a walk and opine that maybe, just maybe, Bowdoin was a con man who happened to get caught in a very big way.
Mixed in with claims that people who questioned Bowdoin were “rats,” “maggots” and “cockroaches” were claims that God was on his side. Accompanying these starkly mixed messages were discussions aimed at getting AARP, which advocates for senior citizens, to advocate on behalf of ASD. No one seems to have made the calculation that so many fraud schemes fleece so many senior citizens that there was not a prayer of AARP entering the case on ASD’s side. In fact, the organization joined in an effort to strengthen Florida’s securities laws after the ASD case was brought.
A federal judge now has signed a final forfeiture order in the ASD case. The order gives the government title to tens of millions of dollars seized from the company. Prosecutors have said all along — in news releases, in court filings and on a Justice Department website — that they intended to implement a restitution program to compensate ASD victims from seized funds.
This apparently mattered little to some of the Surf’s Up Mods and members and brought out what perhaps was the most bizarre thing about the forum: the continued advocacy and promotion of surf programs despite what had happened to ASD, Golden Panda and LaFuente Dinero. Some of the members even had the gumption to assail the government for “slow” ASD refunds when Bowdoin himself had caused the delays.
At the very same time they were excoriating the government, they were promoting new surf sites, including the ASD-connected AVG. Those positions were irreconcilable. Period.
One cannot at once be both a person expecting compensation for Bowdoin’s illegal actions and a promoter of the next scheme with Bowdoin ties — unless one is willing to discard any association with intellectual honesty and simply ignore facts that are inconvenient.
In the end, Surf’s Up poofed itself, demonstrating for the ages that those hundreds of thousands of words in the 1,005 threads that managed to survive before the forum itself went offline meant nothing.
After more than 17 months, more than 165 court filings and more than $1 million in legal fees, ASD President Andy Bowdoin has lost the August 2008 civil forfeiture case and the government has been granted title to $65,838,999.70 seized from Bowdoin’s 10 Bank of America accounts.
U.S. District Judge Rosemary Collyer, whom Bowdoin attempted to have disqualified from the case last month, has entered a default judgment and final order of forfeiture in the case.
In a footnote, Collyer said the order decreeing forfeiture “resolves all remaining issues and this forfeiture action in its entirety.”
As PatrickPretty.com first reported last year, three of Bowdoin’s accounts contained the exact same sum: $1,000,388.91. Why the accounts contained the exact same sum remains a mystery.
Another mystery is why Bowdoin, 75, initially submitted to the forfeiture on Jan. 13, 2009 — a year ago next week — but then changed his mind more than a month later and attempted to reassert his claims as a pro se litigant. Bowdoin’s former attorneys, Akerman Senterfitt, said in court filings that Bowdoin began to file pro se “without consulting with counsel and without bothering to advise counsel that he would be submitting motions on his own.”
Akerman Senterfitt filed a motion to withdraw as Bowdoin’s counsel, saying its representation of him had become unreasonably difficult.
Bowdoin’s pro se re-entry in the case coincided with the shift by the AdViewGlobal (AVG) autosurf to a “private association” structure. This shift was announced to AVG members on Feb. 26, 2009, after AVG said it had consulted with a company known as Pro Advocate Group.
Bowdoin signed the first of his pro se pleadings just one day before, on Feb. 25, 2009. Pro Advocate Group, which says it can help people practice law and medicine without a license through a private-association structure, is associated with Karl Dahlstrom.
In 1997, Dahlstrom was sentenced to 78 months in federal prison for his participation in a securities scheme. In court documents in a tax case, Karl Dahlstrom is described as having “been in the abusive trust business for many years.”
Bowdoin has not publicly revealed the identities of his pro se advisers, describing them as members of a “group.” Nor has Bowdoin revealed how much he paid for the pro se advice.
Bowdoin, however, told members in a letter published on the now-defunct Pro-ASD Surf’s Up forum in March 2009 that he had paid his professional lawyers $800,000 before firing them. In September 2009, Bowdoin said his legal fees had exceeded $1 million.
“Now I’ve spent over a million dollars in legal fees to get your money back, and to stay out of prison,” Bowdoin said on Sept. 21, according to a transcript by the U.S. Secret Service. Bowdoin made the remark in a conference call with members. The Secret Service transcribed the call, and then filed the document in court.
Collyer refused to disqualify herself last month, saying Bowdoin no longer had standing in the case.
Collyer earlier ordered the forfeiture of more than $14 million from the bank accounts of Golden Panda Ad Builder, whose assets also were seized in the ASD case.
Bowdoin did score a win of sorts in the forfeiture litigation. He asked for — and was granted — an evidentiary hearing in 2008 to refute the government’s Ponzi allegations and to ask for the emergency release of $2 million because the company could not pay its rent and hosting bills and needed money to implement a new business plan.
Prosecutors did not object to the hearing, but pointed out that Bowdoin had $1 million in a bank on the Caribbean island nation of Antigua in an account under a different name.
Bowdoin asserted his 5th Amendment right against self-incrimination, advising the court through counsel that he would not testify at the evidentiary hearing he had requested. Surf’s Up described the performance of ASD’s witnesses at the hearing as uniformly “excellent,” while at once describing the government’s case as “not so much.”
At the same time, the forum helped spread the rumor that the government had admitted that ASD was not a Ponzi scheme.
In November 2008, Collyer ruled that ASD had not demonstrated at the hearing that it was a lawful business and not a Ponzi scheme. A month later, prosecutors filed a second forfeiture complaint against ASD-connected assets, restating the Ponzi allegations despite the Surf’s Up claim that prosecutors had admitted ASD was not a Ponzi scheme.
The AVG autosurf was laying the groundwork for launch within days of Collyer’s November 2008 ruling against ASD. Promoters highlighted its purported location in Uruguay as a reason to join.
AVG suspended cashouts in June 2009, exercising its version of a “rebates aren’t guaranteed” clause.
Dozens of pro se litigants attempted to intervene in the ASD case, largely causing the court docket to swell from about 40 entries in January 2009 to its current total of 166.
In a case that may cause worry among autosurf and HYIP enthusiasts who earn sales commissions, Massachusetts Secretary of State William Galvin has sent the state Securities Division after the profits earned by two individuals and a company that recruited investors into the alleged Richard Elkinson Ponzi scheme.
Galvin’s office filed civil papers today that accused two individuals and their company of selling unregistered securities and acting as unlicensed broker-dealers.
Elkinson, 76, was arrested in Mississippi yesterday by federal agents. Federal prosecutors in Massachusetts said he had been running a Ponzi scheme — perhaps for 20 years — in which he told investors he was a broker for government uniforms and sports uniforms. Investors are out nearly $30 million.
Casino records in Las Vegas show that Elkinson “conducted a total of more than $3.7 million in currency transactions over $10,000″ since 1998, prosecutors said.
Now Galvin has opened a second legal front — this one at the state level — that is aimed at promoters of the alleged scheme and seeks a cease-and-desist order. Galvin said promoters were serving as unregistered broker-dealers, or unregistered agents of broker-dealers or issuers of securities.
They also were serving as unregistered investment advisers or unregistered investment adviser representatives, Galvin said.
Named in the state administrative complaint were Jay Lawrence Fialkow, Jeffrey P. Ross and their company, RossFialkow Capital Partners LLP.
Galvin is seeking the disgorgement of illegal profits and a financial penalty. At the same time, he is seeking an accounting of all the proceeds Fialkow, Ross and the company received from Elkinson in the alleged scheme. Subpoenas already have been served.
Separately, the FBI said Fialkow and Ross — who are not defendants in the Elkinson criminal case — referred “numerous investors” to Elkinson and that their referrals dumped as much as $10 million into the scheme.
The state, Galvin said, began to receive complaints about Elkinson Dec. 21, after investors were unable to contact him to inquire about overdue money they were owed in the scheme. “Several” investors identified RossFialkow as the source of their referrals, and the state “immediately sent several staff members” to the RossFialkow office in Newton.
Both Ross and Fialkow were at the office, and met with state investigators for an hour, according to Galvin’s filing. The state said it believes Ross and Fialkow received “at least” $319,000 in commissions.
In December, Elkinson “disappeared,” Galvin said, claiming at different times to be in Philadelphia, Chatsworth, Calif., and San Francisco, while also claiming he was “on the verge of obtaining a large sum of funds” to satisfy investors.
“In reality, Galvin said in the Massachusetts filing, “[Elkinson] was on the run from federal and state law enforcement authorities.”
When interviewed by the state in December, Galvin said, Fialkow said the company had accepted Elkinson’s assertions that his business had a “handshake” agreement with the purported supplier of uniforms in Japan.
Fialkow and Ross — who were Elkinson investors as well as promoters — “also never received any tax documentation from their investments with Elkinson,” Galvin said. “While Fialkow told the Division he found this odd, he never pressed the issue with Elkinson, while RossFialkow continued to refer investors into Elkinson’s scheme.”
AdSurfDaily mainstay “Professor” Patrick Moriarty has pleaded guilty in federal court in Missouri to filing a false tax return, federal prosecutors said.
