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  • Another Massive Ponzi Scheme Probe Under Way In Minnesota; Case Reminiscent Of Alleged Ponzis Of Tom Petters, Matthew Scott And Andy Bowdoin

    Gerard Frank Cellette Jr. is suspected of operating a Ponzi scheme that involved tens of millions of dollars and was based on bogus printing contracts, prosecutors in Minnesota said yesterday.

    Cellette, 44, of Andover, Minn., owes investors at least $53 million, according to the felony complaint filed by the office of Hennepin County Attorney Mike Freeman.

    Prosecutors charged Cellette with 36 counts of fraud in the offer or sale of securities, saying the scheme extended from Minnesota to California, Georgia, and Illinois, and that Cellette has “admitted” he engaged in a pattern of fraudulent conduct from 2005 through September 2009.

    News about the Cellette charges broke as accused Ponzi schemer Tom Petters was being tried in Minnesota, amid allegations he orchestrated a $3.65 billion fraud. Minnesotans’ attention has been riveted on the Petters’ case, which includes allegations he fleeced investors by tricking them into believing their money was being used to finance the sale of huge quantities of electronics to big-box retailers.

    Prosecutors described the Cellette allegations as a Petters-like operation, only on a smaller scale. The allegations also were reminiscent of allegations against Florida-based AdSurfDaily because Cellette held hotel meetings with participants in Minneapolis to promote the investment program.

    Like ASD’s program, Cellette’s program had elements of revenue-sharing, with participants believing profits stemmed from the sale of a legitimate service. ASD was operated by Andy Bowdoin.

    Bowdoin’s ASD purported to be an “advertising” company. Federal prosecutors said it sold unregistered securities and engaged in wire fraud and money-laundering while operating a $100 million Ponzi scheme. ASD was popular in Minnesota, members said.

    Cellette ran a company known as Minnesota Print Services. In 2004, he sought capital to expand, promising “to split the profits with the investor.” Investors expected a return of about 10 percent in 60 days, prosecutors said.

    But “in fairly short order,” prosecutors said, Cellette started selling “fictitious contracts,” paying earlier investors with money received from “new investors for new fictitious contracts.”

    Eventually Cellette began to offer the contracts through Steve Quarles, a California man, prosecutors said. They described Quarles as “the brother of a friend of a previous Minnesota investor.”

    Cellette “reports that he has never told Quarles, or anyone other than his attorney and the Hennepin County Attorney’s Office, that fictitious contracts were the primary foundation” of the scheme.

    Prosecutors said Cellette is cooperating in the probe.

    The allegations against Cellette also are reminiscent of the allegations against Matthew Scott in Illinois.

    The FBI and federal prosecutors said last week that Scott told investors their funds would be used to purchase or finance the purchase of high-speed commercial printers that would be sold to third-party buyers at a profit. The machines were said to be valued in excess of $100,000, and Scott claimed his mark-up of 20 percent led to big profits, the FBI said.

    Scott, 50, of Elmhust, Ill., was charged with mail fraud. His Chicago-area company, Gelsco, neither purchased nor financed such printers, the FBI said.

    “Instead, Scott allegedly fabricated false purchase orders, invoices, promissory notes and other documents that he provided to investors,” the FBI said.

    The Scott scheme collected at least $28 million between early 2000 and March 2009 before unraveling, the FBI said. At least 60 investors were fleeced. The initial loss estimate was pegged at $4.5 million.

    “Throughout the duration of the alleged scheme, Scott had to continually raise funds from investors to make payments to earlier investors, all of which he concealed and intentionally failed to disclose to new and old investors alike,” the FBI said.

    All of the cases — Petters, Cellette, Scott and ASD — lead to troubling questions about how many other companies are engaging in similar schemes that have not been detected.

    Read the allegations against Cellette in the Minnesota case.

  • FBI Arrests 14, Including 2 Lawyers, In Major Insider-Trading Probe; SEC Says Attorneys Provided Tips For Kickbacks In Latest Scandal That Rocks Wall Street

    As the FBI and IRS executed search warrants at the Florida office of attorney Scott Rothstein this morning amid allegations he ran a covert Ponzi scheme that could have drained as much as $500 million from investors, prosecutors up north were concentrating on arresting lawyers in a separate case involving insider trading on Wall Street.

    U.S. Attorney Preet Bharara of the Southern District of New York announced the arrests of attorneys Arthur J. Cutillo of the prestigious law firm Ropes & Gray LLP of New York, and Jason Goldfarb, a New York attorney.

    Cutillo and Goldfarb were among 14 people charged in a case with ties to the alleged Raj Rajaratnam insider-trading scandal at the Galleon Group. Rajaratnam’s arrest last month rocked Wall Street.

    Today’s news demonstrated again that law-enforcement and regulatory agencies in all corners of the United States are seeking to put an end to a wave of financial crime that could undermine the public’s confidence in the markets and imperil economic recovery in the age of the corporate bailout.

    “When Wall Street professionals or others exploit inside information for an illegal tip-and-trade binge, they undermine the level playing field that is fundamental to our capital markets,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “These defendants thought the rules that apply to all investors did not apply to them, but the one rule they cannot avoid is the rule of law. Now they face the prospect of financial penalties, industry bars, and even jail time for their indiscretions.”

    ‘A Bag Of Cash’

    Attorneys will not be permitted to ignore the law and hide behind their legal shingles, added Scott W. Friestad, associate director of the SEC’s Enforcement Division, using stark language.

    “Today’s action highlights the apparent ease with which far too many lawyers, hedge funds and Wall Street traders are willing to break the law to obtain a bag of cash, a trading advantage or other perceived benefit,” Friestad said. “It is fundamentally unfair for these individuals to profit at the expense of honest investors and compromise the integrity of our markets.”

    Although the emerging Rothstein Ponzi allegations in Florida are not connected to the Galleon Group insider-trading investigation in New York, California and elsewhere, dramatic developments last night and this morning in Fort Lauderdale were a stark reminder that financial crimes that were once unthinkable suddenly have become commonplace in the aftermath of the arrests of Bernard Madoff, Tom Petters, Allen Stanford, Arthur Nadel, Nicholas Cosmo and others implicated in Ponzi schemes for mind-boggling sums.

    Agents in Fort Lauderdale hauled away dozens of boxes of evidence, seized computers and thumb drives, copied computer hard drives, took control over an unspecified amount of cash, sifted through financial and other records — and also seized the key to a Ferrari.

    Though Rothstein has not been charged, the case has become a spectacle in Florida. The state has been rocked by one financial scandal after another involving allegations of mortgage fraud, hedge-fund fraud, affinity fraud targeting vulnerable residents, HYIP fraud, autosurf Ponzi scheme fraud and Ponzi schemes in general.

    In New York, far north of Florida’s warm climate, Bharara and the FBI released some of the details surrounding today’s arrests of lawyers and Wall Street insiders. For its part, the SEC made a separate flow chart to demonstrate how part of the fraud worked.

    SEC Flow Chart" Source: SEC
    SEC Flow Chart: Source: SEC

    Attorney Cutillo “had access to confidential information about at least four major proposed corporate transactions in which his firm’s clients participated,” the SEC said. “Through his friend and fellow attorney Jason Goldfarb, Cutillo tipped this inside information to Zvi Goffer,” a proprietary trader at Schottenfeld Group of New York.

    “Goffer promptly tipped four traders at three different broker-dealer firms and another professional trader Craig Drimal, who each then traded either for their own account or their firm’s proprietary accounts,” the SEC said.

    Cell Phone Intrigue Part Of Allegations

    In allegations that read like a cross between an Ian Fleming and Robert Ludlum novel, the SEC outlined some of the case.

    “Goffer was known as ‘the Octopussy’ within the insider trading ring due to his reputation for having his arms in so many sources of inside information,” the agency said. “Cutillo, Goldfarb, and Goffer at times used disposable cell phones in an attempt to conceal the scheme. For example, prior to the announcement of one acquisition, Goffer gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled ‘you’ and ‘me.’

    “After the announcement, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half, throwing away half of the phone and instructing his tippee to dispose of the other half,” the SEC charged.

    Read the SEC news release.

    Read Bharara’s news release on the criminal charges to get the full list of defendants, at least five of whom already have pleaded guilty.

    Read part of the South Florida Business Journal’s ongoing coverage of the Rothstein allegations, which are not connected to the insider-trading case announced in New York today.

  • Important Filing Deadline In ASD Prosecution Nears

    Andy Bowdoin
    Andy Bowdoin

    Tomorrow is the deadline for prosecutors to advise U.S. District Judge Rosemary Collyer how they plan to proceed with the December 2008 forfeiture complaint filed against assets of AdSurfDaily Inc.

    A month ago Judge Rosemary Collyer pointed out that no person or entity had filed claims to property seized in the complaint, the second tied to ASD-connected assets. The first complaint was filed in August 2008 and was nearly litigated to conclusion in January 2009, with ASD President Andy Bowdoin’s submission to the forfeiture of tens of millions of dollars “with prejudice.”

    Bowdoin, 74, changed his mind about giving up the money in February, and reentered the August case as a pro se litigant after meeting with a mysterious “group” of ASD members.

    Prosecutors now say Bowdoin is a “delusional” con man who “cannot manage to keep his stories straight,” arguing that he is telling Collyer one thing and members another. On Sept. 28, the U.S. Secret Service filed a transcript of a conference call Bowdoin held with members Sept. 21.

    In the transcript, Bowdoin repeatedly told members the government had seized money from them. He specifically used the phrase “your money” four times in the short recording.

    Prosecutors said Bowdoin’s words to members were at odds with his own court filings in which he claimed ownership of the seized assets — and also at odds with the filings of Charles A. Murray, one of Bowdoin’s attorneys.

    Prosecutors quoted from a September filing by Murray, who has been arguing that Collyer should permit Bowdoin to change his mind after advising the court in January that he was giving up the money and did not intend to reassert his claims in the future.

    “Mr. Bowdoin’s release in the above-captioned case is illogical,” prosecutors quoted Murray as saying. “He received nothing of value for the release. Bowdoin has consistently demonstrated an intent to aggressively defend ownership of his property in the civil in rem forfeiture proceeding.”

    Prosecutors were quoting from Page 2 of this Sept. 14 filing on Bowdoin’s behalf by Murray.

    One week later — on Sept. 21 — Bowdoin held the conference call, using the phrase “your money” four times to describe to members the assets he had told Collyer belonged to him,  prosecutors said.

    Bowdoin’s official court claims to the property date back to Aug. 15, 2008, less than two weeks after the seizure. No claims to any of the assets seized in the December forfeiture complaint that followed appear in the record of the case.

    Potential December claimants included Bowdoin, his wife, Edna Faye Bowdoin, George Harris, Judy Harris and Hays Amos. Judy Harris is married to George Harris, the son of Edna Faye Bowdoin and Bowdoin’s stepson. Hays Amos is a former employee of ASD.

    ASD money was used to buy a car registered to Amos, and also a car registered to George and Judy Harris, prosecutors said. It also was used to buy a car for Bowdoin/Harris Enterprises Inc., which prosecutors said was set up by George Harris and Edna Faye Bowdoin to help Andy Bowdoin and Edna Faye Bowdoin hide assets.

    At the same time, prosecutors said, more than $157,000 in ASD money was used to retire the mortgage on the home Judy and George Harris shared in Tallahassee, and to purchase a Cabana boat, jet-skis, haul trailers and other marine equipment. Bowdoin also spent $800,000 cash to purchase a building in Quincy — initially to the delight of the Gadsden County Chamber of Commerce, but later to its embarrassment.

    The Gadsden Chamber went on to contact the FBI about ASD, questioning whether the company was legitimate, prosecutors said.

    George and Judy Harris emerged later as the purported owners of the AdViewGlobal (AVG) autosurf, which launched in the aftermath of two forfeiture complaints filed against ASD’s assets and a separate racketeering lawsuit filed against Bowdoin and ASD attorney Robert Garner.

    Florida now has dissolved both ASD and Bowdoin/Harris Enterprises for failure to file required annual reports. The state gave the firms nearly a five-month window to file, but neither firm — both of which purport to be legitimate — followed through.

    Within hours of the breaking news about Florida’s actions against the firms, a poster on the Pro-ASD Surf’s Up forum described it as a conspiracy between the federal government and state authorities in Florida.

  • BREAKING NEWS UPDATE: New Pro Se Motion To Intervene In ASD Case Lists Phone Number Associated With ASD Figure Nate Boyd

    UPDATED 5:16 P.M. EDT (U.S.A.) NOTE: After additional research, the 10-digit number cited below appears not to be a bank-account number. Rather, it appears to be a telephone number associated with Nate Boyd, a former compliance officer for AdSurfDaily. Boyd’s name also has been associated with the AdViewGlobal (AVG) autosurf.

    See the comments thread below.

    Here, our earlier story . . .

    A pro se motion to intervene just docketed in the AdSurfDaily civil-forfeiture case lists an “electronic transfer to” a bank account number (**Update 1:41 P.M. EDT: it’s actually a telephone number**) not listed in government references to accounts held by ASD President Andy Bowdoin.

    The filing lists the email address of nate@asdcashgenerator.com and a second account number that is associated with ASD in court filings. It was not immediately clear why the filing by Robert and Evelyn Gould included the account number not associated with Bowdoin in court filings. (**Update 1:41 P.M. EDT: it’s actually a telephone number**)

    An account number ending with the digits 1028 — an account number not associated with Bowdoin — is included in the Gould filing, along with the words “electronic transfer to” the account. (UPDATE 2:16 P.M. As noted in the 1:41 P.M. update, the 10-digit number is actually a phone number, as opposed to a bank-account number. The phone number is associated with Nate Boyd and a number of work-at-home opportunities.)

    Nate Boyd is a former compliance officer at ASD, members said. It was not immediately clear if the “nate” mentioned listed in the email address is Nate Boyd. (UPDATE 2:16 P.M. The phone number is associated with Nate Boyd.)

    Some ASD members have said some upline sponsors sold “ad-packs” directly to customers, as opposed to directing them to purchase them through ASD. “Ad-packs” then were transferred from the existing stockpiles of upline sponsors using ASD’s in-house system. The practice is problematic because some upline sponsors could have pocketed the cash, instead of transferring it to ASD, thus generating off-the-books cash sales.

    Such transactions could have transferred the burden of paying for ASD “rebates” to the rank-and-file membership, while destroying the reliability of ASD’s records and giving upline sponsors the opportunity to siphon tax-free profits.

    Actions by upline sponsors to sell “ad-packs” directly to customers could be construed as a form of wire fraud and money-laundering.

    Also unclear is why the Gould claim was filed using the same pro se template used by dozens of other ASD members. U.S. District Judge Rosemary Collyer already has rejected dozens of filings that used the same argument in the template.

    Collyer has not ruled on several templated submissions received after her initial ruling weeks ago that the filers had no standing in the case.

    The filing also referenced an account number ending in the digits 3016 that is associated with ASD.

    gouldinterventionsmall

    Federal prosecutors have listed 10 ASD account numbers in court filings, referencing them in the August 2008 forfeiture complaint and again in May 2009, in a proof of service of all defendants in rem. None of the account numbers ended with the digits 1028.

    Unlike previous pro se filings, the Gould motion included a printout of the government’s form for victims of AdSurfDaily, ASD Cash Generator, LaFuenteDinero and Golden Panda Ad Builder. Check marks on the Gould form are next to the names of AdSurfDaily and LaFuenteDinero. The form submitted to the court by the Goulds appears to have been printed out and filled out in longhand.

    The Gould filing suggests that Robert and Evelyn Gould filled out the government form last month, including the bank-account references.

    Despite the fact the government believes ASD engaged in a wire-fraud and money-laundering conspiracy with unnamed co-conspirators while operating as a Ponzi scheme, the Goulds said in the filing that the government owes them $2,000

  • Another Huge Ponzi Scheme Shaping Up In Florida

    (UPDATED 8:54 P.M. EDT U.S.A. See bottom of story.) Amid a rash of bank failures, an unprecedented number of mortgage foreclosures and a string of major fraud investigations, Florida is bracing for yet another spectacular Ponzi scheme probe.

    This one involves the alleged sale of fraudulent structured legal settlements by Fort Lauderdale attorney Scott Rothstein and may involve up to $500 million. Other lawyers in Rothstein’s firm have sued to remove the boss and put the firm in receivership.

    Rothstein, 47, was said to have returned from Morocco yesterday and was meeting with federal investigators. There were concerns that $500 million was deposited in a bank in Canada late last month and went missing, and accompanying concerns that Rothstein had contemplated suicide as the way out.

    Florida media is all over the Rothstein story, which is beginning to get national exposure in its early hours.

    Rothstein Rosefeldt and Adler, the law firm, has more than 70 lawyers at offices in Florida, New York and Venezuela, including “distinguished former judges,” according to a lawsuit the firm filed to remove Rothstein.

    The complaint alleged Rothstein had control over financial affairs and silently started what appeared to be a securities business.

    “Some investors allege that Defendant Rothstein may have been fabricating non-existent structured legal settlements for sale to investors,” the firm said in the lawsuit.

    Famed attorney Kendall Coffey is representing the firm in its bid to oust Rothstein, who has a reputation for flashiness and for doling out money to politicians from both parties.

    Coffey, a former U.S. Attorney, represented former U.S. Vice President Al Gore in the disputed 2000 election battle with then Texas-Gov. George W. Bush.

    The Rothstein Rosefeldt and Adler law firm was reported suddenly to have less than $500,000 to operate, and attorneys are working without getting paid.

    A dramatic story is shaping up.

    Attorney Jeff Sonn said his firm is investigation Rothstein.

    “Often these private investment schemes, in which many individuals invest in an unregistered hedge or mutual fund with the intent to share profits are nothing more than unregistered securities, that may not be exempt from state and federal securities laws,” Sonn said.

    “In many instances, promoters claim these are private investments that need not be registered as they are allegedly exempt under Regulation D of the federal securities laws, but often they fail to meet all the exemption requirements, including failure to file a Form D with the SEC. If the securities are not exempt from registration, investors would be able to seek rescision of their investment and to hold all promoters, and possibly others, for the loss,” Sonn continued.

    “I have heard that one of the funds run by Rothstein was named ‘Banyon Capital,’ but I have not yet seen the offering documents.” Sonn said, “My law firm had seen Scott Rothstein living a very large lifestyle, including armed body guards, police protection, very expensive cars, luxury homes, jewelry, donations, and appeared to be something out of a Great Gatsby movie.”

    Read this story in the Miami Herald.

    UPDATE 8:54 P.M. The Palm Beach Post is reporting that the FBI and the IRS are are at the law offices of Rothstein Rosefeldt and Adler tonight.

  • ‘Key Enabler’: Madoff Accountant Pleads Guilty; Faces 114 Years; Forfeits More Than $3.1 Million, Real Estate

    David G. Friehling was one of Bernard Madoff’s “key enablers,” U.S. Attorney Preet Bharara said today after Friehling pleaded guilty to nine criminal charges.

    Friehling, 49, Madoff’s small-shop accountant, faces up to 114 years in prison, but has agreed to cooperate with the government, Bharara said.

    “David Friehling was one of the key enablers of Bernard Madoff’s historic fraud,” Bharara said. “With his guilty plea, Friehling has taken responsibility for his crimes and will now assist us in holding others accountable for their involvement in Madoff’s epic fraud
    against so many victims.”

    Prosecutors announced last week that Friehling was expected to plead guilty to a criminal information that superseded one filed in July. It became official today, with Friehling’s plea to securities fraud, investment adviser fraud, four counts of filing false audit reports with the Securities and Exchange Commission and three counts of obstructing or impeding the administration of the internal revenue laws.

    In essence, Friehling pleaded guilty to rubber-stamping bogus information supplied by Madoff and helping Madoff and unnamed others file false tax returns.

    Prosecutors said he is “subject to mandatory restitution and faces criminal fines up to twice the gross gain or loss derived from the offense.”

    The graphic below is a screen shot of a document provided by Bharara’s office in New York that shows the maximum penalties Friehling faces:

    David Friehling faces these maximum penalties.
    David Friehling faces these maximum penalties.

    Friehling will forfeit $3.18 million, representing “the total amount of compensation he
    received from [Madoff’s securities business] for his accounting and tax services, plus the
    amount that he, his wife, and his children withdrew from their BLMIS investment advisory accounts,” prosecutors said.

    He also agreed to forfeit his interest in certain real estate, “to the extent that those properties constitute, or were derived from, the securities fraud charge to which he pleaded guilty,” prosecutors said.

  • Madoff Accountant Expected To Plead Guilty; Charges Demonstrate One Of The Pickles In Which ASD Finds Itself

    UPDATED 2:03 P.M. EDT (U.S.A.) Prosecutors have advised a federal judge that the government expects David G. Friehling to plead guilty to charges next week.

    Friehling was the small-shop accountant for Bernard L. Madoff Investment Securities.

    The mere fact that Bernard Madoff’s multibillion firm used a small shop that employed a single accountant — Friehling himself — was enough to make some investors pass on Madoff’s offerings while performing due diligence.

    Other investors ignored the incongruity. Madoff’s empire collapsed in December 2008. In July 2009, prosecutors filed a criminal information against Friehling, accusing him of accounting fraud, securities fraud, investment-adviser fraud and making false filings.

    In a letter yesterday to U.S. District Judge Alvin K. Hellerstein, prosecutors said they expected to file a superseding criminal information Nov. 3 and that Friehling will plead guilty and cooperate in the government’s ongoing probe.

    Read the letter.

    Friehling’s experience demonstrates one of the pickles Florida-based AdSurfDaily — itself implicated in an alleged Ponzi scheme — is in.

    A hearing was held at ASD’s request Sept. 30 and Oct. 1 of last year to demonstrate it was not a Ponzi scheme. ASD, however, did not call either an in-house or external accountant to the witness stand to certify its books and financial statement, thus missing a chance to refute the government’s Ponzi claims by producing audited financials that could withstand scrutiny.

    One of the likely reasons is that no accountant would or could certify ASD’s books under oath in a fashion favorable to the company. To have done so would have been to introduce some of the same elements that led to intense scrutiny directed at Friehling and the criminal information against him.

    ASD published no verifiable financial information. There are major doubts that ASD even knew its own bottom line, amid assertions that members siphoned off money before it even arrived at ASD.

    One of the allegations against Friehling is that he verified information for Madoff that simply was not true.

    Among the assertions against Friehling was that he was not truly independent and was auditing a company in which he had a large personal stake — an investment account dating back to the 1980s that showed an equity balance of more than $500,000 each year.

    If ASD employed accountants or bookkeepers who held large numbers of “ad-packs” or were being paid in “ad-packs,” their independence could be challenged.

    Moreover, prosecutors said, Friehling’s purported audits did not comply with Generally Accepted Accounting Standards. Reports did not comply with Generally Accepted Accounting Principles.

    Any accountant who certified information favorable to ASD, which prosecutors allege was insolvent, almost certainly would have been subjected to the same degree of scrutiny that Friehling later encountered in the Madoff case.

  • ‘PRINTER’ PONZI: FBI Says Man Ran $28 Million Scheme Based On Bogus Sales Of High-Speed Commercial Printers

    UPDATED 8:28 P.M. EDT (U.S.A.) Minneapolis/St. Paul has Tom Petters, accused of operating a $3.65 billion Ponzi scheme by deceiving investors into thinking they were financing his company’s purchase of electronics that later would be sold to Wal-Mart and other huge retailers.

    And now Chicago has Matthew Scott, whom investigators described as a sort of Tom Petters on a smaller scale.

    Scott was accused today of telling investors their funds would be used to purchase or finance  the purchase of high-speed commercial printers that would be sold to third-party buyers at a profit. The machines were said to be valued in excess of $100,000, and Scott claimed his mark-up of 20 percent led to big profits, the FBI said.

    Scott, 50, of Elmhust, Ill., was charged with mail fraud. His company, Gelsco, neither purchased nor financed such printers, the FBI said.

    “Instead, Scott allegedly fabricated false purchase orders, invoices, promissory notes and other documents that he provided to investors,” the FBI said.

    The scheme collected at least $28 million between early 2000 and March 2009 before unraveling, the FBI said. At least 60 investors were fleeced. The initial loss estimate was pegged at $4.5 million.

    “Throughout the duration of the alleged scheme, Scott had to continually raise funds from investors to make payments to earlier investors, all of which he concealed and intentionally failed to disclose to new and old investors alike,” the FBI said.

    Scott also duped a bank by submitting fraudulent documents to get a loan about 10 months before the scheme collapsed, the FBI said.

    “In May 2008, Scott obtained a $300,000 bank loan by falsely representing that the loan would be secured by a printer that was being sold to a third party, and by providing fraudulent documents as proof of the purported sale,” the FBI said.

  • ASDMBA Website Offline; Registration Lapsed Yesterday

    UPDATED 9:23 P.M. EDT (U.S.A.) The ASDMBA website appears to be back online. Our earlier story is below . . .

    The website of the ASD Members Business Association — asdmba.com — is offline. ASDMBA’s domain registration appears to have expired yesterday, and the site now resolves to a GoDaddy.com page that displays ads.

    Bob Guenther, ASDMBA’s de facto head, came under fire this year, after some members said Guenther did not provide transparent accounting on how the entity spent money it collected to litigate on behalf of members of AdSurfDaily Inc.

    Guenther, 61, recently said the group intended to ramp up efforts to get refunds for members of Florida-based ASD and Georgia-based Golden Panda Ad Builder Inc., two autosurf implicated in an alleged $100 million Ponzi scheme.

    “So now it is time to round up all the troops again and get ready to try and ‘GO GET THE MONEY,’” Guenther said.

    Guenther has been highly critical of the Justice Department, lecturing a federal prosecutor in an email and saying he planned to rely on unnamed “political connections” to embarrass the government.

    See an Sept. 30 story.

    Se an Oct. 1 story.

  • BREAKING NEWS: Water Toy Does Not Survive: Federal Judge Approves Liquidation Plan That Demolishes Parent Company Of Noobing Autosurf; Jet Ski, Car, Computers, Furniture — Even A Wastebasket Ordered Sold

    Noobing pitched itself to deaf people on YouTube.
    Noobing pitched itself to deaf people on YouTube.

    A federal judge has given the go-ahead to a court-appointed receiver to sell the assets of Affiliate Strategies Inc. (ASI), the parent company of the Noobing autosurf.

    U.S. District Judge Julie A. Robinson of the District of Kansas approved the plan submitted by receiver Larry Cook. The plan authorizes Cook to sell the assets in auction lots — right down to a stainless-steel wastebasket in the women’s restroom.

    Robinson’s order permits Cook to sell ASI’s jet-ski, a 2005 Yamaha, along with a 2003 Saturn automobile owned by the firm.

    “[Cook] previously determined the Receivership Defendants’ business operations could not be operated legally and profitably,” the receiver’s attorney, Brian M. Holland, said in a court filing.

    AdSurfDaily, a Florida company implicated in an alleged $100 million Ponzi scheme, used money to purchase two jet skis, federal prosecutors said.

    ASI’s furnishings, furniture, computer equipment, servers and related equipment all will go. Included in the equipment are the Compaq 6820 notebook computer used by ASI/Noobing President Brett Blackman, and the Lenovo SL500 notebook computer used by Noobing programmer Mike Reed, according to court filings.

    Neither Noobing nor Reed was named a defendant in the July action filed by the Federal Trade Commission and the attorneys general of Kansas, Minnesota and North Carolina. Noobing’s website, however, went offline in the wake of the action against ASI and several affiliated firms and individuals, including Blackman.

    One of the affiliated companies — the Grant Writer’s Institute — was alleged to have sold a fraudulent program that offered “guaranteed” government grants from economic stimulus funds. Separately, Cook said his preliminary investigation revealed that a 70-year-old Philadelphia man had been charged $995 for the names and addresses of three benevolent entities that could help him repair the aging home he shared with his wife.

    Noobing targeted deaf people in promotions. Although the Noobing surf was not named a defendant in the FTC action, Cook’s preliminary assessment revealed Noobing had gathered $590,000 in revenue last year and more than $541,000 this year.

    Cook estimated that the surf was in the hole nearly $550,000 since last year.

    Noobing participants became furious in February, when the surf slashed daily payouts to a fraction of 1 percent after paying up to 3 percent earlier.

    Some members said Noobing should provide refunds, but Reed said on the ASA forum that no refunds would be granted because the company never guaranteed a return. Regardless, some participants said they’d get their money back by filing chargebacks with credit-card companies.

    Critics said the practice was contemptible, pointing out the wink-nod nature of autosurfs and the stress it puts on banks. On one hand, participants are happy to accept Ponzi payouts from the surfs. On the other, in order to perform a chargeback, they claim surfs failed to deliver the “advertising” they paid for when a surf slashes payouts.

    Such an approach costs banks time and money. Some veteran autosurf pushers who position themselves as experts recommend the chargeback approach, in effect using banks to guarantee “advertising” purchases from the surfs even if surfs that slash payouts or suspend them still are displaying ads.

    The ASA forum is a popular site among autosurf enthusiasts. Critics call it a Ponzi board for both autosurfs and HYIPs.

    Noobing blamed its decision to slash payouts on uncertainty in the ASD case.

    “If there is a bad guy in this whole story, it’s the government!” Reed exclaimed on the ASA forum in February. “Let’s get mad at them! How can sharing our revenue to help control costs for legitimate advertisers be a bad thing? How can keeping $90+ million dollars to protect the people who worked with ASD be a fair result? It’s madness!!! Our government is the bad guy here, not Noobing.

    “Let’s get mad at the source of this challenge!” Reed railed. “Call your congressman, send letters, speak publicly!!”

    Some ASD promoters pushed Noobing after the U.S. Secret Service seized tens of millions of dollars from ASD last year in a wire-fraud, money-laundering and Ponzi scheme probe.

    Cook said the case against ASI and co-defendants was going to take some time to unwind because of thousands of intercompany transactions and the fact that some of the entities had registered as corporations offshore.

    “Of immediate concern is the large distributions and salary paid to defendant Brett Black[man] since 2008,” Cook advised Robinson in a preliminary report. “Per the QuickBooks accounting records, Blackman received $841,545 of distributions from Apex Holdings International, LLC in 2008 and made a net contribution of $491,559 into Affiliate Strategies, Inc. ($581,388 of contributions and $89,829 of distributions) for a total net distribution of $349,986, in addition to salary payments of $118,049.

    “In 2009,” Cook continued, “Blackman has received $253,506 of distributions from Apex Holdings International, LLC and has made a net contribution of $113,000 into Affiliate Strategies, Inc. ($349,000 of contributions and $226,000 of distributions). The total net distributions and salary to Blackman for 2008 and 2009 is approximately $490,000.”

    Cook said his assessment was ongoing. He reported that some of the accounts involved in the investigation had chargeback rates of as high as 77 percent, meaning that better than three of four customers who made credit-card charges requested refunds.

    Blackman, according to Cook, recently registered several corporations offshore, including Noobing; ASI Management Inc., formed in Belize on March 24, 2009; Landmark Publishing Group LLC, formed in Nevis on March 25, 2009; Landmark Publishing LLC, formed in Nevis on March 25, 2009; International Research and Writing Group LLC, formed in Nevis on July 1, 2009; and International Publishing Group LLC, formed in Nevis on July 1, 2009.

    All in all, Cook said, “the ASI defendants have formed and operated eighteen additional Kansas LLCs as subsidiaries of Defendant Apex Holdings International LLC.”

    Robinson previously ordered all offshore assets to be repatriated.

  • BREAKING NEWS: Montana Forges Partial Settlement In Case That Alleged Ponzi Schemer Took $100,000 From Investment Client, Paid Earlier Client $50,000, Paid Lawyer $25,000 And Pocketed $25,000; Major State Investigation Remains Open

    Monica Lindeen, Montana Commissioner of Securities and Insurance
    Monica Lindeen, Montana Commissioner of Securities and Insurance

    UPDATED 9:28 P.M. EDT (U.S.A.) Donald Chouinard urged clients in Montana and Idaho to invest in what they thought was a “day-trading program,” authorities said.

    In one case, he allegedly persuaded a client to borrow a large sum to enter the program. The case is remarkable in the sense that one of its specific allegations provides a perfect illustration of how victims get suckered and how Ponzi schemes work.

    In a single transaction with an investor, all of the investor’s funds allegedly were consumed immediately, leaving the investor with nothing, authorities said.

    “Chouinard convinced one investor to obtain a $100,000 loan and invest with him because he could guarantee a high return in 30 days,” investigators said. “Instead of investing the $100,000 in the ‘day-trading’ program, Chouinard used $50,000 to pay off a previous investor, deposited $25,000 into his personal joint-checking account, and gave the other $25,000 to his attorney.”

    Montana Commissioner of Securities and Insurance Monica Lindeen announced a partial settlement today that calls for LPL Financial Corp. to pay nearly $1.3 million in restitution and a fine of $150,000 for failing to supervise Chouinard.

    LPL formerly employed Chouinard, who also is associated with two other firms. The settlement with LPL, which neither admitted nor denied wrongdoing, applies only to LPL and does not affect separate actions involving Chouinard and the other firms, DC Wealth Management Inc. and DC Associates Inc.

    “Too many hard working Montanans lost their savings due to the actions of Mr. Chouinard, but today we started the process of recovering those losses,” said Lindeen. “This settlement is the result of both efficient and effective enforcement work by this agency and a willingness by LPL Financial Corporation to arrive at a solution that addresses the needs of its clients. We are very pleased with this result.”

    Among the assertions against Chouinard are that he operated a Ponzi scheme, engaged in securities fraud, traded in the investors’ accounts without authorization, forged signatures to authorize certain trades and failed to provide investors with statements or tax documents for their “day-trading” investments.

    At the same time, investigators assert that Chouinard “routinely informed the investors about the values of their investments orally or via email,” but misrepresented the values — “in one case by as much as 10,000 [percent].”