URGENT >> BULLETIN >> MOVING: (3RD UPDATE 8:44 P.M. EDT U.S.A.) Senior U.S. District Judge Graham C. Mullen has denied a motion by alleged winners in Zeek Rewards to intervene in the SEC’s Ponzi-scheme case and to dissolve the receivership.
In December 2012, alleged Zeek “winners” Trudy Gilmond and Kellie King asked Mullen for permission to intervene in the case and to end the court-appointed receivership, arguing that Zeek did not sell securities as defined under federal law.
Mullen today denied the motion on both fronts.
Kenneth D. Bell is the receiver. He opposed the Gilmond/King motion. So did the SEC, which described Zeek in August 2012 as a $600 million Ponzi- and pyramid fraud selling unregistered securities through Rex Venture Group LLC in North Carolina.
Gilmond may have more than $1.364 million at risk in a clawback lawsuit. King potentially faces a claim from Bell for more than $205,180, according to court filings.
“Gilmond and King seek to improperly interfere with a settled SEC enforcement action against defendants Rex Venture Group and Paul Burks to deny the Receiver the ability, as directed by the Court, to marshal the estate’s assets for the benefit of all aggrieved ZeekRewards investors,” the SEC argued in January. “The Motion to Intervene is a transparent attempt to obtain prospective relief in an improper forum with respect to clawback litigation the Receiver has yet to initiate.”
For his part, Bell said Gilmond and King were engaging in “delaying tactics.”
Gilmond and King are represented by Ira Lee Sorkin, Bernard Madoff’s defense attorney.
“The issue Gilmond and King seek to litigate — whether the ZeekRewards program was an ‘investment contract’ or ‘security’ — has been resolved for the purposes of this settled SEC enforcement action,” the SEC argued in January. “As a result, Proposed Intervenors assert no ‘claim or defense that shares with the main action a common question of law or fact.’ Thus, there is no basis for intervention.
“Finally,” the SEC continued, “Proposed Intervenors provide no factual or legal support for their request to dissolve the receivership in this matter. Therefore, the Motion to Intervene should be denied in its entirety.”
Mullen did just that today.
Zeek operator Paul R. Burks consented to a judgment in the SEC case in August 2012.
BULLETIN: The SEC has gone to federal court in the Eastern District of Texas, charging Trendon T. Shavers of McKinney in an alleged Bitcoin Ponzi scheme that gathered more than $4.5 million before collapsing in August 2012.
Bitcoins are a digital currency that has “no single administrator, or central authority or repository,” the SEC said.
Investors with at least 50 bitcoins were told that they’d receive “up to 1% interest daily,” the SEC charged, alleging that Shavers used the moniker “pirateat40” at an online forum to pitch the scheme.
The “program” operated through an unincorporated entity known as BTCST, formerly known as First Pirate Savings & Trust, the SEC said.
“Ponzi scheme operators often claim to have a tie to a new and emerging technology as a lure to potential victims,” said Lori J. Schock, director of the SEC’s Office of Investor Education and Advocacy. “Investors should understand that regardless of the type of investment, a promise of high returns with little or no risk is a classic warning sign of fraud.”
Shavers is 30, the SEC said. The agency did not reveal when its investigation began or how it determined the online identities of Shavers.
The SEC alleges that Shavers promised investors up to 7 percent weekly interest based on BTCST’s Bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy Bitcoin “off the radar” in quick fashion or large quantities. In reality, BTCST was a sham and a Ponzi scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments. Shavers also diverted investors’ Bitcoin for day trading in his account on a Bitcoin currency exchange, and exchanged investors’ Bitcoin for U.S. dollars to pay his personal expenses.
Virtual currencies, such as Bitcoin, have recently become popular and are intended to serve as a type of money. They may be traded on online exchanges for conventional currencies, including the U.S. dollar, or used to purchase goods or services, usually online.
We are concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes in which these currencies are used to facilitate fraudulent, or simply fabricated, investments or transactions. The fraud may also involve an unregistered offering or trading platform.
These schemes often promise high returns for getting in on the ground floor of a growing Internet phenomenon. Fraudsters may also be attracted to using virtual currencies to perpetrate their frauds because transactions in virtual currencies supposedly have greater privacy benefits and less regulatory oversight than transactions in conventional currencies. Any investment in securities in the United States remains subject to the jurisdiction of the SEC regardless of whether the investment is made in U.S. dollars or a virtual currency. In particular, individuals selling investments are typically subject to federal or state licensing requirements.
Prior to the collapse of the scheme, Shavers denied to forum questioners he was operating a Ponzi. Along the way, however, he slashed the purported payout from 7 percent a week to 3.9 percent a week and changed the rules about who could invest, the SEC said.
As the scheme was collapsing, the SEC charged, “Shavers made preferential redemptions to friends and longtime BTCST investors.”
The scheme began “at least” by September 2011, the SEC said.
HourlyRevShare, another in a long list of incongruous HYIP Ponzi-board “programs” pushed by serial huckster “Ken Russo” (also known as “DRdave”), reportedly has collapsed after taking a second bite of the Ponzi apple (purportedly as HRS II) after the original iteration collapsed. Other recent “programs” pushed by “Ken Russo” include Zeek Rewards and Profitable Sunrise, both of which cratered after regulatory actions in the United States.
“Ken Russo” also pushed Felmina Alliance, which became the subject of an Investor Alert in Canada; AdSurfDaily, a $119 million Ponzi scheme that put operator Andy Bowdoin in federal prison in Florida; MPB Today, a scheme that led to racketeering charges being filed in Florida against operator Gary Calhoun; Club Asteria, a scheme that falsely planted the seeds it was endorsed by actor Will Smith and the American Red Cross while also trading on the name of slain human-rights champion Mahatma Gandhi; a scheme known as Gold Nugget Invest that cratered in at least two forms; JSS Tripler/JustBeenPaid, a multiple-name scheme purportedly operated by Frederick Mann that promised a return of 730 percent a year and has encountered regulatory actions in Italy and the Philippines; knockoff scams known variously as JSSTripler 2 and Compound 150 purportedly operated by “Dave” between purported bouts with Dengue Fever; and Wealth4AllTeam, a “program” that experienced business halts and relaunches with new names, at one time claiming it was impervious to U.S. regulators at the state and federal level while incongruously claiming disputes would be settled under California law.
Among other things, the lead pitchman for HourlyRevShare on the MoneyMakerGroup Ponzi forum claimed that the “program” offered “Daily guaranteed Payouts.” The promoter also claimed (italics added):
“Earn 4.5% to 6.5% daily for 20 days.”
“Earn 135% to 195% on your shares.”
“Earn 0.18 to 0.29 every hour.”
On April 9, 2013, less than a month after the Profitable Sunrise HYIP scheme collapsed amid SEC allegations a ghost might have been at the wheel, Ken Russo (as “DRdave”) claimed on TalkGold that he’d just received a payment of $4,850 from HourlyRevShare, which was using a Gmail email address. Critics of HourlyRevShare claim the “program” is linked to individuals known as Analie or Anelie Steinway and Dr. Leiven Van Neste.
Whether these individuals actually exist remains an open question.
“Ken Russo” also has been leading cheers for a “program” known as NEOMutual, yet-another Ponzi-board darling. NEOMutual is being pushed alongside a “program” bizarrely known as “CashCropCycler.”
UPDATED 6:23 P.M. EDT (U.S.A.) There are at least three reports in Brazilian media today that say TelexFree has blocked members’ access to their back offices.
A company attorney said the blockages were necessary because hackers had attempted an intrusion, according to reports in Portuguese translated to English by Google Translate.
Here is a link to one of the reports, with the corresponding Google translation. (Please note that Google translations often are imperfect, may appear stilted and may lack subtleties of language.)
Narratives about hackings often accompany HYIP schemes. The AdSurfDaily Ponzi scheme in the United States once claimed it could not make payments because hackers had stolen $1 million. ASD President Andy Bowdoin never reported the alleged hacking bids to police, federal prosecutors said.
In 2012, reports surfaced that the JSS Tripler/JustBeenPaid scheme that purported to pay 730 percent a year (precompounding) had been targeted by hackers. There also were reports in 2012 that accounts at Zeek Rewards (1.5 percent a day) had been hacked and that at least one individual had presented a bogus financial instrument to Zeek.
TelexFree pitchwoman Faith Sloan reported this (see italicized paragraph below) in a Blog post titled “TelexFREE Update: July 15, 2013 with Steve Labriola” that was referenced July 16 in a reader comment at BehindMLM.com.
“There were an increase in number of cashouts last Tuesday which caused the women in the office to get a huge increase in their workload. They will continue pushing out money to our bank accounts Today and Tomorrow. So be patient. He emphasized that this has absolutely nothing to do with Brazil.”
Even as reports surfaced that TelexFree had blocked members’ access to their back offices as a safeguard against hackers, the “opportunity” says a California extravaganza is still set for July 26 and 27.
TelexFree has been under investigation in Brazil for weeks and appears to have been blocked by a court order in the state of Acre from making payments to members in Brazil. Now, some affiliates appear to be questioning whether the denial of access to their back offices means that data is being destroyed or records about money owed to affiliates by TelexFree are being changed.
The circumstance at least suggests that TelexFree continued to make payments to Americans and has been hit with a flood of cashout requests by U.S.-based affiliates concerned about the government actions in Brazil. Put another way, TelexFree could be facing an American run on its bank accounts.
Some HYIP schemes have been known to block redemption requests to fend off a bank run, but the precise circumstance TelexFree is facing is unclear. Hackings can and do occur.
Some TelexFree affiliates have claimed the “program” was using Bank of America and TD Bank in the United States to gather funds. That may have changed in April 2013 at least with respect to Bank of America, when TelexFree affiliate reports quoting Labriola surfaced that TelexFree was “pulling out of Bank of America.”
No reason was given for TelexFree’s purported decision to leave Bank of America. In May 2012, the Zeek Rewards “program” reported mysteriously that it was ending its relationship with two banks. About three months later, the SEC accused Zeek of conducting a $600 million Ponzi and pyramid scheme from North Carolina.
TelexFree lists the states of Nevada and Massachusetts as its bases of operation under the names TelexFree LLC and TelexFree Inc.
Some individuals associated with TelexFree appear also to have set up companies that use the TelexFree name. Records in California show entities with names such as ALL-IN TELEXFREE 247 LLC, LIVING-THE-DREAM TELEXFREE 247 LLC and RAIN-MAKER TELEXFREE 247 LLC. Records in Florida, meanwhile, show an entity known as TELEXFREE MARKETING INC.
Whether the United States has opened a probe into TelexFree’s activities is unknown.
Some TelexFree affiliates have claimed that a payment of $15,125 to TelexFree for the purchase of a “contract” results in an income of at least $1,100 a week for a year. TelexFree is one of several “programs” that have been targeted at victims of Profitable Sunrise, which the SEC described in April 2013 as a pyramid scheme that may have collected tens of millions of dollars.
A “program” with the bizarre name of “CashCropCycler” (Triple C) is being pushed on the Ponzi forums, amid claims it issues cashouts through offshore payment processors linked to fraud scheme after fraud scheme and gives enrollees $10 just for signing up. An earlier HYIP scam known as JSSTripler/JustBeenPaid that appears to have morphed into at least two other scams also advertised recruits would be paid $10 for enrolling in its “program,” which purported to pay 730 percent a year (precompounding).
Like a series of recent scams, CashCropCycler purports to be a “revenue sharing and advertising” program. It also claims it is using Skype and Gtalk for customer service. The lead pitchman for CashCropCycler on the MoneyMakeerGroup Ponzi forum appears to be “mmgcjm,” the lead pitchman for the alleged $600 million Zeek Rewards Ponzi scheme at the same forum.
Whether CashCropCycler borrowed part of the JSS/JBP fraud pitch wasn’t immediately clear. Also unclear is whether CashCropCycler’s unusual name was designed to be provocatively ambiguous or as a taunt of some sort. Could the unidentified Triple C operators be suggesting they are using the HYIP world to crowd-source the cultivation of marijuana, for instance? Other HYIP schemes — CashTanker, BotFly and Insectrio, for instance — may have been named to taunt regulators and demonstrate just how gullible investors can be.
CashCropCycler curiously discusses the Triple C alliteration in another context, saying “The name ‘Triple C’ came about in year 2012 when we gave all our personal earnings to support the Clarion Children’s Choir, that was the best experience for us as a team.”
The “program” purports to be operated by “three friends, Americans by naturalization and Swedish by birth; Benson, Dave and Anderson.”
CashCropCycler’s website defines the trio as “ordinary people who find delight in been [sic] able to help our same human species. It doesn’t matter what country you’re from, what race you belong or how educated you are; we only care to help people by building a network that ticks, and this is what we enjoy doing.”
Records suggest that one of the domain nameservers (ian.ns.cloudflare.com) linked to CashCropCycler has been used in spam campaigns for everything from malware to potentially fraudulent National Football League jerseys and potentially fraudulent designer purses purportedly from Louis Vuitton.
Meanwhile, the CashCropCycler Terms of Service includes the strange phrase “Agreements shall be interpreted under the laws” — without identifying a jurisdiction or set of laws used if disputes occur. The Terms also confoundingly assert that “A member is neither an employee nor an independent contractor of CASHCROPCYCLER,” even as CashCropCycler asserts elsewhere on its site that promoters can earn MLM-style commissions totaling 15 percent over three tiers.
By plowing $10 into the scheme, according to the CashCropCycler website, members will earn “186% in 60Days” [sic]. A sum of $50 purportedly fetches “129.60% in 25days” [sic]. Recruits should feel good about the “program” (apparently) because the “script was tested for 68days [sic] before this official launch.”
And members also are permitted to engage in “Member to Member Transfer[s]” from inside the CashCropCycler system “for a 2.50% fee,” according to the website. Beyond that, according to the site, members can pay an exchange “fee of 8.70%” should they wish to have their earnings paid through a processor other than the one through which they joined the “program.”
Some purported exchange services were among the casualties of the Liberty Reserve money-laundering action in the United States in May. Federal prosecutors in New York said that the now-shuttered Liberty Reserve payment processor was facilitating any number of fraud schemes while helping criminals launder billions of dollars.
Even though CashCropCycler members purportedly are neither employees nor independent contractors of the “program,” they nevertheless are encouraged to (italics added/no edits made):
“Promote via banner/text advertisements on other advertising websites that you are a member of.
“Be active on the forums, including MoneyMakerGroup, TalkGold, DreamTeamMoney and Investment-Tracker .
“Including a link to CashCropCycler in your signature in forums.
“Traffic exchanges/Safe lists.
“Social media.
“Word of mouth.”
At least four ads that appear to highlight other HYIP schemes appear near the bottom of the CashCropCycler landing page. One of the ads is for “NeoMutual,” which uses a tagline of “we are crowdfunding.”
Some critics of crowd funding have voiced concerns that easing regulations on certain types of startup companies before appropriate safeguards are in place could lead to egregious marketplace abuses.
Ads for what appear to be HYIP schemes are displayed on the website of CashCropCycler. A purported opportunity known as NEO Mutual purports to be a “crowd funding” company through which members can use payment processors such as Perfect Money, SolidTrustPay and EgoPay that have been linked to multiple fraud schemes. NEOMutual also purportedly does business with bitcoins and PexPay — all while employing a “bank transfer” option. NEOMutual purports to have “Junior,” “Senior” and “Executive” plans that pay daily interest rates of 1.4 percent, 1.6 percent and 1.9 on sums between $20 and $250,000. NEO Mutual says it is located at Revolution Tower in Panama City, Panama. Like the “Profitable Sunrise” scheme, NEO Mutual purports to be in the bridge-loan business. In April 2013, the SEC called Profitable Sunrise a scam that may have gathered millions of dollars while using a “mail drop” and offshore bank accounts.
UPDATED 8:25 A.M. EDT (JULY 16, U.S.A.) Just days after the FBI warned police across Tennessee to be aware of “sovereign citizens” carrying fake law-enforcement credentials and engaging in other scams, two purported “sovereigns” have been arrested in an alleged parking scam.
Yes, a parking scam — one that involves motorists being duped into paying parking fees to purported “Moorish American nationals” instead of the rightful owners of downtown Memphis parking lots, a local television station is reporting.
WMC-TV says that Eddie Medlock and Noble Atum Re El-Bey were arrested on charges of ripping off parkers.
One parking-lot owner “spends seven days a week chasing off scammers pretending to work at the lots, collecting money from unsuspecting drivers trying to park,” the station reported.
The alleged parking scam follows on the heels of other recent scams involving purported Moorish Americans, some of whom have been involved in alleged real-estate swindles and the filing of false liens against public officials.
BULLETIN: Patrick Kiley, a radio host and conspiracy theorist who warned of “massive, massive chaos” and became a pitchman for the $194 million Trevor Cook Forex Ponzi scheme in Minnesota, has been sentenced to 20 years in federal prison.
Kiley, 75, now becomes the fifth person sentenced to a long prison term in the epic Cook caper, one of the largest financial frauds in Minnesota history. The others include Jason Bo-Alan Beckman, 43, (30 years); Gerald Joseph Durand, 62, (20 years); and Christopher Pettengill, 56, (90 months).
Cook was sentenced to 25 years. The defendants each face a restitution order of more than $155 million.
Like other scams, the Cook fraud traces part of its downfall to a decision to trade on a famous name — in this case, UBS. But the real UBS sued for trademark infringement, prompting Cook and his cronies to adopt other names and immerse themselves in a deeper and deeper sea of incongruity. Conservative Christians were the principal targets.
Kiley emerged a key Cook rainmaker, but ultimately tried to paint himself a Cook victim, describing Cook as “Pontius Pilate,” the Roman prefect many Christians believe authorized the crucifixion of Jesus.
At one point, Kiley tried to turn the tables on the CFTC — like the SEC, one of the agencies to sue Cook and Kiley — by asking the judge overseeing the case to sanction a CFTC attorney $1,000 and make the penalty payable to Kiley. Kiley asserted the CFTC lawyer filed an “offensive” pleading. He also contended that SEC recordings of his pitch were filled with “distortions” and that a website bearing his name had been put together by an individual with a high “sleaze factor.”
Kiley made these assertions, according to court documents, after he earlier had lied while asserting that Cook’s outsized returns were possible because the scheme was borrowing money at zero interest from a bank that complied with Shariah law, which forbids the payment of interest.
A judge ultimately ordered Kiley to undergo a psychiatric exam and a medical exam, delaying his sentencing until today.
From a statement today by federal prosecutors (italics added):
In 2007, when UBS, AG, filed a trademark infringement lawsuit against Cook, Durand, Kiley, and others, the defendants began operating their scheme under other names, including but not limited to those identified by the terms “Oxford” and “Universal Brokerage FX.” They then continued to solicit investors for the currency program, utilizing telemarketing, media spots, and seminars in which they repeated the false representations noted above. Kiley, a Christian radio host, solicited investors for the scam through his radio talk show, which was carried on more than 200 stations across the country. On those programs, he regularly warned listeners to avoid financial ruin by giving their life savings to his company for investment.
In this evidence exhibit given to a federal judge prior to the Legisi asset freeze in 2008, a Legisi prospect writes the name “Money Maker Group.com” in longhand. State and federal probes into Legisi were under way long before members knew — and undercover agents were part of the probe.
EDITOR’S NOTE: As the PP Blog reported Wednesday, HYIP Ponzi-scheme pitchman Matthew John Gagnon has been sentenced to five years in federal prison. On Thursday, the SEC released the statement reproduced below. Here’s hoping it will be the shot heard around the HYIP Ponzi World.
Still pushing HYIPs on your websites and social-media sites, in your emails and on the Ponzi boards? Still pushing them after the Legisi, AdSurfDaily, Zeek Rewards and Profitable Sunrise debacles? Is someone like “Ken Russo” or “10bucksup” or “strosdegos” enlisting you to enter Ponzi World?
Are you listening to Faith Sloan, when she shows you an investment-earnings calculator and plants the seed that the TelexFree action in Brazil is a yawner because it was brought in a “small” state that’s “literally in the middle of the jungle” — all while she further risks offending one-fifth of the world’s population by advising you not to engage in a “panic-like-Chinese-fire-drill” over your legitimate TelexFree concerns?
If you are turning a blind eye to all the incongruities of HYIP Ponzi Land, you may have the chance to be the next Matt Gagnon, meaning the next several years of your life will be consumed by court actions. First, you’ll watch your “program” get sued by the SEC. After that, you’ll get sued by the SEC and a court-appointed receiver. On top of those unpleasantries, you’ll be called a threat to the investing public in newspaper stories across the land, then charged criminally, and then sent to jail for years you’ll never get back while being ordered to pay back either the money you stole or the money you helped someone else steal.
A final note: More than FIVE years after the SEC filed the first of the Legisi-related fraud charges in May 2008, Legisi victims continue to visit the PP Blog for updates on the various Legisi-related actions, including the multiple actions against Gagnon. Scams may fall out of the headlines for a while — but the fleeced masses never forget them. For posterity, the PP Blog has inserted a section of a Legisi evidence exhibit into the SEC’s statement. It may be the strangest Terms of Service you’ve ever read.
** ______________________________________ **
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 22749 / July 11, 2013 Securities and Exchange Commission v. Matthew J. Gagnon, Civil Action No. 10-cv-11891 (E.D. Mich.)
Serial Fraudster Matthew J. Gagnon Sentenced to Five Years in Prison
The Securities and Exchange Commission announced that on July 9, 2013, the Honorable Mark A. Goldsmith of the United States District Court for the Eastern District of Michigan sentenced Matthew J. Gagnon to five years of incarceration followed by three years of supervised release and ordered Gagnon to pay over $4.4 million in restitution to his victims. Gagnon, 45, of Portland, Oregon, pleaded guilty to one count of criminal securities fraud for promoting a securities offering without fully disclosing the amount of his compensation in connection with his promotion of the $72 million Legisi Ponzi scheme in 2006 and 2007, in violation of Section 17(b) of the Securities Act of 1933.
The criminal charges arose out of the same facts that were the subject of a civil injunctive action that the Commission filed against Gagnon on May 11, 2010. The Commission’s complaint alleged that since 1997, Gagnon had billed himself as an Internet business opportunity expert and his website as “the world’s first and largest opportunity review website.” According to the SEC’s complaint, from January 2006 through approximately August 2007, Gagnon helped orchestrate a massive Ponzi scheme conducted by Gregory N. McKnight and his company, Legisi Holdings, LLC, which raised a total of approximately $72 million from over 3,000 investors by promising returns of upwards of 15% a month. The complaint also alleged that Gagnon promoted Legisi but in doing so misled investors by claiming, among other things, that he had thoroughly researched McKnight and Legisi and had determined Legisi to be a legitimate and safe investment. The complaint alleged that Gagnon had no basis for the claims he made about McKnight and Legisi. Gagnon also failed to disclose to investors that he was to receive 50% of Legisi’s purported “profits” under his agreement with McKnight. According to the complaint, Gagnon received a net of approximately $3.8 million in Legisi investor funds from McKnight for his participation in the scheme.
The SEC’s complaint further alleged that beginning in August 2007, Gagnon fraudulently offered and sold securities representing interests in a new company that purportedly was to develop resort properties. The complaint alleged that Gagnon, among other things, falsely claimed that the investment was risk-free and “SEC compliant,” and guaranteed a 200% return in 14 months. In reality, however, Gagnon sent the money to a twice-convicted felon, did not register the investment with the SEC, and knew such an outlandish return was impossible. Gagnon took in at least $361,865 from 21 investors.
The SEC’s complaint also alleged that in April 2009, Gagnon began promoting a fraudulent offering of interests in a purported Forex trading venture. Gagnon guaranteed that the venture would generate returns of 2% a month or 30% a year for his investors. Gagnon’s claims were false, and he had had no basis for making them because Gagnon never reviewed his friend’s trading records before promoting the offering, which would have shown over $150,000 in losses over the previous nine months.
The SEC’s complaint charged Gagnon with violating Sections 5(a), 5(c), 17(a) and 17(b) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint sought preliminary and permanent injunctions, disgorgement, and civil penalties from Gagnon. On May 24, 2010, the SEC obtained an emergency order freezing Gagnon’s assets and other preliminary relief. Subsequently, on August 6, 2010, the Court granted an order of preliminary injunction against Gagnon pursuant to his consent. On March 22, 2012, the Court granted the SEC’s motion for summary judgment and entered a final judgment against Gagnon. The Court found that Gagnon violated the registration, anti-fraud, and anti-touting provisions of the federal securities laws. The Court’s final judgment against Gagnon permanently enjoined him from future violations of Sections 5(a), 5(c), 17(a) and 17(b) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and ordered Gagnon to pay $3,613,259 in disgorgement, $488,570.47 in prejudgment interest, and a $100,000 civil penalty.
On May 2, 2012, the SEC instituted related administrative proceedings against Gagnon to determine what, if any, remedial action was appropriate and in the public interest. On July 31, 2012, the SEC issued an Order Making Findings and Imposing Sanctions by Default barring Gagnon from association with any broker or dealer.
For further information regarding this case, see Litigation Releases No. 21532 (May 25, 2010), and 22310 (March 27, 2012).
URGENT >> BULLETIN >> MOVING: Legisi HYIP Ponzi-scheme pitchman Matthew John Gagnon has been sentenced to 60 months in federal prison, ordered to pay $4.4 million in restitution and further ordered to serve three years’ supervised probation after his prison release, the office of U.S. Attorney Barbara L. McQuade of the Eastern District of Michigan said.
Legisi, a $72 million Ponzi scheme pushed on fraud forums such as TalkGold and MoneyMakerGroup, was operated by Gregory N. McKnight, who faces sentencing in August. Gagnon’s five-year sentence was the maximum under a plea agreement with prosecutors, who’ve recommended McKnight serve 15 years.
Gagnon pushed Legisi and other fraud schemes through Mazu.com, the SEC said in 2010. The name of MoneyMakerGroup appears in evidence exhibits in the Legisi Ponzi case.
Gagnon will be permitted to self-report to prison, prosecutors said.
The Legisi case — perhaps particularly events involving Gagnon — has been closely watched because it shows that MLM-style HYIP pitchmen can be held accountable criminally for pushing scams. The SEC called Gagnon a threat to the investing public, describing him as a serial fraud pitchman who lacked licenses to sell securities and pushed the unregistered securities of multiple fraud schemes.
In civil charges announced yesterday in Ohio, prosecutors effectively made the same claims against promoters of the alleged Profitable Sunrise pyramid scheme. Included among them was Nanci Jo Frazer, who allegedly also promoted the $119 million AdSurfDaily Ponzi scheme and the $600 million Zeek Rewards Ponzi- and pyramid scheme.
The Legisi case began as an undercover probe by state securities regulators in Michigan and the U.S. Secret Service.
Legisi’s Terms of Service sought to make members affirm they were not an “informant, nor associated with any informant” of the IRS, FBI, CIA and the SEC, among other agencies, according to documents filed in federal court.
Current scams such as Profit Clicking have published similar terms, which read like an invitation to join an international financial conspiracy. Ohio prosecutors said they believed Frazer also pushed ProfitClicking, in addition to Zeek, ASD and Profitable Sunrise.
McKnight, prosecutors have said, tried to sanitize Legisi by calling it a “loan” program and engaging in semantic obfuscation. Any number of HYIP scams have employed similar linguistic sleight-of-hand, with ProfitClicking bizarrely arguing that neither itself nor affiliates can be held accountable.
Gagnon argued in court that he’d been duped by McKnight, but a federal judge didn’t buy it.
URGENT >> BULLETIN >> MOVING: (Fourth update 9:10 p.m. EDT U.S.A.) In court papers, the state of Ohio has called Nanci Jo Frazer’s Focus Up Ministries a “front” for the Profitable Sunrise HYIP scheme and alleges that Focus Up changed its name to Defining Vision Ministries Inc. in June 2013 — two months after the SEC brought the Profitable Sunrise fraud action in federal court in Atlanta.
Records suggest Nanci Jo Frazer also is known as Nancy Jo Frazer. The Ohio court documents list the “Nancy” spelling. Other documents list the “Nanci” spelling.
A judge in Williams County, Ohio, has ordered Frazer, Focus Up and other entities associated with Frazer to “[i]mmediately cease all activities on behalf of any charitable organization/trust in the state of Ohio,” to preserve assets and to return assets that already may have been dissipated.
The judge also ordered Frazer and others to cease selling unregistered securities. Meanwhile, the judge ordered three Ohio banks to take eight accounts linked to Frazer and others into “actual and/or constructive possession.” Frazer resides in Bryan, Ohio.
Ohio Attorney General Mike DeWine and the Ohio Department of Commerce said today that the state has brought civil fraud charges against Frazer, Focus Up, Defining Vision and others. Documents say the state believes Frazer was a pitchwoman for the AdSurfDaily Ponzi scheme and other “programs,” including Zeek Rewards and Profit Clicking.
“This case involves a worldwide pyramid scheme that defrauded Ohioans and others out of millions of dollars,” DeWine said. “These individuals brought the scheme to Ohio by promising outrageous returns and telling investors that their donations and investments would help charities. We will continue to work closely with the Department of Commerce to hold the defendants accountable for their actions.”
Also charged were David Frazer, Frazer’s husband, and Albert Rosebrock, a member of Frazer’s NJF Global Group. Rosebrock also was alleged by Ohio to be an AdSurfDaily and Zeek affiliate.
Purported Profitable Sunrise operator “Roman Novak” is called “John Doe” in Ohio’s complaint, leading to continuing questions about whether “Novak” actually exists. In April, the SEC said that Profitable Sunrise pitchmen may not even have known with whom they were doing business. Profitable Sunrise purported to pay up to 2.7 percent interest a day. The SEC said it was using a “mail drop” in England and offshore bank accounts potentially to scam tens of millions of dollars.
Frazer’s group may have driven $30 million to the scam, according to court files.
The Cleveland Plain Dealer is reporting that Rosebrock is blaming the SEC for the collapse of Profitable Sunrise.
Profitable Sunrise is an international pyramid scheme recently shut down by federal and international authorities. Profitable Sunrise claimed to be a Christian company that would use investment proceeds to help charities and provide investors with large returns. According to the state’s complaint, the Frazers, of Bryan, and Rosebrock, of Sherwood, used Focus Up Ministries’ status as a charity to solicit donations and investments into Profitable Sunrise. They also claimed that invested funds would compound at 1.6 to 2.7 percent daily, growing at annual rates of 5,000 to more than 75,000 percent. The complaint also alleges that the defendants used funds donated to Focus Up Ministries for personal expenses and other unlawful purposes. These included financing for personal business ventures, the purchase of a big screen television, no-interest personal loans, and compensation for agents who solicited on behalf of the Profitable Sunrise pyramid scheme. The complaint contains counts of misrepresentation, deceptive acts and practices, conversion, falsification, securities fraud, and unlicensed sale of securities, among other violations.
The SEC has described Zeek Rewards as a $600 million Ponzi- and pyramid fraud. AdSurfDaily was a $119 million Ponzi scheme, according to the U.S. Secret Service. Meanwhile, ProfitClicking is a “program” linked to Frederick Mann, the purported operator of JSSTripler/JustBeenPaid, which has come under regulatory scrutiny in Italy and the Philippines.
If Frazer was a pitchwoman for ASD, Zeek and ProfitClicking/JSS/JBP, it would mean she was pushing Profitable Sunrise after various well-publicized regulatory or law-enforcement actions against those “programs,” which purported to pay interest of between 1 percent and 2 percent a day. (ASD = 1 percent/day; Zeek = 1.5 percent/day; ProfitClicking/JSS/JBP = 2 percent/day.)
Beyond that, it would mean Frazer pushed the purported 2.7 percent a day Profitable Sunrise “Long Haul” plan, even though agencies filed various actions against the “lower-paying” programs with which she allegedly was involved previously.
Some HYIP promoters move from one fraud scheme to another, while engaging in willful blindness. ASD is known to have had ties to the “sovereign citizens” movement. Mann, of ProfitClicking/JSS/JBP, once used a website to drive traffic to videos featuring Francis Schaeffer Cox, a purported “sovereign citizen” and “militia” man implicated in a murder plot against public officials in Alaska.
WSMV (NBC Nashville) is reporting that the FBI has issued an alert to Tennessee law-enforcement agencies statewide. The alert followed on the heels of a recent incident at a Nashville strip club involving purported “sovereign citizen” Eric Stanberry Jr., who was tased by police after he allegedly pulled a gun on an unarmed security guard.
Stanberry allegedly possessed a badge that read “Special Police,” according to the station.
Separately, another purported “sovereign citizen” (Anthony Williams) declared himself a “sovereign peace officer out in Nashville” and possessed a badge, handcuffs and a “fake law-enforcement [license plate] tag with the state seal,” the station reported.
Three other purported “sovereigns” allegedly were involved in a Ponzi scheme that traded on religion, WSMV reports. They were identified in a 2010 WSMV report as brothers Greg, Mark and Mike Manuel.
URGENT >> BULLETIN >> MOVING: (3RD UPDATE 8:44 P.M. EDT U.S.A.) Senior U.S. District Judge Graham C. Mullen has denied a motion by alleged winners in Zeek Rewards to intervene in the SEC’s Ponzi-scheme case and to dissolve the receivership.
