PatrickPretty.com

Tag: boiler room

  • BREAKING NEWS: FLORIDA — AGAIN: CFTC Says Sammy J. Goldman, Harry Robert Tanner Jr. And Their Firm Ran $23 Million ‘Precious Metals’ Scam; Case Is Third Such Action In 7 Weeks

    BULLETIN: In the third such action in the United States since March 30, the CFTC has gone to federal court in Florida to block what it described as a “precious metals” scam that incorporated fictitious trading.

    Charged with fraud in the case were Sammy J. Goldman of Delray Beach, Fla., and Harry Robert Tanner Jr. of Lake Worth, Fla. Their Florida-based firm — American Precious Metals LLC (APM) — also was charged.

    Tanner was the subject of two previous actions by the National Futures Association for misconduct and was permanently barred by NFA in 2006, the CFTC said.

    Goldman, also has been the subject of regulatory actions, according to records.

    The CFTC case was filed under seal May 10. Investigators today described APM’s operations it as a “massive fraudulent scheme” that purportedly gathered more than $23 million since July 2007 as part of a “boiler room”telemarketing scam.

    APM’s website has been seized by the court-appointed receiver, David R. Chase. U.S. District Judge William Zloch is presiding over the case and issued a Temporary restraining Order after the CFTC filed an emergency petition.

    The CFTC’s allegations read like an impossible work of fiction.

    APM purported to offer a “Leveraged Precious Metals Investment Program” through which the firm sold metal to customers and arranged financing through a firm known as Global Asset Management (GAM), which purportedly received “interest,” the CFTC said.

    The metal purportedly was stored in “independent depository,” the CFTC said.

    Along the troubles with the claims was APM did “not purchase or sell physical precious metals on behalf of its leverage program customers,” the agency charged.

    “Further, APM does not arrange for or provide loans for the purchase of physical precious metals by its customers,” the agency continued. “APM customers have no physical precious metals stored in any independent depository, and since no loan has been disbursed, no interest accrues on any loan.”

    Here is what actually happens through the boiler room, the CFTC charged.

    “[A]fter charging commissions of approximately 40% of customers’ funds, APM sends customer funds to GAM, which also does not purchase or sell physical precious metals on behalf of APM leverage program customers.

    “Instead,” the agency alleged, “GAM pools the funds received from APM with funds received from similar boiler room telemarketing firms, takes a portion of the funds as its own profit, and deposits the rest in margin accounts held in GAM’s name with various United Kingdom-based firms where GAM trades over-the-counter (‘OTC’) precious metals derivatives. APM discloses none of GAM’s actual activity to its customers.”

    Customers further get ripped off through “enormous commissions” APM takes off the top, along with a “3-5% mark-up on the price of the physical precious metals purportedly sold to the customer, account opening fees and the monthly ‘interest’ GAM charges on the financing purportedly provided to the customers,” the CFTC charged.

    How corrupt was the scheme?

    “[A]s of January 7, 2010, APM’s approximately 396 then-existing leverage program customers purportedly owned gold, silver, platinum, and palladium with a total value of $23,834, 108,” the agency said.

    However, “neither APM, GAM nor any secure depository held any physical precious metals for those customers,” the CFTC charged.

    “When a customer makes an order to purchase precious metal, APM simply records the transaction on paper and deducts an ‘administrative fee’ equal to 15% of the total value of the metal being purchased, which is equivalent to approximately 40% of the customer’s total cash outlay,” the CFTC charged. “APM divides the administrative fee among the firm’s management personnel and the employees responsible for soliciting the customer. APM pools the remaining customer funds in APM’s own bank accounts with funds received from other customers and sends a portion of its pooled customer funds to GAM on a weekly basis.”

    Separately, the Federal Trade Commission has charged Tanner and his wife, Andrea Tanner, with telemarketing fraud.

  • RECEIVER: ‘Insiders And Related Parties’ Of Commodities Online Took Out Twice What They Put In; Shuttered Florida Firm Had Office With ‘Boiler Room’; Winners Received ‘Fraudulent Transfers’

    James Clark Howard III: At the center of three Florida fraud investigations. (Photo source: Boca Raton Police Department,)

    The court-appointed receiver unraveling the affairs of a Florida firm accused by the SEC of operating a $27 million commodities fraud and selling unregistered securities says the company had “insiders and related parties” who took out twice what they put in.

    Clawback actions are anticipated against unspecified “targets” because the money they received constituted “fraudulent transfers,” receiver David S. Mandel advised a federal judge.

    Meanwhile, Mandel says Commodities Online shared office space with a law firm. On the second floor of the shared space was a “boiler room” with 12 cubicles, phone lines and computers.

    At the same time, Mandel says an early analysis of records shows that the company had at least five bank accounts, including accounts at Bank of America, Fifth Third Bank, JP Morgan Chase, PNC Bank and Wachovia.

    The insiders at Commodities Online put more than $5.36 million into the firm between Jan. 1, 2010, and April 1, 2011, and took out more than $10.84 million, according to the early analysis.

    “[T]he Receiver was able to identify potential targets who received fraudulent transfers under §726.101 of the Florida Statutes,” Mandel said. “In the upcoming weeks, the Receiver intends to send letters to each of these targets demanding the disgorgement of profits and the recovery of fraudulent transfers.”

    Although the firm operated only for about 16 months and allegedly told investors they would “earn 5% or more per month without price speculation,” Mandel’s preliminary analysis suggests more than $885,000 was allocated for “salaries” and more than $523,000 was allocated for “Legal and Professional” fees.

    The firm was not registered with the SEC, according to court filings. Mandel said a forensic analysis continues and that records, including computer records, are being scoured for clues.

    “Existing email from the Defendants has been downloaded and is being searched for potential transfers of funds or other related activity that may yield additional assets to be acquired for the receivership estate,” Mandel said.

    And, he noted, there are “preliminary indications” that Commodities Online “may own a substantial quantity of iron ore located in Mexico,”  but that ownership has not been verified.

    “The Receiver has retained Mexican counsel to attempt to determine if the Defendants do, in fact, own the iron ore, and if so, to take whatever steps are required to safeguard the ore for later sale or liquidation, for the benefit of the receivership estate,” Mandel said.

    At least two persons associated with Commodities Online have criminal records for offenses ranging from “narcotics and firearms felonies” to bank fraud and “transmitting a threat to injure,” according to the SEC.

    Although the SEC did not identify the individuals, records show that Commodities Online figures James Clark Howard III and Louis Gallo were charged with the offenses. Implicated in a drugs and weapons case, Howard was sentenced to 57 months in federal prison in the 1990s.

    Gallo was implicated bank-fraud and threats cases, and was on supervised release while the firm operated.

    Howard is at the center of at least three financial storms in Florida, including the SEC case against Commodities Online. Separately, private litigants — including SSH2 Acquisitions, a company that listed former AdSurfDaily (ASD) member and Surf’s Up Mod Terralynn Hoy as a director — alleged last year that Howard was part of a separate Ponzi scheme that gathered at least $39 million.

    Florida authorities charged him criminally in 2010 in a fraud scheme that allegedly targeted the Haitian American community.

    ASD was implicated by the U.S. Secret Service in an alleged $110 million Ponzi scheme. Hoy has not been accused of wrongdoing.

    See earlier story.

  • SEC: Felons, Recidivists Pushed ‘Green’ Energy Securities Swindle Through California ‘Boiler Room’; 6 People Charged In $11 Million Fraud Case

    About 200 investors turned over $11 million to a boiler-room operation selling investments in a purported “green” energy company, the SEC said.

    The alleged swindle in which Kensington Resources Inc. sold unregistered shares of American Environmental Energy Inc. (AEEI) was pulled off by a convicted felon with the help of a recidivist securities offender, the SEC alleged.

    Also charged in the case was yet-another convicted felon who was sentenced to federal prison more than a decade ago for telemarketing fraud, along with yet-another recidivist securities fraudster sued by the SEC in in 1998, according to records.

    All in all, the SEC charged six people in the alleged boiler-room caper:

    • Joseph Rudolph Porche, 51, of Aliso Viejo, Calif. Porche, one of two alleged ringleaders and the former chief executive officer of Kensington, pleaded guilty in 2001 to four counts of mail fraud and was sentenced to 37 months in prison, the SEC said. Federal records show he was released from prison in 2003.
    • Larry Ray Crowder, 53, of Newport Coast, Calif. Also named a ringleader by the SEC, Crowder is Kensington’s former president. Crowder was charged by the SEC in 1998 with raising at least $15.7 million from more than 600 investors in an oil-and-gas venture. The oil-and-gas scheme involved misrepresentations in the sale of limited partnerships, the SEC said.
    • Gary Kennan Juncker, 47, of Rancho Santa Margarita, Calif. Juncker is a former senior vice president at Kensington. In 1998, according to records, Juncker was convicted on four counts of mail fraud in a telemarketing scheme and was sentenced to 30 months in prison. Federal records show he was released from prison in 2000.
    • Dale Jay Engelhardt, 46, of San Clemente, Calif. Engelhardt, a former member of Kensington’s sales staff, was one of Crowder’s co-defendants in the 1998 swindle, the SEC said.
    • Konrad Christian Kafarski, 40, of Trabuco Canyon, Calif. Kafarski is the former senior vice president of business development at Kensington.
    • Carlton Ladell Williams, 51, of Coto de Caza, Calif. Williams is a former senior vice president at Kensington.

    “Most of the funds raised were kept by Porche and Crowder to fund their lavish lifestyles and only $315,000 of the $11 million raised went to AEEI,” the SEC alleged.

    AEEI was a penny stock. The 1998 case in which Crowder and Englehardt were charged involved a company that went by the acronym “EEI,” which stood for “Environmental Energy Inc.,” according to the SEC.

  • Irving Stitsky Sentenced To 85 Years In Real-Estate Ponzi Case; Judge Agrees With Prosecution, Calls Stitsky ‘Inveterate Con Man’

    A federal judge has thrown the book at recidivist securities fraudster Irving Stitsky, agreeing with prosecutors that he is an “inveterate con-man” and sentencing him to 85 years in federal prison.

    Separately, a New York state appeals court — acting unanimously — reinstated portions of a civil lawsuit dismissed by a judge in 2008 that alleged a New Jersey law firm aided and abetted Stitsky and others associated with the so-called “Cobalt” family of companies in perpetrating a fraud. In a lawsuit filed in 2007, Avi and Ann Oster accused Lum, Danzis, Drasco & Positan of preparing private placement memoranda (PPM) that did not initially disclose the criminal histories of Stitsky and Mark Shapiro and then backdating a PPM to disclose their histories after the FBI entered the case.

    The firm countered by arguing the plaintiffs had not pleaded their case adequately — an argument the appeals panel now has rejected. The ruling does not mean the law firm has been determined to have engaged in wrongdoing. Rather, it means the state-court lawsuit against it can proceed.

    In the federal criminal case, Stitsky, 55, of Milan, N.Y., also was ordered by U.S. District Judge Kimba Wood to forfeit $23.1 million and make restitution in the amount of $22 million. He was convicted in November, as were Cobalt co-defendants Shapiro and William B. Foster. Shapiro and Foster are scheduled to be sentenced later this month. Shapiro has two previous felony convictions — bank fraud and conspiracy to commit tax fraud — according to records.

    Shapiro, 50, lives in Avon, Conn. Foster, 70, lives in East Hampton, Mass. The Cobalt scheme operated in part from what was described as a telemarketing boiler room in Great Neck, N.Y., that duped investors into believing Cobalt was a prominent investor in Florida real estate.

    “Irving Stitsky is a recidivist fraudster who stole millions of dollars from hundreds of investors through trickery and deceit,” said U.S. Attorney Preet Bharara. “He preyed on vulnerable victims, including widows and retirees, by falsely promising guaranteed returns on their investments in Cobalt’s South Beach, Florida-based real estate scam.”

    Wood said the harsh penalties against Stitsky were warranted because he operated a “vast securities fraud preying on individuals who were, for the most part, not particularly sophisticated in investing,” prosecutors said.

    Stitsky has an extensive criminal history dating back to 1999, according to court filings. The passage below is verbatim from the appeal panel’s decision authored by Justice Sallie Manzanet-Daniels that reinstated portions of the 2007 lawsuit filed against the law firm (italics added):

    In June 2000, Stitsky was indicted for his role in yet another securities manipulation scheme. In August 2001, Stitsky pleaded guilty to criminal charges including conspiracy to commit securities fraud and was sentenced in connection therewith to 21 months imprisonment and a 3-year period of supervised release. In the SEC administrative proceeding against him in that matter, Stitsky was again found to have violated the antifraud provisions of the federal securities laws, ordered to cease and desist from any future securities law violation, and barred from participating in a penny stock offering and associating with a broker or dealer. In August 1999, Stitsky was indicted for conspiracy to commit tax fraud, money laundering and tax fraud. In August 2001, Stitsky pleaded guilty to conspiracy to commit tax fraud. That same month, a criminal information was filed against Stitsky for making false statements, to which he pleaded guilty. In February 2002, Stitsky was sentenced to 33 months in prison and a 3-year period of probation for both matters. In November 2003, Stitsky was indicted yet again for securities fraud, money laundering and conspiracy to commit securities fraud, mail fraud and wire fraud. Stitsky was released from prison in the fall of 2004.

    Meanwhile, the SEC described Stitsky as a serial securities fraudster practiced in the art of operating “boiler rooms” designed to separate investors from their money. He was banned from the securities industry in 1998 for his conduct with New York-based Stratton Oakmont Inc., which the SEC described as “a notorious boiler-room.”

    In writing for the appeals panel that reinstated portions of the civil lawsuit against the attorneys, Manzanet-Daniels did not mince words.

    “To say that defendant attorneys merely furnished legal services to help solicit investments in the Cobalt Multifamily entities, and did not have knowledge of the fraud they helped perpetrate, is drawing distinctions based on gradations of knowledge that are simply not tenable,” she wrote. “This Court cannot and will not endorse what is essentially a ‘see no evil, hear no evil’ approach.

    “There is no principled distinction between this case and those involving auditors alleged to have falsely represented the financial health of companies and otherwise to be derelict in their duties as auditors,” Manzanet-Daniels wrote.

    The law firm previously argued that the plaintiffs had not adequately pleaded their claims. Manzanet-Daniels and the appeals panel disagreed.

    Read the opinion by Manzanet-Daniels.