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Tag: CFTC

  • SUNDAY NEWS AND NOTES: South Carolina Ponzi Victims Included Widows, Alzheimer’s Patients, Seniors And Amputee; ‘Shocks The Conscience,’ FINRA Says

    EDITOR’S NOTE: These briefs are based on information from recent Ponzi or fraud schemes. As noted yesterday and previously, the United States has formed a Financial Fraud Enforcement Task Force. Cases such as the ones below are part of the reason why.

    SOUTH CAROLINA AND TENNESSEE: Among the more than 30 victims in the Oren Eugene Sullivan Ponzi scheme case in South Carolina were five widows, two Alzheimer’s patients and an individual with developmental impairments, the Financial Industry Regulatory Authority (FINRA) reported.

    Separately, The Herald newspaper of Rock Hill, S.C., reported that one of the victims was a “woman in a wheelchair, legs amputated, who is retired from a Christmas ornament plant.

    “She gave Sullivan tens of thousands of dollars,” the newspaper reported.

    “At least eight of the affected clients were over 80 years old and another four were over 70 years of age,” FINRA reported. “Numerous victims considered Sullivan a close family friend.”

    Sullivan’s case “shocks the conscience,” said Susan L. Merrill, FINRA executive vice president and chief of enforcement.

    FINRA banned Sullivan, who pleaded guilty last week to mail fraud, in October. Authorities said he operated the Ponzi scheme for 20 years.

    At the same time FINRA banned Sullivan, it also banned William Walter Spencer Sr., of Franklin, Tenn.

    Over 11 years, Spencer “borrowed” nearly $2 million in a promissory notes Ponzi scheme from elderly members of his church and from customers of his employing broker-dealer, Wiley Bros.-Aintree Capital LLC, FINRA said.

    “All of the individuals from whom Spencer borrowed funds were of modest means,” FINRA said.

    Among his targets was a 62-year-old school bus driver for special-needs children who gave Spencer $60,000 after her husband’s death.

    “Spencer used the loan to repay other customers,” FINRA said. “Another customer faced the threat of foreclosure on his home due to Spencer’s failure to repay the $12,250 loan he made. To avert the pending foreclosure, Spencer used funds from another customer to make the payment owed. An 80-year-old customer loaned Spencer $20,500. She later needed to make repairs to her home, but was unable to do so because of Spencer’s failure to repay the principal and interest due.”

    Merrill did not mince words when describing the Spencer and Sullivan schemes.

    “The misconduct of these brokers was nothing short of egregious — and their financial exploitation of the elderly, the infirm and people who considered them trusted friends shocks the conscience,” she said.

    OKLAHOMA: On Nov. 25, we published an early report on an alleged financial and affinity-fraud scheme in Oklahoma that targeted ethnic Chinese. Named in litigation by the CFTC was Kenneth Lee, who was imprisoned between 1996 and 2001 after being convicted in Texas of two financial felonies.

    Lee also had a $3 million civil judgment placed against him in the 1990s in a fraud case, CFTC said. Also named in the complaint was Lee’s alleged business partner, Simon Yang, who was accused of hatching a new scheme with Lee in 2003 that targeted members of Yang’s church in Edmond, Okla.

    Information shown prospects to get them to join the scheme claimed Lee was an exceptional trader. But when investigators reverse-engineered literature about Lee’s alleged prowess, they discovered that Lee was in prison during a time in which Lee and Yang claimed Lee was “achieving great returns,” CFTC said.

    Investors were told accounts were “insured,” CFTC said. It’s a common claim in various fraud schemes, and sometimes the schemers claim or imply that banks, other lending institutions and even the government protects individual investment accounts against trading or investment losses.

    Or, put simply, the schemers say or imply there is no way an individual investor can lose because a lending institution or the government backs the program. Such claims were present in both the alleged Lee/Yang fraud scheme in Oklahoma and the alleged AdSurfDaily Ponzi scheme in Florida.

    In ASD’s case, an upline group implied that the FDIC insured individual members’ ASD accounts. The same upline group also claimed that ASD provided “shelter” from the FTC and the SEC.

    The Edmond Sun newspaper — as part of its reporting on the alleged Lee/Yang fraud — interviewed experts who said such claims should be viewed as a red flag.

    “There are never any kind of guaranteed investment returns associated with any investment account and no investment account of any kind is ever FDIC insured by the financial institution,”  Nick Massey told the newspaper.

    Massey is regional vice president of Edmond, Householder Group Financial Advisors.

    “If anyone ever suggests that, you should turn around and run, and then run to the authorities to report it,” Massey said.

    See this story to get a free PDF that compiles President Obama’s Executive Order forming the Financial Fraud Enforcement Task Force and a speech by Attorney General Eric Holder.

  • SENIORS HARMED: Judge Issues Findings In CFTC Case Against Matthew B. Pizzolato; Says Investors Lost Retirement Savings In Scheme

    A Louisiania man charged criminally in an alleged Ponzi scheme and sued civilly on the same day last month lied to investors, some of whom liquidated retirement savings and annuities only to suffer massive losses by entrusting funds to Matthew B. Pizzolato, a federal judge has ruled.

    The case against Pizzolato is proceeding on separate tracks: a criminal prosecution by U.S. Attorney Jim Letten with the help of the FBI, the IRS, the U.S. Postal Inspection Service and the State of Louisiana Office of Financial Institutions, and a civil prosecution brought by the Commodity Futures Trading Commission.

    U.S. District Judge Mary Ann Vial Lemmon of the Eastern District of Louisiana now has extended an asset freeze, enjoined Pizzolato from breaking commodities laws and issued some findings in the civil case.

    Pizzolato is  26. He formerly resided in Tickfaw.

    Among Lemmon’s findings were that Pizzolato and his co-defendants in the civil case — William Guidry, 35, of Plano. Texas, and Jacksonville, Fla., and Capital Funding Consultants LLC of Covington, La. — ripped off senior citizens. Guidry and Capital Funding’s assets also have been frozen, and they have been enjoined from breaking the law.

    “Specifically, the order finds that Pizzolato, as part of a broader scheme in which he solicited $19.5 million, obtained more than $3.1 million from 24 mostly elderly investors, which he gave to Guidry to invest,” CFTC said.

    “Despite representing to these elderly investors that their funds would be invested in safe, secure investments with guaranteed rates of return, Pizzolato gave the funds to Guidry to trade high risk commodity futures, among other things,” CFTC continued. “The order also finds that Guidry and Capital Funding misappropriated more than $221,815.53 of investor funds for personal purposes, and used some of those misappropriated funds to trade commodity futures in accounts owned by Capital Funding. The investors were not told about Guidry’s commodity futures trading losses. The order further finds that Guidry and Capital Funding commingled commodity pool participants’ funds with the funds of other persons.”

    In the criminal case, which is being heard by U.S. District Judge Lance M. Africk, Pizzolato was charged with 52 counts of mail fraud, two counts of wire fraud, seven counts of money laundering, and single counts of securities fraud, obstruction of justice and witness tampering.

    He faces more than 1,100 years in prison and a fine of more than $16 million, if convicted on all counts. As many as 160 people were duped, prosecutors said.

    Prosecutors said Pizzolato attempted to silence employees with bribes of $20,000 and get them to destroy records to cover up the scheme. Meanwhile, they said Pizzolato obstructed justice by stealing documents that could incriminate him from the home of a client.

    Among the luxury items Pizzolato purchased with investors’ money were a BMW 750LI, a Mercedes Benz S430V, a Range Rover Sport and a Chevrolet Corvette, prosecutors said. He also bought sports tickets, a $35,000 engagement ring, a $500,000 home in Ponchatoula, La., and spent $35,000 on Carnival cruises.

    All in all, Pizzolato took about $19.5 million from clients and spent “nearly all” of it, prosecutors said.

  • Trevor Cook Allegedly ‘Refused’ To Cooperate With Ponzi Receiver; Security Guards Posted At Van Dusen Mansion In Minneapolis

    A Minnesota man accused of operating a Ponzi scheme with Christian radio host Pat Kiley is not cooperating with the court-appointed receiver in the case and might have spent $30,000 on “gift cards” after the SEC and CFTC brought twin actions last month, according to the receiver.

    The receiver, R. J. Zayed, described efforts to locate and claim assets tied to the alleged $190 million fraud as an international paper chase.  On Dec. 21, Zayed said, the Ontario Superior Court of Justice recognized his appointment by a U.S. federal judge and granted him power over receivership assets in Canada.

    Zayed said he was able to take control over a Cook property in Rainy River. Some investors said Cook had purchased a two-person submarine on eBay for $40,000 to access the island property, but Zayed did not mention the submarine in his initial receivership report to U.S. District Court Chief Judge Michael J. Davis.

    “Based on the Receiver’s Canadian authority, the Receiver obtained a Certificate of Pending Litigation that has been filed against the property in Canada to prevent its transfer without the authority of the Receiver. In addition, the Receiver is in the process of obtaining the three necessary appraisals to sell the property.”

    The situation involving land in Panama upon which a casino was planned is less clear because of litigation filed against receivership assets in the Central American country by Oxford FX Growth, one of the relief defendants named in U.S. litigation.

    “Prior to the appointment of the Receiver, Relief Defendant Oxford FX Growth, L.P. secured Panamanian counsel and filed a lawsuit in Panama in an effort to prevent the sale of the real estate in Panama that was acquired with funds of the Receiver Estates,” Zayed said. “The Receiver has taken control of the Panamanian lawsuit, including the costs of litigation.”

    Zayed said he had been in contact with legal counsel for Oxford FX Growth, and learned that four of five pieces of property had been “successfully attached” and secured by a bond in the amount of $200,000.

    He also learned that Oxford FX Growth had filed a local claim in Panama against Cook, Gary Saunders and Holger Bauchinger for $12 million and that lawyers in Panama are attempting to perfect service.

    The Cook/Kiley investigation is among a number of Ponzi probes in Minnesota. Like other Ponzi cases, it has included spectacular allegations that investor funds were diverted to acquire expensive automobiles and real-estate. Among the assets frozen in the case is the landmark Van Dusen Mansion at 1900 LaSalle Ave. in Minneapolis.

    Zayed said he took control of the mansion and secured its furnishings and equipment on Nov. 24, with the assistance of the U.S. Marshal’s Service and the Minneapolis Police Department.

    “Trevor Cook, Patrick Kiley, Graham Cook and Marc Trimble were found on and escorted from the premises without being allowed to remove any property (except for Patrick Kiley who was allowed to take his personal clothing and toiletries with him),” Zayed said.  “All exterior locks were changed and security guards were posted to safeguard the property.”

    He added that he found 41 computer hard drives and other media at the mansion and that they were “forensically copied.” Meanwhile, 21 computer hard drives and other media were found at a separate property at 12644 Tiffany Court in Burnsville, Minn. The data was copied, the premises and furnishing were secured, locks were changed and guards were posted.

    To date, Zayed said he has seized six cars — a 1989 Rolls Royce; a 1985 Pontiac Fiero;  a 1989 Mercedes 420 SEL; a 1998 BMW Z3; a 2000 Lexus; and a 2004 Audi RS6 — and “has identified additional vehicles that may be subject to the Receivership.”

    Cook, he said, “has asserted the Fifth Amendment privilege and refused to cooperate with the Receiver.” Zayed also asserted that Cook might have depleted receivership assets after the SEC and CFTC brought their respective cases.

    “In December, the Receiver received information that Mr. Cook had been purchasing gift cards in large denominations,” Zayed said. “As a result of this information, Mr. Cook turned over approximately $30,000 in gift cards and now faces Motions brought by the SEC and CFTC for a Rule to Show Cause as to why he should not be held in contempt of the Court’s asset freeze orders.”

    A hearing on the motions is set for Jan. 8.

    Zayed said he has been receiving “30 to 60” calls from investors each day. He established a website for information.

    See Cook/Kiley Receivership website.

    U.S. District Court for the District of Minnesota also has established a Cook/Kiley website.

  • Belize, Israel, Switzerland, Canada And United States Cooperate In Case That Leads To Judgment Against Florida-Based Company Posing As ‘Offshore’ Investment Firm

    EDITOR’S NOTE: Members of Florida-based AdSurfDaily and a closely connected autosurf firm, AdViewGlobal, purportedly based in Uruguay, may find this story particularly eye-opening.

    Play the autosurf or “offshore” HYIP investment games? Buy into the hype that overseas “registration” provides “shelter?” Pose as an “expert” on the Ponzi and HYIP boards and tell your downline members or recruits that new entities you’re promoting learned from the mistakes of companies “stupid” enough to have conducted business from the United States?

    Position yourself as uniquely knowledgeable and use phrases such as “due diligence,” perhaps adding that “offshore” programs are “safe” — unlike those U.S.-based programs that are only asking for trouble?

    You’re going to need some new lines to disarm the doubting customers you’re trying to recruit into your scams so you can pocket commissions based on their misery.

    Indeed, this is a story about a spinoff company that purportedly opened “offshore” after a previous company controlled by the husband of the operator got caught ripping off customers on U.S. domestic soil. Like the U.S.-based company that got caught fleecing clients, the new, “offshore” firm also got caught — and investigators say it was not “offshore” at all.

    In fact, it was operated right from sunny Florida. Both the domestic company and the “offshore” spinoff walked off with the money, investigators said.

    ponziblotterThe U.S. Commodity Futures Trading Commission (CFTC) has announced that it worked proactively with Belize, Canada, Switzerland and Israel in a case that resulted in a judgment against a Belize-registered company operating a commodity-options scam from Hollywood, Fla.

    The company simply vanished one day, taking clients’ money with it, investigators said.

    U.S. District Judge Paul C. Huck of the Southern District of Florida ordered defendants Zurich Futures and Options Inc. and Michele LaBruce — both of Hollywood — to pay more than $5.4 million in restitution and penalties.

    Huck gave them 10 days to do so, saying post-judgment interest will begin to accrue on the 11th day.

    Specifically, Huck found that Zurich Futures was not headquartered in Switzerland and did not have a satellite office in Toronto, as it had claimed. Rather, the company used a “mail drop” and “virtual offices” to reroute mail and telephone calls to southern Florida.

    “At least” 60 individuals sent a total of “at least” $1.45 million to the firm, according to Huck, who entered the findings of fact and conclusions of law when the defendants didn’t even bother to enter a defense.

    “Almost all of the Defendants’ customers lost their money trading through Zurich, while Zurich collected at least $1,357,299 in commissions and fees,” Huck said.

    Despite a claim that Zurich had been in business for a decade and employed only registered and licensed traders, Zurich had been operating for less than a year and had lied about its credentials, Huck ruled.

    In fact, the judge ruled, LaBruce “directed the transfer of funds totaling at least $1,071,199 from Zurich’s bank accounts to herself.”

    CFTC minced no words in describing the Zurich Futures scam.

    “Zurich was nothing more than a Hollywood, Fla.-based sham operation,” the agency said.

    Moreover, the agency added, LaBruce is the wife of Adam Leon, against whom CFTC won a judgment and penalties totaling $2.5 million in a foreign-currency trading scheme known as “Presidential FX Inc.”

    The Presidential FX scam was exposed in 2005. Leon was one of seven people charged criminally in September 2008. The others were Phillip Eric Mickelberg, Mitchell Goldberg, Joseph Marchiano, Donnetta Bass, Danielle Williamson, and Melody Marks.

    Other companies involved in the Presidential FX scam included Emerging FX; Infinity FX; and Noble4X, federal prosecutors said. All of the companies operated from Hollywood.

    During a seven-month stretch between December 2003 and June 2004, CFTC said, 99.1 percent of customers who invested money with Presidential FX lost it.

    Presidential FX was charged civilly by CFTC in August 2005. While the case was still in the courts in January 2006, Leon failed to respond to an order compelling discovery and an order to be deposed. The deadline to respond was Jan. 17, 2006. On that very same day, Zurich Futures was incorporated in Belize, according to court records. On the next day, Jan. 18, 2006, LaBruce was appointed “Attorney-in-Fact” for Zurich Futures.

    On Feb. 17, 2006, Leon stipulated to default through counsel in the Presidential FX case, meaning he abandoned the case.

    Court records suggest Zurich Futures, with Leon’s wife Michele LaBruce in charge, commenced operations in April 2006, just two months after Leon’s default in the Presidential FX case. LaBruce also is named in court documents as a one-time principal in Presidential FX.

    CFTC thanked the international regulatory community for assisting in the Zurich Futures probe.

    “The CFTC gratefully acknowledges the assistance of the Belize Financial Intelligence Unit, the Ontario Securities Commission, the Swiss Federal Market Supervisory Authority and the Israel Securities Authority in investigating this matter,” CFTC said.

  • BREAKING NEWS: Two-Time Convicted Felon With $3 Million Judgment Against Him Emerged From Prison And Targeted Ponzi Scheme At Chinese-Americans In Oklahoma City, CFTC Says

    ponzinewsA man imprisoned between 1996 and 2001 after being convicted in Texas of two financial felonies emerged from the penitentiary and targeted Greater Oklahoma City’s ethnic Chinese in a Ponzi scheme, the U.S. Commodity Futures Trading Commission (CFTC) said.

    Kenneth W. Lee also had a $3 million civil judgment placed against him in the 1990s in a fraud case, CFTC said.

    Despite the felony convictions and the huge judgment against him, Lee and business partner Simon Yang hatched a new scheme in 2003. Yang pitched the scheme to members of his church in Edmond, Okla., CFTC said.

    Information shown prospects to get them to join the scheme claimed Lee was an exceptional trader. But when investigators reverse-engineered literature about Lee’s alleged prowess, they discovered that Lee was in prison during a time in which Lee and Yang claimed Lee was “achieving great returns,” CFTC said.

    CFTC’s announcment of the filing in Oklamoma City came only hours after it had joined with the SEC yesterday in announcing a Ponzi complaint against radio talk-show host Pat Kiley and his colleague Trevor G. Cook in Minnesota.

    The Oklahoma Ponzi scheme operated at least in part from South Carolina and Texas. Two companies named co-defendants along with Lee and Yang claimed to be registered corporations in Panama, CFTC said.

    Charged with Lee and Yang were Prestige Ventures Corp.  and Federated Management Group Inc. (FMG). The Oklahoma Securities Commission joined in the prosecution.

    Regulators said the 13-year-old judgment for $3 million against Lee in Texas also included a company named Federated.

    Lee was convicted of felonies in both 1995 and 1996, CFTC said.

    Yang, the agency said, also used the aliases Simon Chen and Xiao Yang.

    “[T]he defendants fraudulently operated a commodity futures pool that had at least $8.7 million in assets and 140 participants,” CFTC said.

    Lies, Losses, Yacht Fees

    Lee and Yang lied to participants, never telling them about Lee’s felony convictions or the judgment. At the same time, CFTC said, they issued bogus account statements that “consistently showed monthly profits generated by Lee’s purportedly successful trading of commodity futures, foreign currency (forex) and other instruments.

    “However, Lee sustained net losses of approximately $4.3 million trading primarily commodity futures and forex,” CFTC said. “Lee, Prestige and FMG also allegedly misused pool participant funds to pay off other pool participants and for personal use, such as paying for cars and yacht fees and funneling money to family members.”

    Yang was charged with submitting a false declaration to CFTC in response to a subpoena requiring the production of documents and information relating to Yang, Lee, FMG and others.

    “In his declaration, Yang falsely claimed that he solicited only through email based on information on the FMG website, that the persons he solicited did not open accounts and that he no longer solicited for FMG,” CFTC said.

    Both Yang and Lee also failed to tell prospective pool participants that Yang and Lee were under investigation by federal authorities.

    In 2003, just two years after Lee’s release from prison, Yang and Lee reported to prospects that Prestige had $1 billion in assets under management and FMG had up to $379 million, CFTC said.

    They also falsely told participants that Lee “never suffered losses,” that FMG’s marketers or solicitors were members of the National Futures Association and that the accounts of participants were insured by FMG’s credit union.

    U.S. District Judge David L. Russell froze the defendants’ assets and appointed a receiver.

  • INCREDIBLE: Yet Another Florida Man Indicted In Alleged Ponzi Scheme; Prosecutors Say Sean Healy Of Weston Bought A Bentley And ‘Several Ferraris’

    There has been nonstop news about Florida Ponzi schemes in the past 48 hours. Several indictments have been announced, the latest involving Sean Healy of Weston.

    Healy, 38, was charged in a 55-count indictment unsealed in Pennsylvania with multiple counts of wire fraud, mail fraud, money laundering and obstruction of justice.

    Prosecutors said Healy “spent the money to fund a lavish lifestyle.”

    Purchases included “numerous exotic vehicles and sport cars, including a Bentley and several Ferraris, Lamborghinis and Porsches worth over $2.3 million,” prosecutors said.

    Obstruction of justice was charged because Healy thwarted a grand jury by providing “phony bank statements and phony trading records, indicating that the Pennsylvania investor’s money was used for legitimate trading activity in stocks and commodities,” prosecutors said.

    “When the authentic records were obtained, they revealed that Healy had simply spent the money on his extravagant lifestyle and used some of it to pay back earlier investors who he defrauded between 2003 and 2008,” prosecutors said.

    The grand-jury probe began in March, after an investor who had been scammed in Pennsylvania sued Healy and his wife, Shalese Rania Healy, in U.S. District Court in the Southern District of Florida, alleging that Pennsylvania investors had lost $14.6 million with Healy between April 2008 and February 2009.

    In July, the SEC and CFTC sued Healy in a case that alleged massive fraud. Also named in the complaints was Healy’s company, Sand Dollar Investing Partners LLC. Healy’s wife was named a relief defendant, meaning investigators believed she had received ill-gotten gains from the scheme.

    CFTC said investor funds also were used to purchase gold bullion and “to lease a luxury suite at Miami’s BankAtlantic Arena.”

    The sky was the limit, said an SEC official.

    “Rather than investing the money as he promised, Sean Healy used investor funds to finance an extravagant lifestyle for himself and his family,” said Antonia Chion, associate director of the SEC’s Division of Enforcement.

    The July complaint by the SEC also alleged that Healy provided false information to the U.S. Attorney’s Office for the Middle District of Pennsylvania, which brought the obstruction charges and the other charges. The indictment was unsealed yesterday in Harrisburg, Pa.

    Dennis Pfannenschmidt, U.S. Attorney for the Middle District of Pennsylvania, cataloged the spectacular purchases Healy allegedly made with investors’ funds.

    In addition to the automobles, Healy also bought a $2.4 million waterfront mansion furnished with more than $2 million of home improvements, plus $1.5 million in men’s and women’s jewelry, Pfannenschmidt’s office said.

  • BREAKING NEWS: SEC, CFTC Seek To Smash Alleged Florida-Based Ponzi Scheme With Ties To Panama; David F. Merrick Charged With Unlawfully Acting As Investment Adviser And Operating An Unregistered Foreign Investment Firm From Inside The United States

    UPDATED 12:39 A.M. EDT (OCT. 16 U.S.A.) In twin actions that may send shockwaves across the offshore autosurfing “industry,” the Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission have gone to court to stop an alleged Florida-based Ponzi scheme that claimed a presence in Panama.

    Today’s announced actions by the SEC and CFTC expose the vulnerability of autosurfs that register as corporations offshore and arrange web-hosting overseas, but do not comply with securities laws of the United States and foreign countries in which they have a paper footprint or are not regulated in the foreign countries.

    The moves also demonstrate that U.S. securities regulators — no matter where a company arranges webhosting — intend to treat American owners who flout laws as issuers of unregistered securities, unregistered investment advisers and operators of unregistered foreign investment companies from inside the United States

    Named defendants in emergency actions filed yesterday in U.S. District Court for the Middle District of Florida were David F. Merrick, Traders International Return Network (TIRN), MS Inc., GTT Services Inc., MDD Consulting Inc. and Go ! Tourism Inc.

    U.S. District Judge Gregory Presnell entered orders freezing the assets of the defendants and ordering them to repatriate assets to the United States.

    Merrick, 61, lives in Apopka, Fla. On its website, TIRN lists the corporate address of Edificio Advanced 099-Piso 13, Calle Ricardo Arias, Panamá City, República de Panamá.

    “TIRN has been soliciting U.S. residents, and directing them to deposit their funds in U.S. bank accounts,” CFTC said.

    Entities Merrick controls operated a Ponzi scheme that gathered at least $22 million, the SEC said. For its part, CFTC charged Merrick and TIRN with solicitation fraud, accusing them of misappropriating customer funds totaling at least $16.4 million.

    At least $3.7 million in customer funds were diverted to pay Merrick’s personal expenses and “to pay credit cards debts of MS and GTT Services,” the SEC said.

    Millions of dollars were diverted to a firm that provides debit cards — another allegation that may cause autosurf participants to lose sleep.

    “[A]t least $8.8 million was transferred to Anres Technologies Corporation, a privately owned company that issues pre-paid debit cards,” the SEC charged.

    “Merrick and TIRN falsely represented that investors requesting a withdrawal of funds would receive a debit card loaded with their initial investment and return on their investments, when, in fact, the money loaded on the cards was money from other investors,” the SEC alleged.

    Debit cards have become increasingly popular among autosurf operators. Today’s announced actions by the SEC and CFTC, however, demonstrate that regulators are viewing the money placed on cards as money taken from Peter to pay Paul.

    Millions of dollars were moved across borders, the SEC said.

    “[A]t least $2.3 million of investor funds were transferred to accounts in Panama, Mexico, Malaysia, Switzerland and the Netherlands,” the SEC said.

    Although TIRN purported to engage in forex trading and was not an autosurf, the allegations could send a chill across the so-called “offshore” surfing industry.

    TIRN, whose servers appear to resolve to Malaysia, is a registered corporation in Panama. But the Panama National Securities Commission issued a warning that TIRN “is not authorized to act as a financial intermediary for securities and investments and that the [Panama Commission] does not supervise or regulate it,” CFTC said.

    See the TIRN warning by the Panama National Securities Commission, which says TIRN “has not been issued any kind of license.”

    AdViewGlobal (AVG), a surf with close ties to Florida-based AdSurfDaily, is among a number of surfs that use servers that resolve to Panama. Others include BizAdSplash, which says its chief consultant is Clarence Bubsy.

    Busby was the president of Golden Panda Ad Builder, whose assets were seized in August 2008 by the U.S. Secret Service as part of the investigation into ASD and ASD President Andy Bowdoin.

    Another surf company with servers in Panama is the now-defunct AdGateWorld.

    Merrick was charged by the SEC with acting as an unregistered investment adviser and operating an unregistered foreign investment company from inside the United States.

    “From at least July 2008 and continuing through at least October 2009, Merrick and TIRN have raised more than $22 million from approximately 2,500 investors through the fraudulent offer and sale of unregistered securities, in the form of investment contracts in TIRN,” the SEC charged.

    “TIRN instructs investors to deposit funds into bank accounts in the names of MS and GTT, entities controlled by Merrick, and falsely states it will invest these funds in securities and other investments such as stocks and bonds. In fact, Merrick then transfers these funds to other entities he controls, including MDD and Go Tourism, and to himself, colleagues and/or entities under these individuals’ direct control, for their own benefit. Merrick has also used investors’ funds to repay other investors. None of the investors’ funds are invested in any securities or other investments described on the TIRN website,” the SEC said.

  • BREAKING NEWS: Arrests Made In Westridge Capital Management Case; FBI Alleges Massive Fraud

    Paul Greenwood
    Paul Greenwood

    UPDATED 7:18 P.M. EST (U.S.A.) The FBI has made arrests in the Westridge Capital Management case.

    Paul Greenwood and Stephen Walsh, principals in WCM and an arm known as WG Trading of Greenwich, Conn., both were arrested. WCM is headquartered in Santa Barbara, Calif.

    Greenwood and Walsh were arraigned this afternoon in New York. Bail was set at $7 million each.  They were freed pending a March 11 hearing before which they’ll need to demonstrate that they have at least $1 million in cash or property not connected to fraud.

    Authorities said they ran a huge financial scheme, converting tens of millions of client dollars to their own use.

    Included in the purchases were $80,000 Steiff Teddy bears at various auctions, including auctions at Sotheby’s, authorities said. A $3 million home also was purchased for Walsh’s ex-wife.

    Greenwood is the town supervisor of North Salem, N.Y., on the Connecticut border. He did not attend the community’s regular council meeting last night and has ducked media and financial investigators for days.

    Greenwood and Walsh were accused of securities fraud, wire fraud and conspiracy. They were sued last week by Carnegie Mellon University and the University of Pittsburgh amid fears that $114 million had been lost as a result of massive fraud.

    The Iowa Public Employees Retirement System (IPERS) severed its contract with WCM earlier this week, on the heels of the action by CMU and Pitt and in the wake of the suspension of Greenwood and Walsh from the National Futures Association for stonewalling during an audit.

    IPERS entrusted $339 million to WCM.

    Below are snippets from the federal criminal complaint, which accuses Greenwood and Walsh of using clients’ money to make personal purchases and transferring clients’ money to family members. Walsh, according to the complaint, made at least two transfers of $500,000 each to a bank account in the name of his wife.

    “From time to time, PAUL GREENWOOD and STEPHEN WALSH, the defendants, directed [an] Employee to wire funds from the Account to their own bank accounts, bank accounts in the name of their family members, and bank accounts of other persons and entities to pay for personal expenditures of GREENWOOD and WALSH that were unrelated to the business of WG Investors.

    “The Employee recalled effecting transfers to pay for, among other things, the following: (a) the purchase of expensive collectible items by GREENWOOD; (b) the purchase of horses by GREENWOOD; (c) transfers of cash to WALSH’s then-wife; and (d) transfers of cash for the purchase of an apartment for WALSH’s ex-wife pursuant to a divorce settlement,” said FBI agent James C. Barnacle Jr., in the complaint.

    Greenwood converted a farm once owned by the late actor Paul Newman into a horse-show center and was credited by North Salem residents as a responsible public steward.

    In secret, according to the FBI, Greenwood and Walsh were running a criminal financial enterprise.

    “At the beginning of each calendar year,” Barnacle said, “the Employee added up the transfers that GREENWOOD and WALSH had directed for their personal benefit and prepared a promissory note for GREENWOOD and WALSH to sign that included the amounts of money that GREENWOOD and WALSH had taken from the Account.

    “From time to time,” Barnacle said, “GREENWOOD directed the Employee to understate the losses reported to investors and include a portion of the losses in the promissory notes executed by GREENWOOD and WALSH. Thus, the GREENWOOD Notes and the WALSH Notes include amounts reflecting funds misappropriated for the personal benefit of GREENWOOD and WALSH and losses fraudulently hidden from investors.”

    Hundreds of millions of dollars cannot be accounted for.

    Invesigators called it a $1.3 billion scam. In a separate action, the Commodity Futures Trading Commission charged Greenwood, Walsh and others with fraud.

    “[The] Defendants treated investor money — some of which came from a public pension fund — as their own piggy bank to lavish themselves with expensive gifts,” said Stephen J. Obie, CFTC’s acting director of enforcement.

    Read the statement by the FBI and Acting U.S. Attorney Lev Dassin of the Southern District of New York.

    See this Bedford Magazine article in which Greenwood declares he has the largest collection of Steiff stuffed animals in the world.

    “Noah had nothing on us,” Greenwood told the publication. He claimed to own 1,350 Steiffs.

  • Words That Should Become The New ‘Shot Heard ‘Round The World’ Spoken By Former CFTC Enforcement Chief

    By coincidence the words appear in the 13th paragraph of a Chicago Tribune story invoking investors’ sustained lack of luck and reporting on a new series of Ponzi schemes the U.S. Commodity Futures Trading Commission is investigating.

    The words were spoken by Gregory Mocek, former CFTC enforcement director, and are the most important words spoken to date during the financial meltdown. They should be the new “Shot heard ’round the world.”

    Ponzi schemes involving foreign currency trading have been so rampant they could “eat up all of the commission’s investigation and litigation resources, and there will be nothing left to protect the integrity of legitimate markets,” Mocek told the newspaper.

    It’s the problem in a nutshell. With great economy and not an ounce of hyberbole, Mocek defined the problem. As always, the question is, “Will anybody listen?”

    Give Them Big Guns And A Camera

    Regulators need the financial equivalent of automatic weapons provided the DEA when drug dealers switched from 38s to Uzis. They need bigger budgets, more enforcement staff, more computers, more laptops, more training, more undercover agents, more political support, less criticism and tools that work. At the same time, they need better PR skills, more news savvy and the power of arrest. They need cameras to take mugshots, a website that publishes the mugshots, and the ability to explain the arrest in nontechnical terms.

    To the best of our knowledge, no federal law-enforcement agency provided photos of Bernard Madoff or R. Allen Stanford, despite the extraordinary allegations against them. The public needs those photos. The media need those photos. Bloggers need those photos. Webmasters need those photos. It’s a key step in getting this cancer under control. The Sarasota County Sheriff’s office provided a photo of Arthur Nadel. Why can’t federal agencies do the same?

    Clean Up The Internet

    It is a mistake of grand proportions to assume the Ponzi problem and the financial skullduggery exist only in the brick-and-mortar world, that the practitioners exclusively wear suits, read the Wall Street Journal and shuttle from appointment to appointment in fine rides like Madoff or Stanford.

    Indeed, many of the most egregious offenders don’t have well-known names, spend much of the day in their underwear, read Internet boards as opposed to the Journal, don’t have appointments that even resemble anything traditional and don’t even leave their homes — not even to go to the bank.

    They are destroying wealth. They are sucking hundreds of millions of dollars out of the economy, perhaps even billions of dollars. Their ability to accumulate wealth at the expense of others has nothing to do with skill and has everything to do with timing: They read High Yield Investment Program (HYIP) and “autosurf” boards on the Internet, send email to their followers when they spot an opportunity, fund their purchases via wire transfer through Canada and, when it’s time to take their “profits,” they take them by wire transfer and deposit them in banks via ACH.

    At this very minute, hundreds of HYIPs and autosurfs are selling unregistered securities to U.S. residents and are using virtually pure Ponzi models to do it. They’re advertising huge returns — 30 percent a month and even 144 percent in 12 days — while stressing in U.S. English that they are safe opportunities and outside the reach of U.S. law enforcement in places such as Panama and Uruguay.

    Because they use U.S. English and their websites can be copied, nonEnglish-speaking criminals and people who speak limited English as a second language are simply cutting and pasting content, starting their own HYIPs and autosurfs, paying off members to instill early trust — and then vanishing with U.S. dollars when they’ve met their criminal target.

    And then starting all over again.

    They need only about $400 to steal tens of millions of dollars. If they already own the php script, their investment shrinks to the price of a domain name, a hosting account for a month or two and their time.

    Canadian companies used by the criminals include AlertPay and SolidTrustPay. These companies are permitting money-laundering by turning a blind eye to it. If they do take an overt step to instill client discipline, they get targeted by DDOS attacks that knock their servers offline.

    PayPal won’t touch this business. Much of it went to Canada when the United States put an end to eGold’s love affair with customers who laundered money through the system.

    A surf known as “MegaLido” is a case in point. No one other than the operator knows for certain where MegaLido was located. It came to life in the aftermath of the government seizure of nearly $100 million from Florida-based AdSurfDaily Inc. amid Ponzi allegations, and even was promoted by ASD members. MegaLido used AlertPay and SolidTrustPay, recruited an estimated 27,000 members, collected money from the members — and then simply vanished.

    It looks as though it had a partner in the crime — a surf known as Instant2U — which also fled with money it collected. AlertPay and SolidTrustPay reportedly are providing partial refunds from money the criminal surfs left in the system, but it wasn’t enough to make “investors” whole.

    See this post. And see this post.

    AlertPay suffered a DDOS attack during the process and was knocked offline.

    Forex scheming also is a big part of these games. CFTC, the SEC, the FBI, the IRS and prosecutors need tools. They need political clout behind them. It is clear that the American people have had it with Ponzi schemes and massive financial fraud. There never has been a better time for politicians to curry favor with voters by blasting these schemes back to the Stone Age.

    The new “Shot heard ’round the world’ should be plugged into one of the bailout packages because it provides exceptional value for taxpayers, exquisite headlines for politicians and exceptional tools for law enforcement to nuke these operations and stem the flow of poison.

    At the moment, advocates for Ponzi schemes — yes, the schemes have advocates and even crackpots who want to sue the government for enforcing existing laws — are sending letters to Sen. Patrick Leahy.

    They want Leahy, chairman of the Senate Judiciary Committee, to investigate the prosecutors and the U.S. Secret Service for breaking up the ASD Ponzi scheme. Some of the very same people are promoting offshore scams in Panama and Uruguay.

    It is time to nuke these miserable businesses. Gregory Mocek laid out the problem, and he couldn’t be more right.

    Fire the shot.

    Read the Chicago Tribune story.

  • Regulator Cites Uptick In Ponzi Fraud

    “We are seeing an uptick in Ponzi scheme cases because, in this economic climate, new investors cannot be found to perpetuate the scheme. As these schemes collapse, the CFTC will move swiftly to prosecute those who harm innocent investors.” — Stephen J. Obie, CFTC

    “Run the other way” if someone promises you exorbitant investment returns, warned the acting director of enforcement for the the U.S. Commodity Futures Trading Commission (CFTC).

    In a statement, Stephen J. Obie also said regulators were seeing an uptick in Ponzi fraud because of the poor economy.

    Last week, CFTC charged James Ossie of Dawsonville, Ga., and his company, CRE Capital Corp. (CRE) of Alpharetta, Ga., with operating a Ponzi scheme that defrauded investors of about $25 million in a forex scam.

    CFTC said “Ossie and CRE promised pool participants that they would earn a 10 percent return on their money within 30 days by trading United States and Japanese currency pairs. The complaint further alleges that since June 18, 2008, rather than making money for pool participants, Ossie and CRE lost approximately $4.4 million trading forex.

    “Finally,” the agency said, “the complaint alleges that Ossie and CRE operated a Ponzi scheme, in which forex trading ‘profits’ were actually paid from the principal of subsequent pool participants.”

    Obie didn’t mince words.

    “Investors must run the other way when approached by anyone claiming to guarantee exorbitant monthly returns, like those promised by CRE and Ossie,” he said.  “Such representations should raise an immediate red flag that such investment is too good to be true.

    “We are seeing an uptick in Ponzi scheme cases because, in this economic climate, new investors cannot be found to perpetuate the scheme,” Obie continued.  “As these schemes collapse, the CFTC will move swiftly to prosecute those who harm innocent investors.”

    CFTC said the case against Ossie and CRE was the first brought by its Forex Enforcement Task Force. Congress granted the agency new powers last summer under the Food, Conservation, and Energy Act of 2008.

    Under its new mandate, CFTC is resposible for “investigating and litigating fraud in the  off-exchange retail foreign currency (forex) market.”

    CFTC’s task force will focus on fraud in the retail forex market and will work cooperatively with other federal and state regulatory and criminal authorities.

    “The formation of the CFTC’s new Forex Enforcement Task Force reaffirms our agency’s commitment to stopping unscrupulous individuals working in this space,” said Michael Dunn, head of CFTC’s  Forex Education and Outreach Task Force.

    “This announcement sends a clear signal that the CFTC is on the beat, and that our continued and increased cooperation with law enforcement authorities will help put these forex dealers where they belong – in jail.”

    Obie said forex fraud affects investors of all stripes.

    “With the creation of the retail forex task force, the CFTC has committed the resources necessary to expand its efforts to identify and prosecute those who commit fraud in the retail forex market.”

    The SEC also charged Ossie and CRE.