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Tag: Crossfire Trading LLC

  • Judge Effectively Orders Treble Financial Penalty By Imposing $64.8 Civil Fine Against Ponzi Swindler Already Convicted In Criminal Case; Scammer Charles E. Hays Also Ordered To Disgorge $19.9 Million In Illicit Profits And Banned From Trade For Life

    UPDATED 2:37 P.M. ET (U.S.A.) If you’re a modern-day commodities fraudster and Ponzi schemer, be prepared to have massive criminal and civil exposure. The recent cases against Charles E. “Chuck” Hays of Minnesota tell a tale of significant prison time, a huge criminal restitution order and civil fines that effectively exposed him to treble damages while also holding him accountable for his ill-gotten gains. Indeed, his legal problems didn’t end even after he was sentenced to jail in May 2010.

    Here is some of the notable math from the criminal case against Hays, who pleaded guilty in April 2009 to running a commodity-pool Ponzi scheme.

    Jail sentence ordered by U.S. District Judge Donovan Frank: 117 months.

    Restitution ordered by Frank in criminal case: $21.6 million.

    The criminal case against Hays, who operated a company known as Crossfire Trading LLC, was brought by federal prosecutors and the U.S. Postal Inspection Service.

    Now, the math of the civil side of the Hays’ prosecution has been released:

    Civil fine against Hays ordered by Frank: nearly $64.8 million. (The amount was arrived at by totaling the proceeds of the Ponzi scheme ($40.4 million) and subtracting the Ponzi payments to victims ($18.8 million) to arrive at the figure of $21.6 million — and then trebling that number to determine the fine.)

    Disgorgement of ill-gotten gains ordered by Frank: $19.9 million. (The amount is a bit less than the $21.6 million figure noted above because Hays was given credit for slightly more than $1.6 million he lost while trading. Even so, the full amount of $21.6 million is due in the judgment in the criminal case.)

    Additional penalty imposed by Frank in civil case: lifetime ban from trading.

    Although Hays argued he didn’t deserve a lifetime ban after running a Ponzi scheme that gathered more than $40 million and issuing false statements to investors, the judge didn’t buy it.

    “Hays’ activities justify a permanent trading ban because Hays has shown himself to represent an inherent threat to the integrity of the futures market,” Frank wrote.

    The CFTC brought the civil case and persuaded Frank the steep fine and disgorgement order were warranted.

    “In light of the egregiousness and continuing nature of the fraud in this case, which spanned over eight years, such an assessment is appropriate,” Frank wrote. He also left the door open for victims to sue Hays, meaning that the orders in the federal cases did not bar private litigants from seeking their own remedies against Hays.

    Fraudsters could take a clue from the federal litigation and severe penalties against Hays, Frank suggested.

    “Given that Hays must repay his criminal penalty before turning to his civil penalty, the imposition of a civil monetary fine (or for that matter, disgorgement) is largely academic,” he noted in his order. “Nonetheless, the Court was persuaded by the CFTC’s comments at the motion hearing that this action is necessary to adequately address Defendants’ violations and deter against future violations while the events leading to this lawsuit are fresh in people’s minds.”

  • PONZI NEWS/UPDATES: Fire Destroys ‘3 Hebrew Boys’ Ponzi Headquarters; Minnesota Man Gets Nearly 10 Years In Prison In Ponzi Case; California Man Gets 25

    Sign of the apocalypse? The headquarters of the “3 Hebrew Boys” Ponzi scheme in Columbia, S.C., was gutted in a fire Monday and Tuesday. Firefighters spent 19 hours over two days battling the blaze, but the “building and all contents . . . were completely destroyed,” according to Beattie B. Ashmore.

    Ashmore is the court-appointed receiver in the case. Proof-of-claim forms for victims of the $80 million Ponzi swindle became available April 15, only 11 days before the fire broke out. The cause of the fire is under investigation, and the building was an asset of the receivership estate.

    “All computers and documents have been stored off-site since the Receiver took possession of the building in October 2007,” Ashmore said. “The building was being managed by a reputable property management company, fully insured and continuously monitored by a security company. The Receiver will make a claim immediately with the Hartford Insurance Company for the full value of the building with the insurance proceeds going to the benefit of the victims.”

    The 3 Hebrew Boys case is one of the strangest in the United States, drawing comparisons to the alleged AdSurfDaily Ponzi scheme owing to elements of affinity fraud and antigovernment rhetoric.

    Joseph Brunson, Tim McQueen and Tony Pough were convicted in November of swindling tens of millions of dollars in a bogus debt-relief “ministry.” The purported aim of the program was to free people from government “bondage,” and the investigation was referred to as “Satan’s handiwork.”

    In the earliest days of the 3 Hebrew Boys case, more than 100 people protested on behalf of the scheme at a rally in Columbia, saying the government did not understand the program, had overreached in its prosecutorial efforts, refused to deny it was wrong and had chosen to move forward with the case in a bid to save face.

    In an approach similar to one used by the AdViewGlobal (AVG) autosurf, members were forced to agree to a confidentially clause that purportedly prohibited them from discussing the company outside the confines of meeting places. Participants were threatened with a $1 million penalty for sharing information.

    AVG, which has close ties to ASD, morphed into a “private association” in February 2009. Members were scolded for sharing information and calling the autosurf an “investment” program. As the company appeared to be collapsing in May and June, members were threatened with copyright-infringement lawsuits for sharing information published by the firm.

    Brunson, McQueen and Pough are jailed awaiting sentencing. After they were found guilty of 174 counts mail fraud, money-laundering and transporting stolen goods, the men filed documents accusing former U.S. Attorney Walt Wilkins of treason and committing acts of war by prosecuting them.

    The men became known as “3 Hebrew Boys” after operating a website with the same name, which is based on a biblical story of believers who escaped a furnace by relying on their faith. The Ponzi scheme operated under the name Capital Consortium Group LLC.

    Minnesota Ponzi Sentencing

    A Ponzi scheme operator in Rosemount, Minn., has been sentenced to 117 months in prison and ordered to pay $21.8 million in restitution to victims.

    Charles “Chuck” E. Hays, 56, has been detained since his arrest in February 2009. He pleaded guilty last year to one count of mail fraud, one count of wire fraud and one count of structuring transactions to avoid financial reporting requirements.

    Among the items seized in the case was a $3 million yacht acquired with investors’ money. Hays operated a firm known as Crossfire Trading LLC and bilked investors out of more than $20 million by operating a Ponzi scheme.

    “Hays told potential investors he was a day trader in stock index futures and other futures contracts,” federal prosecutors said.

    Investors plowed money into the scheme based on lies told by Hays, and he “admitted he diverted and converted those funds for his personal use and other unauthorized purposes,” prosecutors said.

    The sentencing judge in the case was U.S. District Judge Donovan Frank.

    California Ponzi Sentencing

    Milton Retana, 46, of Huntington Park, was sentenced to 25 years in prison for a $62 million Ponzi scheme that bilked mostly Spanish-speaking investors out of at least $33 million.

    The case became known as the “Best Diamond case.” Retana operated a purported real-estate investment company known as Best Diamond Funding. It was yet another instance another in which the name of a precious metal or mineral was used in a Ponzi scheme.

    Evidence of the fraud was hidden in the back of a religious bookstore operated by Retana’s wife, prosecutors said. When investigators searched the bookstore, they found millions of dollars in cash. Best Diamond was located next door to the bookstore.

    The scheme — like many other Ponzi schemes — featured an appeal to religion, prosecutors said.

    “Best Diamond Funding solicited money through advertisements in Spanish-language magazines, on the Internet, and during weekly investment seminars at locations across Los Angeles. The raucous investment seminars often had as many as 300 potential investors and incorporated religious messages,” prosecutors said.

    “Retana guaranteed returns as high as 84 percent each year, claiming that he would purchase properties in bulk at below-market prices and immediately sell them for a profit,” prosecutors said. “However, records obtained by federal investigators showed that Retana used only a tiny fraction of the victims’ money to purchase real estate and that his company was actually losing money.”

    The sentencing judge in the case was U.S. District Judge R. Gary Klausner.