BULLETIN: A Florida jury found that TD Bank assisted now-disbarred and imprisoned attorney Scott Rothstein in his epic Ponzi scheme and has found the bank liable for $67 million in damages.
The victorious attorney in the civil case is David S. Mandel, who represented the plaintiffs against the bank.
If Mandel’s name seems familiar to PP Blog readers, it’s because he also is the court-appointed receiver in the Commodities Online LLC fraud case brought by the SEC last year.
Separately, a company known as SSH2 Acquisitions Inc. had sued Commodities Online figure James C. Howard III on Sept. 15, 2010, alleging that Howard and others were running a massive Ponzi scheme into which SSH2 had plowed $39 million.
Records in Nevada show that former AdSurfDaily member and “Surf’s Up” forum moderator Terralynn Hoy was a “director” of SSH2.
Hoy has not been accused of wrongdoing.
The private lawsuit against Howard and the others became notable because of the clashing images: Although SSH2 was complaining about the alleged Ponzi scheme directed at it by Howard and others, it was doing so in the months after Hoy had helped lead cheers on Surf’s Up for accused ASD Ponzi schemer Andy Bowdoin, who was implicated by the U.S. Secret Service in an alleged Ponzi scheme even larger than Howard’s alleged scheme. Hoy also was a moderator on a forum that supported AdViewGlobal, an autosurf that vanished mysteriously in June 2009.
Now defunct, Surf’s Up was known for unapologetic, unabashed cheerleading for Bowdoin, whom federal prosecutors said had swindled investors in Alabama in a previous securities caper during the 1990s and took in at least $110 million through ASD. Clarence Busby, an alleged business partner of Bowdoin and the operator of the Golden Panda Ad Builder autosurf, swindled investors in three prime-bank schemes in the 1990s, according to the SEC.
More than $14 million linked to Golden Panda was seized as part of the ASD case — and yet the cheerleading for autosurf schemes continued on Surf’s Up. The forum labeled ASD pro-se litigant Curtis Richmond a “hero” after he accused the judge and prosecutors of crimes in 2009.
BULLETIN: David S. Mandel, the receiver in the alleged Commodities Online LLC Ponzi and fraud scheme, has sued four Florida residents and is demanding more than $9 million.
Named defendants in U.S. District Court in the Southern District of Florida are James C. Howard III of Parkland; Louis N. Gallo III of Parkland; Martin Vegas of North Bay Village; and George Saliba, also known as George Saliva, of Parkland.
“From January 26, 2010 until April 1, 2011, Howard and Gallo operated and controlled a Ponzi Scheme designed to defraud investors that allowed Howard, Gallo and their confederates to steal and misappropriate investor funds,” Mandel alleged in the lawsuit.
“Howard and Gallo, in running the Ponzi Scheme, regularly made transfers of Commodities Online funds from one related entity to another with no business purpose other than to make the Ponzi Scheme more difficult to detect and assist in conveying the appearance of a profitable business to investors,” Mandel alleged.
Howard controlled Florida firms known as Sutton Capital LLC and J&W Trading LLC, Mandel alleged. Meanwhile, Gallo controlled Florida firms known as Minjo Corp. and American Financial Solutions LLC, according to the lawsuit.
Four “related entities involved in the inter-company transfers utilized in the Ponzi scheme” were identified by Mandel as:
SSH2 Acquisitions Inc, controlled by nondefendant Michael Palermo.
Rapallo Investment Group LLC, controlled by non-defendant Patricia Saa.
Minerales Mexiron LLC, a Florida firm controlled by defendant George Saliba.
Minerales Mexico Iron SACV Inc., another Florida company controlled by Saliba.
Former AdSurfDaily member and Surf’s Up moderator Terralynn Hoy is listed in Nevada records as a “director” of SSH2. She has not been accused of wrongdoing. SSH2 sued Howard and others in 2010, in a case that alleged it was a victim of a Ponzi scheme.
On two dates in February 2010, Mandel alleged, Howard “wrongfully converted” more than $1.74 million my moving it from Commodities Online to Sutton Capital and JW Trading.
In March 2010 and April 2010, according to Mandel, Howard caused Commodities Online to “lend” more than $320,000 to yet another entity: Pisces Trading Inc.
“Howard thereafter directed Pisces Trading, Inc. to repay these loaned Commodities Online funds to his wholly owned and controlled entity, J&W Trading, thereby converting the Commodities Online funds to his own benefit and use,” Mandel alleged.
From March 2010 to March 2011, “Gallo converted $413,143 of Commodities Online funds to his own use and benefit by causing net funds to be transferred to his wholly owned and controlled entity, American Financial,” Mandel alleged.
Between May 2010 and March 2011, according to the lawsuit, “Gallo converted $1,767,870 of Commodities Online funds to his own use and benefit by causing net funds in that amount transferred to his wholly owned and controlled entity, Minjo.
In March 2011, according to the lawsuit, Gallo also “converted $360,000 of Commodities Online funds to his own use and benefit by causing those funds to be wired to Minerales Yacimientos y Reservas in Mexico, which the Receiver is advised is a fictitious company.”
Still moving money in March 2011, Gallo “converted $226,200 of Commodities Online funds to his own use and benefit by causing those funds to be wired to Terracerias y Pavimentos in Mexico” — plus the following sums and destinations:
$40,044 to Jorge Ortega Balderas in Mexico.
$700,000 to Diego Diaz Ceballos Torre in Mexico.
$625,000 to Grupo Minero Leecota in Mexico.
$150,000 to Franscisco Javier Ortiz Gonzalez in Mexico.
In a separate filing, Mandel said that the process of determining whether Commodities Online had any iron holdings in Mexico had proven difficult, but that investigators now believe that there is “no recoverable iron ore in Mexico.”
What happened to the money in Mexico is unclear. In April 2011, the SEC alleged that about $3.8 million funds linked to Commodities Online flowed to Mexico and the Netherlands as the agency was issuing subpoenas in the emerging fraud case in March 2011.
The transfers were “extremely suspicious,” the agency said in April.
“Howard, Gallo, and Vegas breached their fiduciary duty to Commodities Online and its investors by personally stealing and misappropriating Commodities Online funds, allowing coconspirators to steal and misappropriate those funds, and dissipating almost $3 million through imprudent transfers of Commodities Online funds to Mexico without adequate controls and documentation to insure the company’s assets and funds,” Mandel alleged in the lawsuit.
Money continued to flow to Mexico even after Commodities Online retained attorney James Sallah in March 2011 and Sallah “counseled management of Commodities Online to discontinue all solicitations of new investor money, to freeze all existing company assets and otherwise cooperate with the Securities and Exchange Commission,” according to Mandel’s lawsuit.
“Contrary to Mr. Sallah’s advice, defendants Howard, Gallo and Vegas, in disregard of their fiduciary duties to Commodities Online and its investors, continued to authorize wire transfers of Commodities Online funds to various accounts in Mexico where the funds became untraceable and defendants could re-divert the proceeds of the wire transfers to their personal use and benefit,” according to the lawsuit
Vegas, according to Mandel, “converted $631,264 of Commodities Online funds to his personal use and benefit by causing those net funds to be paid out to him for no consideration.”
Saliba, according to the lawsuit, “controlled” Minerales and Mexiron and “converted $2,089,368 of Commodities Online funds to his own use and benefit” between May 2010 and November 2010.
BULLETIN: A federal judge in Florida who says she was accused of “abusing” her discretion and “trampling” the Constitutional rights of a man implicated in an alleged multimillion-dollar commodities fraud by the SEC has ordered the defense attorney who made the assertions to explain himself and substantiate claims that his client had been denied due process.
U.S. District Judge Patricia A. Seitz ordered attorney Horecia I. Walker to respond in writing no later than Sept. 9 and explain what kind of investigation he conducted prior to asserting that James Clark Howard III and his counsel present at an Aug. 23 evidentiary hearing did not have adequate time to prepare for the hearing.
Howard, who appeared at the hearing, was represented at the hearing by attorney Mark C. Perry, according to records. Both Howard and Perry had 11 days to prepare for the hearing, Seitz wrote.
In an order issued on the same day as the hearing, Seitz directed Howard and Sutton Capital LLC to turn over $1.45 million to attorney David S. Mandel, the court-appointed receiver in the Commodites Online LLC fraud case filed in April by the SEC.
Seitz gave Howard and Sutton, another firm associated with Howard, until yesterday to turn over the money. It was not immediately clear if either party complied with the order.
What is clear is that Seitz was not amused by an emergency motion filed by Walker on behalf of Howard and Sutton to stay the Aug. 23 order to turn over the money pending an appeal of the order.
“Walker has accused this Court of trampling Howard’s constitutional rights and abusing its discretion in entering the turnover Order,” Seitz wrote. “The factual underpinnings for these accusations are that Howard and Perry had insufficient time to prepare for the August 23, 2011, hearing. To avoid running afoul of Rule 11, Walker should have investigated these factual circumstances before relying on them to accuse the Court of a constitutional affront.”
The judge added that “it appears to the Court that no such investigation occurred.”
Seitz took issue with Walker’s characterization of the Aug. 23 hearing as an “apparent ‘evidentiary hearing,’” according to an order she issued yesterday denying the stay.
“Walker posits that the hearing ‘was not an evidentiary hearing at all’ and the Court’s Order requiring disgorgement amounts to an abuse of discretion,” Seitz wrote. “Lost in all of his hyperbole is the simple fact that Howard and Perry received notice of the hearing eleven days before the hearing commenced.”
Neither Howard nor Perry asked for a continuance, Seitz wrote.
The Commodities Online case has a link to the AdSurfDaily Ponzi scheme case brought by the U.S. Secret Service in August 2008.
SSH2 Acquistions, a Nevada company that listed former ASD member and pro-ASD Surf’s Up moderator Terralynn Hoy as a director, sued Howard and others in September 2010 amid allegations he was part of a massive Ponzi scheme into which SSH2 had plowed $39 million. The lawsuit was filed about six months after the Boca Raton Police Department filed felony charges against Howard in an alleged financial scam that targeted Haitian Americans.
Surf’s Up was a cheerleading site for ASD, and Hoy later became a moderator of a cheerleading forum for the collapsed AdViewGlobal (AVG) autosurf.
While SSH2 claims to be a Ponzi victim of Howard, the Surf’s Up and AdViewGlobal forums both claimed that ASD and AVG were conducting legitimate commerce. With Hoy as a moderator of Surf’s Up, the forum conducted an October 2008 online party complete with images of champagne and fireworks for ASD President Andy Bowdoin.
The U.S. Secret Service described Bowdoin as an international Ponzi schemer and recidivist felon who’d gathered tens of millions of dollars in the ASD caper — most of it in ASD’s final weeks of life in the late spring and summer of 2008. At least $65.8 million was seized from Bowdoin’s 10 personal bank accounts, according to court records. One account alone contained more than $31.6 million. Three accounts contained the exact same amount: $1,000,338.91.
It is unclear if ASD members beyond Hoy had any business ties to Howard and invested any money with the accused schemer. Hoy has not been accused of wrongdoing.
SSH2 said in court filings that it plowed $39 million into the alleged Howard scheme, and received back about $19 million in “fake and fraudulent ‘profits.’” Sutton, Rapallo Investment Group LLC and Patricia Saa also were named defendants in SSH2’s lawsuit.
Howard was sentenced to 57 months in federal prison in the 1990s on narcotics and weapons charges, according to records. ASD’s Bowdoin, meanwhile, narrowly avoided jail time during the same decade when he was implicated in Alabama in a securities swindle, according to records.
Clarence Busby Jr., one of Bowdoin’s alleged business partners, was implicated by the SEC during the 1990s in three prime-bank schemes, according to records.
Some ASD members have been identified as members of the so-called “sovereign citizens” movement. Cheerleading for Bowdoin and ASD continued on the Surf’s Up forum even after it was revealed that Curtis Richmond, one of the purported “sovereign” beings associated with ASD, had a contempt-of-court conviction for threatening federal judges in California and once claimed a federal judge from Oklahoma sitting by special designation in Utah owed him $30 million.
Richmond was a member of the so-called “Arby’s Indians,” an “Indian” tribe that targeted public officials with vexatious litigation. U.S. District Judge Stephen Friot ruled the “tribe” a complete sham.
U.S. District Judge Rosemary Collyer of the District of Columbia is presiding over the ASD Ponzi case. Both Richmond and Bowdoin tried unsuccessfully to have her removed from the case. Richmond accused Collyer of “TREASON” and claimed she may be guilty of 60 or more felonies.
A federal judge in Florida has ordered a convicted narcotics and firearms felon who emerged as a central figure in a Ponzi scheme case after his release from prison to disgorge $1.45 million.
The order, signed Aug. 23 by U.S. District Judge Patricia A. Seitz, applies to James Clark Howard III and Sutton Capital LLC.
Howard, a co-managing member of Commodities Online LLC, “directed” that $1.3 million in investor funds from Commodities Online be wired to Sutton Capital, “his wholly owned limited liability company,” Seitz found.
In the 1990s, Howard was sentenced to 57 months in federal prison on cocaine and weapons charges. He also was implicated last year in a separate fraud scheme targeting Haitian Americans.
The SEC sued Commodities Online in March, alleging that the firm was selling unregistered securities and operating an international commodities fraud from South Florida.
Seitz found that the $1.3 million transaction was recorded on the books of Commodities Online as a “loan” to Sutton, “even though no evidence has been found establishing a promissory note, interest rate or terms of repayment.”
The $1.3 million transaction occurred on Feb. 9, 2010, Seitz found.
On Feb. 18, 2010, Howard directed another $150,000 be transferred from Commodities Online to Sutton, Seitz found. She now has ordered Howard and Sutton to return the entire amount of $1.45 million from both transactions, saying they “remain in possession and control of these investor funds.”
Separately, David S. Mandel, the court-appointed receiver in the Commodities Online case, said aspects of his investigation have been “severely delayed and impeded by the noncooperation of the majority of the former officers of the Defendants.”
Although Commodities Online may own iron ore in Mexico, efforts to get at the truth have been hampered “due to the current nature of business in Mexico, and in particular, the iron ore business, which at times can be unsafe, unreliable and uncertain,” Mandel said.
In court filings, Mandel said that he has “received information that others have been purporting to act on the Defendants’ behalf in Mexico.” Mandel hired local counsel in Mexico, an attorney who is a citizen of Mexico and an international security firm to peel back layers of the onion and to protect receivership assets.
A forensic accounting of Commodities Online and thousands of transactions is ongoing, Mandel said.
One phase of the forensic accounting involved 9,500 transactions and 35 bank accounts “maintained at various financial institutions,” Mandel said.
An updated analysis of records shows that Commodities Online gathered nearly $12 million from “insiders and related parties” between January 2010 and April 2011, and paid the insiders and related parties more than $20.2 million.
All in all, the scheme gathered more than $35 million, according to the analysis.
Howard was arrested by the Boca Raton Police Department in a separate scheme targeting Haitian Americans on March 5, 2010.
About six months later — in September 2010 — he was sued by a Nevada company that listed former AdSurfDaily member and Surf’s Up moderator Terralynn Hoy as a director.
The Nevada company — SSH2 Acquisitions Inc. — alleged that Howard was part of a Ponzi scheme that also involved Patricia Saa, Sutton Capital LLC and Rapallo Investment Group LLC.
Howard and the defendants, according to the lawsuit, told SSH2 it was trading in commodities and “would produce profits of 40% per month or more, while not risking any of the invested funds.”
In its lawsuit, SSH2 alleged that its dealings with Howard and the others began in “early 2009” and continued through March 2010.
If SSH2?s assertions against Howard and the others are true, it means the transactions occurred during a period in which Hoy, later to emerge as an SSH2 director, also was moderating cheerleading forums for ASD and the AdViewGlobal autosurf.
Surf’s Up became infamous for deleting commentary unflattering to ASD President Andy Bowdoin and links members left to outside sources of information. The forum mysteriously vanished in January 2010, after cheerleading for Bowdoin and ASD nonstop for more than a year.
AdViewGlobal, which collapsed in June 2010, purported to operate from Uruguay and enjoy protection from U.S. regulators because of a purported “private association” structure. ASD was implicated by the U.S. Secret Service in August 2008 in an alleged $110 million Ponzi scheme. Bowdoin was arrested on charges of wire fraud, securities fraud and selling unregistered securities in December 2010.
Former moderators of Surf’s Up, which unabashedly cheered for Bowdoin and received ASD’s official endorsement in November 2008, just days after a key court ruling in a civil-forfeiture case went against Bowdoin and ASD, largely have been silent since the January 2010 disappearance of Surf’s Up.
It is not known if individual ASD members also invested money with Howard. What is known is that many ASD members did not skip a beat after the Secret Service moved against ASD in August 2008. Within days, some ASD members were promoting other autosurf schemes, HYIP schemes and cash-gifting schemes, positioning them as a way ASD members could make up their ASD losses.
Hoy has not been accused of wrongdoing. Court filings and other records suggest that Hoy could have been conducting business with firms (ASD, Sutton and Rapallo) and individuals (Bowdoin, Howard and Saa) who were running separate Ponzi schemes involving at least $149 million and perhaps more.
SSH2, with Hoy as a director, alleged that it was scammed by Howard, Sutton and Saa, and plowed$39 million into their Ponzi. The firm accused the defendants of selling unregistered securities and causing at least $19 million in damages. It specifically accused Howard and the other defendants of not revealing that Howard was a convicted felon.
As a Surf’s Up moderator, however, Hoy presided over a forum that overlooked or pooh-pooed matters pertaining to the alleged ASD Ponzi, ASD’s alleged sale of unregistered securities to thousands of people internationally and Andy Bowdoin’s previous encounters with law enforcement in fraud cases.
In October 2008, at the conclusion of an evidentiary hearing, Surf’s Up held an online party for Bowdoin, who’d been charged with felonies in an Alabama securities caper in the 1990s and avoided jail by agreeing to make restitution to investors he defrauded. The party was conducted during an active criminal investigation into Bowdoin’s conduct at ASD.
A federal prosecutor was derided as “Gomer Pyle” on Surf’s Up. He also was described as a “goon” and a person who should be made to suffer in a medieval torture rack. Critics were described as “rats” and “maggots.”
The party was conducted despite the fact the Secret Service had alleged that one of Bowdoin’s business partners had been implicated by the SEC in the 1990s in three prime-bank schemes.
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.
James Clark Howard: Source: Boca Raton Police Department
UPDATED 2:25 P.M. EDT (U.S.A.) In a complex case unfolding in Florida, the SEC has filed fraud charges against two companies that allegedly sold unregistered securities and conducted a $27.5 million “investment scheme” involving “purported commodities contracts.” A receiver has been appointed to marshal the assets of the murky businesses, which are known as Commodities Online LLC and Commodities Online Management LLC.
Millions of dollars generated in the scheme were moved to Mexico and the Netherlands even as the SEC was issuing subpoenas in the case last month, according to court filings. The agency described the transactions as “extremely suspicious.”
Although the SEC successfully halted the alleged Commodities Online scheme on April 1, the only defendants named to date are the companies themselves. The agency described the individuals presiding over the scheme — a former managing member and a vice president — as convicted criminals.
One of the individuals, according to the SEC, was a “convicted felon who was, in March 2010, charged with grand theft and organized scheme to defraud in conjunction with an unrelated Ponzi investment scheme.”
The other, according to the SEC, was an individual who “pled guilty to bank fraud and narcotics charges in 2005 and to transmitting a threat to injure charge in 2007.”
The PP Blog confirmed that, on March 5, 2010, the Boca Raton Police Department arrested James Clark Howard, who is listed as a “managing member” of Commodities Online LLC in documents filed with the Florida Department of State on Jan. 26, 2010.
Howard was charged with grand theft and organized scheme to defraud in a Ponzi case that may involve as many as five companies and their associates acting in concert to scam investors. Boca Raton authorities said the Florida Office of Financial Regulation also was conducting an investigation.
On Feb. 11, 2011, Louis Gallo was identified as a manager of Commodities Online Management LLC in records filed with the Florida Department of State. The Sun Sentinel newspaper reported that Gallo is “on probation for bank fraud and a cocaine charge out of New Jersey federal court.”
AdSurfDaily Member And Surf’s Up Mod Emerges As Figure In New Florida Flap
Other records show that, on Sept. 15, 2010, a Nevada-based company that listed former AdSurfDaily member and Surf’s Up moderator Terralynn Hoy as a “director” sued Howard and others in federal court in Fort Lauderdale. The Nevada company — SSH2 Acquisitions Inc. — alleged that Howard and the others were running a Ponzi scheme into which SSH2 had plowed $39 million.
Hoy, who has not been accused of wrongdoing, was a member of Florida-based AdSurfDaily, which the U.S. Secret Service said in August 2008 was conducting an international Ponzi scheme involving tens of millions of dollars. After the ASD seizure, Hoy became a moderator at the pro-ASD “Surf’s Up” forum, which mysteriously vanished in January 2010 after cheerleading nonstop for ASD President Andy Bowdoin for more than a year.
Bowdoin was the target of a federal criminal probe the entire time Surf’s Up operated, according to court filings. In November 2008, just days after a key court ruling went against ASD, the firm endorsed Surf’s Up as its mouthpiece.
By February 2009, Hoy became a conference-call host and moderator of a now-defunct forum that promoted the now-defunct AdViewGlobal (AVG) autosurf. AVG, which had close ties to ASD, launched in the aftermath of the federal seizure of more than $80 million in ASD-related assets, the filing of two forfeiture complaints against ASD-related assets and the filing of a civil racketeering lawsuit against Bowdoin.
On June 30, 2009 — one day after Bernard Madoff was sentenced to 150 years in federal prison for his colossal Ponzi scheme — lawyers suing Bowdoin for racketeering alleged that AVG was an extension of ASD. In September 2009, federal prosecutors made a veiled reference to AVG in court filings in the ASD case.
AVG disappeared in June 2009, about a month after the grand jury that ultimately indicted Bowdoin for wire fraud, securities fraud and selling unregistered securities as investment contracts began to meet. The indictment against Bowdoin was unsealed in November 2010, and Bowdoin was arrested in Florida on Dec. 1, 2010.
Surf’s Up was known for unapologetic, unabashed cheerleading for Bowdoin, whom prosecutors said had swindled investors in Alabama in a previous securities caper during the 1990s. Clarence Busby, an alleged business partner of Bowdoin and the operator of the Golden Panda Ad Builder autosurf, swindled investors in three prime-bank schemes in the 1990s, according to the SEC.
More than $14 million linked to Golden Panda was seized as part of the ASD case — and yet the cheerleading for Bowdoin continued on Surf’s Up. The forum labeled ASD pro-se litigant Curtis Richmond a “hero” after he accused the judge and prosecutors of crimes in 2009.
Richmond was associated with a Utah “Indian” tribe a federal judge in a separate case ruled a “complete sham” after it filed enormous judgments against public officials in performance of their duties. Regardless, the cheerleading on Surf’s Up continued — even after it was revealed that Richmond had a contempt-of-court conviction for threatening federal judges and had been sued successfully under the federal racketeering statute by the Utah public officials and was ordered to pay nearly $110,000 in penalties and damages.
Federal prosecutors now say they have linked ASD to E-Bullion, a shuttered California payment processor whose operator — James Fayed — is accused of arranging the contract murder of his wife, a potential witness against him in a fraud case. E-Bullion has been linked by investigators in the United States and Canada to multiple Ponzi schemes.
SSH2, the company that listed Hoy as a director, alleged in September 2010 that Howard was part of a Ponzi scheme that also involved Patricia Saa, Sutton Capital LLC and Rapallo Investment Group LLC.
Howard had been arrested by the Boca Raton Police Department in March 2010, about six months before SSH2 accused him in the September 2010 lawsuit of operating a Ponzi scheme. In the lawsuit, SSH2 said it had conducted business with the defendants from “early 2009 through March 2010,” and ultimately turned over $39 million.
Howard and the defendants, according to the lawsuit, told SSH2 it was trading in commodities and “would produce profits of 40% per month or more, while not risking any of the invested funds.”
SSH2 did not say in the complaint how it had come to believe that a return of 40 percent a month with no risk was possible. Nor did the company describe its efforts to conduct due diligence on Howard and the other defendants.
Of the $39 million directed at Howard and the other defendants, SSH2 received back approximately $19 million in “fake and fraudulent ‘profits,’” according to the lawsuit.
If SSH2’s assertions that it conducted business with Howard and the others beginning in “early 2009” and expected a return of 40 percent a month are true, it means that the business was being conducted in a period after which both the Bernard Madoff Ponzi scheme and the alleged AdSurfDaily Ponzi schemes were exposed.
Both Madoff and ASD bragged about returns that were far less than the monthly returns allegedly offered by Howard and the other lawsuit defendants.
Madoff’s fraud was exposed in December 2008, about four months after ASD’s alleged fraud was exposed.
And if SSH2’s assertions against Howard and the others are true, it also means the transactions occurred during a period in which Hoy, later to emerge as an SSH2 director, also was moderating forums for ASD and AVG and also was serving as a conference-call host for AVG, which purported to operate from Uruguay and enjoy protection from U.S. regulators because of its purported “private association” structure.
ASD’s Bowdoin initially ceded the money seized by the Secret Service in January 2009, dropping his claims to the cash “with prejudice.” By the end of February 2009, however, Bowdoin sought to reenter the case as a pro se litigant and renew his claim to the money, which totaled about $65.8 million.
Bowdoin’s sudden reappearance in a case he had abandoned coincided with a meeting AVG reportedly conducted with Karl Dahlstrom, a convicted felon. In March 2009 — in a letter posted on Surf’s Up — Bowdoin claimed he had decided to reenter the case after consulting with a “group” of ASD members. Bowdoin did not name the members, but chided federal prosecutors in his letter, writing that his pro se pleadings should “really get their attention.”
For the balance of 2009, Surf’s Up continued to cheerlead for Bowdoin, despite the fact he never told the membership at large about a second forfeiture complaint that had been filed against ASD-connected assets in December 2008. Bowdoin also did not inform ASD members that he had been sued for racketeering and had signed a proffer letter in late 2008 or early 2009 and acknowledged that prosecutors’ material allegations against ASD were all true.
Surf’s Up continued to operate even after prosecutors revealed the existence of the proffer letter. In Bowdoin’s own court pleadings, he had acknowledged he had given information against his interests to prosecutors. Bowdoin said he hoped to work out a deal by which he could avoid prison time, despite the fact prosecutors had alleged he was at the helm of a massive Ponzi scheme.
In October 2008 — at the conclusion of an evidentiary hearing ASD had requested — Surf’s Up conducted an online party for ASD members, complete with images of champagne and fireworks. Members were fed one-sided accounts of what had happened at the hearing, and a federal prosecutor was described derisively as “Gomer Pyle.” ASD’s lawyers were described as the “Perry Mason” team.
A month later — in November 2008 — U.S. District Judge Rosemary Collyer ruled at ASD had not demonstrated at the hearing that it was a lawful business and not a Ponzi scheme. The AVG forum led by some of the Surf’s Up mods, including Hoy, launched shortly thereafter, and the Surf’s Up forum soldiered on.
AVG was positioned as a way for members to make up their losses in the alleged ASD Ponzi scheme.
Surf’s Up became infamous for deleting comments and information unflattering to Bowdoin. The forum also was used to hatch a rumor that the prosecution secretly had admitted ASD was not a Ponzi scheme but was clinging to the case in a bid to save face.
As time progressed, dozens of pro se litigants attempted to intervene in the ASD case, claiming the government had no “EVIDENCE.” These filings occurred despite the fact that some of the evidence had been a matter of public record since August 2008.
Critics referred to Surf’s Up, whose formal name was the ASD Member Advocates Forum, as the AS[Delusional] forum. Various tortured explanations for Bowdoin’s conduct appeared on the forum, and there were calls for a “militia” to storm Washington, D.C., and for a prosecutor to be placed in a medieval torture rack. Prosecutors and federal agents were derided as “goons” and “Nazis,” and critics were derided as “maggots.”
The SEC’s Case Against Commodities Online
On April 1, the SEC filed an action against Commodities Online that alleged it was selling unregistered securities and operating a commodities fraud that had absorbed at least $27.5 million. Florida attorney David S. Mandel was appointed receiver.
“In connection with the unregistered securities offerings, the Defendants made numerous material misrepresentations and omissions regarding the nature of Commodities Online’s business model and operations, the risks and earnings associated with investing in its securities, and the background of its co-founder and vice-president,” the SEC charged.
“On December 15, 2010, Commodities Online announced on its website that ‘[t]o date, we have 32 contract offerings that have been completed for which our steadfast subscribers have been paid. The dollar total of these contracts is approximately $7.5 million and the payout was in excess of $8.5 million, producing an average earning of over 14.5%.’
“That statement was untrue,” the SEC charged. “There is no evidence to support this amount of investor return. In fact, Commodities Online’s bank records show a net loss for the companies associated with these promised contracts. Further, the company’s records show a net outflow of cash for each of these associated companies.”
By March 14, 2011, the SEC charged, Commodities Online had upped its number of purported successful contracts to 48. That claim also was untrue, the agency charged.
Referring to Howard but not naming him, the SEC said that the company “failed to disclose that in 1997, he was convicted of federal narcotics and firearms felonies and sentenced to 57 months in prison. The Defendants never disclosed his past criminal background to investors either through the Commodities Online website or any other company communication to investors.”
Referring to Gallo but not naming him, the SEC said that, in 2005, he “pled guilty in the United States District Court for the District of New Jersey to bank fraud and narcotics charges.
“In 2007, in the same court, he pled guilty to transmitting a threat to injure,” the SEC continued. “He is currently serving a three-year term of supervised release, which expires in July 2011.”
In a separate filing accompanying the complaint filed on April 1, the SEC said that Commodities Online “recently sent approximately $3.8 million to entities and individuals in Mexico and the Netherlands.”
Investigators deemed the transactions “extremely suspicious,” given that the transactions allegedly occurred between March 15, 2001, and March 25, 2011. The SEC said it issued subpoenas to the defendants on March 15, the same day the international transactions began to occur.
BULLETIN: A Florida jury found that TD Bank assisted now-disbarred and imprisoned attorney Scott Rothstein in his epic Ponzi scheme and has found the bank liable for $67 million in damages.
