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Tag: Donovan W. Frank

  • Federal Judge Delays Ruling In INetGlobal Case, Saying Attorney May Be ‘Primary Fact Witness’; Sends Case Back To Magistrate Judge

    UPDATED 8:29 A.M. EDT (APRIL 18, U.S.A.) Despite Internet and email claims yesterday and today by supporters of INetGlobal that the company had won a key battle with prosecutors, that the case was “over” and that news about the litigation engulfing the company “is better than anything we expected,” an order and memorandum by a federal judge suggests that celebrations could be premature.

    U.S. District Judge Donovan W. Frank yesterday sent the case back to Magistrate Judge Franklin L. Noel for the “limited” purpose of “maintaining the status quo” while clarifying elements of the case and seeing if there was a way to forge a settlement of at least some of the issues. (See subhead below.)

    As things stand, Frank said, certain issues on which INetGlobal owner Steve Renner and his affiliated companies are awaiting rulings “could be rendered moot” if Renner is “indicted or otherwise charged with one or more criminal offenses.”

    Renner has asked the court to return about $26 million and business records seized by the U.S. Secret Service in a Ponzi scheme, wire-fraud and money-laundering probe. Renner also wants Frank to conduct an evidentiary hearing.

    For its part, the prosecution has said it opposes Renner’s requests because a “major fraud and money laundering investigation is under way bearing serious criminal consequences” and because Renner’s filings were a “thinly veiled attempt to force the government to reveal facts relating to an on-going criminal investigation.”

    The money is “evidence,” and its release would mean “the money will be spent, and will be unavailable for future return to victims” should the government prevail, prosecutors said.

    In his memo, Frank said he was not prepared yesterday to rule on critical issues, given the procedural history of the case and recent filings by both the INetGlobal side and the prosecution.

    “Inter-Mark Corporation and its subsidiaries, without notice to the Court, filed a notice joining in the motion of Steven Renner,” Frank said. “That motion was filed by Mark J. Kallenbach, who is now the subject of a motion to be disqualified by the United States, given his 20-page, 81-paragraph affidavit filed on behalf of Steven Renner . . .”

    Prosecutors filed a motion 10 days ago that asked Frank to disqualify Kallenbach as an attorney for INetGlobal and related companies, saying Kallenbach had “made himself a necessary witness” by conducting an “investigation” and filing an affidavit prior to entering his notice of appearance as INetGlobal’s attorney.

    Kallenbach was trying to be both an attorney and a witness in the same case, prosecutors claimed.

    Jon Hopeman, an attorney for Renner, disputed the government’s contention about Kallenbach earlier this week, and Kallenbach joined in the brief.

    Although Frank delayed ruling on the issue, the order and memorandum he issued yesterday spoke to the dispute.

    “The Court reserves the right, pending receipt of Magistrate Judge Noel’s report, to rule on the motion of the United States to disqualify attorney Mark J. Kallenbach, although the Court would observe that, given the 20-page, 81-paragraph affidavit submitted on behalf of Steven Renner, it would appear that attorney Kallenbach is a primary fact witness in the above-entitled matter, absent stipulation of the parties.”

    A “fact witness,” according to the Federal Judicial Center, the education and research agency for the federal courts, is “a person with knowledge about what happened in a particular case who testifies in the case about what happened or what the facts are.”

    The order and memorandum may signal that, based on the current record of the case, Frank may be inclined to view Kallenbach as a witness subject to both cross examination by the prosecution and direct examination by the Renner/INetGlobal side.

    Judge Frank Orders Parties To Schedule Conference With Magistrate Judge Noel

    Frank ordered both sides to schedule a settlement conference with Magistrate Judge Noel. The order does not mean the case is “over” or that either side has won or lost.

    The conference will be “limited in scope,” Frank ordered.

    Among the issues to be determined (note: these are verbatim, from Frank’s order):

    • “The amount of money necessary to provide wages and health insurance coverage to the current employees maintaining a portion or portions of the business of Inter-Mark Corporation and its subsidiaries.”
    • “The amount of money presently being held by the Court, if any, in the event the parties agree that it is necessary to continue aspects of Inter-Mark Corporation, and its subsidiaries, pending resolution of the motion before the Court, pending completion of the investigation, be it civil or criminal, or both, by the United States.”
    • “Items seized by the United States by means of a search warrant, including, but not limited to, computers and other property necessary to the operation of the business.”
    • “Discussion of any items alleged to be attorney-client privileged items seized by the Government pursuant to the search warrants executed at Steven Renner’s companies on or about February 23, 2010, and thereafter.”

    Frank said the conference with Noel, absent an agreement by the parties, “shall be limited to maintaining the status quo, on a limited basis, pending the Court granting or denying an evidentiary hearing.”

    “The focus of the Status-Settlement Conference before Magistrate Judge Noel, absent agreement of the parties to broaden the scope and focus of the conference, will be the return of some portion of the money so that Steven Renner and the associated business entities can maintain the status quo of their business, including the maintenance of a skeletal crew of employees and the insurance for those employees,” Frank said.

    “The Court has conferred with Magistrate Judge Noel with respect to the purpose and limited scope of the conference,” Frank said.

    He added that he may defer ruling on Renner’s motion for an evidentiary hearing until after the settlement conference is conducted and the court had received Noel’s report on the status of the case.

    And Frank said the court “reserves the right, pending receipt of Magistrate Judge Noel’s
    report, to rule on the motion of the United States to disqualify attorney Mark J. Kallenbach, although the Court would observe that, given the 20-page, 81-paragraph affidavit submitted on behalf of Steven Renner, it would appear that attorney Kallenbach is a primary fact witness in the above-entitled matter, absent stipulation of the parties.”

    Spinning It As An INetGlobal ‘Win’

    As was the case in the AdSurfDaily autosurf Ponzi prosecution, some INetGlobal members are reporting to downline members that the prosecution’s case may be in the process of disintegrating.

    Despite the frequent claims in the ASD case, a federal judge went on to issue three orders of forfeiture totaling more than $80 million, handing ASD one shattering loss after another.

    One INetGlobal member sent an email to downline members yesterday that claimed “the indication is that we may have a huge win,” a member of his downline said.

    This email from the member was followed by another one with a five-exclamation point headline titled “Major News !!!!!”

    “The Judge has ordered a ‘Status Settlement Conference’ between both parties,” the sender advised members of his INetGlobal downline. “This news is better than anything we expected.

    “We thought a hearing would be set for 30 days plus from now and release of some money,” the sender continued. “This was to be a ‘evidential (sic) hearing’ to present a full days (sic) evidence about our business and hear from the Federal authorities on their side.

    “Also we were looking for some funds to be release (sic) for general operations of the business,” the sender wrote. “But today’s ruling is an acknowledgment of the facts of the case that this (sic) not at (sic) clear ‘Ponzi’ business and which therefore would apply to the Federal ‘Forfeiture Laws.’

    “This may lead to a negotiated deal with the government,” the sender wrote. “Also in the meantime we are much likely (sic) to get operational sooner than we ever thought.”

    Contrary to the email claim, nothing in Frank’s order and memorandum suggested that any of the facts of the case had been determined. Moreover, no “acknowledgment” was made by the judge or the government that INetGlobal was not operating as a Ponzi scheme. The judge has issued no orders pertaining to forfeiture because the government — as the record of the case stood yesterday — had filed neither a criminal nor a civil action against Renner or INetGlobal-connected assets that seeks forfeiture of property.

    The sender conceded that “my details and interpretation could be off,” according to the email, parts of which were republished on the Internet.

    It is indeed true that Frank referenced a Status-Settlement Conference, but the email sent by the INetGlobal member did not outline any details of the conference, including the fact it had been scheduled for a limited purpose.

    At the same time, the email made no reference to the fact that Frank said the case could take another turn and render some of the current issues moot if the government proceeds with an indictment.

    On April 2, the prosecution described the case as a “major fraud and money laundering investigation,” noting that the IRS had joined the U.S. Secret Service in the probe.

    A separate claim by an apparent INetGlobal supporter that the case was “over” was published today in the comments section of the Hospitalera Blog.

    “Inetglobal case is over!” the comment read in part. The commentator described the information as a claim made by his upline.

    “At the end of this afternoon, court has not received further evidence from government to accuse Inetglobal of Ponzy (sic) Scam in the period of time,” the comment read in part. “Judge made decision that the case could not be established. The written document from court will be released on Monday.”

    Frank made no such decision that a “case could not be established.”

    The Hospitalera Blog said in February that it had been targeted in a lawsuit for calling INetGlobal a “scam” in Sepember 2009. Some INetGlobal members have attacked the Blog for its point of view on INetGlobal.

  • Another Fraud Case In Minnesota: Renee Marie Brown Accused By SEC Of Starting ‘Sham’ Investment Fund Known As ‘X’

    UPDATED 7:52 A.M. EDT (April 13, U.S.A.) On the very day Tom Petters was sentenced in Minnesota to 50 years in prison for operating a colossal Ponzi scheme, a federal judge froze the assets of Renee Marie Brown after the SEC accused her of ripping off clients by persuading them to invest in a mysterious vehicle known as “Fund X.”

    U.S. District Judge Donovan W. Frank issued a temporary restraining order against Brown and her company, Investors Income Fund X LLC. The order was issued April 8.

    Brown, 46, of Golden Valley, was accused of operating a “sham” fund into which investors plowed more than $1.1 million between July 2009 and March 2010.

    “Brown told her investors that Fund X is a ‘bond fund’ with fixed annual returns of 8% or 9%,” the SEC said. “[S]he distributed fictitious ‘returns’ to investors, furthering the fiction that Fund X was a legitimate and successful investment opportunity.”

    But Brown “misappropriated most of the $1.1 million she raised from investors to, among other things, purchase a condominium for herself and build . . . office space for her new business,” the SEC said.

    Investors Income Fund X LLC was registered as a corporation in South Dakota, the SEC said.

    “Unbeknownst to her victims, Fund X is a sham — Brown’s alter ego,” the SEC said.

    The case features allegations of siphoning, forgery, cherry-picking clients of Brown’s former employer and issuing fraudulent “returns” in Bernard Madoff-like fashion. It also occurred against the backdrop of March 17 Congressional testimony by FBI Director Robert Mueller III that U.S. companies increasingly were relying on shell corporations to commit fraud.

    Minnesota Fraud Cases

    In recent months, investigators and prosecutors in Minnesota have opened up a number of major fraud probes. The combined cases are alleged to have drained hundreds of millions of dollars from investors. In some instances, prosecutors and regulators have asserted that companies used multiple names to commit fraud.

    Petters was convicted last week of presiding over that was described as the largest financial-fraud case in Minnesota history: a $3.65 billion Ponzi scheme.

    Petters displayed “stunning criminality,” prosecutors said. One of the victims wrote, “Our society, unfortunately, is becoming plagued with too many people like this, and like Bernard Madoff. Tom Petters needs to learn that there are severe consequences for his incomprehensible behavior.”

    Meanwhile, the SEC, the CFTC, the FBI, prosecutors and a court-appointed receiver are poring over records to reverse-engineer the alleged Trevor Cook/Pat Kiley Ponzi scheme. Court records suggest multiple company names were involved and that the scheme involved at least $190 million and caused investor losses of at least $139 million.

    Money was moved “all over the world,” according to court filings.

    Cook and Kiley were sued by the SEC and the CFTC in November. Cook was charged criminally last month. Prosecutors said he was “aided and abetted by others.” In this document, the National Futures Association, which also filed an action that references Cook, asserted that $75 million from a purported Swiss fund may have been directed at a mysterious investor known only as “Fased.”

    The purported payment occurred while Cook, a Minnesota resident, allegedly was managing money for a Canadian company known as KINGZ Capital Management Corp. KINGZ name also has been linked to an autosurf known as AdViewGlobal (AVG), which had close ties to an autosurf known as AdSurfDaily (ASD).

    On May 4, 2009 — on the same day the Obama administration announced a crackdown on international financial fraud — AVG announced that KINGZ had become its facilitator for international wire transfers. KINGZ denied the assertion, saying it believed it had been targeted in a scam. The company painted the picture that AVG was attempting to route money to itself through a U.S. shell company.

    AVG purportedly operated from Uruguay.

    Florida-based ASD, which members said was popular in Minnesota, was implicated in August 2008 by the Secret Service in a Ponzi scheme. A federal judge has issued orders of forfeiture totaling more than $80 million in the ASD case. ASD used at least three names, according to records: AdSurfDaily, AdSalesDaily, and ASD Cash Generator.

    Prosecutors also linked ASD to at least two other autosurfs: LaFuenteDinero (the “fountain of money”) and Golden Panda Ad Builder, the so-called “Chinese” option for ASD members.

    In February, the U.S. Secret Service alleged that Minnesota resident Steve Renner was operating a Ponzi scheme through a company known as INetGlobal and companies related to the firm. The scheme, the Secret Service said, largely targeted Chinese members who may have little or no facility in English.

    Renner denies the allegations. Prosecutors described the case as a “major fraud and money laundering investigation,” saying INetGlobal came to life during a period in which federal agents were seizing tens of millions of dollars in the ASD case amid Ponzi, wire-fraud and money-laundering assertions.

    An ASD member introduced an undercover Secret Service agent to INetGlobal, the agency said in court filings.

    Other recent fraud cases in Minnesota include the Gerard Cellette Jr. Ponzi case ($53 million); the Charles “Chuck” E. Hays case ($20 million); and the Kalin Thanh Dao case (up to $10 million).