A 77-year-old man who fleeced clients by telling them he brokered contracts for a Japanese company that provided uniforms for the Winter Olympics, the Pan American games and the government has been ordered to pay $29 million in a civil case brought by the SEC.
Richard Elkinson is jailed in Massachusetts after being arrested at a Mississippi casino in January. He is facing charges that effectively could lead to a life sentence, if convicted.
Elkinson’s case drew headlines at the beginning of the year, after both state and federal investigators worked over the Christmas holiday in 2009 to expose the $28 million Ponzi scheme, according to records.
“The investors received promissory notes signed by Elkinson, with terms that generally required payment within 300 to 330 days and with an interest rate that ranged from 9% to 13%,” the SEC said. “Elkinson had no relationship with a Japanese uniform manufacturer, and there were no contracts to purchase uniforms.”
It is possible that the scheme operated for at least 20 years before flaming out just prior to Christmas last year.
The FBI was working the case on Christmas Eve, according to the criminal complaint. After securing purchase orders claiming the states of Connecticut and Georgia were among Elkinson’s customers, an agent called the phone numbers on the purported purchase orders.
“In each instance, I encountered ‘disconnected’ messages,†the agent said.
The investigation also revealed that Elkinson had an affinity for Las Vegas and claimed to have credit lines of $25,000 each at the Venetian, MGM Grand and Caesars Palace casinos.
Elkinson, 76, of Framingham, was charged criminally with mail fraud. The Securities Division of the Massachusetts Secretary of State also is investigating Elkinson.
Records in Las Vegas casinos show that Elkinson had “conducted a total of more than $3.7 million in transactions over $10,000″ since 1998, prosecutors said. The Ponzi scheme began to collapse last year, and Elkinson missed a meeting with investors in December, and stopped answering his phone.
EDITOR’S NOTE: This is a brief on two Ponzi cases in California that led to suicide attempts or threats. Among other things, the case of Roberto Heckscher demonstrates both the danger to life that collapsing Ponzi schemes pose and the fallacy that no Ponzi scheme exists as long as people are getting “paid.” The fallacy routinely is perpetuated on Internet Ponzi boards such as MoneyMakerGroup, TalkGold, ASAMonitor and MyCashForums. Indeed, the Heckscher investment-fraud and Ponzi scheme dates back to at least 1979, perhaps making it the longest-running scheme on the Feds’ radar screens. Meanwhile, the Ponzi case against Patricia Morgen and Chicago Development and Planning also mixes in elements of mortgage fraud. Among other things, the Morgen case demonstrates that Ponzi = Pain. Indeed, Morgen initially fled to Mexico when she came under investigation. She later returned — and threatened to jump from the top of a multistory building in Chicago.
Two Ponzi schemers whose cases were brought in federal court in Northern California have been sentenced to long prison terms. The unrelated cases of Roberto Heckscher and Patricia Morgen destroy myths, expose secret lives and demonstrate that Ponzi schemes can separate purveyors from their senses.
Roberto Heckscher, 55, projected himself during the business week as a mild-mannered accountant and strategist who served elderly and middle class clients in the San Francisco area. On weekends, however, he morphed into a Las Vegas gambling “whale” treated to the best amenities by the casinos.
Heckscher conned family, friends and clients into providing money that purportedly would be used to provide short-term commercial loans to clients. Investors were told they’d earn interest on the loans.
The scheme, which gathered up to $100 million, dated back to 1979, prosecutors said. At least 292 investors lost a total of at least $52 million in the scheme.
“For nearly three decades, Roberto Heckscher made his livelihood by stealing the hopes and dreams of the people he knew,†said U.S. Attorney Joseph P. Russoniello.
Heckscher’s sentence of 20 years for mail fraud “should send a strong message to everyone” that “preying on the trust of hardworking people for personal gain will land you in prison,” Russoniello said.
But Heckscher almost did not live to see the long-running scheme exposed in the plain light of day. That’s because he tried unsuccessfully to kill himself in June 2009 by overdosing on sleeping pills.
U.S. District Court Judge Susan Illston handed down the sentence. Heckscher, who owned Irving Bookkeeping & Taxes, was charged criminally and pleaded guilty in October 2009, about four months after he tried to take his own life.
Patricia Morgen, meanwhile, was sentenced to 15 years and eight months in prison after admitting she created a real-estate Ponzi scheme that solicited investors for Chicago Development and Planning. She also was ordered to pay more than $9 million in restitution. The case has more than 400 victims.
Investors were promised “substantial, guaranteed return profit payments,” prosecutors said.
In addition to the real-estate Ponzi scheme, Morgen also engaged in mortgage fraud, prosecutors said.
“Morgen and a co-defendant submitted fraudulent loan applications to acquire more than 20 properties, most of which were occupied, rent-free, by Chicago Development and Planning employees, including Morgen herself,” prosecutors said.
Morgen, 63, initially fled to Mexico. She was indicted in November 2008. Although she later returned to the United States, Morgen hid from authorities.
She was arrested in Chicago in June 2009, after threatening to jump off a multistory building, prosecutors said. Her son, Shalom Gibson, was indicted in Nevada for destroying evidence in the case, and remains at large.
U.S. District Judge Charles R. Breyer sentenced Morgen, who pleaded guilty in December 2009 to wire fraud, mail fraud, and money-laundering. Breyer described Morgen as “a very dangerous person,†prosecutors said.
The sentence “underscores the severity and impact of this sort of crime on our entire community,†said Stephanie Douglas, FBI special agent in charge.
“Ms. Morgen betrayed the trust of hundreds of investors, injected bad debt into the economy, and fled the country when faced with the prospect of being held accountable for her actions,” Douglas said.
Greedsters running investment-fraud schemes have plenty to worry about, said an IRS criminal investigator.
“Your greed will not go undetected and unpunished,†said Scott O’Briant, special agent in charge of the IRS-Criminal Investigation unit.
In recent weeks, at least three suicide attempts by Ponzi schemers have been outlined in federal cases.
UPDATED 8:38 P.M. EDT (U.S.A.) Recent Ponzi schemes and cases of investment fraud have cost Utah residents an estimated $1.4 billion, the FBI said today.
About 370 investigative “subjects” — defined as “potential perpetrators” in current cases — have been identified, and the agency and its law-enforcement partners have embarked on a public awareness and education campaign aimed at keeping Utahns safe from scammers.
About 4,400 people have been affected by investment-fraud schemes in the state, the FBI said. The education campaign includes billboards and public-service messages.
Under the umbrella of the Utah Securities Fraud Task Force, the FBI and its partners — including the SEC, the IRS, the U.S. Postal Inspection Service, the Utah Department of Commerce’s Division of Securities, the Utah County Attorney’s Office, the United States Attorney’s Office for the District of Utah and the Utah Attorney General’s Office — have produced a video that encourages viewers to be aware that schemers may target them based on their religious affiliation or interests.
“Affinity fraud is when someone you know — for example a church member, a coworker, or a friendd — takes advantage of you in an investment fraud scheme,” said James S. McTighe, FBI special agent in charge.
Con artists have been known to deliberately target members of the Church of Jesus Christ of Latter-Day Saints, the FBI said.
No group of believers — and no group of people who share a common bond — is immune to the cunning of expert con men, the FBI added.
An investor featured in the educational video said her experience of being duped can serve as a warning to others:
“He was a religious man, so he says, and he really, he really put on the ‘You know I am so guided by the spirit’, and ‘I know I am here to help you’, and ‘just trust me,’” the woman said.
Nothing about a Ponzi scheme is good news, warned the SEC’s top official in Salt Lake City.
“Ponzi schemes always collapse eventually and it’s typically because you run out of newer investors,” said Ken Israel.
How do fraudsters profit from a Ponzi scheme?
“The hallmark of the Ponzi scheme is that you use money from new investors to pay off your old investors and of course put a bunch in your pocket at the same time,” said Keith Woodwell, director of the Utah Division of Securities.
Officials warned the public to be on the look out for “signs of trouble”:
The investment offer is unsolicited.
It sounds too good to be true.
You’re promised big monthly or yearly returns with little or no risk.
You’re asked to keep the investment offer secret.
The promoter cannot answer specific questions or provide you with written financial documentation.
Slick websites and glossy literature can be deceiving, and also be suspicious of documentation that looks unprofessionally produced.
The promoter won’t give you time to research the investment.
You are told you are one of the lucky few allowed in on the investment.
You are required to bring in more investors.
The salesperson is not licensed or the product is not registered.
“Con artists who run Ponzi schemes often promise big financial returns and may tell potential investors they operate programs that can sound impressive,” the FBI said. The agency advised investors to do their homework and be skeptical of pitches for programs such as these:
Foreign Exchange Currency Trading.
Prime Bank Investment.
Commodities Investments.
Real Estate Investments.
“Research before you invest, the FBI warned, recommending these resources for Utah residents:
NOTE: This story has been republished at a URL that is different than its original URL. Although this post reflects a date of June 13, it is not the original publication date. Click here to read why.
EDITOR’S NOTE: This story originally was published June 30. The PP Blog later encountered a database problem, which caused the site to go down and resulted in the temporary loss of some data. The data now has been retrieved.
The FBI in Jacksonville has opened a probe into Kenneth “Wayne” McLeod, the Florida man who appears to have committed suicide last week when his alleged $34 million Ponzi scheme was exposed by the SEC.
In a statement on its website, the FBI confirmed an investigation was under way and asked victims and witnesses to come forward.
“Victims and other individuals with knowledge of FEBG are encouraged to call the FBI’s Jacksonville Field Office at (904) 248-7000 or to contact us via e-mail at Jacksonville@ic.fbi.gov and include “FEBG†in the e-mail subject line,” the agency said.
Individuals are asked to provide the following:
1. Their full name, address, and contact information.
2. Their point of contact at Federal Employee Benefits Group (FEBG), McLeod’s company, and how they learned of the company and the investment opportunity.
3. Their understanding of the terms of their investment(s).
4. The total dollar amount of their investment(s).
5. A description of any records they have in their possession that confirm their investment(s) — for example, statements, correspondence, etc.
“Clients of FEBG should be aware that not all of the firm’s investments are at risk,” the FBI said. “However, individuals who invested in the ‘FEBG Bond Fund’ or ‘FEBG Special Fund’ may be victims of investment fraud and are welcome to contact the FBI.”
McLeod was 48 when he died June 22. The SEC said his Jacksonville company was paid “up to†$15,000 by government agencies for seminars conducted by McLeod.
The SEC alleged last week that McLeod was operating a Ponzi scheme dating back to at least 1988. The scheme was alleged to have gathered “at least†$34 million.
McLeod’s company conducted seminars at various federal agencies, and also used the Federal Law Enforcement Training Center (FLETC) in Glynco, Ga., as a seminar outlet, according to the firm’s website.
FLETC is operated by the Department of Homeland Security and serves as an interagency law-enforcement training organization for 88 federal agencies.
If the company’s seminar schedule is accurate, FEBG completed a seminar for U.S. Immigration and Custom Enforcement (ICE) at the FLETC facility in Georgia June 8 — 14 days prior to McLeod’s death. Another ICE seminar was listed for July 2 at the same FLETC facility.
Seminars for the Federal Air Marshals Service (FAMS) were scheduled July 7-9 in Miami. Dual seminars were scheduled for July 21 — one at the Georgia FLETC facility for ICE, and another in San Antonio for “SSA – OIG,†which stands for Social Security Administration, Office of the Inspector General.
Seminar schedules dating back to 2006 appear on the site, featuring names such as the FBI, WIFLE (Women in Federal Law Enforcement), the DEA, the IRS, the U.S. Census Bureau, USSS (United States Secret Service), the U.S. Forest Service, USPS (United States Postal Service), ATF (the Bureau of Alcohol, Tobacco, Firearms and Explosives), NAADHS (National Association of African-Americans in the Department of Homeland Security, US Bankruptcy Court and US District Court, the Federal Public Defenders Office, the National Park Service, the US Fish & Wildlife Service, NABNA (National Association of Black Narcotics Agents), DCIS (Defense Criminal Investigative Service), NCIS (Naval Criminal Investigative Service) and others.
It was not immediately clear if members of each of the agencies or employee associations invested in the alleged scheme. Also unclear was the total exposure of investors to losses.
So, you want to use Google’s free Gmail service to pull off a scam? From this day forward you should not be confident that you’re not already caught. The FBI today announced that it set up a sting to nail two people who were trying to sell the quarterly earnings report of Walt Disney Co. before its scheduled release date by communicating with potential buyers through a Gmail account.
Arrested today on federal charges of wire fraud and conspiracy were Bonnie J. Hoxie and Yonnie Sebbag. Hoxie, 33, of Los Angeles, was a Disney administrative assistant and had access to the company’s confidential communications. Sebbag, 29, also of Los Angeles, is a friend of Hoxie’s and used the alias “Jonathan Cyrus.”
The scheme began when Sebbag and Hoxie sent anonymous letters through the U.S. mail to “multiple hedge funds and other investment companies, many of which were located in Manhattan, offering to sell the Inside Information for purposes of illegal insider trading,” authorities said.
FBI agents posing as hedge-fund traders interested in obtaining the information communicated with the scammers, authorities said.
In a separate fraud action by the SEC, the agency said the letters all had Los Angeles postmarks and stated (emphasis added):
Hi, I have access to Disney’s (DIS) quarterly earnings report before its release on 05/03/10 [sic]. I am willing to share this information for a fee that we can determine later. I am sorry but I can’t disclose my identity for confidentiality reasons but we can correspond by email if you would like to discuss it. My email is [Actual Gmail Address Email Deleted By PPBlog]. I count on your discretion as you can count on mine. Thank you and I look forward to talking to you.
At least 20 hedge funds, including funds based in several U.S. states and European countries, received the same or substantially the same letter, the SEC said.
The SEC’s filing suggests the scammers were made to believe that the actual undercover agents were worried about the scammers being agents.
“First of all, i am not a fed,” Sebbag allegedly wrote to the undercover agents. “I have no way to prove it at this point but i am not asking you to disclose your identity not i will disclose mine. It is up to you to determine if this is worth the risk as i did. I work for Disney, that is all i can tell you.â€
Sebbag, though, did not work for Disney. He lied about that and relied on the information provided by Hoxie, an actual Disney employee and Sebbag’s co-conspirator, authorities said.
On May 14, the FBI “paid” Sebbag $15,000 for the inside information after meeting him in New York to seal the deal.
“This investigation should serve as a warning, if you’re contemplating acquiring and profiteering from insider information, sometimes the person you’re trying to sell it to is really an undercover FBI agent,” said George Venizelos, acting assistant director-in-charge
of the New York FBI field office.
“What the case also shows is that the FBI’s vigilance is needed to police the small percentage of bad apples who can cause so much damage,” Venizelos said. “The majority behave like the dozens of hedge funds and investment companies that received Hoxie and Sebbag’s offers of insider Disney information: none took the bait, and almost all notified the FBI.”
The SEC’s director of enforcement said the case sends a powerful message.
“Hoxie and Sebbag stole Disney’s confidential pre-release earnings information and put it up for sale,” said Robert Khuzami. “Fortunately, multiple hedge funds reported the illicit scheme, and the SEC and criminal law enforcement authorities acted quickly to stop this brazen attempt to establish an ongoing insider trading business.”
Prosecuutors noted that, after Sebbag received the $15,000, he “further agreed that he would provide similar confidential information in the future in return for a thirty percent share of any profits from the insider-trading scheme.”
It is common for scammers to use free email addresses to cloak their identities.
Credit for the busts was given to the interagency Financial Fraud Enforcement Task Force, which President Obama created in November 2009.
Calling it an “unprecedented partnership” brought about by a financial-fraud problem that is national in scope, federal and state officials today announced the creation of the Virginia Financial and Securities Fraud Task Force.
The Virginia Task Force, which is part of President Obama’s interagency Financial Fraud Enforcement Task Force, brings together criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases in the nation and in Virginia.
“It has become all too clear that the complex financial crimes we confront are national in scope,†said U.S. Attorney Neil H. MacBride of the Eastern District of Virginia. “They require criminal and civil authorities across the country to utilize every tool at their disposal to ensure that the guilty are held accountable. The Eastern District of Virginia has the legal authority to bring cases here with national significance, regardless of where the fraud occurs.â€
Virginia’s Eastern District encompasses nearly 5 million residents in cities such as Alexandria, Richmond, Norfolk, Newport News and other communities.
Financial crime is jumping across local and state borders, a top SEC official said.
“Financial fraud schemes can be sophisticated, difficult to detect, and span multiple jurisdictions,†said Robert Khuzami, director of the SEC’s Division of Enforcement. “Opportunities to coordinate civil and criminal law enforcement efforts, such as those provided by this task force, are vital to combating financial fraud.â€
America’s economic future must be safeguarded, a veteran investigator said.
“Financial fraud is a threat to economic integrity and can harm individual investors,†said Stephen Obie, acting director of enforcement for the CFTC.
A centerpiece of the strategy is “to root out unscrupulous financial activity and protect market participants,†Obie said.
Virginia’s attorney general agreed.
“This partnership presents a tremendous opportunity to share information and resources among the experts in order to prosecute and deter fraud perpetrated against our citizens,†said Attorney General Ken Cuccinelli. “The efficiencies of state and federal cooperation and of law enforcement working together should not only prove more helpful in protecting consumers, but it should also save the taxpayers money.â€
Another part of the strategy is to create a force-multiplier to weed out fraudsters and send a message that they’ll get caught, a veteran FBI agent said.
“Large-scale financial crimes are on the rise and as such law enforcement agencies are working together to become force-multipliers in investigative and prosecutorial efforts,†said FBI Special Agent in Charge Michael Morehart. “The Richmond Division of the FBI welcomes the opportunity to work with our partners on this task force to demonstrate a commitment of aggressive investigative efforts and discourage criminal activity.â€
The top postal official in North Carolina’s largest city said he’s on board the effort.
“The Postal Inspection Service embraces the formation of the Virginia Financial and Securities Fraud Task Force,†said Postal Inspector in Charge Keith Fixel of the Charlotte Division. “This partnership with other state and federal agencies will enhance our ability to thoroughly investigate mail fraud and other financial related crimes that involve the nation’s mail system and ensure public trust in the mail.â€
Tax criminals and money-launderers also will be targeted, said the chief tax-fraud investigator in the District of Columbia.
“Financial-fraud crimes create huge losses of tax revenue,” said C. Andre’ Martin, special agent in charge of the IRS Criminal Investigations Division. “This type of fraud threatens the integrity of our tax system and erodes the financial health of our communities. IRS-Criminal Investigation is proud to be part of a formidable law enforcement team that is focused on investigating these fraud schemes and we will continue our efforts to investigate the tax-evasion and money-laundering aspects of these types of crimes.”
State securities regulators have a key role on the Task Force.
“The State Corporation Commission [SCC] looks forward to working with our state and federal partners to enhance our ability to enforce the provisions of Virginia law governing the financial services industry, assist investors who have lost their money, and enhance the integrity of markets by targeting and eliminating financial and securities fraud,†said Philip R. “Duke†de Haas, SCC deputy general counsel—Financial Services.
Officials said the Task Force will build on successes such as the prosecution of Edward Okun, sentenced to 100 years in prison for a $132 million fraud scheme.
In cases in which it is appropriate for civil regulators to share information with criminal investigators, such information will be shared, officials said.
The task force “is focused on facilitating the exchange of information on specific investigations,” officials said. “The independent legal responsibilities of each task member may limit the ability to share information; however, the task force members are committed to conduct parallel investigations and share as much information as they are allowed so every member may benefit from the different tools and resources each agency can provide.
President Obama formed the interagency Financial Fraud Task Force in November.
EDITOR’S NOTE: Here’s one for your Bubba Blue notebook on the various ways to have a Ponzi scheme, as opposed to shrimp — and this one actually wafts with the myth of food — in this case, chicken and burgers.
More than 200 investors have been fleeced in a bizarre scheme in which an Ohio man persuaded them to turn over $7 million to build franchise restaurants for Pioneer Chicken and McDonald’s, the FBI said.
The trouble with David J. Harriett’s scheme, the FBI said, was that he “knew that neither he nor his company had any contracts with McDonald’s or Pioneer Chicken, let alone franchise construction contracts.”
Harriett, 60, of Warren, Ohio, now has been charged with mail fraud. Prosecutors said the scheme operated for at least 14 years through Harriett’s company, DJ Harriett Inc.
“Fraud in the market place is a significant problem that negatively affects consumer confidence and, ultimately, economic recovery,†said U.S. Attorney Steven M. Dettelbach of the Northern District of Ohio. “For these reasons, we will continue to vigorously prosecute Ponzi schemes.â€
The case was investigated by the interagency Financial Fraud Enforcement Task Force established by President Obama in November 2009.
Harriett told investors he was a “project manager” for Pioneer and McDonald’s and built restaurants in Northeast Ohio, New York, Indiana, Pennsylvania and Florida, the FBI said.
Investors were given promissory notes that purportedly “guaranteed the return of their investment, plus significant interest,’ the FBI said.
It was all a fantasy, the agency said.
“Harriet sent numerous letters through the mail to investors which falsely represented the success and growth of the company as well as the existence and success of franchise construction contracts,” the FBI said.
Ponzi payments were made using money from some investors to pay other investors in a shell game, the FBI said.
Harriett “knew the investor money was not being put to any legitimate use, but rather was being used to make Ponzi payments to other investors, to operate DJ Harriett and for his own purposes and personal use,” the agency said.
Part of the purported INetGlobal training material on how to transfer money to a debit card. (Red bar added to screen shot by PP Blog to block account number.)
Training material purportedly produced in November 2009 and published online shows prospects of INetGlobal how to transfer money from the company to a reloadable debit card. The presentation reveals that INetGlobal was using the same debit-card firm that provided services for a Florida man implicated in October 2009 — just a month before the INetGlobal training material purportedly was produced — in an alleged international fraud scheme that gathered at least $22 million and made Ponzi payments to members via debit cards.
The training material is confusing in places, and the form in which it was published suggests that some INetGlobal members with Chinese names shared information to recruit Chinese prospects. At the same time, the training material and other information accessible at the same website suggests Chinese members also worked together to create instructional materials that showed other Chinese members and prospects how to offload their profits in cash at ATM machines and receive $300 sign-up bonuses that may not have been available to all INetGlobal members.
It is possible that a single member or group of members created the training material and the companion information. Whether the material, which does not purport to be hypothetical and appears to include no disclaimer language, used the names of real members was unclear. Also unclear is whether the approach had the approval of INetGlobal. What is clear is that the information was published openly online and purportedly reflects INetGlobal financial transactions that occurred among Chinese members in November 2009.
A “Contact” address on the website that published the information lists a street address in British Columbia, even though the domain itself lists a registration address in Mainland China. The British Columbia street address returns a page in Google search results that purports to lay out a conspiracy case against judges in Canada for issuing unfavorable rulings in what appears to be a matter unrelated to INetGlobal.
Just two months earlier, in September 2009, some Clickbank vendors were complaining that links to their businesses were being placed in INetGlobal’s advertising rotator without their knowledge. The Clickbank vendors also complained that INetGlobal was passing along bandwidth costs to them and that their businesses were experiencing a surge in unproductive traffic from China.
The author of the training document on debit cards was listed as Annie Zhang, according to the “Properties” of the document, which was published in PDF format.
The training document was published on a website whose domain-registration address was listed as “Xian, Shanxi . . . China.” The domain on which the information was published was registered to Jun Zhang. The website encourages prospects to submit their email address and wait to receive a return email “to get a referrer ID and referrer name that you will need in the registration process.”
Visitors to the website registered in China are told that, by registering for INetGlobal in this fashion, they can “Make Free Fast Money $300 Right Now.” The site instructs viewers to purchase a “$2000 Executive Business Package,” provide proof of the purchase by return email and wait to receive their bonus.
“We will send $300 free fast money to your V-Cash account,” the site tells viewers. “If you prefer, we can send $300 to your PayPal account too!”
Another URL at the same domain instructs prospects on how to register for a Clickbank account to promote products through INetGlobal. The instructions are available in multiple languages, including English, Chinese and Japanese.
The debit card featured in the PDF training material on the website registered in China is known as the “Exclusive One” card and is issued by Anres Technologies Corp. of Las Vegas. The Exclusive One card is pictured in the INetGlobal training material, and Anres’ name is referenced in court filings by the U.S. Secret Service in the INetGlobal case.
Anres’ name also is referenced by the SEC in a case filed last year in Florida against David F. Merrick, Traders International Return Network (TIRN), MS Inc., GTT Services Inc., MDD Consulting Inc. and Go ! Tourism Inc. Merrick and the companies were accused of running a Florida-based Ponzi scheme that used debit cards and claimed a presence in Panama.
Among the claims in the SEC case was that “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,†according to the SEC.
The PP Blog wrote about the TIRN case on Oct. 15, 2009. 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. It added that about $8.8 million was placed on debit cards to make Ponzi payments to members..
Although TIRN was not an autosurf, debit cards have become increasingly popular in the autosurf universe. The TIRN case demonstrated that alleged fraudsters were relying on debit cards to pull off international financial schemes.
Anres was not named a defendant in either the TIRN case or the emerging INetGlobal case. The company has not been accused of wrongdoing.
In recent months, the FBI has expressed public concerns that criminal organizations were turning to preloaded debit cards to launder money and that users were taking advantage of a “shadow” banking system.
Card Highlighted In Instructional PDF For INetGlobal
The purported INetGlobal training material appears in a PDF that includes screen shots. The person (or persons) who assembled the material appear to have Chinese names, and the English-language material walks prospects through the process of converting electronic credits to cash that can be loaded onto an Exclusive One debit card and withdrawn at ATMs.
In February, the Secret Service said it believed INetGlobal was targeting Chinese members in an international Ponzi scheme. The purported training material lists IP addresses in the United States and Canada in a manner that suggests Chinese members in both countries were working together to train other Chinese members how to offload profits onto debit cards and also how to transfer money using INetGlobal’s internal system from one Chinese member to another.
Among the assertions against INetGlobal by the U.S. Secret Service was that the company was engaging in wire fraud and money laundering. The IRS now has entered the case, which suggests that the government also suspects tax crimes.
Material Suggests Account-Sharing And Cross-Border Planning
The second page of the 18-page PDF purportedly shows the back office of an INetGlobal member who appears to have a Chinese name. This page lists the member’s name as “Dong,” lists a five-digit INetGlobal member number, a six-digit V-Cash account number and an IP address that comes back to Minneapolis. The page notes that automatic repurchasing of additional “adpacs” was enabled and set for 50 percent. Viewers were prompted to click on a tab labeled “V-Services.” In the next step, viewers were prompted to click on a graphic labeled “V-Cash Online Payment Services.”
This page forwarded to another prompt to click on a V-Cash logo, which led to a login screen that prompted members to enter a user ID and a password. A “Welcome” screen followed, and members were instructed to click on a tab that prompted them to go to the “Member Center.”
Once inside the Member Center, members were prompted to click on a tab labeled “V-Cash.” This led to a screen that prompted them to enter a password for their V-Cash accounts. The next screen shot showed that V-cash was logging members’ IP numbers; the IP number logged in this screen shot came back to Toronto. Why the shot displayed a Toronto IP when the earlier shot displayed a Minneapolis IP was unclear.
The Exclusive One Card, as pictured inside the training material.
The next screen shot prompted members to click on a tab labeled “balance.” This screen noted a “Currency balance” of more than $3,038 in the account. The next screen was confusing because the currency balance had been lowered by $200. Why the balance was lowered was not made clear in the presentation.
In the next screen shot, the presentation provided the initial instructions on how to transfer money to the Exclusive One card, which is pictured in the document. This screen shot also purported to show that members could transfer money from their V-Cash accounts to other V-Cash accounts from within the company’s internal system. The presentation prompted viewers to select the option to transfer money to the Exclusive One card and press “Continue.”
Thereafter, the presentation showed a purported transfer of $2,000 to the Exclusive One card. The presentation noted a $30 fee incurred when making the transfer. The fee rate for the transfer service was described as 1.5 percent. The screen shot noted that the total amount transferred, including the $30 fee, was $2,030. Viewers were prompted to “Click to Confirm” the transfer.
Part of purported INetGlobal traning material. (Red bars added to screen shot by PP Blog to block account numbers.)
One of the screen shots that followed purported to show a “History” of transfers to and from the account. One of the transfers showed a purported transfer “from” Annie Zhang to an INetGlobal member in the amount of $3,000. It was dated Nov. 3, 2009.
A person named Annie Zhang purportedly is one of INetGlobal’s top recruiters. Some promos for the firm have asserted Zhang was making $100,000 a month as an affiliate of INetGlobal.
Parts of the PDF presentation are confusing. For example, the member’s name that appears on the second page of the presentation does not agree with the member’s name that appears on Page 6 — even though the INetGlobal member account number appears to be the same, as does the V-Cash account number.
On Page 2, the member’s name is listed as “Dong” with an IP number that comes back to Minneapolis. On Page 6, however, the screen welcomes a member named “Lei.” An IP shown on Page 9 comes back to Toronto — not Minneapolis.
In the document’s published form, both Dong and Lei appear to have the same 5-digit INetGlobal number and the same six-digit V-Cash account number. Why two purported INetGlobal members would have the same account numbers is unclear.
INetGlobal Now Has Links To Three Ponzi Cases
In February and March court filings, the U.S. Secret Service linked INetGlobal to the alleged AdSurfDaily Ponzi scheme, alleging that an undercover agent was introduced to INetGlobal by an ASD member. The Secret Service brought the Ponzi case against ASD in August 2008.
The appearance of the Exclusive One card in the purported INetGlobal training material links INetGlobal to a second Ponzi court scrape: the SEC’s case against the alleged David Merrick/TIRN Ponzi scheme, which appears to have used the same debit card as INetGlobal to pay members. The CFTC also filed allegations against TIRN, and the U.S. Attorney for the Middle District of Florida also is investigating TIRN.
Separately, INetGlobal operator Steve Renner was linked to a Ponzi scheme known as Learn Waterhouse in 2004. A company Renner operates — Cash Cards International (CCI) — provided payment-processing services for the Learn Waterhouse scheme, and Renner himself purportedly was an investor in the scheme, according to court filings.
The document recounts the history of the case, including astonishing allegations that Learn Waterhouse told investors that it “had invested $2 billion in a gold mine in Mexico, and [was] working on a billion-dollar Columbus-era ‘find’ on the bottom of the ocean.”
Renner was alleged to have provided payment-processing services for Learn Waterhouse through CCI and to have spent investors’ money on personal purchases.
Randall Treadwell, the ringleader of the Learn Waterhouse scheme, “often claimed that he had a God-given ability to make money, but in hindsight it appears that his talents lay in extracting funds from duped investors,” according to court filings.
Indeed, according to filings in the Learn Waterhouse case, the “purported investments
did not exist at all.
“By the time the defendants’ far-reaching Ponzi scheme collapsed, more than 1,700 investors throughout the United States had lost their investments. At trial, the defendants produced no evidence to suggest that any investment profit was generated by their companies.”
Losses in the Learn Waterhouse case totaled at least $44 million.
Attorney General Eric Holder briefs reporters on the Times Square bomb plot.
A naturalized U.S. citizen born in Pakistan was arrested at JFK Airport in New York late last night after he was removed from a flight bound for Dubai, authorities said.
U.S. Attorney General Eric Holder announced the arrest of Faisal Shahzad in an extraordinary news conference in the middle of the night. President Obama was informed about the arrest at 12:05 a.m., the White House said.
The arrest was made by the FBI and officers of the New York Police Department, authorities said.
Shahzad is suspected of packing a Nissan Pathfinder purchased through craigslist from a seller in Connecticut with propane tanks, fertilizer, firecrackers and gasoline to make an alarm-clock triggered bomb that would detonate in Times Square when it was filled with people.
The New York Daily News reported that the craigslist transaction was an all-cash deal.
A disposable cell phone also was part of the planned terror attack. Investigators were able to link the cell phone to Shahzad, according to reports.
Here is Holder’s early statement on Shahzad’s arrest (italics added):
Earlier this evening, Faisal Shahzad was arrested in connection with the attempted car bombing in New York on Saturday. Mr. Shahzad, an American citizen, was taken into custody at JFK Airport in New York as he attempted to board a flight to Dubai.
Since this plot was first uncovered on Saturday night, the FBI, prosecutors and intelligence lawyers in the National Security Division of the Justice Department and the U.S. Attorneys Offices in Manhattan and Connecticut, along with the NYPD have worked night and day to find out who was responsible for what would have been a deadly attack had it been successful. Over the course of the day today, we have gathered significant additional evidence that led to tonight’s arrest, which was made by agents from Department of Homeland Security’s Customs and Border Protection.
This investigation is ongoing, as are our attempts to gather useful intelligence, and we continue to pursue a number of leads. But it’s clear that the intent behind this terrorist act was to kill Americans.Â
FBI agents are working with their state and local counterparts in New York, Connecticut and other jurisdictions to gather evidence and intelligence related to this case. We are also coordinating with other members of the President’s national security team to ensure we use every resource available to the United States to bring anyone responsible to justice.
We continue to gather leads in this investigation, and it’s important that the American people remain vigilant. The vehicle in Times Square was first noticed on Saturday by a citizen who reported it to authorities, and, as always, any American who notices suspicious activity should report it to the appropriate law enforcement agencies.
This investigation is ongoing, it is multi-faceted, and it is aggressive. As we move forward, we will focus on not just holding those responsible for it accountable, but also on obtaining any intelligence about terrorist organizations overseas.
Because of the fast-moving nature of this investigation, I am not able to make any further information public at this time. But the American people should know that we are deploying every resource available, and we will not rest until we have brought everyone responsible to justice.
Here is a special statement issued by U.S. Attorney Preet Bharara of the Southern District of New York, FBI Special Agent-in-Charge George Venizelos, and New York City Police Commissioner Raymond W. Kelly (italics added):
At approximately 11:45 p.m., Faisal Shahzad was taken into custody. Agents of the Federal Bureau of Investigation and detectives of the New York City Police Department arrested Shahzad for allegedly driving a car bomb into Times Square on the evening of May 1, 2010.
Shahzad, a naturalized U.S. citizen born in Pakistan, was taken into custody at John F. Kennedy International Airport after he was identified by the Department of Homeland Security’s U.S. Customs and Border Protection while attempting to take a flight to Dubai.
The defendant will appear in Manhattan federal court (500 Pearl Street, 5th Floor, New York, N.Y.) tomorrow [meaning today] at a currently undetermined time to be presented on formal charges. No further details are available at this time.
We applaud the collective work of the New York Joint Terrorism Task Force and the prosecutors and investigators in the Southern District of New York, who have worked around-the-clock for the last two days in this investigation. We would also like to recognize the diligent work of the Customs and Border Protection agents and the U.S. Attorney’s Office for the District of Connecticut.
EDITORIAL ASIDE: The PP Blog writes about Ponzi schemes, including “autosurf” Ponzi schemes and their close cousins: HYIP frauds.
These schemes are pushed by serial promoters and routinely defended as legitimate businesses, despite the fact that the purveyors do not have a clue about the motives of the operators or the identities of their autosurfing or HYIP neighbors.
Tremendous sums of money pass through the schemes, which mostly operate in the shadows and rely heavily on offshore-payment processors, debit cards and what the FBI describes as a “shadow” banking system.
Someone tried to detonate a bomb in New York City Saturday to kill people and destroy property. That the bomb did not “go off” is not the point.
The point is that the bomb could have gone off and that the source of funding for the bomb-making materials is unknown. The money has to come from somewhere. From the terrorist’s point of view, the less traceable the source, the better.
If you are participating in an autosurf or an HYIP, it is possible you are funding terrorism. This is the only reason you should need to say no — even if you know some of the people involved in the autosurf/HYIP, even if it “pays,” even if the payments you’ve received have improved your quality of life, even if the payments you’ve received are the only things that are keeping the wolf from your door. The purveyors want to play on your greed and/or desperation.
What will it take to get you to stop promoting these filthy, miserable, dangerous businesses that operate in the shadows? A successful detonation? (And what will you think of next to defend your downline commissions in these frauds if people are blown to bits?)
This Blog is well aware that many autosurf/HYIP participants want to feel “good” about what they are doing. We are equally well aware that some autosurf/HYIP participants believe that shutting down such schemes is an abuse of government power and some perceived affront to the Constitution.
Our view is that participants should not feel “good” at any time and that the purported abuse of government power in the autosurf/HYIP context is a red herring and, in some cases, code to recruit people who’d prefer the government not regulate any form of commerce.
This Blog has not arrived at its view in a vacuum. It has assessed all the contrarian points of view and views them as arguments that should be accorded no weight at all. In many cases, the arguments have been revealed to be the ravings of people so out of touch with the realities of the various cases — and often so out of touch with reality itself — that they’d advance any argument if they deemed it as helpful to their “cause.”
Former INetGlobal CEO Steven Keough now has some company on the list of people alleged to have tried to extort money from the Steve Renner family of companies.
Renner went to court yesterday in Minnesota to seek a restraining order prohibiting Donald Allen from harassing him. The order was granted after Renner asserted Allen tried to extort $100,000 and had engaged in a pattern of abusive behavior, including raising “havoc” with employees, threatening “to destroy him and his family,” posting libelous and defamatory material on the Internet and engaging in verbal harassment.
Allen also was accused to taking pictures of Renner’s offices and employees without their consent.
“[Allen] has attempted to extort $100,000 from Petitioner’s businesses [and] if not paid will go to the FBI and Secret Service,” Renner asserted.
A judge ordered Allen not to harass Renner, not to have any contact with Renner and to stay away from Renner’s home. The judge also ordered Allen to stay one “city block” away “in all directions” from Renner’s businesses in Minneapolis.
Should Allen violate the order, he could be arrested, jailed for up to 90 days and fined up to $1,000, according to the order. Subsequent violations of the order could result in stiffer measures, including the filing of felony charges that could land Allen in jail for for up to 10 years and force him to pay a fine of up to $20,000.
Allen is referred to in court papers as a previous employee of a Renner company.
In a story published yesterday on the PP Blog, Allen said he was cooperating with the U.S. Secret Service “100 percent” in a probe of Renner’s business practices. The Secret Service said in February that it believed Renner was operating a Ponzi scheme and engaging in wire fraud and money laundering.
Renner has not been charged with a crime and denies wrongdoing. Allen was vice president at V-Newswire, one of the “V” entities in the Renner family of companies. The Secret Service said in February that Allen had given confusing information to a customer of INetGlobal, another Renner entity.
Allen denies wrongdoing, and now says he has met with the Secret Service twice and is cooperating fully in the Ponzi probe. The first meeting with the Secret Service occurred Friday, after agents showed up unannounced at his home, Allen said yesterday.
In March, Renner accused Steven Keough, the former CEO of INetGlobal, of trying to extort $500,000 from the company. Keough may be the government’s star witness if charges are filed.
“This is the same move they tried on Steve Keough,” Allen said this morning. “I never tried to extort anything.”
The acts of Nevin Shapiro — a Florida man arrested in New Jersey yesterday on charges of orchestrating a $900 million Ponzi scheme — represent a “perfect example of greed run amok,” an FBI agent said.
Separately, a grand jury in Colorado has charged two men under the state’s organized-crime statute with operating an $18 million securities-fraud scheme that affected at least 270 investors.
Arrested in Colorado were Bela Geczy, 57, of Longmont, and Michael Brian Kass, 48, of Boulder. Authorities said they orchestrated a massive Ponzi scheme involving domestic and offshore business opportunities.
The court docket in the cases against Geczy and Kass shows two dozen felony counts, including violations of the Colorado Organized Crime Control Act, conspiracy to commit securities fraud, securities fraud by fraud or deceit and securities fraud by untrue statement or omission.
Like Florida, Minnesota, Washington, New York, South Carolina, California, Michigan and other states, Colorado has been plagued by Ponzi and fraud schemes. No fewer than five major Ponzi or financial fraud probes are under way in Colorado. Records suggest the highly complex frauds involved more than $100 million.
In New York alone this week, two major financial-fraud cases were filed. The schemes involved in the neighborhood of $101.5 million, according to court filings. Meanwhile, U.S. Attorney Jenny A. Durkan of the Western District of Washington outlined five major Ponzi probes in various states of completion in the Greater Seattle area. These cases involve tens of millions of dollars, according to records.
At the same time, the main page of the website of U.S. Attorney B. Todd Jones of the District of Minnesota features links to three major Ponzi cases in various stages of investigation. One of the cases is the Tom Petters’ Ponzi case. Petters was sentenced this month to 50 years in federal prison for presiding over a $3.65 billion fraud.
Jones’ website also includes information on a Ponzi case involving at least $190 million. Trevor Cook pleaded guilty to mail fraud and tax evasion in the fraud earlier this month, and is awaiting sentencing. The website also includes information on the investigation into the business practices of Steve Renner in an alleged autosurf Ponzi scheme case involving tens of millions of dollars.
Florida/New Jersey Cases Against Nevin Shapiro
Shapiro, 41, was a prominent Miami Beach businessman. Authorities now say he was operating a Ponzi scheme since 2005 that rivaled the $1.2 billion Scott Rothstein scheme in dollar volume. Rothstein pleaded guilty in his massive fraud case earlier this year.
Like Rothstein, Shapiro liked to chum around with sports figures and live large, according to records.
Shapiro used “stolen funds to purchase a pair of diamond-studded handcuffs, which he gave as a gift to a prominent professional athlete,” prosecutors said. He also spent more than $400,000 for floor seats to watch the Miami Heat, a team in the NBA.
At the same time, prosecutors said, he spent about $26,000 per month on mortgage payments on his $5.3 million residence in Miami Beach, while directing about $7,250 per month for payments on a $1.5 million dollar Riviera yacht and roughly $4,700 per month for the lease of a Mercedes-Benz.
Viewed on a yearly basis, the payments on the residence, yacht and car alone consumed more than $450,000 — and yet Shapiro’s purported business produced no sales.
A veteran FBI agent said the case was about naked greed.
“This case is a perfect example of greed run amok,” said FBI Special Agent in Charge Michael B. Ward. “In pursuit of wealth and a lifestyle he was otherwise unable to attain, Mr. Shapiro allegedly preyed upon unsuspecting investors looking to secure a safe place to maximize their investments. Instead, their futures have been irrevocably damaged.”
Although purportedly in the business of buying groceries in a lower-priced market and selling them wholesale in markets in which they would fetch higher prices, Shapiro’s company largely was a mirage that conducted virtually no legitimate business after 2004 and sustained itself by paying investors with the money of other investors, prosecutors said.
“Nevin Shapiro is charged with tricking investors with false documents and false promises,” said U.S. Attorney Paul J. Fishman of the District of New Jersey. “He spent tens of millions of their money on gambling debts, lavish gifts and a luxury lifestyle built on a house of cards.”
Authorities gave credit for the Shapiro criminal collar and an accompanying civil action by the SEC to the combined investigative efforts of the Financial Fraud Enforcement Task Force. President Obama formed the Task Force in November 2009.
Shapiro, prosecutors said, diverted at least $38 million in investors’ funds for his own use, and investors now are out tens of millions of dollars.
A girlfriend received goods totaling $116,000 from a charge card, which Shapiro used to rack up $640,000 in personal purchases, according to court records.
The IRS is part of the investigative team in the Shapiro case.
“Scammers, con artists and swindlers will do and say anything to get you to buy into their scheme,” stated William P. Offord, Special Agent in Charge, IRS-Criminal Investigation.
Like his investigative colleagues in other Ponzi cases, Offord reuttered the age-old adage:
“Remember the old cliche,” he said. “If it’s too good to be true, it probably is.’”
A 77-year-old man who fleeced clients by telling them he brokered contracts for a Japanese company that provided uniforms for the Winter Olympics, the Pan American games and the government has been ordered to pay $29 million in a civil case brought by the SEC.
