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  • Senior Citizen Guilty In Michigan Ponzi Scheme; Feds Say Richard Taft Johnson Sold ‘Charitable’ Program To Fellow Seniors, Duping Them Into Ruin

    U.S. Attorney Terrence Berg
    U.S. Attorney Terrence Berg

    Both state and federal prosecutors in Michigan have been attacking Ponzi schemers and affinity fraudsters. Yesterday the office of Michigan Attorney General Mike Cox charged three men with racketeering for their roles in an alleged time-share Ponzi scheme targeted at senior citizens.

    In a separate Michigan case, federal prosecutors have announced the guilty plea of Richard Taft Johnson, 67, of Orchard Lake. Johnson is a member of an ever-lengthening list of senior citizens implicated in Ponzi schemes. The list includes names such as Bernard Madoff, 71, (New York/Florida); Richard Piccoli, 83, (New York); Andy Bowdoin, 75, (Florida); Julia Ann Schmidt, 68, (Texas); Judith Zabalaoui, 71, (Louisiana); Arthur Nadel, 77, (Florida/NewYork); Ronald Keith Owens, 73, (Texas); James Blackman Roberts, 71, (Arkansas); and Larry Atkins, 65, (North Dakota).

    bowdoinmadoffnadel

    Johnson pleaded guilty to mail fraud for devising a Ponzi scheme known as the “American Charitable Program,” which led investors to believe “investments would benefit
    charitable organizations such as universities or other educational institutions,” prosecutors said.

    But the purported charitable program was a fraud that promised returns of 10 percent per quarter — and the fraud was magnified by bogus “periodic statements showing the purported increasing value of their investment accounts,” prosecutors said.

    “This was an insidious Ponzi scheme because investors were told it was a safe, secure investment that would ultimately help charities,” said U.S. Attorney Terrence Berg of the Eastern District of Michigan.

    “Like most Ponzi schemes, it went undetected for a number of years, allowing some investors to reap a profit on their investments, and encouraging others to invest,” Berg said.

    He added that Ponzi perpetrators often recruit others to spread the word about exciting investment programs, which later prove to be Ponzi schemes that cause embarrassment and ill-will among family and friends.

    “It can be very disturbing for a victim to discover that he has innocently caused friends or relatives financial ruin,” Berg said. “In the end, a number of the [Johnson] investors, some quite elderly, lost everything because their monies were used to keep the scheme going until the inevitable collapse.”

    The Johnson probe is ongoing, despite the plea. “In the course of this investigation, we will be attempting to help ascertain what, if anything, the victims’ might be able to salvage of their financial worth,” Berg said.

    Assisting in the probe are the FBI, the State of Michigan Office of Financial Insurance Regulation and the State of Florida Division of Insurance Fraud. Berg said the agencies have “worked very hard to investigate and compile the information about Mr. Johnson’s fraudulent activities.”

    Johnson faces up to 20 years in prison and a fine of up to $250,000. He conducted business in Bloomfield Hills, Mich., as Investor Planning Services.

    “As in all Ponzi schemes, Mr. Johnson would pay out earlier investors, or investors who demanded a return of their money, with newer investors’ monies,” prosecutors said. “But he also diverted significant funds to his personal use.”

    The Johnson scheme began to collapse in 2008.

  • EDITORIAL: Think ‘Offshore’ Means ‘Shelter’ From The SEC Or The FBI Or The IRS? Don’t Tell That To John And Marian Morgan — Or Jeffrey Lane Mowen

    You’ve seen the ads or heard the pitches trying to persuade you to put money in “offshore” ventures such as the AdViewGlobal, AdGateWorld and MegaLido autosurfs. You’ve been told they were safe. You’ve been told the people who run them are out of the reach of U.S. securities regulators and law-enforcement agencies.

    And you’ve been told your investment, which the surf purveyors call an “advertising” purchase, provides shelter from the FTC, the SEC and state attorneys general.

    Don’t tell John and Marian Morgan of Florida that “offshore” means “safe” and that “offshore” provides a blanket of protection from law enforcement.

    And don’t tell it to Jeffrey Lane Mowen, either.

    John and Marian Morgan were charged by the SEC in June with running a prime-bank scheme. They skipped the country rather than appear for a hearing in July, first going to Europe and later to Sri Lanka.

    Guess where they are now?

    John and Marian Morgan are in separate cells in a U.S. jail. In addition to the SEC’s civil charges, they now face criminal charges after being indicted by a federal grand jury. They did not outmaneuver the SEC. They did not outmaneuver the U.S. Marshals Service. They did not outmaneuver the FBI. They did not outmaneuver the IRS. They did not outmaneuver Interpol.

    Nor did John and Marian Morgan outmaneuver the government of Sri Lanka. They were arrested and jailed on the island, which is situated about 20 miles off the southern coast of India, in August. Sri Lanka deported them, and the United States brought them home earlier this month.

    morgansrilankaIt’s big news in Sarasota — and it should be big news among the autosurf or forex/HYIP schemers who are telling you the United States is powerless to act against “offshore” enterprises or people inclined to start a get-rich-quick program and then scurry offshore one step ahead of what surf promoters derisively describe as the “sheriff” or “Big Brother.”

    Do yourself a favor and read this story in the Sarasota Herald Tribune. Longtime opponents of the autosurf “industry” — in this upside-down world, the opponents are called “naysayers” and the Ponzi advocates are called “leaders” — will recognize the utter absurdity.

    Sadly, though, most of the “leaders” likely will be too busy “leading ” the troops to even bigger and better catastrophes to take the time to read it.

    Or they simply won’t care because leading people into catastrophes pays too well.

    If you missed it earlier, take the time to read this story on how the FBI brought home Jeffrey Lane Mowen from Panama to face charges in a Utah Ponzi case that now has morphed into murder-for-hire investigation.

  • Raymond Frank Joseph Convicted On All 36 Counts In Michigan Ponzi Scheme; Federal Judge Revokes Bond

    ponziblotterFederal prosecutors have scored another dramatic win in a Ponzi scheme case.

    Raymond Frank Joseph, 55, of Bloomfield Hills, Mich., was convicted of three counts of wire fraud, nine counts of interstate transportation of stolen money or property and 24 counts of conducting monetary transactions in criminally derived property.

    Judge Gerald E. Rosen immediately revoked Joseph’s bond after a federal jury returned guilty verdicts on all 36 counts. Joseph was ordered detained, pending sentencing next year.

    “Investors or lenders should be wary of unreasonably high promises of massive profits,” said U.S. Attorney Terrence Berg of the Eastern District of Michigan. “Ponzi schemes prey on the expectations of big returns, and use the next person’s money to pay previous investors. In this case, the jury saw through the defendant’s fraudulent scheme.”

    Prosecutors said Joseph fleeced $5 million in the scheme.

    “Joseph solicited loans of money from several individuals to invest in a number of business ventures,” prosecutors said. “To induce the lenders to give him their money, Joseph fraudulently promised the victims a specific date of repayment with interest resulting from his claimed business investment of the money.”

    But Joseph did not invest the the money, prosecutors said. Instead, he used it to make payments to earlier investors and to pay his personal expenses such as credit card bills, household expenditures and vehicle costs.

    A veteran IRS criminal investigator said investors have a duty to be cautious.

    “Although the economics of Ponzi schemes are simple, today’s swindlers artfully conceal their greed with sophisticated marketing and numerous misrepresentations,” said Maurice Aouate, special-agent-in-charge of the Internal Revenue Service Criminal Investigation Division.

    “Beware, for if is sounds too good to be true, it probably is,” Aouate said.

    The FBI also had a leading role in the Joseph probe.

    “Investors generally understand that there’s a correlation between risk and reward, and Ponzi scheme cases like this one reinforce the fact that investing money is inherently risky,” said Andrew Arena, FBI special-agent-in-charge.

    “Before handing hard-earned money to investors, individuals should know who they are dealing with and how their money will be invested,” Arena said. “In light of recent large scale Ponzi schemes, public awareness is at the forefront. The FBI and its partners will aggressively investigate people who swindle money from others, whether it involves hundreds of thousands or millions of dollars.”

    Joseph potentially faces decades in prison. Sentencing is scheduled for March.

  • BREAKING NEWS: FBI Tells Senate Judiciary Committee It Is Probing 314 HYIP Schemes Only Months After ASD Members Asked Panel To Probe Prosecutors

    Kevin L. Perkins of the FBI tells the Senate Judiciary Committee that the agency is investigating 1,500 cases of securities fraud and that 314 of them involve HYIP fraud in various forms.
    Kevin L. Perkins of the FBI tells the Senate Judiciary Committee that the agency is investigating 1,500 cases of securities fraud and that 314 of them involve HYIP fraud in various forms.

    And to think that only months ago — in February 2009 — various members of AdSurfDaily wrote to the Senate Judiciary Committee trying to elicit support for Ponzi schemes. The letter-writing campaign was spearheaded by “Professor” Patrick Moriarty and pushed by the Pro-AdSurfDaily Surf’s Up forum.

    But now the FBI has told the committee, led by Sen. Patrick Leahy, D.-Vermont, that it has registered a 105 percent increase in HYIP fraud and opened 314 investigations in 2009, up from 154 in 2008.

    “[M]any [had] losses exceeding $100 million,” said Kevin L. Perkins, assistant director of the FBI’s Criminal Investigations Division.

    Perkins said the probes cover the gamut — from the massive Ponzi scheme fraud of Bernard Madoff to smaller variations of the Ponzi scheme.

    “These schemes use money collected from new victims, rather than profits from an underlying business venture, to pay the high rates of return promised to earlier investors,” Perkins told the Committee.  “This arrangement gives investors the impression there is a legitimate, money-making enterprise behind the fraudster’s story; but in reality, unwitting investors are the only source of funding.”

    During his testimony, Perkins also referenced “prime-bank schemes” in which victims are told that “certain financial instruments such as notes, letters of credit, debentures, or guarantees have been issued by well-known institutions such as the World Bank, and offer a risk-free opportunity with high rates of return.”

    In August 2008, in a forfeiture complaint against the assets of AdSurfDaily and Golden Panda Ad Builder, federal prosecutors revealed that Golden Panda President Clarence Busby had been sued civilly by the SEC in the 1990s after he was implicated in three prime-bank schemes. At the same time, prosecutors revealed ASD President Andy Bowdoin had been arrested for felony securities fraud in Alabama during the same decade.

    Despite the Ponzi allegations against ASD and the histories of Bowdoin and Busby, Surf’s Up urged the Judiciary Committee to investigate the prosecutors who brought the forfeiture cases against ASD and Golden Panda in August 2008.

    “We each need to explain [to Leahy] how thousands of innocent Americans have suffered and continue to suffer because of these incredible and despicable acts” by prosecutors, Surf’s Up urged members.

    Law enforcement is investigating a stunning number of securities-fraud cases, the FBI revealed.

    “The FBI continues to aggressively investigate this criminal threat, and currently has more than 1,500 related securities fraud investigations,” Perkins said.

    Read about the Moriarty/Surf’s Up letter-writing campaign to the Senate Judiciary Committee.

  • U.S. Attorney: Rothstein Ponzi Money Went To Politicians, Charities; ‘High-Ranking’ Police Officers Received ‘Gratuities’

    ponziblotterIn a criminal information and news release dripping with the word “co-conspirators,” federal prosecutors, the FBI and the IRS said Ponzi proceeds were used to grease wheels in law enforcement and pollute the worlds of business and politics in South Florida.

    Former attorney Scott Rothstein of Fort Lauderdale was arrested for racketeering yesterday. He was arraigned, denied bail and jailed. Residents are waiting for other shoes to drop in what is shaping up to be a scandal of monumental proportions.

    No co-conspirators were named immediately. But even police officers were involved and received “gratuities,” prosecutors said.  Politicians received donations designed to evade campaign-finance laws.

    One crime targeted at clients of Rothstein’s law firm involved $57 million, fraudulent legal documents, forgeries and a claim a lawsuit had been won when it actually had been settled against the interests of the clients, prosecutors said.

    “To perpetuate and conceal the fraud, defendant Rothstein and other co-conspirators created a false federal court order, purportedly signed by a Federal District Court Judge, stating that the clients had won the lawsuit and were owed a judgment of approximately $23 million. The false court order also stated that the defendant in the civil suit had transferred the funds to the Cayman Islands to avoid paying the judgment. Defendant Rothstein and other co-conspirators falsely advised the clients that to recover those funds, the clients were required to post bonds. In this way, defendant Rothstein caused the clients to wire transfer approximately $57 million to a trust account he controlled, purportedly to satisfy the bonds.”

    But that was only a single element of a colossal fraud, prosecutors said.

    “Rothstein and other co-conspirators used the funds obtained through the Ponzi scheme for their own benefit,” prosecutors said. “This included, for example, using the money to fund and operate [the Rothstein Rosenfeldt Adler (RRA) law firm], to make contributions to federal, state, and local political candidates, and generous donations to public and private charitable institutions.

    “The money was also used to pay for lavish gifts, including exotic cars, jewelry, boats, cash and bonuses to individuals and members of RRA, to hire local police officers to provide security, and to provide gratuities to high ranking members of police agencies.

    “In addition, the money was used to purchase controlling interests in restaurants and other businesses, and to socialize with politicians and sports figures,” prosecutors continued. “These expenditures were calculated to enhance defendant Rothstein’s reputation and ability to solicit potential investors in the Ponzi scheme, provide an air of legitimacy and credibility to RRA, engender loyalty, and deflect law enforcement scrutiny.”

    Acting U.S. Attorney Jeffrey Sloman of the Southern District of Florida said the crime was epic and had stained the legal profession.

    “Attorneys, like elected officials, hold a special position of trust in our society, and owe a corresponding duty to deal honestly with their clients and to promote their clients’ best interests,” Sloman said. “This attorney breached that duty and stole approximately $1.2 billion from clients and investors. He spent his clients’ money on real estate, cars, yachts, politics and philanthropy, all to create the illusion that he, his law firm, and his schemes were hugely successful.

    “Now, the mansions, Ferraris, yachts, the law firm and his friends are gone,” Sloman said. “[Rothstein] sought to buy power and influence at the expense of his clients, and instead has potentially bought himself a lengthy prison sentence.”

    The New York Times reported that Rothstein, who was disbarred by the Supreme Court of Florida last week, was overheard yesterday giving legal advice to people with whom he shared a holding cell before his arraignment.

    Rothstein, 47, faces up to 100 years in prison if convicted of racketeering and associated crimes such as mail fraud, wire fraud and money-laundering offenses.

    A veteran FBI agent said Rothstein’s world was filled with artificial realities.

    “Scott Rothstein appeared to be a charismatic, reputable attorney one could trust to invest one’s money and make a sizeable profit,” said John V. Gillies, Special Agent in Charge of the Miami Office of the FBI.

    “We now know it was all smoke and mirrors,” Gillies said.

    Daniel W. Auer, IRS Special Agent in Charge, said the investigation is ongoing.

    “We will continue to move forward with this investigation, wherever it leads, and we will bring to justice those who defrauded the American public and members of our community out of their hard-earned money,” Auer said.

  • Scott Rothstein Arrested; Charged With Racketeering

    breakingnewsUPDATED 1:19 P.M. ET (U.S.A.) Former Fort Lauderdale attorney Scott Rothstein was arrested by the FBI this morning after being charged with racketeering and other offenses.

    The arrest occurred only days after Rothstein was disbarred by the Florida Supreme Court. Rothstein pleaded not guilty. He then was jailed without bail.

    Separately, federal prosecutors moved late last week to seize even more assets tied to Rothstein, including a luxury apartment in New York in the same building convicted Ponzi schemer Marc Drier had an apartment.

    Like Rothstein, Drier was an attorney. He is serving 20 years for defrauding investment and law clients. Drier’s apartment in the building was 34C; Rothstein’s was 42D.

    A prosecution under RICO statutes suggests investigators believe that Rothstein was part of a broader criminal enterprise that included others. The charges, which also included mail fraud and wire fraud, were part of a “criminal information,” as opposed to an indictment.

    Rothstein’s 70-attorney law firm — Rothstein Rosenfeldt and Adler (RRA) — was described  in today’s criminal information as an “Enterprise” as defined under federal racketeering statutes. Prosecutors charged that Rothstein had conspirators “known and unknown” who engaged in “a pattern of racketering activity.”

    No alleged co-conspirators were named.

    “The principal purpose of the racketeering conspiracy was to generate money for [Rothstein] and his co-conspirators through the operation of the Enterprise and through various criminal activities, including mail fraud, wire fraud, and money laundering,” prosecutors charged.

    They asserted that the RRA law firm was the the “base of operations” for a Ponzi and fraud scheme.

    “RRA was utilized by the defendant and his co-conspirators to unlawfully obtain approximately $1.2 billion from investors,” prosecutors charged.

    See Nov. 22 story. See Nov. 23 story on allegations RRA attorneys and employees were being paid with Ponzi proceeds.

    Read a story at SunSentinel.com. (Look to the left on the Sun Sentinel page to see a link to a video, with remarks from Rothstein’s attorney, who notably did not protest Rothstein’s innocence.)

  • Michigan Man Who Claimed Investment Returns Of 131 Percent Guilty In Ponzi Scheme Case; Mark Richard Hamlin’s Day-Trading Scheme Comparable To ASD’s Dangerous ’80/20′ Reinvestment Program

    ponziblotterAs Ponzi schemes go, it was far from the largest. But the case of Mark Richard Hamlin demonstrated that even smaller operators use Ponzi schemes to fuel personal spending that consumes an extraordinary percentage of investors’ funds.

    Hamlin’s day-trading scheme in Michigan gathered about $2 million from at least 90 investors between 2005 and 2008, when it collapsed. Of that, Hamlin used $668,000 for his personal expenses, the SEC said.

    Investors’ funds were dumped into Hamlin’s personal bank accounts, the SEC said.

    “[He] used investor funds to pay, among other things, $66,150 for rent and other rent
    related payments, $67,919 for automobiles, $12,708 for jewelry, $14,185 for his wedding,
    $9,543 for vacations and travel, and $58,553 for cash withdrawals,” the SEC said in May.

    Now Hamlin has pleaded guilty to wire fraud in a criminal case brought by the FBI and U.S. Attorney Donald A. Davis of the Western District of Michigan.

    Hamlin, 28, of Williamston, Mich., faces up to 20 years in prison and a restitution order expected to exceed $1.3 million at his sentencing. The sentencing date was not immediately clear.

    “Hamlin admitted at his plea hearing that he set up a stock trading company known as Kingdom First Trading (KFT) and solicited investors by promising higher than market rate returns,” prosecutors said. “Hamlin consistently lost money in trading, and concealed his insolvency by e-mailing fraudulent account statements to his investors.

    “The statements falsely assured investors that they were earning sizable profits and accumulating large balances,” prosecutors continued. “Hamlin further concealed his insolvency by diverting money from new investors to pay ‘earnings’ to earlier investors. As a result, investors left their money with Hamlin, and in some instances contributed more.”

    Despite assertions that his trading had earned a return of 131 percent in 2005, 116 percent in 2006, 50 percent in 2007 and 17.22 percent in the early part of 2008, Hamlin suffered losses in each of the years — and hid the losses while collecting money from investors to make Ponzi payments.

    “Hamlin’s investments realized losses of $18,118 in 2005, $267,372 in 2006, $218,591 in
    2007, and $140,781 from January 2008 through June 2008,” the SEC said. “His trading was profitable during only nine of the 39 months of the offering, generating a total of $22,150 in profit.”

    During its relatively short lifespan, the scheme sustained itself because investors wooed by Hamlin’s bogus claims kept reinvesting their paper “earnings,” prosecutors said.

    The same thing happens in autosurf Ponzi schemes, which often encourage participants to take out only a small percentage and plow their fictitious balances back into the scheme to preserve a surf’s cash flow.

    Ponzi enablers position themselves as experts when rendering such advice, which often is described as an “80/20” program. Both the AdSurfDaily and AdViewGlobal autosurfs pitched 80/20 programs, and both federal prosecutors and private attorneys have made veiled references to the reinvestment schemes in court filings.

  • ASD ALL OVER AGAIN? ‘3 Hebrew Boys’ Accuse U.S. Attorney Of ‘Treason’; Claim Draws Another Parallel To AdSurfDaily

    Three men found guilty in South Carolina last week of operating an $82 million Ponzi scheme accused a federal prosecutor of treason on the same day the jury returned its verdict, the FBI said.

    A treason claim also was made in the federal forfeiture proceeding against assets tied to Florida-based AdSurfDaily, an alleged Ponzi scheme involving $100 million.

    U.S. District Judge Margaret B. Seymour cited the treason claim in the “3 Hebrew Boys” case as a reason to send Joseph Brunson, Tim McQueen and Tony Pough to jail immediately to await sentencing.

    “After the jury’s verdict, Judge Seymour was asked to allow the men to remain free on bond until their sentencing,” the FBI said.  “She denied the request after noting that all three men filed documents [Friday] accusing U.S. Attorney Walt Wilkins of treason and committing acts of war by prosecuting them.”

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

    Wilkens said the scheme targeted people of faith and members of the military.

    U.S. Attorney W. Walter Wilkins
    U.S. Attorney W. Walter Wilkins

    “By calling themselves the Three Hebrew Boys, these con men tried to disguise their Ponzi scheme as a religious, charitable program of debt elimination in order to gain the trust of unsuspecting investors,” Wilkins said. “Unfortunately many people were victimized by these men, including many in our armed forces.”

    In the ASD case, the treason claim was made against U.S. District Judge Rosemary Collyer. ASD is known to have members who identify with the so-called sovereignty movement.

    California resident Curtis Richmond, a pro se litigant in the ASD case, identified himself in court documents in a separate case as a “sovereign” being who enjoyed diplomatic immunity from prosecution and answered only to Jesus Christ.

    Richmond is associated with a Utah “Indian” tribe ruled a “complete sham” last year by U.S. District Judge Stephen Friot. On the eve of a civil RICO trial last year, Richmond attempted to have Friot removed from the case by claiming he owed Richmond $30 million.

    Friot refused to step down in Utah, as did Collyer in the District of Columbia. Richmond accused Collyer earlier this year of operating a “Kangaroo Court” and violating her judicial oath. Collyer is presiding over the ASD civil-forfeiture case. Other filings in the ASD case suggested Collyer was guilty of as many as 60 felonies, and that an effort had been made by at least one ASD member to start a process to collect $120 million from Collyer, two federal prosecutors and a court clerk for “Interference With Commerce.”

    Screen shot: Section of a pro se filing in the ASD case.
    Screen shot: Section of a pro se filing in the ASD case.

    Such bizarre claims have been popping up more and more in litigation involving securities.

    Gold Quest International (GQI), a company accused by the SEC last year of operating a Ponzi scheme from Las Vegas, claimed it was part of a North Dakota Indian tribe and was immune from U.S. law.

    After the SEC brought the charges against GQI in May 2008, Michael Howard Reed, the purported “attorney general” of the tribe, tried to sue the SEC for $1.7 trillion. The sought-after amount would have exceeded the total of federal income tax paid by individual U.S. filers last year by about $575 billion.

    U.S. District Judge Kent J. Dawson struck a series of pleadings by Reed from the record.

    Meanwhile, Dawson jailed John Jenkins, one of the defendants implicated in the Ponzi scheme, for contempt. Dawson also dispatched the U.S. Marshals Service to arrest David Greene, also known as “Lord David Greene,” in part for violating orders to repatriate money offshore to the United States.

    Despite Richmond’s behavior, he was labeled a hero on the Pro-ASD Surf’s Up forum. Over the weekend, Surf’s Up reinforced an earlier announcement that it would not permit discussion about the AdViewGlobal (AVG) autosurf.

    “[P]lease don’t expect any information that concerns AVGA,” a forum Mod said Saturday. “[I]t doesn’t belong on this forum.”

    Another Mod reinforced the ban on AVG discussion today.

    “In the beginning days of AVG we made it clear this is not an AVG forum and it still will not be,” the Mod said.

    Surf’s Up members repeatedly have said they wanted to discuss AVG, which has close connections to ASD. Their requests have been consistently rebuffed. Some of the Surf’s Up Mods were among the founding members of the AVG surf, which came to life after a major court ruling went against ASD last year.

    AVG purported to be a “private association” that operated offshore. Members used the “offshore” angle as a key selling point, saying the surf’s purported country of operation — Uruguay — insulated it from prosecution.

    Like the “3 Hebrew Boys” operation, AVG sought to prevent members from discussing the company outside the confines of areas it controlled. AVG members were scolded for sharing information and calling the autosurf an “investment” program.

    As AVG was in failure mode in May and June, members were threatened with copyright-infringement lawsuits. Critics were told AVG would contact their ISPs to file abuse reports and suspend service.

  • ‘3 Hebrew Boys’ Guilty In $82 Million Ponzi/Affinity Fraud Scheme; Company Operated In Fashion Similar To AdViewGlobal Autosurf, Imploring Members To Maintain Secrecy

    ponzinewsIn yet another case that may cause widespread unease in the autosurf world, three men accused of defrauding participants in a bogus debt-relief “ministry” have been found guilty of 174 counts of mail fraud, money-laundering and transporting stolen goods.

    Parts of the case against “3 Hebrew Boys” were remarkably similar to events engulfing the AdSurfDaily autosurf. In 2007, for example, the defendants filed a court document that described their investment program as an effort to free people from government “bondage” and referred to the investigation as “Satan’s handiwork.”

    In 2008, AdSurfDaily President Andy Bowdoin described the case against his purported Florida “advertising” firm as the work of “Satan,” comparing it to the 9/11 terrorist attacks. Prosecutors said ASD was selling unregistered securities, while engaging in wire fraud, money laundering and operating a $100 million Ponzi scheme.

    In 2007 and 2008, prosecutors brought essentially the same charges against “3 Hebrew Boys” — Joseph Brunson, Tim McQueen and Tony Pough.

    About 100 supporters of the “3 Hebrew Boys” rallied in Columbia, S.C., in the early days of the probe, to demand that investigators leave them alone. Participants told reporters that the government did not understand the program, had overreached in its prosecutorial efforts and refused to deny it was wrong, choosing to move forward with the case in a bid to save face.

    Prosecutors said the “3 Hebrew Boys” scam was targeted at churchgoers and members of the military from South Carolina and North Carolina, and also from other states. The scam got its name from the company’s website name, which was based on a biblical tale of believers who escaped a furnace by relying on their faith.

    At least $82 million was consumed in the scheme, prosecutors said.

    The company attempted to chill law enforcement, regulators and members of the media from scrutinizing operations, prosecutors said.

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

    AVG, which has close ties to ASD, morphed into a “private association” in February 2009. Members were scolded for sharing information and calling the autosurf an “investment” program. As the company appeared to be collapsing in May and June, members were threatened with copyright-infringement lawsuits. Critics were told AVG would contact their ISPs to file abuse reports and suspend service.

    Not only did the plan to force secrecy and mute criticism not work in the “3 Hebrew Boys” case, it resulted in intense scrutiny by federal prosecutors, the FBI, the IRS and other agencies. It also resulted in intense scrutiny on the state level.

    South Carolina Attorney General Henry McMaster filed civil and criminal charges, posting all the documents in the case on his website.

    A court-appointed receiver also published documents, listing an astonishing array of luxury purchases made by the schemers with investors’ money. Among the items were a Gulf Stream jet, a Prevost Motorcoach and automobiles with famous names such as Mercedes, Lexus, BMW, Saab, Cadillac and Lincoln.

    Some of the luxury items are missing, meaning they cannot be sold to compensate victims.

    Brunson, McQueen and Pough were found guilty yesterday. The jury in the case, which was heard in Columbia, S.C., returned the verdict in less than three hours, after listening to testimony for weeks.

    Separately, Lee Otis Fluker was charged with perjury and convicted in 2008 for lying about his knowledge of the scheme. He was sentenced to a year in prison.

    Brunson, McQueen and Pough face decades in prison and fines in the millions of dollars.

    Last month, Beattie B. Ashmore, the court-appointed receiver in the case, warned victims about “companies [that] claim to offer professional services for recovering losses associated with your involvement with CCG,” one of the companies associated with the “3 Hebrew Boys” scheme.

    “Please note that you are not required to respond to these letters in order to be considered for a distribution from the Receiver,” Ashmore said on the receiver’s website.  “In addition, the Receiver takes no position as to any consequential effect filing a claim and recovering funds in this case may have upon any action you have taken or may take with Fraud Recovery Group or any similar type company.

    “Therefore, it is strongly recommended that you seek professional legal and tax advice from a trusted advisor, and that you properly research any professional advice before acting upon it,” Ashmore said.

  • BREAKING NEWS: Louisiana Man Indicted In Alleged $20 Million Ponzi Scheme Targeting Senior Citizens; Prosecutors Allege Witness Tampering, Obstruction

    UPDATED 9:44 P.M. ET (U.S.A.) A Louisiana man has been charged in a 64-count indictment with operating a $20 million Ponzi scheme that fleeced retirees, federal prosecutors said today.

    So many fraud counts were filed against Matthew B. Pizzolato that he faces more than 1,100 years in prison if convicted of all of them. As many as 160 people were duped, prosecutors said.

    Pizzolato, 26, of Tickfaw, was charged with 52 counts of mail fraud, two counts of wire fraud, seven counts of money laundering, and single counts of securities fraud, obstruction of justice and witness tampering.

    It was the second time this week prosecutors alleged witness tampering in a major Ponzi scheme case. Jeffrey Lane Mowen was charged in Utah Nov. 18 with attempting to hire a man to kill four witnesses in a  case against him.

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

    pizzolatoartWhen the client called authorities, Pizzolato returned documents that he altered after stealing them,  prosecutors said.

    A veteran FBI agent called the crimes beyond the pale.

    “It is unconscionable that in this stressful economy senior citizens would be targeted and defrauded of their life savings, said Special Agent in Charge David Welker. “We have an obligation to aggressively investigate crimes against those citizens who are most vulnerable. The FBI and our law enforcement partners will continue to aggressively pursue those who target our most vulnerable citizens.”

    Federal agencies are working together to put an end to the Ponzi plague in the United States, said U. S. Attorney Jim Letten of the Eastern District of Lousiana

    “Today’s indictment demonstrates our resolve, along with our partners in federal law enforcement, including the FBI, IRS and U.S. Postal Inspection Service, to aggressively investigate and pursue those who seek to take advantage and prey upon those among us, including our senior citizens,” Letten said.

    The Office of the Louisiana Commissioner of Securities assisted in the probe, Letten said.

    Pizzolato had offices in Hammond, Covington, Lake Charles, Baton Rouge, and also conducted business in Greater New Orleans.

    He “lured his potential victims through advertisements in the local daily newspapers in New Orleans, Baton Rouge and Hammond by promising rates of returns that were higher than market rates for CDs or U.S. Treasury Bills, prosecutors said.

    Among the words Pizzolato used to lure investors into a false sense of security were “guaranteed”, “safe”, “conservative”, “insured”, and “no-risk,” prosecutors said.

    Despite his assurances that clients’ money had been placed in U.S. Treasury Bills, CDs and other government-backed securities, Pizzolato “used the investors’ money to purchase luxury items, to make payments totaling millions of dollars to friends and family, to invest in high-risk futures trading and/or commercial real estate, and to provide lulling payments to investors in an effort to conceal the true nature of the Ponzi scheme,” prosecutors said.

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

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

    Since 2005, prosecutors said, Pizzolato either operated, owned or was affiliated with several companies: Gulf Region Guaranty Inc. (Gulf Region Guaranty); Acadian Guaranty Group LLC; Allegiance Financial LLC; Annuity Presets LLC; Annuity Recovery Services LLC; Anova Marketing Systems LLC; Anytime Fitness of Sulphur LLC; Cornerstone Wealth Management LLC; Global Assured Financial Inc.; Green Pelican Group Inc.; Gulf South Guaranty Inc.; Gulf States Guaranty LLC; GRG Holdings LLC; GRG I LLC; GRG II LLC; Matt P LLC; National Insurance Advisors LLC; Pelican Guaranty Group Inc. (Pelican Guaranty); and Spectrum Lending Group LLC.

    If convicted, he faces up to 20 years in prison for each count of mail fraud, wire fraud, securities fraud and witness tampering, and up to 10 years for each of the money laundering and obstruction of justice charges. Meanwhile, Pizzolato faces fines of up to $16 million.

    Pizzolato was hit with 56 counts that could result in a maximum sentence of 20 years each if convicted of all of them, meaning he potentially faces more than 1,100 years in prison — even more if convicted of the less serious crimes.

    Michael J. De Palma, Special Agent in Charge of the Internal Revenue Service Criminal Investigation Division, said law enforcement is prepared to “follow the money” to reverse-engineer Ponzi schemes.

    “Financial Fraud and money laundering are not victimless crimes,” De Palma said. “IRS-Criminal Investigation is united with the rest of the law enforcement community in our resolve to disrupt those who commit crimes against our local citizens. Special Agents of IRS Criminal Investigations are expert financial investigators who ‘follow the money’ trail to identify potential offenders.”

    Read the Pizzolato indictment.

    See video on WWL-TV:

  • BREAKING NEWS: Prosecutors Allege Ponzi Murder Plot; Jeffrey Lane Mowen Accused Of Soliciting Prisoner To Kill Witnesses In Multimillion-Dollar Case Against Him

    EDITOR’S NOTE: In August, a poster here who defended autosurf Ponzi schemes demanded readers to “show me one time where the [U.S. government] has even started a lawsuit or ‘gone after’ a company off shore.” The post concerned the AdVentures4U (ADV4U) autosurf, which, like a number of autosurfs, claimed legal ties to Panama. Promoters said the purported ties insulated the surf from prosecution. Readers responded by providing several examples of prosecutors extending their reach beyond U.S. domestic soil to pierce the illusion of corporate veils and bring schemers to justice.

    The story below is about an alleged Utah Ponzi, real-estate leveraging and forex-trading scheme in which the operator was arrested in Panama, brought back to the United States and jailed.

    While Jeffrey Lane Mowen was in jail awaiting trial, the FBI said yesterday, he solicited a fellow inmate scheduled to be released in October to murder four witnesses “with the intent of preventing their attendance and testimony at his federal fraud trial” in the Ponzi scheme case.

    UPDATED 4:14 P.M. ET (U.S.A.) In a case that puts more than just the financial dangers of Ponzi schemes on full display, jailed Ponzi suspect Jeffrey Lane Mowen has been indicted in Utah on charges of hatching a plot to hire a fellow prisoner to kill four witnesses in the Ponzi scheme case upon the inmate’s release from prison.

    Mowen was indicted yesterday on charges of wire fraud, solicitation to commit a crime of
    violence, witness tampering and retaliating against a witness. Mowen, jailed in Davis County, Utah, earlier this year after being arrested by Panamanian authorities working proactively with U.S. officials, was extradited to the United States to face the original charges in the case.

    Jeffrey Lane Mowen
    Jeffrey Lane Mowen

    Prosecutors indicted Mowen in February under seal for the alleged Ponzi, announcing when the indictment was unsealed April 21 that he was “living outside of the United States.” He was arrested just three days later in Panama “by Panamanian authorities in conjunction with the FBI Legal Attache office,” the FBI said.

    U.S. authorities said Mowen used investor funds “to purchase more than 200 high-end antique, classic, and modern vehicles, including cars, trucks, trailers, motorcycles, three-wheelers, and other vehicles.”

    Mowen, 47, of Lindon, Utah, used his material possessions “as symbols of his success to investors,” the FBI said. The agency added that Mowen also used investor funds to “pay for personal expenses, including payments to himself and his [former] wife, dining expenses, vehicle storage fees, travel, utilities, and credit card expenses.”

    For its part in a separate civil case, the Securities and Exchange Commission alleged that Mowen had three prior convictions in Utah for securities fraud and two for theft. Despite Mowen’s criminal record and history as a fraudster, promoters still did business with him. Their faith drained millions of dollars from investors, the SEC said.

    Using language apt to cause unease in the autosurf Ponzi world, the SEC said one promoter “either knew or was reckless in not knowing that Mowen had multiple recent felony convictions involving crimes of dishonesty.”

    Indeed, the SEC said, the promoter learned in approximately late June 2007 that Mowen had been convicted of securities fraud . . . [but] continued to solicit new investor funds for several months while failing to disclose Mowen’s criminal history to any of the Promoters or their investors.”

    Downstream promoters who entrusted the promoter “conducted virtually no due diligence in connection with [his] purported investment opportunities, but transferred investor money to [him] without any documentation or limitation on his use of the funds,” the SEC said.

    “[T]he Promoters were reckless in failing to discover [his] association with Mowen and that their funds were being placed into a Ponzi scheme or used for other undisclosed purposes,” the SEC said.

    Among the SEC’s civil allegations against Mowen were that he siphoned off $8 million in investor funds for his personal use and transferred $650,000 to his former wife, who is named a relief defendant in the case.

    Authorities painted a picture yesterday of a scheme that had morphed from financial crimes that crossed international borders to murder-for-hire — all in the name of Ponzi profits.