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Tag: FBI

  • Alleged Scott Rothstein Ponzi Probe Unfolding Like ASD Case; Forfeiture Proceeding Filed, But No Early Arrest

    Federal prosecutors and agents today began the process of seizing assets from Florida attorney Scott Rothstein, amid allegations he had been operating a Ponzi scheme involving hundreds of millions of dollars since 2005.

    The early probe is shaping up in largely the same way as the early probe into AdSurfDaily, a Florida business accused last year of operating a $100 million Ponzi scheme.

    Rothstein, for example, has not been arrested. Agents from the FBI and IRS seized real estate, boats, cars and bank accounts today. Meanwhile, prosecutors brought a civil-forfeiture case against property tied to the alleged scheme.

    Prosecutors used largely the same approach against ASD. ASD President Andy Bowdoin, for example, was not taken into custody when news of the allegations broke. As is the case with Rothstein, the ASD probe began with forfeiture complaints.

    Like the ASD case, the government believes others perhaps were involved in the fraud. Unlike  Bowdoin of ASD, however, Rothstein does not appear to be enjoying an early surge of support.

    In the context of Ponzi schemes, civil forfeiture helps the government stop potentially massive financial crimes in their tracks, before they can mushroom and consume even more wealth. Investigating Ponzi schemes can be a mammoth undertaking that involves reverse-engineering thousands and thousands of transactions and following global and electronic trails.

  • FBI Arrests 14, Including 2 Lawyers, In Major Insider-Trading Probe; SEC Says Attorneys Provided Tips For Kickbacks In Latest Scandal That Rocks Wall Street

    As the FBI and IRS executed search warrants at the Florida office of attorney Scott Rothstein this morning amid allegations he ran a covert Ponzi scheme that could have drained as much as $500 million from investors, prosecutors up north were concentrating on arresting lawyers in a separate case involving insider trading on Wall Street.

    U.S. Attorney Preet Bharara of the Southern District of New York announced the arrests of attorneys Arthur J. Cutillo of the prestigious law firm Ropes & Gray LLP of New York, and Jason Goldfarb, a New York attorney.

    Cutillo and Goldfarb were among 14 people charged in a case with ties to the alleged Raj Rajaratnam insider-trading scandal at the Galleon Group. Rajaratnam’s arrest last month rocked Wall Street.

    Today’s news demonstrated again that law-enforcement and regulatory agencies in all corners of the United States are seeking to put an end to a wave of financial crime that could undermine the public’s confidence in the markets and imperil economic recovery in the age of the corporate bailout.

    “When Wall Street professionals or others exploit inside information for an illegal tip-and-trade binge, they undermine the level playing field that is fundamental to our capital markets,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “These defendants thought the rules that apply to all investors did not apply to them, but the one rule they cannot avoid is the rule of law. Now they face the prospect of financial penalties, industry bars, and even jail time for their indiscretions.”

    ‘A Bag Of Cash’

    Attorneys will not be permitted to ignore the law and hide behind their legal shingles, added Scott W. Friestad, associate director of the SEC’s Enforcement Division, using stark language.

    “Today’s action highlights the apparent ease with which far too many lawyers, hedge funds and Wall Street traders are willing to break the law to obtain a bag of cash, a trading advantage or other perceived benefit,” Friestad said. “It is fundamentally unfair for these individuals to profit at the expense of honest investors and compromise the integrity of our markets.”

    Although the emerging Rothstein Ponzi allegations in Florida are not connected to the Galleon Group insider-trading investigation in New York, California and elsewhere, dramatic developments last night and this morning in Fort Lauderdale were a stark reminder that financial crimes that were once unthinkable suddenly have become commonplace in the aftermath of the arrests of Bernard Madoff, Tom Petters, Allen Stanford, Arthur Nadel, Nicholas Cosmo and others implicated in Ponzi schemes for mind-boggling sums.

    Agents in Fort Lauderdale hauled away dozens of boxes of evidence, seized computers and thumb drives, copied computer hard drives, took control over an unspecified amount of cash, sifted through financial and other records — and also seized the key to a Ferrari.

    Though Rothstein has not been charged, the case has become a spectacle in Florida. The state has been rocked by one financial scandal after another involving allegations of mortgage fraud, hedge-fund fraud, affinity fraud targeting vulnerable residents, HYIP fraud, autosurf Ponzi scheme fraud and Ponzi schemes in general.

    In New York, far north of Florida’s warm climate, Bharara and the FBI released some of the details surrounding today’s arrests of lawyers and Wall Street insiders. For its part, the SEC made a separate flow chart to demonstrate how part of the fraud worked.

    SEC Flow Chart" Source: SEC
    SEC Flow Chart: Source: SEC

    Attorney Cutillo “had access to confidential information about at least four major proposed corporate transactions in which his firm’s clients participated,” the SEC said. “Through his friend and fellow attorney Jason Goldfarb, Cutillo tipped this inside information to Zvi Goffer,” a proprietary trader at Schottenfeld Group of New York.

    “Goffer promptly tipped four traders at three different broker-dealer firms and another professional trader Craig Drimal, who each then traded either for their own account or their firm’s proprietary accounts,” the SEC said.

    Cell Phone Intrigue Part Of Allegations

    In allegations that read like a cross between an Ian Fleming and Robert Ludlum novel, the SEC outlined some of the case.

    “Goffer was known as ‘the Octopussy’ within the insider trading ring due to his reputation for having his arms in so many sources of inside information,” the agency said. “Cutillo, Goldfarb, and Goffer at times used disposable cell phones in an attempt to conceal the scheme. For example, prior to the announcement of one acquisition, Goffer gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled ‘you’ and ‘me.’

    “After the announcement, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half, throwing away half of the phone and instructing his tippee to dispose of the other half,” the SEC charged.

    Read the SEC news release.

    Read Bharara’s news release on the criminal charges to get the full list of defendants, at least five of whom already have pleaded guilty.

    Read part of the South Florida Business Journal’s ongoing coverage of the Rothstein allegations, which are not connected to the insider-trading case announced in New York today.

  • ‘PRINTER’ PONZI: FBI Says Man Ran $28 Million Scheme Based On Bogus Sales Of High-Speed Commercial Printers

    UPDATED 8:28 P.M. EDT (U.S.A.) Minneapolis/St. Paul has Tom Petters, accused of operating a $3.65 billion Ponzi scheme by deceiving investors into thinking they were financing his company’s purchase of electronics that later would be sold to Wal-Mart and other huge retailers.

    And now Chicago has Matthew Scott, whom investigators described as a sort of Tom Petters on a smaller scale.

    Scott was accused today of telling investors their funds would be used to purchase or finance  the purchase of high-speed commercial printers that would be sold to third-party buyers at a profit. The machines were said to be valued in excess of $100,000, and Scott claimed his mark-up of 20 percent led to big profits, the FBI said.

    Scott, 50, of Elmhust, Ill., was charged with mail fraud. His company, Gelsco, neither purchased nor financed such printers, the FBI said.

    “Instead, Scott allegedly fabricated false purchase orders, invoices, promissory notes and other documents that he provided to investors,” the FBI said.

    The scheme collected at least $28 million between early 2000 and March 2009 before unraveling, the FBI said. At least 60 investors were fleeced. The initial loss estimate was pegged at $4.5 million.

    “Throughout the duration of the alleged scheme, Scott had to continually raise funds from investors to make payments to earlier investors, all of which he concealed and intentionally failed to disclose to new and old investors alike,” the FBI said.

    Scott also duped a bank by submitting fraudulent documents to get a loan about 10 months before the scheme collapsed, the FBI said.

    “In May 2008, Scott obtained a $300,000 bank loan by falsely representing that the loan would be secured by a printer that was being sold to a third party, and by providing fraudulent documents as proof of the purported sale,” the FBI said.

  • BREAKING NEWS: FBI Arrests Maryland Man With ‘Star Wars’ Knowledge On Espionage Charges; Spy Case Will Be Co-Prosecuted By Office In Charge Of Alleged ASD Ponzi

    The FBI has arrested a Maryland man in a sting and charged him with attempting to pass U.S. defense and space secrets to Israel.

    Stewart David Nozette, 52, of Chevy Chase, Md., accepted $11,000 in payments from the FBI, believing the payments had come from the Mossad, Israel’s spy agency. The payments actually came from the FBI as part of the sting, and Israel was not involved, authorities said.

    Nozette once worked for the White House. He is among a group of scientists credited with discovering water on the moon in a project known as “Clementine,” and also has vast experience in weapons systems, including the Strategic Defense Initiative, where he worked in the Office of Survivability, Lethality, and Key Technologies, according to his resume.

    The Strategic Defense Initiative, which came into being under President Reagan, was known as “Star Wars.”

    “Those who would put our nation’s defense secrets up for sale can expect to be vigorously prosecuted,” said Channing D. Phillips, Acting U.S. Attorney for the District of Columbia. “This case reflects our firm resolve to hold accountable any individual who betrays the public trust by compromising our national security for his or her own personal gain.”

    Phillips is the boss of the prosecutors handling the AdSurfDaily Ponzi prosecution. His office will co-prosecute Nozette, along with the Counterespionage Section of the Justice Department’s National Security Division.

    The prosecution will occur in U.S. District Court for the District of Columbia, the same venue in which the civil-forfeiture case against ASD’s assets is being heard. The identity of the judge assigned to hear the case was not immediately clear.

    U.S. District Judge Rosemary Collyer, the judge in the ASD case, is one of the judges in the district.

    Nozette, who was charged with attempted espionage, faces a maximum sentence of life in prison, if convicted. The case is a reminder of the grave matters of national security that come to the attention of prosecutors in Phillips’ office, with Washington, D.C., being the center of government in the United States.

    “The conduct alleged in this complaint is serious and should serve as a warning to anyone who would consider compromising our nation’s secrets for profit,” said David Kris, assistant Attorney General for National Security.

    “The FBI is committed to protecting the nation’s classified information and pursuing those who attempt to profit from its release or sale,” said Joseph Persichini Jr., assistant director for the FBI’s Washington Field Office.

    On Sept. 3, prosecutors said, “Nozette was contacted via telephone by an individual purporting to be an Israeli intelligence officer, but who was in fact an undercover employee of the FBI.”

    “During that call, Nozette agreed to meet with the [undercover agent] later that day at a hotel in Washington D.C. According to the affidavit, Nozette met with the [undercover agent] that day and discussed his willingness to work for Israeli intelligence,” prosecutors continued.

    “Nozette allegedly informed the [undercover agent] that he had, in the past, held top security clearances and had access to U.S. satellite information,” prosecutors said. “Nozette also allegedly said that he would be willing to answer questions about this information in exchange for money.”

    An undercover agent “explained to Nozette that the Israeli intelligence agency, or ‘Mossad,’ would arrange for a communication system so that Nozette could pass information to the Mossad in a post office box,” prosecutors said. “Nozette agreed to provide regular, continuing information to the [undercover agent] and asked for an Israeli passport.”

    On Sept. 4, Nozette and the undercover agent met again in the same hotel, prosecutors said.

    During the meeting, Nozette told the agent that, although he no longer had legal access to any classified information at a U.S. government facility, “he could, nonetheless, recall the classified information to which he had been granted access, indicating that it was all still in his head,” prosecutors said.

    Nozette inquired about getting paid, saying “he preferred to receive cash amounts ‘under ten thousand’ [dollars] so he didn’t have to report it,” prosecutors said.

    At the conclusion of the Sept. 4 meeting,  Nozette said to the undercover agent, “Well I should tell you my first need is that they should figure out how to pay me . . . they don’t expect me to do this for free,” prosecutors said.

    Undercover FBI agents left $2,000 in cash in a letter in a designated post office box for Nozette on Sept. 10, prosecutors said.

    “In the letter, the FBI asked Nozette to answer a list of questions concerning U.S. satellite information,” prosecutors said. “The serial numbers of the bills were recorded. Nozette retrieved the questions and the money from the post office the same day.”

    On Sept. 16, agents captured Nozette on videotape as he left “a manila envelope in the designated post office box in the District of Columbia. The next day, FBI agents retrieved the sealed manila envelope that Nozette had dropped off and found, among other things, a one-page document containing answers to the questions posed by the undercover agents and an encrypted computer thumb drive.

    “One of answers provided by Nozette contained information classified as Secret, which concerned capabilities of a prototype overhead collection system,” prosecutors said. “In addition, Nozette allegedly offered to reveal additional classified information that directly concerned nuclear weaponry, military spacecraft or satellites, and other major weapons systems.”

    On Sept. 17,  undercover FBI agents left a second letter in the post office box for Nozette.

    “In the letter, the FBI asked Nozette to answer another list of questions concerning U.S. satellite information,” prosecutors said. “The FBI also left a cash payment of $9,000 in the post office box.”

    Nozette retrieved the questions and the cash from the post office box later that same day, prosecutors said.

    On Oct 1, undercover agents videotaped Nozette “leaving a manila envelope in the post office box,” prosecutors said. “Later that day, FBI agents retrieved the manila envelope left by Nozette and found a second set of answers from him. The answers contained information classified as both Top Secret and Secret that concerned U.S. satellites, early warning systems, means of defense or retaliation against large-scale attack, communications intelligence information, and major elements of defense strategy.”

  • 68-Year-Old Texas Woman Charged In Alleged Ponzi

    A 68-year-old Texas woman has been charged with running a $500,000 Ponzi scheme.

    Julia Ann Schmidt was indicted in Waco. She now joins a roster of other senior citizens recently implicated in alleged Ponzi schemes or convicted of crimes in which a Ponzi was the modus operandi.

    Federal prosecutors said today that Schmidt posed as an agent for Fortis Investments.

    Between April 2007 and May 2009, Schmidt “solicited money from clients promising to generate an approximate 30% return on their investments,” prosecutors said. “Schmidt informed clients that portions of their investments would involve the Texas Ranger Museum, Hillcrest Hospital and the Waco Riverwalk Project.”

    Unsuspecting investors were fleeced out of more than $500,000, prosecutors said. The FBI is handing the probe. Investors who believe they were scammed by Schmidt are asked to call the Waco office at 254-772-1627, according to Acting U.S. Attorney John E. Murphy.

    Some Recent Ponzi Schemes Featuring Seniors

    Topping the list of seniors implicated in Ponzi schemes, age-wise, is Richard Piccoli, the alleged operator of the Gen-See Ponzi in the Buffalo, N.Y., area. Piccoli is 82.

    Arthur Nadel, implicated in Florida amid allegations more than $300 million in investor funds went missing in a Ponzi scheme, is 76.

    Andy Bowdoin, who presided over the alleged $100 million AdSurfDaily Ponzi scheme in Quincy, Fla., is 74.

    Bernard Madoff, convicted in an alleged $65 billion Ponzi, is 71. In June, Madoff was sentenced to 150 years in prison.

    Ronald Keith Owens, 73, was sentenced in January to 60 years in prison for operating a “prime bank” Ponzi scheme that allegedly was set up in the Bahamas and elsewhere.

    James Blackman Roberts, 71, of Heber Springs, Ark., was sentenced in January to 15 years in prison for running a $43.5 million Ponzi scheme.

    Larry Atkins, 65, was convicted of swindling investors of $3 million in a North Dakota Ponzi scheme. In February, he was sentenced to eight years in prison.

    Judith Zabalaoui, 71, was accused in February of swindling Greater New Orleans clients out of more than $3.2 million in an elaborate Ponzi fraud. In August, she was sentenced to eight years in prison.

    Zabalaoui established a bogus entity known as Paragon Co., which actually was a mailbox Zabalaoui rented at a UPS store in Montrose, Colo., prosecutors said.

    Part of the scheme was to call the mailbox a “suite,” prosecutors said.

    Zabalaoui also set up a fake company known as Omni Clearing, this time using a UPS store in Dover, Del. Prosecutors said she invented “fictitious people,” claiming they were employees, fabricated emails using the names of fictitious employees, and she set up a phone, fax and email systems to help perpetrate the fraud.

    She collected millions in the the scheme by promising “safe” and “guaranteed” returns ranging from 13 percent to 26 percent, prosecutors said.

    Read a prosecution filing on Zabalaoui.

  • BREAKING NEWS: SEC Attacks ANOTHER Alleged Florida Ponzi And Affinity-Fraud Scheme; FBI Investigating Amid Report Indictments Alleging Securities Fraud, Wire Fraud, Money-Laundering And Conspiracy Have Been Unsealed

    UPDATED 2:03 P.M. EDT (U.S.A.) The Securites and Exchange Commission — which announced yesterday that it had broken up a $22 million Ponzi scheme in Florida — announced today that it was working with the FBI to break up yet another Ponzi scheme in the Sunshine State.

    The newest scheme was targeted at Haitian-Americans who were promised investment returns of 100 percent every 90 days, the SEC said.

    It was not immediately clear when the criminal indictments would become available for public viewing, but the SEC said the indictments were unsealed this morning in Florida.

    Charged civilly by the SEC were HomePals Investment Club LLC and HomePals LLC (Home Pals), and their principals, Ronnie Eugene Bass Jr., Abner Alabre and Brian J. Taglieri.

    Bass, Alabre and Taglieri are charged criminally with securities fraud, conspiracy to commit securities fraud, wire fraud and money laundering, the SEC said.

    “The extraordinary promises made by these three men spread by word of mouth throughout a close-knit community,” said Glenn Gordon, associate director of the SEC’s Miami Regional Office. “Bass presented himself as a master trader of stock options and commodities, when in reality he was a master of deceit.”

    Victims resided primarily in South Florida, the SEC said.

    At least $14.3 million was raised in the scheme, which gathered money from as many as 64 “investment clubs,” the SEC said.

    “By the end of December 2008, HomePals had only $7,300 left and stopped making payments to investors,” the SEC alleged.

    On its website, Home Pals claimed “[i]nvestments of $25,000 or more earn higher interest rates.”

    “The defendants claimed they were able to generate such spectacular returns through Bass’ purported successful trading of stock options and commodities,” the SEC alleged.

    “[I]n reality, Bass traded no more than $1.2 million of the $14.3 million raised, generated trading losses of 19 percent, and . . . HomePals used the bulk of the investor funds to repay earlier investors in typical Ponzi scheme fashion.”

    Bass, Alabre and Taglieri misappropriated at least $668,000 of investor funds for personal use, the SEC said.

    The defendants told one lie after another, the SEC said. Among the lies was that investors were protected by a $25 million insurance policy.

    Another lie was that returns were guaranteed, the SEC said.

    Yet another — allegedly told by Bass and Taglieri — was that that Taglieri was HomePals’ attorney.

    “This representation was false because Taglieri is not an attorney,” the SEC said.

    Home Pals advised website viewers that the company was “honest” and adhered to “uncompromising ethics.”

    “We guarantee realistic, honest financial strategies that achieves results. We will lead you on a course to financial freedom. Our years of experience and notable expertise ensure that your financial future is in good hands,” Home Pals said.

    “Our consistent track record of uncompromising ethics instills confidence and trust,” Home Pals told viewers.

    The SEC saw things differently.

    “Bass and Alabre used at least $380,000 to pay for a house where they both resided until recently,” the SEC alleged. “Bass misappropriated an additional $28,000 for himself, part of which he used to purchase an automobile.

    “HomePals also distributed approximately $28,000 to Alabre as ‘compensation,’” the SEC continued. “Additionally, Taglieri received an undisclosed salary of $8,000 per month, and diverted $85,000 of investor funds to pay his overdue child support obligations.”

    Read the SEC complaint.

    Read story from yesterday on another alleged Florida Ponzi scheme.

  • Richard M. Harkless, Ponzi Scheme Figure, Sentenced To 100 Years In Prison; Judge Says He Showed No Remorse

    A California man convicted of wire fraud, mail fraud and money-laundering in a $60 million Ponzi scheme has been sentenced to 100 years in prison and ordered to pay nearly $35.5 million in restitution.

    Separately, Richard M. Harkless was ordered to pay $42 million in disgorgement, prejudgment interest and civil penalties in a case brought by the SEC. Three accomplices were ordered to pay assessments totaling $28 million and sentenced to a combined total of up to 18 years in prison.

    The scheme featured payouts to whet the appetites of investors, a program designed to encourage them to “roll over” money to keep it in the system and appeals to get family members and friends involved, prosecutors said.

    Dozens of victims wrote to the judge, requesting a harsh sentence. One of the victims in the case was a 79-year-man who lost $85,000 and now depends on help from a church and a senior center that serves free meals to get by.

    Harkless’ 100-year sentence is believed to be the longest sentence for a white-collar crime ever handed down in the Central District of California, and the judge minced no words in condemning the scheme

    U.S. District Judge Virginia A. Phillips said Harkless had shown no remorse for his crimes, pointing out that he had taken advantage of vulnerable people, some of whom lost their retirement savings and college funds.

    Harkless, 65, caused “every kind of grief and loss imaginable” and demonstrated he “would commit his crimes all over again if given the chance,” Phillips said.

    Harkless operated the MX Factors Ponzi scheme earlier this decade. Prosecutors said he began to hide money offshore when the scheme was on the verge of discovery by authorities.

    “As the scheme began to collapse [in 2004], Harkless diverted millions of dollars of investor money to Belize and Mexico,” said the office of Acting U.S. Attorney George S. Cardona. “In the final months of the scheme, once Harkless knew that he was under investigation by various state regulators, he accelerated his fundraising and accelerated the transfer of funds to his own accounts in Belize.”

    Harkless then fled to Mexico, prosecutors said. He tried to slip back into the United States in 2007, but was arrested by IRS special agents in Phoenix.

    The case featured the combined investigative tools of the Justice Department, the IRS, the SEC, the U.S. Postal Inspection Service and the FBI.

    Harkless “skimmed investor funds to finance a Mexican crab fishing business, pay personal expenses, and fund overseas bank accounts,” the SEC said today, in announcing the sentence.

    Three Harkless accomplices also have been sentenced to federal prison.

    Daniel Berardi, Thomas Hawkesworth and Randall Harding pleaded guilty and received sentences of up to six years each.

    Berardi and Hawkesworth were ordered to pay more than $11 million in disgorgement, prejudgment interest and civil penalties. Harding was ordered to pay more than $17 million.

    Investors in what MX Factors positioned as a government-guaranteed loans program were promised returns of up to 14 percent every 60 to 90 days and encouraged to keep their money in the system by “roll over,” prosecutors said.

    “The vast majority of MX Factors investors were ‘reloaded,’ meaning that they were convinced to invest money more than once,” prosecutors said.

    Much of the evidence in the case would sound like a familiar refrain to readers of autosurf Ponzi boards and surf promoters, although MX Factors was not an autosurf.

    “[S]everal victims testified that Harkless and his co-conspirators encouraged potential investors to try out the MX Factors program, investing in one 60- or 90-day cycle and then withdrawing their money to see if it worked,” prosecutors said.

    “Once victims felt more comfortable with the program, Harkless and his co-conspirators encouraged them to invest even more and to get their families and friends to invest as well,” prosecutors said.

  • OBSTRUCTION: Howard Richman Gets 3 Years In Prison For Lying To Federal Judge, SEC; Charge Resulted From False Cancer Claim In Bid To Derail Civil Case

    UPDATED 12:45 A.M. EDT (U.S.A. OCT 6) A former executive at Biopure Corp. has been sentenced to three years in prison for lying to a federal judge and obstructing an SEC investigation by claiming falsely that he was suffering from colon cancer.

    Howard Richman, 57, also was sentenced to three years’ supervised probation after his release and ordered to pay a $50,000 fine. Richman, who practiced podiatric medicine from 1978 to 1992, forged a letter and an affidavit from his doctor, and lied to his own attorneys by calling the law firm and posing as a third-party physician to pull off the fraud on the court.

    “Richman did not have cancer, and falsely claimed to be terminally ill in order to avoid discovery in the SEC’s case against him and to obtain a favorable settlement,” said the office of Acting U.S. Attorney Michael K. Loucks, in a joint statement with the FBI.

    Prosecutors had argued for a 21-month-sentence for Richman. U.S. District Judge Mark Wolf tacked on 15 more months than the government had sought, sentencing Richman to 36 months.

    Previously, Richman was banned from serving as an officer or director of any public company and ordered to pay a $150,000 civil penalty.

    “As a condition of his supervised release, Richman must enter into a payment plan with the Commission to pay the remainder of his $150,000 civil penalty,” the SEC said today.

    The case began as a claim that Biopure for months had failed to disclose to investors negative information about a synthetic blood product known as Hemopure. In April 2003, the Food and Drug Administration raised “serious concerns” about the product, questioned its safety and barred the company from conducting clinical trials of Hemopure on trauma victims, the SEC said.

    “Biopure, however, issued public statements beginning on August 1, 2003 describing the FDA’s communication as good news, causing its stock price to increase by over 20%,” the SEC said in 2003.

  • BREAKING NEWS: Arrests Made In Westridge Capital Management Case; FBI Alleges Massive Fraud

    Paul Greenwood
    Paul Greenwood

    UPDATED 7:18 P.M. EST (U.S.A.) The FBI has made arrests in the Westridge Capital Management case.

    Paul Greenwood and Stephen Walsh, principals in WCM and an arm known as WG Trading of Greenwich, Conn., both were arrested. WCM is headquartered in Santa Barbara, Calif.

    Greenwood and Walsh were arraigned this afternoon in New York. Bail was set at $7 million each.  They were freed pending a March 11 hearing before which they’ll need to demonstrate that they have at least $1 million in cash or property not connected to fraud.

    Authorities said they ran a huge financial scheme, converting tens of millions of client dollars to their own use.

    Included in the purchases were $80,000 Steiff Teddy bears at various auctions, including auctions at Sotheby’s, authorities said. A $3 million home also was purchased for Walsh’s ex-wife.

    Greenwood is the town supervisor of North Salem, N.Y., on the Connecticut border. He did not attend the community’s regular council meeting last night and has ducked media and financial investigators for days.

    Greenwood and Walsh were accused of securities fraud, wire fraud and conspiracy. They were sued last week by Carnegie Mellon University and the University of Pittsburgh amid fears that $114 million had been lost as a result of massive fraud.

    The Iowa Public Employees Retirement System (IPERS) severed its contract with WCM earlier this week, on the heels of the action by CMU and Pitt and in the wake of the suspension of Greenwood and Walsh from the National Futures Association for stonewalling during an audit.

    IPERS entrusted $339 million to WCM.

    Below are snippets from the federal criminal complaint, which accuses Greenwood and Walsh of using clients’ money to make personal purchases and transferring clients’ money to family members. Walsh, according to the complaint, made at least two transfers of $500,000 each to a bank account in the name of his wife.

    “From time to time, PAUL GREENWOOD and STEPHEN WALSH, the defendants, directed [an] Employee to wire funds from the Account to their own bank accounts, bank accounts in the name of their family members, and bank accounts of other persons and entities to pay for personal expenditures of GREENWOOD and WALSH that were unrelated to the business of WG Investors.

    “The Employee recalled effecting transfers to pay for, among other things, the following: (a) the purchase of expensive collectible items by GREENWOOD; (b) the purchase of horses by GREENWOOD; (c) transfers of cash to WALSH’s then-wife; and (d) transfers of cash for the purchase of an apartment for WALSH’s ex-wife pursuant to a divorce settlement,” said FBI agent James C. Barnacle Jr., in the complaint.

    Greenwood converted a farm once owned by the late actor Paul Newman into a horse-show center and was credited by North Salem residents as a responsible public steward.

    In secret, according to the FBI, Greenwood and Walsh were running a criminal financial enterprise.

    “At the beginning of each calendar year,” Barnacle said, “the Employee added up the transfers that GREENWOOD and WALSH had directed for their personal benefit and prepared a promissory note for GREENWOOD and WALSH to sign that included the amounts of money that GREENWOOD and WALSH had taken from the Account.

    “From time to time,” Barnacle said, “GREENWOOD directed the Employee to understate the losses reported to investors and include a portion of the losses in the promissory notes executed by GREENWOOD and WALSH. Thus, the GREENWOOD Notes and the WALSH Notes include amounts reflecting funds misappropriated for the personal benefit of GREENWOOD and WALSH and losses fraudulently hidden from investors.”

    Hundreds of millions of dollars cannot be accounted for.

    Invesigators called it a $1.3 billion scam. In a separate action, the Commodity Futures Trading Commission charged Greenwood, Walsh and others with fraud.

    “[The] Defendants treated investor money — some of which came from a public pension fund — as their own piggy bank to lavish themselves with expensive gifts,” said Stephen J. Obie, CFTC’s acting director of enforcement.

    Read the statement by the FBI and Acting U.S. Attorney Lev Dassin of the Southern District of New York.

    See this Bedford Magazine article in which Greenwood declares he has the largest collection of Steiff stuffed animals in the world.

    “Noah had nothing on us,” Greenwood told the publication. He claimed to own 1,350 Steiffs.

  • BREAKING NEWS: FBI Serves Papers On Stanford For SEC; Antigua Calls For Calm; BizAdSplash Asks Customers For More Money, Promotes 100 Percent ‘Matching’ Bonus Program

    FBI agents today located financier R. Allen Stanford in Virginia and served papers on him at the behest of the Securities and Exchange Commission. Stanford was not taken into custody.

    The SEC issued a statement:

    “At the request of the SEC, Special Agents of the Federal Bureau of Investigation’s Richmond Division today located and identified Stanford Financial Group chairman Allen Stanford in the Fredericksburg, Va., area. The agents served Mr. Stanford with court orders and documents related to the SEC’s civil filing against him and three of his companies. The SEC very much appreciates the outstanding assistance of the FBI in this matter.”

    Stanford and three of his companies were accused Tuesday of running a fraudulent, multibillion dollar investment scheme.

    His companies include Stanford International Bank (SIB) of Antigua; Houston-based broker-dealer and investment adviser Stanford Group Co. (SGC), and investment adviser Stanford Capital Management.

    Also charged were SIB Chief Financial Officer James Davis and Stanford Financial Group Chief Investment Officer Laura Pendergest-Holt.

    Meanwhile, the government of Antigua and banking officials in Antigua appealed for calm after customers flooded banks and tried to withdraw cash. The government of Antigua released two extraordinary statements urging customers not to panic.

    Read the statement from the Bank of Antigua.

    Read the statement from the Antigua & Barbuda Bankers Association.

    Elsewhere, the governments of at least five Latin America countries are investigating Stanford banking or securities outlets. At least one Stanford outlet in Venezuela was seized, and two in Ecuador were seized. Banking authorities in Panama also seized a Stanford outlet.

    Attorneys in the United States are investigating Stanford for running a Bernard Madoff-like Ponzi scheme through his network of companies.

    Regional Autosurf Ties

    AdSurfDaily Inc., a U.S. company accused of operating a $100 million Ponzi scheme, had at least $1 million on deposit in Antigua, according to court filings. At the same time, other firms involved in the autosurf business have been promoting their offshore locations in country’s such as Panama and Uruguay as a key selling point.

    Today, BizAdSplash, one of the surfs, told members about a special deal it was offering. BizAdSplash says it is registered in Uruguay; its servers resolve to Panama.

    Despite all the upheaval in the financial world — despite the alleged Madoff Ponzi, the alleged AdSurfDaily Ponzi, the alleged egregious financial abuses of Allen Stanford — BizAdSplash today encouraged customers to give it even more money.

    One promoter called the BizAdSplash news an “EXCITING MAJOR ANNOUNCEMENT!!!!: 100% Match Week.”

    Here is the deal BizAdSplash promoted today (italics added):

    Over the past week we have had a number of you contact us about your initial deposit and that you only purchased a small amount of Ad Packages just to test the system. Now you are ready to make a larger purchase. Your question is can we get the 100% match or discount on the cost of a larger Ad Package. Biz Ad Splash has agreed to open a small window for this 100% additional match. Any new purchases made from outside the system will be given the same benefit as your initial purchase and will be given the 100% match along with the sponsor match. This is only on purchases made on February 23 through February 28. This is a tremendous opportunity for all our Biz Ad Splash advertisers.

    Thank you for your patience while we are in our beta launch. We value your participation in Biz Ad Splash and we look forward to exceeding your expectations.

    The Biz Ad Splash Team