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Tag: Financial Fraud Enforcement Task Force

  • SCAMMER’S GAMBLE BACKFIRES: Fraudster Who Chilled Customer With Lawsuit Threat Pleads Guilty To Mail Fraud; Philip Pestrichello Faces Up To 20 Years In Prison After Plea In ‘Work-At-Home’ Caper

    Source: FBI.Â

    UPDATED 4:51 P.M. EDT (U.S.A.) A convicted felon who emerged from prison and almost immediately launched a $1 million fraud scheme known as PPSN threatened to prosecute and sue a consumer who had filed an online complaint, federal prosecutors said.

    Although the threat caused the consumer to withdraw the complaint against Philip Pestrichello, Pestrichello’s bid to rattle the consumer’s nerves ultimately backfired because he included a “fake lawsuit number” in a letter to the consumer. Prosecutors used the letter and Pestrichello’s checkered past to persuade a federal judge to deny him bail. He has been jailed since his February arrest, and now faces up to 20 years behind bars after entering a guilty plea in the case.

    In the threatening letter, Pestrichello advised the complainant that “we will proceed by filing a lawsuit against you in The State of New York and you will be subject to prosecution, fines and penalties including monetary damages,” prosecutors said.

    Pestrichello also threatened “victim-consumers who lodged on-line complaints warning others that PPSN was a scam,” prosecutors said.

    The Federal Trade Commission and the U.S. Postal Inspection Service worked together in the Pestrichello case, which was brought in February as one of the undertakings of President Obama’s Financial Fraud Enforcement Task Force.

    Pestrichello was running a scam enterprise known variously as “Preferred Platinum Services Network LLC” ; “PPSN LLC”; “Home Based Associate Program”;  and the “Postcard Processing Program,” prosecutors said. They added that he had been running scams since the early 1990s and had been sentenced to three years in prison in 2003 after being convicted of mail fraud in a work-at-home scheme known as “IMXT & Co.”

    His most recent scam began in 2007 while Pestrichello was on federal probation after serving his time for the 2003 mail-fraud conviction, prosecutors said.

    “For nearly 20 years, Philip Pestrichello has preyed on the especially vulnerable — the economically disadvantaged, the unemployed, the disabled, or elderly individuals — who are trying to supplement their income by working from home,” said U.S. Attorney Preet Bharara. “Pestrichello even began committing his work-at-home scam within one year from his release from prison for a prior scam. If Pestrichello thought he was unstoppable, he was wrong.”

    Pestrichello, 38, of Bayville, N.J., now has pleaded guilty to mail fraud in the PPSN case. He faces up to 20 years in prison when sentenced by U.S. District Judge Kimba Wood on Oct. 26. A fraud case against Pestrichello’s wife, Rosalie Florie, is pending, prosecutors said.

    It is common for fraudsters to threaten to sue customers, critics and journalists. Such threats were present in the $1.2 billion Ponzi scheme case of disgraced Florida attorney Scott Rothstein, who eventually was disbarred. He repeatedly threatened to sue a reporter who questioned his business practices in the weeks leading up the the exposure of the scheme.

    Threats against customers and journalists also were part of the alleged AdSurfDaily Ponzi scheme case. ASD President Andy Bowdoin, according to August 2008 court filings, told customers that he had set aside $750,000 to sue critics.

    “These people that are making these slanderous remarks, they are going to continue these slanderous remarks in a court of law defending about a 30 to 40 million dollar slander lawsuit,” Bowdoin said, according to federal prosecutors. “Now, we’re ready to do battle with anybody. We have a legal fund set up. Right now we have about $750,000 in that legal fund. So we’re ready to get everything started and get the ball rolling.”

    Less than a month after Bowdoin allegedly issued the threat in July 2008, the U.S. Secret Service raided ASD’s Florida headquarters. Prosecutors said the company was operating a $100 million Ponzi scheme and engaging in wire fraud and money-laundering.

    Even after the raid, some ASD members continued to threaten Bowdoin’s detractors. One ASD member suggested Bowdoin’s critics would be dragged off in handcuffs for speaking out against the autosurf firm, publishing his version of lyrics from the television program “COPS” to put a chill on the purported slanderers.

    “Bad Boys, Bad Boys, Whatcha Gonna Do?” he chanted on the now-defunct AdSurfZone forum, a predecessor site to the Pro-ASD Surf’s Up forum. “Whatcha Gonna Do>WHEN<THEY COME FOR YOU ?!!!”

    In June 2009, while the AdViewGlobal (AVG) autosurf was failing, members were threatened with lawsuits for sharing information that purportedly was “copyrighted.” Members also were told that they risked losing their Internet service for questioning the firm in public. Journalists who published information about AVG were threatened with lawsuits.

    When the Pathway To Prosperity HYIP scheme was collapsing in 2008, members were threatened with “expulsion,” according to court filings.

    “When complaints were made externally to service providers or supposed payment agents,
    scathing rebukes were made to the ‘members,’” according to court filings.

    In February 2010, Hospitalera.com Blogger Sybille Yates announced she had been threatened with a lawsuit for calling the INetGlobal autosurf a “scam” in September 2009.

    On Feb. 23, the U.S. Secret Service raided INetGlobal’s Minneapolis offices. An affidavit by the U.S. Secret Service described the company as operating an international Ponzi scheme. A federal probe into INetGlobal’s business practices is ongoing.

  • DEVELOPING STORY: Douglas Ballard, Banker Accused Of Lending Money For Guy Mitchell’s Alleged ‘Private Island In The Bahamas,’ Pleads Guilty; Case Part Of $1 Billion Failure Of Integrity Bank

    A Georgia banker accused of lending a now-accused Florida real-estate fraudster money to buy a “private island” in the Caribbean has pleaded guilty to conspiracy to commit bank fraud and to receive bribes, and to a single count of tax evasion, federal prosecutors said.

    Douglas Ballard, 40, of Atlanta, formerly was the executive vice president in charge of lending at Integrity Bank, a $1 billion institution that collapsed in August 2008 and was taken over by the Federal Deposit Insurance Corp. (FDIC).

    “Among the roots of our nation’s financial crisis were criminal acts by bank insiders and major borrowers that contributed to the failures or bailouts of financial institutions previously believed to be secure,” said U.S. Attorney Sally Quillian Yates of the Nortern District of Georgia.

    Ballard, Mitchell and Joseph Todd Foster, another Integrity vice president, were indicted under seal in April.  Mitchell, 50, of Coral Gables, Fla., is a developer. Foster, 42, of Atlanta, was in charge of risk management at the bank.

    Prosecutors now say Ballard has admitted that he conspired with Mitchell “to receive bribes from Mitchell and to assist Mitchell in receiving millions in loan draws under false pretenses.”

    Ballard, prosecutors said, “admitted in court to receiving over $200,000 in cash and other corrupt payments from Mitchell in exchange for Ballard’s assistance in distributing millions of loan draws.

    “During this same time, Ballard caused Integrity Bank to distribute nearly $20 million in loan proceeds to Mitchell’s personal account, much of which was allegedly used for Mitchell’s personal consumption (including the purchase of a private island in the Bahamas),” prosecutors said.

    About $7 million of the sum was related to draws on a “construction loan relating specifically to supposed construction and renovation at the ‘Casa Madrona,’ a luxury hotel owned by Mitchell in Sausalito, Calif.

    “The indictment alleges that none of this money was used for construction, and in fact no renovations had occurred,” prosecutors said.

    “While Mitchell was spending much of the loan proceeds on himself, the indictment alleges that [he] paid little, if any, of his money back to Integrity to satisfy interest payments,” prosecutors said in May.

    Instead, prosecutors alleged, “Mitchell paid interest on existing loans by taking draws or disbursements from other loans, and continually borrowed more and more money to keep paying the ever-increasing interest payments.”

    For his part, Foster pleaded guilty to securities fraud amid allegations of insider trading.

    Prosecutors said Foster “dumped his shares of Integrity stock based on his knowledge that the bank was facing an increasingly substantial but undisclosed risk that its major customer, Mitchell, would default on over $80 million in outstanding loans.”

    “These officers of Integrity Bank sure weren’t living up to the bank’s name,” Yates said in May, after the April indictments were unsealed. “While the developer was living the good life, even buying a private island with Integrity’s money, and the bank’s senior loan officer was making huge commissions and taking payoffs from the developer, the bank was dying a slow death. The defendants were going to leave the bank’s shareholders and the FDIC holding the bag, but now they are being held accountable.”

    The case was brought as part of the undertakings of President Obama’s Financial Fraud Enforcement Task Force.

    Mitchell paid about $1.5 million for the private island in the Bahamas, prosecutors said.

    “Those who line their pockets with profits of bank fraud schemes should know they will not go undetected and they will be held accountable,” said Reginael McDaniel, special agent in charge of  the IRS Criminal Investigations unit.

    No sentencing dates have been set for Ballard and Foster. Ballard faces up to 10 years in prison and a fine of up to $500,000. Foster faces up to 20 years in prison and a fine of up to $5 million.

    Mitchell has entered a plea of not guilty.

  • BULLETIN: KABOOM x 1,215! Feds Announce ‘Operation Stolen Dreams’ Mortgage-Fraud Sweep; 1,215 Defendants Charged In Largest Mortgage Scammer Takedown In U.S. History

    Attorney General Eric Holder announced the creation of the Financial Fraud Enforcement Task Force last year.

    BULLETIN: UPDATED 1:10 P.M. EDT (U.S.A.) At least 1,215 criminal defendants have been named in “Operation Stolen Dreams,” which U.S. Attorney General Eric Holder described as a “three and a half month takedown of mortgage fraud schemes throughout the country.”

    The mortgage-fraud operation began March 1 and is the largest-such undertaking in U.S. history, Holder said.

    “The staggering totals from this sweep highlight the mortgage fraud trends we are seeing around the country,” Holder said. “We have seen mortgage fraud take on all shapes and sizes — from schemes that ensnared the elderly to fraudsters who targeted immigrant communities. We have seen cases that have resulted in dozens of foreclosures and millions in losses, as well as fraudsters who have bankrupted entire companies and national lenders who were not playing by the rules.

    Holder said the defendants caused more than $2.3 billion in losses. “Operation Stolen Dreams” was brought as part of President Obama’s interagency Financial Fraud Enforcement Task Force. The attorney general was joined in the announcement by Sallie Cooper, deputy director of the IRS Criminal Investigation Unit;  Ken Jenkins, special agent in charge of the U.S. Secret Service Criminal Investigative Division;  FTC Commissioner Edith Ramirez; Ken Donohue, inspector general of the U.S. Department of Housing and Urban Development; FBI Director Bob Mueller;  Illinois Attorney General Lisa Madigan;  Chief Postal Inspector Bill Gilligan; and Jim Freis, director of the Treasury Department’s Financial Crimes Enforcement Network.

    Investigators did not limit the operation to criminal cases.

    “[T]he operation involved 191 civil enforcement actions through which more than $147 million has been ordered recovered, with still millions more pending court approval,” Holder said.

    “This represents the largest collective enforcement effort ever brought to bear in confronting mortgage fraud,” he noted. “The success of this operation is a direct result of our unprecedented focus not just on federal criminal cases, but also on civil enforcement, recovering funds for victims and increasing cooperation with state and local partners.”

    Mueller said the FBI was “tracking” fraudsters aggressively.

    “From home buyers to lenders, mortgage fraud has had a resounding impact on the nation’s economy,” Mueller said. “Those who prey on the housing market should know that hundreds of FBI agents on task forces and their law enforcement partners are tracking down your schemes and you will be brought to justice.”

    Fraudsters lining their pockets at the expense of others have plenty to worry about, said Donohue.

    “The last several years have seen enormous and damaging developments in the mortgage and housing markets, and the government has stepped in to bolster unstable marketplaces and devastated communities,” Donohue said. “The HUD-OIG, in partnership with other agencies, is deeply committed to ensuring that scarce resources are not diverted to those who seek to enrich themselves at the expense of those who so desperately need assistance today.”

    Holder, who ventured to Florida in January and warned fraudsters that they were writing their own tickets to jail, also noted that law-enforcement had broken up yet another Ponzi- and affinity-fraud scheme in the state.

    Suspects were arrested in the case yesterday, which targeted Haitian-Americans in South Florida.

    Arrested were Maxo Francois, also known as “Max Francois,” Jean Fritz Montinard, Aiby Pierre-Louis and Maguy Nereus, also known as “Maguy Jean-Louis.”

    The scheme involved businesses known as Focus Development Center Inc. and Focus Financial Group Inc., also known as Focus Financial Associates Inc.

    Investors were promised annual returns of 15 percent, but it was a Ponzi scheme, authorities said.

    The fraudsters used church presentations to pitch the scheme, prosecutors said.

  • KABOOM! KABOOM! KABOOM! KABOOM! KABOOM! 5 Separate Federal Probes Lead To Dozens Of Fraud Arrests In Multiple States; 1 Case Alleges Nearly $2 Billion Scheme

    Lanny Breuer, assistant attorney general and head of the Criminal Division of the U.S. Department of Justice

    BULLETIN: The U.S. government has announced charges against at least 43 defendants in five separate financial-fraud schemes, the largest of which allegedly involved $1.9 billion and contributed to the collapse last year of a bank with 346 branches and a mortage-lending company in Florida.

    Smaller schemes in cases outlined by federal prosecutors today involved tens of millions of dollars, including a New Jersey real-estate Ponzi scheme that netted $45 million, a California mortgage-fraud scheme that netted at least $5.5 million, a second California scheme that netted an unknown amount and another real-estate fraud scheme in New Jersey that netted at least $5.5 million.

    The youngest defendant charged in the cases was 27; the oldest 77.

    Law-enforcement operations were centered in the states of Florida, New Jersey, Virginia and California, and involved multiple agencies working under the umbrella of the Financial Fraud Enforcement Task Force established by President Obama in November.

    Lee Bentley Farkas, former chairman of Taylor, Bean & Whitaker (TBW), was arrested last night in Ocala, Fla. Farkas was named in a 16-count indictment filed in Virginia that accused him of presiding over a $1.9 billion fraud scheme that contributed to the failures last year of Colonial Bank, one of the 50 largest banks in the United States, and TBW, one of the nation’s largest privately held mortgage-lending companies.

    “The fraud alleged here is truly stunning in its scale and complexity,” said Lanny Breuer, head of the Criminal Division of the U.S. Department of Justice.

    “According to the indictment, the fraud began as early as 2002 in an effort to conceal significant TBW operating losses,” Breuer said. “It then evolved over the course of seven years as Mr. Farkas and his co-conspirators sought to misappropriate hundreds of millions of dollars from Colonial Bank and Ocala Funding, a mortgage lending facility that was controlled by TBW and financed by large banks.”

    Farkas and unnamed coconspirators compounded the fraud by asking for bailout funds from the federal Troubled Asset Relief Program (TARP), prosecutors said.

    “That [TARP] application included materially false information, and no TARP funds were released,” said Breuer.

    The case was brought by the office of U.S. Attorney Neil MacBride of the Eastern District of Virginia.

    “Taxpayers have paid a hefty price for the crimes related to the current financial crisis, and investors in Colonial and Ocala Funding were among those directly affected by this conspiracy,” said MacBride.

    Neil Barofsky, the Special Inspector General of the TARP program (SIGTARP), said the banking scheme was unprecedented.

    “Due to the efforts of SIGTARP agents, our law-enforcement partners, and the SEC, this scheme was stopped dead in its tracks, taxpayers were protected, and Lee Farkas has joined the growing list of financial industry executives who have been charged with TARP-related frauds,” Barofsky said.

    In one of the separate alleged schemes in New Jersey, 28 people were charged. (See link below to read the names of the defendants in the cases, which involve at least $5.5 million.)

    “These cases demonstrate just how pervasive the mortgage fraud problem is in New Jersey,” said U.S. Attorney Paul J. Fishman.  “Mortgage fraud is not limited to people who steal millions at a time.  It is more insidious.  It is more pernicious.  And it is more prevalent. Mortgage fraud is often done at a retail level, and involves many different people playing many different roles.  No matter what your role, if you participate in this kind of scheme, you will be held accountable.”

    Among the 28 defendants are 12 real estate agents, four investors, four mortgage consultants, three individuals who allegedly created fraudulent documents, two accountants, a real-estate appraiser, a bank employee and a mortgage broker.

    A veteran FBI agent described the New Jersey cases as a battle in an ongoing war against fraud.

    “Today’s arrests do not signify the culmination of a single investigation, but rather serve as notice that law enforcement is aggressively pursuing mortgage fraud schemes in New Jersey,” said Michael B. Ward, special agent in charge.

    In the second New Jersey case, Antoinette Hodgson, 58, of Montclair, was arrested on charges of operating a $45 million Ponzi scheme involving false tales of property-flipping. (See earlier story.)

    Meanwhile, 13 people were charged in a California real-estate fraud cases. U.S. Attorney Benjamin B. Wagner announced the indictments of Hoda Samuel, 58, of Elk Grove, Calif.; Connie Devers, 40, of Elk Grove; Dana Faulkner, 43, of Oakland; Charles Robert Maness, 32, of Elk Grove; Tracy Painter, 50, of Lodi, Calif.; Sean Patrick Gjerde, 34, of Elk Grove; Ronald Burris, 36, of Elk Grove; Ygnacia Bradford, 34, of Oakland; Nicole Dawson, 40, of Oakland; and Daniel Harrison, 40, of San Diego.

    Gjerde is an attorney;  Samuel a licensed real estate broker and the head of Liberty Real Estate and Investment Co. and Liberty Mortgage Co. of Elk Grove .

    “From April 2006 through February 2007, Liberty was involved in approximately 30 residential real estate transactions in which the mortgage lenders were given false information as to the income of the purchasers and/or the value of the homes being purchased,” prosecutors said.

    “At least 28 of the properties have since gone into foreclosure, resulting in a loss to lenders of over $ 5.5 million,” prosecutors said.

    Also in California, Eric Ray Hernandez, 34, Monica Marie Hernandez, 29, and Evelyn Brigget Sanchez, 27 were indicted in a mortgage-fraud case. Each of the defendants lists an address in Bakersfield.

    Link to names of New Jersey defendants.

  • New Jersey Woman Charged In Alleged $45 Million Ponzi Scheme; Antoinette Hodgson Faces Decades In Prison If Convicted

    A New Jersey woman was arrested this morning on charges she fleeced more than 20 Greater New York investors by engineering  a $45 million Ponzi scheme involving purported real- estate flips, the FBI said.

    Antoinette Hodgson, 58, of Montclair, New Jersey, was accused of conspiracy and wire fraud amid allegations she recruited clients by telling them they were investing in her real-estate business, which purportedly acquired residential properties and then resold them at a profit or rented them before being sold at a profit.

    In fact, according authorities, Hodgson spent “hundreds of thousands of dollars at casinos in Atlantic City and Las Vegas,” gave “tens of thousands of dollars” to family and friends and used investors funds to buy a Dunkin Donuts franchise in Arizona for $700,000.

    Of the $45 million she gathered in the scheme, only $6 million went toward residential real estate. Most of the money was used immediately to repay investors in “classic” Ponzi fashion, authorities said.

    “Antoinette Hodgson allegedly has already proved she’s a lousy gambler by losing the investor’s money in the casinos,” said George Venizelos, acting FBI special agent in charge. “She has now gambled with her future and faces serious charges for a plot of her own making.”

    U.S. Attorney Preet Bharara, who put his Complex Frauds Unit on the case,  warned investors that high-dollar scammers are on the prowl for their cash.

    “What Antoinette Hodgson allegedly promised to investors seemed too good to be true and that’s because it was,” said Bharara. “This case is a further reminder that whether the real estate market is up or down, innocent investors can be and will be targeted by unscrupulous fraudsters.”

    Prosecutors encouraged victims and witnesses to come forward by contacting Wendy Olsen-Clancy, the Victim Witness Coordinator at the United States Attorney’s Office for the Southern District of New York. Olsen-Clancy can be reached at (866) 874-8900 or via email at Wendy.Olsen@usdoj.gov.

    Here is the website for victims and witnesses:

    http://www.usdoj.gov/usao/nys/victimwitness.html

    The case was brought as part of the undertakings of President Obama’s Financial Fraud Enforcement Task Force.

    “The FBI will continue to seek out those who engage in all types of fraudulent real estate deals, bringing about certain justice for them and clearing a path for those who work hard to uphold the standards of our justice system,” Venizelos said.

    Fraudsters “in every sector of our nation’s economy” are being pursued for prosecution, Bharara said.

  • Ponzi Operator D.J. Harriett Pleads Guilty; Tells Judge He Attempted Suicide During Scheme’s Collapse And Also Is Suffering From Cancer

    David J. Harriett

    An Ohio man who fleeced more than 200 people in a $7 million Ponzi scheme tried to commit suicide in November when the scheme was collapsing and also is suffering from pancreatic cancer, the Warren Tribune-Chronicle is reporting.

    The story of David J. Harriett demonstrates the enormous emotional pressure on both perpetrators and victims in Ponzi cases.

    Separately, WYTV, the ABC outlet in Youngstown, is reporting that Harriett has advised a federal judge that he has only months to live.

    Harriett, 60, of Warren, pleaded guilty to mail fraud in the scheme yesterday in Cleveland. The case against him was brought last month as part of President Obama’s Financial Fraud Enforcement Task Force, U.S. Attorney Steven M. Dettelbach said.

    “These types of financial frauds, in which people portray themselves as legitimate investors but simply take their clients’ money, are a serious problem and we will continue to prosecute them vigorously,” Dettelbach said.

    Sentencing is scheduled for Aug. 18. Harriett faces a maximum of 78 months behind bars.

    Demonstrating the investing public’s discontent with Ponzi schemers, some of Harriett’s fleeced clients yesterday fretted that he might not live long enough for justice to be served. Harriett, whose website noted that he had gone on a Caribbean cruise in December 2008 in the months prior to the scheme’s collapse, is free on bond pending sentencing.

    Harriett admitted yesterday that he told investors he was a project manager for the construction of franchise restaurants for McDonald’s and Pioneer Chicken and that investors who helped him build the restaurants were given promissory notes that guaranteed the return of their investments with interest.

    His claims were false, the FBI said. No such construction contracts existed, and Harriett was using money from new investors to pay old investors in a Ponzi scheme.

    See our earlier report.

    Read the story in the Tribune-Chronicle.

    Read the report by WYTV. (NOTE: If you visit the WYTV site, a video accompanying the report is in the upper-right corner of the page. The video shows the types of emotions that Ponzi victims express.)

    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.

  • Head Of Justice Department’s Criminal Division Announces Guilty Plea Of Texas Man In Commodities Ponzi Case; Multiagency Crackdown Against Scammers Continues

    In yet another sign that U.S. policy is to turn up the heat on Ponzi and HYIP purveyors, the head of the Justice Department’s Criminal Division announced the guilty plea of a Texas man accused both criminally and civilly of running a Forex HYIP and Ponzi scheme.

    Ray M. White, 51, of Mansfield, faces up to 10 years in federal prison after pleading guilty yesterday to a criminal count of commodities fraud. The announcement was made by Assistant Attorney General Lanny A. Breuer, who was appointed to the post by President Obama in 2009.

    White also faces civil prosecutions by the SEC and CFTC.

    Breuer was joined in the announcement by U.S. Attorney James T. Jacks of the Northern District of Texas. Multiple news releases by the government yesterday in the White case referenced President Obama’s Financial Fraud Enforcement Task Force.

    The Obama administration has made Ponzi- and financial-fraud busting one of its top priorities. Ponzi schemes have drained tens of billions of dollars from the economy during a period in which the United States and much of the world are trying to rebound from a growth-killing recession.

    In January, U.S. Attorney General Eric Holder announced that fraudsters were writing their own tickets to jail.

    “White admitted that in July 2008 he contracted with an investor to sell $50,000 in commodities through CRW Management LP,” the Justice Department said. “[F]rom July 2008 until January 2009, he knowingly and willfully cheated and defrauded, made false statements to, and deceived the investor by making several misrepresentations in connection with the contract to sell commodities.”

    The scheme featured a claim “to the investor that his funds would be used to trade off-exchange foreign currency contracts and that CRW averaged 7 percent per week returns through off-exchange foreign currency trading,” the Justice Department said.

    Like many Ponzi schemes, “White provided written account statements showing purported returns, and represented to this investor that CRW would maintain separate bank accounts for each investor,” the Justice Department said. “White admitted that in fact, these account statements were false and that he did not maintain separate bank accounts for the investors.”

    Prosecutors said “the vast majority of the funds were never used to trade off-exchange foreign currency.”

    White, in fact, lost money in his trading scheme, despite his 7- percent- per-week profits claim, prosecutors said.

    White solicited at least $10.9 million from late 2006 until March 2009 from more than 250 investors,  according to the SEC and CFTC.

    “White used at most $93,900 of the $10.9 million he raised to trade in the foreign currency market,” prosecutors said. “The remaining approximately $10.8 million was either misappropriated or returned to CRW customers as part of the Ponzi scheme.”

    Prosecutors were quick to point out that White’s Ponzi meant pain for his family and others.

    “White used the funds to finance his son’s car-racing career, to purchase a company called Hurricane Motorsports LLC, in Arlington, Texas, and to purchase a home and other real property,” prosecutors said.

    He faces a maximum prison sentence of 10 years and a maximum fine of $1 million. U.S. District Judge Barbara M.G. Lynn is scheduled to sentence White on Sept. 17.

    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.

  • BULLETIN: Yet Another Florida Ponzi Scheme; SEC Accuses Luis Felipe Perez Of Operating $40 Million Fraud Backed By Fake Diamonds And Bogus ‘Pawn Shops’

    EDITOR’S NOTE: Here’s one for your Bubba Blue notebook on the various ways to have a Ponzi scheme, as opposed to shrimp.

    UPDATED 5:50 P.M. EDT (U.S.A.) A Miami man has been charged by the SEC with gathering $40 million in a Ponzi scheme, pocketing $6 million for himself and telling investors they were helping him finance his Florida jewelry businesses and pawn shops in New York.

    Investors believed their money was safe because it was backed by the man’s jewelry operations, diamonds and life insurance, the SEC said.

    The trouble with the claims of Luis Felipe Perez, according to the SEC, was that he “had no dealings with pawn shops and never provided financing to them.”

    UPDATE 5:50 P.M: Perez also has been charged criminally by federal prosecutors with six counts of securities fraud, after a probe by the U.S. Secret Service and U.S. Immigration and Customs Enforcement, according to U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida.

    The criminal case is part of an ongoing series of actions by the interagency Financial Fraud Enforcement Task Force, which President Obama established in November 2009, according to Ferrer’s office.

    At the same time, the SEC said, two “purported” jewelry businesses owned by Perez — Lucky Star Diamonds Inc. and Luis Felipe Jewelry Design Corp. — “did not generate sufficient revenue to pay investors’ principal and interest payments.”

    Clients did not know that “his primary source of money to pay investor returns was from new investors,” the SEC said.

    Although Perez said his offering was backed by “diamonds” in a bank safety-deposit box, the purported diamonds in the box “were fake,” the SEC said.

    Meanwhile, investors’ funds were not protected by a life-insurance policy as Perez had claimed because he had “defaulted on the policy premium” and allowed it to lapse, the SEC said.

    “Perez created an aura of success around him to lure old and new acquaintances into investing substantial sums of money,” said John C. Mattimore, associate regional director of the SEC’s Miami Regional Office. “Behind the luster of diamonds and jewelry, Perez told outright lies and made promises he couldn’t possibly keep.”

    While investors were imagining “guaranteed annual returns of 18 percent to 120 percent through monthly interest payments,” the SEC said, Perez spent $3.2 million of their money on a home, $1 million on jewelry for himself and his wife, $400,000 to lease luxury cars, $300,000 on clothing for his wife, $300,000 for travel by private jet and $100,000 on artwork.

    In addition, Perez paid himself a salary of $250,000, gave away more than $1 million to family members and made $100,000 in political contributions, the SEC said.

    The scheme collapsed in June 2009, when Perez “was no longer able to recruit new investors,” the SEC said.

    Because the scheme largely targeted Hispanics, it also had an element of affinity fraud, the SEC said. About 35 investors were affected.

    The U.S. Secret Service, U.S. Immigration and Customs Enforcement and the Miami Police Department assisted in the probe, the SEC said.

  • FBI, SEC Nab Pair Using Gmail To Run Insider-Trading Scam; Undercover Agents Responded To Offer To Sell Disney Earnings Report

    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.”

    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.

  • SEC: Another Florida Ponzi Scheme; Financial Fraud Task Force: Guilty Plea By Attorney In California Mortgage-Fraud Case, Plus New Indictments

    In a fast-moving news day on the fraud front, the SEC has accused two men and their Florida company of orchestrating a real-estate “promissory note” Ponzi scheme.

    Separately, the Financial Fraud Enforcement Task Force announced the guilty plea of a California attorney in a real-estate swindle, plus the indictments of seven other people in separate cases of mortgage fraud in California.

    In the SEC case, the agency accused Edward A. Allen and David L. Olson of Lakeland, Fla., and their company A&O Investments LLC, of conducting a fraudulent, unregistered offer and sale of approximately $14.8 million in securities.

    Although Allen and Olson allegedly pulled off the swindle in Florida, the case was brought in the Northern District of Ohio because part of the scheme operated in the Youngstown-area community of Boardman.

    “Allen and Olson’s representations about their use of offering proceeds, the collateral securing the investments, and the success of the investments were all false,” the SEC charged.

    Allen is 42; Olson is 59. Their scheme affected at least 100 investors in at least nine states, the SEC said.

    “As part of their money raising tactics, Allen and Olson convinced some of their investors to take out home equity loans so that they could invest the proceeds in the A&O promissory notes,” the SEC charged. “They persuaded other investors to refinance their home mortgages to interest-only loans with lower monthly payments so that they could invest the excess cash from the new interest-only mortgages in the promissory notes.”

    SEC: Investors Lulled By ‘Interest’ Payments

    It was yet-another case in which investors were lulled into a false sense of security because they were receiving payments even as a Ponzi scheme was occurring, the SEC said.

    “A&O made monthly ‘interest’ payments to the investors through approximately March 2008,” the SEC charged. “The regularity of the ‘interest’ payments led several investors to invest more money and caused others to encourage their family and friends to invest.

    “In approximately March 2008, A&O stopped making regular monthly ‘interest’ payments to most of the existing investors and investors began requesting the return of their investments. At that time, Allen and Olson admitted to A&O’s employees that they did not have enough money to make A&O’s March payroll. However, they continued to solicit investors and raised an additional $2.2 million from March through December 2008, some of which was used for payroll.”

    Allen and Olson also used about $2.2 million to pay personal expenses for themselves and their family members, about $3 million to pay A&O employees and other independent contractors, about $1 million to acquire, rehabilitate, and furnish a lavish office building from which they conducted A&O’s activities, and about $506,000 for other A&O-related operating expenses.

    Investors were left in the dark about how the men and the company were conducting business, the SEC said. The agency added that the deception ran wide and deep.

    “In addition, Allen and Olson also made payments for multiple start-up companies that Allen and Olson formed and controlled which were not involved with real estate,” the SEC said. “These companies had names such as Geriatric Care Partners, LLC, and Cornerstone International Ministries, Inc. Allen and Olson transferred approximately $959,000 of investor funds to those entities and used the vast majority of the funds for purposes unrelated to A&O’s real estate business.”

    California Mortgage Fraud

    Anthony G. Symmes, 59, of Paradise, has agreed to plead guilty to money-laundering and conspiracy to commit mail fraud for his role in a mortgage swindle and assist the government in an ongoing probe into the affairs of Garret G. Gililland.

    Gililland is under indictment in the Eastern District of California for mortgage fraud. He was extradited from Spain and jailed while awaiting trial.

    Symmes is an attorney, a CPA and a builder in the Chico area. The scheme involved the fraudulent sales of 62 houses. Symmes already has deposited $4 million for restitution, the Task Force said.

    The Symmes’ case started as a state investigation by a local district attorney and morphed into a federal probe as the local DA discovered more and more fraud, the Task Force said.

    “Greedy, crooked developers, appraisers, mortgage brokers, and others contributed significantly to the great mortgage meltdown of the past two years,” said Butte County District Attorney Mike Ramsey.

    “Greed led this formerly well-respected Chico developer down a path to his downfall and the destruction of a number of neighborhoods populated by good folks who have found their homes devalued by the empty foreclosures on their block,” Ramsey said.  “Once we discovered the complex, fraudulent scheme hatched here we began an extensive investigation. When we found the tentacles of this corrupt organization stretched beyond Butte County, we reached out to our federal partners for help. We are most gratified with the assistance and cooperation that has lead to the justice we see this day.”

    Federal agencies are attacking mortgage fraudsters aggressively, said U.S. Attorney Benjamin B. Wagner of the Eastern District of California.

    Schemers Causing Collapse Of Home Prices

    “The various schemes reflected in the cases announced today illustrate the many varieties of mortgage fraud,” Wagner said. “These types of crimes have a broad impact on our communities, not only weakening financial institutions and devastating individual victims of the fraud schemes, but also driving down the value of many families’ primary asset, their home. Rooting out and prosecuting fraudsters in the mortgage and real estate industries is an extremely high priority for the U.S. Department of Justice. We are working on other mortgage fraud investigations here in the Eastern District of California, and there will be more to come.”

    Tax criminals participating in mortgage fraud also will be weeded out, one of the region’s top tax investigators said.

    “IRS-Criminal Investigation takes mortgage fraud seriously,” said said José M. Martínez, assistant special agent in charge, IRS-Criminal Investigation. “The impact of these types of crimes cannot be overstated. Fraud in the mortgage industry has played a major role in almost crippling this nation’s economy, and directly affecting our tax administration system.”

    From 2006 through 2008, Symmes sold Gililland and Gililland’s associates 62 houses at artificially inflated prices, prosecutors said.

    “These fraudulent purchases were financed by mortgage lenders in the total amount of approximately $21 million,” prosecutors said. “Symmes wrote checks back to Gililland and his associates totaling approximately $2.5 million. These price rebates from Symmes were concealed from the lenders. To date, dozens of Symmes’s homes have been foreclosed or short-sold. Losses realized to date total almost $5 million and are expected to climb. Due to the volume of the artificially inflated prices on homes in Chico, Symmes and Gililland were able to create artificially high comparable sales that appraisers relied upon, affecting the overall new-home market in the Chico area.”

    Indicted in separate cases in Sacramento County were Lawrence Davis, 26, and Joel Clark, 27, both formerly of Sacramento and currently living in Las Vegas, and Eric Mortenson, 28, of Sacramento.

    The indictments were unsealed this morning after Clark and Mortenson were arrested by FBI and IRS agents in Sacramento and Las Vegas. The indictment charges them with conspiracy to commit wire fraud and wire fraud in connection with an alleged property-flipping scheme in the Sacramento County area.

    The federal case evolved from a state probe by the California Department of Real Estate, the Task Force said.

    Meanwhile, in Shasta County,  Jeremiah Andrew Martin, 32, of San Antonio, Darrin Arthur Johnston, 45, of Redding, Todd Allen Smith, 47, of Redding, and Cheryl Ann Hitomi Peterson, 47, of Redding, were indicted yesterday by a federal grand jury.

    The indictment was unsealed this morning when the defendants were arrested by FBI and IRS agents in Shasta County. All four defendants were charged with conspiracy to commit mail fraud, mail fraud and money laundering in connection with an alleged fraudulent foreclosure rescue scheme.

    Assisting in the case are the FBI and the IRS, the Task Force said.

  • Feds, State Team Up In Virginia To Short-Circuit White-Collar Crime Wave; ‘All Too Clear’ Problem National In Scope, Top Federal Prosecutor Says

    Neil H. MacBride

    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.”

    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.”

    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.”

    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.”

    The top postal official in North Carolina’s largest city said he’s on board the effort.

    StopFraud.gov - Financial Fraud Enforcement Task Force“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.”

    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.