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Tag: Glenn S. Gordon

  • BULLETIN: In New ‘Advertising’ Ponzi-Scheme Takedown, SEC Points To YouTube Video Allegedly Used By Scammers To Drive Sales — And Feds File Criminal Charges

    Screen shot of YouTube video playing today on the SEC's website.
    Screen shot from YouTube video playing today on the SEC’s website.  Among other things, the video shows two men admiring a Cadillac, two women admiring a swimming pool situated at a tony home with a lake view, two other men admiring an exotic vehicle, testimonials from apparent investors  — and a smiling pitchman throughout. The video helped drive business to a Florida-based Ponzi scheme that gathered tens of millions of dollars, the SEC and federal prosecutors said.

    Updated 2:45 P.M. EDT (April 16, 2014) The SEC has sued the operators of an alleged Ponzi scheme in Florida — and federal prosecutors have filed criminal charges.

    In its announcement of the prosecution against Joseph Signore of West Palm Beach and Paul L. Schumack II of Pompano Beach, the SEC provided a link to a YouTube video used by the alleged scammers. Separately, the office of U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida said the scheme gathered about $70 million from investors nationwide.

    Schumack, according to the SEC’s civil complaint, solicited investors by touting his military credentials and a  passage from 1 Corinthians 10:31: “Whatever you do, do it all for the glory of God.”

    Financial records, however, showed that Schumack’s business entity “transferred approximately $4 million from its investor account to an unrelated account from which Schumack and others executed more than 100 cash withdrawals totaling around $4.8 million, which was 91 percent of the account balance,” the SEC said.

    Signore, Schumack’s colleague and sales agent, is a convicted thief, the SEC said.

    Signore, 49, and Schumack, 56, were arrested for their alleged actions in the Florida Ponzi scheme. They are charged with “conspiracy to commit mail and wire fraud, five counts of mail fraud each, and six counts of wire fraud,” Ferrer’s office said.

    The men were at the helm of companies known as JCS Enterprises Inc. (Signore) and T.B.T.I. Inc. (Schumack) that touted “virtual concierge machines” or VCMs, the SEC said. The agency long has warned that YouTube and other social-media sites have been used to push investment-fraud schemes.

    Perhaps to further drive home its point, the SEC today posted the YouTube video to its own website. In one scene, a man is seen polishing a Cadillac. Another man says, “What an amazing car! How can you afford this?”

    The first man replies, “My Virtual Concierge.”

    A similar scene in the video played out at at home that featured a swimming pool.

    “Your new pool is spectacular. How are you able to afford it?” a woman asks. Another woman replies, “My Virtual Concierge.”

    A smiling narrator then intones, “Do you want to make more money? Then it’s time you learn about owning a Virtual Concierge.”

    “Signore and Schumack touted VCMs as a revolutionary enterprise and fail-safe investment based on a stream of advertising revenue that would generate the guaranteed returns paid to investors,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “However, the advertising revenue was virtually non-existent and investors aren’t enjoying the riches touted on YouTube.”

    From the SEC’s statement (italics added):

    The SEC alleges that Joseph Signore of West Palm Beach, Paul L. Schumack II of Pompano Beach, and their respective companies JCS Enterprises Inc. and T.B.T.I. Inc. falsely promised hundreds of investors nationwide that their funds would be used to purchase ATM-like machines that businesses could use to advertise products and services via touch screen and printable tickets or coupons.  Investors supposedly needed to do nothing to earn returns on their investment in a VCM, which would purportedly be placed at such locations as hotels, airports, and stadiums where they would derive revenue from the businesses paying to advertise through them.  However, instead of advertising revenue serving as the driving force behind the returns paid to investors, the two men and their companies paid returns to earlier investors using money from newer investors.  Signore and Schumack also diverted millions of dollars in investor funds for their personal use and other unrelated expenses.

    The “majority” of investors stopped receiving payouts in January 2014, but “Signore and Schumack continued to solicit new investors while fabricating excuses to placate irate investors no longer receiving their returns,” the SEC said.

    In the run-up to the collapse and feeling heat from investors, the SEC alleged, Signore’s JCS claimed it was “investigating” Schumack’s T.B.T.I.

    “JCS issued a press release, which it posted on its website, indicating it was investigating the matter,” the SEC alleged. “In denying any wrongdoing, JCS placed the blame squarely on T.B.T.I., and claimed it had only an arms-length relationship with T.B.T.I. This was patently false.”

    Records showed that “Signore personally used investor funds, including diverting approximately $2,000,000 to himself, his wife and son,” the SEC alleged. “Signore also diverted approximately $90,000 to a business jointly operated by himself and his wife, and approximately $44,000 to Schumack personally.”

    A website known as ATMHospitality.com was among the sites used in the scheme, according to the SEC’s complaint. The site, which appears to be registered in the name of Schumack’s wife, now resolves to a page that displays a photo of a Bible, a cross and an infant.

    In December 2013 2003 [edited April 16, 2014] Signore, the “chairman and president” of JCS, filed for bankruptcy, the SEC said.

    Signore also has a criminal history, the SEC said.

    “On February 10, 2006, Signore was adjudicated guilty per a plea agreement to theft charges emanating from two separate indictments brought by the State of New Jersey,” the agency said.  “Signore first pled guilty to charges he failed to share the proceeds from the sale of an automobile with a charity to which he was legally obligated. Signore had to pay $11,475 in restitution to the National Multiple Sclerosis Society, as well as nominal amounts to other organizations, and fees. Signore also pled guilty to unlawfully obtaining vehicles owned by Sears Roebuck & Company, selling the vehicles, and retaining the proceeds for himself and his co-defendant. He was sentenced to four years’ probation, restitution of $47,850, and other nominal fines and fees.”

    In 2011, the SEC said, JCS was registered as a Delaware corporation.

    “JCS and its investment offerings are not registered with the Commission in any capacity,” the SEC said.

    T.B.T.I. was incorporated in Florida in 2001, the SEC said.

    Like JCS, “T.B.T.I. and its investment offerings are not registered with the Commission in any capacity,” the agency said.

    Investors in the VCM program could “could choose between an aggressive or passive option,” the SEC alleged.

    “The aggressive option burdened investors with responsibility, but allowed for greater returns,” the SEC continued. “The passive option left the investor with no responsibility, required no effort, and guaranteed them $300 monthly returns per VCM. The Defendants continuously and clearly stressed the passive option as the best choice for the investors.”

  • SEC Goes After $42 Million In Alleged Ill-Gotten Gains From Arthur Nadel Ponzi; Neil And Christopher Moody Accused Of A Reckless Lack Of Due Diligence And Misleading Investors

    Arthur Nadel

    UPDATED 5:12 P.M. ET (U.S.A. JAN. 12) So, you want to mislead your clients about your role in your business, rely on the assertions of your business colleague and not perform thorough due diligence and double-check his claims that your investors are making enormous profits? Want to say later — after a Ponzi scheme collapses — that you didn’t know it was a Ponzi scheme?

    Those dogs won’t hunt, the SEC said today. A year after the alleged $350 million-plus Arthur Nadel Ponzi scheme collapsed, the agency has charged a father-and-son investment team — Neil and Christopher Moody of Sarasota, Fla. — with civil securities fraud for claiming they were managing hedge funds when the funds actually were being managed by Nadel, an attorney who was disbarred in the 1980s for using client funds to pay off loan sharks.

    “The Moodys led investors to believe that they were faithfully managing funds invested with them,” said Glenn S. Gordon, associate director of the SEC’s Miami Regional Office. “Instead, they abdicated their responsibilities to investors and ignored warning signs that should have alerted them to the fraud that was occurring all around them.”

    Neil Moody is 71; Christopher Moody is 35. They operated three hedge funds — Valhalla Investment Partners LP, Viking IRA Fund LLC and Viking Fund LLC. — all of which collapsed with the collapse of Nadel’s operation. The SEC said today that it is seeking the return of $42 million in ill-gotten gains from the Moodys.

    The Moodys distributed offering materials, account statements and newsletters to investors that misrepresented the hedge funds’ historical investment returns and overstated their asset values by as much as $160 million, the SEC charged.

    “[They] based their materials on grossly overstated performance numbers that Nadel created and provided to them, the SEC said. “The Moodys failed to independently verify the accuracy of the figures despite multiple red flags, and relied exclusively on Nadel’s inaccurate information when communicating with investors.”

    Christopher Moody’s attorney said his client is working to help recover assets.

    “The SEC’s complaint does not allege that Chris Moody knowingly intended to harm investors,” said Jeffrey L. Cox. “The complaint alleges recklessness which Mr. Moody neither admits nor denies. Mr. Moody has cooperated from the outset with the receiver in the recovery of assets and will continue to do so.”

    The SEC alleged that the Moodys lied about their roles in managing the assets of the three hedge funds by claiming that they controlled all of the investment and trading decisions.

    “In truth,” the SEC said, “under an arrangement that the Moodys had with Nadel, [Nadel] controlled nearly all of the funds’ investment and trading activities with no meaningful supervision or oversight by the Moodys.”

    NOTE: The next several paragraphs are taken verbatim from the SEC’s complaint against the Moodys. We added the italics.

    “During the relevant time period, the Moodys also recklessly relied on false information Nadel gave them to misrepresent the value of the Moody Funds’ assets in account statements provided to investors and in verbal communications with investors.

    “For example, one investor from Virginia who invested in Valhalla Investment Partners received a statement for October 2008 indicating his investment was valued at $1,170,363.92, and a November 2008 statement indicating his investment was valued at $1,176,848.66. These statements were false because the total value of the entire Valhalla Investment Partners’ holdings was only $9,425.66 at the end of both months.

    “Another investor who invested in the Viking IRA Fund received a statement for
    November 2008 indicating his investment was valued at $1,327,660.50. This statement was false because the total value of the entire Viking IRA Fund’s holdings was $629,728.01 at the end of November 2008.

    “Finally, another investor who invested in the Viking Fund received a statement for November 2008 indicating her investment was valued at $651,327.18. This statement was false because the total value of the entire Viking Fund’s holdings was only $30,929.70 at the end of November 2008.

    “At the time the Court appointed the Receiver in mid-January 2009, the account values for the Moody Funds were as follows: (a) Viking IRA Fund – securities worth $2,923.58 and cash of $77,025.20; (b) Viking Fund – securities worth $917.70 and cash of $65,708.33; and (c) Valhalla Investment Partners – securities worth $4,413.66 and cash of $16,158.05.

    Investigators said the Moodys did virtually no checking to protect investors from getting fleeced out of millions of dollars

    “The offering materials represented that the funds generated investment returns ranging from 10% to 46% between 2002 and 2008, the SEC said in the complaint against the Moodys. “These claimed returns were utterly bogus because the Moody Funds actually lost significant sums of money during those years.

    “The Defendants relied exclusively upon Nadel’s fictitious performance information when they represented to prospective investors the yearly historical returns of the Moody Funds,” the SEC said. “However, they failed to verify the accuracy of the information although they had ready access to documents and information that would have revealed that Nadel’s information was false.”

    Ignoring Red Flags

    NOTE: The next several paragraphs are taken from the SEC’s complaint against the Moodys. We have added the italics.

    “While claiming to actively manage and oversee the assets of the Moody Funds, the Moodys, in fact, relied exclusively on Nadel’s fictitious information when they provided the bogus account statements and baseless offering materials to investors. They failed to take any adequate measures to ensure the account statements and offering materials were accurate, and ignored several red flags that should have alerted them that Nadel was engaged in a massive fraud.

    “For example, the Moodys never reviewed the Moody Funds’ securities account statements to verify the accuracy of the information Nadel was providing.

    “In addition, they allowed Nadel to provide investment advice to the Moody Funds even though he repeatedly threatened to stop providing investment advice if the Moodys insisted on auditing the funds.

    “The Moodys furthermore allowed Nadel to exercise sole control over the Moody Funds’ securities accounts and account statements even after he refused to provide the statements to the Moodys accountant.

    “Despite knowledge of these facts, the Moodys never audited or examined the Moody Funds’ securities accounts. Nor did they review the monthly securities account statements, or implement any policies or procedures to monitor Nadel’s control of the Moody Funds’ assets. To the contrary, they allowed Nadel to exercise complete control of the Moody Funds’ assets and trading activities without any meaningful oversight or supervision.”

    The SEC’s actions against the Moodys occurred just three days after U.S. Attorney General Eric Holder gave a major speech in Florida on the Obama administration’s Interagency Financial Fraud Enforcement Task Force. The Justice Department and the SEC are among the agencies assigned to the Task Force, which is designed to coordinate the government’s response to fraud schemes that are plaguing the United States.

    Florida — perhaps more than any other state — has been plagued by financial fraud. In Sarasota alone, three major Ponzi scheme investigations are under way.

    Nadel, who was arrested last year after fleeing Sarasota, is jailed in New York. His trial is scheduled for April. Investigators say he employed an unlicensed accountant and simply made up numbers out of then air to keep the Ponzi scheme afloat.

    When investors requested redemptions late last year, Nadel fled.

    While Nadel was operating the fraud, “the Moody’s received management and performance fees from the Moody Funds totaling approximately $42 million,” the SEC said.

    In addition to the SEC’s actions, the Moodys have been sued by investors.

    The Moodys have not been charged criminally. Without admitting or denying the allegations in the SEC civil complaint today, they consented to permanent injunctions against future securities fraud violations and agreed to an order that will bar them for five years from associating with any investment adviser.