URGENT >> BULLETIN >> MOVING: Gregory N. McKnight, the operator of the $72 million Legisi HYIP Ponzi scheme popularized in part on the TalkGold and MoneyMakerGroup forums, has been sentenced to 188 months in federal prison for wire fraud and ordered to pay more than $48.9 million in restitution.
McKnight also was ordered to serve three years’ probation following his prison release. Legisi collapsed in 2008.
Legisi pitchman Matthew John Gagnon was sentenced last month to serve five years in federal prison and to pay $4.4 million in restitution.
The criminal cases against Gagnon and McKnight were prosecuted by the office of U.S. Attorney Barbara L. McQuade of the Eastern District of Michigan. The civil cases were prosecuted by the SEC.
Legisi bizarrely made members affirm they were not associated with the SEC, the IRS, the FBI and the CIA — along with “Her Majesty’s Police,” the Intelligence Services of Great Britain and the Serious Fraud Office.
Among Legisi’s payment processors was e-Bullion. The Legisi receiver is pursuing claims tied up after the 2008 arrest of James Fayed, the operator of e-Bullion.
Fayed was convicted in 2011 of ordering the murder of his wife, a potential witness against him. Pamela Fayed was slashed to death in a Greater Los Angeles parking garage in July 2008. The SEC brought the Legisi fraud prosecution in May 2008, just two months before Pamela was killed.
E-bullion has been linked to several Ponzi schemes. In court filings on June 6, receiver Robert D. Gordon said more than 85 percent of the $72.6 million directed at Legisi had flowed through the defunct processor.
The Legisi investigations were led by the SEC, the U.S. Secret Service and state regulators in Michigan.
This grainy likeness of Legisi HYIP operator Gregory N. McKnight appears in U.S. court files.
BULLETIN: Yesterday’s scheduled sentencing of convicted Legisi HYIP swindler Gregory N. McKnight has been delayed until Nov. 19, but federal prosecutors in the Eastern District of Michigan have asked U.S. District Judge Mark A. Goldsmith to sentence McKnight to 15 years in prison.
McKnight and Legisi relied on “semantic obfuscation” in which investors were told they were joining a “loan program,” not making an “investment,” prosecutors said.
A 15-year sentence is at “the top of the sentencing guidelines of 151-188 months” and “may serve to discourage others who are inclined to involve themselves in similar criminal conduct,” prosecutors argued to the judge.
In February, McKnight, 52, pleaded guilty to wire fraud in the Legisi Ponzi caper. The scam, which planted the seed a return of between .25 percent a day and 12 percent a month was possible, was popularized in part on Ponzi boards such as MoneyMakerGroup and Talk Gold.
Court filings show that Legisi used some of the same payment processors used by the AdSurfDaily Ponzi scheme, including e-Gold and e-Bullion. ASD operator Andy Bowdoin was sentenced in August to 78 months in federal prison.
“The principle mechanism by which investor funds would be funneled to defendant was through the utilization of the internet via digital currency, particularly e-gold and e-bullion,” prosecutors said in the McKnight sentencing memo. “The use of these non-traditional funding methods provided McKnight with the opportunity (at least for a while) to conduct the scheme below the radar of regulators.”
And, prosecutors pointed out, “[i]n 2007, the United States government seized the property in approximately 58 e-gold accounts due to various criminal violations, including McKnight’s account . . . Moreover, in 2008, e-gold and its operators were convicted of money laundering and conspiracy to defraud the United States . . . And in 2006, the United States government commenced a forfeiture suit against e-bullion for operating an unlicensed money transmitting business, wire fraud, and money laundering . . . James Fayed, the owner and operator of e-bullion, was later convicted in the State of California of having his wife murdered and sentenced to death row.”
Legisi gathered about $72 million. The SEC and the U.S. Secret Service led the probe, which resulted in civil charges against McKnight by the SEC and a criminal charge of wire fraud against him by the Secret Service.
Legisi pitchman Matthew John Gagnon also was charged civilly and criminally in the Legisi case.
From the prosecution’s sentencing memo on McKnight (italics added/bolding in original):
As if the exorbitantly high interest rates were not enough to induce investors into defendant’s scam, Legisi also offered a referral program whereby investors could earn a 5% to 7% commission on the amount of new funds that a referred investor placed in the program. As McKnight explained, “[a]s an Active Member of Legisi.com, you are encouraged to refer friends, colleagues, and your own website visitors to us and benefit from an additional source of income — a 5% – 7% incentive bonus for each new account opened by your referrals and on any and all future deposits from them!”
Legisi was an acronymn that stood for “Lucrative Electronic Gold Income Services International,” prosecutors said. HYIP schemes spread in part because unlicensed/unregistered brokers (such as Gagnon) push them online to earn “commissions.”
The MoneyMakerGroup Ponzi forum — one of the outlets from which Legisi was pushed — is specifically referenced in court filings in the Legisi case.
Zeek Rewards, which the SEC described last month as a $600 million Ponzi- and pyramid scheme selling unregistered securities, also was heavily pushed on the Ponzi forums. Zeek used both domestic and offshore financial vendors, including AlertPay and SolidTrustPay in Canada.
Zeek planted the seed it could provide a return of between 1 percent and 2 percent a day, far higher than Legisi’s maximum suggested payout of 12 percent a month. Like Zeek, ASD suggested a payout on the order of 1 percent a day. The ASD scheme gathered at least $119 million, federal prosecutors in the District of Columbia said.
ASD relied on wordplay to dupe investors. So did Legisi, prosecutors said in the McKnight sentencing memo (italics added):
In addition to operating a Ponzi scheme, McKnight committed various securities violations. While McKnight himself referred to Legisi as a “loan” program, and demanded that “members” not refer to their “loan” and an “investment,” Legisi was, in reality, an investment contract, which is considered a security and therefore regulated by the Securities and Exchange Commission. This semantic obfuscation was quite obviously an attempt to sidestep the securities laws.
From a footnote in the prosecution’s McKnight sentencing memo (italics added):
[Legisi] Investors originated from all 50 states and approximately 33 foreign countries (Australia, Bahamas, Belgium, Canada, Cyprus, Demark, England, France, Finland, Germany, Greece, Iceland, India, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Malaysia, Mexico, Nigeria, Philippines, Saudi Arabia, Singapore, Slovenia, South Africa, South Korea, Sweden, Spain, Thailand, Trinidad West Indies).
