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Tag: IRS

  • BULLETIN: Trevor Cook Charged Criminally With Mail Fraud And Tax Evasion In Alleged $190 Million Ponzi Case In Minnesota

    BULLETIN: Trevor Cook, the reputed head of a $190 million Ponzi scheme in Minnesota, has been charged criminally with mail fraud and income-tax evasion.

    Cook, 37, previously had been charged civilly by the SEC and the CFTC. The criminal charges filed today came after a probe by the FBI and the IRS Criminal Investigations Unit, working with the regulatory agencies.

    Prosecutors alleged Cook filed a false tax return in 2009, failing to report report taxable income of at least $5.2 million “upon which there was tax due in the amount of at least” $1.8 million, prosecutors said.

    Cook was charged via a criminal information, rather than an indictment. Such charging documents sometimes mean a defendant is negotiating with prosecutors.

    Prosecutors said Cook was “aided and abetted by others” in a scheme that fleeced at least 1,000 people “out of at least $190 million by purportedly selling investments in a foreign currency trading program,” prosecutors said.

    “In reality,” prosecutors continued, “he was diverting the money provided him for other purposes, including making payments to previous investors; providing funds to Crown Forex, SA, in an effort to deceive Swiss banking regulators; purchasing ownership interest in two trading firms; buying a real estate development in Panama; paying personal expenses, including substantial gambling debts; and acquiring the Van Dusen Mansion in Minneapolis.”

    The mansion has been sold by R.J. Zayed, the court-appointed receiver in the civil case. Zayed also has sold large-screen TVs and automobiles linked to the scheme, including a Rolls-Royce.

    Prosecutors said the Cook case was being tackled by the Financial Fraud Enforcement Task Force, which President Obama formed late last year.

    U.S. Attorney B. Todd Jones of  the District of Minnesota made the announcement of the criminal charges against Cook.

    Cook has been in jail since January as a result of a contempt of court order in the civil case, which was brought by the SEC and the CFTC.

    Former Christian radio host Pat Kiley also was charged in the civil case.

    The narrative of the Cook story occasionally has played out like a James Bond movie, with references to a submarine, an island retreat, Faberge eggs and foreign currency purportedly acquired by Cook with fraud proceeds.

    A real-estate agent ventured to Cook’s island in Canada during the winter on a snowmobile to get the lay of the land, according to court filings.

  • Secret Service, FBI, IRS Raid Steve Renner’s INetGlobal Operations In Minneapolis; Scene Resembled AdSurfDaily Raid In Florida

    UPDATED 10:40 A.M. ET (U.S.A.) Federal and state agents have raided the Minneapolis offices of Inter-Mark Corp., seeking evidence of a Ponzi scheme, the Star Tribune of Minneapolis/St. Paul is reporting.

    Inter-Mark Corp. is operated by Steve Renner, who also operates a purported “advertising” service known as INetGlobal. In a scene that resembled the August 2008 raid at the headquarters of Florida-based AdSurfDaily, agents in Minnesota were seen carting boxes of documents and computers.

    ASD was implicated in a $100 million Ponzi scheme.

    Renner has been under investigation for at least 17 months and likely longer. He was indicted on charges of tax evasion in September 2008, about a month after the ASD raid. He was convicted in December 2009 of evading more than $332,000 in taxes between 2002 and 2005.

    Renner, 54, “diverted substantial funds from his business, Cash Cards International (CCI), between 2002 and 2005 to pay his personal living expenses as well as to make personal investments in coins, oil wells, art, stamps, and vintage musical instruments,” prosecutors said in December.

    He also used CCI funds to promote his musical band, “Stevie Renner and the Renegades,” prosecutors said.

    “From 2001 to 2006, Renner owned CCI, an Internet-based stored-value card and money
    transmission business, with locations in Minnesota, South Dakota, and Hawaii,” prosecutors said. “Although he was legally obligated to file federal income tax returns and pay all federal taxes owed, he failed to file his income tax returns with the Internal Revenue Service for tax years 2002 through 2004 until March 5, 2006, the date on which he also filed his 2005 federal income tax return.”

    “Tax evasion is not a victimless crime,” said Julio La Rosa of the IRS, upon Renner’s conviction.

    “Honest, hardworking taxpayers pay the price when others choose to evade their tax obligations,” La Rosa said. “As this verdict shows, those that cheat will get caught.”

    Renner faces up to 20 years in federal prison in the tax case.

    Renner also is associated with a domain known as AdPacs.com, which is throwing a server error. It is believed that AdPacs promoters also promoted the AdViewGlobal (AVG) autosurf, which had close ties to ASD.

    Affiliates of Steve Renner's AdPacs.com pushed AdViewGlobal just prior to its February 2009 launch. This screen shot of search result that appeared online more than a year ago lists the name of Juan Fernandez, the CEO of AdSurfDaily. ASD is implicated in a $100 million Ponzi scheme. AVG launched AFTER the federal seizure of tens of millions of dollars in the ASD case. Like ASD President Andy Bowdoin, Fernandez took the 5th Amendment at an evidentiary hearing in September 2008. Now, Renner's company is the subject of a major federal probe. ASD sold "ad-packs." AVG referred to its version of "ad-packs" as "viewer impressions" after the phrase "ad-packs' became radioactive.

    As was the case with the ASD raid in Florida, local media caught the events at Renner’s office yesterday on video. Minnesota has been plagued by Ponzi schemes. Some ASD members from Minnesota have been among the loudest advocates for ASD President Andy Bowdoin.

    The Minnesota Financial Crimes Task Force assisted in the raid.

    Earlier this month, the Secret Service announced the formation of an Electronic Crimes Task Force (ECTF) based in Memphis. The agency also has ECTFs in St. Louis, Kansas City, New Orleans and Europe.

    “One of the top priorities for the Secret Service continues to be combating the computer
    related crimes perpetrated by domestic and international criminals that target the U.S.
    financial infrastructure,” said Secret Service Director Mark Sullivan.

    “The Secret Service, in conjunction with its many law enforcement partners across the United States and around the world, continues to successfully combat these crimes by working closely with experts from all affected sectors to constantly refresh and adapt our investigative methodologies.”

    Read the Star-Tribune’s coverage of the Steve Renner raid.

  • FBI Makes Ponzi Arrest In California; Peter Jerald Frommer Faces Up To 233 Years Behind Bars If Convicted On All Counts

    UPDATED 5:23 P.M. ET (U.S.A.) A California man has been arrested by the FBI and IRS criminal investigators in an alleged Ponzi scheme involving $12 million.

    Peter Jerald Frommer was taken into custody this morning, after a federal grand jury returned a 17-count indictment yesterday.

    Frommer, 34, formerly of Malibu, was charged with two counts of mail fraud, seven counts of wire fraud, five counts of money laundering and three counts of failing to file federal income-tax returns.

    Prosecutors said he faced a maximum sentence of up to 233 years in prison if convicted on all counts.

    “Frommer operated a bogus investment scheme under the names ‘Cap Exchange’ and ‘Cap X’ that purported to trade in surplus property of defunct companies,” prosecutors said. “[He] told numerous victims throughout the United States that he used commercial auction websites to purchase large lots of equipment for resale at higher prices.”

    Between January 2004 and August 2006, prosecutors said, Frommer allegedly solicited “at least $12 million from victims by promising ‘guaranteed’ returns of 8 percent to 15 percent during cycles as short as six weeks.”

    Investors were told Frommer would use their money “to buy the distressed assets for Cap X, and then would share profits from the subsequent sales,” prosecutors said.

    “In addition to personal promissory notes, Frommer issued account statements that purported to show returns in the Cap X investment,” prosecutors said.

    More than 50 investors were targeted in the scheme, including residents of California, Oregon, Virginia, Illinois and Massachusetts, prosecutors said.

    Frommer did not purchase distressed assets with the victims’ money, prosecutors said.

    “Instead, [he] allegedly misappropriated this money to maintain his lavish personal lifestyle and to make Ponzi payments to victims, while falsifying Cap X account statements to lull victims into believing that their money was safe and earning high returns,” prosecutors said.

    It has been a busy week for Ponzi prosecutors in California.

    Miguel Salazar, 36, of West Covina, pleaded guilty to mail fraud Tuesday. Prosecutors said Salazar ran a Ponzi scheme “that took nearly $700,000 from victims who thought they were investing in latex gloves, which were portrayed as being in high demand following the 9/11 terrorist attacks.”

    Salazar’s former partner, Carlos Flores, 43, of Lakewood, pleaded guilty to mail fraud in December.

    In other Ponzi news, an auction company is preparing to sell six vehicles linked to the alleged Trevor Cook/Pat Kiley Ponzi and financial-fraud scheme in Minnesota.

    Among the items set to go up for bid Feb. 13 is a 1989 Rolls Royce Silver Spur linked to Cook. The Cook/Kiley scheme is alleged to be a fraud of at least $190 million.

    In Utah, meanwhile, prosecutors said that Jeffrey Lane Mowen — accused in both a Ponzi scheme and a murder-for-hire plot in which potential Ponzi witnesses were to be killed — used Morse code as part of the murder plot.

  • IT’S OFFICIAL: Scott Rothstein Is A Racketeer; Disbarred Lawyer Pleads Guilty, Forfeits $1.2 Billion; FBI Cites ‘Red Flags,’ IRS Cites ‘Lies’

    Disbarred Florida attorney Scott Rothstein has pleaded guilty to a racketeering conspiracy that included mail fraud and wire fraud, and to two separate counts of wire fraud.

    “Today’s guilty plea is an important step in bringing to justice those who perpetrated a $1.2 billion Ponzi scheme under the guise of operating a legitimate law firm,” said U.S. Attorney Jeffrey H. Sloman.

    The case is far from over, even with the plea, Sloman said.

    “The U.S. Attorney’s office will continue to pursue all leads and evidence as they are uncovered,” Sloman said. “Rest assured, those who are criminally culpable will be held accountable. Victims can also take comfort in knowing that the United States will do everything it can to identify, seize and equitably refund fraud proceeds.”

    Rothstein, 47, of Fort Lauderdale, forfeited $1.2 billion, 24 pieces of real estate, luxury cars such as Bugattis, Rolls-Royces and Cadillacs, yachts, shares in businesses and more. He faces a maximum sentence of 100 years in prison.

    The elaborate Ponzi fraud included bogus legal settlements, forged court documents, fraudulent promissory notes, fraudulent campaign donations and gratuities paid to “high ranking members of police agencies,” prosecutors said.

    A senior FBI agent said Rothstein charmed millions and millions of dollars from investors.

    “Scott Rothstein used a classic approach to mislead investors — an ostentatious lifestyle, a charismatic personality and guarantees of sky-high returns — all red flags in the world of Ponzi schemes,” said FBI Special Agent in Charge John V. Gillies.

    “It is a lesson for all investors to learn that they need to look beyond the hype,” Gillies said.  “We will continue to work with our partners to investigate investment fraud schemes.”

    A senior IRS investigator said Rothstein traded on appearances.

    “This case shows that the appearance of success can be a mask for a tangled financial web of lies,” said Daniel W. Auer, IRS Special Agent in Charge. ‘This investigation is not over, as we are committed to ‘following the money trail.’  We will continue to pursue the evidence wherever it leads, leaving no financial stone unturned.”

    Rothstein’s sentencing is scheduled for May 5.

  • Hedge-Fund Manager With ‘Great Tan’ And Porsche ‘Getaway Car’ Sentenced To Decade In Prison For Ponzi Scheme; Judge Scolds Bradley L. Ruderman At Sentencing

    After Bernard Madoff’s Ponzi scheme was exposed in December 2008, Beverly Hills hedge-fund manager Bradley L. Ruderman wrote a letter to clients assuring them them their money was safe and deploring Madoff’s “chicanery,” federal prosecutors in the Central District of California said.

    “[S]uch disgraceful practices will never happen under my watch,” Ruderman declared in the letter.

    Less than five months later — on April 28, 2009 — the SEC charged Ruderman, 46, with defrauding investors and lying about his Ruderman Capital Partners and Ruderman Capital Partners “A” hedge funds.

    Ruderman had  falsely told investors that Lowell Milken, chairman of the Milken Family Foundation and Michael Milken’s younger brother, and Larry Ellison, chief executive officer of Oracle Corp., invested with him, the SEC said.

    And “Ruderman falsely told investors that the hedge funds had earned positive returns from 15% to 60% per year and had over $800 million in assets,” the SEC said. “In reality, the hedge funds lost money and had less than $650,000 in assets.”

    Criminal charges followed in May 2009. In August 2009, Ruderman pleaded guilty to two counts of wire fraud, two counts of investment adviser fraud and one count of not filing a tax return for 2007, a year in which he earned $2 million.

    He was sentenced yesterday, and U.S. District Judge John F. Walter admonished Ruderman.

    “He stole from individuals he knew for many years, who cared about him, had invited him into their homes and shared meals with him, who had known him since he was a child,” Walter said.

    Ruderman family members and friends lost $25 million in the scheme, prosecutors said.

    When Ruderman wrote the letter assuring investors he was no Madoff and that their accounts were safe, the judge said, “he was stealing their money.”

    After hearing a statement from a victim that Ruderman was no different than a convenience-store thief or bank robber except he had “committed his crimes with manicured nails, a great tan, wearing an Armani suit and the getaway car was a Porsche that his victims all paid for,” Walter sentenced Ruderman to 121 months in federal prison.

    Given the recent “staggering increase” in investor-advisor frauds, Walter said, he wanted to “send a message that these crimes will result in significant prison sentences.”

    FBI agents who reverse-engineered the crime determined Ruderman had lost “$5.2 million of investor money in clandestine poker games held on a regular basis in a suite at a luxury Beverly Hills hotel.”

    Meanwhile, the investigation revealed that Ruderman, like Madoff, had sent investors bogus account statements. At the same time, it revealed he had spent had spent at least “$8.7 million of investor money on personal expenses, including $200,000 each summer for a rented beach house in Malibu, two Porsches, $53,930 on sporting events, $896,000 in credit card charges and $327,000 in cash expenditures.”

    Walter ordered Ruderman to pay nearly $26 million in restitution to victims. The FBI and IRS conducted the criminal probe.

  • News, Notes And Updates: Jailed And Disbarred, Former Massachusetts Attorney Who Fleeced 95-Year-Old Client Arrested On New Charges

    EDITOR’S NOTE: This post distills recent news and development on the fraud and Ponzi fronts.

    CHARGED: Six people — including a disbarred attorney already in prison — have been charged in Massacuusetts in an elaborate mortgage-fraud scheme.

    Bruce Namenson, the former lawyer, was charged with 18 counts of of larceny for arranging bogus loan closings, sham notarizations and pocketing fraudulent proceeds from real-estate deals.

    Namenson, 47, of Walpole, Mass., already was in prison when arrested on the mortgage-fraud charges. In an earlier case, he was convicted of operating a complex scam in which both clients and insurance companies were bilked.

    One of the victims in the insurance-fraud case was a 95-year-old man, Massachusetts Attorney General Martha Coakley said.

    In the insurance case, which involved victims young and old, Namenson defrauded the 95 year-old client out of a $20,000 bodily injury settlement check.

    “The client had been injured in a car accident, and instead of paying the client a portion of the settlement, Namenson forged the client’s signature on a settlement release and settlement check, kept the money, and repeatedly told the client that his case had never been settled,” Coakley’s office said in 2008.

    Namenson also fleeced an injured, 15-year-old client out of most of a $100,000 settlement, prosecutors said.

    Charged in the new case with Namenson were Joshua Brown, 29, of Brockton, Mass; Brian Frank, 32, of New Hartford, N.Y.; John Sweetland, 28, of Yorba Linda, Calif; Linda Defeo, 28, of Springfield, Mass; and Brian Arrington, 39, of Boston.

    Brown, Frank and Sweetland are real-estate investors, Coakley’s office said yesterday. Defeo and Arrington are mortgage brokers.

    The real-estate scheme fleeced banks and borrowers out of $12.5 million, and involved bogus appraisals, submissions of bogus loan documents and misrepresentations to virtually every party in transactions tied to 26 distressed properties, prosecutors said.

    Brown, Frank and Sweetland skimmed $2 million from corrupt transactions, Coakley’s office said. Defeo and Arrington arranged for bogus loans, and Namenson presided over corrupt closings and pocketed money that was supposed to pay for title insurance.

    INDICTED: If you’re a Forrest Gump fan, this case might be one to add to a Bubba Blue list of the various ways to have a Ponzi scheme, instead of the various ways to have shrimp.

    John D. Terzakis, 52, of Hinsdale, Ill., and Robert E. Estupinian, 47, of San Jose, Calif., have been indicted in California on 12 felony counts of wire fraud, money laundering, and conspiracy to commit wire fraud and money laundering.

    A company operated by Terzakis and  Estupinian — Vesta Strategies of San Jose — was a Ponzi scheme, U.S. Attorney Joseph P. Russoniello said. Terzakis was the majority owner of Vesta and controlled its business activities. Estupinian, was the chief executive officer and minority owner of Vesta until December 2007.

    The scheme, according to prosecutors, involved the business of being a “qualified intermediary” in tax-deferred, real-estate exchanges under section 1031 of the Internal Revenue Service Code.

    “In general, a Section 1031 exchange allows taxpayers to avoid paying tax on capital gains by depositing the proceeds from an investment real estate sale, that would otherwise qualify as a taxable capital gain, with a qualified intermediary for up to 180 days,” prosecutors said.  “Under Section 1031, if the taxpayer purchases another investment property within those 180 days, the proceeds from the first sale may be rolled over into the new investment without being taxed as capital gains.”

    Although Vesta promised to hold funds as a qualified intermediary, Terzakis and Estupinian “stole client funds for their own use” and and also “used new client deposits to pay redemptions owed to earlier clients,” prosecutors said.

    Terzakis was arrested in Illinois. He made an initial appearance before a judge, who placed him on home confinement with electronic monitoring, pending a second appearance Jan. 13. Estupinian was arrested in California. He also made an initial appearance before a judge, and was placed on home confinement with electronic monitoring secured by a $1 million bond. His next appearance is scheduled Jan. 20.

    CONVICTED: Oren Eugene Sullivan, 63, of Rock Hill, S.C., has pleaded guilty to mail fraud in a Ponzi scheme.

    U.S. Attorney Walt Wilkens said Sullivan admitted that he ran a Ponzi scheme between 1995 and 2008 in which he sold false investments to 35 different individuals or groups of investors.

    “Sullivan told clients that he was managing their investment accounts, and paid small dividends to his investors,” prosecutors said. “However, he was actually converting their invested money for his own use, and paying the dividends with money he received from new investors. Over the course of the scheme, Sullivan took in approximately $2.5 million from unwitting investors.”

  • SENIORS HARMED: Judge Issues Findings In CFTC Case Against Matthew B. Pizzolato; Says Investors Lost Retirement Savings In Scheme

    A Louisiania man charged criminally in an alleged Ponzi scheme and sued civilly on the same day last month lied to investors, some of whom liquidated retirement savings and annuities only to suffer massive losses by entrusting funds to Matthew B. Pizzolato, a federal judge has ruled.

    The case against Pizzolato is proceeding on separate tracks: a criminal prosecution by U.S. Attorney Jim Letten with the help of the FBI, the IRS, the U.S. Postal Inspection Service and the State of Louisiana Office of Financial Institutions, and a civil prosecution brought by the Commodity Futures Trading Commission.

    U.S. District Judge Mary Ann Vial Lemmon of the Eastern District of Louisiana now has extended an asset freeze, enjoined Pizzolato from breaking commodities laws and issued some findings in the civil case.

    Pizzolato is  26. He formerly resided in Tickfaw.

    Among Lemmon’s findings were that Pizzolato and his co-defendants in the civil case — William Guidry, 35, of Plano. Texas, and Jacksonville, Fla., and Capital Funding Consultants LLC of Covington, La. — ripped off senior citizens. Guidry and Capital Funding’s assets also have been frozen, and they have been enjoined from breaking the law.

    “Specifically, the order finds that Pizzolato, as part of a broader scheme in which he solicited $19.5 million, obtained more than $3.1 million from 24 mostly elderly investors, which he gave to Guidry to invest,” CFTC said.

    “Despite representing to these elderly investors that their funds would be invested in safe, secure investments with guaranteed rates of return, Pizzolato gave the funds to Guidry to trade high risk commodity futures, among other things,” CFTC continued. “The order also finds that Guidry and Capital Funding misappropriated more than $221,815.53 of investor funds for personal purposes, and used some of those misappropriated funds to trade commodity futures in accounts owned by Capital Funding. The investors were not told about Guidry’s commodity futures trading losses. The order further finds that Guidry and Capital Funding commingled commodity pool participants’ funds with the funds of other persons.”

    In the criminal case, which is being heard by U.S. District Judge Lance M. Africk, Pizzolato was charged with 52 counts of mail fraud, two counts of wire fraud, seven counts of money laundering, and single counts of securities fraud, obstruction of justice and witness tampering.

    He faces more than 1,100 years in prison and a fine of more than $16 million, if convicted on all counts. As many as 160 people were duped, prosecutors said.

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

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

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

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

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

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

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

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

    Prosecutors said Joseph fleeced $5 million in the scheme.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    A veteran FBI agent called the crimes beyond the pale.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Read the Pizzolato indictment.

    See video on WWL-TV:

  • 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.