This Legisi “Quick Start Manual” showed investors how to open payment accounts at e-Bullion and e-Gold, both of which provided services to HYIP scams and both of which were implicated in international fraud schemes. e-Bullion operator James Fayed was convicted in 2011 of arranging the grisly murder of his wife, a potential witness against him. (Source: federal court files.)
UPDATED 5:08 P.M. EDT (U.S.A.) How dangerous and bereft is HYIP Ponzi Land? More than 85 percent of the $72.6 million directed at the Legisi HYIP Ponzi scheme before its May 2008 collapse flowed through the now-shuttered e-Bullion payment processor operated by convicted murderer James Michael Fayed, according to the court-appointed receiver in the Legisi case.
Receiver Robert D. Gordon — noting he has consulted with federal prosecutors — now is asking a federal judge in Michigan for an order that would authorize him “to receive and collect any remission or restoration of funds recoverable or payable to Legisi investors pursuant to forfeiture actions brought by the United States” in federal court in Los Angeles.
Fayed is sitting on California’s Death Row after his May 2011 conviction for ordering the brutal contract slaying of Pamela Fayed, his wife and a potential witness against him. Pamela Fayed was stabbed 13 times in a Greater Los Angeles parking garage on July 28, 2008. The Los Angeles Times reported her husband was seated on a nearby park bench “texting” on his cell phone while his alleged accomplices carried out the slaying.
Gordon asked Judge George Caram Steeh of the Eastern District of Michigan for the order on June 6. About two weeks earlier, federal prosecutors in New York brought criminal charges against the Liberty Reserve payment processor, alleging that it had orchestrated a $6 billion money-laundering conspiracy. Both Liberty Reserve and E-Bullion were popular with HYIP scammers and other criminals.
Legisi was a “program” promoted on Ponzi-scheme forums such as TalkGold and MoneyMakerGroup. The “program” resulted in both criminal and civil charges being filed against operator Gregory N. McKnight and online pitchman Matthew John Gagnon of Mazu.com. In 2010, the SEC described Gagnon as a serial pithman for fraud schemes and a “danger to the investing public.”
Sentencing for Gagnon had been scheduled for yesterday. It now has been moved to July 9. McKnight, whom prosecutors said engaged in “semantic obfuscation” to raise millions of dollars in his HYIP fraud scheme, is scheduled to be sentenced Aug. 6.
In his June 6 filing, Gordon alleged that McKnight “used e-Bullion as the vehicle to hold, receive and distribute funds from and to Legisi investors” and that McKnight used investor funds to invest in “various High-Yield Investment Programs.” He further alleged that Gagnon was a “prolific” user of e-Bullion and that “Mazu and Gagnon published on the mazu.com website how-to instructions for prospective Legisi investors to fund their accounts by opening an e-Bullion account.”
From the receiver’s June 6 filing (italics added):
The Department of Justice has established a remission process in the Central District of California to administer claims of former accountholders of e-Bullion a/k/a “Goldfinger Coin & Bullion.” McKnight, Legisi, and the majority of Legisi investors held accounts with e-Bullion. Mr. Gordon has made claims against the seized funds for the benefit of the Estates. In addition to direct claims on behalf of the Legisi-related entities, Mr. Gordon seeks to recover funds relative to Legisi investor accounts. To authorize such claims, officials at the Department of Justice have suggested an order from the Receivership Court stating: “Receiver is authorized to receive and collect any remission or restoration of forfeited funds recoverable by or payable to [Legisi Investors] pursuant to any civil or criminal forfeiture action brought by the United States in any federal jurisdiction.” Such an order would assist Mr. Gordon in recovering funds owed bynet winner investors and in compensating victims of the Legisi scheme.
E-bullion has been linked to multiple Ponzi schemes, including AdSurfDaily, Legisi, Gold Quest International and FEDI. The FEDI scheme has been linked to Abdul Tawala Ibn Ali Alishtari, also known as Michael Mixon. Ali Alishtari pleaded guilty in 2009 to financing terrorism and fleecing investors in the FEDI scheme.
When a jury sentenced Fayed to death in 2011, Los Angeles Superior Court Judge Kathleen Kennedy described him as “one cold, calculating human being.”
Here is how the U.S. Department of Justice is describing e-Bullion. (Note: this is reproduced verbatim from Gordon’s June 6 filing — with italics/bolding added):
e-Bullion was a web-based money transmitting business operated by James Michael Fayed. e-Bullion allowed individuals to depositmoney and purchase virtual “e-currency” that was purportedly backed by precious metal reserves maintained by Fayed’scompanies in the United States and Australia. Accountholders could use e-currency to trade in goods and services with other accountholders. Federal investigators determined that many operators of fraudulent investment schemes used e-Bullion to collect millions of dollars from victims, much of which was wired to overseas accounts.
In May 2011, Fayed was convicted of murdering his wife and is currently awaiting execution on California’s death row. On July 30, 2012, the United States Attorney’s Office for the Central District of California obtained a judgment in federal district court that resulted in the forfeiture of approximately $3.6 million in bank funds and $5.4 million worth of gold, silver, and platinum seizedfrom two entities formerly controlled by Fayed – Goldfinger Coin and Bullion (GCB) and Goldfinger Bullion Reserve Corp (GBRC).In a related matter, the Australian Federal Police obtained a judgment resulting in the forfeiture of approximately $13 millionin precious metals that were purchased and stored by Fayed in the Perth Mint in Australia. The funds forfeited in the Australia matterare also expected to be distributed to qualified e-Bullion accountholders through this remission process.
UPDATED 10:35 P.M. EDT (U.S.A.) Matthew John Gagnon, an HYIP huckster and promoter of the Legisi Ponzi scheme, has been hit with orders of disgorgement and penalties totaling more than $4.2 million, the SEC said.
Gagnon, of Portland, Ore., and Weslaco, Texas, was described by the SEC as a serial promoter of fraud schemes through his Mazu.com website.
“The Court found that Gagnon ‘purposefully built up an image of trustworthiness in the on-line investing community and exploited this trust,’” the SEC said. “The Court also found that Gagnon ‘repeatedly committed egregious violations of the federal securities laws’ and ‘has shown no remorse for his conduct.’”
U.S. District Judge George Caram Steeh of the Eastern District of Michigan presided over the Gagnon case, which the SEC brought in May 2010. The SEC case against Gagnon was not limited to his involvement in Legisi. It also addressed his involvement in a “resorts” securities-fraud scheme from which money was diverted to a recidivist felon, and his involvement in multiple Forex schemes.
Legisi, an HYIP fraud, had a considerable presence on the TalkGold and MoneyMakerGroup Ponzi forums. Legisi operator Gregory McKnight pleaded guilty to wire fraud last month.
Here is the breakdown of the financial penalties ordered by Steeh in the May 2010 case against Gagnon: $3,613,259 in disgorgement; $488,570.47 in prejudgment interest; and a $100,000 civil penalty.
Here is a snippet from Steeh’s order of permanent injunction against Gagnon (italics added):
“[Gagnon] explained that ‘I have a trader I represent in Europe that can trade your funds in amanaged account.’ Gagnon promised that investors in the European Trade Offer would experience ‘consistent monthly profits’ and ‘very few losing trades.’ Apparently, the European trader is ‘Juju,’ who is Jjunju Kateregga, a Ugandan national residing in Finland. Gagnon promoted Juju’s trading prowess after meeting him on the internet, exchanging emails and talking to him on the phone ‘a few times.’”
NOTE: The quoted passage above pertains to a purported “managed Forex trading” offer pitched by Gagnon after he moved on from Legisi. (Read the full order at Justia.com.)
In November 2011, the U.S. Secret Service filed a criminal complaint against Gagnon for his alleged wrongdoing in Legisi.
UPDATE: “Dave,” the purported “admin” of an increasingly bizarre HYIP known as JSS Tripler 2 (T2), has blocked public access to the T2 forum.
T2, which purportedly was born after a meeting of Ponzi-forum minds, is using payment processors notoriously friendly to Ponzi and fraud schemes. The “program” is trading on the name of a different Ponzi scheme even as it preemptively denies that T2 itself is a Ponzi scheme and advertises a return of 2 percent a day on top of referral commissions.
But payouts can’t be made because an AlertPay account in the name of “Chris,” an apparent one-time business partner of “Dave,” was frozen, “Dave” has asserted.
The action blocking the public from the forum was taken because naysayers were copying information from the forum and using it to make critical posts elsewhere, according to “Dave.”
Forum closures, post deletions, traffic blockages and leeching off the name recognition of other “programs” often are signatures of scams-in-progress. (See July 2009 story on the roller-coaster ride of the AdViewGlobal (AVG) forum, which rose from the carcass of the alleged AdSurfDaily Ponzi scheme and was accompanied by threats that AVG critics would be banned, sued or lose their Internet connections.) Similar claims have accompanied events at T2.
Purported ‘Scan’ Of MoneyMakerGroup
And “Dave,” posting on the T2 forum as “foradmin,” also claims he has performed “a scan over on [MoneyMakerGroup”] to “see who is turning against us and promoting T2 as a scam.”
“Dave” did not say precisely what his “scan” entailed or how he intended to hold naysayers accountable for their off-site posting activities. Nor did he explain how scanning MoneyMakerGroup for T2 traitors could help T2 solve its core problem: the apparent blockage of the “Chris” AlertPay account that was used to launch T2 in the fall of 2011.
Although “Dave” and “Chris” purportedly are battling electronically across continents, “Dave” purportedly is telling T2 members there is reason to be hopeful that onetime T2 business partner “Chris” will stop being a wretch long enough to get the “program” restarted, according to forum posts.
But even the amount purportedly trapped in the AlertPay account when the freeze ensued and things purportedly turned sour between “Dave” and “Chris” is in dispute. “Dave,” according to forum posts, has claimed at least two separate sums: $200,000 and $160,000.
The reporting disparity only leads to more questions about T2. “Dave,” according to forum posts, is advocating for T2 members not to file AlertPay disputes. T2 says it sells “dream positions” (DPs) for $10 each and something called “dream matrices” (DMs) for $20. T2 bills itself as the place “WHERE YOUR DREAMS COME TRUE.”
With a representation of a sparking-silver crescent moon encasing the phrase “2%” in glowing gold — and against a backdrop of twinkling stars in multiple sizes — T2 goes about the business of impressing website prospects.
Among the veteran hucksters in its ranks is Ponzi-forum legend “Ken Russo.”
OINKER ALERT: ‘Ken Russo’ Assesses Criminality Of ‘Chris’
“Ken Russo” — a man whose fraud bona fides only grow as he leads participants into one train wreck after another and habitually posts his “earnings” in forums listed in federal court filings as places from which Ponzi schemes are promoted — claims to have communicated with “Chris” and decided that the lack of follow-up communications from “Chris” suggests that “Chris has “committed a serious crime” and that he “should cooperate fully at this time.”
Whether “Ken Russo” called police on “Chris” is unclear. Also unclear is how any police investigation would proceed once officers determined that “Ken Russo,” too, was promoting a “program” whose advertised annualized return was on the order of 730 percent — with recruitment commissions on top of that — while simultaneously insisting it was not a Ponzi scheme after having been born on a Ponzi forum listed in federal court files and claiming to be trying to rebirth itself from Thailand.
The word “MoneyMakerGroup” is spelled out by a fraud victim in longhand in a 2008 evidence exhibit in the Legisi HYIP scheme, which triggered both civil (SEC) and criminal investigations (U.S. Secret Service) and charges. Legisi, another Ponzi forum darling, allegedly gathered more than $72 million and sparked an undercover probe by the Secret Service, which assigned an agent to pose as an interested investor.
Mazu.com operator and forum huckster Matthew J. Gagnon was charged both criminally and civilly in the Legisi case, with the SEC describing Gagnon as “a danger to the investing public.” Civil judgments totaling more than $2.5 million have piled up against Gagnon. The evidence exhibit filed in the case (referenced above and partially displayed on the right) shows “Money Maker Group.com” in longhand, along with Gagnon’s name and phone number in longhand.
“Dave” asserted last week that “Chris” would be arrested — and then “Dave” purportedly left England for Thailand, apparently with the expectation that an unidentified police agency would mop up on “Chris” after “Dave” boarded a plane for the Indochina Peninsula.
Thailand now has emerged as the purported venue from which “Dave” now claims he is back in communication with “Chris,” after “Chris” purportedly had ducked him in England when both men were in the country simultaneously.
After being subjected to arrest threats, “Chris,” according to Dave, is starting to understand that he is in an impossible legal thicket and is displaying a willingness to solve the purported AlertPay problem.
“Chris,” according to “Dave,” apparently also recognizes that T2 members who live in England might pose a localized threat to “Chris,” something that reportedly has made “Chris” more amenable to making sure money gets back in the hands of T2 members.
“Dave” did not say what police agency he purportedly called on “Chris.” Whether “Chris” will construe “Dave’s” purported actions and the prospect of local menacing by individual T2 members as extortion bids is unclear.
Despite preemptively denying T2 is a Ponzi scheme, “Dave,” appears not to recognize that prosecutors might construe at least one of his forum remarks as a virtual confession that T2 was selling unregistered securities as investment contracts and positioning the “program” as a passive investment opportunity.
“Dave,” according to “Dave,” worked his “ass” off and created a condition under which members “can sit and watch TV and make a fantastic return.” Meanwhile, the T2 website claims that “Dream Positions are perfect for the ‘passive type’ member.”
Faith Holds Forth
HYIP aficionado Faith Sloan has trained her sights on both “Dave” and “Ken Russo.”
Sloan, who published a “JSS Tripler2 (T2) Calculator” on her Blog and speculated that her “$1500 outlay of cash” compounded for 75 days would morph into an “account value of $6,623.75” of which “$5,123.75” would be profit, announced that “Dave” booted her off the T2 forum — apparently for making him look bad.
Events at T2, she now ventures, may be “borderline insane.” And “Dave” may be “EXTREMELY INCOMPETENT” or perhaps “just a little SCAMMER boy” — if not a “hybrid mix.”
In July 2010, the Financial Industry Regulatory Authority (FINRA) ran a public-awareness campaign that warned about HYIP scams that spread on social-media sites. FINRA described the HYIP sphere as a “bizarre substratum of the Internet.”
Pathway To Prosperity generated more than $70 million and created 40,000 victims from 120 countries, according to court filings.
Whether Sloan acquainted herself with FINRA’s public-awareness campaign about HYIPs and documents by Professor James E. Byrne that explained the alleged fraud behind Pathway to Prosperity is unclear. Also unclear is whether Sloan is aware that the U.S. Department of Justice has spotlighted the Pathway To Prosperity case as an example of international mass-marketing fraud.
What is clear is that T2’s asserted payout rate is nearly as absurd as Pathway to Prosperity’s. It’s also clear Faith Sloan — despite her T2 calculator — is publicly challenging fellow HYIP purveyor “Ken Russo” to get real.
“Ken Russo,” Faith Sloan declares on her Blog, is “a crybaby!”
And “Ken Russo,” she asserts, made a bad call on a program known as “Dollar Monster” and has “NOT made any money with his $24000.00 in JSSTripler2 . . .”
“Oopsies,” she chides “Ken Russo.”
Whether “Ken Russo” actually has $24,000 riding in T2 is unclear.
URGENT >> BULLETIN >> MOVING: Matthew J. Gagnon, an alleged online pitchman for the Legisi HYIP Ponzi scheme, has been named in a criminal complaint filed by the U.S. Secret Service.
Gagnon, 42, of Portland Ore., and Weslaco, Texas, was accused civilly by the SEC in 2010 of being “a danger to the investing public,” amid allegations he promoted multiple fraud schemes — including Legisi — on his Mazu.com website.
He is accused in a Secret Service affidavit filed Nov. 28 in the Eastern District of Michigan of not disclosing $1.7 million in payments from Legisi while he was touting it to “the investing public” between January 2006 and May 2007.
Legisi, the Secret Service said in the affidavit, was a “massive Ponzi scheme” that gathered about $72 million from more than 3,000 investors before the fraud was exposed.
Among the allegations against Gagnon is that he promoted Legisi’s unregistered offering as exempt from registration requirements and “literally the greatest” program he had “ever seen. ” (The complaint includes several specific allegations about how Gagnon promoted Legisi. One promo attributed to Gagnon by the Secret Service shows that Gagnon used six exclamation points in a single paragraph consisting of about 66 words.)
Like Florida-based AdSurfDaily, Legisi has been linked to E-Bullion, the shuttered California payment processor operated by James Fayed. Fayed, 48, was formally sentenced to the death penalty last month for arranging the brutal contract slaying of Pamela Fayed, his estranged wife and a potential witness against him before she was slashed 13 times in a greater Los Angeles parking garage in July 2008.
Legisi also was promoted on Ponzi boards such as TalkGold and MoneyMakerGroup. The Legisi Terms of Service, according to federal court filings, included language that made members avow they were not an “informant, nor associated with any informant” of the IRS, FBI, CIA and the SEC, among others.
EDITOR’S NOTE: The remarks below are excerpted from a speech last week in New York by Assistant U.S. Attorney General Lanny A. Breuer. As the PP Blog has previously reported, the Justice Department and agencies such as the FBI and U.S. Secret Service have been using undercover operatives to infiltrate criminal operations and networks used by the criminals.
One of the FBI investigations Breuer referenced was the Trevor Cook Ponzi scheme in Minneapolis. The scheme consumed tens of millions of dollars, defrauding victims of at least $158 million. Many mysteries remain in the case.
Meanwhile, undercover operatives also recently were used to expose penny-stock schemes operating in Florida.
It also is known that the Secret Service used undercover operatives in the AdSurfDaily case, the INetGlobal case, the Regenesis 2×2 case, the Legisi case and a case involving alleged international fraudster Vladislav Horohorin, accused of using criminal forums to peddle stolen credit-card information.
Here, now, some excerpts from Breuer’s speech . . .
Part of Trevor Cook's stash.
“Now, as I’m sure you know, financial criminals can be extraordinarily innovative, and they are often expert at covering their tracks. So we are always looking for creative ways to gather the evidence we need to bring financial criminals to justice. To that end, we have begun increasingly to rely, in white collar cases, on undercover investigative techniques that have perhaps been more commonly associated with the investigation of organized and violent crime.
“As part of this effort, we have significantly strengthened the Criminal Division’s Office of Enforcement Operations (known as OEO), which is the office in the Justice Department that reviews and approves all applications for federal wiretaps from across the country. We have a dynamic new OEO Director, Paul O’Brien, and we’ve substantially increased the number of attorneys at OEO who review these wiretap applications, adding to their ranks experienced prosecutors and recent graduates who have completed federal clerkships. As a result, the number of wiretaps we authorize – in all types of cases – has gone up.
“Let me give you just two examples of white collar cases in which we have used undercover techniques, both of which also highlight areas in which we have stepped up our white collar enforcement efforts more generally.
“The first example is the case of Trevor Cook, which was prosecuted by the U.S. Attorney’s Office in Minneapolis. Mr. Cook is just one of dozens of individuals whom we’ve prosecuted in recent months for participating in investment fraud schemes. Over the course of several years, Mr. Cook schemed to defraud at least 1,000 people out of approximately $190 million by pretending to sell them investments in a foreign currency trading program.
“In reality, he was pocketing the money or using it to pay off other investors. As was recently reported in the New York Times, we gathered evidence against Mr. Cook by using an undercover informant to record his transactions and conversations. [Cook] pleaded guilty earlier this year and was recently sentenced to 25 years in prison.
“Trevor Cook is one of literally hundreds of financial criminals who have preyed upon vulnerable, individual investors and bilked them out of their savings using investment fraud schemes. And as with Mr. Cook, we have been prosecuting these people aggressively, all over the country – from New Jersey and Connecticut to Texas and California, and everywhere in between.
“The second example comes from our enhanced efforts in the area of FCPA enforcement. Earlier this year, as I’m sure many of you know, we indicted 22 defendants in the military and law enforcement products industry for their participation in widespread schemes to bribe foreign government officials. These indictments resulted from the Department’s most extensive use ever of undercover law enforcement techniques in an FCPA investigation, and they represent the single largest prosecution of individuals in the history of our FCPA enforcement efforts. In September, one of the defendants in the case, Richard Bistrong, pleaded guilty . . .
“Over the last 18 months, we’ve devoted significant additional resources to the Criminal Division’s Fraud Section. We’ve recruited talent not only from white shoe law firms, but also from a deep pool of prosecutors around the country who bring with them extensive experience in prosecuting everyone from violent mobsters to dangerous terrorists. We are now bringing that extraordinary talent and experience to bear on prosecuting financial fraudsters.”
A federal judge has extended the freeze on the assets of a website operator accused by the SEC of shilling for a Ponzi schemer and then trying to extort money from the schemer when the fraud was collapsing.
Severe restrictions placed on Mazu.com operator Matt Gagnon by U.S. District Judge George Caram Steeh of the Eastern District of Michigan illustrate the financial and legal dangers of using the Internet to promote murky businesses. At the same time, orders issued by Steeh destroy myths advanced on Ponzi forums that website operators are insulated from prosecution and that their business contacts and customers cannot be sucked into a Ponzi probe.
Demonstrating the life-altering nature of Ponzi schemes and the monumental legal entanglements and inconvenience that flow from such schemes, the judge also ordered Gagnon to submit a “sworn” statement “each Friday” to the SEC. The order requires Gagnon to account for “all funds received” during the week, including funds received “by others on his behalf.”
Steeh also ordered Gagnon and his “officers, agents, servants, employees, attorneys, nominees, banks, brokers, dealers, financial institutions, and those persons in active concert or participation with any one or more of them” not to destroy evidence.
Steeh’s order applies to “books, records, documents, correspondence, ledgers, accounts, statements, files, electronically stored information, and other property of or pertaining to the Defendant,” regardless of the location of the information.
At the same time, the judge ordered expedited discovery in the case and freed up $2,000 for Gagnon “to pay living expenses.”
Gagnon was accused in May of using his website to pitch the alleged Legisi HYIP Ponzi scheme, which the SEC described as a $72.6 million fraud. The judge’s orders followed on the heels of an awareness campaign by the Financial Industry Regulatory Authority (FINRA) to educate the public about HYIP schemes and the filing of criminal charges by the U.S. Postal Inspection Service against Nicholas Smirnow, accused of operating a $70 million Ponzi HYIP scheme known as Pathway to Prosperity (P2P).
FINRA issued its HYIP warning on July 15, calling the HYIP universe a “bizarre substratum of the Internet†and saying “HYIPs are old-fashioned Ponzi schemes dressed up for a Web 2.0 world.â€
In May, federal prosecutors declared in court filings in the P2P case that “[a] large percentage, if not all, HYIPs, are Ponzi schemes.†In its HYIP alert, FINRA built on that theme, declaring that “[v]irtually every HYIP we have seen bears hallmarks of fraud†and noting that schemers were using websites, forums and social-media sites such as Twitter and Facebook to spread Ponzi misery globally.
“From January 2006 through approximately August 2007, Gagnon helped orchestrate a massive Ponzi scheme conducted by Gregory N. McKnight . . . and his company, Legisi Holdings, LLC,†the SEC said.
“Gagnon promoted Legisi but in doing so misled investors by claiming, among other things, that he had thoroughly researched McKnight and Legisi and had determined Legisi to be a legitimate and safe investment,†the SEC said.
Among other things, the SEC alleged that Gagnon “had no basis for the claims he made about McKnight and Legisi.
“Gagnon also failed to disclose to investors that he was to receive 50% of Legisi’s purported ‘profits’ under his agreement with McKnight,†the SEC said. “Gagnon received a net of approximately $3.8 million in Legisi investor funds from McKnight for his participation in the scheme.â€
In its complaint against Gagnon, the SEC alleged he moved from one fraud scheme to the next and even had promoted a scheme operated by the late Bryan K. Foster, a convicted felon. Some of the money from the alleged Legisi Ponzi scheme ended up in the control of Foster, who was running a purported investment program of his own.
The allegation that proceeds from one fraud scheme ended up as proceeds of a second scheme demonstrates the interconnectivity of schemes in the age of the Internet.
“Gagnon has been unrelenting in his efforts to raise money from the public through fraudulent, unregistered offerings,†the SEC said in May. “He remains a danger to the investing public.â€
See earlier story titled “Requiem For The Forum Pimps . . .” The story discusses some of the history of the Legisi Ponzi case.
EDITOR’S NOTE: It has become increasingly clear that regulators and the law-enforcement community are rallying around a common theme that web-based promoters are using discussion forums and social-networking sites in bids to sanitize HYIP Ponzi schemes by positioning them as attractive investment opportunities and even a thrilling form of gambling that pays commissions.
Today the Financial Industry Regulatory Authority (FINRA) launched an awareness campaign aimed at taking the lipstick off financial pigs and exposing them for the economy-killing, filthy hogs they are. FINRA did not mince words, calling the HYIP universe a “bizarre substratum of the Internet.”
Here, now, the story . . .
The Financial Industry Regulatory Authority (FINRA) has launched a public-awareness campaign and issued an investor alert on HYIP schemes that use social-media sites such as YouTube, Twitter, Facebook and online forums and “rating” sites to spread Ponzi misery globally.
“HYIPs are old-fashioned Ponzi schemes dressed up for a Web 2.0 world,” said John Gannon, FINRA’s senior vice president. “Some of these schemes encourage people to bring in new victims, while others entice investors to ‘ride the Ponzi’ by attempting to get in and get out before the scheme collapses.”
FINRA is supplementing its educational campaign with an advertising campaign.
“By using Google AdWords, we are hoping to reach anyone searching the Internet for HYIPs before they fall into the hands of con artists,” Gannon said.
FINRA’s campaign occurs against the backdrop of remarkable law-enforcement actions against the alleged Legisi Ponzi scheme pushed by Matt Gagnon of Mazu.com, the alleged Pathway To Prosperity (P2P) Ponzi scheme pushed on forums such as ASA Monitor, MoneyMakerGroup, Talk Gold and MyCashForums, and the collapse of an HYIP known as Genius Funds.
It also occurs against the backdrop of “prelaunch” buzz surrounding a mysterious program known as WebsiteTester.biz, which is spreading virally on the Internet through electronic news releases, references on promoters’ websites and daily updates on Twitter.
Promoters’ advertising is heavy for WebsiteTesterBiz, despite the fact the company’s domain name is registered behind a proxy, its purported parent company’s domain name is registered behind a proxy and there is a paucity of any verifiable information about either firm.
FINRA specifically referenced the alleged P2P Ponzi in its educational materials. It also provided a link to information published about the collapsed Genius Funds HYIP by the British Columbia Securities Commission. Alarmingly, FINRA said the Genius Funds’ fraud costs investors a staggering $400 million.
Federal prosecutors who filed criminal charges against P2P operator Nicholas Smirnow declared in May that “[a] large percentage, if not all, HYIPs, are Ponzi schemes.â€
In its resource material, FINRA is building on that theme.
“[V]irtually every HYIP we have seen bears hallmarks of fraud,” FINRA said. “We are issuing this alert to warn investors worldwide to stay away from HYIPs.”
P2P gathered more than $70 million. Legisi also gathered more than $70 million, according to court records.
Separately, the alleged AdSurfDaily autosurf Ponzi scheme gathered at least $80 million and perhaps $100 million or more, according to records. Autosurfing is a form of HYIP fraud. The U.S. Secret Service acted against ASD in August 2008.
In February 2010, an autosurf known as INetGlobal also came under investigation by the Secret Service. The SEC has acted against autosurfs known as 12DailyPro, PhoenixSurf and CEP, which gathered tens of millions of dollars combined — fueled by online promotions.
Citing FBI statistics, FINRA said “the number of new HYIP investigations during fiscal year 2009 increased more than 100 percent over fiscal year 2008.”
The regulator specifically warned about websites that “Rank the latest programs and provide details of ‘payout options.’” At the same time, it warned about sites that “Allow web designers to buy ready-made HYIP templates and set up an ‘instant’ HYIP.” Meanwhile, it warned about sites that “Blog, chat and ‘teach’ about HYIPs.”
“Some HYIP ‘investors’ proffer strategies for maximizing profits and avoiding losses — everything from videos showing how to ‘make massive profits’ in HYIPs and ‘build a winning HYIP portfolio’ to an eBook on how to ‘ride the Ponzi’ and get in and out before a scheme collapses,” FINRA said.
“Other HYIP forums discuss how to enter ‘test spends,’ how to identify new HYIPs to maximize one’s chances of being an early stage payee and even how to check when a HYIP’s domain name expires so you can guess how long it might pay returns before shutting down,” FINRA noted.
One of the tips offered by FINRA was to be on the look out for “typos and poor grammar” in sales pitches.
“This is often a tip-off that scammers are at work,” FINRA said.
FINRA said HYIP scammers often don’t share critical information with investors.
“HYIP operators cloak themselves in secrecy regarding who manages investor money, where the company is located or where to go to get additional information,” FINRA said.
Claims about being “offshore” also are made, FINRA said.
“Be aware that generally persons or firms offering securities to U.S. residents must be licensed by FINRA and registered with the SEC,” FINRA said.
The sky often is positioned as the limit in the HYIP universe, which often relies on “online payment systems” — some of which “have been tied in recent years to criminal activity, including money laundering, identity theft and other scams,” FINRA warned.
“High-yield investment programs (HYIPs) are unregistered investments created and touted by unlicensed individuals,” FINRA said. “Typically offered through slick (and sometimes not-so-slick) websites, HYIPs dangle the contradictory promises of safety coupled with high, unsustainable rates of return — 20, 30, 100 or more percent per day—through vague or murky trading strategies.”
Ponzi forum operator or moderator? Online HYIP aficionado? Think you’re safe pitching fraud schemes because you’re “only” a promoter or forum “expert” and not the operator of the programs?
Have a secret partnership deal with an HYIP fraudster? Using fancy, professional-sounding terms such as “due diligence” in your forum posts? Claiming you’ve done thorough research before recommending an “opportunity.”
Pitching programs that advertise unusually large returns — while at once showcasing your knowledge about investment scams and steering people away from certain programs because they sound too good to be true?
In an action that may send shockwaves across the Web world and Ponzi forums such as ASA Monitor, TalkGold and MoneyMakerGroup, the SEC has gone to federal court and filed an emergency action to halt “a series of fraudulent, unregistered securities offerings” made through Mazu.com.
U.S. District Judge George Caram Steeh of the the Eastern District of Michigan has frozen the assets of Matthew J. Gagnon, 41, of Weslaco, Texas, and Portland, Ore. Gagnon is Mazu.com’s operator.
“From January 2006 through approximately August 2007, Gagnon helped orchestrate a massive Ponzi scheme conducted by Gregory N. McKnight . . . and his company, Legisi Holdings, LLC,” the SEC said.
The Legisi scheme raised about $72.6 million from more than 3,000 investors “by promising returns of upwards of 15% a month,” the SEC said.
“Gagnon promoted Legisi but in doing so misled investors by claiming, among other things, that he had thoroughly researched McKnight and Legisi and had determined Legisi to be a legitimate and safe investment,” the SEC said.
Among other things, the SEC alleged that Gagnon “had no basis for the claims he made about McKnight and Legisi.
“Gagnon also failed to disclose to investors that he was to receive 50% of Legisi’s purported ‘profits’ under his agreement with McKnight,” the SEC said. “Gagnon received a net of approximately $3.8 million in Legisi investor funds from McKnight for his participation in the scheme.”
Then, beginning in August 2007, “Gagnon fraudulently offered and sold securities representing interests in a new company that purportedly was to develop resort properties,” the SEC said.
In this scheme, Gagnon “falsely claimed that the investment was risk-free and ‘SEC compliant,’ and guaranteed a 200% return in 14 months. In reality, however, Gagnon sent the money to a twice-convicted felon, did not register the investment with the SEC, and knew such an outlandish return was impossible,” the SEC said.
Gagnon took in at least $361,865 from 21 investors, the SEC said.
Still unfinished, Gagnon — in April 2009 — began promoting “a fraudulent offering of interests in a purported Forex trading venture,” the SEC said. “Gagnon guaranteed that the venture would generate returns of 2% a month or 30% a year for his investors. Gagnon’s claims were false, and Gagnon had no basis for making the claims.”
Gagnon next turned to another Forex sceme, the SEC said.
From October 2009 to November 2009, Gagnon “offered another purported Forex trading venture in which he claimed to have a trader in Europe who would trade foreign currencies for investors in exchange for 40% of any profits he generated,” the SEC said. “Gagnon removed this offer from his website in November 2009 when he received notice that the SEC had subpoenaed his bank records.”
Despite his knowledge about Ponzi and fraud schemes, Gagnon repeatedly pitched such schemes, the SEC said.
“Gagnon has been unrelenting in his efforts to raise money from the public through
fraudulent, unregistered offerings,” the SEC said. “He remains a danger to the investing public.”
Despite his sales pitches, “Gagnon has never been associated with a registered broker-dealer and has never been registered with the Commission as a broker or dealer or in any other capacity,” the SEC said.
Among the people to whom Gagnon directed money was the late Bryan K. Foster, who was convicted in 1997 of five felony counts of wire fraud and sentenced to 41 months in prison. These convictions were recorded in U.S. District Court in Montana, according to records.
In 2000, Foster was convicted in Colorado of one felony count of wire fraud and sentenced to five years in prison, according to records.
Between July 13, 2007 and September 17, 2007, Gagnon sent at least $800,000 to accounts in the name of Trails Home LLC, which was controlled Foster, the SEC said. Money from the illegal Legisi program was included in the sum transferred to Foster for his purported investment program, the SEC said.
The Legisi Program
In 2005, McKnight was an underemployed General Motors worker living outside Flint, Mich., the SEC said, adding that he had financial problems.
“In December 2005, McKnight began offering and selling interests in a pooled investment program variously called Legisi.com or Legisi,” the SEC said. “McKnight promoted the offering around the globe through an Internet website at www.legisi.com,” promising monthly returns of up to 15 percent.
By February 2006, “McKnight incorporated a shell company called Legisi Holdings, LLC in the bank-secrecy haven of Nevis in the West Indies,” the SEC said.
“McKnight asserted on the Legisi website that the Legisi program was merely a ‘loan program’ through which investors would ‘loan’ money to Legisi and, in return, Legisi would pay investors high rates of interest.
But Legisi actually was “a classic pooled investment vehicle, in which investors invested money into a common venture with the expectation that the money would be used to generate profits, for McKnight and the investors, solely through the efforts of McKnight or others working on his behalf. The Legisi program was a security in the form of an investment contract,” the SEC said.
“The Legisi program was also a massive Ponzi scheme,” the SEC said.
In January 2006, McKnight and Gagnon discussed a deal by which Gagnon would promote Legisi on the Mazu.com website, the SEC said.
“McKnight and Gagnon had known each other for several years after Gagnon recruited McKnight into a multilevel marketing business called ‘Mannatech,’” the SEC said. “McKnight became part of Gagnon’s ‘down line,’ meaning that a portion of McKnight’s commissions from selling Mannatech products went to Gagnon.”
McKnight paid Gagnon “a total of approximately $4,532,512 between January 29, 2006 and April 14, 2008,” the SEC said. “All of the money Gagnon received from McKnight consisted of investor funds. There were no ‘profits’ generated by Legisi.”
Gagnon netted about $3.8 million in the scheme, the SEC said.
“On behalf of McKnight, Gagnon solicited investors around the world through the publicly available Mazu.com website,” the SEC said. “Gagnon wrote and/or reviewed and approved the content of the Mazu website. No valid registration statement was filed or was in effect with the Commission in connection with Gagnon’s offer and sale of Legisi program investment contracts.”
SEC: Forum Moderators Helped Push Ponzi Scheme
“Between approximately January 2006 and August 2007, Mazu employees working on Gagnon’s behalf and at his direction promoted the Legisi program in emails, in Mazu Business Packs and DVDs they sent to investors, and on the Legisi Forum,” the SEC charged.
“The Legisi Forum was an on-line chat room accessible through the Legisi.com website. Several Mazu employees served as ‘moderators’ on the Legisi Forum. Mazu’s support services also included answering questions over the telephone and email,” the SEC said.
Forum shills performed services for Legisi and deflected concerns when CNN carried a negative report on the company, the SEC said.
“The Mazu employees acting as moderators encouraged readers to invest in Legisi, assisted them in transferring money to Legisi, encouraged investors to bring in new investors, and offered investors personal assistance in bringing in referrals,” the SEC said. “They also encouraged investors to keep their monthly earnings with Legisi, rather than withdrawing them, in order to achieve purportedly higher returns. They made sure transfers of money between investors and Legisi went smoothly. The moderators updated investors on changes to the Legisi program like new minimum investment amounts and referral fee rules.
“The moderators made posts on the Legisi Forum to prevent and diffuse investor rumors and concerns,” the SEC continued. “After an article questioning Legisi’s legitimacy appeared on the CNN Money website on May 8, 2007, one moderator wrote, ‘I think it is worth mentioning that the Forum is probably being read by people who are not Legisi members. So let’s not raise red flags to any bulls out there shall we. . .. Of course so far as any discussion on the [CNN Money] article is concerned I’m sure that everyone is aware that Greg went into Legisi knowing the law and planning for this eventuality. So keep a cool head and stop worrying about what you should do.”
No Due Diligence
McKnight was operating a classic Ponzi scheme fueled in part by Gagnon’s cheerleading on Mazu.com, the SEC said.
Despite the relentless hype, Gagnon performed no due diligence and simply fabricated information or passed along claims as though they were factual, the SEC said.
“Gagnon did not obtain or review any of McKnight’s trading records, bank and brokerage account statements, or e-currency account records at any point prior to, or during, Gagnon’s promotion of Legisi,” the SEC charged.
“Throughout the time that Gagnon promoted Legisi, he simultaneously warned readers about a type of fraud referred to as a high yield investment program. High yield investment programs, commonly called ‘HYIPs,’ typically involve off-shore companies promising very high rates of interest generated by investment in foreign currencies and a variety of other vehicles, along with repeated hyping of the legitimacy of the program,” the SEC said.
Gagnon understood the HYIP fraud universe, but nevertheless pitched Legisi, which had promoted an unusually high rate of return and had other markers of the exact kind of scam Mazu.com warned about on its website, the SEC said.
“From at least April 2006 through at least May 2007 Gagnon provided on the Mazu website an accurate description of a HYIP by stating that they (emphasis added by PP Blog):
collect funds from lenders as investment capital or deposits and promise a return that is usually extremely high in exchange for ‘borrowing your money.’ The result? Generally after a period of time you are free to withdraw your capital and or your profits, or you can ‘reinvest’ them to earn additional profits. In theory, the compounding can create a crazy return on investment given time . . .
* * * * * *
Sadly, most HYIPs are offshore fronts that don’t lie within U.S. jurisdiction and you have no recourse when they steal your money. Most HYIPs realize this and they bank on it! They’ve got you right where they want you. Most also allude to making their profit in legitimate investment vehicles when in reality, you have no idea where they’re making their profit.
And Gagnon also warned readers about Ponzi schemes.
“On the Mazu website between at least April 2006 and May 2007, Gagnon accurately described a Ponzi scheme as an ‘investment program touting huge returns in a short period of time. Any returns someone sees are paid out of monies gathered from the investors. No real product, investment, or business takes place,’” the SEC said.
The Legisi Ponzi began to unravel by September 2007, its decay brought about in part by “the federal seizure of an e-currency provider that was holding $1.8 million for McKnight,” the SEC said.
Gagnon then “attempted to extort money from McKnight,” the SEC said.
“On September 9, 2007, Gagnon informed McKnight that he was ending the partnership between Legisi and Mazu,” the SEC said. “Gagnon offered McKnight a choice: send Gagnon and several of Gagnon’s associates approximately $2.5 million, tell the Legisi members that Gagnon was starting a real estate fund, and that Mazu and Legisi were parting amicably, or Gagnon would email the entire Legisi membership and tell them ‘the truth’ about McKnight’s fraud.”
