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Tag: offshore frauds

  • FLORIDA — AGAIN: James Clements and Zeina Smidi Of Plantation Ran $30 Million Ponzi Scheme, SEC Says; Firm Claimed ‘Protected Jurisdiction’ Offshore; Defendants Already Face $50 Million Judgment From Class-Action Lawsuit

    Two Florida residents have been accused by the SEC of operating a $30 million Ponzi and promissory-notes scheme that purported to trade foreign currency amid claims their domestic company was morphing into an “offshore” firm that would operate in a “protected jurisdiction.” The defendants in the case already face a judgment of $50 million from a class-action lawsuit filed against them by investors they ripped off, according to court filings.

    Charged by the SEC were James Clements, 45, and Zeina Smidi, 27, of Plantation. Also charged were their companies: MRT LLC, MRT Holdings LTD and Maximum Return Transaction LLC. (Collectively MRT.) The SEC said MRT Holdings was formed in the Republic of Seychelles, an island nation in the Indian Ocean.

    The SEC case also references an alleged claim by MRT in 2007 that it was “shifting” from MRT LLC into MRT Holdings to become an “offshore entity.” In April 2007, according to a company note to an investor the SEC quoted to a federal judge, Smidi said MRT would operate from Belize, a country in Central America.

    “[W]e have chosen Belize because this allows us to offer our very lucrative products and manager program to you,” Smidi allegedly wrote. “After two years of legal research, we have found that transitioning offshore is the best way to keep our program compliant.”

    By June 2007 — after it had slashed its payout rate — Clements told MRT’s pitchmen that the company was switching away from foreign currency, the SEC charged.

    Clements and Smidi “claimed in a letter to investors they wanted MRT’s money working with the best Swiss banks and advisors, and were searching for a high-yielding product that also offered a high level of security,” the SEC said.

    MRT traded very little Forex, and the trading that did occur resulted in losses, the SEC said. Instead, the company concentrated on keeping its Florida-based Ponzi scheme afloat, while investing “approximately $550,000 in a now-defunct currency trading firm that never returned MRT’s funds,” the SEC charged.

    As part of the scheme, MRT used “certain investors who agreed to be ‘account managers’ to solicit hundreds of investors through informal gatherings and word of mouth,” the SEC said.

    “During the early fall of 2007, MRT stopped answering investor phone calls, fulfilling redemption requests or responding to emails,” the SEC said.

    Read the SEC complaint.

  • KABOOM! Florida — Again: Palm Beach Operators, Firms Charged With Running Scheme-Within-Scheme In Tom Petters’ Ponzi; More Than $1 Billion Plowed Into Rathole, SEC Says

    EDITOR’S NOTE: The SEC has been particularly active in Florida in recent weeks. Now, the agency once again has gone to federal court to allege a spectacular fraud involving people and companies in the Sunshine State. This one involves more than $1 billion and is linked to the Tom Petters’ Ponzi case in Minnesota.

    Two Florida men and their companies assisted convicted Ponzi schemer Tom Petters in keeping his $3.65 billion fraud afloat by hatching a scheme-within-a-scheme that assured hedge-fund investors that their money was safe, the SEC said in a lawsuit.

    The scheme occurred prior to the filing of criminal charges against Petters in 2008, according to court documents. Petters, who also faces an SEC lawsuit, was convicted of running the Ponzi scheme last year. In April, he was sentenced to 50 years in federal prison.

    SEC investigators now say Bruce F. Prévost, 50, of Palm Beach Gardens, and David W. Harrold, 51, of Del Ray Beach “falsely assured their investors and potential investors that the flow of their money would be safeguarded by collateral accounts and described a phony process for protecting their assets.

    “When Petters was unable to make payments on investments held by the funds they managed, Prévost, Harrold, and their firms concealed it from investors by concocting sham note exchange transactions with Petters,” the SEC said.

    Calling it a “betrayal” that had cost investors more than $1 billion, Robert Khuzami, director of the SEC’s Division of Enforcement, said the Florida men parlayed the losses of others into gains for themselves.

    “Prévost and Harrold portrayed themselves as guardians of their hedge fund investors while in fact they facilitated Tom Petters’s fraudulent scheme through lies and deceit,” Khuzami said.

    The case was filed in Minnesota.

    Prévost, Harrold and their companies — Palm Beach Capital Management LP and Palm Beach Capital Management LLC — pocketed more than $58 million in fees from the scheme, the SEC charged.

    At the same time, they raised additional money to plow into the scheme “by borrowing money from two Cayman Islands funds that were also established by Prévost and Harrold,” the SEC charged. The agency identified the offshore funds as Palm Beach Offshore Ltd. and Palm Beach Offshore II Ltd.

    “From 2004 through at least as late June 2008, the defendants funneled money into the Petters Ponzi scheme by selling interests in the Palm Beach Funds to investors throughout the United States,” the SEC charged. “Investors in the Palm Beach Funds included individuals, foundations, family trusts and other hedge funds. The Funds invested all investor contributions into the Petters Ponzi scheme. Of the approximately $3.65 billion invested in the Petters Ponzi scheme at the time of its collapse, the Palm Beach Funds accounted for more than $1 billion.”

    Florida has been plagued by Ponzi schemes and fraud schemes. In January, U.S. Attorney General Eric Holder ventured to the state to introduce President Obama’s Financial Fraud Enforcement Task Force.

    Holder announced the Task Force at a speech in the Palm Beach area, using the event at the Forum Club of the Palm Beaches to drive home the message that Ponzi schemers, mortgage fraudsters and financial criminals are going to have many sleepless nights in the months ahead.

    “To those who see the victimization of others as an avenue to wealth, take notice,” Holder warned. “If you fabricate a financial statement, if you propagate an investment scheme, if you are complicit in an act of financial fraud, you are writing your ticket to jail.”