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Tag: promissory notes schemes

  • BULLETIN: Massachusetts Charges Purported Top 20 Shaklee MLM Distributor, Amid Allegations He Drafted Downline Members Into $10.4 Million Ponzi Scheme He Ran Through His Private Companies

    John William "Jack" Cranney

    BULLETIN: (UPDATED 5:03 P.M. EDT (U.S.A.) The office of Massachusetts Secretary of State William Galvin has alleged that a man who described himself as a Top 20 distributor for Shaklee Corp. — a multilevel marketing firm — drafted members of his 50,000-strong downline into a $10.4 million Ponzi scheme and promissory-notes scam that he was operating through his private companies.

    John William “Jack” Cranney, 70, of Belmont, Mass., has been named in a cease-and-desist order that alleges the sale of unregistered securities and a fraud scheme affecting at least 36 people in 14 states through at least five businesses he created. The scheme was targeted at people Cranney got to know through Shaklee — and senior citizens were among the victims, Galvin’s office said in a complaint.

    Cranney had been a Shaklee rep for 45 years, and the “Cranney family brought the Shaklee business to New England,” investigators said.

    Investigators identified the businesses as Cranney Capital I LLC, Cranney Capital I Employee Stock Ownership Trust, Cranney Capital II LLC, Cranney Capital III Inc., and Cranney Industries, d/b/a Belmont Industries.

    “Cranney used his affiliation with family, friends and colleagues at Shaklee Corporation . . . many of whom he has known for fifteen (15) to twenty (20) years . . . to gain their trust and solicit investments,” investigators charged. “The majority of Cranney’s victims are affiliated with Shaklee and many are senior citizens.”

    And Cranney, according to investigators, falsely told his Shaklee victims that he was a “financial advisor and/or investment fund manager.”

    In reality, investigators said, Cranney was at the helm of a scam that began in 2002 and “enticed unsuspecting victims with promises of high returns on safe investments.”

    Some victims believed they were investing in a retirement plan, investigators said.

    Named in the complaint as a “related party” but not charged was Howard Musin, whom investigators said was the registered agent of three of the Cranney companies.

    “Musin has prepared tax returns for Cranney and his related corporate entities and other distributors for Shaklee up until 2011. In July of 2011, a federal court permanently barred Musin, his wife Jill Schwartz-Musin, and their three companies (SSC Services Inc., M-S Services Inc. and Schwartz’s Systems Corporation) from preparing tax returns for others after engaging in misconduct and fraud in preparing tax returns,” investigators said.

    That fraud, according to investigators, involved the fabrication of “deductible business expenses” for clients, including Shaklee distributors.

    Musin was in Cranney’s Shaklee downline, investigators said.

    Read the complaint.

     

  • BULLETIN: SEC Says Utah Scammers Funneled Money To 2 Ponzi Schemes; Christopher A. Seeley, Justin G. Dickson Accused Of Conducting Offering Fraud That Raised Millions

    BULLETIN: The SEC has gone to federal court to accuse two Utah men of conducting a $7.9 million offering fraud in which money that flowed from investors was used to prop up two Ponzi schemes.

    Named defendants were Christopher A. Seeley, 36, of Herriman,  and Justin G. Dickson, 35,  of Salt Lake City. The offering fraud was conducted through Draper, Utah-based entities collectively known as “Alden View”: AVF Inc. and AV Funding LLC. The firms were described as unregistered “hard money” lending businesses that issued promissory notes that promised a high rate of return backed by real estate and quality due diligence on its borrowers, the SEC charged.

    Both of the Alden View entities now are defunct, and investors are out at least $6.3 million, according to the SEC.

    “In reality” the SEC charged, “Alden View funneled the majority of its investors’ funds into two Ponzi schemes that were run by its most significant borrowers.”

    The hard-money scheme lasted between 2006 and 2009, affecting at least 50 investors from “multiple states” who believed they were funding a sophisticated real-estate business, the SEC charged.

    The SEC identified one of the Alden View borrowers as Louis Dean Parrish, who also had a bankruptcy on his record.

    A man by the same name was identified by the state of Hawaii last year as a possible Ponzi schemer. Records in Utah show a 48-year-old man by the name name was booked by the Salt Lake County Sheriff’s Office on Aug. 31 on charges of racketeering, securities fraud, communications fraud and customer abuse.

    Louis Dean Parrish listed an address in Sandy, Utah, when booked, according to sheriff’s office records.

    In 2010, Hawaii TV station KITV4 reported that a man by the same name was a suspect in an affinity-fraud and investment scheme targeted at Mormons in the state.

    Utah has been plagued by fraud schemes targeted at people of faith, the FBI said last year.

    Seeley and Dickson “made false, fraudulent, and material misrepresentations and omissions” to investors in their promissory notes, the SEC charged.

    Read the SEC complaint.

  • BULLETIN: New Jersey Ponzi Scheme Figure Jenifer Devine Pleads Guilty To Wire Fraud; Case Was Brought By Financial Fraud Enforcement Task Force

    A New Jersey woman accused of operating an $8 million Ponzi and investment-fraud scheme has pleaded guilty to wire fraud.

    Jenifer Devine, 39, of Fair Lawn, was accused in November 2010 of ripping off investors in a purported wholesale business  known as Devine Wholesale, which purportedly offered clothing and electronics.

    But it was a promissory-notes Ponzi scheme that featured bogus inventory lists and caused investors to lose more than $2 million, federal prosecutors said.

    Investors were lured by promises of returns of up to 25 percent every 30 to 60 days, but Devine’s company was fraudulent and she spent some of the money on a Royal Caribbean cruise and purchases at luxury retailers such as Burberry, Gucci and Coach.

    Devine faces up to 20 years in federal prison.

    The case was brought by elements of the Financial Fraud Enforcement Task Force and prosecuted by the office of U.S. Attorney Paul J. Fishman.

     

  • Texas Fraudster, 77, Sentenced To Prison For Scamming Seniors In Securities Swindle; John Langford’s Agency Claimed, ‘We Don’t Promise To Make You Rich, But We Guarantee Not To Make You Poor’

    “Irony, thy name is John F. Langford.” — Texas State Securities Board, July 28, 2011

    An Amarillo man whose firm fleeced senior citizens by telling them it couldn’t promise to make them rich — but guaranteed it wouldn’t make them poor — has received what might amount to a life sentence behind bars for bringing destruction to their doors.

    John F. Langford, 77, pleaded guilty in July to securities fraud, selling unregistered securities and dealing in securities without proper registration with the state. The case was prosecuted by the office of Potter County District Attorney Randall Sims, and Langford effectively was sentenced yesterday to remain behind bars until he turns 92 — and then some.

    At least one of his victims was  “incapacitated,” according to the 15-count indictment handed up against Langford in 2009.

    Yesterday Langford received seven concurrent sentences of 15 years for fraud, four concurrent sentences of 10 years for selling unregistered securities and four more concurrent sentences of 10 years for not being a registered securities dealer.

    It was a promissory notes and annuities caper in which seniors and others did not get their money, according to the state.

    “Irony, thy name is John F. Langford,” the Texas State Securities Board said in July, after Langford’s guilty plea. “In radio advertising spots a few years ago, Langford’s insurance agency in Amarillo said, ‘At Langford & Associates, we don’t promise to make you rich, but we guarantee not to make you poor.’”

    The board said the fraud cost investors more than $5 million. Separately, the Amarillo Globe-News (Amarillo.com) reported that courtroom spectators jeered Langford yesterday by saying “Shame on you” and “I hope you rot in hell.”

    Langford turned 77 last month.

  • BULLETIN: SEC Charges ‘Sovereign International Group LLC’ Amid Allegations It Funded Ponzi Payout With Cash Infusion From 93-Year-Old Boyfriend Of Accused Fraudster’s Elderly Mother; Arthur Weiss, Ronald Abernathy Charged In Bizarre Scheme That Allegedly Claimed Ownership Of $50 Million Note From ‘U.S. Financial Agency LLC’

    BULLETIN: Two men have been charged by the SEC with fraud in an alleged Ponzi scheme that features allegations that read like fiction — although the agency says they are true.

    Among the SEC’s spectacular claims is that Ponzi payments to investors were made after the 93-year-old boyfriend of the elderly mother of one of the scheme’s accused operators deposited $100,000  with the scheme.  The scheme also traded fraudulently on the names of Major League Baseball, Paul Allen, co-founder of Microsoft, and Ted Turner, founder of CNN.

    Charged in the alleged caper were Ronald Abernathy of Scottsdale, Arizona, and Arthur Weiss of Pasadena, Calif., and Delray Beach, Fla. Also charged was their company: Sovereign International Group LLC (SIG) of Nevada.

    Abernathy is 66; Weiss is 61. Both men were pitchmen for other fraud schemes, and used a deposit made by the elderly boyfriend of Weiss’s elderly mother to make payments to investors in their most recent scheme, the SEC charged.

    At the time the elderly man deposited $100,000 with Weiss and Abernathy, the SEC charged, their bank accounts “collectively held less than $500.”

    The elderly man’s deposit subsequently was appropriated to make $14,450 in Ponzi payments to earlier investors, the SEC charged. All in all, the agency alleged, the scheme gathered $560,000 through the sale of fraudulent promissory notes and investment contracts.

    When investors demanded the return of their funds, Weiss and Abernathy piled on the excuses. Investors were told the men traded in “precious ore concentrate,” along with “multi-million and multi-billion dollar financial instruments” and “fine art,” the SEC charged.

    But it was all just a massive scam — one that included a claim that the men were in “possession of a ‘medium term note’ issued by an entity called ‘U.S. Financial Agency LLC’ with a purported face value” of $50 million, the SEC charged.

    “The U.S. Financial Agency Note is worthless,” the SEC charged.

    Prior to issuing a Summer 2009 update to investors, “Abernathy attempted to deposit the U.S. Financial Agency Note with Banc of America Investment Services,” the SEC charged.  “BAI rejected the worthless U.S. Financial Agency Note.  After this rejection by BAI and despite their knowledge that the U.S. Financial Agency Note was worthless, the Defendants issued the Summer 2009 update which falsely told investors that SIG had been assigned and was in possession of more than $50 million in corporate assets.”

    As payments to investors became further delayed, the men falsely told an investor that they “were in the final stages of a deal that would result in a $15,000,000 to $20,000,000 payout to SIG and that the only thing delaying the payout is the U.S. Department of Homeland Security which was following its standard procedure to make sure that the money involved in the deal had no ties to terrorist organizations or drug trafficking,” the SEC charged.

    “SIG, in its entire existence, has not earned any profits, realized any returns or generated any revenue from any business operations,” the SEC said. “SIG’s only income has consisted of money received from investors.”

    The SIG scam began in “late 2008,” the SEC charged.

    Previous scams in which Abernathy and Weiss were associated were identified by the SEC as “G-5 Global,” “Safevest LLC” and “The Omicron Group LLC.”

    Those three scams led to losses of about $14.7 million, the SEC said.

    Read the SEC complaint.

  • Now, An Alleged ‘Sham Cemetery’ And $90 Million ‘Promissory Note’ Scam; Feds Say Men ‘Concocted’ Millions Of Dollars In ‘Fake Partnership Losses’ In Bizarre Tax Scheme Hatched Through ‘Shell Companies’

    If the “redemption” scams in which delusional hucksters tell enraptured prospects that the government maintains secret accounts Americans can tap to qualify for multimillion-dollar tax refunds and pay for everything from cars to speeding tickets haven’t caused your brain to shut down from suspending too much disbelief, you now may have another opportunity to fry your mind.

    The Justice Department has filed a lawsuit in federal court in the District of Columbia to halt what it described as a “Sham Cemetery” tax-shelter scam operated through “shell companies” controlled by Michael A. Strauss of Herndon, Va.; Patrick B. Strauss, of Washington, D.C.; and Joseph C. Barreiro of Poughkeepsie, N.Y. Patrick Strauss is the son of Michael Strauss.

    Investigators identified the shell companies as Burial Specialists LLC, Memorial Specialists LLC and Dignified Charitable Burials.

    The Strausses and Barreiro promoted “illegal tax schemes,” received “millions of dollars from their customers and concocted approximately $35 million in fake partnership losses and phony charitable contribution deductions, which they falsely told their customers could be used to offset their federal income taxes,” the Justice Department said.

    Customers were falsely promised they’d receive $5 in tax benefits for every dollar that they ‘invested,’” the agency said.

    As part of the scheme, the Justice Department said, customers also were falsely told that  “Burial Specialists had bought a ‘license’ worth more than $90 million from a company called Southern Dorchester LLC using a $90 million ‘promissory note.’

    “The license purportedly gave Burial Specialists the right to future profits from performing funeral services at a purported cemetery in Spotsylvania County, Va.,” the Justice Department said.

    And  “the defendants also falsely claimed that Burial Specialists could annually deduct a portion of the license’s supposed value and then pass on millions of dollars in losses to the customers,” the agency said.

    But the Justice Department  “contends that there was no arm’s-length sale by Southern Dorchester and that Michael Strauss and Barreiro fabricated the $90 million ‘license’ value, along with the accompanying $90 million ‘promissory note,’ to generate fake tax benefits,” the agency said.

    “The defendants also allegedly used the fictitious promissory note to siphon off, for their personal benefit, funds that they told their customers were being ‘invested,’” the Justice Department said.

    A virtually identical scheme hatched by the three men also was under way involving “a supposed cemetery in Lloyd, N.Y.,” the agency said.

  • PROMISSORY NOTES SCAM: Feds Bust Another Alleged ‘Wholesale’ Business; Jenifer Devine Faces Wire Fraud Charge In Ponzi Case Brought By Obama Task Force; ‘Wholesale Business Was Wholesale Fraud,’ U.S. Attorney Says

    The FBI has arrested Jenifer Devine, saying the Fair Lawn, N.J., woman was operating a promissory notes Ponzi  scheme through a purported wholesale business that claimed to sell clothing and electronics.

    Similar charges were brought earlier this year in New Jersey against Nevin Shapiro. Prosecutors said Shapiro, who has pleaded guilty, was running an $880 Ponzi scheme in Florida that purported to sell groceries wholesale.

    Like the case against Shapiro, the case against Devine, 39, was brought by President Obama’s interagency Financial Fraud Enforcement Task Force.

    “As alleged in the complaint, Devine’s wholesale business was wholesale fraud,” said U.S. Attorney Paul Fishman, whose office also prosecuted Shapiro. “Victims who were promised huge returns paid the tab for [Devine’s] vacation and designer goods. This case reminds investors: always be wary of a sure thing.”

    More than 15 investors plowed more than $8 million into Devine’s scheme, operated through a company known as Devine Wholesale of Carlstadt, N.J. Investors were told they were helping Devine finance the business and would receive a speedy return of 25 percent. Some investors were shown bogus lists of inventory Devine said she sold, prosecutors said.

    “In reality,” prosecutors said, “Devine Wholesale had no active wholesale clothing or electronics business during the relevant time period, and had virtually no business sales.”

    In classic Ponzi fashion, “Devine instead used new investor funds to make principal and interest payments to existing investors, as well as to fund her own lifestyle. Devine stole tens of thousands of dollars to pay for personal expenses, including a Royal Caribbean cruise and purchases at luxury retailers such as Burberry, Gucci and Coach. Devine also transferred over $26,000 to her mother, who had no role with Devine Wholesale,” prosecutors said.

    Investors losses were estimated at $2 million, but may be higher, prosecutors said. If convicted, Devine faces up to 20 years in federal prison and a fine of up to $1 million.

    Read the criminal complaint against Devine.

    “It is a difficult thing to convince people to be prudent and cautious with their financial
    investments when people like Ms. Devine make grandiose promises,” said David Velazquez, assistant special agent in charge of the FBI’s office in Newark.

    “Criminals know how easily greed can override good judgment and they use that basic human flaw to victimize other people,” Velazquez said about the promissory-notes scheme that promised 25 percent interest. “We hope this matter will serve the public as an educational tool in preventing investment fraud as the disruption and dismantling of these schemes remains an important part of our work at the FBI and with our partners.”

    Separately, Paul J. LoPapa, 64, of Livingston, N.J., pleaded guilty today in federal court in New Jersey to duping investors investors in a scheme involving fictitious overseas investments sold though a company known as Skyline Equities Inc.

    LoPapa also pleaded guilty of defrauding the Social Security Administration of $145,000 in disability payments beginning in 2001, claiming he had not worked since 1990.

    Skyline Equities’ referred to its investment program as the “Bank Guarantee Program,” which was billed as a “sophisticated international financial instrument facilitated through well-known financial institutions,” prosecutors said.

    Investors dumped about $815,000 into the scam, prosecutors said.

    The money was used to pay for “five high-end Mercedes-Benz automobiles” and other personal purchases, prosecutors said.

    LoPapa potentially faces decades in prison.

  • Fugitives Charged In Michigan Ponzi Scheme Captured By U.S. Marshals, Police In Tennessee; Rita Gosselin And Husband Had Been On The Lam Since April

    CAPTURED: Rita Gosselin

    In December 2009, Rita Gosselin was indicted for racketeering in Michigan. Michigan Attorney General Mike Cox said she was at the helm of a real-estate Ponzi scheme involving promissory notes.

    In April 2010, Gosselin, 58, was alleged to have cut a monitoring device and fled the the state with her husband, Richard Gosselin, 62.

    The couple was captured yesterday in Tennessee by the U.S. Marshals Service and the Humboldt Police Department.

    Meanwhile, a Nevada couple charged earlier this week in a Ponzi case remains on the lam. Perry and Rachelle Griggs disappeared in January 2010.

    Perry Griggs operated the scheme while he was incarcerated in federal prison for another Ponzi scheme, authorities said.

    See earlier story on Rita Gosselin.

    See earlier story on Perry and Rachelle Griggs.

  • MORE BAD NEWS FOR PONZI PURVEYORS: Upstart Ponzi Operator Sued By SEC After Assists From FINRA, Texas State Securities Board, Agency Says; Gregory Todd Froning Confronts Civil, Administrative Actions

    EDITOR’S NOTE: Online HYIP and autosurf purveyors and their fellow “mini-Madoffs” may find the brick-and-mortar case of Gregory Todd Froning at once unsettling and instructive. In yet-another development apt to create unease in the HYIP and autosurf Ponzi worlds, a new court action by the SEC demonstrates that even “small” operators in the universe of Ponzi fraud may find their names on a court docket or named respondents in an administrative action — or both.

    Here, now, the story about the allegations against Gregory Todd Froning.

    A Greater Dallas financial adviser has been accused by the SEC of misappropriating more than $800,000 from investors in an upstart Ponzi scheme.

    Gregory Todd Froning, 48, of Coppell, Texas, was accused yesterday of placing investors funds in a “personal bank account” and using them to make Ponzi payments, withdraw cash, make online purchases and buy groceries, meals and unspecified “adult entertainment.”

    The SEC filed a lawsuit against Froning that seeks the return of ill-gotten gains from the alleged scheme, which involved the sale of “promissory notes” for Wealth Planning Partners LLC. The agency said it was assisted in the probe by the Financial Industry Regulatory Authority (FINRA) and the the Texas State Securities Board.

    Froning also faces an administrative action by the SEC.

    Investigators said Wealth Planning Partners was a “now-defunct financial planning company” operated by Froning.

    “Froning never disclosed that he was using funds in this fashion and has never repaid a single promissory note,” the SEC said. “Further, Froning never disclosed to investors that Wealth Planning Partners had no significant business and was essentially worthless.”

    Investors were denied information critical to making an informed investment decision, the SEC alleged.

    Indeed, the agency alleged, Froning did not disclose that “his own financial condition was extremely precarious due, in part, to pending IRS liens.”

    Froning, who neither admitted nor denied the lawsuit allegations, has consented to a permanent injunction. He already has “agreed to an administrative order barring him from future association with any broker, dealer, or investment adviser,” the SEC said.

    Lack of disclosure is a common element in both brick-and-mortar and online fraud schemes that promise investors returns or interest payments. Froning’s case demonstrates that such schemes may attract the attention of multiple regulatory agencies and that operators may confront securities litigation on multiple fronts.

    Despite claims on Ponzi HYIP and autosurf forums that promoters have conducted “due diligence” on operators and that “payments” received from the operators are “proof” that no Ponzi scheme exists, it often is the case that the claims of “due diligence” are false and that “payments” participants received came from other investors and were designed to lull participants into a false sense of comfort to mask the nature of the scheme.

    It also often is the case that claims of “due diligence” can’t pass the giggle test because promoters have no access to legitimate financial statements, repeat lies told by other promoters or rely exclusively on false representations by Ponzi purveyors.

    Froning “diverted investors’ proceeds to a personal bank account and used them both to pay personal expenses and to make Ponzi payments to some investors,” the SEC alleged.

    Like Froning’s purported investment-advisory business, virtually all HYIP and autosurf companies can be viewed as “essentially worthless.” Not only are they insolvent out of the gate, their unfunded liabilities expand rapidly, and operators rely on a shell game to create the illusion of sustainability and legitimate commerce.

    HYIPs and autosurfs are infamous for changing rules on the fly, providing “training” that encourages participants not to withdraw money or withdraw it in small increments as a purported means of maximizing “earnings,” treating liabilities as assets and disappearing with vast sums of money.

    About 15 investors were affected by the alleged Froning brick-and-mortar Ponzi, according to the SEC. Some online Ponzis have mushroomed to gather tens of millions of dollars and have affected tens of thousands of investors, according to court filings.

    The Froning case also turns yet-another online myth on its head: that regulators never bother to investigate “small” Ponzi operators and that small operators don’t have to comply with regulations.

  • Richard Elkinson Ordered To Pay $29 Million In Ponzi Case; 77-Year-Schemer Still Jailed After Arrest At Mississippi Casino In January

    A 77-year-old man who fleeced clients by telling them he brokered contracts for a Japanese company that provided uniforms for the Winter Olympics, the Pan American games and the government has been ordered to pay $29 million in a civil case brought by the SEC.

    Richard Elkinson is jailed in Massachusetts after being arrested at a Mississippi casino in January. He is facing charges that effectively could lead to a life sentence, if convicted.

    Elkinson’s case drew headlines at the beginning of the year, after both state and federal investigators worked over the Christmas holiday in 2009 to expose the $28 million Ponzi scheme, according to records.

    “The investors received promissory notes signed by Elkinson, with terms that generally required payment within 300 to 330 days and with an interest rate that ranged from 9% to 13%,” the SEC said.  “Elkinson had no relationship with a Japanese uniform manufacturer, and there were no contracts to purchase uniforms.”

    It is possible that the scheme operated for at least 20 years before flaming out just prior to Christmas last year.

    The FBI was working the case on Christmas Eve, according to the criminal complaint. After securing purchase orders claiming the states of Connecticut and Georgia were among Elkinson’s customers, an agent called the phone numbers on the purported purchase orders.

    “In each instance, I encountered ‘disconnected’ messages,” the agent said.

    The investigation also revealed that Elkinson had an affinity for Las Vegas and claimed to have credit lines of $25,000 each at the Venetian, MGM Grand and Caesars Palace casinos.

    Elkinson, 76, of Framingham, was charged criminally with mail fraud. The Securities Division of the Massachusetts Secretary of State also is investigating Elkinson.

    Records in Las Vegas casinos show that Elkinson had “conducted a total of more than $3.7 million in transactions over $10,000″ since 1998, prosecutors said. The Ponzi scheme began to collapse last year, and Elkinson missed a meeting with investors in December, and stopped answering his phone.

    See earlier story.