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Tag: Scott Rothstein

  • SCAMMER’S GAMBLE BACKFIRES: Fraudster Who Chilled Customer With Lawsuit Threat Pleads Guilty To Mail Fraud; Philip Pestrichello Faces Up To 20 Years In Prison After Plea In ‘Work-At-Home’ Caper

    Source: FBI.Â

    UPDATED 4:51 P.M. EDT (U.S.A.) A convicted felon who emerged from prison and almost immediately launched a $1 million fraud scheme known as PPSN threatened to prosecute and sue a consumer who had filed an online complaint, federal prosecutors said.

    Although the threat caused the consumer to withdraw the complaint against Philip Pestrichello, Pestrichello’s bid to rattle the consumer’s nerves ultimately backfired because he included a “fake lawsuit number” in a letter to the consumer. Prosecutors used the letter and Pestrichello’s checkered past to persuade a federal judge to deny him bail. He has been jailed since his February arrest, and now faces up to 20 years behind bars after entering a guilty plea in the case.

    In the threatening letter, Pestrichello advised the complainant that “we will proceed by filing a lawsuit against you in The State of New York and you will be subject to prosecution, fines and penalties including monetary damages,” prosecutors said.

    Pestrichello also threatened “victim-consumers who lodged on-line complaints warning others that PPSN was a scam,” prosecutors said.

    The Federal Trade Commission and the U.S. Postal Inspection Service worked together in the Pestrichello case, which was brought in February as one of the undertakings of President Obama’s Financial Fraud Enforcement Task Force.

    Pestrichello was running a scam enterprise known variously as “Preferred Platinum Services Network LLC” ; “PPSN LLC”; “Home Based Associate Program”;  and the “Postcard Processing Program,” prosecutors said. They added that he had been running scams since the early 1990s and had been sentenced to three years in prison in 2003 after being convicted of mail fraud in a work-at-home scheme known as “IMXT & Co.”

    His most recent scam began in 2007 while Pestrichello was on federal probation after serving his time for the 2003 mail-fraud conviction, prosecutors said.

    “For nearly 20 years, Philip Pestrichello has preyed on the especially vulnerable — the economically disadvantaged, the unemployed, the disabled, or elderly individuals — who are trying to supplement their income by working from home,” said U.S. Attorney Preet Bharara. “Pestrichello even began committing his work-at-home scam within one year from his release from prison for a prior scam. If Pestrichello thought he was unstoppable, he was wrong.”

    Pestrichello, 38, of Bayville, N.J., now has pleaded guilty to mail fraud in the PPSN case. He faces up to 20 years in prison when sentenced by U.S. District Judge Kimba Wood on Oct. 26. A fraud case against Pestrichello’s wife, Rosalie Florie, is pending, prosecutors said.

    It is common for fraudsters to threaten to sue customers, critics and journalists. Such threats were present in the $1.2 billion Ponzi scheme case of disgraced Florida attorney Scott Rothstein, who eventually was disbarred. He repeatedly threatened to sue a reporter who questioned his business practices in the weeks leading up the the exposure of the scheme.

    Threats against customers and journalists also were part of the alleged AdSurfDaily Ponzi scheme case. ASD President Andy Bowdoin, according to August 2008 court filings, told customers that he had set aside $750,000 to sue critics.

    “These people that are making these slanderous remarks, they are going to continue these slanderous remarks in a court of law defending about a 30 to 40 million dollar slander lawsuit,” Bowdoin said, according to federal prosecutors. “Now, we’re ready to do battle with anybody. We have a legal fund set up. Right now we have about $750,000 in that legal fund. So we’re ready to get everything started and get the ball rolling.”

    Less than a month after Bowdoin allegedly issued the threat in July 2008, the U.S. Secret Service raided ASD’s Florida headquarters. Prosecutors said the company was operating a $100 million Ponzi scheme and engaging in wire fraud and money-laundering.

    Even after the raid, some ASD members continued to threaten Bowdoin’s detractors. One ASD member suggested Bowdoin’s critics would be dragged off in handcuffs for speaking out against the autosurf firm, publishing his version of lyrics from the television program “COPS” to put a chill on the purported slanderers.

    “Bad Boys, Bad Boys, Whatcha Gonna Do?” he chanted on the now-defunct AdSurfZone forum, a predecessor site to the Pro-ASD Surf’s Up forum. “Whatcha Gonna Do>WHEN<THEY COME FOR YOU ?!!!”

    In June 2009, while the AdViewGlobal (AVG) autosurf was failing, members were threatened with lawsuits for sharing information that purportedly was “copyrighted.” Members also were told that they risked losing their Internet service for questioning the firm in public. Journalists who published information about AVG were threatened with lawsuits.

    When the Pathway To Prosperity HYIP scheme was collapsing in 2008, members were threatened with “expulsion,” according to court filings.

    “When complaints were made externally to service providers or supposed payment agents,
    scathing rebukes were made to the ‘members,’” according to court filings.

    In February 2010, Hospitalera.com Blogger Sybille Yates announced she had been threatened with a lawsuit for calling the INetGlobal autosurf a “scam” in September 2009.

    On Feb. 23, the U.S. Secret Service raided INetGlobal’s Minneapolis offices. An affidavit by the U.S. Secret Service described the company as operating an international Ponzi scheme. A federal probe into INetGlobal’s business practices is ongoing.

  • RECEIVER: Trevor Cook’s Story ‘Does Not Make Sense’; Ponzi Losses Expected To Top $139 Million; America’s Sad, Stunning Ponzi Tale Continues

    One of the Trevor Cook homes. From court filings in the SEC/CFTC case.

    Some of the investors in the Trevor Cook/Pat Kiley Ponzi scheme are none too pleased with Cook’s plea deal, which may place a ceiling of 25 years on any prison sentence he receives while tens of millions of dollars remain missing.

    One investor has told the PP Blog that a group of investors is seeking a meeting with prosecutors either to overturn the plea deal or delay Cook’s sentencing until more information becomes known. Cook, 38, is scheduled to be sentenced in Minneapolis July 26, one month from today.

    Cook pleaded guilty in April to mail fraud and tax evasion. Under the terms of the agreement, he is required to cooperate with authorities and R.J. Zayed, the court-appointed receiver, to unravel the scheme. Although Cook has met with both the government and Zayed, investors are concerned that he is incapable of telling the entire truth. Their concerns are based on his history of telling spectacular lies and thumbing his nose at both investors and the court by spending investors’ funds even after his assets were frozen in November 2009.

    Records from the National Futures Association (NFA) show that Cook has a history of scamming. In 2006, NFA fined Cook $25,000, saying he had committed a “very serious violation” in the manner in which he treated funds entrusted to him by an 80-year-old woman who was the guardian over her elderly sister. The case featured assertions of side-dealing and fabricated signatures on account documents. Read more about Cook’s NFA encounter here. Read more on yet-another case in which Cook’s name was referenced by NFA here.

    Before we get into the details of some of recent events in the Cook case, we’d like to provide a short capsule based on court filings. It has become clear that the Cook Ponzi scheme has caused financial pain for hundreds of people, including loved ones, and also has resulted in frustration — some of it of the needless and senseless variety.

    Such frustration surfaces in virtually all Ponzi cases, in part because the crimes can be extraordinarily elaborate even though the basic concept of a Ponzi is simple: tricking people into believing everything is on the up-and-up by using cash from new investors to pay earlier investors or duping people into rolling over their investments instead of taking distributions to keep the cash from drying up — all while the Ponzi schemer siphons funds and glad-hands and back-slaps with investors, politicians, bankers and others to create the illusion of success.

    At the end of the day, however, Ponzis are about people. They cause pain and frustration for every person and institution they touch.

    • Cook’s in-laws, Clifford and Ellen Berg of Apple Valley, Minn., received $948,848.36 from the scheme. Zayed recovered $726,650.38 of that sum, and then effectively sued the Bergs by seeking a court order for the balance of $222,197.98. The SEC, which had named the Bergs relief defendants in the case for receiving ill-gotten gains, backed Zayed in his efforts to recover the balance. Records show that the Bergs raised $194,000 to pay the receivership estate through the sale of two cars, the tapping of an IRA account and by taking out a mortgage on their cabin. They were given credit by the receivership for $13,500 from the sale of another vehicle, but still came up nearly $15,000 short of the sum needed to retire the receivership balance. If the shortage is not paid by Sept. 15, a judgment will be entered against the Bergs, who have retained the right to be treated as victims of their son-in-law and to file a claim for the principal they invested with Cook.
    • Zayed effectively had to sue Wells Fargo by seeking a court order to force it to turn over the relatively small sum of $9,275.22 from Cook’s bank accounts. This document is worth reading because it paints a picture of a receiver — Zayed — encountering frustrating resistance in his bid to round up assets for victims. Although the Cook/Kiley Ponzi is extremely serious business that has altered the lives of more than 1,000 people, the document linked to above is almost dolefully comedic. Zayed eventually had to file a 12-page legal document to force the return of the sum. Just 13 days after Zayed asked a federal judge to order Wells Fargo to return the money, he filed a three-page document advising the judge that the bank finally had turned over the sum — something he’d been trying to get it to do for months.
    • If you’re a victim of a Ponzi scheme or a loved one of a Ponzi schemer — such as Gina Cook, Trevor Cook’s wife — this document shows that your life may start to revolve around attorneys. No matter how you slice it, the result is conflict — legal, emotional or otherwise.

    Can Cook Be Trusted In Any Context?

    As noted above, some investors fear that Cook is incapable of telling the full truth. There is fear that he has stashed money and covered his tracks so well that he could emerge from prison and benefit from his crime — or perhaps permit insiders or unknown criminal colleagues to benefit from the fraud while he is jailed.

    International litigation can be an extremely complex thing. The Cook case, according to Zayed, has required the notarization of documents “under the Hague Convention standards.”

  • BULLETIN: SEC Accuses Four Canadian Businessmen, Two Florida Attorneys Of Perpetrating $300 Million Ponzi Scheme

    Question: What’s the second-largest Ponzi scheme in the news in South Florida this week?

    Answer: The alleged $300 million Ponzi scheme perpetrated by Milowe Allen Brost, Gary Allen Sorenson and Bradley Dean Regier of Calgary; Ward K. Capstick, a Canadian citizen who lives in Snohomish, Wash; Larry Lee Adair of Fort Lauderdale, Fla., and Martin M. Werner of Boca Raton, Fla.

    Adair, 62, is a Florida attorney who served as president of Syndicated Gold Depository Inc. (SGD), one of the companies implicated in the alleged scheme. Adair was SGD’s president between December 2001 and at least December 2003, and “continued to act in furtherance of the scheme through at least March 2007,” the SEC said.

    He is accused of using his trust account to manage “the flow of investors’ funds” to Sorenson.

    Despite the alleged dollar volume of $300 million in the scheme, it was only the second largest Ponzi case in the news in South Florida this week. Scott Rothstein, also a Fort Lauderdale attorney, was sentenced to 50 years in prison for his Ponzi scheme yesterday.

    It has been an embarrassing week for the legal community in Florida.

    Werner, 53, also is a Florida attorney. He became SGD’s president in 2007 and is accused of being present at meetings in which “the insiders discussed and implemented the scheme,” the SEC charged.

    The SEC announced the spectacular civil allegations against the six men today. Also named defendants in the complaint were four companies: SGD, Merendon Mining Corp. Ltd., Merendon Mining (Nevada) Inc., and the Institute for Financial Learning Group of Companies Inc.

    Brost, 56, and Sorenson, 66, are the principal defendants. Capstick, 44, was accused of being a so-called “structurist” who recruited other structurists to pitch the allegedly bogus offerings.

    Regier, 40, was a bookkeeper and accountant for a Brost-created marketing entity, the SEC said.

    Sorenson’s wife and daughter were named relief defendants, meaning the SEC believes they were on the receiving end of ill-gotten gains from the scheme.

    The scheme began in 1999, the SEC said.

    “Brost and Sorenson orchestrated a complex, far-reaching fraud disguised by a labyrinth of companies and foreign bank accounts they used to hide their misconduct from investors and law enforcement,” said Donald M. Hoerl, director of the SEC’s Denver Regional Office.

    “Unbeknownst to investors, they were actually investing in shell companies owned or controlled by Brost or Sorenson,” the SEC said. “Investor funds were often transferred multiple times through numerous bank accounts held as far away as Asia, Europe and South America, and then ultimately used to make ‘interest payments’ to investors, fund the few unprofitable companies that actually had operations, and personally enrich Brost, Sorenson and others involved in the scheme.”

    Investor money “whirled through accounts located in the U.S. and Canada as well as the Bahamas, Belize, Bermuda, Ecuador, Honduras, Malaysia, Panama, Peru, Portugal, and Venezuela,” the SEC said. “Brost and Sorenson diverted investor funds for their personal benefit, using millions of dollars to purchase and renovate extravagant homes, ranches, and recreational vehicles. Sorenson also purchased and outfitted a luxury fishing resort in South America.”

    More than 3,000 investors were fleeced in the scheme, the SEC said.

    On two occasions in recent months, FBI Director Robert Mueller has warned Congress about the emergence of shell companies as outlets to perpetrate fraud.

    Read the SEC complaint.

    Read a brief story from December 2009 that references allegations against Brost and Sorenson in Canada.

    NOTE: This story has been republished at a URL that is different than its original URL. Although this post reflects a date of June 13, it is not the original publication date. Click here to read why.

  • BULLETIN: Another Spectacular Florida Ponzi Case Emerging; Nevin K. Shapiro Charged Criminally, Civilly In Alleged $900 Million Fraud

    BULLETIN: Nevin K. Shapiro, the founder and president of Capitol Investments USA Inc., surrendered to authorities this morning after being charged both criminally and civilly in an alleged $900 million Ponzi and fraud scheme in south Florida and elsewhere, the SEC said.

    Shapiro, 41, is a prominent Miami Beach businessman and philanthropist in the wholesale grocery business. He is expected to make a court appearance in New Jersey today.

    Most of Shapiro’s investors live in Florida or Indiana, according to the SEC complaint. Some diverted funds from their IRA’s to earn profits by investing with the grocery company, but Shapiro conducted virtually no meaningful business after 2004 and simply propped up his grocery business with a shell game that raised $880 million from investors between 2005 and 2009 before the scheme collapsed, the SEC charged.

    “Capitol’s sales were less than $300,000 in 2005 and 2006, and it had no sales from 2007 through 2009,” the SEC charged.

    “Shapiro lured investors by falsely touting Capitol’s securities as a risk-free investment with extraordinarily high returns,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office. “He used his prominence and prestige to gain investors’ trust in funding Capitol’s grocery diverting business, but behind their backs he diverted their money to enrich himself.”

    Grocery-diverters buy merchandise in one market and sell it in another at a higher price. Shapiro’s company, however, began operating a Ponzi scheme in 2005 after operating at a loss in 2004, the SEC charged.

    The SEC said Shapiro diverted $38 million “to enrich himself and finance outside business activities unrelated to the grocery business, including a sport representation business and real estate ventures.

    “His lavish lifestyle includes a $5 million home in Miami Beach, a $1 million boat, luxury cars, expensive clothes, high-stakes gambling, and season tickets to premium sporting events,” the SEC said. “Shapiro additionally tapped approximately $13 million of investor funds to pay large undisclosed commissions to individuals who attracted other investors.”

    A girlfriend received goods totaling $116,000 that were charged to Capitol’s American Express Black Card, and Shapiro himself made personal purchases of about $524,000 on the card, the SEC charged.

    All in all, the SEC said, the scheme was “a $900 million offering fraud and Ponzi scheme.” Investors were offered returns of 26 percent annually, backed by bogus claims that “Capitol’s purchase contracts and accounts receivable secured their investments.”

    Earlier this year, U.S. Attorney General Eric Holder said south Florida was “ground zero” for Ponzi schemes, noting that many of Bernard Madoff’s victims lived in the region. The government still is in the process of unwinding Madoff’s $65 billion fraud and Scott Rothstein’s $1.2 billion fraud.

    Smaller — though still massive Ponzi frauds — recently have occurred in the state, and Shapiro’s alleged $900 million fraud now is included among them.

    “To those who see the victimization of others as an avenue to wealth, take notice,” Holder warned in a January speech in Florida. “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.”

    The FBI and IRS also are involved in the Shapiro probe, the SEC said.

    “By late 2004, Capitol was operating at a loss,” the SEC charged. “From 2005 though late 2009, Capitol had almost no business operations. To hide this from investors, Shapiro merely repaid earlier investors with approximately $769 million collected from new investors in typical Ponzi scheme fashion.”

    The agency said “Capitol has never registered an offering or class of securities under the Securities Act or the Exchange Act,” and Shapiro was charged with securities fraud.

    In the past 48 hours, law enforcement and regulators have filed complaints in cases in Florida and New York that allege frauds totaling about $1 billion.

  • Sean Healy Sentenced To Nearly 16 Years, Ordered To Pay $16.7 Million In Ponzi Case; Meanwhile, Trevor Cook Reportedly Has Plea Deal

    A federal judge has ordered a Florida man to spend nearly 16 years in prison and pay $16.7 million in restitution for fleecing investors in a Ponzi scheme.

    Sean Healy, 39, of Weston, scammed dozens of investors in Pennsylvania. He went on to live in the lap of luxury in Florida, acquiring a $2.4 million waterfront home, a Bentley, several Ferraris, Lamborghinis and Porsches worth more than $2.3 million and jewelry worth $1.5 million.

    Meanwhile, Trevor Cook, charged criminally with mail fraud and tax evasion in a separate, $190 million Ponzi case in Minnesota, has struck a deal with prosecutors, the AP is reporting. Details about the deal are unclear, but the AP, citing comments by Bill Mauzy, Cook’s attorney, reported that Cook will plead guilty in the coming weeks.

    Healy became infamous in Florida, and was described as a smaller version of  former Wall Street titan Bernard Madoff and former Fort Lauderdale attorney Scott Rothstein. He was charged in a 55-count indictment unsealed in Pennsylvania last year with multiple counts of wire fraud, mail fraud, money laundering and obstruction of justice.

    Initially Healy tried to sandbag prosecutors by providing “phony bank statements and phony trading records” to thwart a grand-jury probe, but the government didn’t buy it.

    “When the authentic records were obtained, they revealed that Healy had simply spent the money on his extravagant lifestyle and used some of it to pay back earlier investors who he defrauded between 2003 and 2008,” prosecutors said.

    Healy was sued separately by the SEC and the CFTC, which said he used investor funds to purchase gold bullion and “to lease a luxury suite at Miami’s BankAtlantic Arena.”

    For its part, the SEC said the sky was the limit for Healy.

    “Rather than investing the money as he promised, Sean Healy used investor funds to finance an extravagant lifestyle for himself and his family,” the SEC said.

  • Receiver In Allen Stanford Ponzi Case Says Politicians Have Not Returned More Than $1.8 Million In Tainted Contributions

    Political groups and politicians have not returned more than $1.8 million in tainted campaign donations received from entities and individuals linked to the alleged Allen Stanford Ponzi scheme, according to the court-appointed receiver in the civil case against Stanford.

    Ralph Janvey, the receiver, said only $87,800 had been returned by politicians. Letters requesting the money be returned went out 11 months ago.

    The donations were linked to Stanford personally, Stanford International Bank Ltd., Stanford Group Co., Stanford Capital Management LLC, and Stanford executives James M. Davis and Laura Pendergest-Holt and certain entities they own or control, Janvey said.

    Here is a list of donations that have not been returned. (The numerals are dollar amounts):

    950,000 Democratic Senatorial Campaign Committee
    238,500 National Republican Congressional Committee
    202,000 Democratic Congressional Campaign Committee
    128,500 Republican National Committee
    83,345 National Republican Senatorial Committee
    25,000 Rangel Victory Fund
    10,000 New Jersey Democratic State Committee
    10,000 Representative Pete Sessions (R-TX)
    6,600 Representative Gregory Meeks (D-NY)
    6,100 Senator Bill Nelson (D-FL)
    5,000 Americans for a Republic Majority PAC
    5,000 Delegate Donna Christensen (D-USVI)
    5,000 Representative Charles Gonzalez (D-TX)
    5,000 KPAC (affiliated with Senator Kay Bailey Hutchinson of Texas)
    5,000 Lone Star Fund
    5,000 Representative Charles Rangel (D-NY)
    5,000 Senator Roger Wicker (R-MS)
    4,600 Senator Barack Obama (D-IL) (presidential campaign)
    4,550 Representative Dan Maffei (D-NY)
    4,000 Senator John Cornyn (R-TX)
    4,000 Senator Patty Murray (D-WA)
    4,000 Representative Richard Neel (D-MA)
    4,000 Senator Charles Schumer (D-NY)
    3,300 Representative Pete Olson (R-TX)
    3,300 Representative Charles Rangel (D-NY)
    3,000 Representative James E. Clyburn (D-SC)
    3,000 Representative Rahm Emanuel (D-IL)
    3,000 ERICPAC
    3,000 Leadership PAC 2006
    2,550 Representative Eric Massa (D-NY)
    2,550 Representative Mike McMahon (D-NY)
    2,500 Senator Richard J. Durbin (D-IL)
    2,500 Freedom Fund
    2,500 Representative Timothy Johnson (R-IL)
    2,500 Representative Paul Kanjorski (D-PA)
    2,500 Senator Mary Landreiu (D-LA)
    2,500 Representative John Lewis (D-GA)
    2,500 Senator Mitch McConnell (R-KY)
    2,500 National Leadership PAC
    2,500 Representative Adam Putnam (R-FL)
    2,500 Senator Gordon Smith (R-OR)
    2,500 Former Senator John Sunnunu (R-NH)
    2,500 Representative John Tanner (D-TN)
    2,500 Representative Bennie Thompson (D-MS)
    2,300 Representative John Boccieri (D-OH)
    2,300 Representative Deborah Halvorson (D-IL)
    2,300 Senator John McCain (R-AZ)
    2,300 Olson-Texas Victory Committee
    2,300 Senator Roger Wicker (R-MS)
    2,100 Senator Orrin Hatch (R-UT)
    2,000 Representative Spencer Bachus (R-AL)
    2,000 Senator Evan Bayh (D-IN)
    2,000 Reprsentative Kevin Brady (R-TX)
    2,000 Representative Vern Buchanan (R-FL)
    2,000 Representative Dave Camp (R-MI)
    2,000 LEADPAC
    2,000 Representative Ileana Ros-Lehtinen (R-FL)
    2,000 Representative Lamar Smith (R-TX)
    2,000 Representative Patrick Tiberi (R-OH)
    1,500 Representative Charles Boustany (R-LA)
    1,500 Representative Sam Johnson (R-TX)
    1,500 Representative Peter King (R-NY)
    1,500 Representative Kendrick Meek (D-FL)
    1,000 Representative Joe Barton (R-TX)
    1,000 Senator Max Baucus (D-MT)
    1,000 Senator Maria Cantwell (D-WA)
    1,000 Representative Shelley Moore Capito (R-WV)
    1,000 Representative Steve Cohen (D-TN)
    1,000 Former Senator Elizabeth Dole (R-NC)
    1,000 Senator Byron L. Dorgan (D-ND)
    1,000 Representative Michael McCaul (R-TX)
    2,000 Representative Donald Payne (D-NJ)
    1,000 Senator Pat Roberts (R-KS)
    500 Representative Steve Cohen (D-TN)

    TOTAL NOT RETURNED: $1,825,495

    Here is a list of donations that have been returned. (Dates returned included. Numerals are dollar amounts):

    03/24/09 14,000 Shelby for US Senate
    03/24/09 1,000 Barney Frank for Congress Committee
    03/24/09 4,000 Arcuri for Congress
    03/24/09 2,000 Neugebauer Congressional Committee
    03/24/09 1,000 Marsha Blackburn for Congress
    03/24/09 8,000 Friends for Harry Reid
    03/24/09 1,500 David Scott for Congress
    03/24/09 1,000 Freedom Funds – Mike Crapo, Honorary Chairman
    03/30/09 11,500 Chris Dodd for President
    03/30/09 16,000 Friends of Chris Dodd
    03/30/09 2,500 Friends of Mark Warner
    04/03/09 2,300 Minnick for Congress
    04/03/09 2,000 Lloyd Doggett for Congress
    04/07/09 3,000 Alexander for Senate 2014, Inc.
    04/08/09 2,500 Collins for Senator
    04/23/09 5,000 Friends of Jay Rockefeller
    05/07/09 2,500 Campaign Account of Robert Wexler
    06/18/09 3,000 Mel Watt for Congress
    06/18/09 5,000 Friends of John Boehner

    TOTAL RETURNED AS OF JAN. 21, 2010: $87,800

    Stanford is accused of multibillion-dollar fraud. He is jailed in Texas.

    Campaign contributions tainted by Ponzi money also are an element of the $1.2 billion Scott Rothstein case in Florida. Records suggest that AdSurfDaily President Andy Bowdoin, implicated in an alleged $100 million Ponzi scheme, also gave political donations with tainted funds.

  • 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.

  • KA-BOOM! SEC Files Emergency Action In Alleged Richard Elkinson ‘Uniform’ Ponzi Scheme; U.S. Attorney General Warns Fraudsters, ‘You Are Writing Your Ticket To Jail’

    Ka-boom! A federal judge has frozen the assets of alleged Ponzi schemer Richard Elkinson, accused of fleecing investors in Massachusetts by telling them he brokered deals for government uniforms and uniforms worn by Olympic athletes.

    Meanwhile, the attorney general of the United States ventured to Florida today and gave a dramatic speech at the Forum Club of the Palm Beaches. The speech was important symbolically — indeed, Florida is awash in a sea of Ponzi and mortgage-fraud schemes — and Holder wanted to reassure the noontime crowd of 700 that the government was doing everything it could to restore faith in the markets.

    But the speech also was important politically. The Obama administration wanted to showcase its new Interagency Financial Fraud Enforcement Task Force, which the President announced in November, and Holder chose Florida 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.”

    Even as Holder was delivering his remarks, the SEC announced that it had sued Elkinson in an emergency action in Massachusetts that complemented the FBI’s criminal action in the case, dubbed a “Mini-Madoff” because it allegedly was both a Ponzi scheme and a case of affinity fraud that targeted Jewish investors.

    Court records show that the FBI was working the case on Christmas Eve, even as the government was shutting down for the holidays. Records also show that Massachusetts Secretary of State William Galvin sent a team of investigators to conduct interviews and to get to the heart of the matter while Massachusetts residents were doing their last-minute holiday shopping.

    State and federal agencies now have filed three separate actions in the Elkinson case. Elkinson, 76, was arrested at a casino in Biloxi, Miss., fresh off a trip to casinos in Las Vegas. The FBI said he had conducted at least $3.7 million in transactions at the Las Vegas casinos since 1998 and that investors in his Ponzi scheme were out $29 million.

    The SEC said today that Elkinson had “no relationship” with a uniform manufacturer based in Japan. Elkinson had told investors he had an exclusive arrangement and that only he was permitted to do business with the manufacturer.

    “Unfortunately, it was all make-believe,” the SEC said in its complaint. “Elkinson had no
    relationship with a Japanese uniform manufacturer, and there were no contracts to purchase uniforms. While some investors did receive payments of principal and interest, those payments were made using funds obtained from other investors, and Elkinson was able to keep the scheme going as long as most of the investors kept rolling over their investments.”

    Elkinson’s purported contracts to provide uniforms for government workers also were “fictitious,” the SEC said.

    The current attack on financial crime by law enforcement may be unprecedented. Holder said today that the FBI is investigating 2,800 cases of mortgage fraud, up a staggering 400 percent from 2005 case totals.

    In his Palm Beach remarks, Holder also dropped the names of Ponzi schemers.

    “Palm Beach is, in many respects, ground zero for the $65 billion Ponzi scheme perpetrated by Bernard Madoff — the largest investor fraud case in our nation’s history,” the attorney general said. “Before the house of cards Madoff built collapsed in 2008, before he was sentenced to 150 years in prison last June, before he became a notorious criminal on the cover of newspapers around the world, he was one of your neighbors.

    “His former home sits just north of us,” Holder continued. “An 8,700-square-foot mansion that’s worth . . . well, we’ll know what its worth once the U.S. Marshals Service auctions it off and the proceeds are distributed to Madoff’s victims.”

    Holder also mentioned the Ponzi cases of Tom Petters of Minnesota, Allen Stanford of the United States and Antigua and disbarred Florida attorney Scott Rothstein of Fort Lauderdale.

    “I’m proud that these men, along with more than 450 others convicted of corporate and securities fraud in 2009, have been taken out of the game,” Holder said.

    In Massachusetts, U.S. District Judge Joseph L. Tauro issued a temporary restraining that froze Elkinson’s assets. Tauro also entered an order freezing all proceeds of the misconduct held by others, and an order prohibiting the acceptance of additional investor funds.

    At the same time, Tauro ordered an accounting of assets and issued an order prohibiting the alteration or destruction of documents.

    The orders in the SEC case — as well as the legal action filed earlier this week by Galvin — bottle up any profits made by people who helped Elkinson promote the scheme.

    Holder said the law-enforcement community is fighting back against people who have licensed themselves to steal.

    “They’ve robbed people of their homes and their economic security,” Holder said.  “They’ve depleted bank accounts and pension funds.  In some places, they’ve dried up philanthropic giving and shuttered charities.  They’ve placed unfair challenges before cash-strapped governments, local police departments, small businesses, and American workers and consumers.”

  • DEVELOPING STORY: Scott Rothstein To Plead Guilty In $1.2 Billion Ponzi Scheme

    BULLETIN: Scott Rothstein, the Fort Lauderdale attorney charged with racketeering last month and disbarred amid allegations he orchestrated a $1.2 billion Ponzi scheme involving bogus legal settlements, is expected to change his plea to guilty.

  • North Carolina Man Adds To List Of Alleged Schemers Who Bought Jet Skis With Fraud Proceeds; J.V. Huffman Jr. Also Faces Trial On Weapons Charge

    J.V. Huffman Jr. Source: Catawba Country Sheriff's Office

    It’s not as though alleged fraudster J.V. Huffman Jr. did not have the expensive cars and real estate often associated with Ponzi schemes or financial frauds.

    Huffman, jailed awaiting trial in North Carolina on Ponzi and weapons charges, had plenty of those, according to William Walt Pettit, the court-appointed receiver. He had an Aston Martin ($100,000+), three Mercedes (nearly $180,000 combined), and a Prevost motor home (insured against loss for $825,000) , for example. And Huffman had at least 14 parcels or properties, including a $765,000 property in North Carolina and multiple interests in time-shares at Walt Disney World in Orlando.

    But Huffman also had jet skis, which oddly seem to have become a signature purchase among operators of alleged Ponzi schemes or financial frauds. Disbarred Florida attorney Scott Rothstein, implicated in an alleged $1.2 billion Ponzi scheme, had jet skis.

    Affiliate Strategies Inc., a Kansas company under whose umbrella the shuttered Noobing autosurf fell, had a jet ski. ASI is among a number of companies sued by the Federal Trade Commission and the attorneys general of four states for operating a grant-writing scheme.

    Florida-based AdSurfDaily, whose president is implicated by the U.S. Secret Service in a $100 million Ponzi scheme, also had jet skis — two of them. Andy Bowdoin told his members that the jet skis (and a lakefront home) were for their benefit, but the statement was met with anger, the jet skis and Bowdoin’s other marine equipment dismissed derisively as “water toys.”

    Huffman’s next court appearance in North Carolina has been delayed until Jan. 25. He also faces a civil prosecution by the SEC, which said his Ponzi scheme began in 1991 and operated for 17 years before collapsing.

    The weapons charge was added when guards found a razor blade hidden in Huffman’s Bible in his jail cell. Prosecutors said the alleged financial scheme largely was targeted at Lutherans.

    SEC investigators said Huffman and his company — Biltmore Financial Group — gathered as much as $25 million from 500 investors. At first, Huffman told investors he operated a mutual fund.

    After the 9/11 terrorist attacks and the ensuing volatility in financial markets, Huffman changed his story, telling investors that he pooled funds to purchase and sell safe mortgages that had strong equity positions and were insured, the SEC said.

    “Contrary to his representations, Huffman and Biltmore did not invest the funds as represented,” the SEC said. “Instead, Huffman spent investor funds to subsidize his lavish lifestyle. Returns to investors were paid from money invested by new investors. The purported insurance protecting the investments did not exist and much of the principal has been dissipated or used to purchase real estate for Huffman and/or his wife, expensive automobiles or other luxuries.”

    In another claim reminiscent of the AdSurfDaily case, the SEC said Huffman dropped famous acronyms such as “FDIC” to get people to invest with him.

    North Carolina Secretary of State Elaine F. Marshall is spearheading the criminal prosecution.

    “People who are knowledgeable in the investment industry came to us saying that the
    promises being made sounded ‘too good to be true,’” she said, after agents arrested Huffman in November 2008. “In most cases, when an investment sounds too good to be true, it usually is.”

  • 2009 Ends With Ponzi Clawbacks In Nadel Case, Demands By Fleeced Investors In Bolze Case For Politicians To Return Tainted Campaign Donations

    EDITOR’S NOTE: There is a link at the bottom of this story to a report filed by Burton Wiand, the receiver in the Arthur Nadel Ponzi case in Sarasota, Fla. We encourage readers to read the document in its entirety. The Nadel case is not yet a year old. Nadel, who turned 77 today and is  a onetime attorney, was disbarred in 1982 for taking money from a trust fund to pay off a loan shark, a fact allegedly hidden from investors. Nadel allegedly also employed an unlicensed accountant.

    Among other things, the Wiand document shows that unwinding a Ponzi scheme is a monumental undertaking. At the same time, the document may leave some readers scratching their heads and asking how on earth any person actually could advocate for Ponzi schemes — and yet such advocacy occurs on a daily basis in the bizarre world of autosurf and HYIP Ponzi schemes, where so-called “leaders” get paid for recruiting people into Ponzis.

    Here, now, the story . . .

    Arthur Nadel turns 77 today. He is jailed in New York.
    Arthur Nadel turns 77 today. He is jailed in New York.

    Burton Wiand, the court-appointed receiver in the alleged Arthur Nadel Ponzi scheme involving at least $350 million, has identified at least 85 investors who received more than they paid in and is working to identify more.

    Clawbacks have begun in earnest, with the winners offered a choice of settling for 90 percent of the total they received and returning the money or being sued for 100 percent and paying lawyers to defend them in the lawsuits.

    Meanwhile, fleeced investors in a separate Ponzi case in Tennessee are demanding that politicians who received campaign donations from the Dennis Bolze Ponzi scheme return the money so it can be used to compensate victims.

    Bolze, 61, of Gatlinburg, Tenn., pleaded guilty Nov. 10 to all counts against him, and is awaiting sentencing. He was accused of wire fraud and money-laundering in a $21.5 million scheme.

    WATE reported that Bolze gave money to a number of politicians.

    Beyond the Bolze case, it is clear that substantial sums of Ponzi money made its way into the coffers of local, state and national politicians in various jurisdictions. It is equally clear that there is no uniform approach to returning the money. Some politicians have said they’ve spent the money. Others have said they donated it to charity after Ponzi allegations surfaced. Still others have returned money.

    Unlike fleeced Ponzi investors who receive tainted largess directly, politicians’ ill-gotten gains may come indirectly from a polluted money stream linked to a Ponzi. There are allegations in Florida, for instance, that disbarred Fort Lauderdale attorney Scott Rothstein provided campaign donations from Ponzi proceeds, while at the same time paying lawyers in his now-shuttered, 70-attorney firm from Ponzi proceeds. It is possible that some of the Ponzi money paid to attorneys also made its way into the political process.

    Elsewhere in Florida, there are allegations that Andy Bowdoin, president of Quincy-based AdSurfDaily — itself implicated in a Ponzi scheme — donated at least $5,500 to the National Republican Congressional Committee (NRCC) — before the alleged ASD Ponzi scheme was exposed in August 2008.

    Meanwhile, the Miami Herald reported that Allen Stanford, implicated in an alleged $7 billion Ponzi scheme, also donated to politicians prior to the scheme being exposed. Like the Rothstein case, politicians in both major U.S. political parties received donations.

    Nadel Clawbacks

    In the Nadel case, Wiand estimated that the winners received at least $39 million in fictitious profits — ill-gotten gains from the scheme. He has settled with 26 investors to date, meaning that at least 59 potential clawback cases remain to be resolved. The number could increase because Wiand still is working to identify winners.

    The Sarasota Herald Tribune reported that six of the 26 settled clawback cases were settled in the final two weeks of 2009. One investor agreed to return $207,000 in fictitious profits by making four payments over the next three years.

    This chart from Burton Wiand's court filings in the Arthur Nadel case shows that the hedge funds purported to have recorded more than $272 million in gains between 2003 and 2008, then the funds actually lost more than $18 million. In 2007, the funds purported to have gained more than $54 million, but actually lost nearly $25 million.
    This chart from Burton Wiand's court filings in the Arthur Nadel case shows that the hedge funds purported to have recorded more than $272 million in gains between 2003 and 2008, when the funds actually lost more than $18 million. In 2007, the funds purported to have gained more than $54 million, but actually lost nearly $25 million.

    The SEC approved the 90 percent settlement figure, Wiand said. He added that the window was closing on the discount deal.

    In a November court filing, Wiand said that “those who do not settle with the Receiver should anticipate that litigation will be commenced in the immediate future” and that the discount “will no longer be available.”

    It appears as though two groups of clawback targets exist: a group of 85 who received letters and were offered the discount, and a group of an unknown size that will receive settlement letters soon.

    Wiand said the group of 85 represented about $16.2 million in fictitious profits from the scheme. The other group represents about $22.8 million.

    Read Wiand’s interim receivership report in the Nadel case.

    See Nadel story in Sarasota Herald Tribune.

    See Bolze story from WATE.