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Tag: SEC

  • UPDATE ON DECEMBER 2009 SPECIAL REPORT: 3 Figures In Philip R. Lochmiller Sr. Ponzi Case Will Go To Federal Prison; ‘Elderly Victims Were Financially Devastated,’ FBI Agent Says; Case Involving Recidivist Fraudster Drew Comparison To AdSurfDaily

    In a case that drew comparisons to AdSurfDaily because of recidivism, undisclosed bankruptcies and ties to Utah, the three principal figures of the Philip R. Lochmiller Sr. real-estate Ponzi scheme in Colorado will be going to federal prison.

    Lochmiller Sr., 63, was found guilty in July after a 10-day trial in which the jurors returned the verdicts in three hours. He will be sentenced after a final computation of losses is completed. The case involved a company known as Valley Mortgage Inc. The case involved about $30 million.

    Lochmiller Sr. was found guilty of conspiracy, money laundering conspiracy, money laundering and mail fraud.

    His stepson, Philip R. Lochmiller Jr., 38 when charged, has been sentenced to eight years in federal prison for conspiracy to commit securities and mail fraud and money laundering. Business associate Shawnee N. Carver, 33 when charged, has been sentenced to two years for conspiracy to commit securities and mail fraud.

    Prosecutors announced the sentences imposed on Lochmiller Jr. and Carver yesterday.

    “Philip Lochmiller Jr. helped orchestrate an investment scheme which defrauded over 400 victims out of more than $30 million,” said James Yacone, special agent in charge of the Denver FBI office. “Several elderly victims were financially devastated.  [The] sentencing sent a strong message that white collar criminals will not be tolerated.  The FBI will continue to aggressively investigate and seek prosecution against the groups and individuals who defraud unwitting victims out of their earnings.”

    Lochmiller Sr. was sentenced to three years in a California state prison in the 1980s after he was charged with 60 counts of securities fraud and pleaded guilty to about half of them. Investors in his new scheme at Valley Mortgage were not told of his history as a securities swindler, federal prosecutors in Colorado said.

    Federal prosecutors in the District of Columbia said the same thing about ASD President Andy Bowdoin, who was charged with felonies in Alabama in a securities scheme in the 1990s.

    Meanwhile, Lochmiller Sr.’s investors also were not told that both Lochmiller Sr. and Jr. had bankruptcies on their records. Federal prosecutors in the District of Columbia alleged in August 2008 that ASD members and members of a companion autosurf known as Golden Panda Ad Builder were not told about the bankruptcy of Golden Panda President Clarence Busby.

    Nor were they immediately told that Busby had a run-in with the SEC in the 1990s and was accused of purveying three prime-bank swindles, according to records.

    The Lochmiller case also has a tie to Vernal, Utah, a community to which ASD also has a tie. The Lochmiller case was in part about real estate in Vernal. Vernal is the community in which the so-called “Arby’s Indians” got their start.

    ASD mainstay Curtis Richmond was a member of the bogus “tribe” based in Vernal. The tribe, which used the address of a Vernal doughnut shop as the address of its purported “Supreme Court” and was ruled a “complete sham” by a federal judge, got its derisive name because it once held a meeting at an Arby’s restaurant in Provo.

    Richmond went on to become a pro se litigant in the ASD Ponzi case, accusing the judge overseeing the case in the District of Columbia of “TREASON” and operating a kangaroo court. Richmond claimed the judge overseeing an unrelated case in Utah owed him $30 million. Other ASD figures later claimed government officials owed them sums ranging from the millions of dollars to the trillions.

    Another parallel between the ASD case and the Lochmiller case is the presence of the IRS. ASD’s early deceptions were uncovered by a U.S. Secret Service/IRS Task Force operating in Florida, according to court filings.

    “Investment fraud is like a ‘house of cards’; the underlying structure can fall apart at any time leaving many investors in financial ruin,” said Sean Sowards, a top IRS agent working the Lochmiller case.

    Sowards is the special agent in charge of the IRS-Criminal Investigation unit in Denver.

    “These sentences should remind us that defrauding investors is a serious offense and those who do will be held accountable,” Sowards said.

    Both Lochmiller Jr. and Carver testified at the Lochmiller Sr. trial, prosecutors said.

     

     

  • URGENT >> BULLETIN >> MOVING: FDA Chemist Cheng Yi Liang Pleads Guilty In Insider Trading Case; ‘Shocking Abuse Of Trust,’ Feds Say Of Schemer’s Plot To Use Database To Harvest Illegal Profits

    >> BULLETIN >> MOVING: Cheng Yi Liang, the FDA chemist accused in March of mining the agency’s database for drug approvals or denials and using the information to make insider trades, has pleaded guilty to securities fraud and failing to disclose illicit profits.

    Liang, 57, of Gaithersburg, Md., faces a maximum term of 25 years in federal prison. Sentencing is scheduled for Jan. 9. The case was one that embarrassed the FDA and its employees, but one that exposed the corruption of a federal worker who used the tools of government to line his own pockets.

    The SEC simultaneously charged Liang civilly in March, opening up a second litigation front.

    As part of a plea agreement in the Feds’ criminal case, Liang will forfeit $3.7 million, a home and condominium in Maryland and funds  in 10 bank or investment accounts, federal prosecutors said.

    The FDA is a branch of the U.S. Department of Health and Human Services (HHS).

    “Profiting based on sensitive, insider information is not only illegal, but taints the image of thousands of hard-working government employees,” said Elton Malone,  special agent in charge of the HHS-Office of Inspector General Special Investigations Branch.  “We will continue to insist that federal government employee conduct be held to the highest of standards.”

    “Mr. Liang used inside information about pharmaceutical companies — information he had access to solely because of his position at the FDA — to pocket millions in illicit profits,” said Assistant Attorney General Lanny Breuer. “In a shocking abuse of trust, Mr. Liang exploited his position as a chemist in the FDA’s Office of New Drug Quality Assessment to cash in, using the accounts of relatives and acquaintances to hide his illegal trading.  Now, like many others on Wall Street and elsewhere, he is facing the significant consequences of trading stocks on inside information.”

    Breuer is head of the Justice Department’s Criminal Division.

    While employed at FDA, Liang “was required to file a Confidential Financial Disclosure form disclosing, among other things, investment assets with a value greater than $1,000 and sources of income greater than $200.,” investigators said. “During the time period of his insider trading scheme, Liang annually filed these forms and failed to disclose using the controlled accounts or his income from the illicit securities trading.”

    The FBI participated in the criminal probe.

    “Those who use privileged and valuable information for personal gain, break the trust placed in them as a government employee and the integrity of the research they conduct on behalf of the U.S. government,” said James W. McJunkin, assistant director in charge of the agency’s Washington Field Office.

  • BULLETIN: Recidivist Huckster Jailed In Florida In ‘Body Scan’ Securities Swindle Masterminded Separate Ponzi Scheme In California That Netted $11 Million, SEC Says; Jerry Aubrey Charged Amid Allegations He And Brother Peeled Off Millions For Basketball Tickets And Lavish Home Featuring ‘Giant Fish Aquariums With Miniature Sharks’

    Jerry L. Aubrey: Source: 2010 booking photo at Volusia County Jail in Florida.

    Jerry L. Aubrey first came on the SEC’s radar screens in 1998, when he was hawking “securities in a fictitious cruise ship,” records show.

    By 2007, he’d been charged criminally in Florida with securities fraud for selling shares of a bogus “body scan imaging business” between December 2000 and October 2003. He was convicted of those charges last year and ordered to spend five years in state prison and pay $5.7 million in restitution.

    But even as Aubrey was sitting in prison, investigators were putting together another fraud case — this one involving a purported oil-and-gas venture in West Virginia that Aubrey hawked from California before he was jailed in Florida.

    Aubrey now has been charged civilly in that case, and the SEC said the business — Progressive Energy Partners LLC (PEP) — was an $11 million Ponzi scheme operated through a boiler room with 196 phone lines.

    The scammer and his brother, Tim Aubrey, peeled off millions from the PEP Ponzi, the SEC charged.

    “Jerry and Tim Aubrey misappropriated more than $3.2 million of investor funds for their personal use,” the SEC charged. “Jerry Aubrey withdrew about $500,000 directly from PEP’s bank accounts to pay for personal expenses, and he distributed another $2.7 million in cash and checks to himself, Tim Aubrey, their mother, and their company, Allied Marketing Consultants. A portion of the $2.7 million in cash and checks were alleged salary and sales commissions paid to Jerry and Tim Aubrey, even though PEP’s legitimate business activities were virtually nonexistent.”

    How did the money get spent?

    On “all kinds of things,” the SEC charged — things such as “limo rides . . . to [Staples Center] for Lakers game[s] . . . Vegas . . .  strip clubs and just being a high roller.”

    But that wasn’t all, according to the SEC:

    The rent alone on the “Aubrey family’s lavish house” in California consumed as much as $7,100 a month, the SEC charged, alleging that the three-story, 4,000-square-foot home was “equipped with large screen televisions, a pool table, giant fish aquariums with exotic fish, a hot tub, a pool, and a tennis court.”

    Among the exotic fish were  “miniature sharks,” according to the SEC.

    More investor money was used to pay “for the defense of Jerry Aubrey’s criminal securities fraud case in Florida,” the SEC charged. Meanwhile, there were “family vacations, which included two trips to Maui, Hawaii,” and other trips for associates to “Las Vegas, Palm Springs and Big Bear.”

    Jerry Aubrey also bought a “Lexus car and jewelry” for his girlfriend. Other money was directed at the purchase of “[t]rucks, cars, and Harley Davidson motorcycles, the SEC charged.

    Two PEP pitchmen — Brian S. Cherry and Aaron M. Glassser — also were charged civilly alongside the Aubrey brothers.

    Jerry Aubrey now is listed as an inmate at the Tomoka Correctional Institution, a state prison in Daytona Beach.

  • SEC: New York Pitchman, 73, Hawked ‘Illegal Offering’ For Murdoch Security & Investigations Inc. By Spinning Tall Tale Of ‘Anti-Piracy’ And ‘Anti-Terror’ Success On The ‘High Seas’

    EDITOR’S NOTE: In the past 24 hours, the SEC has filed charges against two firms purportedly in the business of preventing terrorism. Read the PP Blog’s story about the first firm here.

    The cavalcade of senior citizens implicated in securities schemes continues — as does the story about the bizarre nature of recent fraud cases in the white-collar arena.

    Robert Goldstein, 73, of New York City, has been accused in federal court by the SEC of orchestrating a $1 million offering fraud for Murdoch Security & Investigations Inc. (MSI), a firm that allegedly placed ads in the Wall Street Journal last year promising “repayment of principal plus 22 percent interest per year.”

    MSI also placed ads in Barron’s and Investor’s Business Daily for its securities, which were unregistered, the SEC said.

    Goldstein was MSI’s senior vice president. His 53-year-old boss — Connecticut-based MSI CEO William C. Vassell — also has been accused by the SEC of orchestrating the alleged offering fraud.

    But advertising in prominent publications to drive business to the firm was only part of the scam, the SEC said. Lying to customers who responded to the ads also drove the fraud, the agency alleged.

    Described by the SEC as MSI’s “primary salesperson,” Goldstein “provided investors with a wide array of false and otherwise misleading information in an effort to sell the 22% Notes,” the agency said.

    The falsities included “statements about the Company’s revenues, existing assets and overseas operations,” the SEC alleged.

    Investors were told tales of fabulous success in Mexico, fantastic revenues for 2010 and the company’s “explosive” growth potential. And, according to the SEC, Goldstein spun a yarn that MSI’s “anti-piracy” and “anti-terror” business was “probably one of the largest … on the high seas” in 2011 and “that such business, including in Somalia and Yemen, was expected to yield $100 million to $300 million in revenue for MSI in subsequent years.”

    In reality, the SEC said, “MSI’s internal documents reflect revenues that did not approach the numbers conveyed to potential investors; its total assets according to those documents were approximately $4 million, and it had no overseas operations whatsoever, let alone significant revenues from Mexico or a major presence “on the high seas.”

    “The plan Goldstein outlined for investors, in explaining how MSI could afford to offer such high yields on the 22% Notes, focused on what Goldstein described as MSI’s expectation to purchase six or seven security companies to fuel increased revenues,” the agency continued.

    “Contrary to this supposed plan, MSI not only failed to purchase any security companies with the money obtained from investors in the Notes; nearly all of the money raised from those investors was spent to fund Goldstein’s and Vassell’s salaries, fund the payments on the Notes themselves, and pay for various other of MSI’ s ongoing claimed expenses,” the agency alleged.

  • BULLETIN: SEC Says InfrAegis — Purported ‘Homeland Security’ Firm With Product To Detect Weapons Of Mass Destruction — Was A $20 Million Fraud Based In Part On A ‘Trillion’-Dollar Lie; Company And CEO Gregory E. Webb Charged

    BULLETIN: The SEC has gone to federal court in Illinois to charge InfrAegis Inc. and CEO Gregory E. Webb with fraud amid allegations they fleeced investors in a $20 million scam that traded on post-9/11 fears and claims that government security contracts worth more than $1 trillion would make everybody rich.

    Webb, 64, resides in the Chicago suburb of Arlington Heights, Ill. The firm is based in the suburb of Elk Grove Village and purportedly was in the “homeland security” business, according to the SEC.

    But InfrAegis duped investors by falsely claiming to have lucrative contracts with the cities of Chicago and Washington. D.C., for kiosks that purportedly could detect the presence of nuclear or biological weapons.

    Investors were told the Chicago contract would fetch “profits of well over $80 million.” Meanwhile, the Washington contract — purportedly with the Washington Metropolitan Transit Authority (WMATA) — would be worth the staggering sum of $20 billion over 20 years.

    Moreover, the SEC charged, Webb and the firm told investors that “InfrAegis sold a partial stake in the company for $8.7 billion in cash to a company named the DW Group and that the transaction would result in 3800% to 4000% returns to investors.”

    “InfrAegis never sold, and never had any agreements to sell, any of its products to the City of Chicago,” the SEC charged.

    “Similarly, InfrAegis never sold, and never closed on a contract to sell, any of its products to WMATA,” the agency charged. “Finally, InfrAegis never received any money from the DW Group and Webb had no reasonable basis to believe that such a transaction would ever take place.”

    In addition to lying about the success of the firm even as investors were the only source of the company’s income since January 2005, Webb also lied about receiving no compensation from InfrAegis, the SEC charged.

    “Despite the fact that InfrAegis never sold a single product, and that InfrAegis’ offering materials claimed that he did not receive compensation from the company, Webb directed InfrAegis to pay him at least $741,000 using investor funds over the course of the offering,” the SEC charged. “In addition to his investor-funded ‘salary,’ from April 2005 through June 2010, Webb used an InfrAegis corporate credit card, again funded by InfrAegis investors, to purchase at least $70,000 in goods and services for himself, including vacations, clothing, fast food, groceries, tobacco, liquor, movies, video games, and music.”

    The scheme raised $20 million from 395 investors in 29 states and the District of Columbia, the SEC charged.

    Webb and the firm traded on the emotions of investors to pick their pockets, the SEC charged.

    “Some of InfrAegis’ offering materials even included photos of the World Trade Center shortly after the 9/11 attacks with smoke billowing from the towers” the SEC said. “Certain InfrAegis offering materials also claimed that InfrAegis’ products could have prevented major terrorist attacks in London, England and Mumbai, India.”

    Even sports and American pride in seeking to host the Olympic games were part of the fraud pitch, the SEC charged.

    When the city of Chicago was bidding to host the 2016 Summer Olympics, “Webb told investors that InfrAegis had received the endorsement of the 2016 Olympic Committee,” the SEC charged.

    “Webb further stated that the DW Group was in the process of completing a transaction with the United States government and certain foreign governments that exceeded $1 trillion and that, once the transaction was completed, InfrAegis would begin receiving multiple, multi-billion dollar payments from the DW Group,” the SEC charged. “Webb additionally told investors that once the DW Group transaction was completed, InfrAegis would pay its shareholders — who typically invested at $1.00 per share — between $39 and $41 per share.”

    Read the SEC complaint.

  • URGENT >> BULLETIN >> MOVING: Feds Make 3 Arrests In New York In Alleged ‘Green’ Ponzi Caper; SEC Files Emergency Parallel Action To Halt Alleged $26 Million Swindle Over Which Convicted Felon Presided With Alleged Help From Attorney

    URGENT >> BULLETIN >> MOVING: A bizarre case featuring spectacular allegations of Ponzi fraud coupled with verbal strong-arming of victims is unfolding in New York. Three people have been arrested by federal agents, and the SEC has filed an emergency action in federal court to halt what it described as a “green-product themed Ponzi scheme” involving stone pavers imported from Australia.

    Arrested by federal agents were Eric Aronson, 43, of Syosset, N.Y.; Vincent Buonauro Jr., 40, of West Islip, N.Y.; and Robert Kondratick, 41, of  Syosset. All three men are executives of a Long Island group of firms known as “PermaPave Companies,” investigators said.

    Kondratick is Aronson’s brother-in-law, investigators said.

    Aronson is a convicted felon who used proceeds from the emerging scheme to pay restitution to victims of a scheme to which “he pleaded guilty to conducting in 2000” and was sentenced to 40 months in prison, the SEC said.

    The allegation against Aronson that he used fraud proceeds from a new scam to pay restitution to victims of a previous swindle marked the second time today that the SEC made such a claim. This morning, the SEC accused Roger D. Shearer, who is implicated in a separate New York scam, of doing the same thing.

    And a separate allegation in the Aronson complaint against an attorney marked the second time today that a member of the bar had been accused of helping fleece investors. In the SEC’s Aronson complaint, attorney Fredric Aaron, 47, of Port Washington, N.Y., is accused of helping Aronson and other co-defendants dupe investors.

    “Aaron drafted the agreements used to defraud investors, participated in the solicitations conducted by Aronson, repeated during his extensive dealings with investors many of the misleading statements made by Aronson, and developed strategies for concealing the fraud,” the SEC charged.

    Earlier today, the SEC accused Miami attorney Stewart A. Merkin of aiding the alleged Shearer fraud.

    In the case against Aronson, Buonauro, Kondratick, Aaron and the PermaPave firms, the SEC said  140 individuals from the construction and landscaping trades became investors between 2006 and 2010 and were bilked out of $26 million.

    “Aronson and his associates operated the PermaPave Companies as a classic Ponzi scheme,” said George S. Canellos, director of the SEC’s New York Regional Office. “They created the façade of a profitable business, promised investors extraordinary rates of return, and used much of their investors’ money to fund their own lavish lifestyle.”

    Aronson, Buonauro and Kondratick “used new investments to make payments to earlier investors and then siphoned off much of the rest for themselves, buying luxury cars, gambling trips to Las Vegas, and jewelry,” the SEC charged.

    U.S. District Judge Jed S. Rakoff  froze the assets of the defendants and eight relief defendants.

    “Investors were told that PermaPave Companies had a tremendous backlog of orders for pavers imported from Australia, which could be sold in the U.S. at a substantial mark-up, yielding monthly returns to investors of 7.8% to 33%,” the SEC said. “In reality, the complaint states that there was little demand for the product, and the cost of the pavers far exceeded the revenue from sales.”

    Moreover, the SEC said, Aronson tried to turn the table on investors by accusing them of felonies when they asked for their money.

    “Aronson accused them of committing a felony by lending the PermaPave Companies money at the interest rates he promised them, which he suddenly claimed were usurious,” the SEC charged. “Aronson and . . . Aaron then allegedly made false statements to persuade investors to convert their securities into ones that deferred payments owed them for several years.”

    Most of the investors “had little or no prior investment experience” and were told that “they were purchasing high-yield instruments that were free of risk,” the SEC charged.

    “The PermaPave Entities operated from the same offices, shared the same employees, commingled assets, and purported to sell PermaPave pavers, which are squares comprised of small rocks glued together that purportedly assist with storm drainage,” the SEC charged.

    Of the $26 million raised in the scheme, only $600,000 was used to purchase pavers, the SEC charged.

    Read the SEC complaint.

     

  • 2 X BIZARRE: (1) SEC Says New York Man Used Proceeds From Unregistered Offering To Pay Restitution In Criminal Case; (2) Feds Say Philly Man Illegally Used Investor’s Funds To Pay For ‘Joy To The World’ Gala And Make Purported ‘Gold’ Purchase In West Africa

    EDITOR’S NOTE: If you’ve been wondering whether there was any ceiling to the bizarre nature of securities-fraud cases as the white-collar fraud epidemic continues, it perhaps is best to stop wondering now . . .

    A New York man has been accused by the SEC of using the proceeds of an unregistered offering for StratoComm Corp. to pay restitution owed in a previous criminal case.

    Roger D. Shearer, StratoComm’s chief executive officer, was sued Tuesday by the SEC in federal court in Albany, N.Y.

    Meanwhile, StratoComm’s outside counsel has been accused in Miami by the SEC of securities fraud amid allegations he knew StratoComm was under investigation but disclaimed knowledge of the probe in letters designed to ensure the firm’s stock would continue to be quoted on the Pink Sheets.

    Attorney Stewart A. Merkin was sued by the SEC on Monday.

    In a separate, unrelated case, a suburban Philadelphia man has been arrested on charges he solicited $4 million from an investor and “misappropriated at least half of it,” federal prosecutors in New York said.

    Charged criminally with wire fraud in the case was Tyrone L. Gilliams Jr. Gilliams owned a company known as TL Gilliams LLC, prosecutors said.

    Prosecutors said Gilliams’ victim believed the money would be used for investments in “treasury strips” — securities derived from U.S. treasury bonds.

    Gilliams, however, peeled off more than $2 million, using at least $1.3 million of it to fund a black-tie gala at the Ritz Carlton hotel in Philadelphia last year. The event was dubbed the “Joy to the World” festival. Another Joy to the World event was held in the Bahamas, prosecutors said.

    “His charade was funded by money he allegedly stole from an unwitting investor,” said U.S. Attorney Preet Bharara of the Southern District of New York.

    Another $450,000 of the $4 million was used “to refund a deposit from a prior investor,” and more than $200,000 went to a real estate title company, prosecutors said.

    Smaller sums went for other “improper purchases,” and Gilliams “wired approximately $1.6 million to Ghana, for what he has since claimed was an investment in gold,” prosecutors said.

    “Gilliams misrepresented to an investor how solicited funds would be used,” said FBI Assistant Director-in-Charge Janice K. Fedarcyk.

    In the civil case against Shearer and StratoComm, the SEC alleged that StratoComm, acting at Shearer’s direction and with the assistance of former StratoComm executive Craig Danzig, “issued and distributed public statements falsely portraying the company as actively engaged in the manufacture and sale of telecommunications systems for use in underdeveloped countries, particularly Africa.”

    But the firm “had no product and no revenue,” the SEC charged, alleging that “Shearer and Danzig sold investors approximately $3 million worth of StratoComm stock in unregistered transactions.

    “Shearer used much of that money for his own purposes, including paying a substantial part of the restitution he owed in connection with his guilty plea in a prior criminal proceeding,” the SEC said.

    Merkin, StratoComm’s counsel, wrote “four attorney representation letters for posting on the website of Pink Sheets LLC and its successor, Pink OTC Markets, Inc.,” the SEC said. “In those letters Merkin disclaimed knowledge of any investigation into possible violations of the securities laws by StratoComm or any of its officers or directors. However, the SEC’s complaint also alleges that Merkin was representing StratoComm and several individuals in connection with the SEC’s investigation at the time.

    “Nevertheless, in order that StratoComm’s shares would continue to be quoted, the SEC’s complaint alleges that Merkin falsely stated that to his knowledge StatoComm was not under investigation,” the SEC said.

     

  • CLOAK-BUSTING RULING IN SCAM LAND: Court Records Show SEC Served Subpoena On Google Aimed At Unmasking Identity Of Possible Touter In ‘Pump And Dump’ Probe Into Price Of Jammin Java Corp. Stock; ‘John Doe’ Moved To Quash, But Judge Says No

    A judge yesterday upheld the SEC’s ability to investigate potential fraud schemes by issuing administrative subpoenas to vendors whose services potentially are being used to help scammers cloak themselves while they harvest illegal profits. The ruling is apt to cause great unease in the corners of the Internet occupied by murky HYIP, autosurf and pump-and-dump hucksters because it reinforces the principle that anonymous fraudsters cannot shield themselves from prosecution by citing their First Amendment right to free speech while they’re picking the pockets of their marks.

    The case speaks to the issues about whether federal agencies that suspect wrongdoing can turn to third parties — in this case, Google — to determine the identities of anonymous posters on the Internet and whether the posters can quash subpoenas by arguing that disclosure of their personal information is a violation of their right to anonymous free speech under the First Amendment.

    In the case, the SEC said it had reason to believe that an anonymous poster using a Google gmail address was participating as a touter in a pump-and-dump scheme designed to harvest illicit profits by driving up the price of Jammin Java Corp. stock.

    The SEC issued a subpoena to Google under the Electronic Communications Privacy Act (ECPA), which requires “a provider of electronic communication service or remote computing device” to “disclose to a governmental entity the (A) name; (B) address; (C) local and long distance telephone connection records, or records of session times and durations; (D) length of service . . . and types of service utilized; (E) telephone or instrument number or other subscriber number or identity . . .; and (F) means and source of payment for such service, of a subscriber when the governmental entity uses an[] administrative subpoena authorized by Federal or State statute. . . .”

    Google notified the gmail user that it had been served with a subpoena. The user, in turn, hired counsel to quash the subpoena and block his identity from being disclosed to the SEC. The user identified himself as “John Doe” in the filings. A judge yesterday sided with the SEC, ruling that the subpoena “is explicitly permitted by the ECPA, and does not implicate First Amendment concerns.”

    In outlining the ruling, U.S. Magistrate Judge Nandor J. Vadas of the Northern District of California said that “Congress granted the SEC the authority to investigate potential violations of securities laws. In issuing the SEC Order and proceeding to investigate the Jammin Java stock fluctuations, the SEC is fulfilling its Congressional mandate.”

    In addition, Vadas ruled that the SEC “has followed the procedural requirements for serving an administrative subpoena.” Meanwhile, he ruled that an argument John Doe made that “the SEC has not sufficiently established the relevance of his email address to the investigation” failed because the agency made a showing under penalty of perjury that it “has obtained information indicating that the email address `[deleted]@gmail.com’ potentially belongs to a touter in the `pump and dump’ scheme.”

    “In addition,” the judge ruled, “during the hearing, counsel for the SEC testified that the SEC had investigated web-sites where the touts had appeared and tracked the email addresses of individuals who had participated in setting up those web-sites.”

    John Doe’s gmail address “was involved in setting up the web-sites and/or setting up email blasts that contained touts for Jammin Java,” according to court filings.

    John Doe “contends he has used the email address at issue to participate in anonymous political speech,” Vadas said in the ruling. “[John Doe] has a First Amendment right to participate in anonymous speech, political or otherwise, in online fora. However, at least in the context of valid government investigations, courts repeatedly have concluded that identifying information is not subject to First Amendment (or Fourth Amendment) protection.”

    For its part, Jammin Java has acknowledged that an SEC probe into its stock price is under way, but expressly denied the firm played any role in a manipulation scheme.

    “In May 2011, Jammin became aware that unauthorized internet stock promoters were promoting short term investments in the company’s stock in ‘stock reports’ and on their websites. As stated in Jammin’s May 6, 2011 Form 8-K, Jammin has no knowledge of, or affiliation with, these stock promoters,” the company said. “As a result, neither Jammin, nor anyone affiliated with the company, authorized, paid for or approved any stock report, advertisement or promotion of the company’s stock. Any information regarding Jammin that is authorized by the company and approved for public distribution will be issued by Jammin itself through periodic filings with the SEC and/or through an authorized press release.”

    Jammin Java said it was cooperating with the SEC.

    “We have fully cooperated with the SEC investigation and hope to see any wrongdoers identified and prosecuted to the fullest extent of the law,” Jammin Java Chairman Rohan Marley said last month.

  • BULLETIN: Senior Ponzi Schemer Edward May, 75, Sentenced To 16 Years In Federal Prison; $350 Million Ponzi Swindle Called Largest In Eastern Michigan History

    BULLETIN: Edward May, 75, effectively has been sentenced to life in prison for orchestrating an elaborate Ponzi scheme that gathered about $350 million and fleeced 1,200 people. Many of his victims were fellow senior citizens, although May also altered the lives of younger victims.

    Prosecutors described the May Ponzi as the largest in the history of the Eastern Michigan District.

    U.S. District Judge Arthur Tarnow sentenced May today to 16 years after May’s April guilty plea to 59 counts of mail fraud. Prosecutors said May established as many as 150 LLCs to pull off the scheme, which operated for a decade. The SEC sued May in 2007.

    One of May’s victims told prosecutors that he considered suicide after being bilked by May.

    “Complex fraud schemes like this one rob investors of their savings and erode public confidence in legitimate investments,” said U.S. Attorney Barbara L. McQuade of the Eastern District of Michigan. “This loss of public confidence in investment opportunities, in turn, depresses our economy. By prosecuting those who commit fraud, we hope to deter others from committing similar crimes.”

    May falsely traded on the name of Hilton Hotel Corp.,  MGM-Mirage Resorts Inc., the MGM Grand Hotel, Motel 6, the Tropicana Resort Casino and the Sheraton Hotels chain as part of the fraud, according to court filings. He also claimed that he was supplying telecommunications services through a purported “Norwegian” company.

    In an often-heard refrain in the Ponzi world, May went into excuse-making mode when his caper collapsed, claiming payments to investors were delayed because of the company’s growing pains.

  • BULLETIN: California Woman Pleads Guilty In ‘Christian Rock Concerts’ Ponzi Scheme; Recidivist Swindler Lauren Baumann Used Money From Latest Scam To Pay $10,000-A-Month Mansion Rent, Prosecutors Say

    BULLETIN: A California woman has pleaded guilty to wire fraud in a Ponzi scheme in which investors were falsely told their money was being used to fund “Christian rock concerts” and to flip real estate at a profit.

    Lauren Baumann, 43, of Downey, was a recidivist  huckster who failed to disclose she’d been sued for fraud by the SEC in 1998 and convicted in Texas of securities fraud in 1999 in a criminal case that evolved from the SEC probe. The 1990s-era caper gathered about $5 million, and the scam targeted at Christian music fans that would follow later netted about $1 million.

    Investors in the rock-concert scam were told their money would be used to finance “battle of the bands” events that would feature “Christian rock bands and other music groups that would generate profits from ticket sales and company sponsorships,” the office of U.S. Attorney André Birotte Jr. of the Central District of California said this afternoon.

    The scheme operated through a company known as Stewardship Estates LLC, prosecutors said.

    “Baumann also used investor funds to pay approximately $10,000 a month to rent a historic mansion in Downey and to pay private school tuition for her children, among other personal expenses,” prosecutors said.

    Although some of the investors got paid, the money they received was Ponzi proceeds. All in all, the scam sucked in more than two dozen investors and caused at least $560,000 in losses, prosecutors said.

    Baumann faces up to 20 years in federal prison. She is scheduled to be sentenced by U.S. District Judge Josephine S. Tucker on Dec. 12. The FBI handled the criminal probe in Baumann’s latest swindle.

  • URGENT >> BULLETIN >> MOVING: Richard Dalton, Marie Dalton Arrested In Atlanta; Colorado Couple Implicated In Bizarre Ponzi Scheme And Will Be Prosecuted In Denver By Special Government Counsel From Kansas

    URGENT >> BULLETIN >> MOVING: A Colorado husband and wife have been arrested by federal agents in Atlanta and will be returned to Denver to be prosecuted by special government counsel brought in from Kansas, authorities said.

    Why special counsel was appointed to oversee the prosecution of Richard and Marie Dalton was not immediately clear. The allegations in the case, which began as an emergency SEC civil prosecution last year reported on here by the PP Blog, are bizarre. The case may be linked to the mysterious, prime-bank allegations against Larry Michael Parrish of Walkerville, Md., which the PP Blog reported on here.

    Richard Dalton, 65, and Marie Dalton, 60, reside in Golden, Colo. They have been charged with one count of conspiracy to commit mail fraud, wire fraud and interstate transportation of stolen funds, according to the office of U.S. Attorney Barry Grissom in the District of Kansas.

    Parrish’s name was not referenced today in the announcement by Grissom’s office of the prosecution of the Daltons. In March 2011, the SEC described Parrish as a recidivist swindler with a tie to Richard Dalton. Parrish was accused by the SEC of posing as a concerned financial adviser and investment strategist and visiting a dying man in a Colorado hospital.

    The man was suffering from cancer. Parrish assured him that investing with him was safe, that the man’s wife would not have to worry about her finances after his death, that “the investment would provide for his wife for the rest of her life,” the SEC said in March.

    “That money is now gone,” the SEC said. And so is the money from 70 other Parrish investors in three states, about $9.2 million in all, the agency said in March.

    When the Daltons learned they were under investigation by the SEC, Grissom’s office, the FBI and the IRS said today in a joint statement, they discontinued making payments to investors and falsely represented to investors that they could expect payments soon.

    “They also misled investors with false claims that the company’s European trader was switching banks, that the company was liquidating a cache of diamonds to pay investors back, that a plane carrying diamonds had been forced to land in Amsterdam because three engines had gone out and that the company had discovered it was holding 18,000 fake diamonds,” prosecutors said.

    The SEC laid out largely the same fact set in November 2010.

    “This investigation is not over as we are committed to following the money trail,” said Sean P. Sowards, IRS Criminal Investigation Special Agent in Charge. “We will continue to pursue the evidence wherever it leads.”

    The Dalton caper used a “diamond” theme and had an element known simply as “the Trading Program.” It gathered $17 million through a company known as Universal Consulting Resources LLC (UCR)., investigators said.

    “As part of soliciting investors for the Trading Program, Dalton and UCR falsely told prospective investors that their invested funds would be held safely in an escrow account at a bank in the United States, and that a European trader (often referred to simply as ‘the Trader,’ but never known or referred to by name) would use the value of that account, but not the actual funds, to obtain leveraged funds to purchase and sell bank notes,” the SEC charged last year.