Is it the oddest fraud story coming out of Florida to date?
A man who emailed Eastman Kodak and AMR in March with offers to purchase the famous companies for billions of dollars had declared bankruptcy in 2007, was on probation for grand theft when the offers were made and extended the offers through a shell company the state of Florida dissolved last year for not filing its first annual report, the SEC said.
On March 19, a Saturday, Allen E. Weintraub emailed Kodak with a “tender offer” to purchase the firm for $1.3 billion in an all-cash deal through Sterling Global Holdings, his dissolved shell company. Ten days later, with his purported Kodak deal percolating, Weintraub emailed AMR, the parent company of American Airlines, and offered to plunk down about $3.25 billion in cash to acquire the company, the SEC said.
Sterling Global “conducts no business and has no assets,” the SEC said. Regardless, Weintraub allegedly offered a premium nearly 50 percent above the prices of each of the firms’ stock.
In a securities-fraud complaint that reads like an impossible work of fiction, the SEC alleged that Weintraub had been convicted three times in criminal fraud and grand larceny cases between 1992 and 2008. In 2003, he was ordered by a federal judge not to act as an officer and director of a public company after the SEC accused him of breaking securities laws, not disclosing his criminal past in filings and “dumping” shares. The agency obtained a judgment of $1.050 million against Weintraub in the case, which was filed in 2002.
Weintraub was arrested for selling bogus hurricane insurance in Florida in 2005, according to records.
Weintraub had paid only $220 on the SEC judgment, according to records. He was on probation for 10 years at the time the Kodak and AMR offers were made, the SEC said.
Although Weintraub claimed to have financial backing to take over the companies, the SEC said its investigation revealed that he made visits to at least three “branch offices” of large commercial banks in his neighborhood, but emerged with no money.
Why Weintraub allegedly discussed financing for major corporate takeovers through branch offices that cater to commuters instead of dealing directly with investment-banking units was unclear. Also unclear is why Weintraub claimed to have secured financing when no lenders signed onto a deal with Weintraub, a recent bankrupt who had an unpaid judgment of more than $1 million from the SEC case and also had been the subject of a 2006 foreclosure action in Florida involving a $1 million promissory note on a property at Golden Beach in Miami-Dade County.
What is clear is that Weintraub created a sideshow involving both firms by embarking on a media campaign after announcing his takeover bids, according to the SEC.
“In an effort to generate publicity, Weintraub emailed the purported tender offers to media outlets and financial investment research firms,” the SEC said. “In published media interviews, Weintraub boasted that he has 15 years[‘] experience buying distressed companies, that banks had agreed to finance the acquisitions, and that letters of credit could be readily provided.”
And Weintraub pumped up the offers by creating the appearance that he was at the helm of a global enterprise, rather than a dissolved Florida company formed in October 2009 that did not even file its first required annual report the following year.
Indeed, the SEC said, Sterling’s Global’s “letterhead listed the cities Atlanta, Cleveland, Denver, Dubai, London, Los Angeles, Miami, New York, and Tel Aviv, creating a false impression that Sterling Global had offices in each of those cities.”
The address used in the tender offers was a “nothing more than a mail drop” in Davie, Fla., the SEC said.
As news about the AMR offer appeared, the trading volume of the stock jumped more than sixfold, the SEC said.
“The trading volume in AMR’s stock rose from approximately 5 million shares on March 29 to approximately 31.5 million shares on March 30,” the SEC said. “The lack of any other AMR or airline industry news indicates that the March 30 price and volume movement were affected by the media coverage of Sterling Global’s AMR tender offer that occurred in the late afternoon of March 29.”
Weintraub has been charged with securities fraud and violations of the tender offer rule.
“Neither Weintraub nor Sterling Global has the means to purchase either Kodak or AMR by tender offer or otherwise as they have no substantial assets or resources,” the SEC said.
One of the central figures in the Trevor Cook Ponzi scheme civil case is stonewalling investigators and frustrating efforts to get to the truth, the SEC claims in new court filings.
Former radio talk-show host Pat Kiley, who was named a defendant in the SEC action filed in November 2009, “has produced no documents, and he has answered no interrogatories,” the SEC said.
Kiley was 71 when the SEC case was filed, according to court records.
The agency has asked Chief U.S. District Judge Michael J. Davis of the District of Minnesota to order Kiley to turn over discovery documents that were due “six weeks ago” in mid-March.
Kiley, though, claims he has turned over the materials, according to court filings. But the SEC said it has not received the materials.
Instead, the agency said, Kiley sought to “turn the tables” on the Commission by serving it requests of his own.
“On March 18 — one day before his responses were due — Kiley took the Commission’s requests, tweaked the language, and served them back on the Commission,” the agency said. “That is, Kiley redirected the Commission’s requests back at the Commission, apparently under the mistaken belief that the ball is now in the Commission’s court.”
But “needless to say,” the agency said, “discovery is not a game of tag — a party cannot avoid answering discovery by serving requests of his own.”
Kiley next blamed health problems, including “arthritis and tremors in both hands,” for missing deadlines, the agency said.
“Arthritis is not the real reason for his failure to respond,” the agency said. “Indeed, hand tremors did not prevent him from serving 10 interrogatories and 25 document requests on the Commission on March 18. Arthritis also did not prevent him from litigating the issue of his attorneys’ fees, including the filing of a Motion to Refund Fee . . . and a 12-page affidavit.”
Kiley, the SEC said, has appeared at three hearings since October 2010, showing that “he litigates — when he wants to.”
Participating in discovery, however, has been another matter, the SEC said.
“By refusing to provide information, Kiley is frustrating the search for truth about his involvement in a $190+ million fraud,” the agency said.
Here is a partial list of what the SEC is seeking from Kiley, according to court filings:
All documents that support the statements made in your Answer filed on October 14, 2010 (Docket No. 535). For example, produce: (1) the “letters of gratitude,” “emails of gratitude,” and “letters, cards, and phone calls” from investors, including the “room full of these tokens of clients’ gratitude.”
Documents relating to the “customer service” that you performed or experienced.
Documents relating to the notion that “everything [you] had on earth was invested in the program,” that you were “fully invested” in the currency program, and that you “lost everything” you owned in the program.
Documents relating to the notion that you “liquidated [customer] accounts” and returned customer funds “against their will” when you “felt they did not fit anymore.”
Documents relating to the notion that you “predicted accurately (9 months in advance), the failure of banks, investment houses, and the coming real estate foreclosure market.”
Documents relating to the “commissions” and other funds received from Trevor Cook or the Currency Program.
Documents relating to the “[p]reparation of and research for the radio program.”
Documents relating to application materials submitted by investors.
Thee SEC also asked Kiley to:
Produce the “piles and piles of documentary evidence” that you mentioned at the Rule 26(f) conference with Magistrate Judge Noel on December 16, 2010.
Produce all affidavits, declarations, responses, and summaries of any kind that you have prepared relating to the Currency Program or to the allegations of the Complaint. This request includes, but is not limited to, the so-called “60-page” affidavit or summary that you prepared about this case, as represented to various investors.
Produce all documents that refer or relate to any due diligence of whatever kind that you performed about the Currency Program from January, 2006 to July, 2009. This request includes, but is not limited to, any investigation to confirm whether (i) the investor’s funds would be placed – and were in fact placed – in segregated accounts; (ii) the investor’s funds would be used – and were in fact used – to trade foreign currencies; (iii) the foreign currency trading would generate – and did in fact generate – annual returns of 10% to 12%; (iv) the foreign currency trading involved little or no risk; (v) the investor’s principal would be safe and could be withdrawn at any time; and (vi) Trevor Cook, Bo Beckman, Chris Pettengill, and Jerry Durand were competent and trustworthy.
Produce all documents that refer or relate to communications with investors about the Currency Program. This request includes, but is not limited to, all correspondence with investors, and all representations to investors about the Currency Program.
Produce all documents that refer or relate to investments by investors in the Currency Program. This request includes, but is not limited to, agreements, applications, account statements, marketing material, so-called “pitch sheets,” and so on.
Produce all documents that refer or relate to the content of the “Follow the Money” radio program. This request includes, but is not limited to, recordings or transcripts of broadcasts. This request also includes, but is not limited to, any notes, research, preparatory material, or summaries relating to any broadcasts, as well as any communications with listeners about the broadcasts.
Produce all documents that refer or relate to any compensation of any kind that you received relating to the “Follow the Money” radio program.
Produce all documents that refer or relate to the content of www.patkiley.com. This request includes, but is not limited to, any information posted on the website, as well as the computer server that contained the contents of the website.
Produce all documents that refer or relate to communications with Trevor Cook, Bo Beckman, Chris Pettengill, Jerry Durand, or any officer or employee of the Universal Entities or the Oxford Entities about the Currency Program.
Produce all documents relating to any funds (e.g., cash, checks, or cash equivalents) that you received from Trevor Cook, Bo Beckman, Chris Pettengill, Jerry Durand, or any officer or employee of the Universal Entities or the Oxford Entities.
Produce all agreements between you and Trevor Cook, Bo Beckman, Chris Pettengill, Jerry Durand, the Universal Entities or the Oxford Entities.
Produce all documents relating to any personal investment by you in the Currency Program at any time.
Produce all advertisements or other marketing material relating to the Currency Program, the Universal Entities, or the Oxford Entities.
Produce all documents referring or relating to your education, professional training, and experience in financial and economic matters. This request includes, but is not limited to, all documents referring or relating to your education, professional training, and experience in the trading of securities or foreign currencies.
Produce all documents relating to any communications that you had with anyone about the investigation by the SEC or about the merits of this lawsuit.
Produce all photographs relating to the Currency Program or to the “Follow the Money” radio program. This request includes, but is not limited to, all photographs with Trevor Cook, Bo Beckman, Chris Pettengill, Jerry Durand, or any officer or employee of the Universal Entities or the Oxford Entities.
Produce all bank statements for accounts used by you (personal or business) from January 1, 2006 to the present.
Produce all phone records from January 1, 2006 to the present.
Produce all calendars, time entries, and diaries from January 1, 2006 to the present.
Produce all federal and state tax returns from January 1, 2006 to present.
Produce all documents cited or described in your (forthcoming) Rule 26(a) Initial Disclosures and any supplements.
Produce all documents that you cited in, or documents that you relied upon in preparing, your responses to any interrogatories served by the SEC.
BULLETIN: Federal agents have arrested three new defendants in the alleged Red Sea Management stock-manipulation scheme. The arrests occurred in three U.S. states last week, and one of the new defendants already was in custody for a separate scam, federal prosecutors said.
Arrested were Timothy Barham Jr., 43, of Henderson, Tenn.; Nathan Montgomery, 30, of Henderson, Nev.; and Ryan Reynolds, 39, of Dallas. Reynolds already was in custody. The SEC charged him in 2008 in a separate scam, according to records. He is a defendant in at least two separate SEC actions.
Red Sea allegedly was operated by Jonathan Curshen, a convicted felon and the one-time purported “honorary counsel” of St. Kitts-Nevis to Costa Rica. Curshen, 46, of Sarasota, Fla., also has been referenced as a purported “consulate” to the bizarre, nonexistent nation of “New Utopia.”
New Utopia has purported to be an underwater nation that will rise out of the Caribbean on concrete stilts.
On March 10, the PP Blog received a bizarre communication from a person who purported to be “Mr. Protector” and complained about the Blog’s coverage of the New Utopia fantasy, which the SEC said was dreamed up by American Lazarus R. Long more than a decade ago.
Long has described himself as a “Prince.” New Utopia, which purportedly is located undersea “approximately 115 miles west of the Cayman Islands,” has offered driver’s licenses for $140.
The communication both invited and uninvited the Blog to witness the debut of the New Utopia “Palace” on a date uncertain.
“How about we print your words out about New Utopia in size 12 font and then, when New Utopia Construction begins, we can invite you there in front of the Palace and watch you eat the words and the paper they are written on?” the person wrote.
In the very next paragraph, however, the Blog was uninvited.
“[H]ow will we know to not allow you to visit The Principality of New Utopia?” the person inquired. “We will find a way of that be assured.”
Read the Justice Department statement on the new defendants and a superseding indictment against the original defendants. The original defendants included Curshen; attorney Michael Simon Krome, 49, of Long Island, N.Y.; Ronald Salazar Morales, aka “Ronny Salazar,” 39, of Costa Rica; Robert Lloyd Weidenbaum, 44, of Miami; and Eric Ariav Weinbaum, 37, and Izhack Zigdon, 47, both of Israel.
The case was brought by elements of the interagency Financial Fraud Enforcement Task Force created by President Obama in November 2009.
The senior-citizen Ponzi cavalcade and incredible paperwork maze continues: Edward May, 74, has pleaded guilty in Detroit to 59 counts of mail fraud in a case in which federal prosecutors alleged he rented office space in Lake Orion, Mich., and established 150 LLCs as part of a $200 million Ponzi scheme that operated for a decade.
The SEC, which sued May for his operation of E-M Management Co. LLC and associated busineses, said in November 2007 that May had defrauded as many as 1,200 investors by selling them “interests” in the LLCs.
Many of the investors were “elderly” persons, the SEC said, adding that May also was selling unregistered securities.
As part of the fraud, May traded on the name of Hilton Hotel Corp. and planted the seed that he was supplying telecommunications services to the famous company through a “Norwegian” company.
It was a lie, the SEC said. It also was a lie when May made similar claims and traded on the names of MGM-Mirage Resorts Inc., the MGM Grand Hotel, Motel 6, the Tropicana Resort Casino and the Sheraton Hotels chain.
The Ponzi collapsed by July 2007, and May went into excuse-making mode by claiming payments were delayed because of the company’s growing pains — specifically claiming that “mailing accuracy” had suffered because the number of LLCs had grown and created a “volume” problem, the SEC said.
By September 2007, however, he started pitching investors on an opportunity to invest in a Michigan “concrete company,” the SEC said.
What May actually was doing, investigators said, was running a Ponzi scheme and ripping off investors to pay his gambling debts and other personal expenses.
In September 2009, the SEC alleged that Frank Bluestein, who ran a company known as Fast Frank Inc., was “the single largest salesperson” for May’s fraud.
Bluestein, 59 when the SEC case against him was brought, raised $74 million, in part by targeting senior citizens and conducting “seminars” in which seniors were encouraged to “refinance their mortgages for their homes in order to fund their investments,” the SEC alleged.
James Clark Howard: Source: Boca Raton Police Department
UPDATED 2:25 P.M. EDT (U.S.A.) In a complex case unfolding in Florida, the SEC has filed fraud charges against two companies that allegedly sold unregistered securities and conducted a $27.5 million “investment scheme” involving “purported commodities contracts.” A receiver has been appointed to marshal the assets of the murky businesses, which are known as Commodities Online LLC and Commodities Online Management LLC.
Millions of dollars generated in the scheme were moved to Mexico and the Netherlands even as the SEC was issuing subpoenas in the case last month, according to court filings. The agency described the transactions as “extremely suspicious.”
Although the SEC successfully halted the alleged Commodities Online scheme on April 1, the only defendants named to date are the companies themselves. The agency described the individuals presiding over the scheme — a former managing member and a vice president — as convicted criminals.
One of the individuals, according to the SEC, was a “convicted felon who was, in March 2010, charged with grand theft and organized scheme to defraud in conjunction with an unrelated Ponzi investment scheme.”
The other, according to the SEC, was an individual who “pled guilty to bank fraud and narcotics charges in 2005 and to transmitting a threat to injure charge in 2007.”
The PP Blog confirmed that, on March 5, 2010, the Boca Raton Police Department arrested James Clark Howard, who is listed as a “managing member” of Commodities Online LLC in documents filed with the Florida Department of State on Jan. 26, 2010.
Howard was charged with grand theft and organized scheme to defraud in a Ponzi case that may involve as many as five companies and their associates acting in concert to scam investors. Boca Raton authorities said the Florida Office of Financial Regulation also was conducting an investigation.
On Feb. 11, 2011, Louis Gallo was identified as a manager of Commodities Online Management LLC in records filed with the Florida Department of State. The Sun Sentinel newspaper reported that Gallo is “on probation for bank fraud and a cocaine charge out of New Jersey federal court.”
AdSurfDaily Member And Surf’s Up Mod Emerges As Figure In New Florida Flap
Other records show that, on Sept. 15, 2010, a Nevada-based company that listed former AdSurfDaily member and Surf’s Up moderator Terralynn Hoy as a “director” sued Howard and others in federal court in Fort Lauderdale. The Nevada company — SSH2 Acquisitions Inc. — alleged that Howard and the others were running a Ponzi scheme into which SSH2 had plowed $39 million.
Hoy, who has not been accused of wrongdoing, was a member of Florida-based AdSurfDaily, which the U.S. Secret Service said in August 2008 was conducting an international Ponzi scheme involving tens of millions of dollars. After the ASD seizure, Hoy became a moderator at the pro-ASD “Surf’s Up” forum, which mysteriously vanished in January 2010 after cheerleading nonstop for ASD President Andy Bowdoin for more than a year.
Bowdoin was the target of a federal criminal probe the entire time Surf’s Up operated, according to court filings. In November 2008, just days after a key court ruling went against ASD, the firm endorsed Surf’s Up as its mouthpiece.
By February 2009, Hoy became a conference-call host and moderator of a now-defunct forum that promoted the now-defunct AdViewGlobal (AVG) autosurf. AVG, which had close ties to ASD, launched in the aftermath of the federal seizure of more than $80 million in ASD-related assets, the filing of two forfeiture complaints against ASD-related assets and the filing of a civil racketeering lawsuit against Bowdoin.
On June 30, 2009 — one day after Bernard Madoff was sentenced to 150 years in federal prison for his colossal Ponzi scheme — lawyers suing Bowdoin for racketeering alleged that AVG was an extension of ASD. In September 2009, federal prosecutors made a veiled reference to AVG in court filings in the ASD case.
AVG disappeared in June 2009, about a month after the grand jury that ultimately indicted Bowdoin for wire fraud, securities fraud and selling unregistered securities as investment contracts began to meet. The indictment against Bowdoin was unsealed in November 2010, and Bowdoin was arrested in Florida on Dec. 1, 2010.
Surf’s Up was known for unapologetic, unabashed cheerleading for Bowdoin, whom prosecutors said had swindled investors in Alabama in a previous securities caper during the 1990s. Clarence Busby, an alleged business partner of Bowdoin and the operator of the Golden Panda Ad Builder autosurf, swindled investors in three prime-bank schemes in the 1990s, according to the SEC.
More than $14 million linked to Golden Panda was seized as part of the ASD case — and yet the cheerleading for Bowdoin continued on Surf’s Up. The forum labeled ASD pro-se litigant Curtis Richmond a “hero” after he accused the judge and prosecutors of crimes in 2009.
Richmond was associated with a Utah “Indian” tribe a federal judge in a separate case ruled a “complete sham” after it filed enormous judgments against public officials in performance of their duties. Regardless, the cheerleading on Surf’s Up continued — even after it was revealed that Richmond had a contempt-of-court conviction for threatening federal judges and had been sued successfully under the federal racketeering statute by the Utah public officials and was ordered to pay nearly $110,000 in penalties and damages.
Federal prosecutors now say they have linked ASD to E-Bullion, a shuttered California payment processor whose operator — James Fayed — is accused of arranging the contract murder of his wife, a potential witness against him in a fraud case. E-Bullion has been linked by investigators in the United States and Canada to multiple Ponzi schemes.
SSH2, the company that listed Hoy as a director, alleged in September 2010 that Howard was part of a Ponzi scheme that also involved Patricia Saa, Sutton Capital LLC and Rapallo Investment Group LLC.
Howard had been arrested by the Boca Raton Police Department in March 2010, about six months before SSH2 accused him in the September 2010 lawsuit of operating a Ponzi scheme. In the lawsuit, SSH2 said it had conducted business with the defendants from “early 2009 through March 2010,” and ultimately turned over $39 million.
Howard and the defendants, according to the lawsuit, told SSH2 it was trading in commodities and “would produce profits of 40% per month or more, while not risking any of the invested funds.”
SSH2 did not say in the complaint how it had come to believe that a return of 40 percent a month with no risk was possible. Nor did the company describe its efforts to conduct due diligence on Howard and the other defendants.
Of the $39 million directed at Howard and the other defendants, SSH2 received back approximately $19 million in “fake and fraudulent ‘profits,’” according to the lawsuit.
If SSH2’s assertions that it conducted business with Howard and the others beginning in “early 2009” and expected a return of 40 percent a month are true, it means that the business was being conducted in a period after which both the Bernard Madoff Ponzi scheme and the alleged AdSurfDaily Ponzi schemes were exposed.
Both Madoff and ASD bragged about returns that were far less than the monthly returns allegedly offered by Howard and the other lawsuit defendants.
Madoff’s fraud was exposed in December 2008, about four months after ASD’s alleged fraud was exposed.
And if SSH2’s assertions against Howard and the others are true, it also means the transactions occurred during a period in which Hoy, later to emerge as an SSH2 director, also was moderating forums for ASD and AVG and also was serving as a conference-call host for AVG, which purported to operate from Uruguay and enjoy protection from U.S. regulators because of its purported “private association” structure.
ASD’s Bowdoin initially ceded the money seized by the Secret Service in January 2009, dropping his claims to the cash “with prejudice.” By the end of February 2009, however, Bowdoin sought to reenter the case as a pro se litigant and renew his claim to the money, which totaled about $65.8 million.
Bowdoin’s sudden reappearance in a case he had abandoned coincided with a meeting AVG reportedly conducted with Karl Dahlstrom, a convicted felon. In March 2009 — in a letter posted on Surf’s Up — Bowdoin claimed he had decided to reenter the case after consulting with a “group” of ASD members. Bowdoin did not name the members, but chided federal prosecutors in his letter, writing that his pro se pleadings should “really get their attention.”
For the balance of 2009, Surf’s Up continued to cheerlead for Bowdoin, despite the fact he never told the membership at large about a second forfeiture complaint that had been filed against ASD-connected assets in December 2008. Bowdoin also did not inform ASD members that he had been sued for racketeering and had signed a proffer letter in late 2008 or early 2009 and acknowledged that prosecutors’ material allegations against ASD were all true.
Surf’s Up continued to operate even after prosecutors revealed the existence of the proffer letter. In Bowdoin’s own court pleadings, he had acknowledged he had given information against his interests to prosecutors. Bowdoin said he hoped to work out a deal by which he could avoid prison time, despite the fact prosecutors had alleged he was at the helm of a massive Ponzi scheme.
In October 2008 — at the conclusion of an evidentiary hearing ASD had requested — Surf’s Up conducted an online party for ASD members, complete with images of champagne and fireworks. Members were fed one-sided accounts of what had happened at the hearing, and a federal prosecutor was described derisively as “Gomer Pyle.” ASD’s lawyers were described as the “Perry Mason” team.
A month later — in November 2008 — U.S. District Judge Rosemary Collyer ruled at ASD had not demonstrated at the hearing that it was a lawful business and not a Ponzi scheme. The AVG forum led by some of the Surf’s Up mods, including Hoy, launched shortly thereafter, and the Surf’s Up forum soldiered on.
AVG was positioned as a way for members to make up their losses in the alleged ASD Ponzi scheme.
Surf’s Up became infamous for deleting comments and information unflattering to Bowdoin. The forum also was used to hatch a rumor that the prosecution secretly had admitted ASD was not a Ponzi scheme but was clinging to the case in a bid to save face.
As time progressed, dozens of pro se litigants attempted to intervene in the ASD case, claiming the government had no “EVIDENCE.” These filings occurred despite the fact that some of the evidence had been a matter of public record since August 2008.
Critics referred to Surf’s Up, whose formal name was the ASD Member Advocates Forum, as the AS[Delusional] forum. Various tortured explanations for Bowdoin’s conduct appeared on the forum, and there were calls for a “militia” to storm Washington, D.C., and for a prosecutor to be placed in a medieval torture rack. Prosecutors and federal agents were derided as “goons” and “Nazis,” and critics were derided as “maggots.”
The SEC’s Case Against Commodities Online
On April 1, the SEC filed an action against Commodities Online that alleged it was selling unregistered securities and operating a commodities fraud that had absorbed at least $27.5 million. Florida attorney David S. Mandel was appointed receiver.
“In connection with the unregistered securities offerings, the Defendants made numerous material misrepresentations and omissions regarding the nature of Commodities Online’s business model and operations, the risks and earnings associated with investing in its securities, and the background of its co-founder and vice-president,” the SEC charged.
“On December 15, 2010, Commodities Online announced on its website that ‘[t]o date, we have 32 contract offerings that have been completed for which our steadfast subscribers have been paid. The dollar total of these contracts is approximately $7.5 million and the payout was in excess of $8.5 million, producing an average earning of over 14.5%.’
“That statement was untrue,” the SEC charged. “There is no evidence to support this amount of investor return. In fact, Commodities Online’s bank records show a net loss for the companies associated with these promised contracts. Further, the company’s records show a net outflow of cash for each of these associated companies.”
By March 14, 2011, the SEC charged, Commodities Online had upped its number of purported successful contracts to 48. That claim also was untrue, the agency charged.
Referring to Howard but not naming him, the SEC said that the company “failed to disclose that in 1997, he was convicted of federal narcotics and firearms felonies and sentenced to 57 months in prison. The Defendants never disclosed his past criminal background to investors either through the Commodities Online website or any other company communication to investors.”
Referring to Gallo but not naming him, the SEC said that, in 2005, he “pled guilty in the United States District Court for the District of New Jersey to bank fraud and narcotics charges.
“In 2007, in the same court, he pled guilty to transmitting a threat to injure,” the SEC continued. “He is currently serving a three-year term of supervised release, which expires in July 2011.”
In a separate filing accompanying the complaint filed on April 1, the SEC said that Commodities Online “recently sent approximately $3.8 million to entities and individuals in Mexico and the Netherlands.”
Investigators deemed the transactions “extremely suspicious,” given that the transactions allegedly occurred between March 15, 2001, and March 25, 2011. The SEC said it issued subpoenas to the defendants on March 15, the same day the international transactions began to occur.
BULLETIN: A federal judge in Pennsylvania blocked the launch of an online venture known as EclipseChannel.TV after reviewing evidence that recidivist felon and securities huckster Robert Stinson Jr. was at the helm and had thumbed his nose at court orders and an asset freeze.
Meanwhile, the Philadelphia Inquirer, quoting federal prosecutors, reported that Stinson, who is African American, had been using the alias of Jon P. Sascha II online to solicit money for the video venture.
“The Facebook page for Sascha, who counts Stinson among his ‘friends,’ depicts a white man with short brown hair and sunglasses on a beach,” the newspaper reported.
Part of the evolving EclipseChannel fraud involved naming conventions, according to court filings. An earlier iteration of the enterprise initially was part of Stinson’s overall, $17 million fraud, which led to the SEC filing a civil lawsuit and prosecutors charging Stinson criminally.
After Stinson’s assets were frozen, new shell companies were formed to continue the fraud, and the Eclipse Channel was renamed “Eclipsechannel.tv Global Broadcasting Network Inc.,” according to court filings.
Kamian Schwartzman, the court-appointed receiver, said a “flurry of incorporations” had occurred to drive money to the scheme, but that most of the money was used to pay “past due rent” on the Philadelphia-area “mansion” of Stinson and his wife.
Prosecutors moved to revoke Stinson’s bail. That issue will be decided April 27. For now, Stinson has been placed under “house arrest” and U.S. District Judge Michael M. Baylson ordered that his computers be taken to keep him offline, according to the Inquirer.
Court filings in the SEC case quote Stinson as saying the charges against him were “bullsh*t” peddled by a “disgruntled employee.” He told people he had “proof” the case against him was false and confidently predicted he would “beat it.”
But he offered no “proof” and did not “beat it,” Schwartzman said.
Instead, he was charged criminally and failed to defend against the SEC action.
Rather than adhere to the conditions placed on him by a federal judge, “Stinson has busied himself with efforts to evade this Court’s Freeze Orders and Receivership Order,” Schwartzman said.
U.S. District Judge Berle M. Schiller authorized Schwartzman to take control of the EclipseChannel website, its Facebook and Twitter accounts and “any and all other Eclipse Channel II content or promotional material.”
EclipseChannel was positioned as an “advertising” venture and was actively soliciting money despite the swirl of litigation around Stinson.
Remarkably, a number of people continued to do business with Stinson despite the Ponzi allegations and his felonious history, according to court filings.
In 1986, he was convicted of wire fraud and larceny in U.S. Court in Delaware, according to records. In 1987, he was convicted of forgery and larceny in New Jersey state court. During the same year, he was convicted of mail fraud in U.S. District Court for the Eastern District of Pennsylvania.
Meanwhile, in 1996, he was convicted of criminal conspiracy in state court in Pennsylvania. In 2001, he was convicted of bank fraud in U.S. District Court for the Eastern District of Pennsylvania.
Stinson filed two bankruptcy petitions in 1999, one in October and another in December, according to records.
Nine years earlier, in 1990, he was charged with fraud by the SEC. He was ordered to pay a judgment of $7,680, but the judgment remains unpaid, according to court filings.
Want to mess with Alabamans in the securities fraud era? Don’t do it in Coffee County. A jury there took just 28 minutes to convict Scott Frye on five counts of selling unregistered securities or causing them to be sold.
That’s an average of 5.6 minutes of deliberations per count. The case was prosecuted by Coffee County District Attorney Tom Anderson and the Alabama Securities Commission.
Frye, who faces court action elsewhere in Alabama, initially avoided prosecution by fleeing to the Philippines. But he was arrested there after the United States revoked his passport and he became an undocumented alien on foreign soil, and Coffee County — which has a population of less than 47,000 — sent an investigator to bring him back from the Western Pacific to face trial.
Enterprise, the small Alabama city in which Frye’s two-day trial was conducted, is nearly 9,000 miles away from Manila, where Frye was arrested in 2009.
The Dothan Eagle reported on the 28-minute verdict. Other local media outlets such as WDHN have kept communities informed about the Frye case and have shown Frye being led from the courthouse in handcuffs.
Frye has been dubbed “the father of Internet fraud” — and it may be a richly deserved title. Though only in his early 40s upon his Alabama conviction this week, Frye’s name surfaces in SEC records dating back to 1995, when he was just 27.
One of the early pioneers of online fraud, Frye initially hatched a scheme that promised “riskless profits” from “investments in two Costa Rican enterprises,” the SEC said 16 years ago. The scam proved to involve what has been described as “coconut chips.”
Frye also was linked by Pennsylvania authorities to a securities scheme involving a device that purportedly would permit jewelers “to determine the exact quality and value of any gemstone.”
The Internet was so new back then that law enforcement felt the need to explain to judges what it was, and there was no general agreement about how the word best was presented in court documents. The SEC initially used an uppercase “N” in the third syllable.
“Frye has posted numerous messages on the InterNet, a decentralized web of computers, accessible to millions of potential investors across the country and world-wide, in which Frye has solicited funds from investors,” the SEC wrote in the 1995 Frye case.
Two weeks after an employee of the U.S. Food and Drug Administration was accused of stealing confidential information from a government database to profit from illicit stock trades, another government employee accused in a separate case of taking advantage of his position to commit a crime has pleaded guilty.
Harold Hughes, 58, of Arlington, Va., was a supply clerk for the Federal Trade Commission. In April 2009, just two months after he began his stint as an FTC clerk, Hughes “began using FTC money to make unauthorized purchases,” federal prosecutors said.
By the time the scheme was discovered, Hughes had used FTC money to acquire computers, TVs and DVD players illicitly, eventually draining $218,636 from the agency’s coffers, prosecutors said.
Part of his gambit, prosecutors said, was to order the items and then sell them for cash at a discount.
Some of the items were delivered to FTC headquarters, and Hughes “used his proximity to the mailroom and his familiarity with its employees to avoid detection,” prosecutors said.
In some cases, he removed the illicitly purchased items from the FTC building and shipped “other items via Federal Express using FTC funds,” prosecutors said.
“As the scheme continued, Hughes arranged for items to be shipped directly to his residence in Virginia and to the residences of people to whom he had arranged to sell the items,” prosecutors said.
Prosecutors did not say who his customers were.
The FTC discovered the thefts in December 2010, about 22 months after Hughes became an agency shipping clerk, prosecutors said. Hughes was “removed” from his job, and an investigation was launched.
“Before the FTC discovered the theft and removed Hughes from his position as supply
clerk in December 2010, Hughes made unauthorized purchases from vendors totaling $217,372.11, and he accrued $1,264.10 in unauthorized shipping charges, causing a total loss to the FTC of $218,636.21,” prosecutors said.
Hughes faces a maximum prison term of 10 years. He has agreed to make restitution and to an order of forfeiture, prosecutors said. He is scheduled to be sentenced July 13.
On March 29, federal agents arrested Cheng Yi Liang, 56, of Gaithersburg, Md. Liang worked at the FDA as a chemist, and prosecutors said he mined information from the agency to make illicit stock trades and rack up $3.6 million in illegal profits and avoided losses.
Liang, 56, also was sued by the SEC.
Officials have cautioned the public against painting with too wide a brush when a government employee gets in trouble.
Multiple agencies became part of the probes into both the conduct of Liang and Hughes, according to records.
Jason 'Bo' Alan Beckman's Florida Ponzi property has a screened-in, heated pool and spa, according to court filings.
As alleged Ponzi palaces go, Jason ‘Bo’ Alan Beckman’s Florida property is hardly the gaudiest. Even so, the 11-room home in Palm City has features and amenities many Americans only dream about.
But one group of Americans — victims of the Trevor Cook Ponzi scheme — are likely only to have only bad dreams about the property. They are out millions of dollars as a result of a massive fraud in which Beckman allegedly played a big role.
The two-story, five-bedroom, five-bathroom home built in 2005 is situated near a golf course and equestrian facility, according to newly filed documents in the Beckman civil-fraud case. Receiver R.J. Zayed is seeking an order that would turn the property back over to Beckman and his wife because the home — despite its amenities — likely cannot be sold for what is owed on the $707,301 mortgage.
Keeping the property could create a drain on the receivership estate, Zayed argued.
Chief U.S. District Judge Michael J. Davis asked last week that an appraisal be done on the property. The appraisal now has been filed with the court, and the appraiser reported that the home is worth $540,000, about $167,301 less than what is owed.
Other court filings suggest the property may be worth even less. The SEC described Beckman in March as a “leading” figure in the Cook scheme, alleging that he raised about $47.3 million of the $194 million gathered in the overall fraud.
Floor plan of the Beckman Florida home.
Cook is serving a 25-year sentence in federal prison.
Beckman used $1.49 million of investors’ money for payments “toward the purchase” of luxury homes in Minneapolis, Texas and Florida, the SEC charged. The Minneapolis home already is in foreclosure, and the Florida home is situated in an upscale neighborhood trying to make a comeback after the state’s foreclosure glut caused property prices to plunge, according to court filings.
The Beckman Florida game room.
Any buyer who emerges to purchase Beckman’s Florida property will find that it has twin garages with enough floor space to hold four cars, according to court filings.
The home also features a yard with palm trees, a driveway built with colored pavers, a screened-in pool and spa, a screened-in “summer kitchen” and porch, central air, a well-appointed interior kitchen, a dining room, a living room, a family room, a game room, a den, a showy staircase, marble floors, a laundry room and other amenities.
Some of the Ponzi victims have been described in court filings as penniless.
BULLETIN: UPDATED 8:48 A.M. EDT (U.S.A.) Steven Byers, the president and chief executive officer of WexTrust Capital LLC, has been sentenced to 160 months in federal prison for his role in an alleged $255 million Ponzi and fraud scheme that cost investors millions of dollars.
Byers, 48, of Oakbrook, Ill., was sentenced by Judge Denny Chin of the U.S. Court of Appeals for the Second Circuit. Chin, formerly a U.S. district judge, was nominated to the appeals court by President Obama and received unanimous approval (98-0) in the U.S. Senate in the months after he sentenced Bernard Madoff in June 2009 to 150 years in federal prison for his $65 billion Ponzi scheme.
Chin also ordered Byers to make $7.7 million in restitution to victims and ordered the forfeiture of $9.2 million. Byers also will be on supervised probation for three years after he serves his prison sentence. The scheme largely was targeted at Orthodox Jews, according to court filings.
U.S. Attorney Preet Bharara described the sentence imposed by Chin against Byers as properly severe.
“Steven Byers used smoke and mirrors to defraud his investors out of millions of dollars,” Bharara said. “But his scheme was ultimately exposed for the sham that it was, and now he will be punished severely for his crimes.”
Prosecutors specifically charged Byers with fleecing investors in a $9.2 million, private-placement offering that claimed the money would be used to “purchase and operate seven commercial properties that were leased to the United States General Services Administration (GSA).”
“The seven GSA properties, however, were never purchased,” prosecutors said. “Instead, funds raised from investors were diverted for other purposes.”
Chin is scheduled to sentence Joseph Shereshevsky, Byers’ co-defendant, on May 13. The SEC said in August 2008 that Shereshevsky was a convicted felon who had been arrested for bank fraud in the 1990s.
It is common in the Ponzi universe for securities swindlers to start new schemes. Some fraudsters have hatched new schemes while on probation for previous swindles. Others have hatched new schemes from their jail cells.
EDITOR’S NOTE: The Ponzi world is infamous for serving up long-term, dark skies and odd stories. Here is a new weather report and entry for the Ponzi Strange-O-Meter.
By some accounts, the best definition of financial success is written by CPAs on the Last Great Day of a client’s life. When the final beans are counted, if the bean-counters determine that the newly deceased had more cash and cash-convertibles than the sum of his debts and insurance holdings, it means that the departed was worth more money alive than dead.
This will not be the case for convicted swindler William Huber — not that catastrophic insolvency that engulfs both perpetrators and many of their individual victims is news in Ponzi Land.
What is news is that Huber, who fleeced 300 investors out of $15 million in a multistate scheme known as Hubadex, potentially has enough life insurance to make victims largely whole and perhaps even pay the costs of unraveling the litigation mess he created in 2009.
But the money is not available now and Huber is still a relatively young man. Although the victims’ group as a whole possibly could gain the highest number of restitution dollars by waiting years for him to die and then recovering their losses by splitting pro rata shares of an insurance cashout, waiting may not be the best option from the standpoint of both fairness to individual victims and judicial economy.
What to do in the here and now — and how best to wrap up Huber’s bizarre Ponzi affair — are questions to which the court-appointed receiver in the case has been seeking answers since the fall of 2009. So far, receiver Kevin Duff has rounded up more than $6.5 million by selling Ponzi properties in California and Florida, filing clawback actions and marshaling other assets while working on a victims’ distribution plan.
Huber, 61, of La Jolla, Calif., pleaded guilty in Illinois last year and was sentenced to 20 years in federal prison. The SEC also filed an action against Huber, and the case is being unraveled by Duff, who has made clawback demands against 39 individuals and sued six winners.
Duff, according to court filings, advised a federal judge that Huber had life-insurance policies that potentially would pay $19.25 million upon the fraudster’s death, depending on variables. The receivership estate has been paying the premiums on the polices while it seeks guidance and comes up with a final plan on how best to proceed. With the cooperation of Huber’s family, Duff has arranged to make the receivership estate and Huber’s former company the beneficiaries of the policies.
The problem, however, is that paying the costly premiums indefinitely may create a drain on the receivership estate while providing no near-term benefit and keeping the case on the taxpayer-funded court docket for years. And what would happen if future litigation created an even greater strain on the estate?
Indeed, according to court filings, the still-intact insurance policies come with premiums that currently cost the estate nearly $92,000 a year. Huber had four polices: one for $12 million, one for $5 million, one for $1.25 million and one for $1 million. Some or all of them may have to go.
There also is no guarantee that the premiums will not increase. Hikes could create an even-greater strain on the receivership estate. And arranging a life-settlement offer beneficial to the estate has proven difficult, according to court filings.
As things stand — assuming the premiums remain the same, the receivership remains intact, no beneficial life-settlement offer is made, no challenges are filed by the insurance carriers and Huber lives for another 20 years — the cost of paying for the insurance could exceed $1.84 million. An initial distribution to the victims could be lower because the $6.5 million estate potentially would have to set aside a large sum just to pay the premiums — and the estate would have to remain intact under court supervision indefinitely
In a report to a federal judge in February 2010, Duff noted the presence of the policies and their costs. In May 2010, Duff noted that no life-settlement offers had been forthcoming. An October 2010 report noted largely the same thing. So did a report Duff filed with the court in February 2011.
When the scheme was collapsing, according to the SEC, Huber advised his investors that he was no Bernard Madoff. But an accounting showed that he was a mini-Madoff who claimed to have $40 million under management when he had only $3 million, according to court records.
Huber later blamed the SEC for his inability to honor redemption requests, but the real reason investors were denied access to their money was that Huber had systematically defrauded them while showing them fictitious paper profits, according to court filings.
At least $1.7 million went to pay for Huber’s personal expenses, including the acquisition and maintenance of Ponzi properties. In fact, the SEC said, he’d spent more than $800,000 on his California Ponzi palace, nearly $100,000 to keep his Florida condo in Naples in fine fettle and $331,000 on life-insurance premiums.
“Huber recently sent letters and e-mail messages to certain investors telling them that they cannot add or withdraw funds from their accounts (even though the private placement memoranda allow them to do so at the end of each quarter), because Hubadex is undergoing an ‘audit and review by the SEC,’” the SEC said in September 2009. “In reality, Huber and Hubadex cannot meet all of the possible redemption requests from investors because the actual Fund balances are less than 10% of what Huber and Hubadex have represented to investors in their detailed monthly account statements.”
Huber bought the Ponzi properties in the name of Hubadex, the SEC said, noting that he had been sanctioned and fined $50,000 by the state of Illinois in 2005 for his business practices.
“On December 17, 2008, one week after Bernard Madoff was arrested for perpetrating a massive Ponzi scheme, Huber sent an e-mail message to investors reassuring them that the Funds had nothing in common with Madoffs scheme,” the SEC said in September 2009. “In the message, Huber misled investors about the Symmetry Fund’s non-existent hedge fund investments, claiming ‘[w]e just received the last of the assurances from Symmetry’s sub-funds which confirms the Symmetry Fund, L.P. has no exposure whatsoever to Bernard Madoffs firm or investment funds.’”
“Huber also lied to investors about the amounts of liquid assets in the Quarter Funds and Trimester Fund, telling them that the total assets in each Fund were ‘equal to the value of the Funds’ limited partnership interests less any incentive management fee,’ when in reality the Funds held far less money than Huber and Hubadex claimed. Huber further lied about the success of the Funds and his own honesty, claiming that the enormity of Madoffs crime also damages the credibility of ‘honest operators of successful alternative investment funds, such as ours, in the process and without foundation … We wonder if our funds were down 30 to 50% this year, would we be subject to the same Madoff cloud of misgiving?’”
Huber no longer has to wonder about the Madoff cloud. Indeed, he created his own cloud — and the receivership estate now is trying to find the best way to make the dark Ponzi skies that enveloped his victims at least partly sunny.
