PatrickPretty.com

Tag: SEC

  • 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.

  • FINRA/SEC Move Against New York Firm; Second Major Case In 24 Hours; Clients Suspect Colossal Ponzi Fraud At McGinn, Smith & Co.

    Another investigation into allegations of spectacular financial fraud is under way in New York. The case against McGinn, Smith & Co. of Albany is the second to rock the state in the past 24 hours.

    The Financial Industry Regulatory Authority (FINRA) filed a complaint against the company and its president David L. Smith yesterday. The SEC filed a complaint immediately on the heels of FINRA’s complaint, alleging a stunning fraud that may involve at least $120 million.

    “McGinn and Smith deceived investors about the true purpose behind these offerings,” said Andrew M. Calamari, associate director of the SEC’s New York Regional Office. “They falsely promised investors a profitable payday but secretly siphoned off money for their own payroll.”

    Multiple companies are involved, the regulators said. None of the offerings was registered, and the firm has been charged with selling unregistered securities. The SEC is seeking an emergency asset freeze.

    “[T]he debt offerings have been sold to hundreds of investors through four funds and at least 18 trusts created by MS & Co. affiliates,” the SEC said. “They made a host of representations about the extent of due diligence they had performed, among other things. Contrary to their representations to investors, McGinn and Smith used much of the money raised in these offerings to make prohibited investments in their other businesses or make unsecured loans to financially support them.

    “They also misused investor funds to pay exorbitant commission and transaction fees to their affiliated entities and make interest payments to investors in the other entities,” the SEC said.

    For its part, FINRA said “Smith and McGinn provided falsified documents, submitting backdated promissory notes for personal loans they and others previously received from two of the Related Entities.”

    The SEC added that “the full extent of the fraud is not yet known, [but] it appears that investors are currently owed at least $80 million.” Losses could total $84 million or more, according to court filings.

    Named defendants by the SEC were McGinn, Smith & Co. Inc.; McGinn, Smith Advisors LLC; McGinn, Smith Capital Holdings Corp.; First Advisory Income Notes LLC (FAIN); First Excelsior Income Notes LLC (FEIN); First Independent Income Notes LLC (FIIN); Third Albany Income Notes LLC (TAIN); Timothy M. McGinn and and David L. Smith.

    Clients became worried last year, the SEC said.

    “In 2009, Smith and McGinn received e-mails telling them the investors were wondering ‘if they’ve bought into a Ponzi Scheme,’ and a MS&Co. broker reported to McGinn and Smith that there are ‘many people who refer to our deals as a Ponzi Scheme,’” the SEC said.

    “As of September 2009, it appears that investors in the four Funds were owed at least $84 million, that the Four Funds had less than $500,000 in cash on hand, and that their remaining assets were worth only a small fraction of the amount owed to investors,” the SEC said.

    “Similarly, the Trusts have a negative equity of approximately $18 million, and have never had the ability to pay the interest rates promoted to investors and also pay back principal,” the SEC continued. “Nonetheless, McGinn and Smith have continued to raise money from investors, using similar misrepresentations, as recently as December 2009. During the first few months of 2010, contrary to representations to investors, McGinn and Smith have continued to drain what little cash remains through payment of ‘fees’ to themselves.”

    In the past 24 hours alone, investigators in New York have alleged that separate financial frauds involving multiple companies and individuals may have fleeced investors out of $101.5 million or more.

    Earlier today, federal prosecutors and the SEC moved against Gryphon Holdings Inc. and related entities of Staten Island. Five people were arrested in the case, which the SEC said involved the illicit collection of at least $17.5 million over the past three years.

  • BULLETIN: Trevor Cook, Minnesota Ponzi Scheme Figure, Pleads Guilty In $190 Million Fraud Case

    BULLETIN: (UPDATED 12:35 P.M. EDT (U.S.A.) Trevor G. Cook, implicated in a $190 million Ponzi scheme that pushed tremendous sums of money all over the world and is believed to have fleeced investors out of at least $139 million, has entered a guilty plea in federal court in Minnesota.

    No sentencing date has been sent.

    Cook, 37, of Apple Valley, faces up to 25 years in federal prison after pleading guilty to mail fraud and tax evasion. Cook has been in jail since January, after a finding he had violated a court order by not cooperating with investigators and continuing to spend investors’ money after he was sued by the SEC and CFTC in November. His plea deal is contingent on assisting the government in unraveling the scheme.

    Criminal charges were filed against Cook last month.

    The guilty plea included acknowledgments by Cook that he lied to investors and was “aided and abetted by others” in a scheme “to defraud no fewer than 1,000 people out of approximately $190 million by purportedly selling investments in a foreign currency trading program,” prosecutors said.

    Cook did not have $4 billion under management, as he told investors, prosecutors said.

    During his plea hearing this morning, Cook admitted that he diverted investors’ money, deceived Swiss regulators when Crown Forex SA was plunging into bankruptcy in 2008, purchased ownership interest in two trading firms with investors’ money, bought property in Panama with investors’ money, bought the Van Dusen mansion in Minneapolis with investors’ money and raided investors’ money to make personal purchases and pay gambling debts.

    “To carry out his scheme, Cook caused false statements to be made to potential investors, including promises that the investment program would generate annual returns of ten to twelve percent, and that trading would present little or no risk to investors’ principal,” prosecutors said. “He also caused material information to be withheld from investors, such as the precarious financial position of Crown Forex, SA” in Switzerland.

    Meanwhile, prosecutors said, Cook “withheld the fact that trading at PFG in Chicago generated losses in excess of $35 million between July 1, 2006, and August 31, 2009.”

    A company with a name confusingly similar to Crown Forex SA was part of the scheme, prosecutors said.

    “In furtherance of the scheme, Cook caused an account to be opened in the name of Crown Forex, LLC, at Associated Bank, which he used for depositing investor funds that he subsequently diverted for his personal use as well as the personal use of others,” prosecutors said. “He also caused statements to be sent to investors that misrepresented the status of their investments. In addition, he caused due-diligence letters to be prepared that falsely represented Oxford Global Advisors as having more than $4 billion in assets under management, and that all accounts were liquid.”

    Prosecutors gave credit for the probe, arrest and conviction to the interagency Financial Fraud Enforcement Task Force. President Obama created the task force in November 2009.

    Assistant U.S. Attorney Frank J. Magill is the lead prosecutor in the criminal aspect of the case.

    In November, the SEC and CFTC sued Cook, along with Pat Kiley. Kiley, 71, formerly hosted a program on Christian radio and is accused civilly of steering people into the international scheme.

    Law enforcement officials and prosecutors in Minnesota say they are battling several Ponzi schemes that have fleeced investors out of hundreds of millions of dollars.

    Last month, FBI Director Robert Mueller III said criminals increasingly were relying on “shell corporations” and hard-to-trace financial-services products to commit fraud on a massive scale.

  • Another Fraud Case In Minnesota: Renee Marie Brown Accused By SEC Of Starting ‘Sham’ Investment Fund Known As ‘X’

    UPDATED 7:52 A.M. EDT (April 13, U.S.A.) On the very day Tom Petters was sentenced in Minnesota to 50 years in prison for operating a colossal Ponzi scheme, a federal judge froze the assets of Renee Marie Brown after the SEC accused her of ripping off clients by persuading them to invest in a mysterious vehicle known as “Fund X.”

    U.S. District Judge Donovan W. Frank issued a temporary restraining order against Brown and her company, Investors Income Fund X LLC. The order was issued April 8.

    Brown, 46, of Golden Valley, was accused of operating a “sham” fund into which investors plowed more than $1.1 million between July 2009 and March 2010.

    “Brown told her investors that Fund X is a ‘bond fund’ with fixed annual returns of 8% or 9%,” the SEC said. “[S]he distributed fictitious ‘returns’ to investors, furthering the fiction that Fund X was a legitimate and successful investment opportunity.”

    But Brown “misappropriated most of the $1.1 million she raised from investors to, among other things, purchase a condominium for herself and build . . . office space for her new business,” the SEC said.

    Investors Income Fund X LLC was registered as a corporation in South Dakota, the SEC said.

    “Unbeknownst to her victims, Fund X is a sham — Brown’s alter ego,” the SEC said.

    The case features allegations of siphoning, forgery, cherry-picking clients of Brown’s former employer and issuing fraudulent “returns” in Bernard Madoff-like fashion. It also occurred against the backdrop of March 17 Congressional testimony by FBI Director Robert Mueller III that U.S. companies increasingly were relying on shell corporations to commit fraud.

    Minnesota Fraud Cases

    In recent months, investigators and prosecutors in Minnesota have opened up a number of major fraud probes. The combined cases are alleged to have drained hundreds of millions of dollars from investors. In some instances, prosecutors and regulators have asserted that companies used multiple names to commit fraud.

    Petters was convicted last week of presiding over that was described as the largest financial-fraud case in Minnesota history: a $3.65 billion Ponzi scheme.

    Petters displayed “stunning criminality,” prosecutors said. One of the victims wrote, “Our society, unfortunately, is becoming plagued with too many people like this, and like Bernard Madoff. Tom Petters needs to learn that there are severe consequences for his incomprehensible behavior.”

    Meanwhile, the SEC, the CFTC, the FBI, prosecutors and a court-appointed receiver are poring over records to reverse-engineer the alleged Trevor Cook/Pat Kiley Ponzi scheme. Court records suggest multiple company names were involved and that the scheme involved at least $190 million and caused investor losses of at least $139 million.

    Money was moved “all over the world,” according to court filings.

    Cook and Kiley were sued by the SEC and the CFTC in November. Cook was charged criminally last month. Prosecutors said he was “aided and abetted by others.” In this document, the National Futures Association, which also filed an action that references Cook, asserted that $75 million from a purported Swiss fund may have been directed at a mysterious investor known only as “Fased.”

    The purported payment occurred while Cook, a Minnesota resident, allegedly was managing money for a Canadian company known as KINGZ Capital Management Corp. KINGZ name also has been linked to an autosurf known as AdViewGlobal (AVG), which had close ties to an autosurf known as AdSurfDaily (ASD).

    On May 4, 2009 — on the same day the Obama administration announced a crackdown on international financial fraud — AVG announced that KINGZ had become its facilitator for international wire transfers. KINGZ denied the assertion, saying it believed it had been targeted in a scam. The company painted the picture that AVG was attempting to route money to itself through a U.S. shell company.

    AVG purportedly operated from Uruguay.

    Florida-based ASD, which members said was popular in Minnesota, was implicated in August 2008 by the Secret Service in a Ponzi scheme. A federal judge has issued orders of forfeiture totaling more than $80 million in the ASD case. ASD used at least three names, according to records: AdSurfDaily, AdSalesDaily, and ASD Cash Generator.

    Prosecutors also linked ASD to at least two other autosurfs: LaFuenteDinero (the “fountain of money”) and Golden Panda Ad Builder, the so-called “Chinese” option for ASD members.

    In February, the U.S. Secret Service alleged that Minnesota resident Steve Renner was operating a Ponzi scheme through a company known as INetGlobal and companies related to the firm. The scheme, the Secret Service said, largely targeted Chinese members who may have little or no facility in English.

    Renner denies the allegations. Prosecutors described the case as a “major fraud and money laundering investigation,” saying INetGlobal came to life during a period in which federal agents were seizing tens of millions of dollars in the ASD case amid Ponzi, wire-fraud and money-laundering assertions.

    An ASD member introduced an undercover Secret Service agent to INetGlobal, the agency said in court filings.

    Other recent fraud cases in Minnesota include the Gerard Cellette Jr. Ponzi case ($53 million); the Charles “Chuck” E. Hays case ($20 million); and the Kalin Thanh Dao case (up to $10 million).

  • RECEIVER: Cook/Kiley Ponzi ‘Incredible Tragedy’; Some Investors ‘Destitute’; Management So Screwed Up That Historic Van Dusen Mansion Was Not Insured; Assets ‘Sent All Over The World’

    EDITOR’S NOTE: As is the case with other Ponzi schemes, the alleged Trevor Cook/Pat Kiley scheme in Minnesota is proving to be an incredible paper chase that is consuming hundreds of hours of manpower as attorneys, investigators and support staff work to reverse-engineer what authorities say was an epic, international fraud.

    Want to be a Ponzi receiver? Expect to be criticized — and also expect to put in long hours, perhaps for months or even years. It simply is not an easy job, especially if a scheme has fleeced investors by the hundreds or thousands. Simply put, there is no way to make all parties happy. Perhaps all one can hope for is to contain the devastation of a Ponzi scheme.

    This is part of the story of R.J. Zayed, as told through court filings and a statement before Chief U.S. District Judge Michael J. Davis March 29. Zayed is the receiver in the Cook/Kiley case . . .

    Investor losses will be huge in the alleged Trevor Cook/Pat Kiley Ponzi scheme in Minnesota, the court-appointed receiver in the case said.

    Painting a picture that deception was the rule and not the exception in the alleged $190 million fraud, receiver R.J. Zayed said that money was moved “all over the world” and that $139 million of investor funds was “spent or hid.”

    Management of the scheme was so screwed up that Trevor Cook, whom Zayed described as the “architect,” reportedly paid $2.6 million from investors’ resources in 2008 for the historic Van Dusen mansion in Minneapolis — but then did not bother to maintain property insurance or even to maintain the property.

    Zayed’s early findings are alarming, and his statement and reports to Chief U.S. District Judge Michael J. Davis  cannot be ignored. Indeed, Zayed suggested, Cook used investors’ money to buy the mansion, but put the entire purchase price at risk and potentially invited catastrophic downstream liabilities by not insuring the property and letting it fall into a state of disrepair.

    Welcome to the bitter world of the Ponzi. Easy come, easy go.

    Although Cook purchased an island property in Canada for $250,000, a contractor who performed work for Cook has filed a “lien for unpaid work.” The filing of the lien added another layer of complexity to an already-complex case that involves multiple international jurisdictions.

    “We are working to get that issue resolved and clear title to the land,” Zayed said, noting that he has hired lawyers in Canada to help navigate the jurisdictional issues. The receivership estate also is working to convert assets in Panama to cash.

    Cook, 37, was charged criminally with mail fraud and tax evasion March 30. It is believed he may enter a guilty plea during a court appearance April 13.

    The Van Dusen mansion, which was used as a headquarters for the alleged $190 million scheme, quickly became a white elephant to the receivership estate, Zayed said.

    “Ongoing expenses, such as utilities and property maintenance, cost approximately $12,000 per month,” Zayed said. “In addition, we had to obtain property insurance (there was none under Mr. Cook’s management).”

    Moreover, Zayed said, the mansion’s furnace was not working and its security system had been “dismembered.”

    “Numerous individuals had ‘worked,’ lived, and socialized throughout the house,” Zayed said. “The property was littered with trash and paraphernalia from these activities. Evidence had to be preserved and the remainder had to be cleaned out — this was a tremendous task.”

    Spectacular Sums Collected, But No Books Kept

    Cook and Kiley both were charged civilly by the SEC and the CFTC in November. Kiley, 71, is a former host on Christian radio. Cook was a purported money manager.

    “The damage that Trevor Cook and Pat Kiley have done is nothing short of devastating to each of over 1000 investors who trusted and invested their life savings with these individuals,” Zayed said.

    In many cases, individual investors lost their life savings, Zayed said. Some of them had borrowed against the value of their homes.

    “Many of these investors are so destitute that they cannot afford to hire private counsel to represent their interests,” Zayed said.

    He described the scheme as an “incredible tragedy” that has been “nothing short of devastating” to investors, saying he is aware that some people believe the receivership estate has billed “extensive fees and costs.”

    Zayed, though, said he had arranged for discounted billings with key personnel such as attorneys and professional investigators and, in some cases, was relying on recent law-school graduates and criminal-law students to perform work for the estate to contain costs.

    WayPoint Inc., a professional investigations firm whose staff consists of former FBI and IRS agents and a former postal inspector, has performed some work at no charge because it recognizes the grave circumstances confronting Cook/Kiley investors, Zayed said.

    “It is the right thing to do,” Zayed said, quoting Rick Ostrom, one of WayPoint’s principals. Ostrom is well-known in Greater Minneapolis. He spent 26 years with the FBI.

    “WayPoint has been instrumental in cost containment,” Zayed said. “For example, to effectuate a proper distribution plan, the Receiver has to have as complete a list as possible of all investors who have lost money in this scam. Approximately 580 investors have registered claims with the Receiver — this is about half of the individuals who are believed to have invested with the Defendants.

    “In an effort to identify the remaining individuals in the most cost-effective manner possible, WayPoint interviewed and engaged local criminal-law students to review Defendants’ investor files to create a list that is complete and as accurate as possible,” Zayed continued. “These students reviewed 75 boxes of investor files and are in the process of updating the investor database with the information they reviewed. This work was performed at no cost to the Receivership, except that we paid for these students to park downtown while they worked at the U.S. Attorney’s Office.”

    Moreover, Zayed said his own firm, Carlson, Caspers, Vandenburgh & Lindquist (CCVL), cut its billing rate by 15 percent. The firm’s CFO has been working as a “de facto CFO” for the estate “without a single of her many hours billed.”

    Meanwhile, Zayed said, the “entire administrative staff of CCVL has also worked on behalf of the Receivership, often with late hours at the expense to their family and home lives, without billing a single hour.”

    At the same time, the firm’s technical staff also contributed to the Receivership, constructing a separate part of the firm computer infrastructure to handle the tremendous volume of electronic documentation that the Receivership has collected and created.”

    ‘Complicated Web’ Of Deceit

    Management of the Cook/Kiley entities was an unqualified disaster, Zayed said.

    “[T]he scope and depth of this fraud are so severe . . .  that the recovery in this case will be nowhere near the loss,” Zayed said. “The Defendants’ construction of this Ponzi scheme and their maintenance of the fraud lured investors into a scheme that produced a complicated web through which assets were sent all over the world.”

    Although investors filed lawsuits last summer and the SEC and the CFTC launched probes that resulted in the filing of the civil charges, the scheme continued to consume investors’ money even after the allegations were filed, Zayed said.

    “Trevor Cook was spending tens of thousands of dollars to buy gift cards around the city for his own personal gain,” Zayed said. He added that the receivership estate, the SEC, the CFTC and federal prosecutors in Minnesota worked to preserve assets and that the consequence to Cook was that he was jailed in January for not cooperating.

    “Suffice it to say that there was no legitimate book keeping of the Defendants and Relief Defendants,” Zayed said. “There were no accounting systems in place, or even a general ledger.”

    Read Zayed’s full statement.

  • NEWS/UPDATES: Feds Charge Donald Young In Massive Ponzi In Pennsylvania; Matthew Pizzolato Pleads Guilty In Louisiana; Jeffrey Mowen Loses Cars In Utah; ‘Today’ Show Interviews Daughter Who Turned In Mom For Ponzi

    A grand jury has returned an indictment against a suburban Philadelphia man, accusing him of operating a Ponzi scheme that gathered at least $95 million and fleeced investors of more than $25 million.

    Charged criminally with mail fraud and money-laundering was Donald Anthony Young, who also has been sued by the SEC.

    Meanwhile, Matthew Pizzolato has pleaded guilty in a separate Ponzi case targeting senior citizens in Louisiana, prosecutors said.

    Pizzolato, 26, of Tickfaw, pleaded guilty to 21 counts of mail fraud, three counts of money-laundering, and single counts of wire fraud, securities fraud and witness tampering. In all, Pizzolato pleaded guilty to 27 felonies. He also was sued by the CFTC.

    At the same time, accused Ponzi schemer Jeffrey Lane Mowen has lost his monstrous collection of vehicles in Utah. The U.S. Marshals Service began selling the 210-vehicle collection at auction yesterday — April Fool’s Day.

    Marshals were authorized to sell the cars because the bill to store them cost $21,000 a month. Mowen, 47, was arrested in Panama in 2009, extradited to the United States and jailed in Utah on Ponzi charges. He later was charged in an alleged murder-for-hire plot in which he was accused of trying to recruit a fellow prisoner to kill witnesses in the Ponzi case.

    The auction had been delayed twice, but proceeded yesterday. It was billed by Erkelens & Olson Auctioneers as the “Largest collection of Muscle, Collector & Exotic vehicles ever [offered] in Utah!”

    Elsewhere, NBC’s “Today” show this morning featured a daughter who turned in her mother in a Ponzi scheme. The mother ultimately was not charged because authorities came to view her as a victim who had been recruited to sell the scheme.

    Authorities busted the California scheme, operated by Pastor Robert Jennings and Henry Uliomereyon Jones, a magnetic figure. The affinity-fraud scheme involved investments in coal and a bogus international gold deal.

    Jones was arrested in Hong Kong and extradited to the United States. He and Jennings were convicted last year.

    Kim Flanigan told Today that she reached her limit when she observed her mother, a widow, trying to recruit a widow with nine children into the Ponzi scheme. Both widows attended the same church.

    “That was my breaking point,” Flanigan told Today. (See link to story below. NBC’s “Dateline” program will feature Flanigan tonight 9 EDT.)

    In the Donald Anthony Young case in Pennsylvania, prosecutors said Young stole from investors so he could live in the lap of luxury.

    “Ponzi schemes are usually a vehicle for an unscrupulous person to live high off of someone else’s wealth,” said U.S. Attorney Michael L. Levy. “According to the indictment, this defendant helped himself to others’ fortunes, living a life of luxury, with little or no regard for the damage to our financial markets, our economy, and the reputation of the investment advisors who follow the rules.”

    A veteran FBI agent said the agency was committed to destroying Ponzi fraud.

    “The FBI views these types of financial investment Ponzi fraud schemes as significant criminal problems, because of the devastating effect they have not only on the individual victims who are preyed upon but also the effect they have on financial markets and on the overall economy,” said Janice K. Fedarcyk, special agent-in-charge of the Philadelphia Division of the FBI.

    Prosecutors and agents involved in the Pizzolato case, meanwhile, also said Ponzi fraud will not stand in the United States.

    “[Pizzolato’s]  plea demonstrates our resolve, along with our partners in federal law enforcement, including the FBI, IRS and U.S. Postal Inspection Service, to aggressively investigate and pursue those economic predators who seek to take advantage and prey upon the most vulnerable among us, including our senior citizens who most desperately need our protection,” said U.S. Attorney Jim Letten.

    Letten thanked the Office of the Louisiana Commissioner of Securities for its assistance in the Pizzolato case.

    An FBI agent said the case sends a signal.

    “This guilty plea represents once again, the FBI’s resolve to aggressively investigate financial crimes which victimize our most vulnerable citizens,” said David Welker, special agent in-charge. “It is reprehensible that Mr. Pizzalotto would target senior citizens and defraud them of their life’s savings. The FBI, along with our law enforcement partners, will continue to identify and investigate frauds such as this.”

    An IRS investigator said authorities would leave no stone unturned to expose financial fraudsters.

    “This investigation shows that the appearance of success can be a mask for a tangled financial web of lies,” said Michael J. DePalma, special agent in-charge of the IRS New Orleans’ office.

    “No matter what we call this type of crime, the bottom line is that Mr. Pizzolato robbed over a hundred investors of more than $19 million and spent just about all of it,” DePalma said. “Special Agents of IRS Criminal Investigation will continue to work with our federal and state law enforcement partners and the United States Attorney’s Office to pursue evidence of criminal activity wherever it leads, leaving no financial stone unturned.”

    Visit the Today show site to read about Flanigan’s experience.

  • 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.

  • BULLETIN: Trevor Cook Charged Criminally With Mail Fraud And Tax Evasion In Alleged $190 Million Ponzi Case In Minnesota

    BULLETIN: Trevor Cook, the reputed head of a $190 million Ponzi scheme in Minnesota, has been charged criminally with mail fraud and income-tax evasion.

    Cook, 37, previously had been charged civilly by the SEC and the CFTC. The criminal charges filed today came after a probe by the FBI and the IRS Criminal Investigations Unit, working with the regulatory agencies.

    Prosecutors alleged Cook filed a false tax return in 2009, failing to report report taxable income of at least $5.2 million “upon which there was tax due in the amount of at least” $1.8 million, prosecutors said.

    Cook was charged via a criminal information, rather than an indictment. Such charging documents sometimes mean a defendant is negotiating with prosecutors.

    Prosecutors said Cook was “aided and abetted by others” in a scheme that fleeced at least 1,000 people “out of at least $190 million by purportedly selling investments in a foreign currency trading program,” prosecutors said.

    “In reality,” prosecutors continued, “he was diverting the money provided him for other purposes, including making payments to previous investors; providing funds to Crown Forex, SA, in an effort to deceive Swiss banking regulators; purchasing ownership interest in two trading firms; buying a real estate development in Panama; paying personal expenses, including substantial gambling debts; and acquiring the Van Dusen Mansion in Minneapolis.”

    The mansion has been sold by R.J. Zayed, the court-appointed receiver in the civil case. Zayed also has sold large-screen TVs and automobiles linked to the scheme, including a Rolls-Royce.

    Prosecutors said the Cook case was being tackled by the Financial Fraud Enforcement Task Force, which President Obama formed late last year.

    U.S. Attorney B. Todd Jones of  the District of Minnesota made the announcement of the criminal charges against Cook.

    Cook has been in jail since January as a result of a contempt of court order in the civil case, which was brought by the SEC and the CFTC.

    Former Christian radio host Pat Kiley also was charged in the civil case.

    The narrative of the Cook story occasionally has played out like a James Bond movie, with references to a submarine, an island retreat, Faberge eggs and foreign currency purportedly acquired by Cook with fraud proceeds.

    A real-estate agent ventured to Cook’s island in Canada during the winter on a snowmobile to get the lay of the land, according to court filings.

  • ALERT: International Con Artists Target Madoff Victims; Regulatory Agencies, Receiver In Cook/Kiley Ponzi Case Go On Guard For Copycats

    An individual or group of individuals believed to be operating internationally created a website that mimicked the website of the U.S. Securities Investor Protection Corp. (SIPC) “in an apparent attempt to target [Bernard] Madoff victims” in a fraud scheme, SIPC said.

    SIPC and the SEC issued warnings immediately, as did the court-appointed receiver in the alleged Trevor Cook/Pat Kiley Ponzi scheme in Minnesota. There is no suggestion that a similar effort is under way by con artists to fleece Cook/Kiley investors, but R.J. Zayed, the receiver in the Cook/Kiley case brought by the SEC and the CFTC, urged Cook/Kiley investors to pay attention.

    “You should use caution when giving personal information to third parties,” Zayed said on the receivership website. “Before giving anyone your information you should verify that the agency you are communicating with exists and that the individual (or system) purporting to represent that agency actually does so.”

    SIPC maintains a special reserve fund mandated by Congress to protect the customers of insolvent brokerage firms such as Madoff’s. A scam site appeared online that used SIPC’s initials in its name, preceded by the letter “I” and a hypen, to form the domain name “I-SIPC.com.”

    The site purported to be the “International Securities Investor Protection Corporation.”

    Visitors to the bogus domain were told that the purported organization “collaborated with Interpol to recover $1.3 billion in Madoff money from a hideout in Malaysia,” SIPC said.

    Meanwhile, visitors were shown “a photo of a huge stack of U.S. currency,” SIPC said, noting a bogus “testimonial” from a purported Madoff victim who was happy with the fraudulent entity appeared on the site.

    The I-SIPC.com domain listed a registration address in Nigeria and was registered on Aug. 20, 2009, according to the registration data. It is unclear if the site was registered by a Nigerian or a person posing as a Nigerian. The site appears to be using shared hosting with 597 other domains on the same server, according to web records.

    Nigeria has an international reputation for online fraud, and some scammers — recognizing Nigeria’s reputation — have posed as Nigerians to perpetrate fraud and to cover their tracks. Such scammers could be located anywhere in the world.

    For its part, the SEC called the I-SIPC.com site a “fictitious entity.”

    “The ‘ISIPC’ Web site bears a certain likeness to the Securities Investor Protection Corporation’s (SIPC) Web site, mimicking its look, feel, and content in an attempt to achieve an aura of authenticity with Madoff victims,” the SEC said. “The ‘ISPIC’ Web site claims to partner with several governments including the United States, and links to actual government Web sites to signify an affiliation. ‘ISIPC’ also falsely claims to be sponsored by the United Nations, the International Monetary Fund, and the World Bank.”

    SIPC said it was investigating misuse of its trademark and “will seek to have the violator prosecuted to the extent the law allows.”

    “We know from information provided to us by individuals that this bogus group is already attempting to obtain funds and confidential financial information from investors in the U.S.,” said SIPC President Stephen Harbeck.

    “SIPC wants to be as clear as possible that Madoff victims and other investors should not share any personal financial information via this Web site or rely upon it as an information source. We intend to use every available means to shut down this illicit operation.”

    The bogus site now is loading a message that says, “THIS SITE IS TEMPORALLY CLOSED.”

    “Investors who lose money in widely publicized schemes are often targeted by con artists looking to cash in on the victim’s desire to recover losses,” said Lori Schock, director of the SEC’s Office of Investor Education and Advocacy. “Victims of fraudulent schemes should be aware that such refund schemes commonly exist, and can be perpetrated through copycat Web sites that appear similar to those of actual regulators or other organizations.”

  • Spokesman For Renner-Related Company Did Not Disclose Tie In Opinion Piece That Attacked Star-Tribune Newspaper; Name Is Referenced In Secret Service Affidavit; Declines To Answer Questions From PP Blog

    UPDATED 2:25 P.M. ET (March 2, U.S.A.) The vice president and director of public relations for V-Newswire — a company in Steve Renner’s INetGlobal family — authored an opinion piece lambasting a Minnesota newspaper’s coverage of a Secret Service raid at INetGlobal’s Minneapolis offices last week on his personal Blog, but did not disclose his tie to the firm.

    Donald W.R. Allen II operates a Blog known as The Independent Business News Network (IBNN). Allen did not disclose his INetGlobal tie when authoring an editorial titled, “Minneapolis’ Star Tribune newspaper’s bias reporting causes defamatory speculation at Internet marketing firm.”

    The piece began, “If the Star Tribune newspaper can use its ‘power’ to taint a company’s image prior to investigation by authorities, whose (sic) to say the news you get is true and accurate?”

    The Star-Tribune was among the first media outlets to report that federal agents believed INetGlobal was operating a Ponzi scheme.

    Information gleaned during the federal probe led to allegations that INetGlobal also was engaging in wire fraud and money-laundering.

    Allen, whose name is referenced in a search-warrant application in the INetGlobal case, now says he should have disclosed the tie in the IBNN editorial.

    “I will give full disclosure on the iNetGlobal piece today because I have 3 more follow up stories,” he said this morning. He asserted that the IBNN domain, which is registered in Renner’s name under the organization of V-Webs LLC, “has nothing to do with iNetGlobal other than being registered by the company as part of my employment agreement.”

    Allen defined the IBNN Blog as a “Civil Rights, Politics and News Blog for mostly the Twin Cities area.” IBBN’s site content includes an endorsement of the Tea Party Movement in the United States and a “Declaration of Tea Party Independence.”

    Allen emailed the PP Blog Sunday after appearing at the Blog, posting comments and using the IBNN URL, not a URL associated with the Renner companies. He dismissed the Blog as “minor league,” writing it was engaging in a “witch hunt.” The Blog responded to Allen’s email by asking him to comment on a number of issues concerning INetGlobal and inquiring why he was using the IBNN URL if he was a spokesman for a Renner entity.

    Later in the day, Allen responded to the Blog’s questions by saying he would answer questions about his role at V-Newswire, but he did not address the questions the Blog asked previously.

    The Blog then resubmitted the questions, adding several more questions to a list of four it previously had asked. Allen responded to the email, but chose not to answer a number of questions.

    Among the questions Allen declined to answer was whether INetGlobal, in the aftermath of the Ponzi scheme allegations, believed it should inform members about Steve Renner’s December conviction on four felony counts of income-tax evasion. Allen also declined to answer a question on whether INetGlobal had a duty to inform members that Cash Cards International (CCI) — a payment processing firm once operated by Renner — could not return money to Ponzi scheme victims in a case brought by the SEC against a California company known as Learn Waterhouse because Renner had spent the customers’ money.

    Allen did say he saw “nothing illegal with V-Newswire or the V-News Network.”

    The Blog asked Allen whether he was the “Donny Allen” referred to in an INetGlobal news release and the “Donald Allen” referred to in a Secret Service affidavit that alleged “Donald Allen” provided confusing information to a person who attended an INetGlobal function in New York.

    Allen did not answer the question, which the Blog posed twice.

    Undercover Secret Service agents also attended the New York function, according to the affidavit.

    The PP Blog also asked Allen whether he believed he should disclose his tie to INetGlobal when responding to Blog and forum posts. He declined to answer the question, which was posed twice.

    He also declined to answer a question about how it served INetGlobal’s PR ends to dismiss as “minor league” Blogs that report the serious allegations against the company.

    AdSurfDaily, a Florida company implicated in a $100 million Ponzi scheme, employed a similar PR approach. The ASD case is referenced in the Secret Service affidavit, amid allegations that an ASD member described INetGlobal as a wink-nod enterprise and attempted to have an undercover Secret Service agent participate in a three-way call with the ASD members’ sponsor for the purpose of recruiting the agent into INetGlobal.

    Allen also declined to answer a question on whether he was the author of an INetGlobal news release after the raid that said federal agents had arrived at Renner’s offices “looking for something to substantiate their claim that illegal activity was occurring in the business.”

    The news release used Allen’s email address, which he described as temporary in an email to the PP Blog, but did not mention Renner’s income-tax conviction and the allegations that Renner had spent money belonging to CCI customers.

  • ANOTHER FLORIDA FRAUD CONVICTION: Michael J. Muzio Ran ‘Pump-And-Dump’ Scheme In Case Tied To Ponzi And Affinity-Fraud Scheme Targeting Haitian-Americans

    A Florida man implicated in a pump-and-dump scheme tied to a Ponzi- and affinity-fraud scheme has been convicted and faces decades in federal prison.

    Michael J. Muzio, 46, of Tampa, was convicted on six counts of securities fraud, two counts of substantive wire fraud, two counts of lying to the SEC and the FBI and one count of conspiring to commit wire fraud.

    Muzio’s pump-and-dump scheme is linked to the alleged Home Pals Investment Club Ponzi and affinity-fraud scheme involving Ronnie Eugene Bass Jr., Abner Alabre and Brian J. Taglieri.

    Bass, Alabre and Taglieri were accused civilly and criminally of targeting Haitian-Americans in a $14.3 million scheme.

    Alabre, 33, of Miramar, Fla., and Taglieri, 39, of Jupiter, Fla., already have pleaded guilty to criminal charges, which were brought in October 2009. Bass and Alabre were accused by the SEC of fooling investors by saying Taglieri was Home Pals’ attorney, but Taglieri is not an attorney, according to records.

    Muzio defrauded Haitian-American and other investors in South Florida and elsewhere “by manipulating” the stock price of International Business Ventures Group (IBVG), a Florida shell company “with no assets and virtually no business activities,” prosecutors said.

    IBVG purportedly was operated from Palm Beach Gardens. Last month, U.S. Attorney General Eric Holder described the Palm Beach area as the “ground zero” of financial fraud. Holder ventured to Palm Beach to make a speech and introduce the Obama administration’s Financial Fraud Enforcement Task Force.

    The manipulation scheme was carried out through “coordinated stock purchases and sales designed to artificially impact share prices,” the FBI said.

    “To induce investors to purchase the stock, [Muzio] created a false impression that an active market for the stock existed by engaging in illegal ‘wash trades’ in which he simultaneously entered buy orders through one brokerage account under his control and offsetting sell orders at the same price through another brokerage account under his control.

    “These trades had no real economic effect, but the defendant’s brokers unwittingly reported the trading activity and potential investors who saw the online reports were misled into believing that the stock was actively traded at the quoted prices,” the FBI said.

    As often is the case in pump-and-dump schemes, Muzio “issued false and misleading press releases” claiming that the company had profitable business dealings.

    Muzio claimed IBVG “had deals to provide and offer prepaid debit cards in Haiti,” as well as prepaid calling cards and “exclusive rights to market prepaid electric meters in Haiti,” the FBI said.

    “Investors were offered the chance to purchase free-trading shares of stock, but then received certificates for restricted shares which could not be traded and ultimately proved to be worthless,” the FBI said.

    Home Pals advised website viewers that the company was “honest” and adhered to “uncompromising ethics,” the SEC said.