After Bernard Madoff’s Ponzi scheme was exposed in December 2008, Beverly Hills hedge-fund manager Bradley L. Ruderman wrote a letter to clients assuring them them their money was safe and deploring Madoff’s “chicanery,” federal prosecutors in the Central District of California said.
“[S]uch disgraceful practices will never happen under my watch,†Ruderman declared in the letter.
Less than five months later — on April 28, 2009 — the SEC charged Ruderman, 46, with defrauding investors and lying about his Ruderman Capital Partners and Ruderman Capital Partners “A” hedge funds.
Ruderman had falsely told investors that Lowell Milken, chairman of the Milken Family Foundation and Michael Milken’s younger brother, and Larry Ellison, chief executive officer of Oracle Corp., invested with him, the SEC said.
And “Ruderman falsely told investors that the hedge funds had earned positive returns from 15% to 60% per year and had over $800 million in assets,†the SEC said. “In reality, the hedge funds lost money and had less than $650,000 in assets.”
Criminal charges followed in May 2009. In August 2009, Ruderman pleaded guilty to two counts of wire fraud, two counts of investment adviser fraud and one count of not filing a tax return for 2007, a year in which he earned $2 million.
He was sentenced yesterday, and U.S. District Judge John F. Walter admonished Ruderman.
“He stole from individuals he knew for many years, who cared about him, had invited him into their homes and shared meals with him, who had known him since he was a child,” Walter said.
Ruderman family members and friends lost $25 million in the scheme, prosecutors said.
When Ruderman wrote the letter assuring investors he was no Madoff and that their accounts were safe, the judge said, “he was stealing their money.â€
After hearing a statement from a victim that Ruderman was no different than a convenience-store thief or bank robber except he had “committed his crimes with manicured nails, a great tan, wearing an Armani suit and the getaway car was a Porsche that his victims all paid for,†Walter sentenced Ruderman to 121 months in federal prison.
Given the recent “staggering increase†in investor-advisor frauds, Walter said, he wanted to “send a message that these crimes will result in significant prison sentences.â€
FBI agents who reverse-engineered the crime determined Ruderman had lost “$5.2 million of investor money in clandestine poker games held on a regular basis in a suite at a luxury Beverly Hills hotel.”
Meanwhile, the investigation revealed that Ruderman, like Madoff, had sent investors bogus account statements. At the same time, it revealed he had spent had spent at least “$8.7 million of investor money on personal expenses, including $200,000 each summer for a rented beach house in Malibu, two Porsches, $53,930 on sporting events, $896,000 in credit card charges and $327,000 in cash expenditures.”
Walter ordered Ruderman to pay nearly $26 million in restitution to victims. The FBI and IRS conducted the criminal probe.
A New Jersey woman who told members of the Unification Church that they could turn $3,000 into $6,000 in a year by investing in her real-estate business has been sentenced to 70 months in federal prison.
Marcia Sladich, 51, of Clifton, pleaded guilty to mail fraud in July, admitting to U.S. District Judge Katharine S. Hayden that “she did not make real estate investments, but used new investor money to make principal and interest payments to existing investors and to purchase real estate in Florida and Brazil in her name and in the names of her relatives,” prosecutors said.
Some of Sladich’s victims, however, were disinclined to believe that Sladich had ill intent and advanced an explanation that she had been duped. (See link to “Record” near bottom of story.)
Investigators said Sladich operated a Ponzi scheme between 2004 and 2007, collecting $15 million from investors and paying commissions to people who helped recruit others into the scheme.
Although Sladich did buy real estate with some of the funds, she titled it in her name and the names of family members in the United States and Brazil. She also used investors’ money to pay her mortgage and credit-card bills.
In a separate civil prosecution by the SEC, the agency outlined a series of possible tip-offs in Sladich’s offering materials that perhaps signaled investors that they were not doing business with a professional investment company.
These awkward lines all appeared in the offering materials, according to the SEC:
[t]he agreement of booths (sic) parties convenants and agrees that the Shares will be to engage in a fund for of (sic) business this can generate from the investment.
a commission of the investment.
for a personal investment involved (sic) Real Estates (sic).
will be used for a personal investment involving Real State (sic).
Sladich allegedly sent $400,000 to Brazil. “[A]ll of the property purchased was titled in the name of Sladich’s relatives, including her mother,” the SEC said.
The scheme began to collapse in early 2007, and Sladich fended off investors by instructing an employee to lie and by encouraging clients to “re-invest” their monthly payouts instead of cashing them out. By July 2007, she changed the rules to forestall disaster, the SEC said.
Sladich’s company — Kay Services LLC — upped the minimum investment in June 2007 from $3,000 to $12,000, and slashed the yearly payout from 100 percent to 50 percent, the SEC said. Recruiting commissions were eliminated.
Even though Sladich knew the scheme was collapsing, she continued to accept money, including $100,000 from one investor and $50,000 from another in September 2007, according to the SEC.
The scheme “finally collapsed” a month later. Investors then received a letter from an attorney that there would be no more payouts beyond principal “[a]s a result of unforeseen financial developments, including but not limited to volatility in real estate and other investment markets,” the SEC said.
Sladich, though, knew she was operating a Ponzi scheme and that the purported real-estate business generated no revenue, the SEC said.
“The October 2007 letter asked investors to execute an agreement, releasing the Defendants from liability in exchange for the return of their principal,” the SEC said. “Some of the investors executed the release but did not get a payment from the Defendants.”
Criminal charges and a guilty plea followed, and Sladich’s sentencing this week set up an interesting dynamic in the court room, according to the Record newspaper.
Now known as the Family Federation for World Peace and Unification, the Unification Church follows the teachings of the Rev. Sun Myung Moon.
UPDATED 5:12 P.M. ET (U.S.A. JAN. 12) So, you want to mislead your clients about your role in your business, rely on the assertions of your business colleague and not perform thorough due diligence and double-check his claims that your investors are making enormous profits? Want to say later — after a Ponzi scheme collapses — that you didn’t know it was a Ponzi scheme?
Those dogs won’t hunt, the SEC said today. A year after the alleged $350 million-plus Arthur Nadel Ponzi scheme collapsed, the agency has charged a father-and-son investment team — Neil and Christopher Moody of Sarasota, Fla. — with civil securities fraud for claiming they were managing hedge funds when the funds actually were being managed by Nadel, an attorney who was disbarred in the 1980s for using client funds to pay off loan sharks.
“The Moodys led investors to believe that they were faithfully managing funds invested with them,” said Glenn S. Gordon, associate director of the SEC’s Miami Regional Office. “Instead, they abdicated their responsibilities to investors and ignored warning signs that should have alerted them to the fraud that was occurring all around them.”
Neil Moody is 71; Christopher Moody is 35. They operated three hedge funds — Valhalla Investment Partners LP, Viking IRA Fund LLC and Viking Fund LLC. — all of which collapsed with the collapse of Nadel’s operation. The SEC said today that it is seeking the return of $42 million in ill-gotten gains from the Moodys.
The Moodys distributed offering materials, account statements and newsletters to investors that misrepresented the hedge funds’ historical investment returns and overstated their asset values by as much as $160 million, the SEC charged.
“[They] based their materials on grossly overstated performance numbers that Nadel created and provided to them, the SEC said. “The Moodys failed to independently verify the accuracy of the figures despite multiple red flags, and relied exclusively on Nadel’s inaccurate information when communicating with investors.”
Christopher Moody’s attorney said his client is working to help recover assets.
“The SEC’s complaint does not allege that Chris Moody knowingly intended to harm investors,” said Jeffrey L. Cox. “The complaint alleges recklessness which Mr. Moody neither admits nor denies. Mr. Moody has cooperated from the outset with the receiver in the recovery of assets and will continue to do so.â€
The SEC alleged that the Moodys lied about their roles in managing the assets of the three hedge funds by claiming that they controlled all of the investment and trading decisions.
“In truth,” the SEC said, “under an arrangement that the Moodys had with Nadel, [Nadel] controlled nearly all of the funds’ investment and trading activities with no meaningful supervision or oversight by the Moodys.”
NOTE: The next several paragraphs are taken verbatim from the SEC’s complaint against the Moodys. We added the italics.
“During the relevant time period, the Moodys also recklessly relied on false information Nadel gave them to misrepresent the value of the Moody Funds’ assets in account statements provided to investors and in verbal communications with investors.
“For example, one investor from Virginia who invested in Valhalla Investment Partners received a statement for October 2008 indicating his investment was valued at $1,170,363.92, and a November 2008 statement indicating his investment was valued at $1,176,848.66. These statements were false because the total value of the entire Valhalla Investment Partners’ holdings was only $9,425.66 at the end of both months.
“Another investor who invested in the Viking IRA Fund received a statement for
November 2008 indicating his investment was valued at $1,327,660.50. This statement was false because the total value of the entire Viking IRA Fund’s holdings was $629,728.01 at the end of November 2008.
“Finally, another investor who invested in the Viking Fund received a statement for November 2008 indicating her investment was valued at $651,327.18. This statement was false because the total value of the entire Viking Fund’s holdings was only $30,929.70 at the end of November 2008.
“At the time the Court appointed the Receiver in mid-January 2009, the account values for the Moody Funds were as follows: (a) Viking IRA Fund – securities worth $2,923.58 and cash of $77,025.20; (b) Viking Fund – securities worth $917.70 and cash of $65,708.33; and (c) Valhalla Investment Partners – securities worth $4,413.66 and cash of $16,158.05.
Investigators said the Moodys did virtually no checking to protect investors from getting fleeced out of millions of dollars
“The offering materials represented that the funds generated investment returns ranging from 10% to 46% between 2002 and 2008, the SEC said in the complaint against the Moodys. “These claimed returns were utterly bogus because the Moody Funds actually lost significant sums of money during those years.
“The Defendants relied exclusively upon Nadel’s fictitious performance information when they represented to prospective investors the yearly historical returns of the Moody Funds,” the SEC said. “However, they failed to verify the accuracy of the information although they had ready access to documents and information that would have revealed that Nadel’s information was false.”
Ignoring Red Flags
NOTE: The next several paragraphs are taken from the SEC’s complaint against the Moodys. We have added the italics.
“While claiming to actively manage and oversee the assets of the Moody Funds, the Moodys, in fact, relied exclusively on Nadel’s fictitious information when they provided the bogus account statements and baseless offering materials to investors. They failed to take any adequate measures to ensure the account statements and offering materials were accurate, and ignored several red flags that should have alerted them that Nadel was engaged in a massive fraud.
“For example, the Moodys never reviewed the Moody Funds’ securities account statements to verify the accuracy of the information Nadel was providing.
“In addition, they allowed Nadel to provide investment advice to the Moody Funds even though he repeatedly threatened to stop providing investment advice if the Moodys insisted on auditing the funds.
“The Moodys furthermore allowed Nadel to exercise sole control over the Moody Funds’ securities accounts and account statements even after he refused to provide the statements to the Moodys accountant.
“Despite knowledge of these facts, the Moodys never audited or examined the Moody Funds’ securities accounts. Nor did they review the monthly securities account statements, or implement any policies or procedures to monitor Nadel’s control of the Moody Funds’ assets. To the contrary, they allowed Nadel to exercise complete control of the Moody Funds’ assets and trading activities without any meaningful oversight or supervision.”
The SEC’s actions against the Moodys occurred just three days after U.S. Attorney General Eric Holder gave a major speech in Florida on the Obama administration’s Interagency Financial Fraud Enforcement Task Force. The Justice Department and the SEC are among the agencies assigned to the Task Force, which is designed to coordinate the government’s response to fraud schemes that are plaguing the United States.
Florida — perhaps more than any other state — has been plagued by financial fraud. In Sarasota alone, three major Ponzi scheme investigations are under way.
Nadel, who was arrested last year after fleeing Sarasota, is jailed in New York. His trial is scheduled for April. Investigators say he employed an unlicensed accountant and simply made up numbers out of then air to keep the Ponzi scheme afloat.
When investors requested redemptions late last year, Nadel fled.
While Nadel was operating the fraud, “the Moody’s received management and performance fees from the Moody Funds totaling approximately $42 million,” the SEC said.
In addition to the SEC’s actions, the Moodys have been sued by investors.
The Moodys have not been charged criminally. Without admitting or denying the allegations in the SEC civil complaint today, they consented to permanent injunctions against future securities fraud violations and agreed to an order that will bar them for five years from associating with any investment adviser.
UPDATED 7:03 P.M. ET (U.S.A. JAN. 12) A Beverly Hills radio host pitched his fraud scheme in Persian and targeted Iranian-Americans in Greater Los Angeles, the SEC said today.
Client funds were used to build a mansion for John Farahi, 52, and and his wife, Gissou Rastegar Farahi, 50, the agency said. Client funds also were transferred to the Farahi Family Trust. John Farahi hosts the daily radio program.
Named defendants in the case were the Farahis, Beverly Hills-based NewPoint Financial Services Inc. and Elaheh Amouei, 54. The SEC identified Amouei as NewPoint’s controller and the “personal bookkeeper” of the Farahis.
A company named Triple “J” Plus LLC operated by John Farahi was named a relief defendant. John and Gissou Farahi have control over the Triple “J” bank accounts, the SEC said.
“They lured victims with false promises of investment safety while secretly enriching themselves and diverting investor funds for their personal use,†said Rosalind R. Tyson, director of the SEC’s Los Angeles Regional Office.
All of the defendants’ assets have been frozen in the case, which includes allegations that clients were told they were investing in FDIC-insured certificates of deposit, government bonds or corporate bonds issued by companies backed by funds from the Troubled Asset Relief Program (TARP).
TARP is the $700-billion program operated by the Treasury Department to shore up banks.
“The vast majority of the money raised was transferred to accounts held by Defendants John and Gissou Farahi,” the SEC said in its complaint. “John and Gissou Farahi, in tum, used the investor funds to, among other things, construct a multi-million dollar personal residence in Beverly Hills, California and to engage in risky options futures trading in the stock market in which . . . John and Gissou Farahi lost more than $18 million in 2008 and the beginning of 2009.”
Investors were asked to invest in the debentures by the Farahis and/or Elaheh Amouei, NewPoint’s controller, after making an appointment to discuss investment opportunities offered by NewPoint, the SEC said.
Since at least 2003, NewPoint has sold more than $20 million worth of debentures to more than 100 investors. Clients were told their investments were low-risk, the SEC said.
At some point, NewPoint prepared Private Placement Memoranda (PPM) literature describing the opportunity as high risk, but most investors said they never received the material, the SEC said. Investors also did not know that they were making loans to John Farahi.
“[N]ot only did Defendants John and Gissou Farahi and/or Defendant Amouei fail to provide the PPMs to most investors, it appears that they only added the disclosure regarding loans to Defendant John Farahi in 2009, after the offering ceased, the SEC said.
“[T]he vast majority of the money raised was actually transferred to accounts controlled by the Farahis, including an account at relief defendant Triple ‘J,’” the SEC said.
Beginning roughly in June 2009, the SEC said, John Farahi and Amouei “made further misrepresentations to investors in an effort to lull them into keeping their money with NewPoint.
“Investors have allegedly been told that their money is safe and that they are guaranteed to get the entirety of their investment back — despite the fact that NewPoint lacks sufficient funds to make all investors whole,” the SEC said. “John Farahi has also paid back some investors on a selective basis while failing to return money to other investors who have asked for a return of their investment.”
Amouei, accordring to the SEC, “falsely told some of the investors who have not received a return of their investment that NewPoint was unable to return their money because the Commission has frozen NewPoint’s financial accounts.”
The NewPoint case in California became the second fraud case since November in which a radio show allegedly was used to pitch a fraudulent investment program.
Christian radio host Pat Kiley of Minnesota was accused by the SEC and the CFTC in November of promoting a $190 million Ponzi scheme with Trevor Cook, who reportedly used some of the proceeds to buy a submarine to access a private island he bought in Canada.
A federal judge has frozen the assets of Illinois investment adviser Steve Salutric in a Ponzi scheme case in which the allegations are shocking.
Salutric, 51, a church treasurer who took a stab at the fim business and co-produced the 2005 movie “Madison” starring Jim Caviezel and Bruce Dern, raided the account of a 96-year-old woman last year to keep his Ponzi scheme going, according to a complaint filed today by the SEC.
The woman lived in a nursing home and was suffering from dementia, the SEC said, adding that Salutric’s act toward her was “particularly egregious.”
Salutric misappropriated more than $400,000 of the woman’s funds, the SEC said, identifying her only as “Client A.” Other client accounts also were raided.
“Client A has no current memory, cannot retain information for more than 5 minutes, and resides in a nursing home,” the SEC said in the complaint filed in U.S. District Court for the Northern District of Illinois.
In recent weeks, fearing his fraud was about to be exposed, Salutric began to approach clients with offers to pay them “hush money,” the SEC said.
“Client funds thus are apparently being used in effort to conceal Salutric’s previous misconduct and are being used in a Ponzi-like fashion as ‘hush’ money,” the SEC argued today to U.S. District Judge William J. Hibbler. “Unless emergency action is taken, Salutric may attempt to further dissipate client funds by paying clients with misappropriated funds in an effort to gain ‘cooperation’ from some of his defrauded clients.”
Hibbler froze Salutric’s assets.
Salutric, of Carol Stream, Ill., co-founded the investment advisory firm Results One Financial LLC, the SEC said. Results One, which has more than 1,000 clients and more than $160 million under management, was identified in the complaint as a “relevant party,” not a defendant in the case.
Salutric is accused of misappropriating “at least” $1.8 million in clients’ funds by raiding their Charles Schwab accounts, and he “did not have discretionary authority to withdraw funds from client accounts at Schwab,” the SEC said.
Among the allegations, which listed one shocking claim after another, were that Salutric forged signatures to gain access to the Schwab accounts and “transferred approximately $1.2 million of client funds to entities with apparent ties to Salutric,” the SEC said.
Among the entities to which he directed misappropriated funds was his church, where Salutric is the treasurer and has signatory authority over the church’s bank accounts, the SEC said.
The church received $321,000, the SEC said.
A film-distribution company known as Celluloid Distribution LLC received $610,000, the SEC said.
Meanwhile, a Yorkville, Ill., restaurant in which Salutric holds an ownership interest received “about $45,000,” the SEC said, and a now-shuttered restaurant in Carol Stream received $214,000.
“This restaurant went out of business in 2009,” the SEC said. “One of Salutric’s clients is the agent for the restaurant’s corporate entity, and the owner is the brother-in-law of one of Salutric’s defrauded clients.”
Clients who were fleeced were not aware of the transfers and did not approve them, the SEC said.
At one point, Salutric spent down the account of the 96-year-client with dementia to the point that it less than $10,000. The SEC did not say precisely how much had been in the account, but noted the misappropriation exceeded $400,000.
A $50,000 Ponzi payment was made to another fleeced investor from the elderly client’s account, the SEC said. Salutric lied to the client’s daughter in the summer of 2009 about the amount of money in the account and continued to steal from it after telling the lie, the SEC said.
Salutric is listed as a co-producer of the hydroplane-racing movie “Madison,” which starred Caviezel and Dern. The movie had a limited run in 2005, after being completed in 2001 and sitting on the shelf for nearly four years prior to release.
Ka-boom! A federal judge has frozen the assets of alleged Ponzi schemer Richard Elkinson, accused of fleecing investors in Massachusetts by telling them he brokered deals for government uniforms and uniforms worn by Olympic athletes.
Meanwhile, the attorney general of the United States ventured to Florida today and gave a dramatic speech at the Forum Club of the Palm Beaches. The speech was important symbolically — indeed, Florida is awash in a sea of Ponzi and mortgage-fraud schemes — and Holder wanted to reassure the noontime crowd of 700 that the government was doing everything it could to restore faith in the markets.
But the speech also was important politically. The Obama administration wanted to showcase its new Interagency Financial Fraud Enforcement Task Force, which the President announced in November, and Holder chose Florida to drive home the message that Ponzi schemers, mortgage fraudsters and financial criminals are going to have many sleepless nights in the months ahead.
“To those who see the victimization of others as an avenue to wealth, take notice,” Holder warned. “If you fabricate a financial statement, if you propagate an investment scheme, if you are complicit in an act of financial fraud, you are writing your ticket to jail.”
Even as Holder was delivering his remarks, the SEC announced that it had sued Elkinson in an emergency action in Massachusetts that complemented the FBI’s criminal action in the case, dubbed a “Mini-Madoff” because it allegedly was both a Ponzi scheme and a case of affinity fraud that targeted Jewish investors.
Court records show that the FBI was working the case on Christmas Eve, even as the government was shutting down for the holidays. Records also show that Massachusetts Secretary of State William Galvin sent a team of investigators to conduct interviews and to get to the heart of the matter while Massachusetts residents were doing their last-minute holiday shopping.
State and federal agencies now have filed three separate actions in the Elkinson case. Elkinson, 76, was arrested at a casino in Biloxi, Miss., fresh off a trip to casinos in Las Vegas. The FBI said he had conducted at least $3.7 million in transactions at the Las Vegas casinos since 1998 and that investors in his Ponzi scheme were out $29 million.
The SEC said today that Elkinson had “no relationship” with a uniform manufacturer based in Japan. Elkinson had told investors he had an exclusive arrangement and that only he was permitted to do business with the manufacturer.
“Unfortunately, it was all make-believe,” the SEC said in its complaint. “Elkinson had no
relationship with a Japanese uniform manufacturer, and there were no contracts to purchase uniforms. While some investors did receive payments of principal and interest, those payments were made using funds obtained from other investors, and Elkinson was able to keep the scheme going as long as most of the investors kept rolling over their investments.”
Elkinson’s purported contracts to provide uniforms for government workers also were “fictitious,” the SEC said.
The current attack on financial crime by law enforcement may be unprecedented. Holder said today that the FBI is investigating 2,800 cases of mortgage fraud, up a staggering 400 percent from 2005 case totals.
In his Palm Beach remarks, Holder also dropped the names of Ponzi schemers.
“Palm Beach is, in many respects, ground zero for the $65 billion Ponzi scheme perpetrated by Bernard Madoff — the largest investor fraud case in our nation’s history,” the attorney general said. “Before the house of cards Madoff built collapsed in 2008, before he was sentenced to 150 years in prison last June, before he became a notorious criminal on the cover of newspapers around the world, he was one of your neighbors.
“His former home sits just north of us,” Holder continued. “An 8,700-square-foot mansion that’s worth . . . well, we’ll know what its worth once the U.S. Marshals Service auctions it off and the proceeds are distributed to Madoff’s victims.”
Holder also mentioned the Ponzi cases of Tom Petters of Minnesota, Allen Stanford of the United States and Antigua and disbarred Florida attorney Scott Rothstein of Fort Lauderdale.
“I’m proud that these men, along with more than 450 others convicted of corporate and securities fraud in 2009, have been taken out of the game,” Holder said.
In Massachusetts, U.S. District Judge Joseph L. Tauro issued a temporary restraining that froze Elkinson’s assets. Tauro also entered an order freezing all proceeds of the misconduct held by others, and an order prohibiting the acceptance of additional investor funds.
At the same time, Tauro ordered an accounting of assets and issued an order prohibiting the alteration or destruction of documents.
The orders in the SEC case — as well as the legal action filed earlier this week by Galvin — bottle up any profits made by people who helped Elkinson promote the scheme.
Holder said the law-enforcement community is fighting back against people who have licensed themselves to steal.
“They’ve robbed people of their homes and their economic security,” Holder said. “They’ve depleted bank accounts and pension funds. In some places, they’ve dried up philanthropic giving and shuttered charities. They’ve placed unfair challenges before cash-strapped governments, local police departments, small businesses, and American workers and consumers.”
Police in Canada are looking for Weizhen Tang, 51, to arrest him in an international investment-fraud case.
The Toronto Police Department says investigators believe Tang duped more than 100 investors in a $30 million Ponzi scheme. A warrant has been issued for Tang’s arrest.
Investigators say fraud victims exist “across Canada,” and in the United States and China. It is believed Tang operated the fraud scheme at least between January 2006 and March 2009.
Police say Tang billed himself as the “Chinese Warren Buffet” and engaged in “online trading.” He also is in trouble with Canadian regulators and the U.S. Securities and Exchange Commission, which sued him in April 2009
Here are Wang’s vital statistics, according to Toronto police:
Lived/lives in Toronto
Chinese descent
5 feet, 2 inches tall
130 lbs.
Short black hair
Glasses
Anyone with information is asked to contact police at 416−808−7238, Crime Stoppers
anonymously at 416−222−TIPS (8477), online at www.222tips.com, or text TOR and your message to CRIMES (274637).
Along with suing Tang, the SEC also sued also Plano, Texas-based investment adviser WinWin
Tang
Capital Management LLC. Two other Tang entities were named relief defendants: WinWin Capital Partners LP and Bluejay Investment LLC, which did business as Vintage International Investment LLC.
The SEC’s complaint alleges that Tang told investors in February 2009 that in an effort to conceal substantial trading losses and attract new investors to the Oversea Chinese Fund, he posted false profits on investors’ account statements and used funds from new investors to return principal and pay out at least $8 million in “fake” profits to other investors.
According to the SEC’s complaint, Tang raised capital for the hedge fund from U.S. investors by offering and selling limited partnership interests in WinWin Capital Partners since November 2007.
WinWin Partners had raised, as of March 10, 2009, almost $17.3 million in principal investments from approximately 75 U.S. investors, most of whom are located in the Dallas area but also in California.
At least $9.6 million of the money raised from U.S. investors remains unaccounted for, the SEC said in April 2009.
A Massachusetts man has been arrested in Mississippi and charged with orchestrating a $29 million Ponzi scheme by tricking people into believing they were investing in a company that provided uniforms for the Winter Olympics, the Pan American games and the government.
Ironically, Richard Elkinson told investors he provided prison uniforms — and also uniforms for police officers, federal prosecutors said.
It was not immediately clear how much of Elkinson’s purported uniform business was legitimate. Investigators say the Ponzi scheme might have been operating for 20 years before flaming out in December.
The FBI was working the case on Christmas Eve, according to the criminal complaint. After securing purchase orders claiming the states of Connecticut and Georgia were among Elkinson’s customers, an agent called the phone numbers on the purported purchase orders.
“In each instance, I encountered ‘disconnected’ messages,” the agent said.
The investigation also revealed that Elkinson had an affinity for Las Vegas and claimed to have credit lines of $25,000 each at the Venetian, MGM Grand and Caesars Palace casinos.
Elkinson, 76, of Framingham, was charged with mail fraud. The SEC and the Securities Division of the Massachusetts Secretary of State are assisting in the probe.
Records in Las Vegas casinos show that Elkinson had “conducted a total of more than $3.7 million in currency transactions over $10,000” since 1998, prosecutors said. The Ponzi scheme began to collapse last year, and Elkinson missed a meeting with investors in December, and stopped answering his phone.
Records suggest he was at the Wynn casino in Las Vegas Dec. 22, and canceled a reservation at the Venitian Dec. 23.
The Alleged Scheme
One of the elements, according to the complaint, was that the purported Japanese garment manufacturer, which purportedly had an office in Chatsworth, Calif., would do business with only Elkinson “personally,” a possible signal that agents believe Elkinson was attempting to keep investors from asking too many questions or performing thorough due diligence.
In 2003 or 2004, according to the FBI, Elkinson showed investors a 1998 letter purportedly written by “Alan Shimuka” on the California office’s letterhead that said, “My Honorable Father, once again, requires me to state that we do business with Mr. Richard Elkinson of Northeast Sales.”
“Elkinson allegedly represented that his business involved entering into contracts directly with large purchasers (such as government entities), in which Elkinson had to pay 50 percent of the contract amount as a down payment to the manufacturer in order to initiate the manufacturing process,” prosecutors said.
“[U]pon completion and delivery of the uniforms, Elkinson reported that he would receive payment from the purchasing entity,” prosecutors continued. “[He] claimed that banks were unwilling to lend funds to his business based upon unexecuted contracts, so he needed to borrow a portion of the funds required to pay the 50 percent down payments.”
As has been common in recent Ponzi schemes, Elkinson lulled investors with promissory notes, prosecutors said. In his specific case, Elkinson’s notes “generally required repayment within a term of 330-360 days, and with interest rates that ranged from 9 percent to 13 percent.
“Upon maturity of the notes, investor/lenders were given an option to take a return of their principal and interest, to take interest only, or to roll the principal and interest over into a new note,” prosecutors said.
In April or May of 2009, Elkinson began to default on the notes, providing investors “a variety of excuses,” prosecutors said.
Among the excuses was that Elkinson’s wife was ill and he had to accompany her to Houston for treatment. Elkinson also told investors that government budgetary problems at the state level were delaying payments.
The wheels fell off in December, when Elkinson missed a meeting with two investors and stopped answering his cell phone.
In the early stages of the probe, investigators have identified about 130 investors and calculated that Elkinson owes them $29 million.
U.S. Attorney Carmen M. Ortiz said that prosecutors will post information on a website to update victims. Here is the website:
J.V. Huffman Jr. Source: Catawba Country Sheriff's Office
It’s not as though alleged fraudster J.V. Huffman Jr. did not have the expensive cars and real estate often associated with Ponzi schemes or financial frauds.
Huffman, jailed awaiting trial in North Carolina on Ponzi and weapons charges, had plenty of those, according to William Walt Pettit, the court-appointed receiver. He had an Aston Martin ($100,000+), three Mercedes (nearly $180,000 combined), and a Prevost motor home (insured against loss for $825,000) , for example. And Huffman had at least 14 parcels or properties, including a $765,000 property in North Carolina and multiple interests in time-shares at Walt Disney World in Orlando.
But Huffman also had jet skis, which oddly seem to have become a signature purchase among operators of alleged Ponzi schemes or financial frauds. Disbarred Florida attorney Scott Rothstein, implicated in an alleged $1.2 billion Ponzi scheme, had jet skis.
Affiliate Strategies Inc., a Kansas company under whose umbrella the shuttered Noobing autosurf fell, had a jet ski. ASI is among a number of companies sued by the Federal Trade Commission and the attorneys general of four states for operating a grant-writing scheme.
Florida-based AdSurfDaily, whose president is implicated by the U.S. Secret Service in a $100 million Ponzi scheme, also had jet skis — two of them. Andy Bowdoin told his members that the jet skis (and a lakefront home) were for their benefit, but the statement was met with anger, the jet skis and Bowdoin’s other marine equipment dismissed derisively as “water toys.”
Huffman’s next court appearance in North Carolina has been delayed until Jan. 25. He also faces a civil prosecution by the SEC, which said his Ponzi scheme began in 1991 and operated for 17 years before collapsing.
The weapons charge was added when guards found a razor blade hidden in Huffman’s Bible in his jail cell. Prosecutors said the alleged financial scheme largely was targeted at Lutherans.
SEC investigators said Huffman and his company — Biltmore Financial Group — gathered as much as $25 million from 500 investors. At first, Huffman told investors he operated a mutual fund.
After the 9/11 terrorist attacks and the ensuing volatility in financial markets, Huffman changed his story, telling investors that he pooled funds to purchase and sell safe mortgages that had strong equity positions and were insured, the SEC said.
“Contrary to his representations, Huffman and Biltmore did not invest the funds as represented,” the SEC said. “Instead, Huffman spent investor funds to subsidize his lavish lifestyle. Returns to investors were paid from money invested by new investors. The purported insurance protecting the investments did not exist and much of the principal has been dissipated or used to purchase real estate for Huffman and/or his wife, expensive automobiles or other luxuries.”
In another claim reminiscent of the AdSurfDaily case, the SEC said Huffman dropped famous acronyms such as “FDIC” to get people to invest with him.
North Carolina Secretary of State Elaine F. Marshall is spearheading the criminal prosecution.
“People who are knowledgeable in the investment industry came to us saying that the
promises being made sounded ‘too good to be true,’†she said, after agents arrested Huffman in November 2008. “In most cases, when an investment sounds too good to be true, it usually is.â€
A Minnesota man accused of operating a Ponzi scheme with Christian radio host Pat Kiley is not cooperating with the court-appointed receiver in the case and might have spent $30,000 on “gift cards” after the SEC and CFTC brought twin actions last month, according to the receiver.
The receiver, R. J. Zayed, described efforts to locate and claim assets tied to the alleged $190 million fraud as an international paper chase. On Dec. 21, Zayed said, the Ontario Superior Court of Justice recognized his appointment by a U.S. federal judge and granted him power over receivership assets in Canada.
Zayed said he was able to take control over a Cook property in Rainy River. Some investors said Cook had purchased a two-person submarine on eBay for $40,000 to access the island property, but Zayed did not mention the submarine in his initial receivership report to U.S. District Court Chief Judge Michael J. Davis.
“Based on the Receiver’s Canadian authority, the Receiver obtained a Certificate of Pending Litigation that has been filed against the property in Canada to prevent its transfer without the authority of the Receiver. In addition, the Receiver is in the process of obtaining the three necessary appraisals to sell the property.”
The situation involving land in Panama upon which a casino was planned is less clear because of litigation filed against receivership assets in the Central American country by Oxford FX Growth, one of the relief defendants named in U.S. litigation.
“Prior to the appointment of the Receiver, Relief Defendant Oxford FX Growth, L.P. secured Panamanian counsel and filed a lawsuit in Panama in an effort to prevent the sale of the real estate in Panama that was acquired with funds of the Receiver Estates,” Zayed said. “The Receiver has taken control of the Panamanian lawsuit, including the costs of litigation.”
Zayed said he had been in contact with legal counsel for Oxford FX Growth, and learned that four of five pieces of property had been “successfully attached” and secured by a bond in the amount of $200,000.
He also learned that Oxford FX Growth had filed a local claim in Panama against Cook, Gary Saunders and Holger Bauchinger for $12 million and that lawyers in Panama are attempting to perfect service.
The Cook/Kiley investigation is among a number of Ponzi probes in Minnesota. Like other Ponzi cases, it has included spectacular allegations that investor funds were diverted to acquire expensive automobiles and real-estate. Among the assets frozen in the case is the landmark Van Dusen Mansion at 1900 LaSalle Ave. in Minneapolis.
Zayed said he took control of the mansion and secured its furnishings and equipment on Nov. 24, with the assistance of the U.S. Marshal’s Service and the Minneapolis Police Department.
“Trevor Cook, Patrick Kiley, Graham Cook and Marc Trimble were found on and escorted from the premises without being allowed to remove any property (except for Patrick Kiley who was allowed to take his personal clothing and toiletries with him),” Zayed said. “All exterior locks were changed and security guards were posted to safeguard the property.”
He added that he found 41 computer hard drives and other media at the mansion and that they were “forensically copied.” Meanwhile, 21 computer hard drives and other media were found at a separate property at 12644 Tiffany Court in Burnsville, Minn. The data was copied, the premises and furnishing were secured, locks were changed and guards were posted.
To date, Zayed said he has seized six cars — a 1989 Rolls Royce; a 1985 Pontiac Fiero;Â a 1989 Mercedes 420 SEL; a 1998 BMW Z3; a 2000 Lexus; and a 2004 Audi RS6 — and “has identified additional vehicles that may be subject to the Receivership.”
Cook, he said, “has asserted the Fifth Amendment privilege and refused to cooperate with the Receiver.” Zayed also asserted that Cook might have depleted receivership assets after the SEC and CFTC brought their respective cases.
“In December, the Receiver received information that Mr. Cook had been purchasing gift cards in large denominations,” Zayed said. “As a result of this information, Mr. Cook turned over approximately $30,000 in gift cards and now faces Motions brought by the SEC and CFTC for a Rule to Show Cause as to why he should not be held in contempt of the Court’s asset freeze orders.”
A hearing on the motions is set for Jan. 8.
Zayed said he has been receiving “30 to 60” calls from investors each day. He established a website for information.
As the year of the Ponzi scheme comes to a close, the Financial Industry Regulatory Authority has issued an Investment Alert warning the public about a relatively new form of fraud: “green energy investments” that trade on investors’ affinity for keeping the planet clean.
Such schemes “promise large gains from investing in companies purportedly involved in developing or producing alternative, renewable or waste energy products,” FINRA said.
Among the companies it cited in its fraud alert was Philadelphia-based Mantria Corp., accused by the SEC last month of operating a Ponzi scheme pushed by Colorado-based Speed of Wealth LLC.
“Right now there are a lot of legitimate stories in the news about green energy initiatives, and con artists want to leverage people’s interest in green energy to make a quick buck at investors’ expense,” said John Gannon, FINRA senior vice president for Investor Education. “There is a lot of interest in companies that claim to provide green energy, but we issued this Alert to remind investors to be vigilant about avoiding investment scams, no matter how they are packaged.”
Citing the SEC’s Mantria case, FINRA said environmentally conscious investors should pay strict attention to how they’re approached in sales presentations. Language and hype used in pitches can provide important clues that a “fashionable hook” is being used to pick investors’ pockets.
“[T]he Securities and Exchange Commission alleges that promoters of purported eco-friendly investment opportunities lured 300 investors into a $30 million Ponzi scheme, encouraging participants to finance such ‘green’ initiatives of Mantria Corporation as a supposed ‘carbon negative’ housing community in rural Tennessee and a ‘biochar’ charcoal substitute made from organic waste,” FINRA said.
“Investors were falsely promised returns ranging from 17 percent to ‘hundreds of percent’ annually, FINRA continued, citing the SEC allegations. “The scammers encouraged investors attending seminars or online webinars to liquidate their traditional investments such as retirement plans, stocks, bonds, and mutual funds. Investors also were urged to borrow as much as possible against their home or business so that they could invest in Mantria. But, according the SEC’s complaint, Mantria did not generate any income from which such extraordinary returns could be paid.”
FINRA also cited other examples of alleged “green” fraud.
“One solar panel stock, for example, was touted as ‘set for a 200% gain,’” FINRA said. “A different stock in a China-based wind-power company was extolled as a ‘one in a million’ opportunity that could quickly climb to ’51X its current level.’
“In another instance,” FINRA continued, “an investment-related blog praised a company with a hydrogen-based solution, claiming the stock ‘soared 500% in one week’ and suggesting a nexus between federal energy research and the company’s prospects for growth. Specifically, the blogger noted: ‘The U.S. Government has a hydrogen initiative. Billions are being spent on hydrogen technologies. [The company] is again at the right place at the right time.’”
FINRA’s alert advises investors “to ignore unsolicited investment recommendations and to question the source of investment information. Investors should also be wary of investments that claim to be the next big thing and promise exponential returns.”
After Bernard Madoff’s Ponzi scheme was exposed in December 2008, Beverly Hills hedge-fund manager Bradley L. Ruderman wrote a letter to clients assuring them them their money was safe and deploring Madoff’s “chicanery,” federal prosecutors in the Central District of California said.
