PatrickPretty.com

Tag: Steve Renner

  • PROSECUTION: INetGlobal Trying To Derail Probe By Hiring Attorney To Block Agents’ Access To ‘Potentially Adverse Witnesses’ Among Employee Ranks; Assertion That One Attorney Can Represent All Workers ‘Outlandish’

    Federal prosecutors say they believe INetGlobal and its parent company — Inter-Mark Corp. — hired an attorney for employees to derail a criminal probe into the companies’ business practices by muting the voices of workers who could become witnesses in the case.

    Prosecutors made the dramatic claim in response to INetGlobal’s request last week for a court order that would prevent the U.S. Secret Service and other law-enforcement agencies “from contacting these represented individuals and requesting interviews.”

    No attorney-client relationship exists between the workers and attorney Paul Engh, prosecutors argued.

    “Mr. Engh indicates that he ‘was hired’ to represent these employees, but refrains from indicating who it was who hired him,” prosecutors said. They added that “many of [Engh’s] purported clients seem to have never spoken with him.”

    Engh argued last week that government agents were approaching employees “on a cold-call basis, at [employees’] homes, at night or in the early morning hours, and all without notice to counsel.” He added that the government appeared to be ignoring his duty as counsel to INetGlobal employees “on some federalist notion of superiority or entitled sense of un-accountability.”

    Nonsense, the government said.

    “The United States opposes these outlandish claims of sweeping representation, and respectfully asks the Court to deny the pending motion for a protective order,” prosecutors said. “On May 4, 2010, the corporate targets made clear what lies behind Mr. Engh’s motion. The companies joined in the motion for a protective order . . . and quite candidly admitted that they have done so because ‘statements taken by the government could be used against IMC (InterMark Corporation) in subsequent proceedings.

    “This, of course, crystallizes the motive behind the motion for a protective order,” prosecutors asserted.

    Minnesota-Based Case Takes California Swing

    The prosecution’s move occurred against the backdrop of a revelation Tuesday by the defense that the government had filed a forfeiture complaint March 15 against a San Diego property allegedly acquired for $595,000 by Inter-Mark in August 2009 with criminal proceeds from a Ponzi, wire-fraud and money-laundering scheme.

    Inter-Mark lists Las Vegas as its home; INetGlobal and other related companies operate from Minneapolis.

    A Secret Service agent alleged that the San Diego property was acquired with funds from INetGlobal advertisers in a multistep transaction in which credit-card payments from customers were funneled through at least three Inter-Mark bank accounts to pay for the building, which is situated near a beachfront and bay.

    Court records suggest that INetGlobal has known about the forfeiture action since at least April 19, leading to questions about whether the firm withheld the news about the action from the membership at large for at least 15 days in a bid to prevent its support base from eroding. The forfeiture case is proceeding on a litigation track separate from the probe into INetGlobal operator Steve Renner’s business practices.

    In February, the Secret Service said it believed Renner was operating an international Ponzi scheme through his affiliated companies that largely targeted Chinese members, including members from Mainland China. No criminal charges have been filed, but the government has seized about $26 million in the case, alleging wire fraud and money-laundering.

    Prosecutors said Thursday that the probe into Renner’s business practices was continuing and that the government was “carrying out its constitutional obligation to ‘take care that the laws be faithfully executed’ . . . by investigating credible allegations of serious criminal conduct.”

    Whether INetGlobal members at large knew about the building in San Diego remains unclear. At least one prominent supporter of the firm said she did not. She added that she did not believe it was a crime to expand a business and open a branch in California, but the government never alleged that opening a legal business was a crime.

    The allegation against Inter-Mark in the forfeiture case was that it used criminal proceeds to purchase the building and that the building itself was the proceeds of a crime.

    On Thursday — in a filing peppered with the words clients and client encased in quotation marks in what might have been a bid to highlight an emerging theory that the other side was trying to pull the wool over the eyes of both INetGlobal employees and the court, prosecutors said the legal approach chosen by the Renner companies could backfire because the employees Engh says he represents could have competing legal interests. (Emphasis added.)

    “The potential for conflicts of interest also does not seem to have been considered in any depth by the corporation,” prosecutors said. “The motion filed by Mr. Engh is silent as to what course of action he will follow should one of his ‘clients’ implicate another ‘client’ in wrongdoing, or what he will do when one ‘client’ directs him to negotiate favorable terms with the government under which the first client may impart information that may incriminate other ‘clients.’

    “The lack of planning for these eventualities is itself circumstantial evidence that this blanket assertion of representation is more strategic than real,” prosecutors argued.

    The legal situation confronted by INetGlobal’s 70 employees perhaps is analogous to a hypothetical case in which a corporation believed to have stolen money arranged blanket counsel for employees whose ranks could include workers who had knowledge about the theft and workers who did not.

    If the same lawyer is representing each of the employees — and if the employees have competing legal interests — serious doubts about a client’s right to receive thorough representation could arise.

    Prosecutors said they would “scrupulously observe the limitations that the law places on investigative activities,” but added that they would not submit to defense maneuverings designed to derail the investigation.

    “[W]e need not, and shall not, voluntarily accede to sweeping assertions that entire categories of potential witnesses are out-of-bounds because the investigative target has retained counsel and declared that attorney to be the legal representative of those witnesses,” prosecutors said.

    “If a person from whom agents request an interview declines the request, the agents will depart; if the person states that they wish the interview request to go through their lawyer (whoever that lawyer may be) that request will be honored.

    “Otherwise, we plan to proceed with our investigation, and to make use of all the investigative tools at our disposal, to the fullest extent allowed by law, including contact and interviews with witnesses,” prosecutors concluded.

  • BULLETIN: Renner Case Takes West Coast Turn; Prosecutors Seek Forfeiture Of San Diego Property Allegedly Bought With Funds From INetGlobal Advertisers

    BULLETIN: UPDATED 1:47 P.M. EDT (U.S.A.) Federal prosecutors and the U.S. Secret Service have filed paperwork that says INetGlobal’s parent company — Inter-Mark Corp. — acquired a property in San Diego last year and intended to remodel it with proceeds from a Ponzi scheme.

    Records suggest the purchase price of the property was $595,000 and that Inter-Mark intended to spend a substantial sum on renovations paid for with money from INetGlobal members’ advertising purchases.

    Prosecutors have filed a forfeiture complaint against the property, saying it is the proceeds of a criminal wire-fraud and money-laundering scheme. The forfeiture case was filed March 15 and is proceeding on a litigation track separate from a criminal probe that was launched into the business practices of INetGlobal operator Steve Renner in February.

    The case number for the forfeiture action was disclosed in court filings by the defense in the criminal investigation earlier this week. Records suggest that Renner, Inter-Mark and INetGlobal have been aware of the forfeiture case since at least April 19. It was not immediately clear if  Renner or the companies took any steps to inform members that the government had opened a second litigation front amid allegations of criminal conduct.

    In April, some INetGlobal members — apparently unaware of the government’s claim that money from advertisers was used to pay for and renovate a California building far removed from INetGlobal’s base of operations in Minnesota — suggested the prosecution’s case was disintegrating.

    The property, whose address is 3864 Mission Boulevard, San Diego, Calif., was acquired in August 2009 after funds from customers’ credit-card purchases were used in a series of illegal transactions, according to the Secret Service.

    “These deposits are believed to be from individuals who are ‘purchasing’ advertising,” the agency alleged.

    “More specifically, the purchase of the defendant real property was funded by the following transactions,” the agency alleged. “During the month of July 2009 over $2.5 million dollars in credit card transactions were deposited to Wells Fargo Inter-Mark Account #665543xxxx. These funds were later used to purchase the defendant real property (italics added):

    “a. On August 10, 2009, $350,000 was transferred to Inter-Mark Account #137922xxxx from Account #66543xxxx.

    “b. On August 11, 2009, an additional $300,000 was transferred to Inter-Mark Account #137922xxxx from Account #66543xxxx.

    “c. On August 31, 2009, $650,000 was transferred to Inter-Mark Account #224620xxxx from Account #137922xxxx.

    “d. On the same date, $20,000 was wire transferred from Account #224620xxxx to Eaton Escrow in San Diego, California.

    “e. On September 14, 2009, $450,000 was transferred to Inter-Mark Account #224620xxxx from Account #137922xxxx.

    “f. On September 14, 2009, $575,517 was wire transferred from Account #224620xxxx to Eaton Escrow. These funds were used to purchase a commercial building located at 3864 Mission Blvd., San Diego, California.

    “g. On September 23, 2009 Eaton Escrow issued a check payable to Inter-Mark Corporation in the amount of $348.77 with a notation that the check proceeds was a “refund.”

    The Secret Service alleged that “[r]emodeling work is currently in progress to renovate the
    defendant real property.

    “Substantial sums of money have been invested towards the remodeling project,” the agency alleged.

    On May 4, Renner, Inter-Mark and a related entity known as V-Media Marketing denied the allegations in the forfeiture complaint.

  • BULLETIN: Steve Renner, Operator Of INetGlobal Autosurf, Sentenced To 18 Months In Federal Prison In Tax Case Tied To His Money-Services Business

    Steve Renner

    UPDATED 6:57 P.M. EDT (U.S.A.) The operator of the INetGlobal autosurf has been sentenced to 18 months in federal prison for income-tax evasion.

    Steve Renner also was ordered by U.S. District Judge Donovan Frank to cooperate with the IRS “in the assessment and payment of taxes still due,” federal prosecutors said.

    Renner was convicted in December of four felony counts of tax evasion after a six-day jury trial. The case stemmed from his operation of Cash Cards International (CCI), a payment processing company.

    He was not taken into immediate custody after today’s sentencing and perhaps has “several weeks” before he is scheduled to report to prison, said Jeanne Cooney, a spokeswoman for U.S. Attorney B. Todd Jones.

    Cooney added that the IRS is in the process of determining how much money Renner still owes to the government, which is why Donovan ordered him to cooperate with the agency.

    Even with his sentencing today, Renner’s legal troubles are not over. In February, the U.S. Secret Service said there was probable cause to believe he was operating an international Ponzi scheme through INetGlobal and affiliated companies.

    Federal prosecutors have seized about $26 million in a probe into INetGlobal’s business practices. Renner has not been charged in the case, which prosecutors described as a “major” money-laundering investigation.

    In the tax case, prosecutors said Renner diverted customers’ money held by CCI “to pay his living expenses as well as to make personal investments in coins, oil wells, art, stamps, and vintage musical instruments.

    “He also used client funds to promote his blues-rock band, ‘Stevie Renner and the Renegades,’” prosecutors said.

  • INetGlobal Employees Ask Judge For Order That Blocks Secret Service From Interviewing Them; Claim Government Has ‘Superiority’ Mentality

    The litigation against INetGlobal amid Ponzi scheme allegations is turning into a legal slugfest in multiple venues. On one side, federal prosecutors are seeking to disqualify INetGlobal attorney Mark Kallenbach, claiming that he is attempting to be both a lawyer and a witness in the same case.

    Now, employees of INetGlobal are seeking a protective order that effectively would block the U.S. Secret Service and other law-enforcement agencies “from contacting these represented individuals and requesting interviews.”

    Attorney Paul Engh filed the motion in federal court on behalf of INetGlobal’s 70 employees, arguing that he is the gatekeeper for the employees’ legal interests and that the government has approached an unspecified number of employees without going through him.

    “These approaches have been made on a cold-call basis, at [employees’] homes, at night or in the early morning hours, and all without notice to counsel,” Engh said in a brief.

    His request that the practice stop was “refused,” Engh argued, asserting that the government claims “that since the employees are on laid off status. . . they are no longer employees.”

    “Having been an employee is a status that doesn’t disappear because the Government wants it to,” Engh asserted. “None were fired.”

    At least one employee — Donald Allen, a former vice president of a company related to INetGlobal and its operator Steve Renner — said earlier this week that he had his own attorney and was cooperating with the Secret Service and federal prosecutors.

    Allen said he was approached by the Secret Service, which appeared at his home unannounced a week ago today, and was asked by the agency if he wanted an attorney. Allen said that he answered yes, and described his first meeting with the agency as “excellent.”

    Allen said he was advised he had “exposure” in the case. He denied he had done anything wrong, saying he was not privy to INetGlobal’s internal financial workings.

    On Tuesday, Allen said he had a second meeting with the Secret Service April 26, adding that he is cooperating in the investigation “100 percent.”

    Also on Tuesday, Steve Renner went to Hennepin County Court in Minneapolis and obtained a restraining order against Allen, claiming that Allen was harassing and threatening him and trying to extort $100,000 from the company.

    Allen said that what Renner claimed to be extortion was actually an attempt to work out a severance package.

    The extortion claim was the second against a former INetGlobal employee. Former CEO Steven Keough was accused in court filings by Renner last month of trying to extort $500,000 from the company. Keough may be the government’s star witness in the case. The Secret Service said Keough had come to believe that Renner had hired him to be a “good face” for the company and that Renner had fired him for asking too many questions.

    Engh argued in his brief yesterday that the government appeared to be ignoring his duty as counsel to INetGlobal employees “on some federalist notion of superiority or entitled sense of un-accountability.”

    Separately, some members of INetGlobal have asserted the government is not playing fair. Similar claims were made in the prosecution of the assets of the AdSurfDaily autosurf. The government ultimately won three separate orders of forfeiture totaling more than $80 million in the ASD case.

    ASD President Andy Bowdoin, whose company has been linked to international fugitive Robert Hodgins, who allegedly laundered money for a Colombian drug cartel, has filed an appeal. The ASD case has been in litigation since the Secret Service raided the company’s Florida headquarters in August 2008. The ASD case is referenced in filings by the prosecution in the INetGlobal case that allege an undercover agent was introduced to INetGlobal by an ASD member who promoted the program despite describing it as a wink-nod enterprise.

    Renner, who was convicted in December of four felony counts of income-tax evasion and is awaiting sentencing, has not been charged in the INetGlobal case. The government seized about $26 million in its investigation into Renner’s business practices, and prosecutors have argued that Renner is attempting to get the government to expose its case before a formal action is brought.

    Renner has denied wrongdoing, and the companies have said they are legitimate enterprises.

  • Steve Renner Fires, Gets Restraining Order Against Donald Allen; Says Former VP Harassed Him, Tried To Extort $100,000

    Steve Renner

    Former INetGlobal CEO Steven Keough now has some company on the list of people alleged to have tried to extort money from the Steve Renner family of companies.

    Renner went to court yesterday in Minnesota to seek a restraining order prohibiting Donald Allen from harassing him. The order was granted after Renner asserted Allen tried to extort $100,000 and had engaged in a pattern of abusive behavior, including raising “havoc” with employees, threatening “to destroy him and his family,” posting libelous and defamatory material on the Internet and engaging in verbal harassment.

    Allen also was accused to taking pictures of Renner’s offices and employees without their consent.

    “[Allen] has attempted to extort $100,000 from Petitioner’s businesses [and] if not paid will go to the FBI and Secret Service,” Renner asserted.

    A judge ordered Allen not to harass Renner, not to have any contact with Renner and to stay away from Renner’s home. The judge also ordered Allen to stay one “city block” away “in all directions” from Renner’s businesses in Minneapolis.

    Should Allen violate the order, he could be arrested, jailed for up to 90 days and fined up to $1,000, according to the order. Subsequent violations of the order could result in stiffer measures, including the filing of felony charges that could land Allen in jail for for up to 10 years and force him to pay a fine of up to $20,000.

    Allen is referred to in court papers as a previous employee of a Renner company.

    In a story published yesterday on the PP Blog, Allen said he was cooperating with the U.S. Secret Service “100 percent” in a probe of Renner’s business practices. The Secret Service said in February that it believed Renner was operating a Ponzi scheme and engaging in wire fraud and money laundering.

    Renner has not been charged with a crime and denies wrongdoing. Allen was vice president at V-Newswire, one of the “V” entities in the Renner family of companies. The Secret Service said in February that Allen had given confusing information to a customer of INetGlobal, another Renner entity.

    Allen denies wrongdoing, and now says he has met with the Secret Service twice and is cooperating fully in the Ponzi probe. The first meeting with the Secret Service occurred Friday, after agents showed up unannounced at his home, Allen said yesterday.

    In March, Renner accused Steven Keough, the former CEO of INetGlobal, of trying to extort $500,000 from the company. Keough may be the government’s star witness if charges are filed.

    “This is the same move they tried on Steve Keough,” Allen said this morning.  “I never tried to extort anything.”

  • No Stranger To Controversy, Donald Allen Says He Is Cooperating With Secret Service In INetGlobal Probe And Has ‘One Hell Of A Story’ To Tell

    Donald Allen

    UPDATED 6:08 P.M. ET (U.S.A. JAN. 20, 2011.)

    EDITOR’S NOTE: The story below includes an assertion by Donald Allen that his IBNN.org website was knocked offline Sunday by a company with ties to INetGlobal. Moments before the story was set for publication, the IBNN website returned. The story does not reflect this later event, and it is possible that the site is not viewable in all parts of the world owing to an apparent change in nameservers. Events surrounding the apparent change in nameservers are unclear.

    Acknowledging he had been advised that he potentially has “exposure” in the INetGlobal Ponzi scheme investigation, Donald Allen II said this morning that he had nothing to hide and would cooperate with the U.S. Secret Service and federal prosecutors “100 percent.”

    That cooperation already has begun, Allen said. He added that his thinking about INetGlobal has evolved since the Feb. 23 raid of company headquarters in Minneapolis, and he insisted he was out of the loop on INetGlobal’s financial affairs and that his efforts to promote the firm were legitimate.

    “Let me make it perfectly clear,” Allen said this morning. “I did the Global News Distribution and was never let in to the ‘workings’ of iNetGlobal. I met with the US Secret Service and [its] position is that I ‘shielded’ [Steve Renner] to operate a Ponzi, which is untrue.”

    Allen, a vice president with V-Newswire, an entity in the INetGlobal family controlled by Renner, claimed this morning that the company had blocked his access and the access of readers to a public-affairs Blog he operates. The Blog is known as the Independent Business News Network (IBNN).

    The company, Allen asserted, was penalizing him “for coming forward to answer ANY questions the Government has regarding iNetGlobal.”

    Renner has not been charged with a crime and has denied wrongdoing. The Secret Service said in court documents filed in February that “there is probable cause to believe that Renner is operating a large, Internet-based, Ponzi scheme through his umbrella corporation, InterMark, and some of its subsidiaries, particularly Virtual Payment Systems [LLC of Wisconsin/Brackets Denoting the LLC Designation added Jan. 20, 2011], V-Media, Cash Cards International, and V-Local.”

    NOTE IN BOLD ADDED JAN. 20, 2011: An Indianapolis-based company known as Virtual Payment Systems Inc. has contacted the PP Blog to let it know it is not affiliated with the Renner company Virtual Payment Systems LLC of Wisconsin, which is referenced in the paragraph above.

    The Secret Service alleged INetGlobal was the “primary vehicle for the perpetration of this fraud.”

    INetGlobal, which features an advertising rotator, is the so-called “autosurfing” platform of the Renner companies. The government has prosecuted several autosurf companies in recent years, saying they were selling investment programs disguised as advertising programs and engaging in wire fraud and money-laundering.

    Renner’s company has a high concentration of Chinese members who may have limited or no facility in English, the agency said. At least one INetGlobal member has said Americans flocked away from Renner’s autosurfing enterprise after the Secret Service, in August 2008, raided a similar company in Florida known as AdSurfDaily (ASD).

    The ASD litigation is referenced in court papers in the INetGlobal case.

    Allen said this morning that he also had performed work for V-Media and V-Local — both of which the Secret Service said had ties to the alleged INetGlobal fraud — but he insisted that he had done nothing wrong.

    “I wasn’t privileged to know anything about the compensation program” of InetGlobal, Allen said. “I could not explain it to this day.”

    An error message that reads “This Account Has Been Suspended: Please contact the V-Webs.com billing/support department as soon as possible” now appears on the IBNN site. In the early hours after Allen lost control of the Blog, the site would not return a ping and produced a “bad destination” error message, according to records.

    Even though Allen moved the content of the site from a hosting company controlled by Renner weeks ago, Renner controlled the domain registration and thus has the ability to block access, Allen asserted this morning.

    Allen’s access to the site was blocked sometime after “noon on Sunday,” two days after he met with the Secret Service, Allen said.

    Agents appeared at his home Friday unannounced, Allen said.

    He described his initial meeting with agents as “excellent.” Allen added that he is consulting with an attorney.

    “[The Secret Service] asked me if I would like legal representation,” Allen said. “I said yes.”

    A second meeting with the Secret Service occurred yesterday. Allen said he was consulting with his attorney again today, saying a characterization that described him as cooperating with the agency was “totally accurate.”

    The move to block IBNN also followed on the heels of a letter Allen gave to Renner April 22, Allen said. The letter claimed that Allen had “clear and documented” evidence of violations of the Federal Equal Employment Opportunity laws in a hiring decision it made.

    In the letter, Allen suggested he was not given an opportunity to interview for a job that went to an INetGlobal member with a large downline. The letter also questioned the operations of the company’s board of directors and claimed an INetGlobal “receptionist” was performing “confidential” work that should have been handled by the firm’s Human Resources department.

    Moreover, Allen said this morning that nothing in his employment contract with the Renner entity permitted the company to block access to the IBNN site. He claimed that the company now wants him to sign an agreement not to write about INetGlobal and also to inspect his computer.

    Allen Questions INetGlobal’s Operations

    Allen said this morning that he questioned how the company was paying its bills in the aftermath of the federal seizure of its assets. He claimed a member of INetGlobal with a Chinese name had received a promotion to a position that purportedly paid $120,000 a year after the seizure. This member, Allen said, also may have a seat on the board of directors and also purportedly had a downline organization in the company that purportedly paid $10,000 a day.

    His first question for Renner, Allen said, is “how is that possible with the current funds frozen by the US Government?”

    Allen said his position with the company was supposed to pay $75,000, but that he had not seen “a penny.”

    “I’m a little upset, a little traumatized by this attempt to shut me down, because I had one hell of a story,” Allen said. “I’m kind of devastated; I have a civil-rights Blog. A lot of people read it.”

    No Stranger To Controversy

    Allen and his IBNN Blog have been the subjects of controversy. He used an offshoot of the Blog to claim in March that “federal officials” were leaking information about the INetGlobal case to the PP Blog. After the PP Blog began to report on INetGlobal, Allen began to post comments on the PP Blog without initially identifying himself as a Renner employee, claiming that the PP Blog was “minor league” and engaging in a “witch hunt.”

    Separately, Allen used the IBNN Blog to attack the Star Tribune newspaper of Minneapolis St. Paul for its coverage of the INetGlobal raid. Meanwhile, Allen’s name is listed in the Secret Service affidavit filed in February to obtain search warrants at the firm’s headquarters. In the affidavit, the agency painted Allen as a person who provided confusing information to an INetGlobal prospect at a January event in Flushing, N.Y.

    Undercover agents attended the Flushing event, and one agent’s observations of Allen are noted in the affidavit.

    An INetGlobal prospect “stated she was struggling to understand how the business worked and explained that the person who brought her to the conference was not able to explain it either,” the agency said in the affidavit. “She asked what would happen if she sold iNetGlobal products to someone who had a website and they did not see an increase in their profits.

    “Donald Allen asked her what type of products the person was selling and the woman gave the example of beauty products,” the agency continued in the affidavit. “Donald Allen replied that if she was advertising beauty products and not selling any, then maybe she should be in a different business. The woman further challenged Donald Allen on people not truly viewing the websites, just simply opening them. Patricio Diez, iNetGlobal’s marketing director for Spanish-speaking countries, then stated that ‘that doesn’t matter for you.’

    “When the woman pressed further, stating that it does matter to whomever she sold the package to, Donald Allen simply stated ‘we have solutions for that’ but failed to expand upon those solutions,” the agency said.

    After the raid at INetGlobal’s offices in Minneapolis, Allen used the IBNN Blog to criticize both the media and the government for what he described as unfair treatment of the company — without disclosing his tie to the firm. Allen later told the PP Blog he should have disclosed the tie.

    Allen said this morning that his thinking about INetGlobal has evolved. He added that he also had revisited certain events at INetGlobal and had come to believe that things were not quite right.

    At an event in Las Vegas last year, for example, Allen was not given time to talk to attendees about V-Local, he said. In recent days he has publicly questioned why few if any members were interested in purchasing the company’s editorial products.

    “I can’t recall ever selling a press release to a Chinese member of iNetGlobal,” Allen said in a comment on the PP Blog April 23. “My yearly budget was in-part based on iNetGlobal members buying a press release from V-Newswire — hasn’t happened yet.”

    Meanwhile, Allen said this morning that he was sympathetic to Steven Keough, INetGlobal’s former chief executive officer and potentially the government’s star witness in the case. The company has claimed Keough tried to hatch an extortion plot after he was dismissed for incompetence.

    “Keough understood that INetGlobal members needed to buy the products,” Allen said this morning. “Steven Keough was the best thing that ever happened to that company,” adding that he believed Keough saw “noncompliance” with laws and was dismissed for pointing them out.

    See earlier story.

  • BULLETIN: Donald Allen Says He Will Cooperate With Secret Service In INetGlobal Probe; VP Of Renner Entity Claims Former CEO Was Maligned By Company After Raid

    BULLETIN: The vice president of marketing and public relations for V-Newswire — an entity in the Steve Renner family of companies — said he will cooperate “100 percent” with federal prosecutors in the INetGlobal Ponzi scheme investigation.

    Donald W.R. Allen II said this morning that he has met with the U.S. Secret Service twice in recent days. Allen added that he believed INetGlobal had maligned former company CEO Steven Keough in the days following a Feb. 23 raid at the company’s offices in Minneapolis.

    “I respect [Keough] highly,” Allen said. “Keough had the corporate skill . . . to make sure everything was in compliance,” but the company saw him as a “threat,” Allen said.

    Allen said this morning that he had an “excellent” meeting Friday with the Secret Service after agents showed up unannounced at his home.

    “I have nothing to hide,” Allen said. “I will cooperate 100 percent.”

    A full story will appear in a separate post later this morning . . .

  • NEWS/UPDATES: Feds Say $900 Million Nevin Shapiro Ponzi ‘Perfect Example Of Greed Run Amok’; Colorado Charges Bela Geczy, Michael Kass With Racketeering In Fraud Case

    The acts of Nevin Shapiro — a Florida man arrested in New Jersey yesterday on charges of orchestrating a $900 million Ponzi scheme — represent a “perfect example of greed run amok,” an FBI agent said.

    Separately, a grand jury in Colorado has charged two men under the state’s organized-crime statute with operating an $18 million securities-fraud scheme that affected at least 270 investors.

    Arrested in Colorado were Bela Geczy, 57, of Longmont, and Michael Brian Kass, 48, of Boulder. Authorities said they orchestrated a massive Ponzi scheme involving domestic and offshore business opportunities.

    The court docket in the cases against Geczy and Kass shows two dozen felony counts, including violations of the Colorado Organized Crime Control Act, conspiracy to commit securities fraud, securities fraud by fraud or deceit and securities fraud by untrue statement or omission.

    Like Florida, Minnesota, Washington, New York, South Carolina, California, Michigan and other states, Colorado has been plagued by Ponzi and fraud schemes. No fewer than five major Ponzi or financial fraud probes are under way in Colorado. Records suggest the highly complex frauds involved more than $100 million.

    In New York alone this week, two major financial-fraud cases were filed. The schemes involved in the neighborhood of $101.5 million, according to court filings. Meanwhile, U.S. Attorney Jenny A. Durkan of the Western District of Washington outlined five major Ponzi probes in various states of completion in the Greater Seattle area. These cases involve tens of millions of dollars, according to records.

    At the same time, the main page of the website of U.S. Attorney B. Todd Jones of the District of Minnesota features links to three major Ponzi cases in various stages of investigation. One of the cases is the Tom Petters’ Ponzi case. Petters was sentenced this month to 50 years in federal prison for presiding over a $3.65 billion fraud.

    Jones’ website also includes information on a Ponzi case involving at least $190 million. Trevor Cook pleaded guilty to mail fraud and tax evasion in the fraud earlier this month, and is awaiting sentencing. The website also includes information on the investigation into the business practices of Steve Renner in an alleged autosurf Ponzi scheme case involving tens of millions of dollars.

    Florida/New Jersey Cases Against Nevin Shapiro

    Shapiro, 41, was a prominent Miami Beach businessman. Authorities now say he was operating a Ponzi scheme since 2005 that rivaled the $1.2 billion Scott Rothstein scheme in dollar volume. Rothstein pleaded guilty in his massive fraud case earlier this year.

    Like Rothstein, Shapiro liked to chum around with sports figures and live large, according to records.

    Shapiro used “stolen funds to purchase a pair of diamond-studded handcuffs, which he gave as a gift to a prominent professional athlete,” prosecutors said. He also spent more than $400,000 for floor seats to watch the Miami Heat, a team in the NBA.

    At the same time, prosecutors said, he spent about $26,000 per month on mortgage payments on his $5.3 million residence in Miami Beach, while directing about $7,250 per month for payments on a $1.5 million dollar Riviera yacht and roughly $4,700 per month for the lease of a Mercedes-Benz.

    Viewed on a yearly basis, the payments on the residence, yacht and car alone consumed more than $450,000 — and yet Shapiro’s purported business produced no sales.

    A veteran FBI agent said the case was about naked greed.

    “This case is a perfect example of greed run amok,” said FBI Special Agent in Charge Michael B. Ward. “In pursuit of wealth and a lifestyle he was otherwise unable to attain, Mr. Shapiro allegedly preyed upon unsuspecting investors looking to secure a safe place to maximize their investments.  Instead, their futures have been irrevocably damaged.”

    Although purportedly in the business of buying groceries in a lower-priced market and selling them wholesale in markets in which they would fetch higher prices, Shapiro’s company largely was a mirage that conducted virtually no legitimate business after 2004 and sustained itself by paying investors with the money of other investors, prosecutors said.

    “Nevin Shapiro is charged with tricking investors with false documents and false promises,” said U.S. Attorney Paul J. Fishman of the District of New Jersey. “He spent tens of millions of their money on gambling debts, lavish gifts and a luxury lifestyle built on a house of cards.”

    Authorities gave credit for the Shapiro criminal collar and an accompanying civil action by the SEC to the combined investigative efforts of the Financial Fraud Enforcement Task Force. President Obama formed the Task Force in November 2009.

    Shapiro, prosecutors said, diverted at least $38 million in investors’ funds for his own use, and investors now are out tens of millions of dollars.

    A girlfriend received goods totaling $116,000 from a charge card, which Shapiro used to rack up $640,000 in personal purchases, according to court records.

    The IRS is part of the investigative team in the Shapiro case.

    “Scammers, con artists and swindlers will do and say anything to get you to buy into their scheme,” stated William P. Offord, Special Agent in Charge, IRS-Criminal Investigation.

    Like his investigative colleagues in other Ponzi cases, Offord reuttered the age-old adage:

    “Remember the old cliche,” he said.  “If it’s too good to be true, it probably is.’”

  • Federal Judge Delays Ruling In INetGlobal Case, Saying Attorney May Be ‘Primary Fact Witness’; Sends Case Back To Magistrate Judge

    UPDATED 8:29 A.M. EDT (APRIL 18, U.S.A.) Despite Internet and email claims yesterday and today by supporters of INetGlobal that the company had won a key battle with prosecutors, that the case was “over” and that news about the litigation engulfing the company “is better than anything we expected,” an order and memorandum by a federal judge suggests that celebrations could be premature.

    U.S. District Judge Donovan W. Frank yesterday sent the case back to Magistrate Judge Franklin L. Noel for the “limited” purpose of “maintaining the status quo” while clarifying elements of the case and seeing if there was a way to forge a settlement of at least some of the issues. (See subhead below.)

    As things stand, Frank said, certain issues on which INetGlobal owner Steve Renner and his affiliated companies are awaiting rulings “could be rendered moot” if Renner is “indicted or otherwise charged with one or more criminal offenses.”

    Renner has asked the court to return about $26 million and business records seized by the U.S. Secret Service in a Ponzi scheme, wire-fraud and money-laundering probe. Renner also wants Frank to conduct an evidentiary hearing.

    For its part, the prosecution has said it opposes Renner’s requests because a “major fraud and money laundering investigation is under way bearing serious criminal consequences” and because Renner’s filings were a “thinly veiled attempt to force the government to reveal facts relating to an on-going criminal investigation.”

    The money is “evidence,” and its release would mean “the money will be spent, and will be unavailable for future return to victims” should the government prevail, prosecutors said.

    In his memo, Frank said he was not prepared yesterday to rule on critical issues, given the procedural history of the case and recent filings by both the INetGlobal side and the prosecution.

    “Inter-Mark Corporation and its subsidiaries, without notice to the Court, filed a notice joining in the motion of Steven Renner,” Frank said. “That motion was filed by Mark J. Kallenbach, who is now the subject of a motion to be disqualified by the United States, given his 20-page, 81-paragraph affidavit filed on behalf of Steven Renner . . .”

    Prosecutors filed a motion 10 days ago that asked Frank to disqualify Kallenbach as an attorney for INetGlobal and related companies, saying Kallenbach had “made himself a necessary witness” by conducting an “investigation” and filing an affidavit prior to entering his notice of appearance as INetGlobal’s attorney.

    Kallenbach was trying to be both an attorney and a witness in the same case, prosecutors claimed.

    Jon Hopeman, an attorney for Renner, disputed the government’s contention about Kallenbach earlier this week, and Kallenbach joined in the brief.

    Although Frank delayed ruling on the issue, the order and memorandum he issued yesterday spoke to the dispute.

    “The Court reserves the right, pending receipt of Magistrate Judge Noel’s report, to rule on the motion of the United States to disqualify attorney Mark J. Kallenbach, although the Court would observe that, given the 20-page, 81-paragraph affidavit submitted on behalf of Steven Renner, it would appear that attorney Kallenbach is a primary fact witness in the above-entitled matter, absent stipulation of the parties.”

    A “fact witness,” according to the Federal Judicial Center, the education and research agency for the federal courts, is “a person with knowledge about what happened in a particular case who testifies in the case about what happened or what the facts are.”

    The order and memorandum may signal that, based on the current record of the case, Frank may be inclined to view Kallenbach as a witness subject to both cross examination by the prosecution and direct examination by the Renner/INetGlobal side.

    Judge Frank Orders Parties To Schedule Conference With Magistrate Judge Noel

    Frank ordered both sides to schedule a settlement conference with Magistrate Judge Noel. The order does not mean the case is “over” or that either side has won or lost.

    The conference will be “limited in scope,” Frank ordered.

    Among the issues to be determined (note: these are verbatim, from Frank’s order):

    • “The amount of money necessary to provide wages and health insurance coverage to the current employees maintaining a portion or portions of the business of Inter-Mark Corporation and its subsidiaries.”
    • “The amount of money presently being held by the Court, if any, in the event the parties agree that it is necessary to continue aspects of Inter-Mark Corporation, and its subsidiaries, pending resolution of the motion before the Court, pending completion of the investigation, be it civil or criminal, or both, by the United States.”
    • “Items seized by the United States by means of a search warrant, including, but not limited to, computers and other property necessary to the operation of the business.”
    • “Discussion of any items alleged to be attorney-client privileged items seized by the Government pursuant to the search warrants executed at Steven Renner’s companies on or about February 23, 2010, and thereafter.”

    Frank said the conference with Noel, absent an agreement by the parties, “shall be limited to maintaining the status quo, on a limited basis, pending the Court granting or denying an evidentiary hearing.”

    “The focus of the Status-Settlement Conference before Magistrate Judge Noel, absent agreement of the parties to broaden the scope and focus of the conference, will be the return of some portion of the money so that Steven Renner and the associated business entities can maintain the status quo of their business, including the maintenance of a skeletal crew of employees and the insurance for those employees,” Frank said.

    “The Court has conferred with Magistrate Judge Noel with respect to the purpose and limited scope of the conference,” Frank said.

    He added that he may defer ruling on Renner’s motion for an evidentiary hearing until after the settlement conference is conducted and the court had received Noel’s report on the status of the case.

    And Frank said the court “reserves the right, pending receipt of Magistrate Judge Noel’s
    report, to rule on the motion of the United States to disqualify attorney Mark J. Kallenbach, although the Court would observe that, given the 20-page, 81-paragraph affidavit submitted on behalf of Steven Renner, it would appear that attorney Kallenbach is a primary fact witness in the above-entitled matter, absent stipulation of the parties.”

    Spinning It As An INetGlobal ‘Win’

    As was the case in the AdSurfDaily autosurf Ponzi prosecution, some INetGlobal members are reporting to downline members that the prosecution’s case may be in the process of disintegrating.

    Despite the frequent claims in the ASD case, a federal judge went on to issue three orders of forfeiture totaling more than $80 million, handing ASD one shattering loss after another.

    One INetGlobal member sent an email to downline members yesterday that claimed “the indication is that we may have a huge win,” a member of his downline said.

    This email from the member was followed by another one with a five-exclamation point headline titled “Major News !!!!!”

    “The Judge has ordered a ‘Status Settlement Conference’ between both parties,” the sender advised members of his INetGlobal downline. “This news is better than anything we expected.

    “We thought a hearing would be set for 30 days plus from now and release of some money,” the sender continued. “This was to be a ‘evidential (sic) hearing’ to present a full days (sic) evidence about our business and hear from the Federal authorities on their side.

    “Also we were looking for some funds to be release (sic) for general operations of the business,” the sender wrote. “But today’s ruling is an acknowledgment of the facts of the case that this (sic) not at (sic) clear ‘Ponzi’ business and which therefore would apply to the Federal ‘Forfeiture Laws.’

    “This may lead to a negotiated deal with the government,” the sender wrote. “Also in the meantime we are much likely (sic) to get operational sooner than we ever thought.”

    Contrary to the email claim, nothing in Frank’s order and memorandum suggested that any of the facts of the case had been determined. Moreover, no “acknowledgment” was made by the judge or the government that INetGlobal was not operating as a Ponzi scheme. The judge has issued no orders pertaining to forfeiture because the government — as the record of the case stood yesterday — had filed neither a criminal nor a civil action against Renner or INetGlobal-connected assets that seeks forfeiture of property.

    The sender conceded that “my details and interpretation could be off,” according to the email, parts of which were republished on the Internet.

    It is indeed true that Frank referenced a Status-Settlement Conference, but the email sent by the INetGlobal member did not outline any details of the conference, including the fact it had been scheduled for a limited purpose.

    At the same time, the email made no reference to the fact that Frank said the case could take another turn and render some of the current issues moot if the government proceeds with an indictment.

    On April 2, the prosecution described the case as a “major fraud and money laundering investigation,” noting that the IRS had joined the U.S. Secret Service in the probe.

    A separate claim by an apparent INetGlobal supporter that the case was “over” was published today in the comments section of the Hospitalera Blog.

    “Inetglobal case is over!” the comment read in part. The commentator described the information as a claim made by his upline.

    “At the end of this afternoon, court has not received further evidence from government to accuse Inetglobal of Ponzy (sic) Scam in the period of time,” the comment read in part. “Judge made decision that the case could not be established. The written document from court will be released on Monday.”

    Frank made no such decision that a “case could not be established.”

    The Hospitalera Blog said in February that it had been targeted in a lawsuit for calling INetGlobal a “scam” in Sepember 2009. Some INetGlobal members have attacked the Blog for its point of view on INetGlobal.

  • INetGlobal Disputes Government Assertion That Attorney Should Be Disqualified From Case; Says Lawyer Not ‘Necessary Witness’

    Attorney Mark Kallenbach should remain as counsel for INetGlobal because he is not a “necessary witness” as the prosecution claimed last week, an attorney for INetGlobal owner Steve Renner said today.

    Prosecutors moved last week to have Kallenbach disqualified, arguing that he was attempting to be both a lawyer and a witness in the Ponzi scheme case because he had filed an affidavit that outlined what he described as his “investigation” into INetGlobal’s business practices.

    Kallenbach did not enter his notice of appearance as INetGlobal’s attorney until April 5 — 11 calendar days after he filed the affidavit, prosecutors said. They asserted he was attempting to wear two hats in the case, arguing that Kallenbach’s court filings might create a conflict with the Minnesota Rules of Professional Responsibility, a local rule of U.S. District Court in Minnesota and the “Court’s inherent supervisory authority over its bar.”

    Not so, said Renner attorney Jon Hopeman.

    “Mr. Kallenbach is not a necessary witness as required for disqualification by Minnesota Rule of Professional Conduct 3.7,” Hopeman said in a brief today.

    The filing of the affidavit by Kallenbach does not not “give rise to a claim for disqualification, because the Affidavit did not waive the attorney-client privilege,” Hopeman said. “Rather, the Affidavit presents unprivileged facts, and information contained in non-privileged documents or available on public web sites. Nowhere does the Affidavit disclose any attorney-client communication. Further, the Affidavit s disclosure of facts which, of course, are not in themselves privileged, does not waive the attorney-client privilege.”

    Kallenbach’s affidavit, Hopeman said, “presents facts that can be proven in other ways, including through other witnesses, by the introduction of documents, or by reference to publicly available information.

    Hopeman urged the Court to be “mindful of potential for misuse when the Government seeks to classify an attorney as a necessary witness as a crippling litigation strategy.”

    He argued that the government “has not shown the disclosure of any attorney-client communication, and has not come close to meeting its burden of showing a waiver
    of the attorney-client privilege.”

    Kallenbach joined Hopeman in today’s brief.

    Attorney-client privilege also may be an issue in the AdSurfDaily autosurf Ponzi scheme case. In an appeals brief, ASD President Andy Bowdoin, through counsel, referenced two cases filed “under seal.”

    Bowdoin’s brief suggests that prosecutors subpoenaed at least two attorneys involved in the defense of ASD’s assets to appear at a grand-jury proceeding — and that a federal judge ordered the attorneys to appear.

    See story on prosecutors’ motion to disqualify Kallenbach.

  • 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).