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Tag: Texas Ponzi schemes

  • RECOMMENDED READING: Jordan Maglich In Forbes On Green-Lighting Of SEC Lawsuit In Alleged Ponzi Scheme Involving Bitcoin — And Why Zeekers Should Pay Attention

    recommendedreading1A federal judge in Texas has ruled that investments in the alleged Bitcoin Savings and Trust HYIP Ponzi scheme met all three prongs of the Howey Test and constituted an “investment contract” under federal securities laws.

    The ruling by U.S. Magistrate Judge Amos L. Mazzant of the Eastern District of Texas means that a lawsuit filed last month by the SEC against Trendon T. Shavers of McKinney will proceed. Shavers challenged the jurisdiction of the court, asserting that BTCST investments were not securities because Bitcoin is not money and is not part of anything regulated by the United States. He further contended that his transactions were were all Bitcoin transactions and that no money ever exchanged hands.

    For its part, the SEC argued that the BTCST offerings were both investment contracts and notes, and, thus, securities. Among other things, the SEC alleged that Shavers promised investors up to 7 percent weekly interest based on BTCST’s Bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy Bitcoin ‘off the radar’ in quick fashion or large quantities.  In reality, BTCST was a sham and a Ponzi scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments.”

    Read Maglich’s dissection of the ruling and the ramifications at Forbes.

  • BULLETIN: SEC: Now, A Bitcoin Ponzi Scheme Operated By Trendon T. Shavers — AKA ‘Pirate’ And ‘pirateat40’

    breakingnews72BULLETIN: The SEC has gone to federal court in the Eastern District of Texas, charging Trendon T. Shavers of McKinney in an alleged Bitcoin Ponzi scheme that gathered more than $4.5 million before collapsing in August 2012.

    Bitcoins are a digital currency that has “no single administrator, or central authority or repository,” the SEC said.

    Investors with at least 50 bitcoins were told that they’d receive “up to 1% interest daily,” the SEC charged, alleging that Shavers used the moniker “pirateat40” at an online forum to pitch the scheme.

    The “program” operated through an unincorporated entity known as BTCST, formerly known as First Pirate Savings & Trust, the SEC said.

    “Ponzi scheme operators often claim to have a tie to a new and emerging technology as a lure to potential victims,” said Lori J. Schock, director of the SEC’s Office of Investor Education and Advocacy.  “Investors should understand that regardless of the type of investment, a promise of high returns with little or no risk is a classic warning sign of fraud.”

    Shavers is 30, the SEC said. The agency did not reveal when its investigation began or how it determined the online identities of Shavers.

    From a statement today by the SEC (italics added):

    The SEC alleges that Shavers promised investors up to 7 percent weekly interest based on BTCST’s Bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy Bitcoin “off the radar” in quick fashion or large quantities.  In reality, BTCST was a sham and a Ponzi scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments.  Shavers also diverted investors’ Bitcoin for day trading in his account on a Bitcoin currency exchange, and exchanged investors’ Bitcoin for U.S. dollars to pay his personal expenses.

    And from an Investor Alert issued today by the SEC (italics added):

    Virtual currencies, such as Bitcoin, have recently become popular and are intended to serve as a type of money. They may be traded on online exchanges for conventional currencies, including the U.S. dollar, or used to purchase goods or services, usually online.

    We are concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes in which these currencies are used to facilitate fraudulent, or simply fabricated, investments or transactions. The fraud may also involve an unregistered offering or trading platform.

    These schemes often promise high returns for getting in on the ground floor of a growing Internet phenomenon. Fraudsters may also be attracted to using virtual currencies to perpetrate their frauds because transactions in virtual currencies supposedly have greater privacy benefits and less regulatory oversight than transactions in conventional currencies. Any investment in securities in the United States remains subject to the jurisdiction of the SEC regardless of whether the investment is made in U.S. dollars or a virtual currency. In particular, individuals selling investments are typically subject to federal or state licensing requirements.

    Prior to the collapse of the scheme, Shavers denied to forum questioners he was operating a Ponzi. Along the way, however, he slashed the purported payout from 7 percent a week to 3.9 percent a week and changed the rules about who could invest, the SEC said.

    As the scheme was collapsing, the SEC charged, “Shavers made preferential redemptions to friends and longtime BTCST investors.”

    The scheme began “at least” by September 2011, the SEC said.

  • 76-Year-Old Texas Scammer Who Ran Ponzi Scheme While Awaiting Trial In Earlier Fraud Case Sentenced To 10 Years In Federal Prison

    First, Robert Hague-Rogers, 76, of Frisco, Texas, stole funds from pension plans, prosecutors said.

    Hague-Rogers operated Dallas-based HR Financial Services and HR Sales and Marketing, both of which were in the insurance business, prosecutors said. In February 2011, he was indicted on charges of directing “money transfers and cash withdrawals from and between himself and the benefit plan for his and his family’s personal benefit,” prosecutors said.

    He also “directed the preparation of documents purportedly legitimizing the transfers of such funds,” prosecutors said.

    While Hague-Rogers was on pretrial release two months after his indictment, investigators discovered he had hatched a Ponzi scheme in which “unauthorized loans” were taken against employer-sponsored health plans, prosecutors said.

    The money in the follow-up scam was used “to repay investors holding promissory notes with interest as high as 15%,” prosecutors said.  “[Hague-Rogers] would then move funds between the various plans and investors’ accounts, while paying himself and his family for personal expenses such as mortgages, life insurance policies and property taxes.”

    By April 18, 2011, the government had gained an asset freeze against Hague-Rogers. Three months later — in July 2011 — a federal grand jury returned a superseding indictment that charged him with wire fraud and healthcare fraud. In April 2012, he pleaded guilty to one count of conspiracy to commit theft or embezzlement from an employee benefit plan and one count of conspiracy to commit healthcare fraud, prosecutors said.

    U.S. District Judge Sam A. Lindsay now has sentenced Hague-Rogers to 10 years in federal prison and to forfeit more than $9.3 million.

    “I hope that this sentencing sends a clear message to all who hold an office of trust, or operate or administer employee benefit plans, that the Department of Labor is committed to vigorously pursuing those who abuse their positions and use trust funds for personal gain,” said Mark Alder, director of the Employee Benefits Security Administration’s Dallas Regional Office.

    The criminal case was brought by prosecutors in the office of U.S. Attorney Sarah R. Saldaña of the Northern District of Texas.

    “This sentence should serve as an example of the consequences one will pay when people abuse the trust that has been placed in them and embezzle funds entrusted to their care,” said Saldaña.

     

  • PONZI NOTES: (1) Kansas Lawyer Allegedly Ran Scheme Out Of Trust Accounts And Scammed Intended Beneficiaries, Including Clients’ Children And Grandchildren And Prominent University, Feds Say; (2) Former Texas Attorney Pleads Guilty In $7.8 Million Caper

    Yesterday was another bad day for the legal profession’s noble members: They once again had to bear headlines about fraud schemes allegedly operated by colleagues past and present.

    In Kansas, attorney Robert M. Telthorst, 52, of Topeka, was charged with wire fraud and money-laundering amid allegations he ran a Ponzi scheme for all or parts of seven years with clients’ trust accounts.

    After a man identified in court documents as “Otto K.” died, Telhorst was appointed to administer payments to two of the man’s daughters and entrusted with $463,344, prosecutors said.

    One of the daughters was to receive a lump sum, the other a monthly allotment, prosecutors said.

    In the trust for the daughter who was to receive monthly income, “the balance dropped from more than $208,500 to less than $150 after Telthorst removed most of the funds for his own benefit,” prosecutors said.

    Separately, Telthorst scammed three granddaughters of a client by raiding their educational trusts that had been set up with $10,000 each.

    “He depleted all three trusts, leaving them each with balances of less than $350,” the office of U.S. Attorney Barry Grissom of the District of Kansas said.

    Beyond that, two other clients had set up an $80,000 trust to benefit the Business School at the University of Kansas.

    “The balance in the account dropped to less than $1,750 after Telthorst diverted funds to his own benefit,” prosecutors said.

    Assisting in the Telthorst probe were the the FBI and the Shawnee County District Attorney’s Office, prosecutors said.

    Meanwhile, former attorney Billy Frank Davis of Houston pleaded guilty to wire fraud in a case that alleged he held himself out as a real-estate professional for 10 years but actually was running a Ponzi scheme with “a substantial portion of the funds he solicited.”

    “Davis admitted to using a variety of ploys to perpetuate his Ponzi scheme, all of which involved falsely representing to investors the existence or nature of various real estate investment opportunities, accepting funds from investors under such false pretenses, and then using the investor funds in a manner other than as represented to investors,” the office of U.S. Attorney Ken Magidson of the Southern District of Texas said.

    Davis, also known as Bill F. Davis, is 67. The scheme fetched $7.8 million, prosecutors said.

    Sentencing is scheduled for Jan. 11 before U.S. District Judge David Hittner. Davis faces up to 20 years in federal prison, and the FBI led the probe, prosecutors said.