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Tag: Tom Petters

  • RIPPLING NIGHTMARE: Has TelexFree Been Dwarfed By Another MLM Ponzi Scheme? Better Living Global Marketing Reportedly Says It Has Taken In $3.3 BILLION — And Is Experiencing ‘Cash Flow Problem’

    ponzinews1EDITOR’S NOTE: In a story dated today, BehindMLM.com has broken down claims made in a recent video in which Better-Living Global Marketing (BLGM) figure Luke Teng appears. The potential criminality at BLGM, purportedly based in Hong Kong, not only is alarming, it is stunning. Even more disconcerting is the level of disconnect surrounding the scheme, which had a Zeek Rewards-like business model and purportedly was in the penny-auction business . . .

    Hang on to your hats! There could be an active MLM HYIP Ponzi scheme that is even larger than TelexFree, which allegedly reached across national borders to take in $1.2 billion before collapsing in April 2014.  The alleged TelexFree sum would rival the epic Scott Rothstein Ponzi and racketeering scheme in Florida and potentially would make TelexFree the fifth largest Ponzi scheme of all time, regardless of the Ponzi business model used. (Like the shrimp delicacies memorably recounted by “Bubba Blue” in the movie “Forrest Gump,” Ponzi schemes come in many forms.)

    In 2012, prior to the actions against TelexFree by various law-enforcement agencies, PonziTracker.com rated Rothstein’s caper as the 4th largest of all time in terms of investor losses, estimated at $1.4 billion. Only the Bernard Madoff (est. $17.3 billion), Allen Stanford (between $4.5 billion and $6 billion) and Tom Petters schemes (est. $3.7 billion) were larger.

    BehindMLM.com is reporting today that BLGM’s Luke Teng claims to have set a “world record” for intake in his particular sphere of MLM.

    If the claim attributed to Teng is correct — that BLGM has taken in $3.3 billion — it could blow both Rothstein and TelexFree out of the water and put BLGM in the same Ponzi seas as Tom Petters and his $3.7 billion scheme. Put another way, BLGM could be the fourth-largest Ponzi scheme of all time, regardless of form.)

    If an online Ponzi scheme operating across national borders (including the borders of the United States) can put $3.3 billion on the table in two or so years of operation and creep up on Petters, are we on the cusp of the once unthinkable? Could MLM HYIP schemes rival or even eclipse Stanford and Madoff?

    At $1.2 billion, TelexFree already has created a litigation quagmire that rivals the quagmires surrounding the Madoff, Stanford, Petters and Rothstein schemes. BLGM could go the same way. Both BLGM and TelexFree even could eclipse the Top 4 in terms of litigation and logistical nightmares, because millions of victims from dozens and dozens of nations are apt to exist. That condition was not present in the Madoff, Stanford, Petters and Rothstein schemes.

    Zeek Rewards — the sixth-largest Ponzi scheme in history, according to the 2012 PonziTracker list — created a litigation monster that could be surpassed by both BLGM and TelexFree.

    And yet willfully blind MLM hucksters and serial scammers still are pushing cross-border fraud schemes. The numbers alone show that the world never has seen such felonious self-indulgence at the street level of dealers:

    • Zeek. Collapsed in 2012 after less than two years of operation. Victims: 800,000 to 1 million (est.). Dollar volume: $897 million. Source for dollar volume: U.S. court filings.
    • TelexFree. Collapsed in April 2014 after operating for a little better than two years. Victims: 700,000 to 1.5 million (est.). Dollar volume: $1.2 billion. Source: TelexFree figures cited in Massachusetts Securities Division action in April 2014.
    • BLGM: Operational, but reportedly experiencing cash-flow problem and not paying out or making selective payouts. Victims: Unknown number, but may rival Zeek and TelexFree. Dollar volume: $3.3 billion. Source: Luke Teng video cited by BehindMLM.com.

    A Rippling Nightmare

    The numbers are hardly the sole concern. As Behind MLM.com reported today, citing remarks made by Luke Teng in the BLGM video (italics added):

    [8:13] Some leaders are still making good money. Because the leaders are taking cash from the new members and they use it to give them ecash.

    So, that’s still a way for you to make money.

    Our take: If true, this is beyond horrifying. It is alleged TelexFree created conditions that permitted members to transact business outside of the system, and some members even may have created an exceptionally dangerous black market for TelexFree’s earning units, which were known as “AdCentrals.”

    As the PP Blog reported on March 24, 2014, an ad offering TelexFree AdCentrals at a firesale price appeared on an auction site. Viewers were encouraged to buy a bundle of 550 AdCentrals for $16,760. The asking price purportedly reflected a discount of $8,190 (33 percent), and the purchaser purportedly would earn $110,000 from TelexFree in the next year.

    The situation in both TelexFree and BLGM is reminiscent of the truly disturbing Evolution Market Group/FinanzasForex scheme described in 2010 by federal prosecutors in the Middle District of Florida.

    As the PP Blog reported at the time (italics added):

    . . . there were schemes within schemes in a tangled web of domestic and international deception that featured dozens of bank accounts, shell companies and various fronts for money-laundering enterprises, including companies purportedly in businesses such as real estate and car washes.

    The scheme was so corrupt, according to court filings, that some investors were told that, in order to leave the program whole, they had to recruit new investors, have the new investors pay them directly — and use the proceeds from the new investors to “recover” their initial outlays.

    In short, if you wanted to recover your EMG/Finanzas money, you had to steal your way out of the “program” by gathering new cash from incoming recruits and keeping it.

    Some of the money in the EMG/FinanzasForex case allegedly was tracked to the narcotics trade.

    Based on the BehindMLM.com report, it also appears that BLGM may be trying work a second form of Ponzi fraud into its existing scheme. This would appear to involve an adverting rotator of some sort, something consistent with the AdSurfDaily MLM Ponzi scheme in 2008. In 2012, while sharing promoters in common with Zeek, a “program” known as JSSTripler/JustBeenPaid appeared to be trying to transition from a straight-line HYIP fraud into a fraud named “ProfitClicking” that would introduce an “advertising” function. Part or all of the earlier JSS/JBP fraud appears later to have morphed into something called “ClickPaid.”

    So, in some ways, BLGM could be modeling ASD, JSS/JBP and other reload schemes to sustain its Ponzi deception.

    Teng also may be channeling a notable delusion of now-jailed ASD Ponzi schemer Andy Bowdoin.

    Indeed, according to the BehindMLM.com report, Teng is suggesting he may start his own bank.

    Before Bowdoin was arrested in 2010, he claimed ASD was looking at acquiring an interest in a bank in South America and creating its own payment processor.

    BLGM appears to have gained a head of steam in part from cash-gifting schemers in a “program” called “BlessingGoldClub” and also from former enthusiasts of the Zeek and Profitable Sunrise fraud schemes.

  • ‘American Greed’ Producing Episode On Trevor Cook Ponzi Fraud; Seniors, People Of Faith Fleeced By Cook And His Pitchmen

    Trevor Cook
    Trevor Cook

    CNBC’s “American Greed” will be in Minneapolis today to begin filming an episode on the massive Trevor Cook Ponzi scheme that was targeted at senior citizens and conservative Christians and rendered some victims penniless, a source told the PP Blog.

    Cook’s scheme gathered about $194 million. It collapsed in 2009. Money that potentially could go to victims is still missing. The scheme was reminiscent of the AdSurfDaily Ponzi case in that it took various bizarre and disturbing turns.

    Earlier this month, Cook pitchman Jason Bo-Alan Beckman was sentenced to 30 years in federal prison. Gerald Durand received 20 years. Christopher Pettengill, who cooperated with prosecutors, received a 90-month sentence. Sentencing for Pat Kiley, a conspiracy theorist and former radio host in his seventies, was put on hold, pending the results of medical and psychological exams.

    Cook, the ringleader, received a 25-year sentence in 2010.

    For what the Cook fraud lacked in dollar volume — indeed, it was significantly smaller than Tom Petters’ epic Ponzi fraud in Minnesota — it more than made up for in pure brazenness. Beckman essentially was accused of taunting victims in his court filings after stealing millions from a senior-citizen couple in their late eighties. Durand told a tale about a submersible submarine Cook allegedly bought on eBay for the waters of Canada before moving it to Panama, where Cook purportedly found the conditions to be more sub-friendly.

    Kiley once tried to have a CFTC lawyer fined $1,000 for filing court papers Kiley deemed “offensive.”

    The Cook scheme also had something in common with AdViewGlobal, the collapsed 1-percent-a-day autosurf linked to the AdSurfDaily Ponzi scheme: a tie to offshore facilitator KINGZ Capital Management Corp.

    AdViewGlobal announced its purported tie to KINGZ on May 4, 2009, the same day the Obama administration announced a crackdown on offshore fraud. KINGZ denied any tie to AVG. But the National Futures Association (NFA) established a tie between KINGZ and Cook.

    AdViewGlobal collapsed during the summer of 2009, amid reports that millions of dollars had been stolen. The purported “opportunity” bizarrely declared itself a “private association” operating in Uruguay, apparently in a bid to evade U.S. regulatory scrutiny even though it was conducting business in the United States. Federal prosecutors tied ASD President Andy Bowdoin to AdViewGlobal in 2012. Bowdoin, now serving a 78-month prison sentence, once claimed that prosecutors were “Satan” and compared the U.S. Secret Service to the 9/11 terrorists. His scheme gathered at least $119 million.

    Prosecutors have evidence that suggests at least some of the AdViewGlobal money was deposited in Switzerland. The Cook Ponzi also did business in Switzerland.

    There also is a tie between Trevor Cook and Peregrine Financial Group Inc., the collapsed fraud scheme of Russell R. Wasendorf Sr., now facing up to 50 years in federal prison. Wasendorf once was a member of NFA’s Futures Commission Merchant Advisory Committee

    Peregrine consumed at least $215 million and conducted a scam for two decades, prosecutors said. “[I]n order for the fraud to be effective and sustainable for years, defendant routinely created and used false certifications and forged documents to deceive his customers, his accounting department, his fellow corporate officers, an outside auditor, and multiple regulatory agencies whose core function was to detect and prevent exactly the type of criminal activity defendant perpetrated,” prosecutors said of Wasendorf.

  • Prosecution Asks Court To Impose Life Sentence On Jason Bo-Alan Beckman, Pitchman For Trevor Cook Ponzi Scheme; Beckman Says He Should Serve 364 Days And Then Become A Professional Speaker

    “The nature and circumstances of this offense and Mr. Beckman’s history and characteristics, viewed together, cry out for a life sentence. With respect to Mr. Beckman, nothing less than a liberty-ending sentence would reflect the seriousness of this offense, promote respect for the law and provide just punishment. But perhaps most importantly, Mr. Beckman must be locked up for the rest of his life because he is a very dangerous individual who is certain to hurt people if he is ever released.” — From prosecution sentencing memo for convicted swindler Jason Bo-Alan Beckman, a pitchman of the Trevor Cook Ponzi scheme, Dec. 11, 2012

    EDITOR’S NOTE: The $194 million Trevor Cook Ponzi scheme is believed to be the second-largest scam of its sort in Minnesota history, trailing only Tom Petters’ epic, $3.65 billion caper. Cook was sentenced to 25 years. Prosecutors in the office of U.S. Attorney B. Todd Jones now are asking a federal judge to sentence convicted Cook pitchman Jason Bo-Alan Beckman to life in prison — or 411 years. In essence, prosecutors are arguing that Beckman was even worse than Cook, a reprobate drunkard who spent victims’ money on booze, strippers and an enormous mansion, and that Beckman piled on crimes targeted at elderly victims even as he helped Cook steal people into poverty.

    ** _____________________________________ **

    UPDATED 5:20 P.M. ET (U.S.A.) The Trevor Cook Ponzi scheme targeted at senior citizens and conservative Christians never has received the national media attention it deserves. But the Cook case is back in the news today.

    Man, is it ever . . .

    For starters, it became public yesterday that convicted Cook pitchman Jason Bo-Alan Beckman apparently believes he should spend only 364 days in prison “followed by three years of probation requiring 2000 community service hours.”

    While on probation and performing his community service, Beckman contended, he would “devote” himself “to speaking to financial firms and investors about what to do and what not to do.”

    And as an extra carrot for a lenient sentence, “Beckman would arrange for the immediate delivery of a check for $19,000,000 for payment to victims.”

    The Star Tribune of Minneapolis/St. Paul broke the news this morning about Beckman’s apparent belief he could make multiple felony convictions go away with a wrist slap, by using his checkbook as a lure to victims and by turning himself into a professional speaker on the subject of avoiding the perils of intercontinental financial crime.

    One victim who contacted the PP Blog today questioned whether Beckman was having a pipe dream about having $19 million. A court-appointed receiver has been policing up money from the scheme since 2009. Since becoming implicated in the Cook scheme, Beckman has become known for offering up bizarre constructions.

    He “had the temerity to testify that the money he stole from” an elderly couple “constituted his ‘earnings,’” prosecutors said yesterday. And he also divined a construction by which he was the “top ranked” portfolio manager in the United States “based on a Morningstar comparative study,” they asserted.

    To say the prosecution wasn’t impressed by Beckman’s opinion on how justice might best be served perhaps is the greatest understatement in the history of Ponzi-scheme prosecutions worldwide.

    Beckman, 42, deserves life in prison — or, as a technical matter 4,932 months or 411 years, according to prosecutors.

    “Mr. Beckman is a man with no semblance of a conscience who exudes in his conduct and affairs a sense of great entitlement,” prosecutors argued. “Entitlement to make untrue, grandiose claims about himself. Entitlement to groom the trust of vulnerable persons and then to violate that trust. Entitlement to steal his victims’ money and to use it for luxury items for himself. Entitlement to misuse professionals to cloak his schemes with a skein of legitimacy. Entitlement, when caught, to lie to everybody – the press, his victims, hired attorneys, and this Court – doggedly and repeatedly, about what he knew and when he knew it. To all that appears, Mr. Beckman’s entire life has been deeply suffused with sociopathy. In Mr. Beckman’s mind, the rules simply do not apply to him.”

    In 2011, the SEC memorably described Beckman as guilty of “contumacious disobedience” for his manipulation of victims and the courts. The SEC made the claim after criminal prosecutors asserted that Beckman stole millions of dollars from an elderly husband and wife now in their nineties and tried to make it appear as though the wife — a stroke victim with “hemispheric paralysis” — had become his business partner.

    Beckman sold two life-insurance policies on the woman’s “then 92-year old husband” for about $3.9 million, and then converted “the proceeds of that sale for his own benefit,” prosecutors alleged last year.

    As a companion fraud scheme that flowed from Beckman’s role in the Cook Ponzi, Beckman tried to dupe the National Hockey League in a deal that would make him a part owner of the Minnesota Wild, prosecutors said.

    And even as he was stealing from people now in their nineties and confined to a nursing home while trying to run a scam on the NHL and his own attorneys, Beckman “almost completely wiped out the Arthur W. Quiggle [Family] Trust,” prosecutors said.

    “In 2007, without authorization, he sold $3.4 million of its low-basis, high-dividend paying stock, funneling the proceeds to the currency program,” prosecutors said. “This triggered enormous capital gains within the trust and wiped out most of the trust’s dividend income, which defeated the trust’s purpose of providing income to the Quiggle family. Then, in July of 2008, just weeks after several attorneys warned Mr. Beckman that the currency program was illegal and a likely Ponzi scheme, Mr. Beckman caused the trust to borrow $3.7 million against its remaining marketable stocks and stole all of it. Again, much of it ended up paying off huge deficits incurred in Mr. Beckman’s name at various trading houses to buoy his chances of becoming an owner of the Wild.”

    Beckman is scheduled to be sentenced Jan. 3.

     

  • Georgia Fraud Case Had ASD-Like Elements; Woman Sentenced To 60 Years For Scheme; Cynthia O’Tyson Was Recidivist Offender; TV Camera Captures Sentencing

    Andy and Faye Bowdoin posed for a picture with a Gadsden County (Fla.) Chamber of Commerce official in 2008. Andy Bowdoin later was accused of operating a massive Ponzi scheme. In a separate case in Georgia this week, Cynthia O'Tyson was sentenced to 60 years in prison for a scheme in which she reportedly used contacts at her church and the local Chamber of Commerce to give her scheme an air of legitimacy.

    A Georgia woman with a history of stealing and being placed on probation after serving short stints in custody now has been sentenced to 60 years in prison.

    Cynthia O’Tyson’s sentencing was captured in Superior Court by WRDW-TV, the CBS affiliate in Augusta. The station led its 5 p.m. and 6 p.m. newscasts yesterday with reports about the sentencing, noting that O’Tyson had scammed friends and members of her own family and community into believing she was a supplier of discount electronics.

    Meanwhile, the Augusta Chronicle reported that O’Tyson even had scammed the families of local officials and used members of her church and the Columbia County Chamber of Commerce to give the scheme an air of legitimacy.

    The O’Tyson scheme was reminiscent of the alleged AdSurfDaily Ponzi scheme in Florida. Federal prosecutors said ASD President Andy Bowdoin traded on religion. On July 2, 2008, Bowdoin, who was implicated in securities swindles in Alabama during the 1990s and also had a business partner implicated in a separate swindle during the 1990s, addressed the Gadsden County Chamber of Commerce.

    Initially pleased that ASD, which positioned itself as a jobs-creator and economic turbine, had chosen the struggling small town of Quincy, Fla., as its home, the Chamber touted ASD and the company.

    But the Chamber later called the FBI when questions were raised about Bowdoin’s purported “advertising” firm, according to federal court records. The U.S. Secret Service later described ASD as a massive Ponzi scheme that had gathered at least $110 million. Bowdoin described himself as a “money magnet” and asked members to imagine ASD profits just “flowing” to them after purchasing “ad packs” from the company and committing themselves to have an “attitude of gratitude” with God.

    O’Tyson’s scheme also was reminiscent of the much-larger scheme operated in Minnesota by convicted Ponzi swindler Tom Petters. Petters’ investors believed he sold discount merchandise to Big Box retailers.

    Although Petters’ crime was much larger than O’Tyson’s merchandise scam, he was sentenced to 10 years fewer than the Georgia woman. O’Tyson called her bogus company “Wholesale Liquidators.”

    See the O’Tyson report (video/print) on WRDW-TV.

    Read the O’Tyson sentencing story in the Augusta Chronicle.

  • KABOOM! Florida — Again: Palm Beach Operators, Firms Charged With Running Scheme-Within-Scheme In Tom Petters’ Ponzi; More Than $1 Billion Plowed Into Rathole, SEC Says

    EDITOR’S NOTE: The SEC has been particularly active in Florida in recent weeks. Now, the agency once again has gone to federal court to allege a spectacular fraud involving people and companies in the Sunshine State. This one involves more than $1 billion and is linked to the Tom Petters’ Ponzi case in Minnesota.

    Two Florida men and their companies assisted convicted Ponzi schemer Tom Petters in keeping his $3.65 billion fraud afloat by hatching a scheme-within-a-scheme that assured hedge-fund investors that their money was safe, the SEC said in a lawsuit.

    The scheme occurred prior to the filing of criminal charges against Petters in 2008, according to court documents. Petters, who also faces an SEC lawsuit, was convicted of running the Ponzi scheme last year. In April, he was sentenced to 50 years in federal prison.

    SEC investigators now say Bruce F. Prévost, 50, of Palm Beach Gardens, and David W. Harrold, 51, of Del Ray Beach “falsely assured their investors and potential investors that the flow of their money would be safeguarded by collateral accounts and described a phony process for protecting their assets.

    “When Petters was unable to make payments on investments held by the funds they managed, Prévost, Harrold, and their firms concealed it from investors by concocting sham note exchange transactions with Petters,” the SEC said.

    Calling it a “betrayal” that had cost investors more than $1 billion, Robert Khuzami, director of the SEC’s Division of Enforcement, said the Florida men parlayed the losses of others into gains for themselves.

    “Prévost and Harrold portrayed themselves as guardians of their hedge fund investors while in fact they facilitated Tom Petters’s fraudulent scheme through lies and deceit,” Khuzami said.

    The case was filed in Minnesota.

    Prévost, Harrold and their companies — Palm Beach Capital Management LP and Palm Beach Capital Management LLC — pocketed more than $58 million in fees from the scheme, the SEC charged.

    At the same time, they raised additional money to plow into the scheme “by borrowing money from two Cayman Islands funds that were also established by Prévost and Harrold,” the SEC charged. The agency identified the offshore funds as Palm Beach Offshore Ltd. and Palm Beach Offshore II Ltd.

    “From 2004 through at least as late June 2008, the defendants funneled money into the Petters Ponzi scheme by selling interests in the Palm Beach Funds to investors throughout the United States,” the SEC charged. “Investors in the Palm Beach Funds included individuals, foundations, family trusts and other hedge funds. The Funds invested all investor contributions into the Petters Ponzi scheme. Of the approximately $3.65 billion invested in the Petters Ponzi scheme at the time of its collapse, the Palm Beach Funds accounted for more than $1 billion.”

    Florida has been plagued by Ponzi schemes and fraud schemes. In January, U.S. Attorney General Eric Holder ventured to the state to introduce President Obama’s Financial Fraud Enforcement Task Force.

    Holder announced the Task Force at a speech in the Palm Beach area, using the event at the Forum Club of the Palm Beaches 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.”

  • BULLETIN: Ponzi Swindler And Racketeer Scott Rothstein Sentenced To 50 Years In Federal Prison For $1.2 Billion Scam; Schemer Forged Judges’ Signatures, Threatened Reporter

    BULLETIN: Scott Rothstein, the disbarred Florida lawyer who sold interests in nonexistent legal settlements, forged the signatures of federal judges on court documents to hoodwink investors and keep money flowing to his $1.2 billion Ponzi scheme and threatened to sue a reporter asking tough questions, has been sentenced to 50 years in federal prison.

    Rothstein, one day shy of his 48th birthday, was sentenced by U.S. District Judge James Cohn.

    His lawyer had sought a 30-year sentence. Prosecutors recommended 40 years, based on Rothstein’s post-arrest cooperation. Rothstein faced a maximum sentence of 100 years.

    By comparison, infamous Wall Street swindler Bernard Madoff was sentenced to 150 years for his $65 billion fraud. Tom Petters, who hatched a massive Ponzi scheme involving bogus sales of merchandise to prominent retailers, was sentenced to 50 years for his $3.65 billion fraud.

    Guessing the length of Rothstein’s sentence had become sport on the Internet, with people from all over the world advancing their notions.

    In the end, Cohn said Rothstein, who also threatened to sue at least one reporter who was in the process of exposing the fraud, deserved 50 years. The scheme destroyed the Rothstein Rosenfeldt Adler law firm in Fort Lauderdale and has subjected multiple people to investigation, indictments and lawsuits.

    Rothstein pleaded for mercy, saying he was a “changed man” who had contemplated suicide while operating the scheme but ultimately returned from Morocco to face the charges and assist prosecutors in their efforts to untangle the colossal mess.

    The elaborate Ponzi fraud included bogus legal settlements, forged court documents, fraudulent promissory notes, fraudulent campaign donations and gratuities paid to “high ranking members of police agencies,” prosecutors said.

    Rothstein forfeited $1.2 billion, 24 pieces of real estate, luxury cars such as Bugattis, Rolls-Royces and Cadillacs, yachts, shares in businesses and more.

    Here are snippets from Rothstein’s letter to Cohn that asked for fairness and mercy (italics added):

  • 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.’”

  • 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).

  • Prosecutors Ask Judge For Order To Disqualify INetGlobal Attorney, Saying They May Wish To Cross-Examine Him As Witness In Ponzi Case

    UPDATED 11:31 A.M. EDT (U.S.A.) Federal prosecutors have filed a motion to disqualify attorney Mark Kallenbach as counsel for INetGlobal and related companies, claiming that Kallenbach is attempting to be both a witness in the case and a lawyer for multiple clients involved in a Ponzi scheme, wire fraud and money-laundering probe.

    Kallenbach, prosecutors said, has made himself a subject of cross-examination because of an affidavit he filed last month. They added that wearing two hats in the same case 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.”

    “Should Mr. Kallenbach testify, he will be cross-examined,” prosecutors said. “The Court will have to decide whether Mr. Kallenbach’s voluntary assumption of the role of witness works as a waiver of the attorney-client privilege on cross-examination, or whether the government’s cross-examination of Mr. Kallenbach will be limited, in ways it might not be limited if the witness was not counsel to several parties, in order to preserve the privilege.”

    On April 2 — a week ago yesterday — prosecutors said INetGlobal had no attorney of record in the autosurf Ponzi scheme litigation. Kallenbach filed a notice of appearance for the firm and several related companies on Monday, three days after the prosecution’s filing.

    On Wednesday, Kallenbach filed a second affidavit (see subhead below) labeled a supplement to an affidavit he filed March 25.

    Prosecutors responded by saying Kallenbach’s second affidavit “heightens the government’s concern about Mr. Kallenbach attempting to serve as both lawyer and witness” and that he should be disqualified as an attorney for “any of the individuals or companies involved” in the case.

    “This motion is brought because Mr. Kallenbach has made himself a necessary witness in this case,” prosecutors argued. “This is a case in which Mr. Kallenbach conducted his own
    investigation and then voluntarily drew up a lengthy affidavit setting forth his observations.”

    Their claim is based on a 20-page affidavit and 12 additional pages of exhibits Kallenbach filed March 25 — before he entered his notice of appearance as INetGlobal’s attorney in court.

    In his March 25 affidavit, Kallenbach said he conducted an “investigation” and concluded that “Inter-Mark and its subsidiary iNetGlobal and its other subsidiaries are clean, legitimate and profitable businesses.”

    Kallenbach, in the March 25 affidavit, attacked an affidavit for a search warrant by the U.S. Secret Service and also challenged assertions the government made about V-Local, a company related to INetGlobal.

    Prosecutors argued that the affidavit and conclusions Kallenbach described as “true facts” make him a witness. Some of the information was woven into a memorandum of law filed March 25 by Jon Hopeman on behalf of INetGlobal owner Steve Renner, prosecutors said.

    The prosecution motion was filed by Assistant U.S. Attorney John Docherty, one of the prosecutors who handled the Ponzi case against Tom Petters. Petters was sentenced this week to 50 years in prison for operating a $3.65 billion fraud.

    U.S. Attorney B. Todd Jones of the District of Minnesota approved the filing of the disqualification motion. The main page on Jones’ website lists three major Ponzi probes the office has undertaken in recent months, including the Petters’ case, the case involving Minnesota Ponzi scheme figures Trevor Cook and Pat Kiley, and the investigation into the business practices of Renner at INetGlobal.

    Minnesota’s Ponzi Plague

    Ponzi schemes have plagued Minnesota. The Cook/Kiley case involves at least $190 million and investor losses of at least $139 million, according to court filings.

    Another big case in Minnesota involved Gerard Cellette Jr. Cellette was implicated in a $53 million Ponzi scheme last year by Hennepin County Attorney Mike Freeman.

    Meanwhile, Charles “Chuck” E. Hays pleaded guilty last year to charges in a $20 million Ponzi-scheme case in which the government seized a $3 million yacht.

    Separately, three members of a Minneapolis family were indicted last year on Ponzi and fraud charges. The case became known as the Kalin Thanh Dao case. Dao’s parents also were indicted.

    Dao and her parents pleaded guilty. Prosecutors said money was siphoned from the scheme to pay for gambling in Las Vegas.

    “Investors were promised that their money would be placed in investment programs targeted within specific markets and industries,” prosecutors said. “Investors were also told that Kalin Dao had a ‘partner’ who held a seat on the New York Stock Exchange, had contacts in the emerging Asian markets who had ‘inside’ information, and was associated with various Las Vegas casinos.”

    The Kalin Thanh Dao probe uncovered a web of deceit in which Dao’s father claimed nearly $3 million in losses for businesses owned by his daughter to eliminate his personal tax liabilities, and Dao’s mother claimed to be “single,” the “head of [a] household” — and also claimed a tax exemption for Dao.

    Kalin Thanh Dao was 32 years old and operated at least four companies, prosecutors said.

    “Instead of investing the investors’ funds as promised, Kalin Dao diverted substantial amounts of the funds for her own purposes, including gambling, lulling payments and personal expenses,” prosecutors said. “She also admitted that the fraud was between $2.5 and $7 million.”

    Also on the Ponzi front, AdSurfDaily, a Florida-based company implicated in a massive autosurf Ponzi scheme by the Secret Service in 2008, was popular in Minnesota. Some Minnesota members of ASD were among the staunchest defenders of ASD President Andy Bowdoin.

    The Secret Service referenced the ASD case in filings in the INetGlobal case, saying an undercover agent was introduced to INetGlobal by an ASD member who described the operation as a wink-nod enterprise.

    A federal judge in the District of Columbia has issued three orders of forfeiture totaling more than $80 million in the ASD case. Bowdoin is appealing. His appeal brief cites two other cases filed under seal and suggests that prosecutors subpoenaed at least two attorneys involved in the defense of ASD’s assets to appear at a grand-jury proceeding.

    It is unclear if the attorneys attempted to invoke attorney-client privilege. What is clear is that a federal judge ordered the attorneys to appear and that the order is being challenged in a federal appeals court.

    Kallenbach’s Second Affidavit

    Kallenbach filed a second affidavit April 7. The affidavit asserts that a Renner entity known as V-Media Marketing LLC “borrowed” all of the money that was placed in a bank account at Premier Bank Minnesota in early March, about a week after the Secret Service raid at INetGlobal’s offices in Minneapolis.

    Prosecutors, describing the INetGlobal case as a “major fraud and money laundering investigation,” said $47,400 was deposited into the account.

    “IMC Desperately Needs Working Capital To Pay Its Creditors,” Kallenbach said.

    He also described a webcast he attended April 5 that was “sponsored by one of IMC’s marketing consultants.”

    “At the April 5th Meeting, I learned, amongst other things, that many of iNetGlobal’s new customers have demanded refunds,” Kallenbach said. “The number of customers seeking refunds and the amount of such refunds is unknown. What is known is that as each and every day passes, without iNetGlobal being in business as usual, more of iNetGlobal’s customers will seek refunds.”

    He also asserted that “iNetGlobal’s marketing consultants are clamoring for commission payments that are legitimately due and owing to them,” according to the affidavit. “iNetGlobal has been unable to pay the commissions.”

    Kallenbach’s filing also suggested that, through negotiations, a little more than $1 million has been returned to INetGlobal and that the sum was now considered “unrestricted” cash. The affidavit did not disclose specific details about the negotiations

    In the March 25 affidavit,  Kallenbach argued that INetGlobal had no cash to operate.

    “At the time I signed my March 25, 2010 Declaration, I believed it to be true that iNetGlobal had no unrestricted cash meaning cash available for working capital. I have since learned that as a result of negotiations in which I was involved, on March 22, 2010 iNetGlobal netted approximately $220,000 from the return of restricted cash. As of the time my March 25, 2010 Declaration was prepared, I was unaware that this money had been returned to iNetGlobal.

    “After my Declaration was signed, approximately $795,000 of restricted cash was made available to iNetGlobel for working capital after close of business on March 25, 2010,” Kallenbach said. “As of today [April 7], iNetGlobal’s unrestricted cash is approximately $1,015,000. I arrive at this sum by adding $220,000 and $795,000 to reach $1,015,000.”

    Prosecutors said that, because Kallenbach has become an “essential witness” subject to cross-examination by the prosecution and direct examination by the INetGlobal side, there is a question about “whether Mr. Kallenbach’s clients can be provided constitutionally effective assistance.”

    “The government did not bring this situation about,” prosecutors contended. “[T]he government has not subpoenaed Mr. Kallenbach, or raised questions about whether he, and only he, can testify as to certain facts.

    “This is a case in which Mr. Kallenbach conducted his own investigation and then voluntarily drew up a lengthy affidavit setting forth his observations. Nor may Mr. Kallenbach, at this juncture, announce that he will henceforth act only as an advocate, because the choice to be a witness was made when the affidavit was filed.”

  • KA-BOOM! SEC Files Emergency Action In Alleged Richard Elkinson ‘Uniform’ Ponzi Scheme; U.S. Attorney General Warns Fraudsters, ‘You Are Writing Your Ticket To Jail’

    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.”

  • Ponzi Suspect to Judge, ‘Jail Me’; Judge To Ponzi Suspect, ‘OK’; Minnesota’s Gerard Frank Cellette Jr. Booked Into Hennepin County Jail On 36 Felony Counts

    Reporters prepare for news conference in Gerard Cellette Ponzi case.
    Reporters prepare for news conference last month in the Gerard Cellette Ponzi case.

    Gerard Frank Cellette Jr. was implicated by prosecutors in an alleged $53 million Ponzi scheme in Minnesota last month.

    Cellette, 44, of Andover, Minn., asked a judge to jail him yesterday — and the judge granted his wish. Cellette now is Inmate No. 2009034708 in the Hennepin County Sheriff’s Jail. He was charged Nov. 5 with 36 felony counts of fraud in the offer and sale of securities.

    The charges were brought by Hennepin County  Attorney Mike Freeman. Cellette technically is jailed awaiting trial, but a trial may not occur because he is helping prosecutors unravel his own scheme.

    Ponzi schemes are plaguing Minnesota. AdSurfDaily, an alleged $100 million Ponzi scheme operating from Florida, was popular in the state in 2008. Three weeks ago the SEC and the CFTC accused two Minnesota residents — Christian radio host Pat Kiley and money manager Trevor Cook — of operating a $190 million Ponzi scheme involving foreign currency trading.

    Cook was said to have bought a private island in Canada with some of his loot — along with a submarine to access the island. Cook took the 5th Amendment at a proceeding last week.

    Meanwhile, a jury in Minnesota returned a guilty verdict last week against Minnesota businessman Tom Petters in a $3.65 billion Ponzi scheme.

    The early speculation in Minnesota is that Cellette knows he is going to serve time for his Ponzi scheme — so he might as well start serving it early and spare taxpayers the bill for a trial.

    Ten of the 36 felony securities counts against Gerard Frank Cellette Jr. in Minnesota.
    Ten of the 36 felony securities counts against Gerard Frank Cellette Jr. in Minnesota.