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Tag: Tom Petters

  • BULLETIN: Tom Petters Guilty On All 20 Counts In $3.65 Billion Ponzi Scheme Case In Minnesota

    breakingnewsBULLETIN: Minnesota businessman Tom Petters has been found guilty by a Minnesota jury.

    UPDATED 6:03 P.M. ET (U.S.A.) Jury deliberations encompassed 32 hours over all or parts of five days. Petters blamed the fraud on subordinates, but the jury did not buy into his explanation that he had been inattentive to business since the stabbing death of his son in 2004.

    “There was a lot of people hurt, not just him,” a juror said, discounting Petters’ assertion that his family pain caused by the death of his son explained a massive fraud.

    It was the largest fraud in Minnesota history, consuming as much as $3.65 billion. The scheme, which featured phantom sales of merchandise to big-box retailers, collapsed in September 2008. All of the counts against Petters were felonies. He effectively faces life in prison.

    In addition to his liquidation business, which purported to buy merchandise from bankrupt retailers and resell it at a handsome profit to discount stores, Petters owned famous companies such as Sun Country Airlines and Polaroid Corp.

    Prosecutors said the scheme was sustained by bogus purchase orders and persistent lying to investors.

    Prosecutor Joe Dixon said the FBI, the IRS and the U.S. Postal Inspection Service put together an excellent case. Dixon noted that Petters faced a maximum sentence of 350 years in prison.

    At 5:45 P.M. ET (U.S.A.), jurors and prosecutors were expected to appear before cameras to answer questions. Here is a video uplink from the Star Tribune of Minneapolis/St. Paul.

    It’s live as of this post: 6:03 P.M. ET.

  • WRAP-UP: Marine Corps Officer Tells Judge Ponzi Schemer Who Fleeced Seniors, Charities ‘Violated Every Character Trait I Hold Dear’

    EDITOR’S NOTE: This column summarizes three Ponzi cases: Joseph Forte, Sean Healy and Tom Petters. Forte has been sentenced; Healy has been convicted, and Petters is waiting to hear his fate from a Minnesota jury. The cases vary widely in size and scope, but demonstrate the terrible consequences of Ponzi schemes on individual investors and charitable institutions

    Joseph Forte scheme.

    A U.S. Marine Corps officer speaking for victims of the Joseph Forte Ponzi scheme in Philadelphia yesterday told a federal judge Forte’s actions caused his family’s charitable foundation to suffer a $15 million loss.

    Lt. Col. William Hooper, a former Marine Corps aviator and member of the U.S. Marine Corps Reserves, said his father suffered a stroke after learning Forte had plundered The Thornton D. and Elizabeth S. Hooper Foundation of Radnor, Pa.

    ponzinewsWilliam Hooper’s father, Bruce Hooper, himself a former Marine, served as president of the Marine Corps University Foundation (MCUF) and is a trustee and member of the Investment Subcommittee, according to the MCUF website. Bruce Hooper is the vice president of the Thornton D. and Elizabeth S. Hooper Foundation and the vice chairman of the Foreign Policy Research Institute of Philadelphia.

    William Hooper, speaking for the Hooper family at Forte’s trial, said Forte’s actions “violated every character trait I hold dear,” according to the Delaware County Times.

    Meanwhile, a woman who lost $109,000 she had inherited from her mother by investing it with Forte called him a “bastard.”

    Forte’s Ponzi scheme unraveled in 2008, after operating for 12 years. George Clark, a U.S. Postal inspector, said in an affidavit that Forte simply made up numbers and collected money until the bitter end.

    “The last statement received by investors for the third quarter of 2008 indicates that the fund had a return of 18.88% for the quarter and that the Joseph Forte LP fund’s total value as of September 30, 2008 was $154,700,189,” Clark said.

    In truth, Clark said, the value of Forte’s trading account was only $150,000. The account was closed in October 2008, but Forte continued to collect money from clients until Dec. 19, Clark said.

    “According to Forte, all reported returns were false in their entirety and were simply numbers that [he] fabricated,” Clark said. “Forte admitted that in every quarter from 1996 through the end of 2008, the reported returns were false.”

    Forte was sentenced to 15 years in prison. He also was ordered to pay $34.8 million in restitution.

    See a story in the Delaware County Times.

    Sean Healy scheme

    Luxury cars and Ponzi schemes go together like money and politics. Federal prosecutors have seized more than 20 cars in the alleged Scott Rothstein Ponzi in Florida, for example. One of them had a price tag of more than $1.5 million.

    Before the Rothstein case came on the Feds’ radar screen last month, there was the case of Sean Healy. It, too, has a Florida tie, although the prosecution occurred in Pennsylvania.

    Healy, 38, of Weston, Fla., was charged in a 55-count indictment unsealed last month with multiple counts of wire fraud, mail fraud, money laundering and obstruction of justice.

    Prosecutors said Healy “spent the money to fund a lavish lifestyle.”

    Purchases included “numerous exotic vehicles and sport cars, including a Bentley and several Ferraris, Lamborghinis and Porsches worth over $2.3 million,” prosecutors said.

    Obstruction of justice was charged because Healy thwarted a grand jury by providing “phony bank statements and phony trading records, indicating that the Pennsylvania investor’s money was used for legitimate trading activity in stocks and commodities,” prosecutors said.

    “When the authentic records were obtained, they revealed that Healy had simply spent the money on his extravagant lifestyle and used some of it to pay back earlier investors who he defrauded between 2003 and 2008,” prosecutors said.

    The grand-jury probe began in March, after an investor who had been scammed in Pennsylvania sued Healy and his wife, Shalese Rania Healy, in U.S. District Court in the Southern District of Florida, alleging that Pennsylvania investors had lost $14.6 million with Healy between April 2008 and February 2009.

    In addition to the automobiles, Healy also bought a $2.4 million waterfront mansion furnished with more than $2 million of home improvements, plus $1.5 million in men’s and women’s jewelry.

    Healy pleaded guilty Monday in Harrisburg to two counts of wire fraud and one count of unlawful monetary transactions. He faces up to 50 years in prison.

    Tom Petters’ scheme

    Minnesota businessman Tom Petters is accused of operating a $3.65 billion Ponzi scheme. The jury began to deliberate late Monday.

    Deliberations continued Tuesday. No verdict was reached, and the jury was dismissed until Monday because of the Thanksgiving holiday in the United States.

    Prosecutors said Petters presided over phantom sales of consumer electronics to big-box retailers, fleecing investors out of millions. His defense counsel acknowledged that fraud had occurred, but blamed it on subordinates.

  • Another Massive Ponzi Scheme Probe Under Way In Minnesota; Case Reminiscent Of Alleged Ponzis Of Tom Petters, Matthew Scott And Andy Bowdoin

    Gerard Frank Cellette Jr. is suspected of operating a Ponzi scheme that involved tens of millions of dollars and was based on bogus printing contracts, prosecutors in Minnesota said yesterday.

    Cellette, 44, of Andover, Minn., owes investors at least $53 million, according to the felony complaint filed by the office of Hennepin County Attorney Mike Freeman.

    Prosecutors charged Cellette with 36 counts of fraud in the offer or sale of securities, saying the scheme extended from Minnesota to California, Georgia, and Illinois, and that Cellette has “admitted” he engaged in a pattern of fraudulent conduct from 2005 through September 2009.

    News about the Cellette charges broke as accused Ponzi schemer Tom Petters was being tried in Minnesota, amid allegations he orchestrated a $3.65 billion fraud. Minnesotans’ attention has been riveted on the Petters’ case, which includes allegations he fleeced investors by tricking them into believing their money was being used to finance the sale of huge quantities of electronics to big-box retailers.

    Prosecutors described the Cellette allegations as a Petters-like operation, only on a smaller scale. The allegations also were reminiscent of allegations against Florida-based AdSurfDaily because Cellette held hotel meetings with participants in Minneapolis to promote the investment program.

    Like ASD’s program, Cellette’s program had elements of revenue-sharing, with participants believing profits stemmed from the sale of a legitimate service. ASD was operated by Andy Bowdoin.

    Bowdoin’s ASD purported to be an “advertising” company. Federal prosecutors said it sold unregistered securities and engaged in wire fraud and money-laundering while operating a $100 million Ponzi scheme. ASD was popular in Minnesota, members said.

    Cellette ran a company known as Minnesota Print Services. In 2004, he sought capital to expand, promising “to split the profits with the investor.” Investors expected a return of about 10 percent in 60 days, prosecutors said.

    But “in fairly short order,” prosecutors said, Cellette started selling “fictitious contracts,” paying earlier investors with money received from “new investors for new fictitious contracts.”

    Eventually Cellette began to offer the contracts through Steve Quarles, a California man, prosecutors said. They described Quarles as “the brother of a friend of a previous Minnesota investor.”

    Cellette “reports that he has never told Quarles, or anyone other than his attorney and the Hennepin County Attorney’s Office, that fictitious contracts were the primary foundation” of the scheme.

    Prosecutors said Cellette is cooperating in the probe.

    The allegations against Cellette also are reminiscent of the allegations against Matthew Scott in Illinois.

    The FBI and federal prosecutors said last week that Scott told investors their funds would be used to purchase or finance the purchase of high-speed commercial printers that would be sold to third-party buyers at a profit. The machines were said to be valued in excess of $100,000, and Scott claimed his mark-up of 20 percent led to big profits, the FBI said.

    Scott, 50, of Elmhust, Ill., was charged with mail fraud. His Chicago-area company, Gelsco, neither purchased nor financed such printers, the FBI said.

    “Instead, Scott allegedly fabricated false purchase orders, invoices, promissory notes and other documents that he provided to investors,” the FBI said.

    The Scott scheme collected at least $28 million between early 2000 and March 2009 before unraveling, the FBI said. At least 60 investors were fleeced. The initial loss estimate was pegged at $4.5 million.

    “Throughout the duration of the alleged scheme, Scott had to continually raise funds from investors to make payments to earlier investors, all of which he concealed and intentionally failed to disclose to new and old investors alike,” the FBI said.

    All of the cases — Petters, Cellette, Scott and ASD — lead to troubling questions about how many other companies are engaging in similar schemes that have not been detected.

    Read the allegations against Cellette in the Minnesota case.

  • FBI Arrests 14, Including 2 Lawyers, In Major Insider-Trading Probe; SEC Says Attorneys Provided Tips For Kickbacks In Latest Scandal That Rocks Wall Street

    As the FBI and IRS executed search warrants at the Florida office of attorney Scott Rothstein this morning amid allegations he ran a covert Ponzi scheme that could have drained as much as $500 million from investors, prosecutors up north were concentrating on arresting lawyers in a separate case involving insider trading on Wall Street.

    U.S. Attorney Preet Bharara of the Southern District of New York announced the arrests of attorneys Arthur J. Cutillo of the prestigious law firm Ropes & Gray LLP of New York, and Jason Goldfarb, a New York attorney.

    Cutillo and Goldfarb were among 14 people charged in a case with ties to the alleged Raj Rajaratnam insider-trading scandal at the Galleon Group. Rajaratnam’s arrest last month rocked Wall Street.

    Today’s news demonstrated again that law-enforcement and regulatory agencies in all corners of the United States are seeking to put an end to a wave of financial crime that could undermine the public’s confidence in the markets and imperil economic recovery in the age of the corporate bailout.

    “When Wall Street professionals or others exploit inside information for an illegal tip-and-trade binge, they undermine the level playing field that is fundamental to our capital markets,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “These defendants thought the rules that apply to all investors did not apply to them, but the one rule they cannot avoid is the rule of law. Now they face the prospect of financial penalties, industry bars, and even jail time for their indiscretions.”

    ‘A Bag Of Cash’

    Attorneys will not be permitted to ignore the law and hide behind their legal shingles, added Scott W. Friestad, associate director of the SEC’s Enforcement Division, using stark language.

    “Today’s action highlights the apparent ease with which far too many lawyers, hedge funds and Wall Street traders are willing to break the law to obtain a bag of cash, a trading advantage or other perceived benefit,” Friestad said. “It is fundamentally unfair for these individuals to profit at the expense of honest investors and compromise the integrity of our markets.”

    Although the emerging Rothstein Ponzi allegations in Florida are not connected to the Galleon Group insider-trading investigation in New York, California and elsewhere, dramatic developments last night and this morning in Fort Lauderdale were a stark reminder that financial crimes that were once unthinkable suddenly have become commonplace in the aftermath of the arrests of Bernard Madoff, Tom Petters, Allen Stanford, Arthur Nadel, Nicholas Cosmo and others implicated in Ponzi schemes for mind-boggling sums.

    Agents in Fort Lauderdale hauled away dozens of boxes of evidence, seized computers and thumb drives, copied computer hard drives, took control over an unspecified amount of cash, sifted through financial and other records — and also seized the key to a Ferrari.

    Though Rothstein has not been charged, the case has become a spectacle in Florida. The state has been rocked by one financial scandal after another involving allegations of mortgage fraud, hedge-fund fraud, affinity fraud targeting vulnerable residents, HYIP fraud, autosurf Ponzi scheme fraud and Ponzi schemes in general.

    In New York, far north of Florida’s warm climate, Bharara and the FBI released some of the details surrounding today’s arrests of lawyers and Wall Street insiders. For its part, the SEC made a separate flow chart to demonstrate how part of the fraud worked.

    SEC Flow Chart" Source: SEC
    SEC Flow Chart: Source: SEC

    Attorney Cutillo “had access to confidential information about at least four major proposed corporate transactions in which his firm’s clients participated,” the SEC said. “Through his friend and fellow attorney Jason Goldfarb, Cutillo tipped this inside information to Zvi Goffer,” a proprietary trader at Schottenfeld Group of New York.

    “Goffer promptly tipped four traders at three different broker-dealer firms and another professional trader Craig Drimal, who each then traded either for their own account or their firm’s proprietary accounts,” the SEC said.

    Cell Phone Intrigue Part Of Allegations

    In allegations that read like a cross between an Ian Fleming and Robert Ludlum novel, the SEC outlined some of the case.

    “Goffer was known as ‘the Octopussy’ within the insider trading ring due to his reputation for having his arms in so many sources of inside information,” the agency said. “Cutillo, Goldfarb, and Goffer at times used disposable cell phones in an attempt to conceal the scheme. For example, prior to the announcement of one acquisition, Goffer gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled ‘you’ and ‘me.’

    “After the announcement, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half, throwing away half of the phone and instructing his tippee to dispose of the other half,” the SEC charged.

    Read the SEC news release.

    Read Bharara’s news release on the criminal charges to get the full list of defendants, at least five of whom already have pleaded guilty.

    Read part of the South Florida Business Journal’s ongoing coverage of the Rothstein allegations, which are not connected to the insider-trading case announced in New York today.

  • OCT. 28 PONZI NEWS AND NOTES: Tom Petters Trial To Open; Employee Of Sir Allen Stanford Purportedly Criticized, Ostracized, Fired For Being Too Honest

    NEWS: In the world of high finance, Tom Petters was Bernard Madoff before Bernard Madoff was Bernard Madoff — at least with respect to shocking headlines about Ponzi schemes.

    Jury selection is under way in Minnesota in the Petters case. The allegations that Petters presided over a $3.65 billion Ponzi were unfathomable in September 2008. The allegations dwarfed the August 2008 assertions by the U.S. Secret Service that Florida pitchman Andy Bowdoin of AdSurfDaily Inc. had operated a then-unfathomable $100 million Ponzi scheme.

    But with Madoff’s overnight ascent to the stratosphere of infamy in December 2008 amid allegations that he had operated a $50 billion Ponzi scheme, Petters faded from the headlines.

    Bowdoin would have faded, too, except he could not stop doing things such as comparing the Secret Service and federal prosecutors to the 9/11 terrorists; taking the 5th Amendment at a hearing his company requested to present evidence that it was not a Ponzi scheme, even as his supporters agreed he was “too honest” to testify; announcing a $200 million deal with a penny-stock company few people ever had heard of (while the penny-stock firm continued its practice of not publishing verifiable financial information and Bowdoin was awaiting a ruling on whether unaudited financial information he had supplied the court was reliable enough to make the Ponzi allegations go away); trying to sell members of AdSurfDaily VOIP telephone service after the Ponzi ruling went against him; negotiating with federal prosecutors; submitting to the forfeiture less than a month after prosecutors filed a second forfeiture complaint that asserted his wife and family had benefited from the illegal actions of his company and that Bowdoin had not reported a purported theft of $1 million by “Russian” hackers to authorities; and trying to get back in the case about six weeks later by saying he’d changed his mind, fired his attorneys and now was relying on a mysterious “group” of amateur attorneys to help him do his legal bidding.

    Not even Petters, who owned Polaroid and operated what prosecutors described as a multibillion-dollar Ponzi scheme involving a separate electronics company, could top Bowdoin in terms of relentless strangeness.

    Petters, however, easily topped Bowdoin in terms of the size of the alleged Ponzi he operated. And now the Petters trial is set to begin. One of the expected defenses in the case is a Bowdoin-like assertion that his hands were clean.

    Will it fly with jurors?

    Read pretrial Petters’ coverage by Reuters.

    Read this column by Jon Tevlin in the Star Tribune of Minneapolis/St. Paul. It includes comments from Barry Minkow, whose life once took a Ponzi turn.

    NOTE: Sir Allen Stanford now is accused of running a Ponzi that was larger than even the alleged Petters’ Ponzi. Stanford’s alleged crimes also are dwarfed by the Madoff Ponzi.

    Stanford was regarded as a sort of king of Caribbean banking, perhaps particularly on the island nation of Antigua.

    Federal prosecutors say ASD’s Bowdoin told the Secret Service that the company had $1 million in an account under a different name on Antigua. The claim was strange, considering that Bowdoin had told members in 2007 that he could not pay them because his purported advertising company had become insolvent after it overpaid members and was looted by the previously mentioned “Russian” hackers.

    The claim became Ãœber Strange in 2008, when Bowdoin asked a federal judge to free up $2 million from the tens of millions of dollars seized because ASD could not pay its hosting bill or rent or employees and had no money to implement a compliance plan — while apparently forgetting he had told the Secret Service about the $1 million on deposit in Antigua.

    Some of Bowdoin’s friends and employees remained staunch allies, always willing to support the company, call the prosecutors Nazis, diss doubters and even work for free to demonstrate their loyalty to the boss.

    An employee of Allen Stanford had a different idea about how to behave when a company’s words could not be reconciled with its actions.

    Charles Satterfield, an investment adviser, couldn’t make sense of things in the months after he joined Stanford Financial Group in 2005 as managing director of fixed income.

    Stanford stressed sales of its CD, regardless of the profiles of its customers. Old ladies were to be sold CDs. Young mothers were to be sold CDs. All people in between were to be sold CDs — at the virtual exclusion of all other financial products that perhaps were better suited for the unique situations of individual customers.

    On a business trip? Sell the CD. Sitting down with Grandpa or Junior? Sell the CD.

    When Satterfield asked his bosses to reduce their instructions to writing, he was fired the next day.

    He told the Financial Industry Regulatory Authority (FINRA) in 2007 that some strange things were going on inside Stanford Financial Group. The company said no — that Satterfield had gotten it all wrong, that he was incompetent and disgruntled.

    Satterfield was described as disloyal, incapable of recognizing that tremendous growth at companies causes problems and that the problems sort themselves out in the end.

    The experience of Charles Satterfield at Stanford will sound like a familiar refrain to many people who have followed the AdSurfDaily saga and observed a pattern of dissing critics as though they were simpletons, marginalizing their voices and authoring ad hominem attacks — before ostracizing them completely and banning them to the hinterlands.

    Read this column on Charles Satterfield by Al Lewis of Dow Jones Newswires, as it appears in the Denver Post. It is an eye-opener.