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Tag: U.S. District Judge Mark A. Goldsmith

  • Full Statement Of SEC On Criminal Conviction, Prison Sentence, Restitution Order And Civil Liability Of Legisi HYIP Ponzi Operator Gregory N. McKnight

    EDITOR’S NOTE: As the PP Blog reported on Aug. 6, Legisi HYIP Ponzi-scheme operator Gregory N. McKnight was sentenced to 188 months in federal prison. McKnight is 53. He was ordered taken into custody immediately after sentencing last week and is listed as “in transit” to an unspecified detention facility. Legisi was promoted in part on Ponzi forums such as TalkGold and MoneyMakerGroup.

    The SEC today released the statement reproduced below . . .

    U.S. SECURITIES AND EXCHANGE COMMISSION

    Litigation Release No. 22776 / August 13, 2013

    Securities and Exchange Commission v. Gregory N. McKnight, et al., Civil Action No. 08-cv-11887 (E.D. Mich.)

    15 Year Prison Term for Gregory Mc[K]night, Orchestrator of $72 Million Ponzi Scheme

    The Securities and Exchange Commission announced that on August 6, 2013, the Honorable Mark A. Goldsmith of the United States District Court for the Eastern District of Michigan sentenced Gregory N. McKnight to 188 months (15 years and 8 months) in prison, followed by supervised release of 3 years, and ordered McKnight to pay $48,969,560 in restitution to his victims. McKnight, 53, of Swartz Creek, Michigan, had previously pled guilty to one count of wire fraud for his role in orchestrating a $72 million Ponzi scheme involving at least 3,000 investors. The U.S. Attorney’s Office for the Eastern District of Michigan filed criminal charges against McKnight on February 14, 2012. McKnight was taken into custody immediately after the sentencing hearing.

    The criminal charges arose out of the same facts that were the subject of an emergency action that the Commission filed against McKnight and others on May 5, 2008. On that same day, the Court issued orders freezing McKnight’s assets and those of several companies he controlled, and appointed a Receiver. The Commission’s complaint alleged that, from December 2005 through November 2007, McKnight, through his company Legisi Holdings, conducted a fraudulent, unregistered offering of securities in which he raised approximately $72 million from more than 3,000 investors in all 50 states and several foreign countries. According to the Commission’s complaint, McKnight represented that he would invest the offering proceeds in various investment vehicles and pay interest of as much as 15 percent per month from the resulting profits. The complaint charged that McKnight invested less than half of the offering proceeds and that these investments resulted in millions of dollars in losses. The Commission’s complaint further charged that McKnight used investor funds to make Ponzi payments to investors and for his own use. The Commission’s complaint charged McKnight with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.

    On July 6, 2011, the Court entered a final judgment against McKnight in the Commission’s action, and ordered McKnight to pay disgorgement of ill-gotten gains, prejudgment interest, and civil penalties totaling approximately $6.5 million. The court also issued orders permanently enjoining McKnight from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. On July 9, 2013, McKnight’s associate Matthew J. Gagnon was sentenced to five years in prison for his role in promoting Legisi.

    For additional information, see Litigation Release No. 20563 (May 8, 2008), No. 20588 (May 20, 2008), No. 22269 (Feb. 24, 2012) and No. 22749 (July 11, 2013).

    http://www.sec.gov/litigation/litreleases/2013/lr22776.htm

  • Full Statement Of SEC On Criminal Conviction, Restitution Order And Civil Liability Of ‘Serial’ HYIP Ponzi Pitchman Matthew J. Gagnon

    In this evidence exhibit given to a federal judge prior to the Legisi asset freeze in 2008, a Legisi prospect writes the name "Money Maker Group.com" in longhand. State and federal probes into Legisi were under way long before members knew -- and undercover agents were part of the probe.
    In this evidence exhibit given to a federal judge prior to the Legisi asset freeze in 2008, a Legisi prospect writes the name “Money Maker Group.com” in longhand. State and federal probes into Legisi were under way long before members knew — and undercover agents were part of the probe.

    EDITOR’S NOTE: As the PP Blog reported Wednesday, HYIP Ponzi-scheme pitchman Matthew John Gagnon has been sentenced to five years in federal prison. On Thursday, the SEC released the statement reproduced below. Here’s hoping it will be the shot heard around the HYIP Ponzi World.

    Still pushing HYIPs on your websites and social-media sites, in your emails and on the Ponzi boards? Still pushing them after the Legisi, AdSurfDaily, Zeek Rewards and Profitable Sunrise debacles? Is someone like “Ken Russo” or “10bucksup” or “strosdegos” enlisting you to enter Ponzi World?

    Are you listening to Faith Sloan, when she shows you an investment-earnings calculator and plants the seed that the TelexFree action in Brazil is a yawner because it was brought in a “small” state that’s “literally in the middle of the jungle” — all while she further risks offending one-fifth of the world’s population by advising you not to engage in a “panic-like-Chinese-fire-drill” over your legitimate TelexFree concerns?

    If you are turning a blind eye to all the incongruities of HYIP Ponzi Land, you may have the chance to be the next Matt Gagnon, meaning the next several years of your life will be consumed by court actions. First, you’ll watch your “program” get sued by the SEC.  After that, you’ll get sued by the SEC and a court-appointed receiver.  On top of those unpleasantries, you’ll be called a threat to the investing public in newspaper stories across the land, then charged criminally, and then sent to jail for years you’ll never get back while being ordered to pay back either the money you stole or the money you helped someone else steal.

    A final note: More than FIVE years after the SEC filed the first of the Legisi-related fraud charges in May 2008, Legisi victims continue to visit the PP Blog for updates on the various Legisi-related actions, including the multiple actions against Gagnon. Scams may fall out of the headlines for a while — but the fleeced masses never forget them. For posterity, the PP Blog has inserted a section of a Legisi evidence exhibit into the SEC’s statement. It may be the strangest Terms of Service you’ve ever read.

    ** ______________________________________ **

    U.S. SECURITIES AND EXCHANGE COMMISSION
    Litigation Release No. 22749 / July 11, 2013
    Securities and Exchange Commission v. Matthew J. Gagnon, Civil Action No. 10-cv-11891 (E.D. Mich.)

    Serial Fraudster Matthew J. Gagnon Sentenced to Five Years in Prison

    The Securities and Exchange Commission announced that on July 9, 2013, the Honorable Mark A. Goldsmith of the United States District Court for the Eastern District of Michigan sentenced Matthew J. Gagnon to five years of incarceration followed by three years of supervised release and ordered Gagnon to pay over $4.4 million in restitution to his victims.  Gagnon, 45, of Portland, Oregon, pleaded guilty to one count of criminal securities fraud for promoting a securities offering without fully disclosing the amount of his compensation in connection with his promotion of the $72 million Legisi Ponzi scheme in 2006 and 2007, in violation of Section 17(b) of the Securities Act of 1933.

    The criminal charges arose out of the same facts that were the subject of a civil injunctive action that the Commission filed against Gagnon on May 11, 2010.  The Commission’s complaint alleged that since 1997, Gagnon had billed himself as an Internet business opportunity expert and his website as “the world’s first and largest opportunity review website.”  According to the SEC’s complaint, from January 2006 through approximately August 2007, Gagnon helped orchestrate a massive Ponzi scheme conducted by Gregory N. McKnight and his company, Legisi Holdings, LLC, which raised a total of approximately $72 million from over 3,000 investors by promising returns of upwards of 15% a month.  The complaint also alleged that Gagnon promoted Legisi but in doing so misled investors by claiming, among other things, that he had thoroughly researched McKnight and Legisi and had determined Legisi to be a legitimate and safe investment.  The complaint alleged that Gagnon had no basis for the claims he made about McKnight and Legisi.  Gagnon also failed to disclose to investors that he was to receive 50% of Legisi’s purported “profits” under his agreement with McKnight.  According to the complaint, Gagnon received a net of approximately $3.8 million in Legisi investor funds from McKnight for his participation in the scheme.

    legisiciadisclaimerThe SEC’s complaint further alleged that beginning in August 2007, Gagnon fraudulently offered and sold securities representing interests in a new company that purportedly was to develop resort properties.  The complaint alleged that Gagnon, among other things, falsely claimed that the investment was risk-free and “SEC compliant,” and guaranteed a 200% return in 14 months.  In reality, however, Gagnon sent the money to a twice-convicted felon, did not register the investment with the SEC, and knew such an outlandish return was impossible.  Gagnon took in at least $361,865 from 21 investors.

    The SEC’s complaint also alleged that in April 2009, Gagnon began promoting a fraudulent offering of interests in a purported Forex trading venture. Gagnon guaranteed that the venture would generate returns of 2% a month or 30% a year for his investors.  Gagnon’s claims were false, and he had had no basis for making them because Gagnon never reviewed his friend’s trading records before promoting the offering, which would have shown over $150,000 in losses over the previous nine months.

    The SEC’s complaint charged Gagnon with violating Sections 5(a), 5(c), 17(a) and 17(b) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The complaint sought preliminary and permanent injunctions, disgorgement, and civil penalties from Gagnon.  On May 24, 2010, the SEC obtained an emergency order freezing Gagnon’s assets and other preliminary relief.  Subsequently, on August 6, 2010, the Court granted an order of preliminary injunction against Gagnon pursuant to his consent. On March 22, 2012, the Court granted the SEC’s motion for summary judgment and entered a final judgment against Gagnon.  The Court found that Gagnon violated the registration, anti-fraud, and anti-touting provisions of the federal securities laws.  The Court’s final judgment against Gagnon permanently enjoined him from future violations of Sections 5(a), 5(c), 17(a) and 17(b) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and ordered Gagnon to pay $3,613,259 in disgorgement, $488,570.47 in prejudgment interest, and a $100,000 civil penalty.

    On May 2, 2012, the SEC instituted related administrative proceedings against Gagnon to determine what, if any, remedial action was appropriate and in the public interest.  On July 31, 2012, the SEC issued an Order Making Findings and Imposing Sanctions by Default barring Gagnon from association with any broker or dealer.

    For further information regarding this case, see Litigation Releases No. 21532 (May 25, 2010), and 22310 (March 27, 2012).

    See also:  SEC Complaint

    http://www.sec.gov/litigation/litreleases/2013/lr22749.htm

  • Legisi HYIP Pitchman Matthew John Gagnon Pleads Guilty, Admits He Didn’t Disclose ‘Touting’ Compensation Of More Than $1 Million And Caused More Than $7 Million In Losses

    Matthew John Gagnon
    Matthew John Gagnon

    Legisi HYIP Ponzi-scheme pitchman Matthew John Gagnon has pleaded guilty in the Eastern District of Michigan to a criminal charge of not disclosing he’d been paid more than $1 million by Legisi and its operator Gregory N. McKnight to tout the “program” online.

    In a plea agreement now public after being fashioned in October and November, Gagnon admitted he’d caused more than $7 million in losses to more than 50 Legisi investors. Legisi gathered about $72 million and collapsed in 2008, according to court filings.

    Legisi was promoted on Ponzi-scheme forums such as TalkGold and MoneyMakerGroup. Gagnon, who was accused of willful blindness and potentially faces up to five years in federal prison when sentenced in May, pitched the “program” through Mazu.com. The MoneyMakerGroup forum is specifically referenced in an evidence exhibit in the Legisi case.

    In the agreement, Gagnon admitted he touted Legisi as a “winner” and “not a scam.” On any given day, any number of hucksters make the same claims about any number of “programs” on the Ponzi boards. Willful blindness — in no small measure — drives the scams.

    Legisi’s Terms of Service sought to make members affirm they were not an “informant, nor associated with any informant” of the IRS, FBI, CIA and the SEC, among other agencies, according to documents filed in federal court. McKnight, like Gagnon, faces sentencing in May. Prosecutors have sought a 15-year term for McKnight.

    Both McKnight and Gagnon also face millions of dollars in civil judgments that flowed from a case brought by the SEC in 2008. The U.S. Secret Service and state authorities in Michigan also investigated Legisi.

    Prosecutors recommended a three-level sentencing reduction for Gagnon, noting he has accepted responsibility for his role in the scam and has assisted authorities.

    U.S. District District Judge Mark A. Goldsmith is scheduled to sentence Gagnon on May 7.

    Zeek Rewards, an alleged $600 million Ponzi- and pyramid fraud, also was touted on the MoneyMakerGroup and TalkGold forums. The SEC brought the Zeek case in August 2012.

  • UPDATE: Sentencing For Legisi HYIP Operator Gregory McKnight Postponed Again Pending Depositions; Now Set For May 7

    Gregory McKnight. From PDF of federal court file.
    Gregory McKnight. From PDF of federal court file.

    Sentencing for Gregory N. McKnight, the operator of the Legisi HYIP Ponzi scheme, has been postponed until May 7. McKnight had been scheduled to be sentenced today. The postponement marks at least the fourth in the case.

    McKnight pleaded guilty to wire fraud a year ago this month. The docket of the case in federal court in the Eastern District of Michigan notes that today’s sentencing was postponed because McKnight is participating in depositions. Although federal prosecutors have asked for a 15-year sentence for McKnight, filings suggest that McKnight hopes to earn a sentencing reduction for assisting the court-appointed receiver in the case recover money for victims of the $72 million fraud.

    On Jan. 31, U.S. District Judge Mark A. Goldsmith denied a motion by McKnight to be removed from a tether. Although details were not immediately clear, tethering is a form of electronic monitoring.

    Legisi was promoted on Ponzi scheme forums such as TalkGold and MoneyMakerGroup. The SEC charged McKnight and Legisi in May 2008. A criminal charge followed.

    The U.S. Secret Service and state authorities in Michigan also were involved in the Legisi probe.

    See Nov. 28, 2012, PP Blog story.

  • UPDATE: Sentencing For Legisi HYIP Ponzi Swindler Gregory McKnight Rescheduled For Feb. 5

    This grainy likeness of Legisi HYIP operator Gregory N. McKnight appears in U.S. court files.

    Sentencing for a Michigan man federal prosecutors accused of “semantic obfuscation” for the manner in which his “program” was promoted has been rescheduled for Feb. 5, according to the docket of U.S. District Judge Mark A. Goldsmith of the Eastern District of Michigan.

    The sentencing delay for Gregory N. McKnight, who conducted the Legisi HYIP Ponzi swindle, is at least the third. McKnight originally was scheduled to be sentenced Sept. 11. That date was delayed until Nov. 19 — and now has been delayed until Feb. 5.

    Prosecutors did not return a call seeking comment on the Legisi case, McKnight and the reason for the sentencing delay.

    But it is known that the court-appointed receiver in the Legisi case has moved for a contempt of court order against Paul Harary. Harary, 48, is a purported one-time FBI informant now in federal prison in Alabama for his role in a Boca Raton, Fla., investment fraud that occurred in 2004 and 2005.

    Receiver Robert B. D. Gordon (Corrected Aug. 22, 2013) alleges that Harary informed individuals who were researching McKnight for the purposes of selling him investments prior to the filing of the SEC’s Ponzi case in May 2008 that McKnight likely was operating a Ponzi scheme and offering impossible returns.

    Harary also allegedly consulted with at least one of the individuals about Legisi’s bizarre Terms of Service, including a provision that required investors to affirm they were not with the government, namely the IRS, the FBI, the CIA and the SEC. Harary, the receiver alleged, told the individual “that if Legisi was not doing anything wrong why would Legisi want these representations from their customers[?]”

    Despite Harary’s alleged misgivings about McKnight and Legisi and an acknowledgment by at least one of the individuals that McKnight likely was running a scam, the individuals allegedly decided to solicit money from McKnight for the purpose of investing in penny stocks and a real-estate limited partnership.

    McKnight allegedly turned over more than $20 million, beginning about a year prior to the collapse of his Ponzi, according to the receiver.

    But now Harary is ducking a deposition aimed at getting to the heart of the alleged fraudulent transfer, according to the receiver.

    HYIPs are infamous for using wordplay to try to duck securities regulators. An evidence exhibit in the Legisi case includes a transcript of McKnight interacting with undercover agents who’d infiltrated the purported “opportunity.”

    McKnight, according to the transcript, informed the agents that he was presiding over a “loan” program, not an investment program.

    The MoneyMakerGroup Ponzi forum also is referenced in court documents in the Legisi case.

    Zeek Rewards, another alleged Ponzi scheme, also was pushed on MoneyMakerGroup. Zeek, too, insisted it was not offering investments.

    McKnight pleaded guilty in February to wire fraud. Prosecutors have asked for a prison sentence of 15 years.

     

  • BULLETIN: Citing Gregory McKnight’s ‘Semantic Obfuscation,’ Prosecutors Ask Judge To Sentence Convicted Legisi HYIP Swindler To 15 Years — ‘The Top Of The Sentencing Guidelines’; Like Zeek, ‘Program’ Was Pushed On The Ponzi Boards And Instructed Members Not To Use The Word ‘Investment’

    This grainy likeness of Legisi HYIP operator Gregory N. McKnight appears in U.S. court files.

    BULLETIN: Yesterday’s scheduled sentencing of convicted Legisi HYIP swindler Gregory N. McKnight has been delayed until Nov. 19, but federal prosecutors in the Eastern District of Michigan have asked U.S. District Judge Mark A. Goldsmith to sentence McKnight to 15 years in prison.

    McKnight and Legisi relied on “semantic obfuscation” in which investors were told they were joining a “loan program,” not making an “investment,” prosecutors said.

    A 15-year sentence is at “the top of the sentencing guidelines of 151-188 months” and “may serve to discourage others who are inclined to involve themselves in similar criminal conduct,” prosecutors argued to the judge.

    In February, McKnight, 52, pleaded guilty to wire fraud in the Legisi Ponzi caper. The scam, which planted the seed a return of between .25 percent a day and 12 percent a month was possible, was popularized in part on Ponzi boards such as MoneyMakerGroup and Talk Gold.

    Court filings show that Legisi used some of the same payment processors used by the AdSurfDaily Ponzi scheme, including e-Gold and e-Bullion. ASD operator Andy Bowdoin was sentenced in August to 78 months in federal prison.

    “The principle mechanism by which investor funds would be funneled to defendant was through the utilization of the internet via digital currency, particularly e-gold and e-bullion,” prosecutors said in the McKnight sentencing memo. “The use of these non-traditional funding methods provided McKnight with the opportunity (at least for a while) to conduct the scheme below the radar of regulators.”

    And, prosecutors pointed out, “[i]n 2007, the United States government seized the property in approximately 58 e-gold accounts due to various criminal violations, including McKnight’s account . . . Moreover, in 2008, e-gold and its operators were convicted of money laundering and conspiracy to defraud the United States . . . And in 2006, the United States government commenced a forfeiture suit against e-bullion for operating an unlicensed money transmitting business, wire fraud, and money laundering . . . James Fayed, the owner and operator of e-bullion, was later convicted in the State of California of having his wife murdered and sentenced to death row.”

    Legisi gathered about $72 million. The SEC and the U.S. Secret Service led the probe, which resulted in civil charges against McKnight by the SEC and a criminal charge of wire fraud against him by the Secret Service.

    Legisi pitchman Matthew John Gagnon also was charged civilly and criminally in the Legisi case.

    From the prosecution’s sentencing memo on McKnight (italics added/bolding in original):

    As if the exorbitantly high interest rates were not enough to induce investors into defendant’s scam, Legisi also offered a referral program whereby investors could earn a 5% to 7% commission on the amount of new funds that a referred investor placed in the program. As McKnight explained, “[a]s an Active Member of Legisi.com, you are encouraged to refer friends, colleagues, and your own website visitors to us and benefit from an additional source of income — a 5% – 7% incentive bonus for each new account opened by your referrals and on any and all future deposits from them!”

    Legisi was an acronymn that stood for “Lucrative Electronic Gold Income Services International,” prosecutors said. HYIP schemes spread in part because unlicensed/unregistered brokers (such as Gagnon) push them online to earn “commissions.”

    The MoneyMakerGroup Ponzi forum — one of the outlets from which Legisi was pushed — is specifically referenced in court filings in the Legisi case.

    Zeek Rewards, which the SEC described last month as a $600 million Ponzi- and pyramid scheme selling unregistered securities, also was heavily pushed on the Ponzi forums. Zeek used both domestic and offshore financial vendors, including AlertPay and SolidTrustPay in Canada.

    Zeek planted the seed it could provide a return of between 1 percent and 2 percent a day, far higher than Legisi’s maximum suggested payout of 12 percent a month. Like Zeek, ASD suggested a payout on the order of 1 percent a day. The ASD scheme gathered at least $119 million, federal prosecutors in the District of Columbia said.

    ASD relied on wordplay to dupe investors. So did Legisi, prosecutors said in the McKnight sentencing memo (italics added):

    In addition to operating a Ponzi scheme, McKnight committed various securities violations. While McKnight himself referred to Legisi as a “loan” program, and demanded that “members” not refer to their “loan” and an “investment,” Legisi was, in reality, an investment contract, which is considered a security and therefore regulated by the Securities and Exchange Commission. This semantic obfuscation was quite obviously an attempt to sidestep the securities laws.

    From a footnote in the prosecution’s McKnight sentencing memo (italics added):

    [Legisi] Investors originated from all 50 states and approximately 33 foreign countries (Australia, Bahamas, Belgium, Canada, Cyprus, Demark, England, France, Finland, Germany, Greece, Iceland, India, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Malaysia, Mexico, Nigeria, Philippines, Saudi Arabia, Singapore, Slovenia,
    South Africa, South Korea, Sweden, Spain, Thailand, Trinidad West Indies).

    Read the prosecution’s sentencing memo on McKnight and recommendation of 15 years’ imprisonment.

  • URGENT >> BULLETIN >> MOVING: KABOOM! Gregory N. McKnight, Legisi HYIP Operator And Ponzi-Forum Darling, Pleads Guilty To Wire Fraud

    This grainy likeness of Gregory N. McKnight is taken from federal court filings in 2008.

    URGENT >> BULLETIN >> MOVING: Gregory N. McKnight, the operator of the Legisi HYIP Ponzi scheme, has pleaded guilty to wire fraud in federal court in the Eastern District of Michigan, the SEC said this afternoon.

    McKnight was charged criminally on Feb. 14 — Valentine’s Day. His guilty plea followed two days later, the SEC said. He faces a maximum sentence of 20 years in federal prison. The SEC charged him civilly in May 2008.

    Legisi, which gathered more than $72 million and fleeced more than 3,000 investors in the United States and several other countries, was popularized in part on Ponzi cesspits such as TalkGold and MoneyMakerGroup.

    MoneyMakerGroup is specifically referenced in U.S. court files in the Legisi case.

    Legisi’s Terms of Service resemble those of JSS Tripler/JustBeenPaid, a purported “opportunity” currently being flogged on the Ponzi boards even as CONSOB, the Italian securities regulator, has opened a probe into the actions of JSS Tripler/JustBeenPaid promoters.

    Promos by Legisi triggered an undercover operation by the U.S. Secret Service and state regulators in Michigan.

    In addition to the prospect of jail time, McKnight is on the receiving end of a civil judgment and penalties totaling about $6.5 million, the SEC said.

    Legisi members, according to the Terms, had to affirm they were not an “informant, nor associated with any informant” of the IRS, FBI, CIA and the SEC, among others, according to documents filed in federal court.

    The others included “Her Majesty’s Police,” the Intelligence Services of Great Britain, the Serious Fraud Office and Interpol.

    JSS Tripler/JustBeenPaid makes members affirm they are “not an employee or official of any government agency.” In addition, it makes them affirm they are not “acting on behalf of or collecting information for or on behalf of any government agency” and not “an employee, by contract or otherwise, of any media or research company.”

    One of Legisi’s payment “programs” advertised a return of .25 (one-quarter) percent per day, according to court filings.

    JSS Tripler/JustBeenPaid promotes a return of 2 percent a day — eight times higher than Legisi.

    A sentencing date for McKnight will be determined later, the SEC said.

    U.S. District Judge Mark A. Goldsmith presided over McKnight’s guilty plea, the SEC said.

    Frederick Mann is the purported operator of JSS Tripler/JustBeenPaid.