Thursday, May 19, 2011

Michael S. Goldberg Sentenced to 10 Years in Federal Prison for Operating $100 Million Ponzi Scheme


David B. Fein, United States Attorney for the District of Connecticut, announced that MICHAEL S. GOLDBERG, 40, was sentenced today by United States District Judge Robert N. Chatigny in Hartford to 120 months of imprisonment, followed by three years of supervised release, for operating a $100 million “Ponzi” scheme that defrauded investors of more than $30 million over an approximately 12-year period.

“As a result of this defendant’s decade-long fraud scheme, many victims lost their homes, retirement security, or college savings for their children,” stated U.S. Attorney Fein. “Despite the best efforts of the FBI and the receiver who has been appointed by the court to recover funds, it is unlikely that most of these victims will ever be made whole. The lengthy prison term imposed today is an appropriate one for an individual who caused financial misery for so many, and should deter others from seeking to prey upon innocent investors.”

According to court documents and statements made in court, from approximately 1997 to November 2009, Goldberg, formerly of Wethersfield, devised and executed a scheme to defraud numerous investors by soliciting millions of dollars of funds under false pretenses, failing to invest the investors’ funds as promised, paying existing investors with new investors’ money, and misappropriating and converting investors’ funds to Goldberg’s own benefit and the benefit of others without the knowledge or authorization of the investors. Initially, Goldberg transacted with investors in his own name. Beginning in September 2005, Goldberg received investments through Michael S. Goldberg, LLC, which at times did business as Acquisitions Unlimited Group.

Goldberg’s scheme to defraud investors involved principally two different types of misrepresentations. First, Goldberg solicited individuals to invest money in “diamond contracts.” In order to induce individuals to invest money, Goldberg represented that he would use investors’ money to purchase diamonds at extremely low prices from vendors in New York City, and that he would then resell those diamonds immediately at a substantial profit. Goldberg represented that the profits from the resale of the diamonds would enable him to pay investors a 20 to 25 percent return on investment every 60 to 90 days.

However, the vast majority of Goldberg’s fraud involved his solicitation of individuals and organizations to invest money in the purchase of distressed assets from JP Morgan Chase Bank (“Chase”). Goldberg falsely represented to potential investors in these “Chase asset deals” that Chase had granted him a contractual right to purchase foreclosed and seized business assets from a Chase Foreclosure Manifest, which he would then resell in prearranged transactions to large, well-known corporations. Goldberg represented that his purchase and resale of these foreclosed assets would enable him to pay investors a return on capital of up to 20 percent in a short period of time, typically 90 days. In addition, Goldberg represented that Chase would refund the purchase price of any asset that could not be resold, and that therefore there was no risk to the investor that any principal investment would be lost.

In order to induce individuals to invest in both diamond contracts and Chase asset deals, Goldberg typically drafted and entered into a “Business Investment Agreement Form” with each investor. In these forms, Goldberg set out the terms of the investment, including the amount of the return on capital and the date the return was to be paid. In many of the agreements, Goldberg indicated that he would be responsible for the payment of all taxes, and also included language explaining the risk-free nature of the investment.

As part of his scheme to defraud the investors, Goldberg also compensated other individuals (“feeders”) for locating new investors, primarily in Chase asset deals, through the payment of a “finder’s fee.”

On September 13, 2010, Goldberg pleaded guilty to three counts of wire fraud stemming from the scheme. In pleading guilty, Goldberg admitted that each and every one of his representations were false. Aside from a brief period in 1997, he did not purchase diamonds in New York City or any other location; he did not have any relationship with Chase; he did not purchase any foreclosed and seized assets from Chase; nor did he resell any foreclosed and seized assets. Goldberg paid the promised returns to existing investors with funds he received from new investors or reinvested funds. When an investor questioned Goldberg about his business relationships, either with Chase or with any other company, he often created false documents and other items to induce investors to believe that his business relationships were legitimate, including inventories and/or manifests, contracts, business checks, bank statements, business cards, and company identification cards. Goldberg also created domain names in the names of actual companies, including Chase, that would be listed on false documents in case an investor attempted to verify the authenticity of the documents. In addition, Goldberg opened actual bank accounts in the names of the companies to whom he purported to be selling foreclosed business assets, without the permission of those companies, that could also be used to create the false impression that he had a business relationship with the companies.

Through this scheme, Goldberg induced more than 350 individuals to invest more than $100 million in diamond contracts and Chase asset deals. Investors have lost a total of more than $30 million as a result of the scheme.

Goldberg is involved in two Chapter 7 bankruptcy proceedings that are currently pending in the U.S. Bankruptcy Court in Hartford. James Berman of the law firm of Zeisler and Zeisler, P.C. has been appointed as bankruptcy trustee for the purpose of paying the creditors of the bankruptcy estate pursuant to orders of the U.S. Bankruptcy Court.

Today, Judge Chatigny ordered Goldberg to pay restitution in the amount of $31,023,035.40. In order to assist the government and the court in administering this restitution order, Judge Chatigny appointed James Berman to serve as temporary receiver. The receiver will identify the victims of Goldberg’s criminal conduct and their respective losses from the scheme, pursue and recover all restitution funds from sources he identifies, and propose to the court a plan for distribution of the restitution.

Goldberg has been released on a $1 million bond since his arrest on November 23, 2009. He was ordered to report to a facility to be designated by the federal Bureau of Prisons on July 18, 2011.

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