United States Attorney Laura E. Duffy announced that Matthew “Beau” La Madrid was sentenced today by U.S. District Court Judge William Q. Hayes to serve a lengthy federal prison term in connection with his operation of the Plus Money Premium Return Funds (“PRF”) and related real estate investment and mortgage fraud schemes. The defendant entered his guilty plea on January 3, 2011.
Matthew “Beau” La Madrid was sentenced to serve 120 months in prison, three years of supervised release, and ordered to pay $23,484,171.33 in restitution, based on his convictions for conspiracy to commit mail fraud, wire fraud, and bank fraud and conspiracy to launder money. He was also ordered to forfeit the proceeds he generated from these crimes, including $7 million, his interest in five parcels of real property, and the assets seized as part of related Securities and Exchange Commission enforcement actions.
According to sentencing documents, Beau La Madrid was the mastermind of the principal investment scheme in which, between 2004 and 2008, he and others fraudulently solicited from PRF investors more than $39 million that they promised to invest in “covered calls” stock option trading. Instead, a substantial part of new investor funds was used to make monthly payments to earlier investors, and more than $7 million was secretly funneled to a bank account that Beau La Madrid controlled in the name of Vision Quest Investments. To mislead investors into believing that their PRF investments were profitable and intact, La Madrid sent investors monthly account statements that reported fictitious brokerage account values and trading returns. By the fall of 2007, the investors’ money was gone. Despite the collapse of Plus Money, La Madrid continued to solicit unsuspecting investors, receiving more than $1.9 million between July 30, 2007 and January 2008.
As set forth in court filings, Beau La Madrid was a principal in related real estate companies—Real Estate Investment Group (REIG) and E & M Property Management—which were used to fraudulently obtain from investors more than $3 million by falsely promising to secure real estate investments with promissory notes and recorded deeds of trust. In reality, the deeds of trusts were either not recorded or improperly recorded, causing victims to lose their investments when the properties purportedly securing the notes were sold or foreclosed upon. La Madrid even promised to pledge his own personal residence as security for some promissory notes. The victims were financially devastated when the notes were not properly secured and the notes went unpaid.
According to sentencing documents, La Madrid funded his Ponzi and real estate fraud schemes by fraudulently securing mortgage loans, for duping borrowers into investing almost $5 million of their loan proceeds in PRF and REIG/E&M promissory note investments. At least 94 fraudulent loan applications were submitted to obtain more than $34 million in loans. Among other things, the fraudulent loan applications listed false employers, incomes, false and inflated assets, and misrepresented that borrowers would occupy the residences when they actually were intended as the defendants’ investment property. Based on these misrepresentations and others, financial institutions and other lenders funded the loans and eventually lost more than $6.8 million once the La Madrid schemes came to light. By contrast, La Madrid collected more than $760,000 in loan commissions and $250,000 in real estate commissions from fraudulent mortgage/real estate transactions.
In total, La Madrid cheated more than 300 victims out of more than $26 million. Beau La Madrid spent more than $786,000 of his crime proceeds supporting his lavish life style, which included purchasing luxury vehicles, jewelry, and art; vacationing; and gambling.
United States Attorney Duffy said, “The defendant left a wake of financial devastation from which many victims will not soon recover. The sentences imposed today reflect the depth of the harm done and will hopefully bring some measure of justice to the victims.”
Sunday, July 31, 2011
Matthew La Madrid Sentenced for His Role Masterminding $30 Million Ponzi Scheme and Mortgage Fraud
Saturday, July 30, 2011
David R. Lewalski Pleads Guilty to $30 Million Investment Fraud Scheme
WASHINGTON – David R. Lewalski, formerly of Gainesville, Fla., pleaded guilty today to mail fraud in connection with his operation of a $30 million investment fraud scheme, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney Robert E. O’Neill of the Middle District of Florida.
Lewalski, 47, pleaded guilty before U.S. Magistrate Judge Mark A. Pizzo in the Middle District of Florida and faces a maximum penalty of 20 years in prison.
According to court documents, the defendant, who operated a company called Botfly LLC, willfully engineered and executed a scheme to defraud by promising victim investors that he could generate returns of up to 10 percent per month, compounded monthly, through his trading in the foreign currency (forex) market. In fact, the defendant operated an investment fraud scheme. The defendant and others working at his direction raised approximately $29,851,598 from victim investors, but the defendant used only a small percentage of those funds for forex trading (approximately $2.6 million), the vast majority of which he lost.
Lewalski admitted that instead of trading in the foreign currency market as he promised, he used the bulk of victim investor funds to make payments to other investors in order to perpetuate the scheme and make it appear as if he was generating the promised returns. Lewalski paid investors $14,339,887 in “returns” that he led them to believe were generated by his forex trading when, in reality, he was merely paying them with other victim investors’ funds. Lewalski also spent millions of dollars of victim investor funds on personal expenses, including high end real estate, private jet travel, luxury automobiles, computer equipment and jewelry.
This case is being prosecuted by Assistant U.S. Attorney Mandy Riedel and Trial Attorney Henry Van Dyck of the Criminal Division’s Fraud Section. The case was investigated by the U.S. Postal Inspection Service, the Florida Department of Law Enforcement, and the Florida Office of Financial Regulation, with assistance from the Florida Office of the Attorney General.
Friday, July 29, 2011
Family Members Sentenced in Aspen Exploration, Inc. Oil and Gas Investment Fraud Scheme
DALLAS—Three family members/principals of Aspen Exploration, Inc., the managing partner of oil and gas well programs offered and sold to investors throughout the U.S. and elsewhere, were sentenced late yesterday by U.S. District Judge Jorge A. Solis for their respective roles in operating a fraudulent investment scheme, announced U.S. Attorney James T. Jacks of the Northern District of Texas. Two other officers convicted in the scheme have pleaded guilty and are scheduled to be sentenced in late August 2011. Aspen operated from offices located at 2901 Dallas Parkway, Suite 380, in Plano, Texas.
Brother Gregory Keith Rand, aka “Greg Rand,” 46, and William Nicholas Rand, aka “Bill Rand,” 41, both of Dallas, were sentenced to 18 years and 14 years, respectively, in federal prison. Their father, William Anthony Rand, aka “Tony Rand,” 69, of Plano, was sentenced to five and one-half years in federal prison. In addition, the defendants were ordered to pay $99,707,758 in restitution and forfeit numerous pieces of personal property to the government, including real estate, boats and other personal water craft, luxury vehicles, artwork, including an original Picasso, furniture, antiques, musical instruments, jade, expensive jewelry, and wine. Greg Rand was remanded into custody; the others will be allowed to report to the Bureau of Prisons at a later date. The forfeited property will be sold by the U.S. Marshals Service.
The remaining defendants who have also pleaded guilty, Joel William Petersen, 44, of Frisco, Texas, and Tony Rand’s son, Mark Albert Rand, 45, also of Plano, are scheduled to be sentenced on August 31, 2011.
Greg, Bill, and Mark Rand were officers, directors, and owners of Aspen. Tony Rand was the financial manager for Aspen, and Joel Petersen was a vice president and salesman for Aspen.
Greg Rand pleaded guilty to one count of conspiracy to commit mail fraud and securities fraud and three counts of securities fraud. Bill Rand pleaded guilty to three counts of securities fraud. Tony Rand and Joel Petersen each pleaded guilty to one count of conspiracy to commit mail fraud and securities fraud and one count of securities fraud.
According to documents filed in the case, Aspen, through its officers, employees and salesmen, raised funds from purchasers who invested funds to purchase securities in the form of joint venture programs created to promote and sell, to the public, units representing working interest and net revenue interest in wells #5, #6 and #7, located on the Rancho Blanco Corporation State Gas Unit, a unitized oil and gas lease located in Jim Hogg and Zapata Counties in Texas.
Defendants knowingly made numerous misrepresentations to investors, including: 1) investor funds would be used to drill, test and complete their particular well; 2) Aspen would provide and pay for all services necessary to drill, test and complete their particular well before Aspen determined and received its “turnkey profit” from their program; 3) investor funds wouldn’t be commingled except as necessary to pay the costs to drill, test and complete their particular well; and 4) investors would have managerial rights regarding the operation of their particular joint venture and well.
Funds invested in Ranch Blanco #5, Rancho Blanco #6 and Rancho Blanco #7 programs were typically transferred almost immediately to Aspen’s corporate bank accounts. No reports detailing the use and status of joint venture funds were provided to investors, and in fact, investors had no ability to control, manage or audit their investments and any attempts they made to audit their joint venture operations were thwarted. The defendants diverted investor funds for their own benefit, for the benefit of others and for drilling and operating costs related to prior wells.
Inaccurate information, touting the performance of earlier wells, was provided to investors, without disclosing vendor liens and investor litigation related to earlier wells. Not disclosing actual production revenues that investors received in prior wells, and the liens and litigation related to the earlier wells, made representations about anticipated and potential investor returns misleading. Salesmen represented to investors that they could receive profits equal to the return of their cash investment within three years with potential production revenues lasting up to 20 years and multi-fold returns on their investment funds.
In fact, Aspen was insolvent and relied upon investor funds to operate. Aspen had also failed to pay similar costs for other wells previously sold to investors. The Ranch Blanco #7 well has yet to be drilled. The Rancho Blanco #5 and #6 wells are the subjects of vendor liens and litigation. Aspen is currently in involuntary bankruptcy in the Southern District of Texas.
According to the indictment, Greg Rand, Bill Rand, and Mark Rand had significant personal tax liabilities. In fact, a final judgment was entered in August 2009, in case number 3:08cv795B, filed in the Northern District of Texas, ordering Greg Rand to pay $7.6 million, plus interest and penalties, to the U.S. for his 2000, 2001, 2002, 2003, 2004 and 2005 federal income tax liability.
In addition, the defendants failed to disclose that Aspen’s financial manager Tony Rand, had been convicted in the Eastern District of Arkansas of bank fraud, money laundering, and interstate transportation of securities by fraud, and had served nearly seven years in federal prison for those convictions.
Thursday, July 28, 2011
Former Sky Capital CEO Ross Mandell, and Senior Broker Adan Harrington Found Guilty in Manhattan Federal Court of Committing Massive Investment Fraud and Stock Manipulation Scheme
PREET BHARARA, the United States Attorney for the Southern District of New York, announced that ROSS MANDELL, a former chief executive officer of Sky Capital, LLC, a brokerage firm, and related Sky Capital companies; and ADAM HARRINGTON, a senior broker at Sky Capital, were found guilty today in Manhattan federal court on all four counts for their involvement in a scheme to defraud investors through two successive securities broker-dealers—The Thornwater Company, L.P. (“Thornwater”) and Sky Capital, LLC. MANDELL and HARRINGTON were convicted after a five-week trial presided over by U.S. District Judge PAUL A. CROTTY.
Manhattan U.S. Attorney PREET BHARARA stated: “Ross Mandell and Adam Harrington were masters of deception who had no qualms about lying to investors, manipulating stock prices, and using dubious trading practices to enrich themselves at the expense of their victims. Today, a jury in Manhattan federal court saw through their elaborate scheme and recognized the defendants as the shameless fraudsters they truly are. They will now pay for their crimes.”
According to the superseding indictment filed in Manhattan federal court, other court documents, and statements made during trial:
From 1998 through 2006, MANDELL, HARRINGTON, and their co-conspirators STEPHEN SHEA, ARN WILSON, ROBERT GRABOWSKI, and MICHAEL PASSARO participated in a scheme to defraud investors through material misrepresentations and omissions that induced individuals to invest in Thornwater and Sky Capital-related private placements. In fact, the defendants used investor funds to enrich themselves and others; to pay excessive undisclosed commissions to brokers; and to pay off victims who had lost money through prior purported investment opportunities. In connection with the scheme, the defendants, operating out of Thornwater and Sky Capital’s offices in New York, New York, raised a total of approximately $140 million from investors. MANDELL controlled the operations of both broker-dealers.
As part of the scheme, MANDELL and HARRINGTON directed the brokers at Sky Capital, LLC to manipulate the market prices of two Sky Capital stocks—Sky Capital Holdings Ltd., and Sky Capital Enterprises Inc. (collectively “Sky Capital”). By manipulating the market price of the Sky Capital stocks, the defendants were able to raise tens of millions of dollars from investors through additional Sky Capital private placements with promises that the private placement shares of Sky Capital stocks were “discounted” to the purported market price. To that end, the defendants enforced a “no net sales” policy and instructed brokers not to accept Sky Capital sell orders unless a matching buy order could be generated from another Sky Capital customer, for the purpose of maintaining the market price of the Sky Capital stocks. The defendants and others used high-pressure sales tactics and made materially false statements and omissions to induce investors to buy Sky Capital stock and to discourage them from selling. The defendants and others also made unauthorized purchases of Sky Capital stock in customer accounts as part of the no net sales policy.
To facilitate the market manipulation, MANDELL and HARRINGTON offered excessive undisclosed payments to Sky Capital brokers—sometimes as much as 400 percent more than their normal commissions. The payments were often disguised as “advances,” “loans,” or “special bonuses.” To generate funds for these payments, MANDELL directed participants in the scheme to create a “spread” on Sky Capital stock by negotiating to purchase large blocks from Sky investors at discounted prices. They then solicited other Sky customers to purchase the same stock at the higher price. The profit was split between Sky Capital and the brokers.
* * *
MANDELL, 54, of Boca Raton, Florida, and HARRINGTON, 41, of Miami, Florida, were both found guilty of one count of conspiracy to commit securities fraud, wire fraud, and mail fraud; one count of securities fraud; one count of wire fraud; and one count of mail fraud. They each face a maximum sentence of 65 years in prison, a maximum fine of $5 million or twice the gross pecuniary gain or loss, and a maximum term of supervised release of three years.
SHEA, WILSON, GRABOWSKI, and PASSARO have previously pled guilty and their sentencings are pending.
Mr. BHARARA praised the investigative work of the Federal Bureau of Investigation in this case and thanked the U.S. Securities and Exchange Commission for its assistance. He also thanked the regulatory policy group of the London Stock Exchange, the Financial Services Authority, and local law enforcement agencies in the United Kingdom for their assistance.
Wednesday, July 27, 2011
SEC Charges Liquor Giant Diageo with FCPA Violations
Washington, D.C., July 27, 2011 — The Securities and Exchange Commission today charged one of the world’s largest producers of premium alcoholic beverages with widespread violations of the Foreign Corrupt Practices Act (FCPA) stemming from more than six years of improper payments to government officials in India, Thailand, and South Korea.
The SEC found that London-based Diageo plc paid more than $2.7 million through its subsidiaries to obtain lucrative sales and tax benefits relating to its Johnnie Walker and Windsor Scotch whiskeys, among other brands. Diageo agreed to pay more than $16 million to settle the SEC’s charges. The company also agreed to cease and desist from further violations of the FCPA’s books and records and internal controls provisions.
“For years, Diageo’s subsidiaries made hundreds of illicit payments to foreign government officials,” said Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement. “As a result of Diageo’s lax oversight and deficient controls, the subsidiaries routinely used third parties, inflated invoices, and other deceptive devices to disguise the true nature of the payments.”
According to the SEC’s order instituting settled administrative proceedings against Diageo, the company made more than $1.7 million in illicit payments to hundreds of government officials in India from 2003 to mid-2009. The officials were responsible for purchasing or authorizing the sale of its beverages in India, and increased sales from these payments yielded more than $11 million in profit for the company.
The SEC found that from 2004 to mid-2008, Diageo paid approximately $12,000 per month – totaling nearly $600,000 – to retain the consulting services of a Thai government and political party official. This official lobbied other high-ranking Thai government officials extensively on Diageo’s behalf in connection with pending multi-million dollar tax and customs disputes, contributing to Diageo’s receipt of certain favorable decisions by the Thai government.
According to the SEC’s order, Diageo paid 100 million in Korean currency (more than $86,000 in U.S. dollars) to a customs official in South Korea as a reward for his role in the government’s decision to grant Diageo significant tax rebates. Diageo also improperly paid travel and entertainment expenses for South Korean customs and other government officials involved in these tax negotiations. Separately, Diageo routinely made hundreds of gift payments to South Korean military officials in order to obtain and retain liquor business.
The SEC’s order found that Diageo and its subsidiaries failed properly to account for these illicit payments in their books and records. Instead, they concealed the payments to government officials by recording them as legitimate expenses for third-party vendors or private customers, or categorizing them in false or overly vague terms or, in some instances, failing to record them at all. Diageo lacked sufficient internal controls to detect and prevent the wrongful payments and improper accounting.
Monday, July 25, 2011
More Federal Charges Filed Against Frank Vennes in Petters’ Ponzi Scheme
MINNEAPOLIS—Earlier today in federal court, a superseding indictment was filed against Frank Elroy Vennes, Jr., a business associate of and primary fundraiser for Thomas J. Petters, the Minnesota business man who was convicted in 2009 of orchestrating a multi-billion-dollar Ponzi scheme. The superseding indictment charges Vennes, age 53, of Stuart, Florida, with fraudulently raising money from individuals and through hedge funds to invest in Petters Company, Inc. (“PCI”). Vennes was specifically charged today with eight counts of securities fraud, two counts of mail fraud, six counts of wire fraud, three counts of money laundering, three counts of bank fraud, and two counts of making false statements on credit applications. He was originally charged with four counts of securities fraud and one count of money laundering, the original indictment returned against him on April 20, 2011.
The superseding indictment also charges James Nathan Fry, age 57, of Orono, Minnesota, with five counts of securities fraud, four counts of wire fraud, and three counts of making a false statement to the United States Securities and Exchange Commission during its investigation of investments in PCI by hedge funds under the management of Fry’s company, Arrowhead Capital Management.
PCI was owned and operated by Tom Petters, who, in or before 1993, initiated his Ponzi scheme by representing that funds invested in PCI promissory notes would finance the purchase of electronics and other consumer merchandise. Purportedly, PCI would then resell the merchandise for a profit to certain “big box” retailers, including Sam’s Club and Costco. In truth, however, no merchandise was bought or resold. Instead, Petters diverted for his own personal benefit hundreds of millions of dollars. His $3.65 billion Ponzi scheme unraveled in 2008, when federal agents executed search warrants at his business offices as well as other locations. He was subsequently prosecuted and, in April of 2010, sentenced to 50 years in federal prison. He is currently serving his sentence in the federal penitentiary in Leavenworth, Kansas.
In 1995, Vennes, through his company, Metro Gem, Inc., allegedly began raising money for the purchase of PCI notes. Purportedly, from 1999 through September of 2008, Vennes engaged in approximately 748 transactions involving hundreds of millions of dollars of investors’ money to purchase PCI notes. As of September 24, 2008, approximately $130 million of Metro Gem investors’ money was invested in PCI.
In or around 1998, Vennes allegedly began seeking larger sources of financing for PCI, with Petters promising to pay him “commissions” for his work. Vennes previously had been convicted of federal narcotics, firearms, and money laundering charges, which made it difficult for him to obtain institutional financing. For this reason, he worked with others, including Fry, to form hedge funds, such as the Arrowhead Funds, in an effort to solicit institutional investments in PCI notes.
Fry’s company, Arrowhead Capital Management LLC, was a Minnesota business that acted as an investment advisor to a number of hedge funds known collectively as the Arrowhead Funds. He also served as president of Blue Point Management, Ltd., a Bermuda company that acted as the investment manager for Arrowhead Funds. As a result, Fry solicited money from investors and arranged all Arrowhead Funds’ investments in PCI notes. Between 1999 and September of 2008, Arrowhead Funds engaged in approximately 780 PCI transactions, through which Arrowhead Funds invested more than $500 million of investor’s money in PCI. As of September 24, 2008, approximately $130 million in Arrowhead Funds’ money was invested in PCI notes. All documentation for transactions between Arrowhead Funds and PCI passed through Vennes.
From 2001 through September of 2008, Vennes allegedly made more than $80 million related to Metro Gem investments in PCI notes. Fry made more than $41 million in fees from Arrowhead Funds’ investments in PCI notes, while Vennes also received “commissions” for all of the money invested in PCI through Arrowhead Funds, which allegedly netted him more than $48 million between 2001 and 2008. In addition, Vennes purportedly obtained more than $60 million in “commissions” related to investments in PCI notes by Palm Beach Funds, a group of hedge funds managed by David William Harrold and Bruce Francis Prevost, who were charged in the original indictment and pleaded guilty to committing securities fraud. Again, Vennes acted as the intermediary in transactions involving Palm Beach Funds, which totaled more than one billion dollars in PCI notes as of September of 2008.
Both Vennes and Fry allegedly made material misrepresentations and concealed material information about the PCI investments in order to induce investors. For example, investors were told that whenever a retailer purchased consumer electronics or other goods from PCI, those products were paid for by the retailer with funds directly deposited into a bank account under the control of a management company. As a result, investors were falsely assured that all PCI transactions were, in fact, taking place, and all money was secure. However, Vennes and Fry, among others, knew that no payments were ever received from retailers and, instead, came from PCI alone.
Moreover, Fry was allegedly aware of Vennes’s criminal history but failed to disclose it to institutional investors, although he knew such information was material to investors.
Fry also allegedly asserted to potential investors that historically PCI notes had been paid in 90 days, even though, after the fall of 2007, he knew that statement to be false. In order to conceal default of the notes, Fry and Vennes allegedly arranged to extend the payment dates for PCI notes without advising investors of those extensions. At the same time, both men purportedly continued to seek new investors, never advising them of PCI’s performance problems.
In or about July of 2008, Petters allegedly informed Vennes that there was fraud at PCI, with as many as twenty percent of the PCI notes being compromised. Vennes allegedly concealed that information from investors. He also purportedly continued to take money from investors, even after learning the money in PCI notes was not being used to buy and resell consumer electronics or other merchandise.
If convicted, Vennes faces a potential maximum penalty of 20 years in prison on each mail fraud, wire fraud, bank fraud, and false statement count; ten years on each money laundering count; and five years on each securities fraud count. Fry faces a potential maximum penalty of five years on each count. All sentences will be determined by a federal district court judge.
Sunday, July 24, 2011
Five Employees of A&O Entities Sentenced to Prison for $100 Million Fraud Scheme
WASHINGTON – Five employees for A&O Resource Management Ltd. and various related entities – including two executives – were sentenced today for their roles in a $100 million fraud scheme with more than 800 victims across the United States and Canada.
The sentences were announced by U.S. Attorney for the Eastern District of Virginia Neil H. MacBride and Assistant Attorney General Lanny A. Breuer of the Criminal Division.
The five individuals were sentenced by U.S. District Judge Robert E. Payne. Russell E. Mackert, 52, general counsel for A&O, was sentenced to 188 months in prison; Brent Oncale, 36, former owner and founder of A&O, was sentenced to 120 months in prison; David White, 41, the former president of A&O, was sentenced to 60 months in prison; Eric M. Kurz, 47, a wholesaler of A&O investment products, was sentenced to 60 months in prison; and Tomme Bromseth, 69, an A&O sales agent in the Richmond area, was sentenced to 36 months in prison.
“The impact of this massive fraud on many of A&O’s investor victims has been disastrous,” said U.S. Attorney MacBride. “Hundreds of elderly investors invested their life savings with A&O and saw it all vanish in an instant. These investors were not looking for quick cash, just a safe alternative to invest their retirement funds. The safety, security, and no-risk nature of the investment was critical to the sales pitch, and it was all a big fat lie.”
“Brent Oncale and his co-conspirators operated a sham investment company that turned fraud and deceit into a business model,” said Assistant Attorney General Breuer. “They stole millions from hundreds of unsuspecting investors, pocketing huge sums for themselves. Today’s sentences reflect the severity of these cowardly and costly crimes.”
All five men pleaded guilty in the fall of 2010 and early 2011 for their roles in the fraud scheme at A&O, which falsely marketed life settlement products to investors, many of whom were elderly. The conspirators at A&O defrauded investors by making misrepresentations about A&O’s prior success, its size and office locations, its number of employees, the risks of its investment offerings, and its safekeeping and use of investor funds.
When state regulators began to scrutinize A&O’s investment products, conspirators manufactured a sham sales transaction to “sell” A&O to an offshore shell corporate entity named Blue Dymond and later to another offshore shell corporate entity named Physician’s Trust. However, A&O and Physician’s Trust was still secretly controlled by A&O principals and their conspirators.
On June 6, 2011, the hedge fund manager of A&O, Adley H. Abdulwahab, 35, of Houston, was convicted by a jury in Richmond, Va., of one count of conspiracy to commit mail fraud, five counts of mail fraud, one count of conspiracy to commit money laundering, five counts of money laundering and three counts of securities fraud. A founder of A&O, Christian Allmendinger, 39, was convicted by a jury on March 23, 2011, of one count of conspiracy to commit mail fraud, two counts of mail fraud, one count of conspiracy to commit money laundering, two counts of money laundering and one count of securities fraud. Abdulwahab is scheduled to be sentenced on Sept. 28, 2011, and Allmendinger is scheduled to be sentenced on Aug. 14, 2011. They face up to 20 years in prison on each count except the securities fraud counts, on which they face up to five years in prison.
Saturday, July 23, 2011
Barry Minkow Sentenced to Five Years’ Imprisonment for Stock Manipulation Conspiracy
Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, and John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, announced that defendant Barry Minkow, 44, of San Diego, California, was sentenced today on one count of conspiracy to commit securities fraud, in violation of Title 18, United States Code, Section 371, for his participation in a scheme to manipulate the stock price of Lennar Corporation (Lennar) through false and misleading statements about Lennar’s business operations and management. At today’s hearing, U.S. District Court Judge Patricia A. Seitz sentenced Minkow to five years in prison, to be followed by three years of supervised release. In addition, the court ordered Minkow to pay $583,573,600 in restitution.
According to documents filed with the court, Minkow operated Fraud Discovery Institute, a for-profit fraud investigation firm based in California. In this way, Minkow developed ties with federal law enforcement agencies as a purported fraud-finder. During his plea hearing, Minkow admitted making false and misleading statements alleging widespread improprieties in Lennar’s financial reporting and business structure, and attacking the personal character of Lennar’s management.
According to court documents, Minkow was hired to put economic pressure on Lennar to pay money demanded by a business partner in a prior land deal. To this end, beginning in January 2009, Minkow used the Internet, press releases, e-mail communications, Youtube.com videos, and the U.S. mail to broadcast false and misleading statements about Lennar, with the intent of artificially depressing Lennar’s stock price. Minkow then used his relationship with federal law enforcement agencies to report false allegations of criminal conduct purportedly committed by Lennar and its management. Once Minkow confirmed that his allegations had successfully induced law enforcement to open a criminal investigation, Minkow used that knowledge and information to trade Lennar securities for his own benefit.
Friday, July 22, 2011
Louis J. Borstelmann Sentenced to 108 Months in Prison for $18 Million Ponzi Scheme
EUGENE, OR—Louis J. Borstelmann, 69, of Thousand Oaks, California, was sentenced by United States District Judge Michael R. Hogan to 108 months in prison for running a Ponzi scheme that he used to swindle more than 100 people out of more than $18 million. A majority of Borstelmann’s victims were elderly and retired individuals living in Florence, Oregon, although other victims lived in places as far away as Hawaii, Montana, and Texas. In addition to his prison sentence, Borstelmann must serve three years of supervised release and pay restitution in the amount of $18,989,334.
“Borstelmann wreaked havoc on his victims—mostly older folks—stealing their retirement funds, their homes, even the nest eggs they’d set aside for their grandkids’ education,” said U.S. Attorney Dwight C. Holton. “We can’t get all the money back, but at least we can achieve some measure of justice—and let other con-artists know that we will hold them accountable and send them to prison.”
On March 29, 2011, Borstelmann pled guilty to mail fraud and money laundering in connection with his Ponzi scheme. As part of the scheme, he admitted to soliciting individuals to invest in real estate through his company Sunburst Associates, Inc., a California corporation. Borstelmann falsely claimed to offer hard-money loans through his company that were secured by real estate deeds of trust. To entice potential investors, he falsely promised high rates of return and a security interest in the property allegedly pledged to secure the investment.
Borstelmann further admitted that the alleged investments never existed and that it was all a Ponzi scheme wherein he used new investor money to pay existing investor obligations, and spent investor money on personal items, including a car and a home. At sentencing, Borstelmann was ordered to pay more than $18 million in restitution and forfeited $100,000 and a Lexus SUV.
At the sentencing hearing, several of Borstelmann’s victims told Judge Hogan that they had lost everything due to Borstelmann’s scheme, including their lifesavings, their homes, educational savings for their children and grandchildren, and their ability to trust others.
Thursday, July 21, 2011
SEC Charges Former Corporate Executive Howard B. Wildstein With Insider Trading
The Securities and Exchange Commission filed a civil injunctive action today in the United States District Court for the District of Columbia charging Howard B. Wildstein, a former Pitney Bowes, Inc. executive, with insider trading in the stock of MapInfo Corporation in advance of the March 15, 2007 public announcement that Pitney Bowes had entered into a definitive agreement to acquire MapInfo.
According to the SEC's complaint, Wildstein acquired material nonpublic information concerning the acquisition through his employment at Pitney Bowes. In particular, as alleged in the complaint, in late February 2007, Wildstein learned that MapInfo was a potential target of Pitney Bowes and that executives of Pitney Bowes who were responsible for mergers and acquisitions had recently visited MapInfo. On March 1 and March 2, 2007, based on this material nonpublic information, Wildstein purchased 8,000 shares of MapInfo common stock. After the acquisition was publicly announced, Wildstein sold all 8,000 shares, realizing an unlawful profit of $51,177.
Wednesday, July 20, 2011
Scott M. Ross Sentenced to Six Years in Prison for Swindling $5 Million from 150 Victims in Investment Fraud Scheme
CHICAGO—A northwest suburban man was sentenced to six years in federal prison for engaging in an investment fraud scheme that swindled more than $5 million from approximately 150 victims who invested in funds he purported to operate. The defendant, Scott M. Ross, who pleaded guilty to mail fraud in March, was sentenced yesterday, Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent in Charge of the Chicago Office of the Federal Bureau of Investigation, announced today. Ross misused money he raised from investors for his own benefit, including salary and a stadium sky box, and to make Ponzi-type payments to certain customers who complained.
Ross, 42, of Woodstock, was also ordered to pay outstanding restitution totaling $3,699,834 by U.S. District Judge William Hibbler in Federal Court in Chicago. Ross was ordered to begin serving his sentence on Oct. 18, 2011.
Ross owned and operated Harbor Wealth Management, LLP, and two subsidiaries that together purportedly engaged in the insurance investment business, primarily from an office in Schaumburg. Between 2006 and 2009, Ross’ businesses offered and sold investments to the public in three investment funds: the Elucido Fund, LP, the Moondoggie Fund, LP, and the Maize Fund LP.
Ross raised approximately $1.9 million from about 25 investors in the Elucido Fund, which claimed to invest in life settlement contracts, described as the purchase of the right to receive death benefits upon the death of the insured on a life insurance policy. He raised approximately $3.1 million from approximately 134 investors in the Moondoggie Fund, which purported to invest in the stock of Moondoggie Technologies, Inc., and its reported development of a dual-sided computer monitor.
Ross caused more than 150 of these investors to lose more than $5 million they invested in the two funds by commingling the money he raised and misappropriating funds for his own use and benefit. He made fraudulent statements to investors about his business and investment background, the risks involved in the investments, the return on investment, the use of investors’ funds, and the status of investments.
As part of the fraud scheme, Ross falsely represented to certain investors that he was board certified in estate planning; was a certified fund specialist, and “had passed a comprehensive seven-year background review with all regulatory bodies, including the NASD, SEC, and all state insurance and securities boards.”
As an example of the misappropriation of funds, Ross used all of the funds invested in the Elucido Fund for such improper purposes as paying expenses of the Maize Fund, making Ponzi-type payments to repay investors in the Moondoggie Fund, purchasing a $75,000-per-year sky box at the Indianapolis Colts’ football stadium, and paying himself a $319,000 salary.
Ross falsely represented to investors in the Elucido Fund that they could expect returns of as much as 34 percent from the fund’s investing in a combination of traditional life settlement and viatical instruments, when he neither intended nor did purchase any such instruments. In offering and selling interests in the Moondoggie Fund, Ross falsely represented that Moondoggie Technologies had agreed to buy back its shares purchased by the fund for $3.75 per share in 30 months and later for $5 per share in 36 months; however, Moondoggie Technologies never agreed to repurchase any of its shares at any price.
Tuesday, July 19, 2011
Jon Jason Greco Pleads Guilty to Making False Statements in Trevor Cook Ponzi Scheme
MINNEAPOLIS—Earlier today in federal court in Minneapolis, a 40-year-old Minneapolis man pleaded guilty to making false statements to federal investigators in a multi-million-dollar Ponzi scheme orchestrated by Trevor Cook. Jon Jason Greco pleaded guilty to one count of making a false and material statement in connection to the crime. Greco, who was indicted on March 22, 2011, entered his plea before United States District Court Chief Judge Michael J. Davis.
In his plea agreement, Greco admitted that on July 27, 2010, he lied to investigators about foreign currency and coins he had placed in a locker at the Mall of America. The currency and coins were assets the government wanted to seize. Cook pleaded guilty on April 13, 2010, to federal criminal charges regarding the operation of a foreign currency trading scam that defrauded more than 900 investors. Pursuant to the terms of his plea agreement, Cook committed to turning over the proceeds of the fraud. On June 24, 2010, Greco was interviewed by investigators regarding the location of those assets.
On July 27, Greco admitted that he told investigators the items belonged to him, a gift from a deceased uncle, and did not belong to Cook. However, Greco knew the items belonged to Cook. Because of Greco’s false statements, the U.S. failed to recover approximately $6,000 of the assets. Seized assets were used to repay victims of Cook’s fraud.
For his crime, Greco faces a potential maximum penalty of five years in prison. Judge Davis will determine his sentence at a future hearing, yet to be scheduled. In August of 2010, Cook was sentenced to 300 months in federal prison for orchestrating the scam itself.
Monday, July 18, 2011
SEC Obtains Asset Freezes Within Days of Alleged Insider Trading by Three Swiss Entities
Washington, D.C., July 18, 2011 – The Securities and Exchange Commission today announced that it has obtained asset freezes and other emergency relief against three Swiss-based entities it has charged with insider trading ahead of a July 11 public announcement that Swiss-based Lonza Group Ltd would be acquiring Connecticut-based Arch Chemicals Inc.
According to the SEC’s complaint filed on July 15 within days of the alleged insider trading, Compania International Financiera S.A., Coudree Capital Gestion S.A., and Chartwell Asset Management Services purchased more than a million common shares of Arch between July 5 and July 8, mostly in accounts based in London, England. Immediately after the acquisition announcement on July 11, the firms began selling the recently-purchased shares of Arch common stock for millions of dollars in profits.
According to the SEC’s complaint, at the time the three entities purchased their Arch shares, they are believed to have been in possession of material, non-public information about Lonza’s proposed acquisition of Arch.
“The SEC’s swift action to secure a judicial freeze order only four days after the observation of suspicious trading prevented millions of dollars from moving offshore,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
In filing its complaint in U.S. District Court for the Southern District of New York, the SEC requested emergency relief noting that because the defendants are foreign entities and placed their trades in overseas accounts, there was a substantial risk that, upon clearance at U.S. brokerage firms, the proceeds of the trades would likely be transferred overseas.
The Honorable P. Kevin Castel, acting as emergency judge, granted the SEC’s requested relief late in the day on July 15. Among other things, the court’s order froze certain assets of the defendants and ordered repatriation of all assets obtained from the trading described in the SEC’s complaint. The court has scheduled a preliminary injunction hearing in this matter for July 25 at 10 a.m. ET. The case has been assigned to the Honorable Denise L. Cote.
Saturday, July 16, 2011
SEC Charges First Capital Savings & Loan Ltd. Chief Executive Jeffery A. Lowrance, Who Fled After Scheme Unraveled
Washington, D.C., July 15, 2011 – The Securities and Exchange Commission filed fraud charges Thursday against the CEO of a purported foreign currency trading firm, alleging he scammed hundreds of investors with false promises of high, fixed-rate returns while secretly using their money to fund his start-up alternative newspaper.
First Capital Savings & Loan Ltd. Chief Executive Jeffery A. Lowrance, who had fled to Peru and was arrested there earlier this year, was arraigned today on criminal fraud charges in a 2010 indictment filed by the United States Attorney’s Office for the Northern District of Illinois. In addition, the Commodity Futures Trading Commission filed fraud charges Thursday against Lowrance and First Capital.
The SEC alleges that Lowrance raised approximately $21 million from investors in at least 26 states, including California, Oregon, Illinois and Utah, by promising huge profits from a specialized foreign currency trading program. First Capital actually conducted little foreign currency trading, lost money on the little trading that it conducted, and never engaged in any profitable business operations. Lowrance targeted certain investors by purporting to share their Christian values and their limited-government political views. He solicited investors through, among other things, ads in his start-up newspaper USA Tomorrow, which he distributed at a September 2, 2008 political rally in Minneapolis, Minnesota.
“Lowrance ironically portrayed himself as a crusader against corruption in government, while he ripped off investors who put their trust in him,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office.
According to the SEC’s complaint, filed in federal district court in San Jose, California, Lowrance and First Capital promised investors a “predictable monthly income,” with monthly returns up to 7.15 percent through foreign currency trading. Some investors were told their investments were guaranteed and were given bogus letters of credit. First Capital also published a spreadsheet purporting to show its multi-year history of profitable trades, but the trades were fictitious, the SEC alleged. Instead of engaging in foreign currency trading as claimed, the SEC said Lowrance and First Capital secretly diverted investor funds to pay fake returns to earlier investors, to pay Lowrance (despite his failure to earn a profit for the investors), and to fund his newspaper.
Lowrance’s scheme began to unravel in June 2008 and Lowrance and First Capital had lost all of the investors’ money by September 2008. Nevertheless, Lowrance solicited at least an additional $1 million from at least 36 investors between June 2008 and February 2009 by continuing to tout First Capital’s fictitious high returns, the SEC alleged.
The SEC’s lawsuit seeks court orders prohibiting the defendants from engaging in securities fraud and requiring them to disgorge their ill-gotten gains and pay financial penalties.
