Wednesday, November 30, 2011

Geoffrey A. Gish and Myra J. Ettenboroug Sentenced for Running Ponzi Scheme That Cost Investors $18 Million


Source- http://www.fbi.gov/atlanta/press-releases/2011/georgia-couple-sentenced-for-running-ponzi-scheme-that-cost-investors-18-million

ATLANTA—GEOFFREY A. GISH, 57, of Lawrenceville, Georgia, and MYRA J. ETTENBOROUGH, 56, of Roswell, Georgia, were sentenced to prison late today by United States District Judge Charles A. Pannell, Jr. on charges of conspiracy, mail fraud, and wire fraud.

“These defendants tricked investors into handing over millions of dollars with promises of high yield trading programs that supposedly offered safety, security, and extraordinarily high returns,” said United States Attorney Sally Quillian Yates. “These well-known schemes are all too common, and investors should be skeptical of offers that sound too good to be true. As long as these scams exist, we will continue to use every resource to bring thieves like these to justice.”

Brian D. Lamkin, Special Agent in Charge, FBI Atlanta Field Office, said, “The defendants in this case defrauded investors over numerous years while eluding State investigators by providing false information. Mr. Gish and Ms. Ettenborough exhibited total disregard for their victim investors while displaying an almost limitless level of personal greed. They will now be held accountable for their actions.”

GISH was sentenced to 20 years in prison to be followed by three years of supervised release, and ordered to pay restitution in the amount of $17,245,275.

ETTENBOROUGH was sentenced to seven years in prison to be followed by three years of supervised release, and also and ordered to pay restitution in the amount of $17,245,275. Both were convicted of the charges on September 23, 2011, after a trial which lasted over two weeks.

According to United States Attorney Yates, the charges, and other information presented in court: Beginning in 2004 and continuing to May 17, 2006, GISH and ETTENBOROUGH defrauded investment clients of “Weston Rutledge,” an investment firm, by misrepresenting the ways in which they used investor monies and the purported earnings from those monies. During this period, GISH and ETTENBOROUGH raised approximately $29 million from their clients for investment in three pooled funds. The investors were promised guaranteed returns of as much as 15 percent per quarter, and regular, monthly statements that GISH and ETTENBOROUGH caused Weston Rutledge to send to the investors, purported to show these high returns.

Investors in the largest pooled fund, which supposedly involved “high yield trading programs” between top-tier banks, also were promised that their money was safe and kept in a “blocked” or reserve account.

In reality, GISH and ETTENBOROUGH used the monies raised from investors for a variety of purposes that were different than the purposes and uses represented to investors. None of these uses returned any principal, earnings, or profits to Weston Rutledge consistent with and supporting the representations that GISH and ETTENBOROUGH made to investors about the earnings and profits generated with their funds. Some investors who requested payment of the earnings reflected on their investment statements were paid from monies raised from other investors, which is a common technique in a Ponzi-type investment fraud scheme.

During the course of their scheme, GISH and ETTENBOROUGH were advised on several occasions that they were engaged in or using investor monies for fraudulent activity. In particular, GISH and ETTENBOROUGH were advised that the “high-yield trading programs” were fraudulent, although they ignored this advice and continued to promise investors that their money was safe and being used for such programs. In 2005 and 2006, the Georgia Secretary of State’s Office investigated GISH and his company in connection with the three pooled funds being offered to investors, and whether GISH was violating an earlier state order to cease and desist from acting as an unregistered investment advisor. In response to the Secretary of State’s subpoenas and requests for information, GISH and ETTENBOROUGH provided false and misleading information in an attempt to conceal their scheme and keep it going.

GISH and ETTENBOROUGH’s scheme did not come to an end until May 2006, when the United States Securities and Exchange Commission obtained an order placing Weston Rutledge and the three pooled investment funds into receivership. Of the $29 million that had been raised from investors, GISH and ETTENBOROUGH had used $11 million to pay investors who requested withdrawals or payment of the supposed earnings that their investments were making. The remaining $18 million was gone, used for a variety of purposes that were inconsistent with the promises that GISH and ETTENBOROUGH had made to investors. This included approximately $1.2 million that went to GISH and/or his benefit, including to purchase a house in his name and for the purchase and upkeep of multiple automobiles.




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Tuesday, November 29, 2011

Richard Elkinson Sentenced to 102 Months for $17 Million Ponzi Scheme


Source- http://www.fbi.gov/boston/press-releases/2011/framingham-man-sentenced-to-102-months-for-17-million-ponzi-scheme

BOSTON—A Framingham man was sentenced today to102 months in prison and ordered to pay over $17 million in restitution for a 20-year Ponzi scheme involving more than 200 victims.

Richard Elkinson, 78, was sentenced by U.S. District Judge William G. Young to 102 months in prison to be followed by three years of supervised release and ordered to pay $17 million in restitution, along with an $1,800 special assessment. Elkinson pleaded guilty last April to 18 counts of mail fraud.

Elkinson had held himself out to investors as being a broker working on behalf of a Japanese clothing manufacturer selling uniforms to state government entities. Elkinson told investors that he needed their money to finance the manufacture of those uniforms. To induce people to invest, Elkinson offered them returns ranging from 9-15 percent, which was supposed to be paid from the proceeds of the uniform sales. The only documentation victims received were personal promissory notes from Elkinson. In fact, Elkinson was never engaged in any uniform sales business and investors’ money was used to pay back earlier investors and for Elkinson’s own living expenses.

Elkinson’s scheme started to unravel in late 2008, mostly as a result of the publicity from the Bernard Madoff case, when some of Elkinson’s investors started seeking more information and documents about the uniform business. Elkinson put them off temporarily, then fled the area in mid-December 2009, first to Las Vegas and then to Mississippi, where he was arrested at a casino.




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Monday, November 28, 2011

Jorge Luis Castillo Pleads Guilty in $670 Million Fraud Scheme Involving Victims Throughout the United States and Abroad


Source- http://www.fbi.gov/richmond/press-releases/2011/new-jersey-man-pleads-guilty-in-670-million-fraud-scheme

WASHINGTON—A certified public accountant (CPA) and purported outside auditor for Provident Capital Indemnity Ltd. (PCI) pleaded guilty today for his role in a $670 million fraud scheme involving victims throughout the United States and abroad.

The guilty plea was announced today by U.S. Attorney for the Eastern District of Virginia Neil H. MacBride and Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division.

“Mr. Castillo used his position as a CPA to give PCI an air of legitimacy that provided their clients the peace of mind to invest millions,” said U.S. Attorney MacBride. “Auditors stand as a gatekeeper to fraud, and we are aggressively pursuing those who abuse their position to facilitate the fraud rather than take steps to put a stop to it. I want to commend the outstanding work of the Virginia Securities and Financial Fraud Task Force for detecting and disrupting this massive, ongoing international fraud before the scheme victimized even more investors.”

“Mr. Castillo played an integral role in a multi-million dollar fraud scheme that harmed investors throughout the United States and abroad,” said Assistant Attorney General Breuer. “Trading on his qualification as a CPA, he created false documents that concealed the true nature of PCI’s operations. We are determined to continue holding accountable those who commit financial fraud, and prey upon unsuspecting investors.”

Jorge Luis Castillo, 56, a resident of New Jersey, pleaded guilty before U.S. District Judge John A. Gibney in the Eastern District of Virginia to conspiring to commit mail and wire fraud, which carries a maximum penalty of 20 years in prison. Castillo is scheduled to be sentenced on May 22, 2012.

According to a statement of facts filed with Castillo’s plea agreement, PCI was an insurance and reinsurance company registered in the Commonwealth of Dominica and doing business in Costa Rica. PCI sold financial guarantee bonds to companies selling life settlements, or securities backed by life settlements, to investors. These bonds were marketed to PCI’s clients as a way to alleviate the risk of insured beneficiaries living beyond their life expectancy. The clients, in turn, typically explained to their investors that the financial guarantee bonds ensured that the investors would receive their expected return on investment irrespective of whether the insured on the underlying life settlement lived beyond his or her life expectancy.

Castillo admitted today that he conspired with Minor Vargas Calvo, 60, the president and majority owner of PCI, to prepare audited financial statements that falsely claimed that PCI had entered into reinsurance contracts with major reinsurance companies. These claims, which were supported by a letter from Castillo stating that he conducted an audit of PCI’s financial records, were used to assure PCI’s clients that the reinsurance companies were backstopping the majority of the risk that PCI had insured through its financial guarantee bonds.

Castillo admitted that he never performed an audit of PCI’s financial statements and that, in fact, he personally created the statements he claimed to be independently auditing. He also admitted that he and others at PCI knew that the company never actually entered into reinsurance contracts with any major companies. Castillo also admitted that he and other conspirators provided the false financial statements and fraudulent independent auditors’ report to Dun & Bradstreet (D&B), which D&B relied on in compiling its commercial reports on PCI and issuing its 5A rating of PCI’s financial strength.

>From 2004 through 2010, PCI sold approximately $670 million of bonds to life settlement investment companies located in various countries, including the United States, the Netherlands, Germany and Canada. PCI’s clients, in turn, sold investment offerings backed by PCI’s bonds to thousands of investors around the world. Purchasers of PCI’s bonds were allegedly required to make up-front payments of six to 11 percent of the underlying settlement as “premium” payments to PCI before the company would issue the bonds.

Court records state that Castillo received approximately $84,000 from his work as the purported outside auditor of PCI from 2004 through 2010.

Vargas, a citizen and resident of Costa Rica, and PCI were charged in a superseding indictment on Oct. 5, 2011, with one count of conspiracy to commit mail and wire fraud, three counts of mail fraud and three counts of wire fraud. Vargas was also charged with three counts of money laundering. Vargas was arrested on Jan. 19, 2011, at the John F. Kennedy International Airport in New York, and has been incarcerated pending trial, scheduled to be held on Feb. 13, 2012. An indictment is a formal accusation of criminal conduct, not evidence. A defendant is presumed innocent unless and until convicted.




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Sunday, November 27, 2011

Former Coral Mortgage Operator Matthew Kent Pleads Guilty to Multi-Million Dollar Securities Fraud


Source- http://www.fbi.gov/stlouis/press-releases/2011/former-coral-mortgage-operator-pleads-guilty-to-multi-million-dollar-securities-fraud?utm_campaign=email-Immediate&utm_medium=email&utm_source=st-louis-press-releases&utm_content=49958

ST. LOUIS, MO—The United States Attorney’s Office announced the guilty plea of Matthew Kent, vice president and co-operator of Coral Mortgage Bankers Corporation’s University City office.

According to court documents, between May 2007 and December 31, 2010, Kent, his partner in Coral Mortgage David Rubin, and Joshua Gould, formerly of Woodbury Financial, embezzled approximately $1,500,000 from a retired individual solicited by Rubin to provide funds for operating capital for Coral’s St. Louis operations. The individual was assured that the funds would not be spent, would be held in a secure trust account, used only as collateral for Coral’s operations, and that the individual would receive regular interest payments. Between May 2007 and December 2008, the client provided Rubin and Kent approximately $1,200,000 from his and his wife’s life savings. Despite representations that the funds would not be spent, Rubin and Kent used approximately $250,000 of the funds for operating expenses, including payment of their own salaries. Rubin and Kent transferred the balance of the funds to Gould. Gould used those funds for personal expenses, including car payments, mortgage payments, payment of substantial personal credit card bills, the renovation of his personal residence, jewelry and adult entertainment, including substantial expenses at the Penthouse Club and PT’s. Gould also used the money to finance start-up costs and operational costs of several business ventures including The Sports Nook, True Hockey and Free Poker Experience. Gould and Rubin prepared and gave the individual victim false account statements, including statements falsely representing to the victim that as of September 30, 2010, he had $1,126,365 in his Investment Fund and $217,123 in his Family Charity Fund, when in fact all of the funds had been embezzled, diverted and stolen by Gould, Kent and Rubin.

MATTHEW KENT, University City, Missouri, pled guilty to one felony count of wire fraud, appearing before United States District Judge Rodney W. Sippel. Sentencing has been set for February 17, 2012.

Wire fraud carries a maximum penalty of 20 years in prison and/or fines up to $250,000. In determining the actual sentences, a Judge is required to consider in an advisory capacity the U.S. Sentencing Guidelines, which provide recommended sentencing ranges. Additionally, the defendants are subject to a forfeiture allegation, which will require them to forfeit to the government all money derived from their illegal activity.




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Saturday, November 26, 2011

Former Chairman and CEO of West End Financial Advisors William Landberg Pleads Guilty in Manhattan Federal Court to Securities Fraud


Source- http://www.fbi.gov/newyork/press-releases/2011/former-chairman-and-ceo-of-west-end-financial-advisors-pleads-guilty-in-manhattan-federal-court-to-securities-fraud

NEW YORK—William Landberg, former chairman and chief executive officer (CEO) of West End Financial Advisors LLC, pleaded guilty today in Manhattan federal court to a one-count information charging him with securities fraud in connection with an $8.7 million investment scheme, announced Preet Bharara, the U.S. Attorney for the Southern District of New York.

According to the information filed today:

West End was a boutique financial services firm located in New York, N.Y, specializing in alternative investment opportunities and traditional asset management for various types of clients, including institutions and high net worth individuals. West End served as the investment manager for various partnerships it established as investment vehicles or investment funds and raised money for them through the sale of limited partnership interests. In addition to serving as West End’s chairman, CEO and manager, Landberg also served as the chairman of Sentinel Investment Management Corporation, an investment adviser registered with the U.S. Securities and Exchange Commission (SEC) that shared office space with West End.

Among the funds managed by West End was the West End/Mercury Short Term Mortgage Fund LP (Hard Money Fund). According to a private placement memorandum issued to investors by the Hard Money Fund (Hard Money Fund PPM), the objective of the Hard Money Fund was to “achieve short term, high-yield interest income through the making, servicing, purchasing, selling and repurchasing, and purchasing and selling participation in, mortgage loans.” According to the Hard Money Fund PPM, the Hard Money Fund would sell mortgage loans on particular properties to MCC Funding, Inc., a wholly owned subsidiary of the Hard Money Fund. MCC Funding would purchase the Mortgage Loans using capital contributions made to MCC Funding by Hard Money Fund investors, as well as principal and interest advances it received from the New York branch of West LB AG, a bank headquartered in Germany. In return, West LB would receive the Mortgage Loans as collateral for the fund advances.

The Hard Money Fund PPM specifically stated that MCC Funding would use the proceeds from West LB “only to purchase mortgage loans from the [Hard Money] Fund and to satisfy reserve and fee obligations under the credit and security agreement.” Instead, and in furtherance of his scheme to defraud Hard Money Fund investors, from January 2009 to April 2009, Landberg obtained three loan advances from West LB totaling $8.7 million—all purportedly for Hard Money Fund transactions—and diverted the funds to other uses, including for his own benefit. He also put some of the money into a separate fund managed by West End.

Landberg, 59, of New York, N.Y., faces a maximum sentence of 20 years in prison and a maximum fine of $5 million or twice the gross gain or gross loss from the offense. According to the plea agreement, Landberg also agreed to forfeit $8.7 million, which is the amount he misappropriated during the scheme. Landberg is scheduled to be sentenced by U.S. District Judge Laura Taylor Swain on March 16, 2012, at 11:00 a.m.




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Friday, November 25, 2011

Jon Edward Hankins Sentenced to 40 Months in Prison for Fraudulent Hedge Fund Scheme


Source- http://www.fbi.gov/atlanta/press-releases/2011/tennessee-man-sentenced-to-40-months-in-prison-for-fraudulent-hedge-fund-scheme

ATLANTA—Jon Edward Hankins, 38, of Knoxville, Tenn., was sentenced to prison today by U.S. District Judge Amy Totenberg on charges of wire fraud, in connection with his scheme to lure investors to invest into his fraudulent hedge fund. Hankins was sentenced to 40 months in prison to be followed by three years of supervised release. Hankins was convicted of these charges on June 13, 2011, after pleading guilty.

U.S. Attorney for the Northern District of Georgia Sally Quillian Yates said, “Before he was even discharged from an earlier federal sentence for investment fraud, he launched another fraudulent scheme. Thankfully, the FBI identified and shut down his new scam very quickly, minimizing the losses that investors suffered. Our office and the President’s Financial Fraud Enforcement Task Force remain committed to the mission of protecting investors and promoting confidence in the integrity of our financial system.”

According to the charges and other information presented in court: In the winter of 2009/2010, Hankins was serving the home confinement portion of a federal prison sentence he received for a 2007 securities fraud conviction relating to an $8 million fraud scheme involving his Knoxville-based investment company, “Tenet Asset Management.”

Shortly after his home confinement began, Hankins concocted another scheme. He created a website, fake brochures and other business documents, and rented office space and mail forwarding addresses in the names of two entities, “Christian Financial Brotherhood” and “Banker’s Trust Annuity.” He advertised these entities on the Internet and elsewhere and solicited investors, investment advisors and stock brokers to invest their funds with him.

>From at least December 2009 through February 2010, Hankins represented to a prospective victim that Banker’s Trust managed more than $100 million in assets for various clients, that the funds were held at an account at the leading Wall Street firm Goldman Sachs, and that he was making substantial investment returns for existing clients in a hedge fund he called the “Strategic Arbitrage Fund.” Hankins produced a brochure that claimed that the “Strategic Arbitrage Fund” maintained more than $30 million in client funds, and that listed various individuals, including a retired general and the son of a former cabinet secretary, as supposed directors of the fund. None of this was true, as Christian Financial and Banker’s Trust were shams; had nothing close to the assets that Hankins represented; had been “in business” for only a few months; had not been engaged in profitable securities trading; and was not associated with the high profile individuals listed on the brochure.

Hankins, in soliciting investors, deliberately omitted mention of his securities fraud conviction, Tenet Asset Management, or that he was still serving a federal sentence.

The FBI quickly learned of Hankins’ scheme, and conducted a search warrant that shut down the scheme in April 2010. Because this new investment scheme was caught quickly, Hankins obtained less than $600,000 from his victim-investors, of which over $200,000 was recovered and returned to victims.




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Thursday, November 24, 2011

Robin Bruhjell Brass Charged with Four Counts of Mail Fraud Stemming From an Alleged Investment Fraud Scheme


Source- http://www.fbi.gov/newhaven/press-releases/2011/washington-depot-resident-charged-with-defrauding-investors

David B. Fein, United States Attorney for the District of Connecticut, announced that a federal grand jury sitting in New Haven returned an indictment today charging ROBIN BRUHJELL BRASS, 55, of Washington Depot, with four counts of mail fraud stemming from an alleged investment fraud scheme.

The indictment alleges that, from approximately March 2009 to approximately November 2011, BRASS, acting as a principal of The BBR Group, Nibor Investment Fund, LLC, and Creative Financial Services, Inc., and representing herself as a successful investment advisor, solicited funds from investors. BRASS would tell potential investors that their money would be safe if invested with her because she had a formula for investing that ensured against loss and guaranteed a good return on investment. However, BRASS failed to invest all of the funds entrusted with her and used some of the money to pay personal expenses for herself and her family, such as mortgage and credit card bills, college tuition bills, home furnishings, clothing, and to make “lulling” payments to previous investors.

The indictment further alleges that BRASS sent fraudulent account statements to certain investors that made it appear as if their investments were performing well.

If convicted, BRASS faces a term of imprisonment of up to 20 years and a fine of up to $250,000 on each count.

BRASS has been detained since her arrest on November 15, 2011.

U.S. Attorney Fein stressed that an indictment is not evidence of guilt. Charges are only allegations, and each defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.




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Wednesday, November 23, 2011

The SEC Charges David Kugel With Fraud For his Role in Creating Fake Trades to Facilitate the Massive Ponzi scheme.


Source-http://www.sec.gov/news/press/2011/2011-247.htm

The SEC alleges that David Kugel, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for nearly four decades, was asked by Madoff to provide the firm’s investment advisory operations with backdated arbitrage trade information to be formulated into fictitious trading on investors’ account statements. Kugel’s own account at BMIS was among those in which backdated trades were entered, and he withdrew nearly $10 million in “profits” from the fictitious trading over several years.

"Kugel helped Madoff maintain the elaborate and enduring facade that his clients were engaged in actual trading when in fact no such trading occurred," said George S. Canellos, Director of the SEC's New York Regional Office. "Kugel withdrew millions of dollars of phony profits that he knew weren't from actual trading activity."

The SEC previously charged two other longtime Madoff employees Annette Bongiorno and JoAnn Crupi for their roles in producing phony account statements that were sent to Madoff investors. According to the SEC’s complaint against Kugel filed in U.S. District Court for the Southern District of New York, Bongiorno and Crupi and other staff in Madoff’s investment advisory (IA) operations used the information provided by Kugel to formulate fictitious trades to appear on investor account statements.

The SEC alleges that sometime in the early 1970s after Kugel began his career with Madoff as an arbitrage trader in the firm’s proprietary trading business, Madoff informed Kugel that BMIS managed money for outside clients. He asked Kugel to provide the firm’s IA operations with backdated convertible arbitrage trades for inclusion on investor account statements. Some of these trades replicated successful trades that Kugel had actually made for BMIS proprietary trading operations. Other trades were based on historical information that Kugel obtained from old newspapers.

According to the SEC’s complaint, Bongiorno and Crupi regularly asked Kugel for backdated information about trades amounting to millions of dollars. After Kugel provided the information, Crupi and Bongiorno would then design trades that totaled that amount. These fictitious trades were highly profitable on an annualized basis, and appeared on account statements and trade confirmations sent to investors. Kugel, who opened his own BMIS account, received these account statements and trade confirmations as well.

The SEC alleges that Kugel provided backdated trade information for IA accounts, including his own. He withdrew the purported “profits” of these trades even though he knew they weren’t proceeds of actual trading activity. One trade in S&P index options in 2007 earned Kugel a profit of more than $375,000 in just a few weeks. Kugel withdrew almost $10 million from his BMIS IA accounts from 2001 to 2008.

The U.S. Attorney’s Office for the Southern District of New York has filed parallel criminal charges against Kugel, who has pled guilty and also agreed to settle the SEC’s civil charges. Subject to court approval, the civil case will result in a permanent injunction against Kugel, who must forfeit his ill-gotten monetary gains upon entry of a criminal forfeiture order in the criminal case.




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Monday, November 21, 2011

Former Lake Shore Asset Management Director Philip J. Baker, Sentenced to 20 Years for Defrauding 900 Investors in $294 Million Scheme


Source- http://www.fbi.gov/chicago/press-releases/2011/former-lake-shore-asset-management-director-sentenced-to-20-years-for-defrauding-900-investors-in-294-million-scheme

CHICAGO—The former managing director of a hedge fund that was forced into receivership by U.S. government regulators was sentenced today to 20 years in federal prison for fraudulently soliciting and obtaining approximately $294 million from some 900 investors worldwide. The defendant, Philip J. Baker, who controlled Lake Shore Asset Management Ltd., and the Lake Shore Group of Companies, which purportedly traded clients’ funds in several commodity futures pools, had pleaded guilty to wire fraud in August.

Baker, 46, a Canadian citizen who lived in London and later Hamburg, Germany, remained in federal custody following his extradition in December 2009 from Hamburg, where he was arrested in July 2009. He was indicted in February 2009.

U.S. District Judge John Darrah imposed the maximum 20-year sentence, which the government recommended under the terms of Baker’s plea agreement. In addition, Judge Darrah imposed an order, which Baker had agreed to, requiring him to pay restitution totaling more than $154.8 million, representing the outstanding losses to investors.

The sentence was announced by 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.

According to the plea agreement, between 2002 and September 2007, as a result of Baker’s fraudulent solicitations, Lake Shore obtained approximately $294 million from approximately 900 investors. Baker admitted that he misappropriated at least $30 million for his own use and for the use of another Lake Shore director. He also admitted Lake Shore incurred several million dollars in net trading losses during the same time period that he misrepresented that Lake Shore’s trading was profitable.

Baker held himself out as a co-founder and managing director of Lake Shore, and the managing director of the “Lake Shore Group of Companies.” The Lake Shore companies advertised that they operated several commodity pools—investments that combined the funds of many investors for the purpose of trading commodity futures. Baker’s solicitations to invest in the Lake Shore commodity pools withheld material information and made the following false representations:

that the commodity pools generated positive returns between January 2002 and September 2007, including 22.48 percent in 2003, 29.81 percent in 2004, and 18.95 percent in 2005, when Lake Shore actually experienced millions of dollars in trading losses during those years;
that no management fee would be charged, except by one of the commodity pools, that no operational expenses would be passed on to the investors, and that participants would pay only a “profit incentive fee” if the pools generated profits, when in fact Baker charged investors more than $30 million in broker fees, and converted millions of dollars in investor funds to his own use even though the pools were not profitable; and
that Baker co-founded Lake Shore in 1993, and that Lake Shore was regulated by U.S. authorities, when in fact Baker was not officially associated with any regulated Lake Shore entity until January 2007. The actual principals of a regulated entity that used the name “Lake Shore Inc.” repeatedly told its regulator, the National Futures Association (NFA), that it was dormant and conducted no business between 2002 and 2007, thus avoiding audit and oversight.

On June 13, 2007, NFA regulators reviewed a website associated with Lake Shore and saw a press release stating, “In its 13-year history, Lake Shore’s flagship ‘Program I’ has generated a 28.27% compound annual return.” The next day, NFA staff went to Lake Shore Ltd.’s office on North Michigan Avenue in Chicago to conduct an audit to verify the profit claim on the website and because Lake Shore Ltd. had been registered with the NFA only since January 2007. Lake Shore did not provide the NFA with certain records it was required by law to keep and produce to regulators.

Later that month, the Commodity Futures Trading Commission (CFTC), filed a civil lawsuit against Lake Shore Ltd. in Federal Court in Chicago, and obtained a court order freezing its assets and requiring the company to produce books and records verifying its profit claims and identifying investors. In that civil case, U.S. District Judge Blanche M. Manning issued several orders directing Lake Shore Ltd., other Lake Shore entities, and Baker himself to produce books and records. Judge Manning also appointed a receiver to gather all available assets for distribution to the defrauded investors. The receiver recovered and returned to investors approximately $120 million to date. Baker never produced the documents to the CFTC or receiver, but instead took steps to hide the records in violation of the court orders.




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Sunday, November 20, 2011

Former Hedge Fund Portfolio Manager Joseph “Chip” Skowron Sentenced in Manhattan Federal Court to Five Years in Prison for Insider Trading Scheme


Source- http://www.fbi.gov/newyork/press-releases/2011/former-hedge-fund-portfolio-manager-joseph-chip-skowron-sentenced-in-manhattan-federal-court-to-five-years-in-prison-for-insider-trading-scheme

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOSEPH F. SKOWRON III, a/k/a “Chip Skowron,” a former portfolio manager of the health care unit of a hedge fund group (the “Hedge Fund”), was sentenced today to five years in prison for his participation in a conspiracy to engage in insider trading and obstruction of justice. SKOWRON used material, non-public information (“Inside Information”) that he received from Yves Benhamou, a doctor who served as an advisor on a clinical drug trial, to avoid approximately $30 million in trading losses. In addition, SKOWRON lied and urged Benhamou to lie to the U.S. Securities and Exchange Commission (“SEC”) during an investigation into SKOWRON’s trading. SKOWRON pled guilty on August 15, 2011, to one count of conspiracy to commit securities fraud and obstruct justice. He was sentenced today by U.S. District Judge Denise L. Cote.

Manhattan U.S. Attorney Preet Bharara said: “Chip Skowron’s medical training and expertise, along with his knowledge of the health care industry, undoubtedly gave him a legitimate trading edge. But that wasn’t enough—he still took a corrupt path to protect his hedge fund and himself from sustaining a multi-million-dollar loss, and then corruptly tried to obstruct the government’s investigation. As we’ve witnessed in case after case, the desire to win at any cost, including breaking the law, has a steep price that Chip Skowron will now pay.”

According to the Information, other court documents filed in the case, and statements made during the guilty plea and sentencing proceedings:

During the period of the insider trading scheme, SKOWRON was responsible for the Hedge Fund’s investment decisions in public companies, including the biopharmaceutical company Human Genome Sciences, Inc. (“HGSI”), that were involved in the development of drugs to treat hepatitis C. Benhamou was a medical doctor with an expertise in hepatitis treatment who served on an HGSI steering committee that oversaw a clinical trial of a drug called Albuferon. At the same time, Benhamou also worked as a consultant for an expert networking firm that, for a fee, put him in contact with portfolio managers and other investors at hedge funds, including SKOWRON, who purchased and sold securities in the healthcare sector.

Beginning in April 2007, SKOWRON developed a personal and financial relationship with Benhamou independent of the expert networking firm. For example, SKOWRON gave Benhamou 5,000 euros in cash during a meeting in Barcelona, Spain. He also paid some of Benhamou’s expenses, including $4,624.83 in September 2007 for a New York City hotel room for him and his wife. SKOWRON also offered to hire Benhamou as a consultant or permanent advisor to a new hedge fund. SKOWRON gave these benefits to Benhamou to encourage him to provide Inside Information about the Albuferon clinical drug trial. Benhamou understood that SKOWRON would buy or sell HGSI stock on the basis of the Inside Information.

For example, on January 18, 2008, after learning from Benhamou that HGSI’s independent safety committee had recommended to discontinue a portion of the clinical trial following serious adverse side effects suffered by two patients, SKOWRON directed a trader at the Hedge Fund to “sell the hgsi,” “all of it.” On January 22, 2008, the day before HGSI announced it would discontinue a portion of the trial, Benhamou disclosed this information, as well as the potential of a press release from HGSI, to SKOWRON. While on the phone with Benhamou, SKOWRON sent an instant message to a trader at the Hedge Fund, urging him to sell the remaining HGSI shares more quickly. As a result of those communications, SKOWRON caused the Hedge Fund to sell more than six million shares of HGSI, thereby avoiding approximately $30 million in losses.

In addition, SKOWRON and Benhamou undertook efforts to conceal the insider trading scheme from regulatory authorities. Specifically, beginning in February 2008 after the SEC began investigating the Hedge Fund’s trading in HGSI stock, SKOWRON lied to the SEC and induced Benhamou to lie to the SEC by falsely denying that they had discussed the serious adverse events before they were made public.




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Saturday, November 19, 2011

Danielle M. Keane Sentenced to Prison, Ordered to Pay Restitution for Embezzling $452,000


Source- http://www.fbi.gov/pittsburgh/press-releases/2011/former-bny-mellon-employee-sentenced-to-prison-ordered-to-pay-restitution-for-embezzling-452-000

PITTSBURGH, PA—A resident of Pittsburgh, Pa., has been sentenced in federal court to 33 months in prison and to pay restitution of $450,037.06, followed by five years’ supervised release on her conviction of embezzlement, United States Attorney David J. Hickton announced today.

Senior United States District Judge Maurice B. Cohill imposed the sentence on Danielle M. Keane, 38.

According to information presented to the court, Keane was an employee of BNY Mellon bank in charge of administering a pension fund for McDermott, Inc, from downtown Pittsburgh. Keane was employed as a Data Entry Associate and a Trust Operations Coordinator. BNY Mellon is a bank whose deposits are insured by the Federal Deposit Insurance Corporation. For a period of three years between April 30, 2007 and Aug. 1, 2010, Keane would utilize her position and access to create unauthorized checks drawn on the accounts of pensioners. Keane would then use her knowledge of internal routing procedure to divert these checks to herself so that they wouldn’t be mailed to the pensioners, and the pensioners would not know that they were issued. Keane would then endorse the checks and deposit the checks into her bank account. Keane would also wire transfer money in the form of direct deposit from these pension accounts directly into her bank account, so that the depositing bank would not question her on the reason why the checks she was depositing were not in her name. To conceal the fraud, Keane took the additional step of entering an “adjustment” into the pensioner’s account ledger, making it look like the money that was drawn by the unauthorized check was re-credited back into the pension account, and the pensioner would be lead to believe that there was more money in her account than there actually was due to Keane’s theft. These actions would cover up the payments from tax reporting documents of the pensioners, so that the pensioners would not be alerted at the end of the year (when they received their tax forms) of the excess amount taken from their accounts, which Kean was stealing. A forensic accounting has discovered that Keane fraudulently issued approximately 168 checks and 71 wire transfers totaling approximately $452,037.06 of money that was entrusted to the care and custody of BNY Mellon.




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Friday, November 18, 2011

Investment Adviser Sean Mansfield Sentenced for Defrauding Clients


Source- http://www.fbi.gov/boston/press-releases/2011/investment-adviser-sentenced-for-defrauding-clients

BOSTON—A West Springfield man was sentenced today in federal court for wire fraud, embezzlement from pension funds, and money laundering.

SEAN MANSFIELD, 38, was sentenced by Senior U.S. District Judge Michael A. Ponsor to five years in prison to be followed by three years of supervised release. Restitution in the amount of $3,146,282 was awarded to the victims of his crimes. MANSFIELD pleaded guilty to 17 counts of wire fraud, two counts of embezzlement from an employee pension benefit plan, and four counts of money laundering on March 2011.

Had the case proceeded to trial, the government’s evidence would have proven that Mansfield engaged in a scheme to take money from his investment advisory clients for his personal benefit. He submitted forged wire transfer papers to the independent custodian of his clients’ funds and arranged to have the money sent to individuals and bank accounts of Mansfield’s choosing. This included taking over $500,000 from a client to pay for a new house in Wilbraham. Mansfield also induced clients to deposit money in a bank account for his personal benefit while falsely representing that the funds would be invested in a hedge fund for the benefit of the clients. Mansfield illegally took over $3 million from his clients.




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Thursday, November 17, 2011

Miko Dion Wady Sentenced to Prison and Ordered to Pay Over $30 Million in Restitution for Multiple Concert Promotion Ponzi Schemes


Source- http://www.fbi.gov/phoenix/press-releases/2011/man-sentenced-to-prison-and-ordered-to-pay-over-30-million-in-restitution-for-multiple-concert-promotion-ponzi-schemes

PHOENIX—Miko Dion Wady, 36, of Phoenix, Arizona, was sentenced late Monday by U.S. District Judge James A. Teilborg to nine years’ imprisonment and ordered to pay over $30 million in restitution and perform 250 hours of community service. Wady previously pleaded guilty to five counts of wire fraud and five counts of transactional money laundering.

At sentencing Judge Teilborg also ordered that Wady forfeit numerous seized items, and the proceeds from the sale of additional seized items, including a 41 foot Rinker Express Cruiser boat, a Ferrari, over $100,000 held in cash and accounts, jewelry, firearms and recreational equipment including a Weekend Warrior 5th wheel trailer.

“This individual sought to profit by creating a sophisticated money laundering scheme designed to scam investors out of their money,” said Acting U.S. Attorney Ann Birmingham Scheel. “The court’s stiff sentence reflects the seriousness of his crime and this office’s resolve to prosecute individuals who profit from unsuspecting investors.”

In the course of his guilty plea, Wady admitted that he operated and had an ownership interest in various business enterprises that purportedly were engaged in the business of promoting concerts or tours of well known entertainers and artists. The enterprises included Dezert Heat Entertainment, Inc.; Dezert Heat, Inc.; Dezert Heat Worldwide, LLC; NATO Enterprises, LLC; and NATO Entertainment, LLC.

Wady admitted that he and others misled victim investors into believing that Wady entered into performance contracts and other business arrangements with nationally and internationally known entertainers, arranged performance venues throughout the world, and greatly profited by putting on these concert or tour events. Wady, with the assistance of others, falsely claimed during the period 2004 through 2007 to have promoted concerts for at least forty artists and entertainers, including many who were nationally and internationally known.

Through various entities and associates, Wady obtained victim investor funds to finance purported concerts and tours supposedly being promoted by Wady. From at least August 2004 through March 2007, Wady and associates entered into loan and event funding agreements, totaling approximately fifty million dollars, with approximately 250 victim investors. The “investments” were purportedly to finance approximately 150 concerts or concert tours “promoted” by Wady. At the time of Wady’s sentencing, approximately 240 investors and groups of investors were known to have sustained losses totaling $30,040,197.

The “investment” loan agreements victim investors entered into regularly specified that each “investment” loan was for the financing of a particular concert or tour of a designated performer. The “investment” loan terms regularly called for repayment to the victim investors within 30 days after receipt of the net concert proceeds for the designated concert or tour. Victim investors were typically promised interest rates of 4 percent per month for the first two months, and 2.5 percent per month thereafter until the investment loans were repaid.

Upon receipt of victim investor funds by associates of Wady, the associates transferred the funds to Wady for the purported financing of concert or tour events. Because Wady had no association or contractual arrangement with any of the concerts or tours, the investor funds given to Wady by his associates were never actually used as represented to the victim investors. Most of the funds were instead returned by Wady to his associates within a short period of time, typically one or two days, under the guise that these repayments represented the net proceeds from some other concert or tour that was recently completed. In essence, because no actual investments were used for the represented concerts or tours, new victim investor monies were simply used to repay old victim investors. From beginning to end, this was primarily a Ponzi scheme. The Ponzi scheme collapsed in March 2007.

From January 2004 through March 2007, Wady used no less than three million dollars of victim investor funds to pay for his lavish lifestyle. During this period, Wady purchased for himself and others, at least 30 vehicles, including a Lamborghini, Ferrari, and Bentley. Wady also purchased a $175,000 luxury boat and $800,000.00 in real estate. All of these purchases were paid from funds Wady obtained from victim investors.




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Wednesday, November 16, 2011

Tyrone L. Gilliams, JR. The Owner of TL Gilliams, LLC, was Indicted on Charges of Securities Fraud and Wire Fraud for Operating a Fraudulent United States Treasury Strips Investment Program


Source- http://www.fbi.gov/newyork/press-releases/2011/manhattan-u.s.-attorney-and-fbi-assistant-director-in-charge-announce-indictment-of-philadelphia-businessman-in-connection-with-4-million-investment-fraud-scheme

Preet Bharara, the United States Attorney for the Southern District of New York, and Janice K. Fedarcyk, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today that TYRONE L. GILLIAMS, JR., the owner of TL Gilliams, LLC, was indicted on charges of securities fraud and wire fraud for operating a fraudulent United States Treasury Strips investment program. Treasury Strips are securities derived from United States Treasury Bonds. GILLIAMS, 44, was previously charged with wire fraud by complaint and arrested on October 5, 2011, at his residence in Philadelphia, Pennsylvania.

According to the indictment returned by the grand jury today:

GILLIAMS is the owner of TL Gilliams, LLC. In the summer of 2010, GILLIAMS personally solicited $4 million dollars from an investor for purposes of trading in United States Treasury Strips. Upon receiving the money from the investor, GILLIAMS misappropriated almost all of it.

A substantial portion of the investor’s money was used by GILLIAMS to fund a black-tie gala called the “Joy to the World” festival, which was held at the Ritz-Carlton hotel in Philadelphia on December 18, 2010. GILLIAMS spent more than $1 million on that event and on promoting the “Gatta Be Jokin Comedy Jam” in the Bahamas in December 2010. He used another $450,000 of the $4 million to refund a deposit from a prior investor. GILLIAMS also misappropriated approximately $1.6 million for what he claimed was a gold investment in Ghana.

The indictment charges GILLIAMS with one count of securities fraud and one count of wire fraud. Each count carries a maximum potential penalty of 20 years in prison. He also faces a maximum fine of $5 million or twice the gross gain or loss from the offense on the securities fraud count, and of $250,000 or twice the gross gain or gross loss from the offense on the wire fraud count. The case has been assigned to United States District Judge Deborah A. Batts.




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