SEC Charges Peter Madoff With Fraud and False Statements to Regulators

Source-  http://www.sec.gov/news/press/2012/2012-126.htm 

Washington, D.C., June 29, 2012 – The Securities and Exchange Commission today charged Peter Madoff, the brother of Bernie Madoff, with committing fraud, making false statements to regulators, and falsifying books and records in order to create the false appearance of a functioning compliance program over Madoff’s fraudulent investment advisory operations.

The SEC alleges that Peter Madoff, who served as Chief Compliance Officer and Senior Managing Director at Bernard L. Madoff Investment Securities LLC (BMIS) from 1969 to December 2008, created stacks of compliance documents setting out supposedly robust policies and procedures over BMIS’s investment advisory operations. However, Peter Madoff created these compliance manuals, written supervisory procedures, reports of annual compliance reviews, and compliance certifications to merely paper the file. No policies and procedures were ever implemented, and none of the reviews were actually performed even though Peter Madoff represented that he personally completed the reviews.

The U.S. Attorney’s Office for the Southern District of New York today announced parallel criminal charges against Peter Madoff.

“Peter Madoff helped Bernie Madoff create the image of a functioning compliance program purportedly overseen by sophisticated financial professionals,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Tragically, the image was merely an illusion supported by Peter’s sham paperwork and false filings for which he was rewarded with tens of millions of dollars in stolen investor funds.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Bernie Madoff realized in late 2008 that his decades-long scheme was on the verge of collapse. He told Peter Madoff that he could not pay billions of dollars of investor redemption requests and wanted to distribute remaining investor money to family, friends, and favored employees before the scheme collapsed. Peter Madoff then helped choose which family, friends and employees to pay, and rushed to withdraw $200,000 from BMIS’s bank account for himself before the fraud’s final downfall.

The SEC alleges that in addition to creating false compliance materials, Peter Madoff created false broker-dealer and investment advisor registration applications filed by BMIS. He also failed to implement and review required policies and procedures, and falsified the firm’s books and records. Peter Madoff was richly rewarded for his misconduct, pocketing tens of millions of dollars through salary and bonuses, fake trades, sham loans, and direct, undocumented transfers of investor funds to himself from the bank account that BMIS used to perpetrate the Ponzi scheme.

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SEC Shuts Down $42 Million Ponzi-Like Scheme

Source-  http://www.sec.gov/news/press/2012/2012-125.htm 

Washington, D.C., June 28, 2012 — The Securities and Exchange Commission today announced that it has obtained an emergency court order to halt an alleged Ponzi-like scheme operated by Small Business Capital Corp. and its principal Mark Feathers, who raised $42 million by selling securities issued by Investors Prime Fund LLC and SBC Portfolio Fund LLC - two mortgage investment funds they controlled.

The SEC alleges that more than 400 investors were attracted to the funds by promises that profits from mortgage investments would yield annual returns of 7.5 percent or more. In reality, Feathers operated a Ponzi-like scheme by paying returns to investors that came partly from fund profits and partly from other investors.

“Feathers raised millions from investors by promising high returns,” said John McCoy, Associate Regional Director of the SEC’s Los Angeles Office. “The returns turned out to be too good to be true and were funded in part with new investors’ money.”

The SEC alleges that from 2009 to early 2012, Feathers improperly transferred more than $6 million from the funds to Small Business Capital to pay its expenses, including substantial payments to Feathers. According to the SEC, the defendants had the funds account for the transfers in a way that disguised the depletion of fund assets, and did not tell investors that Small Business Capital’s ability to repay was uncertain and that it was only able to make the interest payments owed to the funds by borrowing more from them.

In addition, the SEC alleges that investors were not told that in February and March 2012, the defendants caused one fund to sell mortgages to the other fund at an inflated price, thus generating a “profit” for the selling fund so it could pay Small Business Capital management fees of more than $575,000. The SEC also charged Feathers and Small Business Capital for Small Business Capital’s effecting transactions in the funds’ securities without being registered as a broker-dealer with the SEC.

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SEC Charges FalconStor Software, Inc. in Connection With Bribery Scheme

Source-  http://www.sec.gov/news/press/2012/2012-123.htm 

Washington, D.C., June 27, 2012 –The Securities and Exchange Commission today charged that FalconStor Software, Inc., a Long Island, N.Y., data storage company, misled investors about bribes it paid to obtain business with a subsidiary of J.P. Morgan Chase & Co.

FalconStor admitted to the bribery scheme and agreed to pay a $2.9 million penalty and to institute enhanced compliance measures to settle the SEC’s civil lawsuit, filed in U.S. District Court for the Eastern District of New York. The settlement is subject to court approval. FalconStor will pay an additional $2.9 million as part of a deferred prosecution agreement with the U.S. Attorney’s Office for the EDNY, which filed a related criminal case against the Melville, N.Y., company.

Additional Materials
SEC Complaint

According to the SEC, FalconStor’s now deceased co-founder, chairman, and former chief executive ordered the bribes, which were paid to three executives of the subsidiary, JPMorgan Chase Bank, National Association, and their relatives, starting in October 2007. Lavish entertainment at casinos, and payments in cash, traveler’s checks, gift cards, and grants of FalconStor options and restricted stock, helped FalconStor secure a multi-million dollar contract with the J.P. Morgan Chase subsidiary, the SEC said.

The J.P. Morgan Chase subsidiary became one of FalconStor’s largest customers and FalconStor touted the relationship in earnings calls and releases as proof of the strength of its products and its strides in moving to direct sales rather than relying on third-party distributors. The SEC said FalconStor never told investors about the bribes and inaccurately recorded the payments as “compensation,” “sales promotion,” or “entertainment” expenses.

“FalconStor overstepped the bounds in its pursuit of business. This case shows that when such conduct results in securities law violations, the Commission will not hesitate to hold wrongdoers accountable,” said David Rosenfeld, Associate Director of the SEC’s New York Regional Office, adding, “FalconStor claimed the contract was a vindication of the company’s technology, but neglected to tell investors that the contract derived from the bribes that it paid.”

FalconStor’s CEO resigned in September 2010, after admitting that he had been involved in improper payments to a customer, and FalconStor’s stock fell by more than 22 percent on the news.

According to the SEC’s complaint, FalconStor made materially misleading statements in earnings releases filed with the SEC in April 2008 and February 2009. The SEC said FalconStor also granted restricted stock and options to relatives of two of the JP Morgan Chase executives even though they provided no bona fide services to the company, making the grants ineligible under FalconStor’s incentive stock plan. In addition, the SEC said FalconStor failed to accurately record the expenses associated with the bribes on its books and records, and lacked effective internal controls to detect or prevent bribery, which violated state law and FalconStor’s own policies. The complaint charges FalconStor with violating the books-and-records and internal controls provisions of U.S. securities laws, and violations of the offering registration provisions and certain antifraud provisions.

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SEC Halts $100 Million Real-Estate Based Ponzi Scheme

Source-  http://www.sec.gov/news/press/2012/2012-119.htm 

Washington, D.C., June 25, 2012 –The Securities and Exchange Commission today obtained a temporary restraining order and asset freeze against a Utah man and company charged with operating a real estate-based Ponzi scheme that bilked $100 million from investors nationwide.

The SEC’s complaint filed in U.S. District Court for the District of Utah, names Wayne L. Palmer and his firm, National Note of Utah, LC, both of West Jordan, Utah. According to the complaint, Palmer told investors that their money would be used to buy mortgage notes and real estate assets, or to make real estate loans. More than 600 individuals invested, lured by promises of annual returns of 12 percent, the SEC alleged.

“Palmer promised double-digit returns at his real estate seminars, where investors learned the hard way about his lies and deceit,” said Kenneth Israel, Director of the SEC’s Salt Lake City Regional Office.

Palmer told investors that their money would be completely secure and that National Note had a perfect record, having never missed paying principal or interest on its promissory notes. Glossy marketing materials that Palmer provided to some investors showed that National Note returns did not fluctuate and stated that investors were guaranteed payment even if property owners missed payment on mortgage loans that National Note held.

Contrary to Palmer’s claims, National Note used most of the money it took in from new investors to pay earlier investors, making it a classic Ponzi scheme, the SEC alleged. It said that since 2009, National Note would not have been able survive but for the influx of new investor funds, and that its payments to investors all but stopped in October 2011. According to the SEC’s complaint, Palmer reassured investors that the money would be forthcoming, and continued to solicit new investors in National Note without disclosing the fact that it is delinquent in making payments to existing investors.

The SEC’s complaint charges National Note and Palmer with violating the anti-fraud and securities registration provisions of U.S. securities laws. Palmer also faces charges that he operated as an unregistered broker-dealer.

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SEC Sues Tai Nguyen for Fees Charged in Breach of Duty Under the Investment Company Act

Source-  http://www.sec.gov/news/press/2012/2012-121.htm 

Washington, D.C., June 26, 2012 — The Securities and Exchange Commission today charged Tai Nguyen, the owner of the California-based equity research firm Insight Research, with insider trading. The charges stem from the SEC’s ongoing investigation of insider trading involving so-called “expert networks” that provide specialized information to investment firms.

The SEC alleges that from 2006 through 2009, Nguyen frequently traded in the securities of Abaxis, Inc. based on inside information he received from a close relative employed at Abaxis. Nguyen repeatedly traded for himself in advance of the company’s quarterly earnings announcements while in possession of key data in those announcements, reaping tens of thousands of dollars in illicit profits. Nguyen also passed that same information to hedge fund clients of Insight Research, who used the inside information to make millions of dollars in profits from trading Abaxis securities.

“Nguyen claimed expertise in researching and analyzing technology companies, but his special edge was his willingness to break the law,” said Sanjay Wadhwa, Associate Director of the SEC’s New York Regional Office and Deputy Chief of the Market Abuse Unit. “Like many other so-called ‘experts’ who trafficked in inside information, Nguyen now finds himself the subject of an enforcement action.”

The SEC has charged 23 defendants in enforcement actions arising out of its expert networks investigation, which has uncovered widespread insider trading at several hedge funds and other investment advisory firms. The insider trading alleged by the SEC has yielded illicit gains of more than $117 million, chiefly in shares of technology companies, including Apple, Dell, Fairchild Semiconductor, and Marvell Technology.

According to the SEC’s complaint, filed in federal court in Manhattan, Nguyen regularly obtained material nonpublic information about Abaxis Inc.’s quarterly earnings — including revenues, gross profit margins and earnings per share — from a relative who worked in Abaxis’s finance department. Nguyen used the information to trade Abaxis securities in his own account and reaped approximately $145,000 in illicit trading profits from 2006 through 2009.

In addition to trading in his own account, the SEC alleges that Nguyen passed the inside information to New York-based Barai Capital Management and Boston-based Sonar Capital Management, both of which were clients of Nguyen’s firm, Insight Research. The two hedge fund managers — who collectively were paying Insight Research tens of thousands of dollars each month — traded Abaxis securities based on the inside information that Nguyen provided and reaped more than $7.2 million in illicit gains for their hedge funds.

The SEC’s complaint charges Nguyen with violating the anti-fraud provisions of U.S. securities laws and seeks a final judgment ordering him to disgorge his ill-gotten gains, with interest, and pay financial penalties, and permanently barring him from future violations.

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Timothy S. Durham, James F. Cochran and Rick D. Snow Were Convicted for Roles in $200 Million Fraud Scheme Involving Fair Financial Company Investors

Source- http://www.justice.gov/opa/pr/2012/June/12-crm-782.html

Three former executives of Fair Financial Company, an Ohio financial services business, were found guilty for their roles in a scheme to defraud approximately 5,000 investors of more than $200 million, Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; Joseph H. Hogsett, U.S. Attorney for the Southern District of Indiana; and Special Agent in Charge Robert Holley of the FBI in Indiana announced today.

Following an eight-day trial, a federal jury in the Southern District of Indiana returned its verdict late yesterday. Timothy S. Durham, 49, the former chief executive officer of Fair, was convicted of one count of conspiracy to commit wire and securities fraud, 10 counts of wire fraud and one count of securities fraud. James F. Cochran, 56, the former chairman of the board of Fair, was convicted of one count of conspiracy to commit wire and securities fraud, one count of securities fraud and six counts of wire fraud. Rick D. Snow, 48, the former chief financial officer of Fair, was convicted of one count of conspiracy to commit wire and securities fraud, one count of securities fraud and three counts of wire fraud.

“Mr. Durham and his co-conspirators used lies and deceit as their business model,” said Assistant Attorney General Breuer. “They duped investors into thinking they were running a legitimate financial services company and misled regulators and others about the health of their failing firm. But all along, they were lining their pockets with other people’s money. The jury held them accountable for their crimes, and they each now face the prospect of significant prison time.”

“No matter who you are, no matter how much money you have, no matter how powerful your friends are, no one is above the law,” U.S. Attorney Hogsett said. “The Office of the United States Attorney will not stand idly by and allow a culture of corruption to exist in this community, this state, or this country. The decision made in this courtroom sends a powerful warning that if you sacrifice the truth in the name of greed, if you steal from another’s American dream to try and make your own, you will be caught.”

“This verdict represents a victory in the pursuit of justice,” said FBI Special Agent in Charge Holley. “I would like to commend the hard work and dedication of the prosecution team and the FBI investigative team, however, we must remember that the victims of this fraud are still suffering. I would also like to thank Indiana State Police Superintendent Paul Whitesell for the contributions of his task force officer in this investigation.”

Durham and Cochran purchased Fair, whose headquarters were in Akron, Ohio, in 2002. According to the evidence presented at trial, between approximately February 2005 through the end of November 2009, Durham, Cochran and Snow executed a scheme to defraud Fair’s investors by making and causing others to make false and misleading statements about Fair’s financial condition and about the manner in which they were using Fair investor money. The evidence also established that Durham, Cochran and Snow executed the scheme to enrich themselves, to obtain millions of dollars of investors’ funds through false representations and promises, and to conceal from the investing public Fair’s true financial condition and the manner in which Fair was using investor money.

When Durham and Cochran purchased Fair in 2002, Fair reported debts to investors from the sale of investment certificates of approximately $37 million and income producing assets in the form of finance receivables of approximately $48 million. By November 2009, after Durham and Cochran had owned the company for seven years, Fair’s debts to investors from the sale of investment certificates had grown to more than $200 million, while Fair’s income producing assets consisted only of the loans to Durham and Cochran, their associates and the businesses they owned or controlled, which they claimed were worth approximately $240 million, and finance receivables of approximately $24 million.

After Durham and Cochran acquired Fair, they changed the manner in which the company operated and used its funds. Rather than using the funds Fair raised from investors primarily for the purpose of purchasing finance receivables, Durham and Cochran caused Fair to extend loans to themselves, their associates and businesses they owned or controlled, which caused a steady and substantial deterioration in Fair’s financial condition.

Durham, Cochran and Snow terminated Fair’s independent accountants who, at various points during 2005 and 2006, told the defendants that many of Fair’s loans were impaired or did not have sufficient collateral. After firing the accountants, the defendants never released audited financial statements for 2005, and never obtained or released audited financial statements for 2006 through September 2009. With independent accountants no longer auditing Fair’s financial statements, the defendants were able to conceal from investors Fair’s true financial condition.

The evidence presented at trial established that Durham, Cochran and Snow falsely represented, in registration documents and offering circulars submitted to the State of Ohio Division of Securities and in offering circulars distributed to investors, that the loans on Fair’s books were assets that could support Fair’s sale of investment certificates. The defendants knew that in reality, the loans were worthless or grossly overvalued; producing little or no cash proceeds; supported by insufficient or non-existent collateral to assure repayment; and in part advances, salaries, bonuses and lines of credit for Durham and Cochran’s personal expenses.

The defendants engaged in a variety of other fraudulent activities to conceal from the Division of Securities and from investors Fair’s true financial health and cash flow problems, including making false and misleading statements to concerned investors who either had not received principal or interest payments on their certificates from Fair or who were worried about Fair’s financial health, and directing employees of Fair not to pay investors who were owed interest or principal payments on their certificates. Even though Fair’s financial condition had deteriorated and Fair was experiencing severe cash flow problems, Durham and Cochran continued to funnel Fair investor money to themselves for their personal expenses, to their family, friends and acquaintances, and to the struggling businesses that they owned or controlled.

This case was prosecuted by Assistant U.S. Attorneys Winfield D. Ong and NicholasE. Surmacz of the Southern District of Indiana, Trial Attorney Henry P. Van Dyck and Senior Deputy Chief for Litigation Kathleen McGovern of the Fraud Section in the Justice Department’s Criminal Division. The investigation was led by the FBI in Indianapolis.

Durham, Cochran and Snow each face a maximum of five years in prison for the conspiracy count, 20 years in prison for each wire fraud count and 20 years in prison for the securities fraud count. Additionally, each defendant could be fined $250,000 for each count of conviction.

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SEC Charges Gurudeo “Buddy” Persaud in Astrology-Based Ponzi Scheme

Source- http://www.sec.gov/news/press/2012/2012-118.htm

Washington, D.C., June 21, 2012 – The Securities and Exchange Commission today charged that a former broker in Orlando, Fla., defrauded investors in an astrology-based Ponzi scheme.

The SEC alleges that Gurudeo “Buddy” Persaud lured family, friends, and others into investing in his firm, White Elephant Trading Company LLC, by falsely guaranteeing their money would be safe and yield lofty returns ranging from 6 to 18 percent. Persaud told investors he would invest in the debt, stock, futures, and real estate markets, but did not reveal that his trading strategy was based on his belief that markets are affected by gravitational forces.

According to the SEC’s complaint filed in U.S. District Court for the Middle District of Florida, Persaud used investors’ money to make payments to other investors, the hallmark of a Ponzi scheme. Persaud also lost $400,000 of investor funds through his trading and diverted at least $415,000 to pay for his personal expenses, the SEC alleged. The same month Persaud began receiving investor money, he started using some of that money for his personal expenses. The SEC said that Persaud created phony account statements to hide his trading losses and give investors a false sense of security.

“Persaud preyed on people who trusted him by promising high and steady returns while hiding his unconventional trading strategy,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “When Persaud blatantly lied to investors and hid their losses through a Ponzi scheme, he should have known that an SEC enforcement action was in the stars.”

Persaud was a registered representative at a Florida-based broker-dealer but separately operated the now-inactive White Elephant, starting in mid-2007. In all, Persaud raised more than $1 million from at least 14 investors between July 2007 and January 2010.

The SEC alleges that in making trading decisions, Persaud chiefly relied on an Internet service that provided directional market forecasts based on lunar cycles and gravitational pull. Persaud’s strategy was premised on the idea that gravitational forces affect mass human behavior, and in turn, the stock market. For example, Persaud believed that when the moon exerts greater gravitational pull on the Earth, people feel dejected and are more inclined to sell securities.

The SEC’s complaint seeks disgorgement of ill-gotten gains, financial penalties, and injunctive relief against Persaud to enjoin him from future violations of the federal securities laws.

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Jon R. Latorella Sentenced to Five Years in Prison for Conspiring to Commit Securities Fraud and Other Crimes

Source- http://www.fbi.gov/boston/press-releases/2012/former-ceo-of-beverly-company-sentenced-to-five-years-in-prison-for-conspiring-to-commit-securities-fraud-and-other-crimes

BOSTON—A Marblehead man was sentenced yesterday in federal court for conspiring to commit securities fraud, defraud company auditors, make false statements in filings with the U.S. Securities & Exchange Commission (SEC), and commit aggravated identity theft.

Jon R. Latorella, 48, was sentenced by U.S. District Judge Douglas P. Woodlock to five years in prison, to be followed by three years of supervised release and the payment of restitution to his victims. Latorella pleaded guilty on March 5, 2012.

Had the case proceeded to trial, the government’s evidence would have proven that, starting in about 2001, Latorella, the former president and CEO of Locateplus Holdings Corporation, and another man who worked at Locateplus pursued several fraudulent schemes to artificially inflate the company’s assets and revenues, including:

Fabricating a loan transaction with a fake company called Andover Secure Resources, which included using the identity of a man who died in 1985 as the head of Andover, and manipulating funds to create the appearance that Andover was paying down a fictitious debt to Locateplus;

Falsifying revenue streams to make it appear that another entity, Omni Data Services, was paying Locateplus under the terms of a contract, when in fact Omni Data had no independent existence and the contract was fake;

Deceiving the SEC and other regulatory authorities to avoid registering securities being sold by a company called Paradigm Tactical Products, including using the identities of Latorella’s acquaintances, girlfriends, and two dead men as Paradigm investors;

Routinely deceiving company auditors and the SEC about the nature of Locateplus’ revenues and assets in order to keep these fraudulent schemes going and to attract investment in Locateplus.

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Samantha Delay-Wilson Sentenced to Seven Years in Prison for Running Ponzi Scheme

Source- http://www.fbi.gov/anchorage/press-releases/2012/anchorage-woman-sentenced-to-seven-years-in-prison-for-running-ponzi-scheme

ANCHORAGE—Acting U.S. Attorney Kevin Feldis announced today that Samantha Delay-Wilson of Anchorage was sentenced in federal court in Anchorage to 84 months in prison on her conviction of defrauding investors and lenders of over $5 million during the course of her more than decade-long Ponzi scheme. The 84-month sentence is to be served in addition to the more than five years Delay-Wilson was sentenced to serve on her separate state fraud convictions.

On June 15, 2012, Samantha Dorothy Delay-Wilson, 65, of Anchorage was sentenced by United States District Court Judge Russell Holland.

According to Assistant U.S. Attorney Aunnie Steward, who prosecuted the case, the following facts provided the basis for Delay-Wilson’s guilty plea:

Delay-Wilson carried out a Ponzi scheme for over a decade, defrauding 14 individuals by making false representations and promises and by providing false documents to victims regarding investments she would make on their behalf and regarding her assets and credentials. Delay-Wilson guaranteed investors a high-rate of return and made false claims regarding how she was going to invest the victims’ money, making different claims to different victims. She told victims she would invest their money in a global investment fund, European sub-prime loans, and an investment banking service company, when, in fact, she used the victims’ money for her personal expenses, to fund her lavish lifestyle, and to pay out earlier investors.

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Victor E. Cilli Sentenced to Three Years in Prison for Two Fraud Schemes and Tax Evasion and Securities Fraud

Source- http://www.fbi.gov/newark/press-releases/2012/commodity-pool-operator-sentenced-to-three-years-in-prison-for-two-fraud-schemes-and-tax-evasion

TRENTON—A commodity pool operator and day trader based in Hackensack, New Jersey, was sentenced today to 36 months in prison for directing two schemes to defraud individual investors and a financial institution of approximately $2 million and to evading more than $150,000 in tax payments, U.S. Attorney Paul J. Fishman announced.

Victor E. Cilli, 46, previously pleaded guilty before U.S. District Judge Garrett E. Brown to an information charging him with one count of securities fraud, one count of conspiracy to commit bank fraud, and one count of tax evasion. U.S. District Judge Anne E. Thompson imposed the sentence today in Trenton federal court.

According to documents filed in this case and statements made in court:

Beginning in August 2006, Cilli was the sole owner and president of Progressive Investment Funds LLC (PIF), a commodity pool operator (CPO) engaged in an investment trust that solicited funds for the purpose of trading commodity futures. PIF was registered with the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) and was the CPO of Progressive Managed Futures Fund LP (PMFF), a commodity pool operated for the purpose of trading commodity futures. Cilli had sole trading authority over PMFF, which remained open until approximately February 2009.

Beginning as early as January 2007 and through September 2007, Cilli engaged in a Ponzi scheme to defraud at least four commodity pool participants of approximately $506,000. Although Cilli returned some funds to the investors, the payments were not from actual trading profits but from funds of existing pool participants. Cilli made false and misleading statements to the pool participants claiming he had made money for them when, in fact, most of his trading resulted in losses. Of the $506,000 invested, Cilli traded approximately $263,000, losing approximately $200,168. Cilli never disclosed to the pool participants that he had traded less than half of their money or that most of his trading had resulted in significant losses.

Cilli also misappropriated thousands of dollars in pool funds for personal expenses—including hair salon visits, skin care treatments, payments on his Harley Davidson motorcycle, and other personal entertainment, meals, and travel expenses.

In an unrelated scheme, from 2002 through September 2006, Cilli and 16 others conspired to defraud KeyBank, a financial institution based in Cleveland, Ohio, of more than $1.5 million in student loans by falsely representing to KeyBank that they would use the funds to attend Tab Express International Inc. (“Tab”), a pilot and flight crew training school in DeLand, Florida, and use the proceeds of student loans for educational expenses at Tab.

Based upon prior agreements between Cilli and his co-conspirators, they never intended to enroll at Tab nor repay principal or interest on the student loans to KeyBank. After KeyBank disbursed the loan proceeds to the school, approximately $600,000 of the loan proceeds were deposited into bank accounts solely owned and operated by Cilli. Cilli then made kickback payments totaling approximately $130,000 to his co-conspirators for signing up for the loans. Tab retained approximately $900,000 of the total loan proceeds. KeyBank was never repaid any of the principal or accrued interest on the loans.

To conceal his fraudulent conduct, Cilli maintained bank accounts in the names of Northeast Flight Training Inc., which was not a flight training school, and United Charities of America Inc., which was not a charitable organization. Both accounts were maintained by Cilli solely to perpetuate his frauds and fund his personal expenditures.

For calendar years 2003 and 2004, Cilli also intentionally failed to provide the IRS with any information regarding the proceeds that he received in connection with his conspiracy to commit bank fraud, totaling $547,705, resulting in a tax loss to the United States of approximately $158,674.

In addition to the prison term, Judge Thompson sentenced Cilli to five years’ supervised release, ordered to pay $710,000 in restitution, and ordered to comply with the IRS in filing amended tax returns and pay more than $410,000 in taxes, penalties, and interest.

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Anthony John Johnson Sentenced to 10 Years for Operating a Multi-Million-Dollar Ponzi Scheme

Source-  http://www.fbi.gov/newyork/press-releases/2012/westchester-investment-manager-sentenced-to-10-years-for-operating-a-multi-million-dollar-ponzi-scheme 

On Thursday, June 14, 2012, a Westchester man who ran a $12 million Ponzi scheme was sentenced to 120 months’ imprisonment in Brooklyn federal court. Anthony John Johnson, age 42, who ran Gibraltar Partners, an investment advisory service, was sentenced by United States District Judge Eric N. Vitaliano. In April 2011, Johnson pleaded guilty to committing the Ponzi scheme while he was awaiting sentencing on an earlier securities fraud conviction related to his employment at Park Capital Securities.

The sentence was announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York.

The defendant defrauded 72 families of over $12 million by soliciting their investments in various ventures allegedly taking place around the world, including in Australia and China. Johnson used money he obtained from his victims to repay earlier investors and to pay his living expenses. On August 3, 2011, the defendant was sentenced to 18 months’ imprisonment for the Park Capital crimes. Today’s sentence of 120 months will run consecutive to that sentence.

“This defendant walked into the living rooms of families in the New York City area and lied to them and stole their savings to fuel his illegal scheme. This office is committed to identifying and prosecuting corrupt investment advisors,” said United States Attorney Lynch. “The most troubling aspect of this crime, however, is that it was committed while Johnson was awaiting sentencing on another crime.”

Ms. Lynch extended her grateful appreciation to the Federal Bureau of Investigation, which led the government’s criminal investigation.

The government’s case was prosecuted by Assistant United States Attorneys Patrick Sean Sinclair and Ilene Jaroslaw.

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Allen Stanford Gets 110 Years for Orchestrating $7 Billion Investment Fraud Scheme

Source-  http://www.fbi.gov/houston/press-releases/2012/allen-stanford-gets-110-years-for-orchestrating-7-billion-investment-fraud-scheme 

HOUSTON—R. Allen Stanford, the former board of directors chairman of Stanford International Bank (SIB), has been sentenced to a total of 110 years in prison for orchestrating a 20-year investment fraud scheme in which he misappropriated $7 billion from SIB to finance his personal businesses.

The sentencing was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney Kenneth Magidson of the Southern District of Texas; FBI Assistant Director Kevin Perkins of the Criminal Investigative Division; Assistant Secretary of Labor for the Employee Benefits Security Administration Phyllis C. Borzi; Chief Postal Inspector Guy J. Cottrell; and Chief Richard Weber, Internal Revenue Service-Criminal Investigations (IRS-CI).

Stanford, 62, was convicted on 13 of 14 counts by a federal jury following a six-week trial before U.S. District Judge David Hittner and approximately three days of deliberation. The jury also found that 29 financial accounts located abroad and worth approximately $330 million were proceeds of Stanford’s fraud and should be forfeited.

Speaking on behalf of the victims in the case during the sentencing hearing today were Angie Shaw, the director and founder of the Stanford Victims Coalition, and Jaime Escalona, who represents Stanford victims from Latin America.

“Mr. Stanford, you took advantage of the trust that is placed in U.S. companies and caused losses that prevented families from being able to pay for medical and basic living expenses,” said Escalona.

“This was not a bloodless financial crime carried out on paper,” furthered Shaw. “It was and is an inconceivably heinous crime, and it has taken a staggering toll on the victims. Innocent investors from around the world sacrificed and saved for decades to build a solid foundation for their futures. That foundation crumbled beneath them when the news of the Stanford Financial Group Ponzi scheme became public. Many of the victims had lived the proverbial American Dream, only to have it snatched away from them in the name of greed.”

In handing down the sentence, Judge Hittner remarked that “this is one of the most egregious frauds ever presented to a trial jury in federal court.”

After considering all the evidence, including more than 350 victim impact letters that were sent to the court, Judge Hittner sentenced Stanford to 20 years for conspiracy to commit wire and mail fraud; 20 years on each of the four counts of wire fraud, as well as five years for conspiring to obstruct a U.S. Securities and Exchange Commission (SEC) investigation; and five years for obstruction of an SEC investigation. Those sentences will all run consecutively. He also received 20 years for each of the five counts of mail fraud and 20 years for conspiracy to commit money laundering, which will run concurrent to the other sentences imposed today, for a total sentence of 110 years.

As part of Stanford’s sentence, the court also imposed a personal money judgment of $5.9 billion, which is an ongoing obligation for Stanford to pay back the criminal proceeds. The court found that it would be impracticable to issue a restitution order at this time. However, all forfeited funds recovered by the United States will be returned to the fraud victims and credited against Stanford’s money judgment.

According to court documents and evidence presented at trial, the vehicle for Stanford’s fraud was SIB, an offshore bank Stanford owned based in Antigua and Barbuda that sold certificates of deposit (CDs) to depositors. Stanford began operating the bank in 1985 in Montserrat, the British West Indies, under the name Guardian International Bank. He moved the bank to Antigua in 1990 and changed its name to Stanford International Bank in 1994. SIB issued CDs that typically paid a premium over interest rates on CDs issued by U.S. banks. By 2008, the bank owed its CD depositors more than $8 billion.

According to SIB’s annual reports and marketing brochures, the bank purportedly invested CD proceeds in highly conservative, marketable securities, which were also highly liquid, meaning the bank could sell its assets and repay depositors very quickly. The bank also represented that all of its assets were globally diversified and overseen by money managers at top-tier financial institutions, with an additional level of oversight by SIB analysts based in Memphis, Tennessee.

As shown at trial, that purported investment strategy and management of the bank’s assets was followed for only about 10-15 percent of the bank’s assets. Stanford diverted billions in depositor funds into various companies that he owned personally, in the form of undisclosed “loans.” Stanford was thus able to continue the operations of his personal businesses, which ran at a net loss each year totaling hundreds of millions of dollars, at the expense of depositors. These businesses were concentrated primarily in the Caribbean and included restaurants, a cricket tournament, and various real estate projects. Evidence at trial established Stanford also used the misappropriated CD money to finance a lavish lifestyle, which included a 112-foot yacht and support vessels, six private planes, and gambling trips to Las Vegas.

According to evidence presented at trial, Stanford continued the scheme by using sales from new CDs to pay existing depositors who redeemed their CDs. In 2008, when the financial crisis caused a slump in new CD sales and record redemptions, Stanford lied about personally investing $741 million in additional funds into the bank to strengthen its capital base. To support that false announcement, Stanford’s internal accountants inflated on paper the value of a piece of real estate SIB had purchased for $63.5 million earlier in 2008 by 5,000 percent, to $3.1 billion, even though there were no independent appraisals or improvements to the property.

The trial evidence also showed that Stanford perpetuated his fraud by paying bribes from a Swiss slush fund at Societe Generale to C.A.S. Hewlett, SIB’s auditor (now deceased), and Leroy King, the then-head of the Antiguan Financial Services Regulatory Commission.

In addition to Stanford, a grand jury in the Southern District of Texas previously indicted several of his alleged co-conspirators, including: James Davis, the former chief financial officer; Laura Holt, the former chief investment officer; Gil Lopez, the former chief accounting officer; Mark Kuhrt, the former controller; and King. Davis has pleaded guilty and faces up to 30 years in prison under the terms of his plea agreement. The trial of Holt, Kuhrt, and Lopez, which was severed from Stanford’s trial, is scheduled to begin before Judge Hittner on September 10, 2012. They are presumed innocent unless and until convicted through due process of law.

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Minnesota Jury Convicts Jason Bo-Alan Beckman, of PlymGerald Joseph Durand and Patrick Kiley in Connection with Multi-Million-Dollar Ponzi Scheme

Source-  http://www.fbi.gov/minneapolis/press-releases/2012/federal-jury-convicts-three-individuals-in-connection-with-trevor-cook-ponzi-scheme 

MINNEAPOLIS—Today in federal court in the District of Minnesota, a jury found three individuals guilty in connection to a multi-million-dollar Ponzi scheme. Following more than a month-long trial, the jury convicted Jason Bo-Alan Beckman, age 43, of Plymouth, Minnesota; Gerald Joseph Durand, age 62, of Faribault, Minnesota; and Patrick Kiley, age 74, of Burnsville, Minnesota, on 12 counts of wire and mail fraud, one count of conspiracy to commit mail and wire fraud, and two counts of money laundering. In addition, Beckman was convicted on two counts of wire fraud, two counts of mail fraud, two counts of filing a false tax return, and one count of tax evasion. Durand was also convicted on two counts of concealing a material fact from the United States and three counts of filing a false tax return. The defendants were charged in a second superseding indictment on February 22, 2012. All three are being detained pending sentencing.

The scheme, orchestrated by Minnesota resident Trevor Cook, defrauded more than 900 individuals out of a collective total of $158 million. In August 2010, Cook was sentenced to 25 years in prison for his role in the scheme.

Following the verdict, U.S. Attorney B. Todd Jones said, “People save money their entire lives for retirement or to send their children to college. Fraudsters who choose to bilk them out of that money by pretending to be their friends or advisors are some of the worst kinds of criminals. We take our obligation to prosecute them very seriously, and we are very pleased with the jury’s verdict in this particular case.”

The evidence presented at trial proved that between 2005 and November 2009, the defendants, along with Cook and others, defrauded investors by soliciting them to invest money in a foreign currency trading program, which they offered through entities known as Universal Brokerage Services or bearing the acronym UBS. (The UBS entities had no legitimate affiliation to the global provider of financial services, UBS AG.)

Cook operated the currency program through various foreign currency trading firms, including, but not limited to, one located in Chicago and another in Switzerland. To induce investors, the defendants, Cook, and others, directly or through individuals acting under their direction, made false representations regarding the performance, safety, and liquidity of the currency program.

Specifically, they alleged that the currency program would earn a double-digit rate of return, typically between 10.5 and 12 percent annually, with little to no risk to investment assets. The men also claimed that investor assets could be withdrawn at any time and would be held in segregated accounts. Those representations, however, were false. When soliciting victim investors, the men also made misrepresentations and omitted material information concerning their backgrounds and qualifications as well as the backgrounds and qualifications of those working at their direction.

Once investments were made, investors generally received statements from the UBS entities, and some received investment return checks, also from the UBS Entities. the defendants, Cook, and others caused the production and transmission of those statements and checks. The statements gave the false appearance that the currency program was performing as promised, and that investments were held in individual, segregated accounts. Most investors, however, failed to receive statements or checks from the custodians in actual possession of their funds.

In 2007, when UBS AG filed a trademark infringement lawsuit against Cook, Durand, Kiley, and others, the defendants began operating their scheme under other names, including, but not limited to, those identified by the terms “Oxford” and “Universal Brokerage FX.” They then continued to solicit investors for the currency program, utilizing telemarketing, media spots, and seminars in which they repeated the false representations noted above.

While some investor assets were invested in foreign currency trading, most trading was high risk and often resulted in significant losses. the defendants, Cook, and others concealed this fact from investors. Moreover, the defendants, Cook, and others concealed that the currency trading firm in Switzerland was in dire financial condition and, instead, continued to solicit investor assets to be sent to that trading firm. The defendants also concealed from investors their own concerns about Cook’s operation of the currency program and alleged illegalities relative to the currency program.

Between 2005 and July 2009, the defendants, Cook, and others secured approximately $194 million in investments for the currency program. Of that amount, only about $109 million was actually sent to currency trading firms; approximately $68 million was lost in higher-risk trading; and $52 million was paid to investors in the form of lulling payments (payments that purported to be returns on investments or withdrawals of investments). Moreover, approximately $30 million in investments were diverted to fund the business and personal expenses as well as other investments of the defendants, Cook, and others. This included compensation received by them. In addition, Cook used funds to pay gambling debts, purchase a real estate development in Panama, and acquire the Van Dusen Mansion in Minneapolis.

At the same time that Beckman was soliciting investors for the currency program, he was also attempting to purchase a minority ownership interest in the Minnesota Wild hockey team. Beckman made misrepresentations to the National Hockey League, falsely claiming that investments in certain trading accounts were actually his assets. He also claimed an extraordinary amount of assets under management (AUM). This misrepresentation gave shared currency program agents and investors a false sense of security as to the currency program.

In addition, Durand concealed $11,839 from the court-appointed receiver, who was searching for assets of the currency program fraud. Durand had the cash exchanged for Swiss francs and showed that the francs belonged to someone else. Durand also filed false individual income tax returns for tax years 2006, 2007, and 2008.

Beckman also filed false individual income tax returns for tax years 2007 and 2009. In addition, he failed to file an individual income tax return for 2008. For that year, Beckman and his wife owed more than $1.3 million in income taxes. In addition, in February 2008, Beckman caused two life insurance policies for an investor to be sold, stealing the proceeds in order to prop up a currency trading account held in his name at PFG. That account had incurred a loss of approximately $15 million.

For their crimes, the defendants face a maximum potential sentence of 20 years in prison on each wire fraud and mail fraud count, 10 years on each money laundering count, and five years on the conspiracy charge. In addition, Beckman and Durand face a potential maximum penalty of three years on each false tax return count, and Beckman faces a potential maximum penalty of five years on the tax evasion charge. U.S District Court Chief Judge Michael J. Davis will determine their sentences at a future hearing.

On June 21, 2011, another co-conspirator, Christopher Pettengill, pleaded guilty to one count of securities fraud, one count of conspiracy to commit wire fraud, and one count of money laundering for his involvement in the scam. He awaits sentencing. On July 18, 2011, co-conspirator Jon Jason Greco pleaded guilty to two counts of making false statements to federal agents, specifically, lying about assets he had concealed in relation to this case. Greco was sentenced to 10 months in prison.

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Evan Matthew Flaxman Charged with Scheming Investors of $7 Million

Source-  http://www.fbi.gov/minneapolis/press-releases/2012/colorado-man-charged-with-scheming-investors-of-7-million 

MINNEAPOLIS—Earlier today in federal court, a 35-year-old Colorado man was charged with scheming investors of $7 million. Evan Matthew Flaxman, of Silverthorne, Colorado, was charged via an information with one count of mail fraud in connection to the scheme.

Allegedly, from December 2009 through March 2012, Flaxman induced investors to give him money, which he said would be invested on their behalf. Flaxman then allegedly used the money for personal use, including the purchase of Ferraris and Porsche automobiles and a Rolex watch. Purportedly, he also used the money to pay his taxes.

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