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Recent SEC Releases
Monday
Sep012014

California University Seeks Removal Of Ponzi Schemer's Name From Football Scoreboard

“They think I’ve been running a Ponzi scheme...But Social Security is a Ponzi scheme. The Fed’s a Ponzi scheme.”

- Al Moriarti

On the eve of the 2014-2015 college football season, a California university has sought judicial approval to remove or otherwise cover up the name of a recently-convicted Ponzi schemer prominently featured on the team's football scoreboard.  California Polytechnic State University, San Luis Obispo ("Cal Poly") recently filed a motion in bankruptcy court seeking a court order to allow the modification of their football scoreboard, which currently prominently features Moriarty Enterprises - the entity used by Al Moriarti to mastermind a Ponzi scheme that duped investors out of at least $22 million.  A hearing has been scheduled for September 19, 2014 - the day before Cal Poly is scheduled to host its home football opener.

Background

Moriarty was a Grover Beach businessman who was well known in the community for his philanthropy, having donated extensively to area charities and also coaching various community sporting teams.  Beginning in the early 1990's, Moriarty used his company, Moriarty Enterprises, to solicit potential investors with the promise of 10% returns purportedly derived from providing home loans to educators.  While specifics on the investments remain unknown, Moriarty was able to raise tens of millions of dollars from dozens of investors.  

While the investments initially performed as promised, Moriarty began defaulting on scheduled interest payments during the economic downturn due to what he blamed on financial headwinds.  Investors increasingly pursued legal remedies, and Moriarty was facing 19 civil suits by November 2012.  One month later, Moriarty filed for bankruptcy.  After a criminal investigation, authorities arrested Moriarty in May 2013 and charged him with seven felonies including the fraudulent sale of securities and material misstatements and omissions in connection with the sale of securities.  Moriarty pleaded no contest to the charges on August 4, 2014, and is scheduled to receive a five-year prison sentence on September 17, 2014.

Moriarty was known not only for his philanthropy, but also for his extensive ties to local and national athletics.  His wife, Patricia Rooney, is part of the iconic family that owns the Pittsburgh Steelers.  Moriarty played football at Cal Poly, and also previously coached local football and basketball teams.  As a Cal Poly alumnus, Moriarty donated generously to his alma mater, This generosity included the donation of $625,000 in 2009 inechange for the prominent placement of Moriarty Enterprises on Cal Poly's football stadium.

Disputes Arise Over Naming Rights

Despite Moriarty's bankruptcy filing and subsequent arrest, the name "Moriarty Enterprises" still remained prominently featured on the scoreboard at Cal Poly's Alex G. Spanos Stadium.  Indeed, because of his bankruptcy filing, the naming rights to the stadium were transferred to the bankruptcy trustee in an effort to realize potential value for creditors.   

The school was well aware that any action taken to modify or remove the scoreboard could result in severe financial consequences - including punitive damages and the possibility of being held in contempt.  After Cal Poly balked at repaying the $625,000 received from Moriarty, the trustee filed a lawsuit seeking the return of the funds and claiming that Moriarty was insolvent at the time the donation was made.  In recent discussions between Cal Poly and the trustee, Cal Poly has asked for permission to cover the name with either "#CalPoly" or "Go Cal Poly" before the September 20th home opener, claiming that "having that company name on the scoreboard obviously is a problem for Cal Poly."  In another potential alternative, Cal Poly has offered to assist with the sale of the naming rights to a disinterested third party.

A hearing on the motion is scheduled for September 19, 2014.  

Thursday
Aug282014

Ohio Man Gets 15 Years For $100 Million Ponzi Scheme

“These offenses and their devastation cannot be tolerated.  The court must inflict a punishment that emphasizes this kind of financial chicanery cannot and does not exist. It’s necessary for this court to send a loud message, an emphatic message, that this kind of conduct cannot be tolerated.”

- U.S. District Judge Herman Weber

A Cincinnati man will spend the next 15 years in federal prison for orchestrating a devastating Ponzi scheme that took at least $100 million from over 140 investors.  Glen Galemmo received the maximum possible sentence from U.S. District Judge Herman Weber pursuant to a plea agreement with prosecutors in which he pleaded guilty to one count of money laundering and one count of wire fraud.  Galemmo will also be ordered to forfeit his assets.  With credit for time served, Galemmo will serve at least 13 years of his sentence.

Galemmo operated Queen City Investment Fund ("Queen City"), along with a dozen other investment entities.  Touting himself as an experienced trader, Galemmo promised lucrative returns to potential investors through investments in stocks, bonds, futures, and commodities.  Investors were provided with promotional materials indicating Queen City had enjoyed a streak of consistently above-average returns, including a return of nearly 20% in 2008 when the S&P 500 experienced a -38.49% loss. Potential investors were assured that Galemmo obtained annual audits of Queen City, and were provided with monthly statements showing steady returns.  In total, Galemmo raised at least $100 million from individuals, trusts, and even charitable organizations.

However, Galemmo's touted prowess as a savvy trader was pure fiction.  Galemmo was able to pay the promised outsized rates of return not through trading stocks and bonds, but from using incoming investor funds to pay existing investors - a classic sign of a Ponzi scheme.  Nor was the Queen Fund audited; rather, Galemmo simply listed the name of an audit firm that had not had a relationship with Galemmo or his fund since 2003.  Galemmo also created fictitious trading and account statements that were distributed to investors.  Investor funds were diverted by Galemmo for a variety of unauthorized uses, including the purchase of real estate, the payment of fictional interest and principal distributions, and even to operate other businesses such as entertainment complexes. 

The scheme came to a sudden halt in July 2013 when investors received an email from Galemmo stating that the funds were shutting down and directing all further inquiries to an IRS agent.  Galemmo was later arrested, and agreed to plead guilty shortly thereafter.  The prospect of recovery for victims appears bleak, with one source reporting that the Department of Justice has estimated that victims could recoup 10% to 20% of their investment.  One group of investors has commenced litigation against several national banks, seeking to hold the banks liable for their assisting Galemmo's scheme.  

Galemmo was allowed to remain free on bond while the Bureau of Prisons determines where he will serve his sentence, which could take as long as two months. 

Thursday
Aug212014

Ponzi Schemes Remain Prevalent In 2014; Over $1 Billion In New Schemes Uncovered

Nearly six years after the word "Ponzi scheme" became a household name thanks to Bernard Madoff, Ponzi schemes continue to proliferate and leave a trail of financial destruction in their wake as demonstrated by newly-compiled data showing more than $1 billion of newly-uncovered schemes and over 600 years in prison sentences handed down in the first half of 2014.  In the first six months of 2014, at least 37 Ponzi schemes were uncovered, with a total of more than $1 billion in potential losses.  This equated to the discovery of a Ponzi scheme (1) more than once per week, (2) every 4.9 days, or (3) every 118 hours. Included in this list are at least three Ponzi schemes with estimated losses of at least $100 million or more, with the estimated $300 million in losses in the alleged TelexFree Ponzi scheme ranking as the largest Ponzi scheme exposed in the first half of 2014.

The data, permanently housed in this database and also displayed below, is presented as a reminder that Ponzi schemes remain rampant in the United States and worldwide despite mounting government and regulatory efforts.  Indeed, the 37 schemes discovered during the first half of 2014 suggest that at least 74 schemes will be discovered in 2014 - approximately 10% more than the 67 schemes unearthed in 2013. 

A full list of Ponzi schemes uncovered in the first half of 2014, arranged by the estimated size of the scheme, is below:

 Ponzi Scheme Sentencing

In terms of sentencing, at least 66 prison sentences were handed down for those convicted for their role in Ponzi schemes in the first half of 2014, with over 600 years in cumulative sentences.  These figures are ahead of the pace for 2013, which saw 117 prison sentences for more than 1,000 years in total. These sentences ranged from mere months to decades in prison, with Hendrix Montecastro's 81 year sentence ranking as the highest Ponzi sentence handed down in the first half of 2014.  The total dollar amount of the Ponzi schemes for which sentences were levied: nearly $3 billion. 

A full database of the sentences handed down in the first half of 2014 is below:

A special thanks to Alison K. Jimenez from Dynamic Securities Analytics for her assistance in compiling the data.
Wednesday
Aug202014

Former Attorney Gets 10-Year Sentence For $4 Million Ponzi Scheme

A now-disbarred Minnesota attorney who swindled victims out of more than $4 million in an elaborate Ponzi scheme was sentenced to serve 10 years in federal prison.  Mark Holt, 45, received the sentence from U.S. District Judge Susan Richard Nelson as more than a dozen of his victims looked on, some of whom addressed both Holt and the Court in arguing for the maximum sentence.  Holt had previously pleaded guilty to a single count of wire fraud, which carries a maximum potential 20-year prison sentence.

Beginning in 2005, Holt used his affiliation with a Minnesota registered broker-dealer, Harbor Planning Investment Group ("Harbor Planning"), to solicit potential investors with the promise of steady returns through safe long-term investments.  Investors, many of whom were retired, were provided with periodic payments that purportedly represented returns on their investment, as well as investment statements showing increases in their accounts.  In total, Holt raised at least $4 million from dozens of investors.  

However, Holt failed to invest a majority of the funds he received from investors, instead using investor funds to make Ponzi-like payments and to sustain his lavish lifestyle.  Authorities alleged that Holt misappropriated at least $2 million through the formation of various entities each containing "Harbor" in their business name so as to facilitate the siphoning of investor funds from Harbor Planning.  Holt allegedly spent investor funds on a variety of personal expenses, including $14,000 on travel, $25,000 in gym and club dues, $16,000 on designer clothes, and $5,000 at an exotic dance club.  

Holt was also recently fined $300,000 by the Minnesota Department of Commerce.  

Wednesday
Aug202014

California Men Sentenced For $5 Million Real Estate Ponzi Scheme

Two California men will each serve at least a decade in prison for operating a real estate Ponzi scheme that duped victims out of nearly $5 million.  Terrance Brown, of San Jose, California, and Antranik Kabajouzian, of Morgan City, California, received a 15-year and 10-year sentence, respectively, from California Judge Shelyna Brown.  The men had previously pleaded guilty to multiple felonies, including financial elder fraud, grand theft, securities fraud and forgery.  Because the charges were brought by the State of California, the men will be eligible for parole after serving a minimum portion of their respective sentence.

Brown and Kabajouzian operated Bay Area Equity Group ("Bay Area Group"), telling potential investors that they could earn consistent 15% annual returns through the purchase and refurbishment of local rental houses.  Brown knew many of the victims through his occupation as a tax preparer, and used that relationship to convince many of his clients to invest with Bay Area Group. The men also used a well-designed website and made local presentations to potential investors in soliciting investments.  In total, at least 40 investors entrusted approximately $4.5 million to Bay Area Group.

However, the houses purchased with investor funds were not refurbished and filled with paying tenants, but rather were dilapidated and abandoned houses in Detroit that in some cases were condemned and torn down by the city.  Authorities learned of the scheme after a former Bay Area Group employee came forward voicing their suspicions, and the pair were later arrested - with Brown being arrested at a Las Vegas casino where he was gambling.  Victims suffered near total losses, with the 40 victims sharing in the $40,000 proceeds of an Aston Martin formerly owned by Kabajouizan and auctioned off.