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Recent SEC Releases
Monday
Apr132015

Son-In-Law Of New York Lawmaker Charged With $7 Million Ponzi Scheme

The son-in-law of New York lawmaker Sheldon Silver was indicted on charges that he operated a Ponzi scheme through his investment fund that duped investors out of at least $7 million.  Marcello Trebitsch, also known as Yair Trebitsch, was charged with a single count of securities fraud and a single count of wire fraud in a recently-unsealed complaint filed in the Southern District of New York.  Notably, Trebitsch's father-in-law, Sheldon Silver, was recently the subject of criminal corruption charges also filed in the Southern District of New York.  If convicted, Trebitsch could face up to twenty years in prison for each count.  

According to the complaint, which was filed under seal on April 10, 2015 by way of a sworn affidavit by a Federal Bureau of Investigation special agent, Trebitsch began soliciting investors in or around 2009 for Allese Capital, LLC ("Allese"), which Trebitsch touted as a successful investment fund that he operated with his wife.  Trebitsch, whose wife Michelle is a certified public accountant and is the daughter of former New York Assembly Speaker Sheldon Silver, told potential investors that Allese employed a successful trading strategy through the day-trading of large cap stocks that resulted in annual returns ranging from 14% to 16%.  Trebitsch assured investors that little to none of their funds would remain invested in the market overnight, and also claimed that he cleared his trades through a major Wall Street investment bank that also had agreed to invest $50 million in Allese.  In total, Trebitsch raised at least $7 million - a majority of which was raised from a single victim.

After Trebitsch's largest investor requested a partial redemption of his investment in June 2014, Trebitsch ultimately disclosed through his attorney that he had experienced significant trading losses and that, after accounting for Trebitsch's $400,000 "fee," no money remained.  

The Complaint alleged that a forensic review of Trebitsch's bank accounts demonstrated that only a small portion of investor funds were used to engage in trading, and that Trebitsch suffered net trading losses.  A subsequent search warrant executed at Trebitsch's house apparently turned up a handwritten note that appeared to be authored by Trebitsch and stating that he "reckognize [sic] the tremendous pain along with financial," followed by the crossed-out word, "pain."  

The Complaint is below:

 

US v Trebitsch

 

Wednesday
Apr082015

Atlanta Man Indicted For $1 Million Forex Ponzi Scheme

An Atlanta man faces multiple criminal fraud charges after being accused of raising more than $1 million from investors in a foreign exchange market Ponzi scheme.  Stafford S. Maxwell, 46, was indicted on ten counts of wire fraud stemming from his former ownership of Millennium Capital Exchange, Inc. ("Millennium")  Each count of wire fraud carries a maximum twenty-year prison sentence.  

According to authorities, Maxwell began soliciting potential investors back in 2008 through promises of guaranteed high returns ranging from 48% to 72% generated through Millennium's successful foreign exchange market trading through accounts in Geneva, Switzerland.  Potential investors were told that Maxwell was an experienced forex trader who had a long history of trading success, and that he had previously generated large returns for other investors.  Maxwell assured investors that he kept "reserve" funds in case of any trading losses, and claimed to use "stops" and "floors" on his currency trades to enhance his returns.  In total, Maxwell raised at least $1 million from investors.

However, the indictment alleges that Maxwell was not the savvy forex trader he held himself out to be.  Rather, Maxwell is accused of suffering significant trading losses using investor funds, including nearly all of the funds he invested in forex.  Maxwell also allegedly lacked the reserve fund he claimed to have, and later ran out of money to pay investors their "guaranteed" returns.  According to authorities, Maxwell lost or spent almost every dollar invested with him.

Monday
Apr062015

SEC Busts $33 Million Ponzi Scheme Touting Pro Athlete Loans

The Securities and Exchange Commission filed an emergency enforcement action alleging that a Massachusetts company has raised nearly $32 million from dozens of investors under the guise of providing lucrative loans to high-profile athletes during the "off-season."  Capital Financial Partners, LLC, Capital Financial Holdings, LLC, and Capital Financial Partners Enterprises, LLC (collectively, "Capital Financial"), along with principals William D. Allen and Susan C. Daub, were named in a complaint filed by the Commission accusing them of violations of multiple federal securities laws.  The action was unsealed earlier today after the Commission obtained a Temporary Restraining Order that included an asset freeze and other equitable relief.  The Commission is seeking injunctive relief, disgorgement of ill-gotten gains, prejudgment interest, and civil monetary penalties.

According to the Complaint, which is embedded below, William Allen - a former NFL player himself - and Susan Daub began soliciting investors in 2012 to participate in some or all of a short-term loan to a professional athlete who might not have access to guaranteed salary money during that particular athlete's "off-season."  As Capital Financial's website explained,

In many cases, athletes' contracts do not allow them to access their guaranteed money during the off season or early in the season when they may need a significant sum to purchase a house or car, pay the bills, or meet a financial demand. By pooling the resources of a network of investors, CFP gives athletes access to money when they need it while providing investors with solid, short-term returns on investment.

Potential investors were told that Capital Financial required a minimum $75,000 investment, of which a 3% origination fee would be subtracted, and that a typical athlete loan was for $600,000.  Before making an investment, a potential investor was often provided with information about a particular athlete, including that athlete's sports contract and what amounts of that contract were guaranteed.  According to the Commission, at least some potential investors were led to believe that their investment was backed by that particular athlete's contract and that Capital Financial had the ability to receive payments from that athlete's team if needed.  In return, an investor was promised monthly interest rates ranging from 9% to over 18% depending on the duration of the loan.  In total, Capital Financial raised at least $31.7 million from over 40 investors from July 2012 to February 2015.

However, according to the Commission, nearly half of the money raised from investors never made it into the pockets of a particular professional athlete.  For example, over two dozen investors contributed more than $4 million in mid-2014 with the understanding that they were participating in a $5.65 million loan to an unnamed National Hockey League player.  Yet, the Commission alleged that the $5.65 million promissory note was never signed, and the particular NHL player subsequently filed for bankruptcy in October 2014.  While Capital Financial filed a proof of claim in the player's bankruptcy case claiming a $3.4 million debt, none of the investors were informed of the bankruptcy and continued to receive monthly payments amidst assurances that the loan was "performing as expected".  The Complaint also alleges similar misrepresentations with respect to purported loans made to MLB and NFL players.

The Complaint details that, from July 2012 to February 2015, Capital Financial received roughly $13 million in loan repayments from athletes yet paid out approximately $20 million to investors - a scenario in which the Commission alleged that the additional $7 million paid out to investors came from new investors in a classic Ponzi scheme.  Allen and Daub are also accused of withdrawing more than $7 million for various personal and unrelated business expenses, including casino and travel expenses as well as loans to various insurance companies.

While it is unknown when Capital Financial appeared on the Commission's radar, it appears that the unnamed NHL player in the Commission's complaint was veteran NHL player Jack Johnson, whose high-profile October 2014 bankruptcy filing disclosed at least $15 million in undisclosed loans taken out by his parents - loans that the Columbus Dispatch characterized as "nonconventional" high-interest loans.  Given the significant media coverage of Johnson's bankruptcy and allegations that some of the loans were fraudulently obtained by his parents, it is certainly plausible that authorities may have discovered the fraud after closely scrutinizing Capital Financial's creditor status. (UPDATE: The Palm Beach Post has a story that seemingly confirms this connection, recounting deposition testimony from a lawsuit Allen had filed against Johnson).

A copy of the Complaint is below:

Cfp Complaint

 

Friday
Apr032015

Mauritius Halts $693 Million Ponzi Scheme At Bank

The Prime Minister of Mauritius announced that regulators had halted a $693 million Ponzi scheme being run at a publicly-traded national bank that touted itself as "one of the fastest growing banks in Mauritius."  Bramer Bank (the "Bank"), which had been licensed by the Bank of Mauritius to conduct banking activities since August 27, 2008, had its banking license suspended and regulators appointed PricewaterhouseCoopers as a receiver.  Shares of the company's stock, which last traded at approximately $.11 on the Stock Exchange of Mauritius, have been suspended.

According to a cached version of the Bank's website (as the site is current unavailable), the Bank:

is part of the British American Investment Group, a premier conglomerate in Mauritius that has interests in financial services, healthcare, trade & commerce, construction and tourism. Within the financial cluster, the Group operates banking, insurance, asset and wealth management, forex, Islamic finance, insurance brokerage, stock-broking and commodity and currency futures broking. The Group has an established presence of 40 years in Mauritius. It also has operations in South Africa, Madagascar, Kenya, Dubai, France and Malta. 

The Bank started operations in 1989 as the South East Asian Bank (SEAB). The banking entity was acquired by British American Investment in 2008, and became the Bramer Bank.

Following a merger with Mauritius Lending in 2008, the Bank also was involved in leasing and micro-financing services.  Interestingly, while the Bank published audited financials up to December 2013, its financials for 2014 were unaudited.

According to the Mauritian Financial Services Commission, an onsite audit from January 22, 2015 to February 20, 2015 discovered a number of deficiencies.  The Bank had subsequently sought to meet its capital needs through overnight lending facilities from the country's central bank, but had also reportedly been suffering large withdrawals.  While the Mauritian Prime Minister has publicly pegged the size of the alleged Ponzi scheme at approximately $693 million, further details as to the number of victims or potential ensuing losses remain unknown.  

Thursday
Apr022015

SEC Wins Civil Fraud Case Against Rothstein Promoter 

A Miami federal jury handed a victory to the Securities and Exchange Commission as it convicted a Fort Lauderdale investment manager of funneling more than $150 million from over 150 investors to ScottRothstein's massive $1.2 billion Ponzi scheme.  George G. Levin, 74, was convicted of five counts of securities fraud after less than three hours of jury deliberations.  The Commission is seeking disgorgement of ill-gotten gains, injunctive relief, and civil monetary penalties, which will be decided by U.S. District Judge UrsulaUngaro in the near future.

Levin began working with Frank Prevé to solicit investors for Rothstein's scheme in 2007, at first offering potential investors the ability to invest in promissory notes.  The promissory notes offered investors annual rates of return ranging from 12% to 30%, and typically carried a 180-day term, and the pair sought to profit by keeping any excess return paid by Rothstein on the investments. Through the issuance of the promissory notes, the pair raised nearly $60 million from 90 investors to invest in Rothstein's scheme. 

As Rothstein's scheme grew, he pressed Levin for additional funding and claimed that he was experiencing problems in his ability to keep the scheme going.  To convince Levin, Rothstein claimed that his clients, the alleged plaintiffs entering into the settlements, had filed complaints with the Florida Bar and that the scheme could grind to a halt if he was disbarred.  According to Rothstein, the only way he could continue the scheme was with $100 million in fresh financing from Levin and Prevé.  This was followed by the cessation of payments on the settlements that Levin and Prevé had already purchased - bringing Levin's investment strategy to a halt and threatening the returns he had promised to his investors.

In early 2009, Levin formed the Banyan Income Fund, L.P. ("Banyan") as a "feeder fund" with the stated purpose of investing solely with Rothstein.  Between May and October 2009, Banyan raised approximately $100 million from 83 investors to invest with Rothstein.  In the Private Placement Memorandum ("PPM") provided to investors, Banyan represented that a settlement would undergo a verification process that included an independent third-party verifier to review the unredacted settlement documents and bank account balances to ensure everything was in order.  As with the earlier investments, the documents represented in the PPMs were not obtained, and Rothstein again failed to make payments on a majority of the purchased settlements.  Several months later, Rothstein's scheme collapsed, and Banyan investors lost the majority of the $100 million they had invested.

Prevé was criminally charged last summer, and subsequently pleaded guilty to one count of conspiracy to commit wire fraud.