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Recent SEC Releases
Tuesday
Apr122016

Connecticut CPA Indicted For $1.5 Million Ponzi Scheme

A Connecticut CPA has been indicted on fraud and money laundering charges and accused of stealing at least $1.5 million from investors through an elaborate Ponzi scheme.  Joseph A. Castellano, 58, was arrested on April 6th on ten counts of wire fraud, four counts of securities fraud, one count of mail fraud, and three counts of money laundering.  Each of the fraud counts carries a maximum 20-year prison term while each money laundering count carries a maximum 10-year prison term.  Castellano has since been released on $250,000 bond.

According to the indictment, Castellano was a certified public accountant and the owner of a tax preparation business named Castellano & Company, LLC ("C&C").  While Castellano was responsible for the preparation of tax returns for individuals and entities, he also allegedly began soliciting those clients and others in July 2007 to invest in various ventures through his companies Casbo Investments, Wallingford Investors Limited Partnership, and AIM Realty Investors.  Castellano told investors that their funds would be used to either make loans to other clients or provide short-term funding for various business or real estate projects.  In return, Catellano promised annual returns ranging from 6% to 8%.  Based on these representations, Castellano raised over $1.5 million from at least 10 investors.

However, authorities allege that Castellano did not loan or invest these funds as described.  Instead, Castellano is accused of misappropriating investor funds for himself and running a classic Ponzi scheme.  

Tuesday
Apr122016

Victims of $60 Million Ponzi Scheme Set For 19% Recovery

Victims of one of the largest financial frauds in South Carolina history are set to receive an initial distribution from the efforts of a court-appointed receiver that will result in a 19.22% recovery of their losses.  Beattie Ashmore, the court-appointed receiver, announced that victims of Ronnie Wilson's $60 million Ponzi scheme will soon receive their pro rata portion of $7 million in recovered funds through a distribution approved by the U.S. District Court for the District of South Carolina.  The Receiver's use of a "rising tide" method of distribution means that distributions will only be made to victims who received 19.22% or less of their net investment back through payments or returns.  

Wilson operated Atlantic Bullion & Coin, Inc., ("ABC") for at least a decade, representing to potential investors that they could realize profits from ownership of silver without having to actually physically possess the silver.  To accomplish this, Wilson purported to purchase and warehouse silver on behalf of investors. Investors were told that their silver would be held in safe-keeping at a Delaware depository, and were provided with regular account statements allegedly showing regular appreciation in their holdings.   In total, Wilson raised approximately $90 million from over 1000 investors in 25 states.  

However, in reality, Wilson used the majority of investor funds not for the purchase of silver, but to perpetrate a massive Ponzi scheme in which "profits" paid to existing investors were simply the re-distribution of incoming investor funds.  While investors were told that Wilson kept nearly $17 million of silver at a Delaware depository, they later discovered that the depository had never heard of Wilson.  Of the $90 million raised from investors, authorities and the court-appointed receiver have since pegged investor losses at approximately $60 million.  The receiver previously forecast a dim possibility of a meaningful recovery.  Wilson was sentenced to a 19-year prison term.  

Investors can expect at least one additional distribution given that the Receiver continues to pursue approximately 25 "clawback" suits seeking the return of false profits from net winner investors.  Other seized assets also remain for sale, including a 75 acre parcel of land east of Woodruff, South Carolina.  

Saturday
Apr092016

Feds: New York Man Ran $12 Million Wholesale Liquor Ponzi Scheme

A New York man has been arrested and charged with taking in more than $12 million from investors who believed they were investing in a profitable wholesale liquor business.   Hamlet Peralta, 36, currently faces a single charge of wire fraud, which carries a maximum sentence of twenty years in prison.  The case against Peralta, who previously owned a New York restaurant, was brought by the Public Corruption Unit of the U.S. Attorney's Office for the Southern District of New York.  The Wall Street Journal is reporting that the case is part of a larger ongoing corruption probe involving other New York businessmen.

According to the complaint, Peralta previously served as President of West 125th Street Liquors ("West Liquors"), a title which is currently held by his sister.  In or around July 2013, Peralta soliciting funds for what he touted as a profitable wholesale liquor distribution venture.  Peralta told potential investors that he had been approved as an exclusive wine distributor for a large national restaurant supply company that was beginning a wholesale wine business and that Peralta would be in charge of sourcing, purchasing, and supplying the wine.  Investors were promised a short term return ranging from 2% to 4% and told that Peralta was the President of West Liquors.  Based on these representations, Peralta is accused of raising at least $12 million from 12 investors.  

However, of the $12 million raised by Peralta for the purported wine distribution business, the complaint alleges that approximately $700,000 was used for the purchase of wholesale liquor while Peralta also made several smaller purchases of $10,000 or less for liquor to be sold in West Liquors.  The remaining funds were allegedly used for Ponzi payments to existing investors as well as to prop up Peralta's lavish lifestyle through dining expenses, high-end clothing purchases, and spa treatments.  Authorities also allege that the bank account used by Peralta to handle incoming investments belonged to Peralta's sister, the current President of West Liquors, and that Peralta represented to his sister that the incoming and outgoing payments were in connection with loans for his restaurant.  

A copy of the Complaint is below:

 

2016-04-06 US v Hamlet Peralta - Sealed Complaint (16 MAG 2263) (SDNY) by Progress Queens

 

Wednesday
Apr062016

Recovery On Horizon For Victims Of $68 Million Florida Ponzi Scheme 

Over seven years after the Securities and Exchange Commission shut down a massive Ponzi scheme targeting the south Florida Haitian community, victims are finally on the verge of recouping some of their losses through a court-administered claims process.  Jonathan Perlman, the court-appointed receiver over two companies operated by convicted schemer George Theodule, has announced that victims may submit a claim to share in assets recovered by the receiver.  Perlman estimates that approximately $5 million will be available for distribution to victims, which equates to an expected recovery of approximately 10% of the estimated $41 million in losses suffered by Theodule's victims.  Victims are required to submit a proof of claim on or before August 16, 2016.

Theodule owned and operated several companies, including Creative Capital Concept$, LLC ("Creative Capital") and Creative Capital Consortium, LLC ("CCC").  Using these companies, and a variety of other entities and investment clubs he formed, Theodule held himself out as a financial expert to the Haitian community, touting his 17+ years of experience trading stocks and options.  Theodule promised astronomical returns, guaranteeing potential investors 100% returns on their investment in just 90 days. As if these exorbitant returns were not enough, Theodule also told potential investors that part of his trading profits were used for a variety of humanitarian purposes, including the funding of start-up businesses in the Haitian community as well as contributing to business projects in Haiti and Sierra Leone.  Based on these representations, Theodule is said to have raised more than $30 million from as many as 2,500 investors from July 2007 to December 2008.

However, authorities alleged that Theodule's claims of trading success were completely false, and that in reality, Theodule was operating a massive Ponzi scheme.  Theodule's trading records showed trading losses of at least $18 million, and the remainder of investor funds were diverted to support Theodule's lavish lifestyle that included exotic car collections, motorcycles, rings, and even trips to Vegas.  The scheme collapsed when the Securities and Exchange Commission filed an emergency enforcement action in December 2008.  Perlman's subsequent investigation revealed that Theodule had spent nearly 100% of the money he took in, meaning little remained for victims.

Perlman filed a series of lawsuits against entities he accused of being complicit or ignorant of Theodule's scheme, including Wells Fargo, Bank of America, TD Ameritrade, and OptionsXpress.  While Bank of America and TD Ameritrade settled for $2.75 million and $1.25 million, respectively, the lawsuit against Wells Fargo took several years.  Perlman alleged that Wachovia ignored obvious red flags about Theodule's banking relationship, failed to conduct the requisite due diligence, and even made special accommodations for Theodule's benefit including the delivery of large amounts of cash through the drive-through window.  Perlman also alleged that internal bank documents showed the bank's knowledge of suspicious activity, including a decision to freeze one of the accounts that essentially acted as a funnel for investor deposits to Theodule's main account.  This freeze was subsequently removed four days later after a Creative Capital employee faxed the bank a business plan.

While the Wells Fargo suit was initially dismissed by the trial court, Perlman was successful in petitioning the Eleventh Circuit Court of Appeals to overturn the dismissal.  After a two-week trial in April 2015, the parties reached a $3.175 million settlement on the eve of jury deliberations.  The settlement was noteworthy as it marked one of the largest recoveries from banks in Ponzi litigation. 

In order for a victim to share in this and potential future distributions, a proof of claim form from the receivership website must be submitted by August 16, 2016.  A link to the receivership website is here.

Friday
Mar112016

SEC Alleges Oregon Company Ran $350 Million "Ponzi-Like" Scheme

An Oregon company is facing allegations by the Securities and Exchange Commission that it operated a "Ponzi-like" scheme that raised hundreds of millions of dollars from over 1,000 investors around the country.  Aequitas Management LLC ("Aequitas") was named in a civil enforcement action filed yesterday by the Securities and Exchange Commission alleging that the company, which last year orchestrated an orderly liquidation and winding down of its business, violated federal securities laws in raising hundreds of millions of dollars from investors.  The Commission filed its action against Aequitas and its senior management team, including founder Robert J. Jesenik, fundraiser Brian A. Oliver, and former Chief Financial Officer N. Scott Gillis, and is seeking injunctive relief, disgorgement of ill-gotten gains, imposition of civil monetary penalties, officer and director bars, and appointment of a receiver.

Aequitas and a related group of companies was founded by Jesenik in the early 1990s.  Aequitas, which is majority owned by Jesenik, Oliver, and Gillis, sits at the top of a complicated organizational structure that includes over 75 active entities.  One of the related entities, Aequitas Commercial Finance, LLC ("ACF"), began raising money from investors in 2003 through the issuance of high-interest promissory notes to more than 1,500 investors.  The notes, sold directly and through registered investment advisors, carried terms ranging from one to four years and promised investors annual returns ranging from 5% to 15%.  Through offering documents, investors were told that their funds would be used for several purposes including the funding of receivables in the student loan, healthcare, and other industries.  Investors were assured that the notes issued to them were secured by the personal property of ACF.

While ACF disclosed that the purchase of student loan receivables were one of the uses of investor funds, investors were not told that their funds were heavily concentrated in receivable purchased from troubled for-profit education provider Corinthian Colleges ("Corinthian").  Those receivables were subject to a resource agreements that required Corinthian to buy back any receivables that became delinquent by more than 90 days, which included monthly payments from $4 to $7 million in early-to-mid 2014.  However, Corinthian began encountering financial difficulties in 2014 and stopped making monthly payments altogether to Aequitas in June 2014.  Corinthian subsequently filed for Chapter 11 bankruptcy protection in May 2015.  

However, rather than disclose the true nature of Aequitas's exposure to Corinthian, the Commission alleges that Aequitas and its executives ramped up efforts to sell short-term notes to investors.  Indeed, during the latter half of 2014 ACF raised nearly $25 million from the issuance of 6-month notes carrying annual interest rates ranging from 11% to 12%.  Later that same year, ACF also began offering one-year notes touting 15% annual interest rates.  As those short-term notes began coming due, the company disclosed that it would be unable to meet its obligations. 

According to the Commission, the offering documents distributed by ACF representing that the primary use of investor funds was to purchase trade receivables was false.  In 2014, the Commission alleged that only about 25% of investor funds were used to purchase trade receivables, while that figure dropped to 8% in 2015.  Indeed, the Commission alleged that the operation had likely morphed into a Ponzi scheme by mid-2014 when 

the vast majority of investor money to cover redemptions and interest payments to prior investors and to pay the operating expenses of the entire Aequitas enterprise...In reality, at least by July 2014, ACF was generally paying the principal and interest due on prior ACF notes from the proceeds of investments, in a Ponzi-like fashion

Aequitas has consented to the imposition of an injunction enjoining it from raising additional funds from investors and also agreeing to the appointment of a receiver to marshal and secure assets for the benefit of defrauded investors.  

A copy of the Commission's Complaint is below:

 

Aequitas Complaint