Search
Most Recent
AdSurfDaily Agape agent American Integrity Aronson asset sales Attorney av bar reg baker bank bank of america Bankruptcy baumann bermudez black diamond blackwell bridge loan bull cattle CD celebrity cftc charity china China Voice church cityfund claims claims process clawback commission commodities commodity pool computer program congress Crown Forex currency death sentence denver diamond bar disgorgement Distribution Dodd-Frank donnan Dreier dunhill e-bullion elderly E-M Management SEC england Fairfield family FBI FDIC Fees female ponzi scheme financial advisor fine FINRA football forex fraud fufta fugitive Full Tilt gift card guilty plea GunnAllen hawaii Heckscher HSBC india invers forex janvey John Morgan JP Morgan kansas ken bell kenzie las vegas lawsuit lawyer libya Lifland machado Madoff Marian Morgan metro dream homes mets milberg millers a game Morgan European Holdings mortgage multiple schemes NCAA Net Winner new jersey notes objection Oxford Patrick Kiley paul burks PermaPave Pettengill Petters Picard poker Ponzi ponzi scheme ponzi scheme database ponzi scheme list Prime Rate profitable sunrise prosun pta puerto rico Rakoff real estate receiver receivership regulation relief defendants religion remission repeat offender restitution Rothstein RRA sec sentencing simmons sipa sipc snelling standing stanford stettin subpoena td bank telexfree treasury bonds treasury strip Tremont Trevor Cook UBS UFTA uga utah venture advisors Wachovia wilpon wire fraud woman zeek zeek rewards zeekler zeekrewards
Social
Recent SEC Releases
Monday
Oct062014

Stanford Files 299-Page Appeal Of 110-Year Sentence

The man convicted of running the second-largest Ponzi scheme in history has filed a 299-page appeal in a last ditch effort to reduce or reverse his 110-year sentence.  R. Allen Stanford filed his appeal last month with the U.S. Court of Appeals for the Fifth Circuit - which promptly rejected the filing and ordered Stanford to re-file a brief at least 50% shorter.  A federal jury convicted Stanford of 13 fraud counts in 2012.  Stanford, who has maintained his innocence since his arrest in 2009, is currently scheduled for release in April 2105.

According to Vice, Stanford's appeal devotes no less than fifteen arguments as to why his 2012 conviction should be set aside.  This includes arguments that the U.S. lacked jurisdiction to bring charges against him since his bank, Stanford International Bank, was located in Antigua and thus not subject to U.S. laws.  Additionally, Stanford argued that the certificates of deposit issued by Stanford International Bank could not be considered "securities" under federal securities laws.  Argued Stanford, “Simply put, Stanford International Bank was regulated by—and only by—Financial Services Regulatory Commission of Antigua and Barbuda."

Stanford also argues that he was deprived of his right to a fair trial after he was found competent to stand trial despite his claims that a prison beating had irreparably impaired his memory functions and affected his ability to confer with defense lawyers.  A federal judge overseeing his criminal trial found Stanford fit to stand trial after a three-day competency hearing.  Stanford claimed that his injuries "profoundly affected [my] ability to communicate with [my] attorneys and prepare [my] defense.”

Despite holding more than $5 billion in approved claims, victims have received a single distribution constituting 1% of their losses to date.  Many of Stanford's assets tied to his fraud remain locked up overseas and subject to competing claims by the U.S. Receiver and an overseas liquidation effort - including over $300 million located in Canada, Switzerland, and the United Kingdom.  

Thursday
Oct022014

Indiana Man Gets 22-Year Sentence For $16 Million Used-Car Ponzi Scheme

An Indiana man was sentenced to a 22-year prison term for bilking hundreds of victims out of at least $16 million in a Ponzi scheme that touted double-digit returns from used-car loans.  Thomas Kimmel, 68, was convicted by a federal jury in June on conspiracy, mail fraud, and money laundering charges.  In addition to the sentence, Kimmel was also ordered to pay $16.5 million in restitution to his victims, which included his wife, sister, and brother-in-law.  

Kimmel was a director of Sure Line Acceptance Corporation ("SLAC") and the President of Faithful Stewards Incorporated ("FSI").  SLAC was responsible for financing for Automacion, a used-car dealer with dealerships throughout Indiana which hired Kimmel in 2006.  Kimmel used his company, FSI, to solicit potential investors, emphasizing his religious ties and decades as a financial planner as he hosted conferences throughout the country advertised as "debt-free conference" and "God's Plan for His Money Conferences."  Kimmel told potential investors that their funds would be used to fund these used-car loans, and that they could expect a monthly 1% return that was both risk-free and backed by collateral.  Additionally, Kimmel told investors that he had set up a "spiritual board of directors" to oversee his company. In total, more than 300 investors, many of them retirees or senior citizens, entrusted approximately $20 million with Kimmel.

However, despite his promises that his investment opportunity was risk-free and backed by collateral, the reality was that SLAC was far from risk-ree and was in fact hemorrhaging money.  Nor were investors told that Kimmel received nearly $2 million in commissions from SLAC for business he generated or that the local church leaders endorsing the legitimacy of his venture were also receiving a 1% commission.  In reality, funds from new investors were being used to pay returns to existing investors - a classic hallmark of a Ponzi scheme.  After SLAC suffered financial problems, many investors ended up losing their entire investment.  Three officers at SLAC, James Willis Kirk Jr., Glen E. Smith Jr. and Carol April Graff, were eventually sentenced to prison for their role in the fraud.

Kimmel was ordered to report to prison in one month.

 

Thursday
Oct022014

Rothstein Name Partner Gets 33-Month Prison Sentence

A former name partner of the law firm where Scott Rothstein masterminded his $1.2 billion Ponzi scheme was sentenced to a 33-month prison term for his role in the fraud.  Stuart Rosenfeldt, 59, received the sentence after U.S. District Judge Marcia Cooke rejected his pleas for a downward departure from the 33-41 month range recommended by the U.S. Probation Office.  Rosenfeldt pleaded guilty earlier this summer to a single count of conspiracy to commit bank fraud, violate the civil rights of a prostitute, and make illegal campaign contributions. Rosenfeldt was given until January 5, 2014 to report to begin serving his sentence.

Despite insinuations by Rothstein that Rosenfeldt had to have been aware of his massive scheme, prosecutors never alleged that Rosenfeldt was involved or aware of the scheme.  However, Rothstein's extensive participation with authorities implicated Rosenfeldt in other criminal acts, including (1) making hundreds of thousands of dollars of illegal campaign contributions; (2) participating in a check-kiting scheme to cushion the firm's finances when needed; and (3) the use of law enforcement officers to force a prostitute and her boyfriend to leave Florida after Rosenfeldt believed the prostitute would expose their relationship.  

At its peak, Rothstein's firm employed seventy lawyers - the vast majority of whom have not been accused of any wrongdoing in connection with Rothstein's scheme.  Indeed, many of those lawyers lost their jobs when the firm declared bankruptcy after Rothstein's scheme unraveled.  Rosenfeldt marks the fifth former RRA lawyer to be convicted, and joins over two dozen other individuals that have been convicted for their role in the scheme.  

According to Chuck Malkus, who has covered the Rothstein saga closely and authored the book, The Ultimate Ponzi: The Scott Rothstein Story, Rosenfeldt is the 26th defendant to be sentenced as a result of Rothstein's arrest and subsequent cooperation with authorities, and prosecutors face a Halloween deadline to charge any others linked to the fraud under the five-year statute of limitations.  According to Malkus, "next to be indicted will be the TD Bank executives and the feeders."  

Previous Ponzitracker coverage of the Rothstein scheme is here.

Tuesday
Sep302014

Victim Lawyers Seek Lien On Ponzi Victim Distributions To Satisfy Contingency Fees

A Louisiana law firm that signed up hundreds of victims in the aftermath of the $600 million ZeekRewards Ponzi scheme has now filed notice in a North Carolina federal court that it intends to assert charging liens against over $130,000 in interim distributions mailed out today by the court-appointed receiver.  Marc Michaud, a New Orleans lawyer in the firm of Patrick Miller LLC (the "Law Firm"), filed a Notice of Attorney's Charging Liens asserting "attorney’s charging liens and other privileges for legal services performed and costs incurred by Attorney in connection with the representation of the 404 Class 3 Claimants listed on Exhibit 'A'."  According to the Notice, the Law Firm intends to assert charging liens in the amount of $134,042.78 - constituting 25% of the interim distribution made to those claimants pursuant to contingency fee contracts entered into between victims and the lawyers.

Background

The filing is the latest in a contentious battle between the Law Firm and the court-appointed receiver, Kenneth D. Bell over entitlement to claim distributions.  In December 2013, Bell sought court approval for distribution procedures, which included, among other things, a provision that payments would be made directly to victims.  The Law Firm filed a sharply-worded objection, claiming that the payments should be sent directly to their firm and characterizing the Receiver's decision as a refusal to consider their clients' claims and a violation of the victims' constitutional due process rights.  In his response, the Receiver dismissed the Law Firm's claims, noting that the fee agreement had been procured as part of a class action that had been filed in violation of the stay order, and taking issue with the attorneys' right to such a "large" fee simply for filling out an online claims form.  The Receiver also noted that

whether or not the fee agreement would permit Movants’ counsel to claim a large contingent fee (as much as 25%) for simply providing administrative assistance in filing a claim through the Receiver’s claim portal is uncertain.

On April 1, 2014, the Court approved the Receiver's Motion in all aspects.  Several days later, the Law Firm filed a Motion for Clarification and/or Reconsideration, which, in the Receiver's words, "again challeng[es] the Court’s decision by seeking to change the approved distribution process to require the Receiver to aid the Movants’ attorneys in collecting their attorneys’ fees from the Movants."  Characterizing the reason for the motion as the Law Firm's inability "to let go of their pecuniary interests," the Receiver explained that he sought to make payments directly to victims to prevent duplicative payments, to ensure aggregate net winners do not receive distributions by using multiple addresses, and even ensuring that the Receiver does not unwittingly violate the Department of Treasury’s Office of Foreign Assets Control’s (OFAC) regulations.  While observing that his plan "may not assist Movants’ attorneys’ efforts to collect their fees," he argued that no clarification of the Order was necessary.  

Contingency Fees for Assisting With Victim Proof of Claim?

An attorney's lien is used to create a security interest in favor of an attorney with a contract entitling him to a portion of the proceeds.  With the filing of the Notice, it remains unknown how the Law Firm intends to collect their claimed entitlement to each affected victim's distribution, or if there has been resistance from victims for complying with the demands for payment.  The exhibit attached to the Notice lists over 400 claimants holding over $1.34 million in total claims who supposedly signed a contingency fee contract with the Law Firm.

Here, the Law Firm essentially seeks over $100,000 from hundreds of victims of one of the largest Ponzi schemes in history for "assisting" the victims in filing Proof of Claims with the Receiver during the claims process.  The claims process in Zeek Rewards was entirely electronic and was done through an internet portal established by the Receiver.  As explained in an earlier Ponzitracker post,

After filling out claimant information and registering various contact information, a claimant would identify the type of claim they have from seven listed categories.  For affiliate claims, which are believed to be the majority of the claims, the claimant would be required to provide a variety of specific details related to various purchases made, including subscription fees, sample bids, retail bids, auction items purchased, and training materials.  Once the total amount of each category is listed, the claimant will then be required to list the date, amount, and reason for each payment and the corresponding payment type.  Cnce all payments to Zeek have been provided, the claimant will then be required to list all payments the received from Zeek, the reason, and the payment type.  

After this information is provided, the Claimant will be required to answer several questions relating to their involvement in Zeek.  This includes:

  • A list of all usernames they created;
  • A list of all lawsuits or legal proceedings they are involved in;
  • Whether they were an employee or officer, or related to any employee or officer of, Zeek;
  • Whether they sponsored or assisted any entity or person become an affiliate; 
  • Whether they paid cash to Zeek on behalf of any other entity or person;
  • Whether another person or entity paid cash to Zeek on their behalf or transfer bids to their account; and 
  • A listing of their upline/downline.

While the extent of the Law Firm's assistance is unknown in compiling and inputting this information, it is for this task that the Law Firm ultimately seeks hundreds of thousands of dollars in fees.  Assuming each Proof of Claim took one hour, the amount sought by the Law Firm would equate to over $2,000 per hour per claim.

Perhaps surprisingly, this is not the first time this situation has arisen in the context of a Ponzi scheme distribution.  In August 2013, a victim of Scott Rothstein's $1.2 billion Ponzi scheme sought to reject charging liens filed by two Florida law firms that claimed entitlement to millions of dollars in contingency fees from a recent settlement.  However, that investor disputed the charging liens on the basis that one of the law firms did not actually represent it and that the other had forfeited any entitlement to fees by withdrawing as counsel.  At least one of those law firms ultimately prevailed.

The Notice is below (h/t to ASDUpdates)

 

ZeekDoc258 Main

Tuesday
Sep302014

Massachusetts Man Indicted For $6 Million Ponzi Scheme

Two years after being charged with fraud by Massachusetts securities regulators, a former Belmont resident and prominent Shaklee distributor was arrested and charged with operating a Ponzi scheme that duped over a dozen investors out of at least $6 million.  John William Cranney, also known as Jack Cranney, was indicted on four counts of wire fraud, sixteen counts of mail fraud, and three counts of money laundering.  Each of the wire fraud and mail fraud counts carries a maximum prison term of twenty years, while each money laundering count carries a 10-year maximum term.  Cranney was scheduled to make his first appearance in a Texas federal court today.

The Massachusetts Securities Division previously levied civil fraud charges against Cranney in July 2012, alleging that Cranney used his affiliation as an independent distributor with Shaklee Corporation ("Shaklee") to lure in family, friends, and colleagues.  Shaklee is a multi-level marketing system of independent distributorships that sell health and personal nutrition products, and Cranney's family was credited for introducing Shaklee to the east coast.  Cranney was affiliated with Shaklee since 1967, and served as a "sponsor" for approximately 50,000 distributorships in a business model similar to Avon or Mary Kay Cosmetics.

Through these connections, Cranney held himself out as a financial advisor and operated several shell companies including Cranney Capital I, LLC, Cranney Capital II, LLC, Cranney Capital III, LLC, Cranney Industries, and Cranney Capital I Employee Stock Ownership Plan ("Cranney ESOP"). Beginning in mid-2002, Cranney solicited potential investors by offering short to medium-term investments with annual returns ranging from 10% to 12% annually.  These investments were memorialized in the form of promissory notes, and when the note matured, many investors opted to "roll-over" their investment into a new promissory note offering similar returns.  Additionally, Cranney also told investors that they could "roll over" money held in their IRA or 401(k) accounts to the Cranney ESOP without incurring withdrawal fees or penalties even though the investors were not employed by Cranney.  

Based on these representations, criminal authorities allege that Cranney raised at least $6 million from over a dozen investors (Massachusetts securities regulators allege that Cranney raised over $10 million from at least 36 investors nationwide).  However, according to authorities, instead of making investments as promised, Cranney misappropriated investor funds to fund his Shaklee distributorships, pay personal expenses, and meet investor redemptions.  When the financial markets began experiencing difficult times in 2008, Cranney began to default on making payments of principal and/or interest to investors, and soon altogether ceased returning investor funds.  

After state regulators filed charges against him in July 2012, Cranney subsequently filed for personal bankruptcy in March 2013.  Cranney's personal residence was sold to satisfy creditor claims, and authorities also seized money from two Shaklee distributorships controlled by Cranney.  Cranney has maintained that he did not run a Ponzi scheme, and that the "investments" alleged by regulators were, in reality, loans.  At a hearing in May 2013 in a Massachusetts bankruptcy court, many of Cranney's victims fought the trustee's efforts to convert the case to a Chapter 7 liquidation on the basis that investors could benefit from Cranney's "vast experience in handling and making money."  It is unknown if that position has since changed.