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
Wednesday
Jul092014

Defendant Tries To Bring Gun To Sentencing Hearing For $2.5 Million Ponzi Scheme

A South Carolina pastor that admitted to operating a $2.5 million Ponzi scheme is accused of trying to bring a gun to his sentencing hearing - a hearing that he had twice tried to delay.  Archie Evans, 42, was scheduled to learn his fate before U.S. District Judge R. Bryan Harwell after pleading guilty last January to one charge of mail fraud and one charge of unlawful structuring of financial transactions.  However, as Evans passed through x-ray screening, court officials discovered that Evans' backpack contained an unidentified firearm.  Evans was immediately detained and the gun confiscated, and it is expected that Evans will face additional charges from the Bureau of Alcohol, Tobacco, Firearms and Explosives.

Evans was a farmer and former pastor at the Tilley Swamp Baptist Church ("Tilley Church") in Conway, South Carolina.  In addition, beginning in 2004, Evans also operated Gold & Silver LLC ("Gold & Silver"), which purported to invest in silver futures markets and offered quarterly returns ranging from 10% - 12%. Investors, some of whom included members of Tilley Church, were provided with regular account statements purporting to show regular account gains.

However, in reality, Evans misappropriated investor funds as he ran the classic Ponzi scheme.  Rather than achieve the exorbitant rates of return he represented to investors, he instead used funds for personal expenses, to make interest payments to investors, and suffered trading losses on the funds actually invested.  At the time Evans was indicted in late 2011, his seized bank accounts showed a balance of just $1,919.86.

Following his guilty plea in January 2013, Evans subsequently moved to rescind the plea one month later after claiming that he had been coerced by his lawyer to take the plea.  After later abandoning that effort, Evans focused on delaying the final version of his sentencing report.  When the report was eventually finalized, Evans proceeded to seek to delay his scheduled sentencing on the basis that he was "mentally incapacitated," that a later sentencing date would allow him to pay his hospital bill, and most recently that "critical developments will occur in the next four weeks.  An exasperated Judge Harwell refused Evans' latest request for delay and set today's sentencing.

According to Tonya Brown from CarolinaLive.com, Evans received a 7-year prison sentence and was ordered to pay $3.7 million in restitution.

Tuesday
Jul082014

Read The Madoff Ruling Limiting Recovery Of Foreign Transfers Here

On July 7, 2014, U.S. District Judge Jed S. Rakoff issued an order finding that bankruptcy laws could not be applied extraterritorially to recover subsequent transfers from "feeder funds" that invested in Bernard Madoff's massive Ponzi scheme to foreign individuals and entities.  The order cited the U.S. Supreme Court's 2010 opinion in Morrison v. Nat'l Australian Bank Ltd., 130 S.Ct. 2869 (2010) for the presumption that, absent contrary intent, Congressional legislation is meant to apply only within the territorial jurisdiction of the United States.  The decision, which is below, will have profound implications not only on the potential recovery for victims of Madoff's scheme but also in the broader bankruptcy jurisprudence.  

While trustee Irving Picard has recovered nearly $10 billion to date to be eventually distributed to Madoff's victims, he indicated that he had filed several dozen lawsuits to recover more than $7 billion in subsequent transfers.  It remains unknown how much of that figure will be affected by the recent ruling, which it also likely to be appealed.  

Download the Order here.

 

Madoff Order

 

 

Sunday
Jul062014

Attorney and Daughter Charged With $23 Million Ponzi Scheme

"Ninety-nine percent of cases we see are caused by unregistered investments or investment advisors.  The best thing investors can do is check with our website or call our office to make sure the investment is registered and the person they are dealing with is registered."

- Indiana Secretary of State

An Indiana attorney and his daughter have been arrested and charged with masterminding a $23 million Ponzi scheme that allegedly targeted senior citizens.  Charles Blackwelder, 69, and his daughter, Cara Grumme, 41, were charged by Indiana authorities with twenty felonies, including nine counts of fraudulent sale of securities and four counts of securities fraud on a victim over 60.  Each of the felonies carry at least a four-year minimum sentence.  Blackwelder remains in an Indiana jail where he is being held on a $500,000 bond.  

According to the Indiana Secretary of State, Blackwelder operated CFS LLC ("CFS") in Carmel, Indiana, as an unregistered company that offered investors an opportunity to purchase "real estate investment opportunities" that would allegedly operate as a legal shield of those assets from consideration for qualification for Medicaid.  In total, the company took in over $23 million for over a decade from several hundred Indiana investors - many of them senior citizens.

However, Indiana authorities allege that CFS was nothing more than a Ponzi scheme, using new investor funds to pay returns to existing investors.  While investors were told that they were purchasing undivided interests in properties, authorities allege that in, in reality, the subject real estate was either previously sold or had already entered foreclosure.  In addition, Blackwelder and Grumme were accused of using several of the properties for their own use.

The Indiana Secretary of State Securities Division filed an enforcement action last year against Blackwelder, his son Chad, and Grumme related to their ownership of CFS Inc.  While A receiver was appointed, with over $23 million in claims filed by investors and debtors.  According to the receiver, CFS Inc. may have oversold interests in its properties by as much as 48%.  

Wednesday
Jul022014

Clawback Defendants File Counterclaims Against Receiver, Seek Treble Damages And Fees 

In a novel strategy, several "net winners" facing claims that they received millions of dollars in false profits from the $600 million ZeekRewards Ponzi scheme have responded to the court-appointed Receiver's complaint by asserting various counterclaims against the Receiver - a strategy that may have actually exposed some of those individuals to further liability.  Defendants Durant Brockett, Rhonda Gates, Trudy Gilmond, Jerry Napier, Darren Miller, Aaron Andrews, and Sharon Andrews (the "Defendants") were sued by Receiver Kenneth Bell on claims that they had each received over $1 million in "false profits" exceeding their investment in ZeekRewards.  Each has filed an Answer and Counterclaim against the Receiver, with Brockett also seeking to dismiss the claims.

Clawback Actions

The Defendants were sued after being identified by the Receiver as the largest recipients of purported profits from their affiliation with ZeekRewards, which the Securities and Exchange Commission shut down in August 2012 on claims that it was operating a massive Pyramid and Ponzi scheme.  Following Bell's appointment, his investigation showed that nearly $300 million had been distributed to so-called "net winners."  Bell sought and received court approval to file two lawsuits - one against the largest net winners, and another in the form of a class action lawsuit against approximately 9,000 investors that received at least $1,000 in net profits.  The Defendants comprised a portion of the individuals and entities named in the first lawsuit.

In their pleadings, the Defendants largely denied or claimed lack of knowledge surrounding the Receiver's allegations concerning Zeek's operation as a massive Ponzi scheme.  In addition, each of the Defendants also chose to assert counterclaims against the Receiver - the first time in recent memory such a tactic has been attempted.  The claims asserted by each Defendant are:

  • Durant Brockett - Breach of Contract, Tortious Interference, Money Had and Received, 42 U.S.C. 1983 (Deprivation of Constitutional Rights) or in the alternative common law 4th amendment claims, and North Carolina's Unfair and Deceptive Trade Practices Act.
  • Sharon and Aaron Andrews - Breach of Contract, Tortious Interference, Money Had and Received, 42 U.S.C. 1983 (Deprivation of Constitutional Rights) or in the alternative common law 4th amendment claims, and North Carolina's Unfair and Deceptive Trade Practices Act.
  • Trudy Gilmond - Breach of Contract
  • Jerry Napier - Breach of Contract
  • Darren Miller - Breach of Contract
  • Rhonda Gates - Breach of Contract 

Breach of Contract Claims

The crux of the breach of contract claims is that each of the Defendants was owed compensation for their "work" for ZeekRewards parent entity Rex Venture Group ("RVG"), and that the Commission's actions shutting down ZeekRewards prevented each Defendant from receiving the compensation owed to them.  Each Defendant also alleges that the Commission "unnecessarily delayed its prosecution of claims" against RVG to their detriment.  While the existence of a contract is alleged, there is little detail provided as to the substance of that contract or the terms of compensation.

The breach of contract claims likely face an uphill battle.  As an initial matter, Receivers enjoy broad and nearly unlimited immunity from suit for performance of their duties.  Additionally, the Order Appointing Receiver typically prohibits the filing of actions against Receivership Entities by any person without judicial leave.  Finally, the court-ordered claims process was designed to be the exclusive forum for those who held potential claims against RVG or ZeekRewards.

Additional Claims Could Result In Additional Liability To Defendants

In addition to the breach of contract claims, Defendants Durant Brockett and Sharon and Aaron Andrews also asserted additional claims that included a claim for violations of North Carolina's Unfair and Deceptive Trade Practices Act (the "Act"), alleging that the Receiver and RVG's conduct was illegal and immoral, offends public policy, and constituted unfair methods of competition, unfair trade practices, and deceptive trade practices.  As a result, Brockett and the Andrews allege that they are entitled to an award of treble damages and their attorney's fees and costs, as provided in the Act.  

However, a review of the relevant provision of the Act governing an award of attorney's fees provides that:

In any suit instituted by a person who alleges that the defendant violated G.S. 75-1.1, the presiding judge may, in his discretion, allow a reasonable attorney fee to the duly licensed attorney representing the prevailing party, such attorney fee to be taxed as a part of the court costs and payable by the losing party, upon a finding by the presiding judge that:

......

(2)        The party instituting the action knew, or should have known, the action was frivolous and malicious. 

Thus, a party prevailing in defending claims under the Act can collect his/her reasonable attorney's fees where the party instituting the action knew or should have known that the action was frivolous and malicious.  Perhaps ironically, the recovery of the Receiver's attorney's fees is not available pursuant to the claims asserted in the original complaint; rather, Defendants Brockett and the Andrews may have exposed themselves to the potential for an adverse attorney's fees award by bringing claims under the Act that are likely to be challenged as frivolous by the Receiver.  Such an award is in the judge's discretion, but the fact that funds that could potentially be returned to victims will instead be paid to the Receiver to defend these claims could certainly be a consideration.

Several of the Pleadings are below.  A special thanks to ASDUpdates for providing the pleadings.

Brockett

 

 

Gil Mond

 

Wednesday
Jul022014

TelexFree Trustee Seeks To Vacate Claim Deadline

As Ponzitracker reported yesterday, the court-appointed bankruptcy overseeing the TelexFree bankruptcy has filed a motion to invalidate the current Proof of Claim deadline of August 20, 2014, arguing that a variety of reasons render the establishment of a deadline as premature.  Stephen Darr, the court-appointed trustee for TelexFree, LLC, TelexFree, Inc., and TelexFree Financial Inc. (collectively, "TelexFree"), filed a motion (the "Motion to Vacate") through his attorneys today seeking to vacate the docket entries establishing the current deadline and stating that a Proof of Claim deadline was appropriate only after addressing various deficiencies in TelexFree's bankruptcy filing and the determination of a proper procedure to administer any claims process.  

Rule 3002 of the Federal Rules of Bankruptcy Procedure provides that a proof of claim is timely filed when done so within 90 days after the first date of the meeting of creditors known in Bankruptcy parlance as the "341 Meeting."  Shortly after TelexFree's April bankruptcy filing, a notice appeared on the court docket setting the 341 Meeting for May 15, 2014 and providing that the Proof of Claim filing deadline was 90 days after that date - resulting in a claim deadline of August 13, 2014.  A subsequent notice on April 24, 2014, rescheduled the 341 Meeting for May 22, 2014 - thus resulting in a rescheduled Proof of Claim deadline of August 20, 2014.  

However, the rescheduled 341 Meeting was never held, as a Court ordered the transfer of the proceedings to a Massachusetts Bankruptcy court on May 6, 2014.  Prior to the filing of the Motion to Vacate, Ponzitracker spoke with an attorney for the Trustee, who confirmed that the current bar date could be disregarded.

In the Motion to Vacate, the Trustee identified several bases for his request.  First, he argued that TelexFree had not yet filed its financial schedules or statements, nor had it submitted a complete matrix of creditors.  After he is able to determine the pool of potential claimants, the Trustee indicated that he intended to develop a protocol for the filing and administration of claims.  Hinting that the number of parties that could potentially assert claims against TelexFree could exceed 1,000,000, the Trustee indicated that administration of the claims process was likely to be a "significant undertaking" and that he was currently accepting proposals for a claims and noticing agent to assist.  Finally, the Trustee cited due process concerns, noting that there was no way to determine whether all of the potential affected parties had received notice of the impending deadline.

Ponzitracker will report on when a new bar date is made public, and will provide a detailed instruction guide for understanding and completing the Proof of Claim form at an appropriate time.

Previous Ponzitracker coverage of TelexFree is here.

The Motion to Vacate is below:

Motion to Vacate