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Recent SEC Releases
Monday
Jun082015

July Trial Date For Cay Clubs Principals In Alleged $300 Million Ponzi Scheme

A July 2015 trial has been scheduled for a husband and wife accused of masterminding a massive $300 million real estate Ponzi scheme and facing multiple fraud and conspiracy counts.  Dave and Fred Davis Clark, Jr., a/k/a Dave Clark, 56, and Cristal R. Clark, a/k/a Cristal R. Coleman, face charges of bank fraud and conspiracy to commit bank fraud in connection with their operation of Cay Clubs, a Florida company that was accused by the Securities and Exchange Commission of operating a $300 million Ponzi scheme based on the sale of luxury timeshares.  If convicted, the Clarks could face up to thirty years in prison for each bank fraud charge. 

Cay Clubs operated from 2004 to 2008, marketing the offering and sale of interests in luxury resorts to be developed nationwide.  Fred Clark served as Cay Clubs' chief executive officer, while Cristal Clark was a managing member and served as the company's registered agent.  Through the purported purchase of dilapidated luxury resorts and the subsequent conversion into luxury resorts, Cay Clubs promised investors a steady income stream that included an upfront "leaseback" payment of 15% To 20%.  In total, the company was able to raise over $300 million from approximately 1,400 investors.

However, by 2006 the company lacked sufficient funds to carry through on the promises made to investors.  Instead of using funds to develop and refurbish the resorts, Cay Clubs used incoming investor funds to pay "leaseback" payments to existing investors in what authorities alleged was a classic example of a Ponzi scheme.  After an investigation that spanned several years, the Securities and Exchange Commission initiated a civil enforcement action in January 2013 against Cay Clubs and five of its executives, alleging that the company was nothing more than a giant Ponzi scheme.  However, the litigation came to an abrupt end in May 2014 when a Miami federal judge agreed with the accused defendants that the Commission had waited too long to bring charges and dismissed the case on statute of limitations grounds.  

Just weeks after the dismissal of the Commission's action, authorities unveiled criminal charges against Fred and Cristal Clark and coordinated their arrest and extradition from Honduras and Panama where they had previously been living.  The charges stemmed from the Clarks' operation of an unrelated scheme to siphon money from their operation of a series of pawn shops throughout the Caribbean. Authorities alleged that the pair used a series of bank accounts and shell companies previously used with Cay Clubs to steal funds from the pawn shops to sustain their lavish lifestyles abroad.  Several months later, authorities filed bank fraud charges related to the Clarks' interaction with lenders as part of their operation of Cay Clubs - a strategy seemingly designed to ensure the charges would withstand any statute of limitation challenges given that bank fraud carries a 10-year statute of limitations.  

In the wake of the charges against the Clarks related to their operation of Cay Clubs, authorities targeted former sales directors Barry Graham and Ricky Lynn Stokes and charged the pair with conspiracy to commit bank fraud.  The charges resulted in guilty pleas and identical five-year sentences, and each of the men could be called to testify at the Clarks' trial.  

A forensic analysis conducted by the government alleges that Cay Clubs evolved into a Ponzi scheme as early as April 2005, with $2 out of every $3 paid to investors allegedly coming from existing investors.  The forensic analysis also showed that the Clarks lived lavishly, including nearly $20 million in boat purchases and expenses, $5 million in aircraft expenses, and $3 million in personal credit card bills.  Fred Clark also allegedly spent over $3 million at a Bradenton golf and country club.

Saturday
Jun062015

Indonesian Man Arrested For Alleged Tissue Paper Ponzi Scheme

An Indonesian man has been arrested and charged with fraud in connection with a suspected Ponzi scheme that promised exponential returns purportedly derived from the sale of advertisements on the back of tissue paper packets.  Kamal Tarachand, of North Jarkarta, Indonesia, was arrested after several dozen victims - including some Indonesian celebrities hired to promote the scheme - came forward to authorities.  Authorities are actively investigating the scheme and are also considering filing money laundering charges.

Beginning sometime in 2013, Tarachand began recruiting victims with the promise of huge returns from the sale of advertisements on the back of tissue paper packets manufactured by his company.  Potential victims were provided with samples of the tissue paper packets featuring advertisements for restaurants and cosmetic companies.  The promised returns were staggering.  According to authorities, Tarachand promised that for every $75 invested in the tissue paper business, victims would receive a daily return of $3 to $15 - an annualized return of up to 6,000%.  Tarachand hired well-known Indonesian celebrities to promote his business and lend an air of legitimacy, including a soap opera actress and an actor.  Some victims were also lured with the prospect of free advertisements in exchange for an investment.  It is speculated that the scheme may have attracted thousands of investors across Indonesia.

But authorities allege that Tarachand was running a classic Ponzi scheme by using new investor funds to pay returns to existing investors.  One lawyer for some of Tarachand's victims has stated that the tissue paper business never went into production.  Authorities raided the tissue paper business earlier this week, and have also confiscated some of Tarachand's assets while they continue their investigation. 

Saturday
Jun062015

Ponzi Schemer Who Robbed Bank With Fake Bomb Gets 79-Month Sentence

A New York man who attempted to rob a Florida bank with a fake bomb after being arrested for a $20 million Ponzi scheme has been sentenced to a 79-month prison sentence for his scheme.  Louis J. Spina, who once had a successful career as one of the youngest members of the New York Stock Exchange, pleaded guilty to wire fraud late last year to settle charges he masterminded a $20 million Ponzi scheme.  The sentence will be served on top of the 41-month sentence Spina previously received after pleading guilty to robbing a Florida bank brandishing a fake bomb.  U.S. District Judge Anne E. Thompson ordered Spina to forfeit over $800,000 and to pay approximately $12.7 million in restitution to his victims.  

The Scheme

Spina's story reads like a gripping Hollywood thriller.  With only a high school diploma, Spina started working for the New York Stock Exchange at the age of 19.  Spina apparently had a penchant for Wall Street, becoming an NYSE member at age 27 and taking home at least $800,000 in annual pay during an 18-year period beginning in 1983.  Spina, who apparently had a knack for being captured by media outlets on the trading floor (see herehere, and here), ultimately spent over 25 years on Wall Street.

In 2010, Spina left Wall Street and formed LJS Trading, LLC ("LJS").  Potential investors were told that Spina could deliver annual returns ranging from 9% to 14% through trading in various stocks and equities, wit the understanding that Spina would be entitled to keep any surplus profits.  Spina would ultimately raise approximately $20 million from dozens of investors.

However, Spina ultimately used less than 50% of investor funds for their stated purpose, and indeed lost the entirety of the $9.5 million he invested.  He spent the remainder of investor funds to sustain a lavish lifestyle that included expensive cars, luxury real estate, and even a $400,000 donation to a private university.

When investors began questioning Spina about the safety of their funds, Spina provided them with "screenshots" of his trading account displaying a large balance.  According to the FBI, this balance was not the accurate balance, but simply a display of the 100-to-1 margin purchasing power used by Spina.  In late 2013, Spina told investors that he was in talks to sell the company to an unnamed wealthy individual that could offer even higher annual returns of 14% to 30% - and succeeded in raising an additional nearly $2 million.  

"Rock bottom"

However, there was no wealthy benefactor waiting in the wings, and Spina was arrested in November 2013 on federal charges that he was operating a Ponzi scheme.  Several months after his arrest, Spina entered a Wells Fargo branch in Coral Gables, Florida, wearing a black ski mask over his head and carrying a bag which he claimed contained a live bomb that he had crudely assembled using a Pyrex bowl and a strainer.  Spina made off with approximately $16,000 from the heist, but a witness observed his getaway and reported his plates to authorities.  Spina was arrested without incident the following day, where he confessed to authorities that he had robbed the bank, used a key fob to simulate a detonator, and used most of the robbery proceeds to pay bills.  

As federal prison does not have a parole system, Spina must serve at least 85% of his sentence.

Thursday
Jun042015

"Brooklyn Madoff" Ponzi Victims Sue Banks For $36 Million

Several dozen victims of a massive Ponzi scheme masterminded by a Brooklyn man dubbed the "Bernie Madoff of Bay Ridge" have filed a lawsuit seeking over $36 million from several financial institutions that allegedly aided the decades-long Ponzi scheme.  Over two dozen victims of Philip Barry, who is currently serving a 20-year prison sentence after a federal jury convicted him of 34 fraud counts, filed suit against banking behemoths JP Morgan, TD Bank, HSBC, and M&T Bank, seeking $11.1 million in compensatory damages and an additional $25 million in punitive damages for the banks' failure to detect Barry's fraud despite purported red flags that included over 1,000 bounced checks and large repetitive transactions.  A federal judge previously dismissed a similar suit brought by Barry victims, concluding that the claims were precluded by the Securities Litigation Uniform Standards Act ("SLUSA").

Barry was convicted of running one of the longest Ponzi schemes in history, ultimately defrauding hundreds of victims out of approximately $40 million.  Beginning in 1978, Barry used his firms, Leverage Group, Leverage Option Management Co., Inc, and North American Financial Services, to solicit investors based on promises of consistent and risk-free returns of up to 21% annually through trading in options and other securities.  Barry not only guaranteed returns to investors, but also claimed to some that their investment would be protected from loss from either privately-obtained insurance or his firms' membership in the Securities Investor Protection Corporation ("SIPC") - the same industry group that is funding recovery efforts on behalf of Bernard Madoff victims.  

However, according to authorities, Barry ceased making investments on his victims' behalf as early as 1999, instead diverting funds for his own personal use and also using new investor funds to make fictitious interest payments to existing investors.  Barry purchased dozens of parcels of real estate, supported a lavish lifestyle, and even propped up a mail-order pornography business he owned.  After the financial downturn wreaked havoc on his real estate holdings, Barry filed bankruptcy in 2008 and later turned himself in to authorities.  He was convicted by a federal jury of 34 fraud counts in 2010 and later sentenced to a 20-year term in 2011.  Given his bankruptcy filing, it is unlikely that his remaining assets will ever yield any meaningful recovery for victims.

According to the investors, Barry through his company Leverage Group, used accounts at the accused financial institutions to carry out the fraud, and that the financial institutions shirked their regulatory obligations in favor of reaping profits from Barry's frequent and significant banking activity.  For example, Barry is accused of bouncing more than 1,000 checks from 2004 to 2009, resulting in nearly $50,000 in overdraft fees that somehow did not result in further investigation.  The banks are further accused of failing to follow "know your customer" rules that, if heeded, might have prompted further investigation of Barry's activities that could have unearthed the fraud.  

Barry's fraud was chronicled in an episode of CNBC's "American Greed," which featured participation by Barry.  The video is below:

Wednesday
Jun032015

Miami Investment Adviser Accused Of $2 Million Ponzi Scheme Targeting Retired Public Sector Employees

A Miami man is facing civil and criminal fraud charges after authorities say he ran a Ponzi scheme that raised over $2 million from numerous public sector retirees including law enforcement officers and teachers.  Phil Donahue Williamson, 48, faces charges from both the Securities and Exchange Commission and the U.S. Attorney's Office that he misappropriated or misused nearly $1 million in investor funds raised under the guise of investing in distressed real estate.  While Williamson has agreed to settle the Commission's charges by paying nearly $750,000 in disgorgement of ill-gotten gains, the criminal charges remain pending.

According to authorities, Williamson operated as an unregistered investment adviser based in Miami, Florida.  Touting investment vehicles he had purportedly formed to invest in distressed properties in Florida and Georgia, Williamson solicited investors, including public sector retirees, with the promise of an annual return ranging from 8% to 12%.  Williamson's investors came not only through word-of-mouth, but also from Williamson's hosting of financial seminars at local churches.  Potential investors were assured that their investment was risk-free, and that their funds would be available at any time.  Some investors were even assured that Williamson would make them whole in the event anything happened to their invested principal.  In total, Williamson raised over $2 million from at least 17 investors.

However, Williamson is accused of failing to invest funds as promised.  Instead, Williamson allegedly commingled investor funds, misappropriated funds for his own personal use, and used investor funds to pay returns to existing investors - a classic hallmark of a Ponzi scheme. Indeed, of the $2 million raised from investors, Williamson paid nearly $700,000 in purported "returns," nearly $400,000 in personal expenses such as mortgage and BMW payments as well as his children's tuition, and nearly $400,000 in transfers to third parties that appear to be unrelated to the promised investment.  

The Commission's complaint is below.

Williamson

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