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Recent SEC Releases
Wednesday
Dec092015

Former NBA Star Faces Sentencing For $7 Million Ponzi Scheme

Sentencing for a former NBA star convicted of a $7 million Ponzi scheme is scheduled to begin today in a Connecticut federal court.  Tate George, a former standout college and professional basketball player, was convicted on four counts of wire fraud by a federal jury more than two years ago.  George, who played professional basketball for the New Jersey Nets and Milwaukee Bucks, has successfully delayed his sentencing by nearly two years as he dismissed his former attorneys and chose to represent himself in the sentencing phase.  George faces a maximum prison sentence of twenty years, but federal sentencing guidelines will result in a lower recommended sentence.  The sentencing is expected to last two days. 

Beginning in 2005, George owned and operated The George Group ("TGG"), which solicited potential investors  based on promises it was a successful real estate development company that had a portfolio exceeding $500 million.  The company was said to specialize in commercial and residential development financing, and represented that investor funds would be safeguarded in an attorney escrow account.  In return for their investment, investors received promissory notes with varying terms reflecting their investment amount and length.  In total, George raised more than $7 million from investors - including some former professional athletes.

However, contrary to George's representations, TGG did not have $500 million under management and investor funds were not used to fund real estate development projects.  Rather, TGG had virtually no income-generating operations, and George used TGG to run a classic Ponzi scheme by using investor funds for a variety of unauthorized purposes that included the payment of principal and interest to existing investors.  George also used investor funds to sustain a lavish lifestyle that included throwing a Sweet 16 party for his daughter, the mortgage and extensive renovations on his New Jersey home (that has since been foreclosed), taxes to the IRS, and traffic tickets. George also spent $2,905 for a reality video about himself (a “sizzle reel” for “The Tate Show,” is available on YouTube).

After his conviction in October 2013, Tate lodged a series of unsuccessful post-trial motions arguing for his acquittal on various grounds and later gained court approval to represent himself.  Allegations also surfaced that Tate had sent correspondence while behind bars to some of his victims soliciting them to invest with him again. 

While George spent four years in the NBA, his most memorable playing moment arguably came on a buzzer-beater in the third round of the 1990 NCAA tournament:

Tuesday
Dec082015

SEC Wins Trial Against Utah Man Accused Of $100 Million Ponzi Scheme

The Securities and Exchange Commission has prevailed at trial against a Utah man it accused of operating a massive Ponzi scheme that raised $100 million from hundreds of investors.  After a trial in which neither defendant appeared or participated, U.S. District Judge Bruce S. Jenkins entered Findings of Fact and Conclusions of Law against Wayne Palmer, of West Jordan, Utah, and his company, National Note of of Utah, LLC ("National Note"), finding that (i) National Note as operated as a Ponzi scheme; (ii) Palmer's violations of federal securities laws were repeated and egregious; and (iii) Palmer acted willfully and has failed to acknowledge his wrongdoing.  Palmer and his cousin were indicted earlier this summer for their roles in the scheme, which likely explains Palmer's lack of participation in the Commission's trial.  

Palmer operated National Note of Utah ("National Note"), which he formed in 1992, and had worked in the real estate financing business since 1976. Palmer Martin joined National Note in 1993 and served various roles, including "Client Development Manager."  National Note purportedly purchased real estate loans and funded new loans, and also dabbled in other unrelated ventures such as flipping rental properties, operating a mint, and extracting precious metals. Palmer traveled across the country teaching real estate investment seminars, in which he offered investors two-to-five year investment opportunities that paid annual returns of 12%. Potential investors were told that their funds would be used to buy and sell mortgage notes, underwrite and make loans, or buy and sell real estate. In a brochure provided to investors, Palmer "guaranteed" "double digit returns" with "no worries about reductions in earnings," touted the reliability of the "monthly payments," and assured investors of the "safety of principle."   Between 1995 and 2012, National Note has raised over $140 million from at least 600 investors.

According to authorities, National Note took on the characteristics of a Ponzi scheme as early as 2004 when the majority of funds raised from investors were simply loaned to National Note affiliates. By 2009, over 90% of National Note's outstanding loans were to various affiliates. While Palmer represented that National Note was highly profitable, the indictment alleges that National Note and its affiliates never had net income or positive net equity from 2004 to 2012 sufficient to meet its investor obligations. Scheduled interest payments to National Note investors ceased in October 2011.

The Court's ruling, which came after the Commission presented argument, entered documents into evidence, and called witnesses, concluded that National Note raised more than $140 million from investors.  Of that amount, approximately $88.5 million was returned to investors in the form of interest payments or returns of principal, thus resulting in total investor losses of approximately $51.9 million.  The Court ordered National Note to disgorge $51.9 million of ill-gotten gains, to pay pre-judgment interest of $13.25 million, and to pay a civil monetary penalty of $900,000. As to Palmer, the Court ordered disgorgement of $1.4 million, pre-judgment interest of $359,264, and a civil monetary penalty of $1.05 million.  

The case is one of several high-profile alleged Ponzi schemes uncovered in Utah, which prompted a CNBC segment dubbing Utah as "Ponziland." Authorities point to the large Mormon population as a primary target for fraudsters in what is termed "affinity fraud," and efforts to combat this fraud, including a 2010 public service campaign aimed at educating citizens, have fallen short. Recently, Utah became the first state to pass legislation mandating the creation of a white collar crime registry that will feature a public database of offenders convicted of certain financial/securities crimes.  

The Court's Findings of Fact and Conclusions of Law are below:

11.30.2015 Trial Judgment Entered Against Wayne Palmer

Tuesday
Dec082015

SEC Sues ZeekRewards Ponzi Promoter

The Securities and Exchange Commission took the unusual step of filing an action against what it alleged was one "of the most successful and prolific promoters" of the $850 million ZeekRewards Ponzi scheme that was shut down in August 2012.  Trudy Gilmond, 45, was charged with the unregistered sale of securities, failing to register as a broker-dealer, and with fraudulently offering securities related to her role as a "field liaison" to promote ZeekRewards to investors around the world.  The Commission is seeking injunctive relief, disgorgement of ill-gotten gains, and imposition of civil monetary penalties.  Ponzitracker readers may remember that Bernard Madoff's former lawyer, Ira Sorkin, previously represented Gilmond in an unsuccessful attempt to dissolve the receivership shortly after the Commission's enforcement action against ZeekRewards was filed. 

ZeekRewards was an online penny auction website that attracted users at an exponential pace due to a lucrative investment program that promised annual returns exceeding 200% and provided incentives for participants to recruit new investors.  The program, masterminded by Paul Burks, attracted over one million participants before the Commission filedan emergency enforcement action in August 2012 alleging the venture was a massive Ponzi and pyramid scheme.  Following Bell's appointment, his subsequent investigation revealed that over 700,000 participants suffered collective losses exceeding $700 million.
Bell's investigation also showed that tens of thousands of participants had not only recouped their initial investment but also varying amounts of "false profits" that, by virtue of Zeek's operation as a Ponzi scheme, were simply the redistribution of investments by other victims.

According to the Commission, Gilmond is a "self-described network marketer" who has been involved in numerous multi-level marketing programs and had been able to build her "downline" by recruiting investors to follow her to those programs.  Gilmond joined ZeekRewards as an affiliate in January 2011, which eventually became a full-time position that included purchasing customer leads, posting advertisements, and distributing business cards to potential investors.  Gilmond also spoke at ZeekRewards company events and hosted conference calls to prospective investors and new affiliates.  By identifying new investors and enrolling them in ZeekReward's program, Gilmond was entitled to earn substantial commissions.  Gilmond ultimately earned more than $1.7 million in commissions and fictitious profits from her involvement in ZeekRewards - making her one of the largest "net winners" in the scheme.  The Commission also alleged that, because of her access to scheme insiders and responsibilities as a "field liaison" that included ensuring that affiliates did not describe the scheme with any key words suggesting it was an investment, Gilmond knew or should have known that Zeek was a giant Ponzi and pyramid scheme. 

Gilmond's name first surfaced several months after the Commission shut down ZeekRewards when Ike Sorkin, the famed New York lawyer whose past clients have included Bernard Madoff, filed a motion seeking to intervene in the Commission's enforcement action and dissolve the appointment of a receiver.  While the motion did not attempt to argue that ZeekRewards had been operating a Ponzi or pyramid scheme, Sorkin argued on behalf of Gilmond and another affiliate that the investment products at issue did not constitute a security and thus were not subject to the Commission's jurisdiction.  That motion was denied in July 2013. 

The action is the first filed by the Commission against any promoter of the ZeekRewards scheme.  Gilmond is currently being sued by the ZeekRewards receiver for the return of her false profits, who alleged that she received the second-most amount of illicit distributions from her affiliation with ZeekRewards.

A copy of the SEC's Complaint against Gilmond is below.

Comp 23421

Monday
Dec072015

Jury Convicts Florida Trio In $80 Million 'Virtual Concierge" Ponzi Scheme

A Florida federal jury convicted two Florida men and a woman for carrying out what authorities described as an $80 million Ponzi scheme that duped hundreds of victims through so-called "virtual concierge" machines.  Joseph Signore, his estranged wife Laura Grande-Signore, and Paul Schumack were each convicted on various charges after three days of jury deliberations.  Joseph Signore was convicted of 34 various fraud counts, while Schumack was convicted of 23 fraud counts.  Signore's estranged wife, Laura Grande-Signore, was convicted of seven fraud counts but was also found not guilty of one fraud charge.  U.S. District Judge Daniel T.K. Hurley ordered Joseph Signore and Schumack taken immediately into custody while allowing Grande-Signore to remain free under house arrest pending sentencing.

According to authorities, Signore and Schumack solicited potential investors to participate in JCS Enterprises' ("JCS") Virtual Concierge program, which involved the purchase of a virtual concierge machines ("VCM") through a one-time fee ranging from $2,600 to $4,500 per VCM.  The VCM, which resembles an ATM, is a free-standing or wall-mounted machine placed in various businesses that purportedly allowed the advertisement of products or services and even the ability to print tickets or coupons.  Potential investors were told that the VCMs generated substantial returns, which in turn would allow the payment of annual returns to investors ranging from 80% to 120%. In addition, investors were provided with the location of the VCMs they had purportedly purchased and even given the ability to track the VCM activity online.

Investors were solicited in several ways, including several websites controlled by the entities and through videos posted on popular video-sharing website YouTube.  The videos promised that the VCM would "generate income for years," and promised that a $3,500 investment could produce "huge returns."  Potential investors also received emails from Schumack, who touted his graduation from West Point Military Academy in 1979 and whose email signature also featured a Bible passage intended to create a false sense of security for investors.  

However, authorities allege that the outsized returns touted by the defendants were the result of a Ponzi scheme.  According to the SEC, the production of VCMs was not close to the amount of VCMs purportedly sold to investors, and the guaranteed returns were "a farce."  Instead, investor funds were commingled and used for a variety of unauthorized purposes, including the unauthorized transfer of more than $2 million to Signore and his family.  An additional $56,000 in investor funds were used for expenses including restaurants, stores, and a tanning salon.  Finally, approximately $4 million in investor funds were transferred to an unrelated account from which Schumack and others allegedly made more than 100 cash withdrawals of nearly $5 million. 

However, while JCS pre-sold over 22,500 of the VCMs, less than 200 of the units were ever manufactured and only 82 were installed as promised.  Rather than generate the substantial returns promised to investors, JCS realized approximately $21,000 in revenues from those installed VCMs.  Authorities filed civil and criminal charges against the defendants in May 2014.  

The convictions come nearly nine months after the fourth defendant, Craig Hipp, was convicted on one count each of conspiracy to commit mail and wire fraud, mail fraud and wire fraud.  Attorneys for each of the defendants have indicated they plan to appeal the verdict, with Signore's attorney indicating that his client should have been tried in a separate trial from the other defendants.  

Sentencing has not yet been scheduled, but post-trial motions are due January 25, 2016.  Each of the defendants potentially faces decades in federal prison.

Thursday
Dec032015

California Man Gets Nearly Five Years For $15 Million Ponzi Scheme

A California man will serve nearly five years in federal prison after pleading guilty to operating a $15 million Ponzi scheme that ensnared close to 250 victims.  William Yotty, 69, received the sentence from U.S. District Judge Margaret M. Morrow, who remarked that it was "important that people who engage in business frauds face substantial sentences."  Yotty pleaded guilty earlier this year to one count of mail fraud and one count of wire fraud, and could have been sentenced to a maximum term of forty years in prison.  Yotty was also ordered by Judge Morrow to pay over $15 million in restitution to his victims.  It remains unknown whether Yotty will be able to satisfy the restitution order.

Beginning in Spring 2007, Yotty began soliciting victims to purchase interests in various debt instruments that he represented were safe, secure, and would pay substantial returns of up to 25% annually.  Potential investors were told that the companies issuing the debt instruments were adequately capitalized to pay the promised interest and that they could be counted on to repay the principal investment upon maturity.  Based on these representations, Yotty raised more than $11 million from investors.  Payments to investors ceased in 2009.

In a second scheme, which started sometime in the summer of 2007, Yotty pitched investments in two companies he owned - including one called Fortuno Millionaire Club - which offered above-average annual returns through profits purportedly earned through purchasing foreclosed real estate and flipping it to earn 200% - 300%.  In presentations to investors, Yotty told potential investors that “Our club member receives the down payment, the monthly payments from the new buyer, and all the proceeds from the sale of the Note!  It’s a win…win…win!”  Another presentation promised it could show investors "how to take $400 and turn it into $25,000 in the next 30 days."

However, while Yotty was flipping houses, he was selling houses that he had previously purchased at a deep discount to his investors, often at prices several times what he had originally paid.  And while Yotty promised that the houses were in livable condition and that he would undertake management, the reality was that the houses were dilapidated and uninhabitable.  Because of the deplorable condition and the inflated value, those investors were often unable to resell the houses.   

Yotty had been held without bail since he was arrested in May 2014.  

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