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
Recent SEC Releases

Rothstein "Independent Asset Verifier" Gets 30-Month Sentence

A south Florida investment advisor who once served as a financial advisor to convicted Ponzi schemer Scott Rothstein has been sentenced to a 30-month term for his role in the scheme.  Michael Szafranski, 37, received the sentence from U.S. District Judge Dimitrouleas after previously pleading guilty to a single wire fraud conspiracy charge. Szafranski had originally faced a dozen fraud charges when he was indicted earlier this year, but later decided to cooperate with prosecutors and was expected to testify at the trial of former TD Bank vice president Frank Spinosa.  Spinosa ultimately decided to plead guilty on the eve of trial and faces sentencing later this year.   

Rothstein touted hefty returns from purported investments in confidential pre-suit settlements, using his position as chairman of one of the fastest growing law firms in south Florida to bolster his credibility while simultaneously flaunting his newfound wealth.  Rothstein fled to Morocco in late October 2009 when the scheme was on the verge of collapse - a country lacking an extradition treaty with the U.S. - only to later return to face the music.  His extensive cooperation with authorities ultimately led to his placement in the Witness Protection program, and his subsequent assistance has resulted in over two dozen additional arrests.

Szafranski, who once worked for the now-defunct brokerage Bear, Stearns & Co., Inc., was hired in or around 2008 by several New York hedge funds to act as an "independent asset verifier" to verify the authenticity of the deals Rothstein was peddling.  However, Szafranski soon allegedly switched from his position of impartiality to become close friends with Rothstein and actively began soliciting investors for the scheme.  Rothstein himself testified during 2011 depositions that he paid Szafranski handsomely, including several million dollars in post-dated checks, and extensively wined and dined him.  According to Rothstein,

"There was a point in time when he [Szafranski] had a pretty good idea. There was a point in time when he absolutely knew, and then there was a point in time when he was bringing in investors into something he knew didn't exist."

As an example, Rothstein recounted a time during 2008 when Szafranski questioned him about similarities between signatures in legal documents.  In another instance, Szafranski is said to have accompanied Rothstein and another familiar cohort, Stephen Caputi, to a TD Bank branch where Caputi masqueraded as a bank official.  The indictment alleges that Szafranski ultimately was responsible for bringing more than $200 million of new investments into Rothstein's scheme.  

Szafranski's prosecution was notable because he was the first defendant charged after the expiration of the five-year statute of limitations applicable to many of the offenses previous defendants had faced.  Prosecutors had indicated their intent to rely on 18 U.S.C. 3293, which provides for an extended 10-year statute of limitations for certain offenses, including wire fraud and mail fraud, that "affect a financial institution."  This reasoning was bolstered by broad authority interpreting whether an individual's conduct "affects a financial institution," with a federal appeals court observing in 2003 that the operative test was whether the conduct caused an "increased risk of loss": 

‘‘[j]ust as society punishes someone who recklessly fires a gun, whether or not he hits anyone, protection for financial institutions is much more effective if there’s a cost to putting those institutions at risk, whether or not there is actual harm.’’

United States v. Serpico, 320 F.3d 691, 694-95 (7th Cir. 2003).  

Rothstein's scheme was unique in that a national banking institution, T.D. Bank, played a key role in the scheme.  Rothstein testified that his relationship with TD Bank VP Frank Spinosa was essential to perpetuating and legitimizing the scheme. 

Following completion of his sentence, Szafranski will also be required to serve three years of probation - during which period he will be forbidden from working in the financial industry.

Previous Ponzitracker coverage of the Rothstein scheme is here.


After Failed Suicide Attempt, Ex-Biglaw Lawyer To Plead Guilty To $5 Million Ponzi Scheme

A former Biglaw lawyer who was charged with operating a $5 million Ponzi scheme after surviving a Ponzi scheme will reportedly plead guilty to fraud charges.  Charles Bennett, a former lawyer at renowned law firm Skadden Arps Slate Meagher & Flom LLP, was arraigned from his hospital bed late last year on charges of wire fraud and securities fraud after an NYPD diver rescued him from the Hudson River.  He also faced a civil enforcement action from the Securities and Exchange Commission.  It remains unclear as to what specific charge(s) Bennett will enter a guilty plea. 

Bennett started as a lawyer in the 1980s, working for several prominent New York law firms that specialized in corporate law and mergers and acquisitions.  During his tenure at those firms, he made several key connections, including the then-wife of former New York governor Eliot Spitzer and the principal of a Wyoming family-owned investment fund.  In the early 2000s, Bennett opened a solo law practice.  

In the mid-to-late 2000s, Bennett began encountering financial difficulties as a solo legal practitioner and started borrowing funds from friends to stay afloat.  Soon thereafter, Bennett began representing that he had a connection to a Wyoming hedge fund (the 'Fund"), which purportedly generated significant returns through investments in European real estate mortgage-backed securities and/or credit default swaps.  Potential investors were told that former Governor Eliot and his then-wife were investors in the Fund.  After making an investment in the Fund, investors then received falsified documents containing the logo of the Fund, which he used without permission of the Fund.  In total, Bennett raised more than $5 million from at least 30 investors.

However, while the Fund was real and Bennett had a relationship with the Fund principal, no outside investor money was ever taken by the Fund nor did Bennett ever make an investment with the Fund.  Rather, Bennett simply appears to have taken advantage of the fact that the Fund was based across the country in Wyoming.  Instead of investing those funds entrusted to him, Bennett instead allegedly used investor funds to sustain his lavish lifestyle that included international travel and large cash withdrawals.  Bennett also used new investor funds to make payments of fictitious interest and principal to existing investors - a hallmark of a Ponzi scheme.

By 2014, Bennett was repeatedly receiving investor demands for the return of their principal and accrued returns - demands that Bennett was unable to meet with his available funds.  In an attempt to stave off victim demands, Bennett opened two bank accounts at a new financial institution with $100 in each account - and then proceeded to write checks of $500,000 and $550,000, respectively.  Those checks subsequently bounced.  After the demands intensified, Bennett checked into a New York hotel in early November 2014 and authored a 16-page suicide note titled "A Sad Ending To My Life," in which he took full responsibility for the Ponzi scheme and confessed that “the whole investment scheme that so many thought was real was in fact a complete and [sic] fiction of [his] crazed imagination,” and that “the bulk of the funds were used in classic Ponzi scheme fashion to pay off other supposed ‘investors’ and my absurd lifestyle.”   The next day, Bennett jumped into the Hudson River.

Depending on the charges, Bennett could face decades in prison although federal sentencing guidelines will likely call for a much shorter term.


Madoff Victims Who Lost $1.1 Million Or Less Will Soon Be Fully Repaid

The court-appointed bankruptcy trustee for Bernard Madoff's massive Ponzi scheme is seeking to make a sixth distribution to Madoff's defrauded victims that, if approved, would fully repay victims with losses of $1.1 million or less.  Trustee Irving Picard has scheduled a hearing for November 18, 2015 over whether his proposal to make a collective distribution of approximately $1.5 billion may move forward.  Combined with the up-to-$500,000 distribution each victim received as a result of Madoff's membership in the Securities Industry Protection Corporation ("SIPC"), the distribution will effectively fully repay all victims with losses of $1,161,193.87 or less - an unprecedented outcome for the largest Ponzi scheme in history.

Picard's filing comes two weeks after the U.S. Supreme Court rejected an appeal by certain Madoff victims who argued that they were entitled to an upward adjustment on their allowed claim to account for interest and/or inflation.  That decision freed up approximately $1.25 billion that had been held in reserve pending the outcome of the appeal, as well as an additional nearly $350 million that included nearly $270 million in recent recoveries from clawback actions. 

In his proposed sixth distribution, Picard seeks to make an average payment of $1.11 million on 1,063 allowed victim claims.  This average claim amount is significantly higher than the average distribution of $330,000 in the previous distribution made earlier this year. While 2,564 claims were ultimately approved out of the over-16,500 claims submitted for consideration, 1,160 of those allowed claims were previously paid in full by virtue of previous distributions and the initial SIPC advance of up to $500,000.  The latest distribution, if approved, will also fully repay an additional 104 claimants, bringing the number of fully repaid claims to 1,264.   Including the proposed distribution, Picard will have distributed more than $8.3 billion to victims - or 56.988% of each victim's allowed claim (not accounting for the SIPC advance).

As the seven-year anniversary approaches of the date the world learned of Madoff's massive Ponzi scheme, it is becoming increasingly possible that all victims could recover 100% of their allowed losses from various sources - a feat that has happened only twice in recent memory and certainly not in the magnitude of Madoff's scheme.  To date, Picard and his team have recovered nearly $11 billion out of the estimated $17.8 billion in principal lost by Madoff's victims.  Additionally, government forfeiture and recovery efforts have secured an additional approximately $4 billion that is being separately administered by a special master.  These funds are not subject to diminution to satisfy the vast amounts of legal and professional fees incurred by Picard and his team, as these fees are covered by SIPC.  Thus, coupled with the advance made by SIPC, it is entirely possible (and increasingly likely) that Madoff's victims will recover most, if not all, of their losses.  In December 2008 and the subsequent months, such a scenario seemed nothing more than a fantasy.

A copy of Picard's notice of hearing and supplemental filing is below:

Supplemental Filing


After Mistrial, Feds Will Retry Cay Clubs Founder In November

Authorities are hoping that Fred Davis Clark's good luck streak has finally run out.  The founder of Cay Clubs, which has been accused by civil and criminal authorities of operating a massive $300 million Ponzi scheme that duped scores of investors with promises of lucrative returns through timeshare leasing, is set to stand trial in early November after a previous federal jury deadlocked and a mistrial was declared.  This followed the May 2014 dismissal of a suit brought by the Securities and Exchange Commission after a federal judge found that the applicable statute of limitations had expired.  Federal prosecutors unveiled a 12-count superseding indictment on October 2, 2015, with the focus of the charges shifting from Clark's alleged operation of a massive Ponzi scheme to his role in allegedly orchestrating numerous sales to and from "straw buyers" designed to artificially inflate the prices of condominium units to be later sold as timeshares.  If convicted of all charges, Clark could face dozens of years in federal prison.

The Scheme

Cay Clubs operated from 2004 to 2008, marketing the offering and sale of interests in luxury resorts to be developed nationwide.  Dave Clark served as Cay Clubs' chief executive officer, while his wife Cristal Clark served as a managing member and 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 was alleged to have lacked sufficient funds to carry through on the promises made to investors.  Instead of using funds to develop and refurbish the resorts, Cay Clubs allegedly used incoming investor funds to pay "leaseback" payments to existing investors in what authorities alleged was a classic example of a Ponzi scheme.  While the Securities and Exchange Commission initiated a civil enforcement action in January 2013 alleging that the company was nothing more than a giant Ponzi scheme, 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 Dave and Cristal Clark and coordinated their arrest and extradition from Honduras and Panama where they had 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.  

After a five-week trial earlier this summer, a federal jury deliberated for four days before acquitting Cristal Clark of all charges and deadlocking on the charges against Dave Clark.  

Superseding Indictment

In the previous indictment, prosecutors painted a wide-ranging conspiracy that was centered on the Clarks' alleged operation of a Ponzi scheme through Cay Clubs.  This conspiracy was described in that indictment as:

As the indictment later explained, the scheme involved a process in which the Clarks and other insiders would artificially inflate the prices of the timeshare units by "flipping" them in insider transactions to investors.  The original indictment focused on the misrepresentations made to those investors as well as the big-picture allegations surrounding the operation of Cay Clubs as a massive fraud..

Following the mistrial, prosecutors seem to have tweaked their strategy by honing in on the insider transactions that were used to artificially inflate the unit prices and allegedly defraud the lending institutions.  This shift in focus is evident in the superseding indictment's revised "Purpose of the Conspiracy" below:

In ensuing allegations, the indictment alleged that Clark would identify certain family members to act as "straw borrowers for loans that were used to purchase Cay Clubs units."  These straw borrowers would prepare fraudulent loan applications, which included representations about the borrower's employment and income, designed to induce lenders to approve the extension of credit.  Clark and others also allegedly prepared fraudulent HUD-1 Statements in which they certified that the borrowers had made the required down payment and cash-to-close payments when, in reality, those payments were made by a Cay Clubs entity controlled by Dave Clark.  

As a result of the fraudulent representations, the mortgage lender would subsequently issue funds that ultimately were placed into Cay Clubs accounts controlled by Clark and used to perpetuate the fraud.  While Clark would make the initial few mortgage payments on behalf of the straw borrowers, he subsequently stopped making the payments and caused the mortgages to go into foreclosure - resulting in substantial losses for the lenders.  

In addition to the seven counts focusing on the "straw borrowers," the indictment also includes four counts related to Clark's position as principal of a Caribbean pawn shop business and the alleged misappropriation of millions of dollars from that company for his own personal use.  A final count centers around allegedly false statements made by Clark to the Securities and Exchange Commission concerning his assets.  


Dave Clark's trial is scheduled to begin on November 9th, and will likely take several weeks.  

The upcoming trial will likely feature testimony by former Cay Clubs sales executive and lawyers who have been cooperating with the government.  This includes former sales agents Ricky Lynn Stokes and Barry Graham, who each received a five-year prison sentence after entering into plea agreements with prosecutors.  Additionally, former Cay Clubs attorneys Scott Callahan and Charles Phoenix previously entered into immunity agreements in which they admitted to concealing information about Cay Clubs from lenders and agreed to provide assistance and testimony. 

While Cristal Clark was freed following her acquittal, Dave Clark has remained in jail after the court rejected an attempt by his lawyers to release him on bail pending trial.  

Previous Ponzitracker coverage of Cay Clubs is here.

A copy of the Superseding Indictment is below:


351 Second Superseding Indictment




Bank Hit With $72 Million Judgment For Role In $100 Million Ponzi Scheme

An Ohio-based bank was tagged with a $72 million judgment - ballooning to nearly $83 million with accrued interest - for its role in providing banking services to a notorious Ponzi schemer who committed suicide as authorities closed in.  Huntington Bank, a publicly-traded company with hundreds of branches concentrated on the east coast, was found liable for the return of over $72 million in fraudulent transfers it received from companies operated by Barton Watson during 2003 and 2004.  The judgment, which the bank has announced it will appeal, would represent one of the largest awards issued against a financial institution for its role in a Ponzi scheme, and would also likely represent a sizeable recovery for victims of Watson's massive Ponzi scheme.  

The Scheme

Barton Watson operated CyberNet Engineering, which touted itself as a highly-successful provider of information technology services.  CyberNet purported to achieve annual revenues ranging from $200 million to $300 million primarily through the sale of computer hardware to top-tier clients.  However, Watson and CyberNet were increasingly on the radar of authorities, and the FBI raided company headquarters in November 2004.  While no charges were initially filed, Watson committed suicide later that same month following a standoff with police in his barricaded home.  

An ensuing investigation revealed Watson's intricate use of subsidiaries and shell companies to manufacture the dizzying business growth touted to investors.  One of these companies was Cyberco Holdings, Inc. ("Cyberco"), which secured loans from lenders for the purported purchase of computer hardware.  Cyberco told its lenders that it would be purchasing this hardware from Teleservices Group, Inc. ("Teleservices"), and Teleservices received the loan proceeds after providing invoices to lenders.  However,Teleservices was another entity controlled by Watson, and neither Teleservices not Cyberco ever engaged in any legitimate hardware deals.  Instead, the loan proceeds obtained by Teleservices were simply funneled back to Watson.  

Huntington Bank

Huntington Bank provided banking services to Watson and his entities, with these services including the use of a $17 million revolving credit line that would advance new credit as payments were received on the loan.  The credit line was used frequently by Watson and his entities.  However, Huntington began raising suspicious about the relationship sometime in 2003 after it observed suspicious payments coming fromTeleservices to pay down the Cyberco line of credit, and soon thereafter asked Watson to find a new lender.  The bank initially suspected Watson of check kiting, but allowed the continued payments byTeleservices towards the revolving credit line.  In total, more than $73 million in payments were made byTeleservices towards the Cyberco line of credit.

After Teleservices filed bankruptcy following the FBI raid, the trustee subsequently filed fraudulent transfer claims against Huntington not just for the payments received by Teleservices but instead for the entire amount of funds that flowed through the account and were reloaned to Cyberco.  Following a three-week trial, the court rejected Huntington's good-faith defense, noting numerous examples of the bank turning a blind eye to obvious red flags, and concluded the bank was on the hook for the $72 million that flowed through its Cyberco account.  

Of note in the bankruptcy court's decision, which was later confirmed and accepted by the district court, was the analysis of the "good faith" defense provided to transferees of allegedly voidable transfers under certain provisions of the U.S. Bankruptcy Code.  For example, Sections 548 and 550 of the bankruptcy code provide an affirmative defense to recipients of fraudulent transfers if they demonstrate that they received the transfer in good faith and provided value.  Courts analyzing good faith have wrestled with whether to analyze a transferee's good faith in an objective or subjective standard.  However, in Judge Jeffrey Hughes' Report and Recommendation in the Teleservices litigation, he rejected the use of an objective standard and instead held that Huntington's good faith would be evaluated subjectively.  Ultimately, Judge Hughes found that Huntington could not establish good faith as to any transfers received after April 30, 2004.  In the district court's order adopting Judge Hughes' R&R, Judge Paul L. Maloney observed:

The objective standard has not been explicitly adopted by the Sixth Circuit, and the Sixth Circuit has, at least implicitly, endorsed a good faith standard that allows for subjective considerations. The Court finds Judge Hughes accurately assessed the relevant standards for determining a good faith defense. His dissection of the prevailing trend toward an objective standard of good faith reads like an academic treatise. The Trustee’s objection does not demonstrate any dispositive flaw in Judge Hughes’ reasoning. Furthermore, the phrase “good faith” is used multiple times in § 548 through § 550. In § 548© and § 550(e)(1), the phrase “good faith” is used without any additional reference to the knowledge of the transferee orobligee. In § 549© and § 550(b)(1), the phrase “good faith” is used with an additional reference to some knowledge.

Interestingly, Judge Hughes also concluded (and Judge Maloney agreed) that Huntington Bank was an immediate transferee simply upon a customer's deposit of funds into an account held at the bank, reasoning that the bank exercised sufficient control over those funds to be considered a subsequent transferee under the relevant portions of the Bankruptcy Code.  While the District Court noted disagreement among other courts, it cited Judge Hughes' painstaking analysis and ultimate rejection of those cases.  

The implications of Judge Hughes' decision are widespread.  First, it endorses the tactic taken by the trustee in seeking to recover the entirety of funds flowing through Huntington rather than simply profits enjoyed by Huntington or the amount specifically received from Teleservices.  This becomes even more striking when observing that Huntington was found liable for over $70 million despite extending "only" a $17 million credit line.  However, while banks have typically enjoyed wide latitude in disclaiming responsibility for policing their customers, Judge Hughes' decision stands for the proposition that a bank cannot willfully blind itself to an active fraud being perpetrated by a customer.  Second, the decision is likely to breathe new life (and inflate potential damages) in similar suits going forward while simultaneously giving bank counsel a new reason to fear fighting the case in court.  While Judge Hughes' decision is not binding across the country, it certainly provides a contrary perspective to the familiar defenses advanced by banks.  


Last week, Huntington Bank appealed the judgment and requested that it not be required to post an adequate bond to stay execution of the judgment.  In defense of its request to avoid having to put up an $80 million bond, Huntington's attorneys argued that:

The bond is not warranted in any event because Huntington indisputably has the resources to pay the judgment against it should the Trustee ultimately prevail...

However, counsel for the trustee took issue with this position, responding that:

"Rather than avail itself of that option, Huntington asks this Court and Plaintiff to rely on Huntington's self-serving, unattested assurances of present and future financial stability...How reliable are Huntington's paper promises? It is difficult for anyone to know. But, there is a disinterested competitive market solution: let the sureties with their actuarial expertise in assessing collection risk make the determination. Plaintiff has carried the risk of Huntington'sfailure for years. Judgment has now been entered."

A copy of Judge Maloney's recent Order adopting Judge Hughes' R&R is below.


Order Adopting r&r - Huntington (1)


Page 1 ... 2 3 4 5 6 ... 202 Next 5 Entries »