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Recent SEC Releases
Monday
Jan052015

New York Tax Preparer Gets 11-Year Sentence For $4.8 Million Ponzi Scheme

A New York former tax preparer who admitted to swindling longtime clients out of millions of dollars in an elaborate Ponzi scheme was sentenced to spend the next 11 years in federal prison.  Robert Van Zandt, 70, received the sentence after previously pleading guilty to a 33-count indictment that included charges of securities fraud, grand larceny, and intent to defraud.  Van Zandt received the maximum possible sentence pursuant to his plea agreement with prosecutors, which had called for a sentence ranging from 3.8 years to 11 years.  

Van Zandt operated the Van Zandt Agency, a well-known tax preparation agency, for decades.  However, beginning in 2007, Van Zandt began using his position to solicit longtime clients to invest with him - sometimes convincing investors to entrust him with their entire retirement funds and/or savings.  This was facilitated through Van Zandt's unique access to each client's financial situation.  In return, Van Zandt provided investors with promissory notes or shareholder agreements promising guaranteed rates of return. Van Zandt promised to place investor funds in lucrative securities, including real estate projects that were impossible to build.  

In total, Van Zandt raised nearly $5 million from investors from February 2008 through January 2011. However, rather than invest in 'lucrative securities', Van Zandt commingled investor funds and misappropriated them for his own personal and business use.  Van Zandt was arrested in May 2012, and subsequently pleaded guilty in November 2014.

Van Zandt's attorney was quoted as insinuating that others at the Van Zandt agency were involved in the fraud and thus potentially subject to criminal and/or civil prosecution.  

The charging document is below:

Van Zandt Complai9nt

Monday
Dec292014

After Failed Suicide Attempt, Lawyer Charged With $5 Million Ponzi Scheme

“I have systematically over the course of five years or so perpetrated a huge Ponzi scheme envelloping [sic] my family and closest friends... I managed to completely squander the hard earned money that my family and dear friends managed to set aside over the course of their working lives. To be clear about this: the whole . . . investment scheme that so many thought was real was in fact a complete and fiction of my crazed imagination.”

After penning a detailed suicide note confessing to operating a multi-million dollar Ponzi scheme, a former prominent New York lawyer jumped into the Hudson River as a final act.  However, after a NYPD SCUBA diver saved his life, his suicide note was discovered and authorities subsequently charged him with masterminding a Ponzi scheme that duped family, friends, and law clients out of at least $5 million.  Charles A. Bennett, 56, was the subject of a civil fraud complaint filed earlier this month by the Securities and Exchange Commission, and was also arraigned on wire fraud and securities fraud charges from his hospital bed.  A federal magistrate judge refused a request by prosecutors to detain Bennett as a flight risk while he recovers at a local hospital.

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 far away from New York in Wyoming.  Instead of investing those funds entrusted to him, Bennett instead 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.

The SEC's complaint is below.

 

comp-pr2014-279 by jmaglich1

Monday
Dec292014

Former Financial Advisor Charged With $3 Million Ponzi Scheme

An Alabama man who served as a licensed financial advisor for almost fifteen years was charged by authorities with operating a Ponzi scheme that duped innocent investors out of at least $3 million.  Bryan W. Anderson, 40, was charged with one count each of wire fraud, securities fraud, and money laundering.  In a plea agreement reached with prosecutors, Anderson agreed to plead guilty to each of the charges.  In addition, Anderson will pay restitution of $3.1 million to defrauded victims and forfeit an equal amount to federal authorities.

Anderson became a licensed financial advisor in 1998, starting his career at MetLife Securities where he worked for nearly fourteen years.  Beginning in 2009, Anderson solicited money from potential investors under various pretenses, including that their funds would be used to invest in stock options and a "box trade hedge fund" that Anderson claimed to manage.  Additionally, Anderson touted outsized returns in property leasing through his company, 360 Properties.  Investors were told that they could achieve returns of up to 20% in short-term investments of 30 - 60 days.  Further, Some investors were led to believe that 360 Properties was affiliated with MetLife - an incorrect assumption that Anderson took no steps to clarify.  In total, Anderson raised over $8 million from family and friends.

However, the funds raised from investors were not used for their promised purpose, but rather were transferred by Anderson into a joint account he maintained with his wife at BancorpSouth bank in Tupelo, Mississippi.  After Anderson left MetLife in February 2012, he joined Pruco Securities, LLC, where he lasted seven months before he was terminated.  Anderson's scheme collapsed in May 2014.  The U.S. government reportedly initiated a forfeiture proceeding against Anderson in July 2014.

A sentencing date has not yet been scheduled, but Anderson could face decades in prison if sentenced to the maximum prison term for each of the charges.

Monday
Dec222014

Madoff Trustee Seeks Approval For Fifth Distribution 

The court-appointed trustee overseeing the liquidation of Bernard Madoff's defunct brokerage firm has sought court approval to make a fifth distribution of over $300 million to victims of Madoff's massive Ponzi scheme - a distribution that will fully compensate victims with approved claims totaling $963,500 or less.  Irving Picard, the court-appointed trustee, filed a motion seeking to return approximately $322 million to Madoff victims.  If approved, the distribution would bring the total amount returned to Madoff victims to $7.2 billion.

Through the claims process overseen by the Bankruptcy Court, Mr. Picard has allowed  2,547 claims related to 2,213 accounts with Madoff's brokerage firm, Bernard L. Madoff Investment Securities LLC ("BLMIS").  Because of BLMIS's membership in the Securities Investor Protection Corporation ("SIPC"), an industry-funded insurance program, each of these claims initially received up to $500,000 of insurance coverage.  Following the approval of the contemplated fifth distribution, 1,154 allowed claims will have been fully satisfied (by virtue of the SIPC advances) - including any customer claim of $963,500 or less.  Without factoring in the SIPC contributions, the distribution represents a cumulative return to victims of 48.546% of allowed claims, which is one of the highest recoveries on record. (For a list of the highest recoveries, click here).  The amount of the distributions range from a low of $390.96 to the largest distribution of $60,873,991.23.

As distributions continue to Madoff's victims more than six years after the world learned of his massive Ponzi scheme, it is becoming increasingly possible that all victims could recover 100% of their allowed losses - 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 approximately $10.5 billion of out of the estimated $17.8 billion in principal lost by Madoff's victims.  Additionally, government forfeiture and recovery efforts have snared 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.  Six years ago, such a scenario seemed nothing more than a fantasy.

Sunday
Dec072014

On Second Try, Nebraska Attorney Pleads Guilty To $4 Million Ponzi Scheme

After a failed first attempt, a Nebraska attorney successfully entered a guilty plea to charges that he operated a Ponzi scheme that duped approximately 100 victims out of $4 million.  Michael Kratville, 53, entered a guilty plea to a single charge of wire fraud on Thursday that was accepted by U.S. District Judge Joseph Bataillon.  The plea came two days after Kratville's first attempt to plead guilty failed after his responses during his plea colloquy failed to satisfy Judge Bataillon that he was indeed pleading guilty to criminal conduct.  The wire fraud charges carries a maximum 20-year prison term, although federal sentencing guidelines will likely result in a much lower recommended sentence.

Kratville, along with co-conspirators Jon Arrington and Michael Welke, operated Elite Management Holdings Corp. ("Elite Holdings"), which promised potential investors significant returns through purported low-risk investments in commodities, precious metals, and foreign currencies.  A variety of representations were made to investors, including that the program had a long and successful track record, that investors could expect monthly returns ranging from 4% to 6%, that Kratville had spent ten years developing the investment program, and that Warren Buffett's children invested in Elite Holdings as a result of Buffett's personal friendship with Kratville.  Ultimately, the trio raised nearly $5 million from investors.

However, the trading program was not the phenomenal success it was marketed as to investors.  Rather, from November 2006 to July 2007, Elite Holdings suffered trading losses of approximately $3 million trading futures, forex, and forex options.  Additionally, the trio misappropriated approximately $1.5 million of investor funds to pay for golf club memberships, travel and dining, and other personal expenses.  Kratville, Arrington, and Welke were each indicted on fourteen fraud charges in April 2013.

Early last week, Kratville appeared in court to admit to a single count of wire fraud.  In what is known as a plea colloquy, Kratville was advised by Judge Bataillon of the nature of the charge, the potential penalties and prison sentence resulting from the plea, and Kratville's right to proceed to trial and contest the charges.  In connection with that exchange, Kratville was also asked a series of questions to satisfy the court that he was making a knowing, intelligent, and voluntary guilty plea.  Kratville's responses were increasingly non-committal and wavering, including that he "failed to correct" false statements contained on Elite Holdings' website and that he "assumed" that the wire transfer constituting the basis for the wire fraud charge had been consummated.  Judge Bataillon refused to accept the guilty plea, observing that

“To plead guilty, he has to admit he violated the law. And I am not hearing that."

Both Arrington and Welke successfully (and on their first try) entered a guilty plea to a single wire fraud charge.  Under the terms of Arrington's plea agreement, prosecutors agreed to recommend a maximum prison term of eight years.  Each of the men is also the subject of civil proceedings brought by the Commodity Futures Trading Commission. 

 

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