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Recent SEC Releases
Friday
Jan222016

After Allegedly Forging Character Letters, Former NBA Star Gets 9-Year Sentence For $2 Million Ponzi Scheme

A former professional basketball player will spend the next nine years in federal prison after being convicted of operating a Ponzi scheme that duped victims - including other professional athletes - out of more than $2 million.  Tate George, 47, was a former first round draft pick in the NBA whose long fall from grace culminated in his 2011 arrest on fraud charges.  In a stunning development at the culmination of a six-day sentencing hearing, federal prosecutors disclosed that George had apparently forged several character reference letters which were sent to U.S. District Judge following George's 2013 conviction on four wire fraud charges.  In addition to the sentence, George was also ordered to pay $2.55 million in restitution as well as $2.5 million in forfeiture.  George had faced a maximum sentence of 20 years.

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. 

George maintained his innocence throughout his prosecution, claiming that investor losses were due to "delays" in his projects while also blaming prosecutors for withholding crucial exculpatory evidence.  In closing arguments to Judge Cooper on the final day of George's sentencing hearing, a federal prosecutor invoked another basketball great, Michael Jordan, in urging the maximum sentence for George:

“There was a saying about Michael Jordan that you couldn’t stop him — you could only contain him...I submit your honor that is exactly Tate George. ... You know that he will commit more crimes.”

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:

Thursday
Jan072016

Authorities: Montana Man's Clint Eastwood Documentary Was Ponzi Scheme

A Montana man faces criminal charges and is barred from soliciting investors in Montana over allegations that efforts to solicit investors for a film project purportedly featuring Clint Eastwood were a Ponzi scheme.  Matthew McClintock, who also went by Michael Willis, currently faces fraud and theft charges stemming from allegations that he duped nearly $25,000 from investors who thought they were investing in a cowboy documentary that would be narrated by actor Clint Eastwood.  Ironically, a portion of investor funds were allegedly used for a $575 cowboy hat that was worn at a recent court hearing.  McClintock has since been barred from soliciting investments in Montana, and faces a possible 10-year sentence on each of six criminal charges he is currently facing.  

According to the Montana Securities Commission, McClintock solicited individuals and businesses under the premise that he was producing a western documentary that would involve a prominent historian and feature narration by actor Clint Eastwood.  McClintock told potential investors that the documentary would be aired on PBS and that a portion of the proceeds would go to the "Western Montana Breast Cancer Fund."  Ultimately, McClintock raised nearly $25,000 in the form of "advertising fees" and "sponsorship fees" from at least 70 individual investors and nine businesses, at least some of whom were promised a portion of film royalties and would have their names included in the film credits.  

However, authorities allege that McClintock's numerous promises were simply untrue.  Clint Eastwood had no involvement with the project, no prominent historian had been retained, and the "Western Montana Breast Cancer Fund" did not exist.  Nor had PBS signed on to air the documentary.  Instead, McClintock is accused of using investor monies to pay make interest payments to existing investors as well as to fund a spending spree that included living expenses, fine dining, and personal expenses that included the purchase of a $575 cowboy hat.  According to a Montana deputy securities commissioner, that same hat was worn by McClintock to a recent hearing.  

This is not McClintock's first run-in with the law.  He was previously convicted of fraud and obtaining money by false pretenses in Oklahoma, and later pleaded guilty to a fraudulent scam in 2010 for which he was still on probation.  

Wednesday
Jan062016

PwC Pays $55 Million To Settle Madoff Lawsuit Over Auditing Failures

Accounting behemoth PricewaterhouseCoopers ("PwC") has agreed to pay $55 million to settle a lawsuit that accused it of failing to properly audit a "feeder fund" that invested with convicted Ponzi schemer Bernard Madoff.  In a filing in a Manhattan federal court, PwC agreed to an all-cash settlement of $55 million to settle a lawsuit brought by investors in Fairfield Greenwich Group ("Fairfield"), which was the largest of the numerous "feeder funds" that funneled billions of dollars into Madoff's massive fraud.  PwC did not admit wrongdoing in agreeing to the settlement, which still must be approved by the presiding federal judge.  The settlement comes nearly two months after a Washington state jury tagged another well-known accounting firm, Ernst & Young, for at least $10 million over similar alleged auditing failures at a Madoff feeder fund.

Less than one month after Bernard Madoff was arrested on suspicion of operating the largest Ponzi scheme in history, a lawsuit was filed on behalf of Fairfield investors against various Fairfield funds, Fairfield principals, fund administrator Citco Group, and the Canadian and Dutch offices of PwC.  Fairfield, which was a "fund of funds" hedge fund that purported to pool investor funds and invest those funds with various hand-picked hedge funds, had in reality entrusted a significant amount of investor funds with a single fund - Bernard L. Madoff Investment Securities LLC.  The lawsuit has been both complex and drawn out, including years of disputes over the issue of class certification, which saw a federal appellate court reverse a district court class certification only to have the district court re-certify the class in 2015. 

According to a 202-page complaint filed in September 2009, PwC's Canadian and Dutch subsidiaries audited various Fairfield funds during the period from 2002 to 2007.  The complaint alleged that, while PwC claimed that it would conduct tests of physical ownership of selected assets, tests of selected recorded transactions, and directly confirm with selected third parties (i.e. banks and customers) of amounts due to them, PwC misrepresented that the tests had actually taken place when they did not.  The complaint also referenced internal PwC documents memorializing conversations with Madoff that PwC alleged "blindly accepted" without any attempts to confirm their veracity.  For example, while Madoff claimed that 99% of his trades were electronic and that records were updated daily, Fairfield received delayed paper - not electronic -  confirmations.

The PwC settlement is the last of a series of high-dollar settlements in this class action that brings the total recovery to over $270 million.  Fairfield agreed to pay $80.25 million in November 2012, while GlobeOp Financial Services agreed to pay $10 million in February 2013.  After the New York federal court re-certified the class action, Citco agreed to pay $125 million in March 2015 - leaving only the PwC defendants remaining.  While the instant settlement will mark the end of the litigation, the next steps will include a claims process for class members to share in the PwC settlement.  Of the $55 million, counsel for the class action members has indicated it intends to seek approximately $19 million in legal fees and expenses.  

Tuesday
Dec222015

'God's Sports Company' Accused Of $3 Million Ponzi Scheme

A California couple has been arrested and charged with operating a $3 million Ponzi scheme through their company, God's Sports Company ("GSC"), which offered a prototype baseball bat that offered "leading performance and durability."  Steven McKinlay, 58, and his wife, Kristi McKinlay, 56, were charged by California authorities with twelve felonies, including ten counts of using untrue statements in the purchase or sale of a security, one count of grand theft, and one count for the use of a device in a scheme to defraud.  If convicted, the couple faces up to nearly 24 years in prison.  Each is currently being held on $3 million bail.

According to authorities, GSC solicited investors for a prototype baseball bat it described as a "one piece [composite] bat that offers leading performance and durability."  The company's (now unavailable) website, which included a tagline of "made with integrity for players with integrity," touted Steve McKinlay's "consistent power hitting" and his reputation in the "competitive softball world" and also referenced Kristi McKinlay's financial background.  Authorities allege that the couple ultimately raised more than $3 million from investors which included a former Major League Baseball player and a cancer patient.

However, authorities allege that potential investors were not advised of Steve McKinlay's prior bankruptcy filings nor that their funds would be used to make Ponzi-like payments to existing investors.  Additionally, the pair is accused of misappropriating investor funds to donate at least $50,000 to their church as well as support a lavish lifestyle that included monthly $10,000 rental payments, payment of their daughter's wedding expenses, and even a luxury suite at the Los Angeles Angels stadium.  

Saturday
Dec192015

Feds: Company Touting 5% Weekly Returns Was Multi-Million Dollar Ponzi Scheme

A convicted forger was hit with civil fraud charges by the Securities and Exchange Commission on allegations that his multi-level marketing program and commodities trading outfit was nothing more than a $3 million Ponzi scheme.  Vu H. Lee and his company, TeamVinh.com, were accused of violating federal securities laws by soliciting nearly 6,000 investors with the promise of guaranteed 5% weekly returns.  The Commission is seeking disgorgement of ill-gotten gains, prejudgment interest, injunctive relief, and imposition of civil monetary penalties. 

According to the complaint, Le formed TeamVinh.com LLC in 2009.  Le appealed to the multi-level marketing community in claiming to have devised a solution to facilitate the creation of a "downline" for individuals through the creation of a "matrix" composed of other individuals signed up for TeamVinh.com.  Participants were also offered the chance to invest in TeamVinh through either a membership or equity investment, with returns based on TeamVinh's profits.  Le also later solicited investors for a "hidden" platform used by large companies to effectuate commodities transactions.  In total, Le raised more than $3 million from at least 5,600 investors.

Many investors were solicited through various publicly available websites maintained by Vinh, including TeamVinh.com which is still operational as of the date of this article.  The website contained various promises, including that:

My experience as a Business Advisor shows that the greatest opportunities emerge when economic times are at its worst.

TeamVinh has a light at the end of the tunnel. We can provide you with a powerful business solution to help you and your family be much more secured for the future.

Your Dreams will be supported by a Fortune 500-Caliber-Company and Civic Concept.

Earn Money. Earn a lot of Money. And then give a lot of it away.

Ironically, it was the final sentence of this last promise that authorities allege Le actually did keep, albeit likely not the way most investors would have expected.  The Commission alleges that Le used very little of the $3 million raised from investors on MLM-related activities.  Instead, Le is alleged to have gambled away more than $2 million of investor funds at a single Las Vegas casino.  In classic Ponzi scheme fashion, Le is also accused of using investor funds to make Ponzi-style payments to existing investors. 

Le is also accused of failing to disclose to potential investors that he had been previously convicted on charges of forgery and passing bad checks by the state of Wisconsin in 1995 and later served a two-year prison sentence.  Additionally, the states of Wisconsin and Minnesota barred Le from offering or selling securities in 2007 stemming from Le's apparent involvement in an unrelated real estate fraud. 

A copy of the Commission's complaint is below:

Comp 23432

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