Search
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
Social
Recent SEC Releases
Friday
Oct312014

Zeek Receiver Files Clawbacks Against Canadian Net Winners

The court-appointed receiver tasked with recovering funds for victims of the $600 million ZeekRewards Ponzi scheme has filed clawback lawsuits seeking the return of millions of dollars in "false profits" from Canadian investors fortunate enough to profit from the massive Ponzi scheme.  Receiver Kenneth D. Bell filed the lawsuit in the Western District of Carolina, where the receivership is pending, against twenty-four individuals and one entity, accusing each of profiting by at least $50,000 from their investment with Zeek.  Ten of the defendants profited by at least $100,000, with Defendant Xiaomei Wang allegedly netting more than $375,000 from the scheme.  The Receiver is seeking a judgment in the amount of each defendant's net winnings, as well as the entry of an injunction prohibiting the dissipation of each defendant's assets pending satisfaction of that judgment.  

Courts routinely favor the use of clawback litigation to recover false profits from investors under the Uniform Fraudulent Transfer Act (“UFTA”), which has been passed by nearly every state in substantially similar form. Under the UFTA, transfers made to a creditor are deemed fraudulent when, among other factors, no reasonably equivalent value was exchanged.  An investor is understood to give reasonably equivalent value, assuming they received the transfer in good faith, for any amount up to that investor’s total contribution.  Thus, an investor who received 100% of their total contribution usually cannot be compelled to return those funds absent actual knowledge of the fraud.  However, an investor who received funds in excess of their original investment is not as lucky, for in a Ponzi scheme, those purported “profits” are, in reality, simply the redistribution of other investor funds.  Allowing a fraudster’s arbitrary determinations as to who is enriched under the scheme would be highly inequitable.

The defendants sued by Bell and the corresponding amount of purported "false profits" are below:

  • Catherine Parker, $179,656.05
  • Xiaomei Wang, $376,808.09
  • Beverly Dawn Trca-Kitchen, $314,228.43
  • Bin Xu, $244,232.18
  • Joel Broughton, $166,669.36
  • Feng Guang Wu, $125,485.31
  • Don Fitz-Ritson, $121,773.22
  • Ruth Konig, $118,828.40
  • Guan Jun Zhang, $115,061.48
  • Leon Killam, $108,690.96
  • Guo Hua Liang, $99,668.36
  • Sandra Gavel, $89,906.62
  • Yong Sheng Wang, $88,759.96
  • Devey Dejong, $87,652.96
  • Estate of Richard Bruce Foeller, $76,168
  • Brian Fussey, $68,294.59
  • Shao Zhang Huang, $67,833.78
  • James Macelwain, $65,516.09
  • Eugene Veinotte, $62,457.23
  • Michael Gallup, $61,944.87
  • Jia Yu Wang, $58,346.21
  • Ying Liu, $57,421.31
  • Jane Ferguson, $55,052.01
  • Zahid Ali, $51,267.28
  • Mei-Ping Liang, $50,863.61

In total, Bell is seeking approximately $3 million in false profits from the Canadian investors.

Given Bell's previous comments in interim reports, the lawsuit is likely the culmination of the defendants' refusal to entertain settlement overtures to avoid litigation.  Thus, it is likely that many of the defendants may resist Bell's efforts on multiple grounds, including that jurisdiction over the defendants may not be acquired due to their lack of connection with North Carolina.  However, Bell will likely overcome that argument by virtue of defendants' voluntary participation in the scheme, purposely directing actions and communications towards Zeek, as well as sending/receiving funds to/from Zeek.  

A copy of the operative complaint is below (h/t to ASDUpdates)

 

2 (1)

 

Tuesday
Oct282014

Banker Who Faked His Death Gets 30-Year Sentence For $50 Million Ponzi Scheme

A former minister-turned-bank-director who faked his own death and was even declared legally dead at one point was sentenced to a 30-year prison term for operating a Ponzi scheme that duped victims out of tens of millions of dollars and caused a federally insured bank to go out of business.  Aubrey Lee Price, 48, received the sentence after pleading guilty earlier this year to bank fraud, wire fraud, and securities fraud charges.  In addition to the prison sentence, Price was also ordered to forfeit $51 million - representing the proceeds from his criminal acts.

Price formed PFG, LLC, and Montgomery Asset Management, LLC f/k/a PFG Asset Management, LLC, in 2009. Potential investors were told that the fund sought "positive total returns with low volatility" through investing in low-risk securities such as equity securities traded on the U.S. markets.  Investor funds were kept in a Goldman Sachs bank account where, despite statements showing consistent trading gains, Price is alleged to have suffered massive trading losses of at least $20 million.  

Price also used investor funds to acquire Montgomery Bank & Trust ("MB&T"), a failing South Georgia bank, in order to gain control of millions of dollars of the bank's cash assets and reserves.  According to the Securities and Exchange Commission, Price transferred at least $10 million from the bank to a trading account at Goldman Sachs, and attempted to conceal the fraudulent nature of his activity by providing fictitious account statements and representation letters to bank regulators.  In total, Price is accused of embezzling at least $21 million from MB&T.

In June 2012, Price boarded a ferry terminal in Key West, Florida.  He left behind a rambling suicide note in which he indicated that he was "incapable of continuing in this life," and that he "created fales statements, covered up my losses and deceived and hurt the very people I was trying to help."  Price repeatedly alluded that he planned to kill himself, and he had not been seen since boarding the ferry. 

A routine traffic stop based on suspicion of illegally-tinted windows landed Price in jail after authorities became suspicious of his story.  Authorities discovered that Price fit the description of a "Jason" that rented a house in Ocala, Florida, and a subsequent raid of that house turned up more than 200 marijuana plants.  Price was returned to a Statesboro, Georgia jail to await trial on bank fraud charges filed by Georgia federal prosecutors.

After his capture, Price told wild stories about his life on the lam, claiming that he first spent time in an unnamed Latin American country where he was allegedly involved with a shadowy figure named "Pedro."  According to Price, "Pedro" on at least one occasion threatened Price that his children's lives were at stake if he did not cooperate.  "Pedro" then offered Price a job overseeing his cocaine operation, where Price claimed he became an expert "cocaine taster."  After he moved back to North Florida, he soon took over marijuana operations and purported to have spent time in more than twenty "grow houses."  

Price then assumed the identity of "Jason," recently-divorced man with a past drug addiction.  In return for doing gardening and other yard work, an elderly couple let him stay in a small shed on their land.  In that shed, Price began growing marijuana plans - and told acquaintances that his sick uncle lived in the shed and would shoot any intruders.  

A hearing will be held in the near future to determine the amount of restitution Price must pay to his victims.  
Monday
Oct272014

Massachusetts Regulators Allege EmGoldex Is Massive Pyramid Scheme

Massachusetts securities regulators have filed civil fraud charges against a Massachusetts company that touted annual returns exceeding 1,000% through trading in "investment gold bars," alleging that the company was nothing more than a recruitment arm for a massive pyramid scheme.  Emgoldex Team USA, Inc. ("EmGoldex USA"), as well as officers Matthew Michael D'Agati, James Vincent Piemonte, Jonathan Herman Siegler, and Joseph Zingales, were accused of promoting multi-level marketing investments in EmGoldex, a company located off the coast of Africa.  The action seeks the imposition of sanctions, injunctive relief, disgorgement and remuneration of ill-gotten gains, and civil fines.

EmGoldex represents itself as an internet-based store offering investors the ability to profit through purported investments in gold bars.  Through various recruiting efforts concentrated in social media and word of mouth, potential investors are enticed with the prospect of massive fast, easy, and risk-free profits.  Emgoldex USA, the company named in the complaint by the Massachusetts Securities Division, purportedly operated as one of the recruiting arms of EmGoldex, using websites, social media, and live functions to recruit investors to join their recruiting downline.  Because EmGoldex offered significant incentives for the recruitment of additional investors, the efforts by EmGoldex USA to recruit new investors resulted in significant recruitment commissions.  

According to the MSD, Respondents and EmGoldex USA focused exclusively on recruiting new investors to join the EmGoldex Marketing Program (the "Marketing Program"), which was advertised as a prerequisite to purchase gold bars from EmGoldex.  Investors joining the Marketing Program were required to submit a "prepayment" for a set of investment gold bars valued at approximately 7,000 euros but which was typically significantly offset through "credit bonuses" payable later for the recruitment of new investors.  After submitting the prepayment, an investor would receive a coupon for a personalized website and an activation code allowing entry into the Marketing Program.  According to the MSD, an investor must then only recruit two new investors to become eligible for gold that can be exchanged with EmGoldex for a significant profit over their initial prepayment.  These profits ranged from 520% to 1,105% annually.  Additionally incentives programs were also offered that allowed even higher rates of return.  In total, EmGoldex USA raised nearly $500,000 from hundreds of investors.

At least one of the accused was apparently skeptical of this business model.  In late April 2014 - shortly after the Massachusetts Securities Division filed civil fraud charges against another Massachusetts company accusing it of being a massive $300 million Pyramid and Ponzi scheme - D'Agati emailed EmGoldex support services seeking advice on how to address questions surrounding EmGoldex's business model and whether it was a pyramid or Ponzi scheme.  The complaint indicated that EmGoldex's response made little sense, instead containing "legal jargon" and citing various European internet commerce laws governing enforceability of electronic contracts.  Despite this failure to address the issue, D'Agati and the remaining respondents continued to solicit investors.

However, according to the MSD, EmGoldex USA was nothing more than an illegal scheme that ensnared hundreds of Massachusetts residents in a massive Ponzi scheme.  These efforts allowed Respondents to earn significant "downline" commissions, and did not disclose to investors that (1) there were no gold bars or other product, and (2) their returns were entirely based on efforts to recruit new investors.  

The MSD's Complaint is below:

 

emgoldex

EmGoldex Et Al Complaint Docket No 2014 0056

 

 

Saturday
Oct252014

On Fifth Anniversary Of Rothstein's $1.2 Billion Ponzi Scheme, Questions Remain

This article originally appeared on Forbes.com on 10/31/2014.

It was ego fueled. We were rolling, you know, we were -- we were all, me, Stu, Lippman, Adler, Boden, we were living like rock stars; private jets, massive amounts of money. There were lots of things that kept fueling that. As I'm sure you realize from looking at everything, there came a point in time when the only portion about it, which was money, was keeping the Ponzi going. We had more than enough money to fuel our lifestyles. It was the power that got ahold of us and kept pulling this forward; the more power, the more money, the more money the more power, it kept going back and forth until in exploded.

Scott Rothstein 2011 deposition testimony

Five years ago on a late October night, prominent lawyer Scott Rothstein hurried down an empty tarmac towards a waiting Gulfstream plane bound for Morocco – a country that lacked an extradition agreement with the United States.  Rothstein’s once-extravagant lifestyle was collapsing before his eyes, with hundreds of investors soon to learn that Rothstein had masterminded a massive $1.2 billion Ponzi scheme.  Carrying a duffel bag stuffed with over $500,000 and with $16 million sitting in a Moroccan bank account, Rothstein had little intention of returning to the U.S. to face the music.

But Rothstein’s conscience somehow got the best of him and, with the cajoling of friends and family, he returned several weeks later and immediately began cooperating with federal authorities.  With the exception of testifying at depositions and appearing in court, his whereabouts are unknown and authorities have confirmed he is a participant in the federal witness protection program.  With credit for good behavior, he is scheduled to be released sometime in late 2052.

Like the larger-than-life persona embraced by Rothstein during the pendency of the scheme, the five years following Rothstein's arrest have also yielded eye-popping figures.  While Rothstein's victims initially learned that that little money remained to satisfy their losses, the work of a court-appointed trustee (and arguably Rothstein's assistance) have yielded the incredible conclusion that victims will recoup 100% of their losses.  Amazingly, some victims even managed to turn a profit on their role in Rothstein's fraud through savvy lawyering.  Rothstein's cooperation with federal authorities has also been extensive; more than two dozen of Rothstein's former acquaintances, co-workers, and family members (including his wife) previously served or are currently serving time in federal prison for their role in Scott's crimes.

Unsurprisingly, Rothstein’s seemingly-limitless cooperation has not been entirely out of remorse; rather, he has been quite clear of his hope that those efforts might one day result in a reduction of his 50-year prison sentence that, if left unchanged, is likely a death sentence.  That Rothstein might one day walk out of a federal prison on his own free will, rather than horizontally surrounded by empaneled wood, could become a reality if U.S. District Judge James Cohn rewards the convicted Ponzi schemer’s campaign of cooperation.  Questions remain not only as to whether Rothstein’s cooperation might lead to further arrests, but if Rothstein might be able to pull one final con: successfully reducing his 50-year sentence.

Florida’s Largest Ponzi Scheme

Beginning as early as 2005, Rothstein touted lucrative returns to investors through the purchases of highly confidential legal settlements purportedly stemming from claims of sexual harassment, whistle-blower, and qui tam actions against large corporations.   According to Rothstein, while the alleged settling defendant had already deposited the settlement funds with Rothstein’s firm, an investor could “purchase” the right to payment of that settlement at a discount.  With the investor sworn to secrecy and enamored by the prospect of an lucrative return, there was a built-in incentive for all parties to remain tight-lipped. Describing himself at times as a “Prince of Darkness,” Rothstein took great lengths to keep the scheme afloat, including forging documents with the signatures of state and federal court judges, convincing others to impersonate judges and Florida bar officials, and utilizing corrupt law enforcement officers at his disposal.

Q We see throughout this that you sometimes say T.P.O.F.D. We have a bet in my office about what that means. 

A: I need money in my commissary, you want to put me in?

Q No. I'm going to have a hard enough time. Prince of Darkness. 

A: You left out the F word, but yes. It was actually a name given to me when I was at Gunther and Whitaker. It stuck. 

Scott Rothstein 2011 deposition testimony

Rothstein quickly settled into a flashy life of opulence and excess as his scheme thrived, purchasing millions of dollars in luxury homes and amassing a multi-million dollar collection of cars and timepieces.  A regular on the charity circuit, Rothstein also made significant political contributions to well-known Republican candidates including John McCain and ex.Governor Charlie Crist. This regular benevolence had a twofold benefit: it not only greatly increased Rothstein’s reputation and influence around town, but in doing so impliedly lent an air of legitimacy to Rothstein’s scheme.  Coupled with the fact that Rothstein was a lawyer at one of Fort Lauderdale’s most prestigious firms, indeed few doubted that Rothstein would have the audacity to live such a lie.

 Q: How much do you think you devoted to your lifestyle and your partners and people in your firm's avenue as opposed to passed along to Ponzi investors, the old investors with the new investors' money; do you have any...

A: It would have to be hundreds and hundreds of millions of dollars. I know that I probably personally spent that myself over 200 million dollars, something close to it. You know, we were -- between the money we were actually pulling out and the money we were spending for lavish parties, trips, dinners, presents, gifts for wives, gifts for mistresses, our mistresses, the numbers are astronomical.

Scott Rothstein 2011 deposition testimony

But no one was immune to the downturn in the economy, and Rothstein began running out of funds to pay investors in early 2009.  Rothstein initially staved off scrutiny by claiming that he was experiencing temporary issues with the Florida Bar, and somehow even convinced acquaintances to raise an additional $100 million.  However, as Rothstein put it, the Ponzi scheme had "taken a life of its own," and the decrease in new investors was fatal to the ability to pay returns to the existing investors - the lifeblood of a Ponzi scheme.  After Rothstein fled to Morocco, his lawfirm was placed into involuntary bankruptcy, and life as Scott A. Rothstein once knew it was over.

"At some point in time, all these crimes were going to be exposed. I made a conscious decision to find a nonextradition country and flee to it."

- Scott Rothstein 2011 deposition testimony

After several days in Morocco, Rothstein returned to Fort Lauderdale in early November 2009 and immediately began cooperating with federal authorities.  He was formally arrested on December 1, 2009 and charged with five counts of racketeering, fraud, and money laundering.  He pleaded guilty in January 2010, and was sentenced to a 50-year prison term later that year.  Rothstein entered the federal witness protection at some point following his surrender, and has not been seen in public with the exception of several court appearances and court-ordered depositions in 2011.

Rothstein's Extraordinary Cooperation

One thing I have learned over the course of this crime, and since coming back, is that I had the unfortunate experience of dealing with a lot of extremely, extremely bright people who did some very, very stupid things during the commission of a lot of very bad crimes.

Scott Rothstein 2011 deposition testimony

Rothstein himself has acknowledged that his decision to return back to Florida from Morocco, which did not have a formal extradition treaty with the U.S., was not one he reached lightly given the strong possibility that he would likely face a significant prison sentence.  Indeed, Rothstein faced a potential 100-year term for the five federal charges he pleaded guilty to in January 2010. Rothstein’s lawyers had requested that his crimes warranted a 30-year term, while prosecutors sought a 40-year term with the acknowledgement that Rothstein’s decision to return and cooperation merited a downward departure:

"The government concedes that a variance in this case is supported by several salient factors. While the defendant's criminal activity in this case can only be described as reprehensible, it is beyond dispute that his post-offense conduct has been extraordinary,"

However U.S. District Judge James Cohn rejected any notion of leniency and handed down a 50-year sentence.  In crafting the sentence, Judge Cohn referenced not only the extravagant lifestyle led by Rothstein but also the depths to which he carried on his fraud, which even included forging the signatures of federal and state judges.  Observed Judge Cohn, “there can be no conduct more reviled.”

Following his sentencing, Rothstein disappeared for apprximately 18 months.  He made his first public appearance in December 2011 when he sat for 12 days of court-ordered depositions conducted by a consortium of lawyers representing various clients that had filed suit against Rothstein.  Sporting polo shirts and jeans purchased by his lawyer from Target, Rothstein’s transformation from high-flying socialite to federal inmate had come full circle.  And, true to his word, Rothstein sang like a canary.  In those depositions, Rothstein dished out juicy details on dozens of former attorneys, acquaintances, and accomplices, interrupted only by an observing federal prosecutor in certain sensitive areas that often included reference to public and political corruption.

The extent of Rothstein’s cooperation is likely unsurpassed.   According to his lawyer, Marc Nurik, who was formerly with Rothstein’s law firm before quitting to represent Rothstein,”nobody to my knowledge has provided as much cooperation” in a similar investment fraud.  And the results speak for themselves; Rothstein’s cooperation has resulted in over 60 years of prison sentences for his former acquaintances.   Below is a list of the nearly 30 individuals that have been arrested or convicted based on their connection to Rothstein:

Name

Sentencing Date

Sentence

Link

Involvement

Scott Rothstein

6/9/10

50 years

http://articles.sun-sentinel.com/2010-06-09/news/fl-rothstein-sentence-20100608_1_scott-rothstein-rothstein-s-parents-ponzi-scheme

$1.2 billion Ponzi Scheme

Frank Preve

10/12/2014

 

http://criminaldefenselawventura.com/man-arrested-connection-rothstein-ponzi-scam/

Allegedly was Rothstein’s right-hand man

Christina Kitterman

8/30/13

5 years

http://articles.sun-sentinel.com/2013-08-30/news/fl-scott-rothstein-lawyer-arrests-20130830_1_scott-rothstein-rothstein-rosenfeldt-adler-christina-kitterman

Impersonated Florida Bar officials

Doug Bates

8/30/13

5 years 

http://articles.sun-sentinel.com/2013-08-30/news/fl-scott-rothstein-lawyer-arrests-20130830_1_scott-rothstein-rothstein-rosenfeldt-adler-christina-kitterman

Signed fake letters

Roberto Settineri

2009?

4 years

http://www.fbi.gov/miami/press-releases/2010/mm110310.htm

Helping Rothstein to allegedly launder Ponzi proceeds

David Benjamin

4/25/14

5 years

http://www.bizjournals.com/southflorida/blog/picking_up_the_pieces/2014/04/two-broward-sheriff-s-deputies-charged-in.html?page=all

Sheriff that served as Rothstein’s personal bodyguard

Jeff Poole

4/25/14

1 year 

http://www.bizjournals.com/southflorida/blog/picking_up_the_pieces/2014/04/two-broward-sheriff-s-deputies-charged-in.html?page=all

Detective that carried out illegal arrest at Rothstein’s behest

Stuart Rosenfeldt

5/23/14

33 months

http://www.whdh.com/story/25600062/ex-partner-of-fla-ponzi-schemer-rothstein-charged

Rothstein’s former partner

Steven Lippman

4/10/12

3 years

http://www.huffingtonpost.com/2012/04/10/steven-lippman-rothstein_n_1414510.html

illegal campaign contributions

David Boden

9/19/14

 

http://www.justice.gov/usao/fls/PressReleases/140919-02.html

Worked with broker on Rothstein phony settlements

Richard Pearson

9/19/14

 

http://www.justice.gov/usao/fls/PressReleases/140919-02.html

Acted as broker in some phony investments

Debra Villegas

2010

10 years

http://www.justice.gov/usao/fls/PressReleases/2010/101008-01.html

Known as Rothstein’s right-hand woman

William Boockvor

12/1/2010

4 years

http://www.justice.gov/usao/fls/PressReleases/2011/111201-01.html

Rothstein's uncle, played part in duping investors

Marybeth Feiss

12/1/2010

6 months

http://www.justice.gov/usao/fls/PressReleases/2011/111201-01.html

Illegal campaign conributions

Russell Adler

3/7/14

2.5 years

http://articles.sun-sentinel.com/2014-03-07/news/fl-russell-adler-charged-20140307_1_scott-rothstein-christina-kitterman-russell-adler

Illegal campaign contributions

Kim Rothstein

9/6/12

18 months

http://www.huffingtonpost.com/2012/09/06/kim-rothstein-scott-arrested-jewelry_n_1862079.html

Concealed ownership of jewelry ultimately sold

Frank Spinosa

10/10/14

 

http://www.miamiherald.com/news/local/crime/article2653221.html

Accused of assisting as bank employee

Curtis Renee

9/28/2011

37 months

http://articles.sun-sentinel.com/2011-09-28/news/fl-rothstein-employee-sentencings-20110928_1_william-j-corte-stephen-caputi-rothstein-s-ponzi

Created fake bank websites

William J. Corte

9/28/2011

37 months

http://articles.sun-sentinel.com/2011-09-28/news/fl-rothstein-employee-sentencings-20110928_1_william-j-corte-stephen-caputi-rothstein-s-ponzi

Created fake bank webstes

Howard Kusnick

9/2/11

24 months

http://www.bizjournals.com/southflorida/blog/picking_up_the_pieces/2011/09/attorney-kusnick-gets-2-years-for.html

Authoring fake settlement letters

Stephen Caputi

8/24/2011

5 years

http://www.bizjournals.com/southflorida/blog/picking_up_the_pieces/2011/08/scott-rothstein-pal-stephen-caputi.html

Posed as banker during investor meetings

Eddy Marin

3/21/14

10 months

http://www.bizjournals.com/southflorida/news/2014/03/21/miami-businessman-sentenced-in-rothstein.html

Helping Kim Rothstein sell concealed jewelry

Patrick Daoud

4/11/14

10 months of house arrest

http://articles.sun-sentinel.com/2014-04-11/news/fl-patrick-daoud-sentenced-20140411_1_patrick-daoud-stacie-weisman-kim-rothstein

Helping Kim Rothstein sell concealed jewelry

Irene Stay

8/29/14

5 years

http://articles.sun-sentinel.com/2014-08-29/news/fl-rothstein-irene-stay-shannon-20140827_1_scott-rothstein-law-firm-fraud-scheme

Moving money around for Rothstein’s scheme

Scott Saidel

10/7/13

3 years

http://articles.sun-sentinel.com/2013-10-07/news/fl-kim-rothstein-attorney-sentencing-20131007_1_kim-rothstein-eddy-marin-patrick-daoud

Helping Kim Rothstein conceal jewelry

Stacie Weisman

11/12/13

3 months

http://www.fbi.gov/miami/press-releases/2013/two-individuals-sentenced-in-plot-to-conceal-and-dispose-of-assets-in-connection-with-rothstein-case

Helping Kim Rothstein conceal jewelry

With some legal statutes of limitation expiring and prosecutors running out of individuals to charge, Rothstein’s role as government witness is likely nearing its twilight.  Rothstein has remained unapologetic for his cooperation; indeed, he has been quite vocal that it is his only chance to one day walk out of prison on his own free will:

I have been sentenced to 50 years in prison. The only chance that I have to be released early, the only chance is I must tell the truth about everything that I know.

Scott Rothstein 2011 Deposition testimony

And he has a point.  With Rothstein’s help, prosecutors have imprisoned dozens of individuals who played varying roles in Rothstein’s fraud.  Perhaps more importantly, it was Rothstein’s testimony that colorfully illustrated the extraordinary role that TD Bank played in Rothstein’s scheme.  The bank has since paid dearly; it has paid out hundreds of millions of dollars to investors that sued the bank, and its large settlement with the court-appointed bankruptcy trustee was a significant factor in fully compensating Rothstein’s victims - a feat accomplished only one other time in recent memory.  Indeed, some investors were able to profit from Rothstein’s scheme due to savvy lawyering.  Odds are, Rothstein would likely claim at least a share of the extraordinary success Trustee Herbert Stettin and his team have been able to accomplish.

Expiring Statute of Limitations....Or Not?

There are a lot of armchair lawyers and armchair prosecutors who think that they know what the legal theories are that we can pursue and what statute of limitations issues are and often they are quite wrong. 

-  Preet Bharara, U.S. Attorney for Southern District of New York

Many have theorized that the expiring five-year statute of limitations accompanying most crimes committed by Rothstein co-conspirators, such as mail fraud, wire fraud, and securities fraud, will be the main reason for the halt in any remaining prosecutions attributable to Rothstein’s fraud.  Not so, warn authorities.  The Dodd-Frank Act, passed in 2010, contained provisions that extended the statute of limitations for such crimes.  This includes the ability to bring securities fraud charges up to six years later, as well as extending the statute of limitations for mail fraud and wire fraud up to ten years if the crime affected a financial institution.

While not addressing any specific individuals or offenses, the U.S. Attorney’s Office for the Southern District of Florida issued a statement that “Given that the crimes affected a financial institution, the 10-year statute of limitations arguably would apply,” said Marlene A. Fernandez-Karavetsos, spokeswoman for the U.S. attorney’s office.”  While the touchstone of such an analysis will depend on how loosely any crime “affected” a financial institution (in this case TD Bank), it certainly cannot be ruled out that prosecutors view the five-year anniversary of Rothstein’s arrest as little more than a date on a calendar.

But Does Cooperation Translate To A Reduced Sentence?

Q: Good answer. So, you hope that that's what is going to happen, but other than that no promises by the government or anybody?

A:  I'm hopeful at the end of all this, the government will see fit to ask Judge Cohn to reduce my sentence. There's no promise made to me.

Scott Rothstein 2011 deposition testimony

Rule 35 of the Federal Rules of Criminal Procedure governs the correction and reduction of a federal criminal sentence.  Subsection (b) provides that,

(1) In General. Upon the government's motion made within one year of sentencing, the court may reduce a sentence if the defendant, after sentencing, provided substantial assistance in investigating or prosecuting another person.

Unsurprisingly, one day before the first anniversary of Rothstein's sentence, prosecutors filed a Motion for Reduction of Sentence and Stay of Ruling.  The Motion stated that Rothstein's cooperation, which had begun before he entered his guilty plea, was ongoing and would not be complete until a future time.  Upon the completion of Rothstein's cooperation, the Motion indicated that a subsequent motion would be filed requesting a hearing at which Rothstein's nature, extent, and value of such cooperation would be detailed.

In the overall scheme of things, he’s already received a significant reduction.

Chuck Malkus, Author of The Ultimate Ponzi: The Scott Rothstein Story

While the prosecution will be able to tout an expanding list of the fruits of Rothstein’s cooperation, not all in the south Florida community share this sentiment.  Chuck Malkus, who penned ”The Ultimate Ponzi: The Scott Rothstein Story,” believes that Rothstein’s expected cooperation may have already been considered at his original sentencing given that Rothstein could have faced a 100-year prison sentence.  Further, Malkus noted Rothstein’s attempt to conceal jewelry he had given to his wife:

Rothstein’s cooperation, however, is tainted due to the fact that he was not completely honest with the feds about his wife Kim her million dollars of hidden jewelry, obtained with stolen money.  Because Scott Rothstein was not truthful with investigators, it probably will cost him receiving any sentence reduction.

Rothstein himself acknowledged that his failure to come clean about the hidden jewelry that ultimately resulted in his wife's incarceration may ultimately doom his quest for a sentence reduction.  Called as a witness at the trial of his former colleague Christina Kitterman, Rothstein stated on the witness stand that:

“I understand that there's been an issue concerning my failure to disclose what I did with my wife and the jewelry.  My hope is that at the end of the day that the government, they will see that I did a lot more good than bad.”

- Scott Rothstein 2011 deposition testimony

David Mandel is a well-known Miami attorney who obtained a $67 million verdict against TD Bank – including $35 million in punitive damages – on behalf of a group of defrauded Rothstein investors.  When asked about the possibility of a sentence reduction, Mr. Mandel expressed faith in Judge Cohn, who is a seasoned federal judge, and noted that a reduction was certainly not a given considering “Rothstein’s transgressions…[which] involved forging the signature of a federal judge on a court order!”  Mr. Mandel also questioned “what benefit Rothstein’s so-called cooperation was to us or the other victims.”

Q: What do you hope your sentence is?

A: Whatever is fair. I mean, I would love to get out as soon as possible. Prison is a very bad place. Okay. I know there's a lot of talk about where I am and stuff, and I can't talk about that; but make no mistake about it, I'm in prison, okay. It's a very bad place, and I can tell you with 100 percent certainty there is nobody in there that does not want to go home today. I would like to go home today. That is wholly unrealistic. Okay. I would like to go home today.

How Does Rothstein's Sentence Fit In Ponzi Scheme Jurisprudence?

Finally, while not necessarily significant, it should also be examined whether Rothstein’s sentence warrants reduction based on the implicit sentencing rubric utilized in sentencing Ponzi schemers in recent years.  For example, Bernard Madoff’s Ponzi scheme stands as the longest Ponzi scheme in history, and deservedly earned him a 150-year prison term that ranks as the longest sentence handed down in Ponzi scheme jurisprudence.  Allen Stanford’s $6 billion Ponzi scheme ranks next on the list, and resulted in a 110-year prison sentence.  In third place, Rothstein’s 50-year sentence is tied with Thomas Petters’s $3.2 billion scheme, which is the third-largest Ponzi scheme in history.  However, a closer look shows that the estimated initial losses from Rothstein’s scheme, ranging from $400 million and $500 million, paled in comparison toestimates that “the total lost in the Petters fraud is $1.94 billion.”

Thus, Rothstein’s victims not only suffered losses of approximately 75% less than those similarly situated Petters victims, but more importantly will emerge in a much better position than Petters investors, who are expected to ultimately recoup no more than pennies on the dollar of their losses. As noted above, Rothstein investors will join an infamous group that recovered 100% of their losses.

Whatever the decision on Rothstein’s sentence reduction may be, it will be clear in the near future that each side will have ample arguments supporting their position.

In Closing

Rothstein is the quintessential greedy, deceitful, self-promoting bully.  A poster boy for corruption.   Lawyers are going to be spending quite a while digging out from the dirt Rothstein buried us with, simply by being a former member of our profession.

- David Mandel

The name Scott Rothstein is one that will not only live in infamy, but which has already secured a place in the history books regardless of his ultimate fate.  Rothstein is not only the sole Ponzi schemer in recent memory to join the Witness Protection Program, but also one of only two Ponzi schemers whose victims were ultimately fully compensated for their losses.  And it is Rothstein who can boast that his post-arrest cooperation ultimately resulted in the convictions of over two dozen of his former friends.  The man who once owned over 100 high-end watches and multiple Lamborghinis will soon have his counsel appear in Court (pro bono, of coursewith the hopes that Rothstein might one day be able to emerge from prison as a penniless, yet free, man.  Will Scott Rothstein be able to pull off one final con?  You’d be wise not to bet against him.

Jordan Maglich is a securities law attorney at the Tampa, Florida law firm of Wiand Guerra King, and also writes frequently at Ponzitracker.com.  You can follow him on Twitter here.

Friday
Oct242014

ZeekRewards Founder Indicted For $850 Million Ponzi Scheme

Over two years after the Securities and Exchange Commission accused ZeekRewards of being a massive Ponzi and pyramid scheme, a grand jury indicted the company's founder on a multiple fraud charges.  Paul Burks, 67, was charged with mail fraud, wire fraud, mail and wire fraud conspiracy, and tax fraud conspiracy.  Burks is expected to appear in federal court in the coming days to make his initial appearance.  If convicted and sentenced to the maximum term, Burks could face decades in federal prison.

Background

Burks has operated Rex Venture Group, LLC ("RVG") since 1997.  In 2010, he formed zeekler.com, which operated as a penny auction website offering participants the ability to place incremental bids on merchandise in one-cent increments.  Individuals were required to purchase "bids" in lots, usually at a cost of $.65 per bid, in order to participate in the auctions.  Burks launched ZeekRewards in January 2011 as an "affiliate advertising division" of Zeekler.  Participants were then solicited to become investors, or affiliates, in ZeekRewards in the form of investment contracts called the "Retail Profit Pool" and the "Matrix."  None of these investments were registered with the SEC or any state regulatory authorities.

The Retail Profit Pool promised investors the chance to earn lucrative daily returns of "up to 50% of the daily net profits" after completing a process that involved enrolling in a monthly subscription plan, soliciting new customers, selling or purchasing ten Zeeker.com "bids", and placing one free ad daily for Zeeker.com.  According to the ZeekRewards website, a daily commitment of "no more than five minutes per day" was required to share in daily profits.  The daily "award" was usually 1.5% of the individual's 'investment'.  Due to the compounding nature of these "Profit Points", as they were called, the cumulative amount of outstanding Profit Points now numbers nearly $3 billion.  Assuming a 1.5% daily "award", this would require daily cash outflows of $45 million should all investors seek to receive their "award" in cash.  

In addition to the Retail Profit Pool, investors could also participate in the "Matrix", which was a form of multi-level marketing that rewarded investors for each "downline" investor within that investor's "Matrix".  The Matrix consisted of a 2x5 pyramid, and each person added to an investor's Matrix qualified that investor to receive a bonus.  

While ZeekRewards represented to investors that the operation was extremely profitable, in reality, the company's revenues and payments to investors were derived solely from funds contributed by new investors - a classic hallmark of Ponzi schemes.  Indeed, authorities alleged that 98% of all incoming funds were derived from the funds of new investors. Thus, the scheme could only stay afloat so long as new investor contributions were sufficient to satisfy the amount of outflows.  However, because investors were actively encouraged to "roll-over" their "profit points" back into the scheme, the number of outstanding liabilities to investors steadilty increased, reaching approximately $2.8 billion in August 2012 despite availabie cash reserves of less than 4300 million.  Due to the likelihood that those funds would soon be exhausted, the Commission initiated an emergency enforcement proceeding and sought an asset freeze in August 2012.

Burks, as principal of Rex Ventures and Zeek Rewards, is alleged to have withdrawn over $10 million in investor funds for the benefit of himself and his family members.  

Timing of Charges

Burks becomes the third person to be charged in connection with the scheme after Dawn Wright Olivares and Daniel Olivares were charged in December 2013 and currently await sentencing.  The indictment of Burks has not only been rumored for some time, but also comes as the court-appointed Receiver, Kenneth D. Bell, begins his quest to recover "false profits" from thousands of victims that were fortunate enough to profit from their investment.  The receiver's efforts to recover these "false profits" will become markedly easier in the event that Burks pleads guilty to the fraud, since the guilty plea or conviction of a Ponzi schemer allow the use of the "Ponzi presumption" that significantly simplifies the burden of proof required in the so-called "clawback" actions.  

Tax Fraud Conspiracy

While mail fraud and wire fraud charges are commonly brought against individuals associated with Ponzi schemes, the Burks indictment also includes a tax fraud conspiracy charge that centers around the issuance of IRS Form 1099's to victims that reported fictional income derived from the scheme.  While 1099's and/or K-1's are often issued by Ponzi schemers to investors as part of the quest to lend legitimacy to the scheme, the filing of tax fraud conspiracy charges is certainly unusual and it remains to be seen whether this may lead to similar charges in future actions.

More Ponzitracker coverage of ZeekRewards is here.

The indictment is below (h/t to ASDUpdates):

 

File.stamped.burks.indictment

 

Page 1 ... 3 4 5 6 7 ... 175 Next 5 Entries »