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Recent SEC Releases
Wednesday
Mar192014

South Carolina Couple Charged With $3.2 Million Forex Ponzi Scheme

The Commodity Futures Trading Commission ("CFTC") has filed an emergency enforcement action charging a South Carolina couple with operating a foreign exchange Ponzi scheme that raised over $3 million from victims.  Robert and Amy Leben (the "Lebens"), of Columbia, South Carolina, were charged with multiple violations of the Commodity Exchange Act in a sealed complaint that was filed last week.  The complaint, which was unsealed today, seeks permanent injunctive relief, disgorgement of ill-gotten gains, civil monetary penalties, and other relief.

According to the CFTC, the Lebens owned and operated Structured Financial Group, LLC ("SFG") since its formation in 2006.  SFG was marketed as a commodity pool to investors, who were told that SFG invested in "treasury strips" and futures markets.  At least one investor was told that Robert Leben had previously been a successful bond trader.  In exchange for their investment, SFG promised investors quarterly payouts of 3.5%, which equated to an annual return of 14%.  Upon deciding to invest in SFG, investors were directed to wire their investment to an unidentified attorney serving as SFG's agent in Baltimore, Maryland.  In total, at least $3.2 million was raised from at least a dozen investors.

However, rather than carrying out the investment program represented to investors, the Lebens instead held less than $500,000 in "treasury strips."  Additionally, while the Lebens did engage in forex trading using investor funds, the accounts experienced net losses in four of the six relevant years.  The remainder of funds were deposited in a money market account held by SFG.  According to the CFTC, Amy Leben then arranged for an undocumented $5 million line of credit from the money market account - which allegedly remains unpaid.  The Lebens are also accused of using debit cards to spend nearly $1 million of investor funds on a variety of unauthorized expenses, including a $500,000 house, a $150,000 swimming pool, and more than $200,000 in cash gifts to their children.  

A copy of the complaint is below:

Sc Complaint

Tuesday
Mar182014

Prosecutors Levy Burglary Charges Against Accused ATM Ponzi Schemer

In a novel approach employed by prosecutors, a California man accused of operating an ATM Ponzi scheme that allegedly duped victims out of over $10 million has been charged not only with securities fraud and grand theft charges, but also faces a burglary charge. Michael Brendan Ferguson, 44, was recently charged with nine felony counts in connection with what prosecutors allege was a nationwide Ponzi scheme that promised steady returns through a collection of privately owned ATMs. While prosecutors charged Ferguson with securities fraud and grand theft, they also included a burglary charge - reasoning that while Ferguson did not break into any houses, he did enter one investor's home with the intent to commit a felony, grand theft. Ferguson recently entered a plea of not guilty to the charges.

According to authorities, Ferguson solicited investors by promising steady returns through the generation of hefty transaction fees from a nationwide network of private ATMs. In exchange for purchasing the rights to user fees generated by a collection of ATMs located in shopping centers, investors were promised annual returns of up to 15%. To maintain an appearance of legitimacy, Ferguson maintained an office staffed by several employees, and even provided financial statements to investors that purportedly showed the steady growth of the ATM operation. In total, at least 100 investors may have invested more than $10 million with Ferguson.

While investors initially received their monthly interest payments as promised, the payments recently stopped. When some investors began making inquiries to the shopping malls where some of the ATMs were purportedly located, they learned that none of those shopping centers had heard of Ferguson. Ferguson subsequently declared bankruptcy in January.

The burglary charge appears to be favored by prosecutors due to the California Penal Code's definition of burglary as the entry into a structure with the intent to commit a felony - in this case, grand theft. While the theory is certainly a novel one, surprisingly it is not the first time that an accused Ponzi schemer has faced burglary charges. In a case also out of California, James Koenig was charged in 2009 with 40 counts of securities fraud and 37 counts of residential burglary in connection with what prosecutors alleged was a $200 million Ponzi scheme. Koenig chose to fight the charges at trial, and was actually convicted on two of the burglary counts in May 2013. The choice by California authorities to levy burglary charges in white collar crimes may also be partially due to its categorization as a serious "strike" crime under California's Three Strikes Law, which may allow for a stricter sentence.

Monday
Mar172014

Florida Man Receives 5-Year Sentence For Exotic Car and Motorcycle Ponzi Scheme

A St. Augustine man has been sentenced to serve the next five years in a Florida prison for operating a multi-million dollar Ponzi scheme that purportedly dealt in exotic cars and motorcycles.  Anthony Robert Fregenti Jr., 42, received the sentence last week from Judge J. David Walsh, and could have faced up to a 15-year sentence had he failed to comply with a provision of his plea agreement that called for him to make $300,000 in restitution payments to investors during the period between his guilty plea and sentencing.    After his release from prison, Fregenti must not only serve twenty years of probation, but also is required to pay $100,000 per year towards $3 million in court-ordered restitution.

Fregenti operated several businesses in Flagler County, Florida, including Dark Hawk Enterprises LLC ("Dark Hawk").  According to authorities, Fregenti solicited individuals to invest in Dark Hawk, which purportedly specialized in the purchase and re-sale of exotic cars and motorcycles.  Potential investors were told that Fregenti could realize outsized returns by shipping luxurious vehicles to foreign buyers, including a Saudi Arabian Prince.  

However, while investor contracts included vehicle identification numbers ("VIN") purportedly representing their investment, authorities alleged that not only did Fregenti fail to purchase these vehicles, but also used the same VINs multiple times.  Fregenti was accused of using new investor funds to pay returns to existing investors - a classic hallmark of a Ponzi scheme.  After being charged with 33 felony charges in 2012, Fregenti pleaded guilty to 20 charges in September 2013.

Monday
Mar172014

Former Bank of America Banker Sentenced to Prison For $2.1 Million Ponzi Scheme

A New Jersey woman who formerly worked as a personal banker at Bank of America was sentenced to serve at least three years in state prison by a Massachusetts state judge.  Elaina Patterson, 54, was sentenced to serve between three years and five years in prison by Massachusetts Superior Court Judge Peter Lauriat after pleading guilty to thirty-one counts of larceny.  Patterson was criminally charged in June 2013 by Massachusetts authorities.

According to authorities, Patterson began working at Bank of America in 1999 at a branch in Reading, Massachusetts.  After gaining the trust of family and friends, she began pitching investments that she represented were reserved only for corporate and high-level clients due to their lucrative annual returns ranging from 10% to 15%.  Customers were given fake depository receipts and tax forms to add an air of legitimacy, and Patterson took in a total of more than $6 million from over 30 investors.

However, Patterson allegedly did not use the funds as intended, instead setting up a series of shadow accounts that she used to funnel investors funds both to herself and to other investors under the guise of interest payments.  In total, nearly $4 million was paid back to investors, leaving investors with more than $2 million in losses.  When the scheme began to falter in 2009, Patterson allegedly stole money from the accounts of older investors to disguise the theft.

Bank of America became aware of the fraud after doing its own initial investigation, and subsequently notified authorities. 

Wednesday
Mar122014

Over Prosecutor's Objection, Judge Strikes Deal With Accused Ponzi Schemer

In an unusual twist of events, a Sonoma County man accused of masterminding a $20 million Ponzi scheme has accepted a deal offered by a California state judge - and opposed by prosecutors - that calls for him to plead no contest to 140 felony counts in exchange for a maximum 20-year prison term.  Aldo Baccala, 73, accepted the offer from Judge Gary Medvigy on the eve of his scheduled trial in which he had faced a prison term of up to 160 years if convicted.  According to prosecutor Robin Hammond, the State Attorney General's office opposed the 20-year sentence, as a similar offer had previously been rejected by Baccala, and instead was seeking a sentence of 64 to 68 years.  

According to authorities, Baccala owned and operated Baccala Realty, Inc.  From 2003 to 2008, Baccala solicited potential investors, many of whom were elderly and family friends of Baccala, by promising annual returns exceeding twelve percent in return for investment in one of Baccala's ventures that included assisted living facilities, a car wash, and other businesses.  Potential investors were assured that each project was secured by a first or second deed of trust on the property.  However, in reality, no deed of trust was ever recorded.  Instead, Baccala used the more than $20 million raised to make speculative bets in the stock market, which yielded losses of at least $8 million from 2003 to 2008.  Additionally, investor funds were used to make purported interest payments to existing investors.  As Baccala's losses grew, he continued to solicit new investors, offering increased rates of return of up to 27.5%.  

At a hearing on Monday, Judge Medvigy offered to limit Baccala's sentence to no more than twenty years if he would plead no contest, citing Baccala's elderly age and “blameless life” and gave him until Wednesday morning to mull the deal.  While the deal would limit the maximum sentence to a twenty-year term, Judge Medvigy declined to set a minimum sentence, indicating that he wanted to first hear from victims.  

Sentencing is scheduled for June 3, 2014.  If Baccala receives the maximum twenty-year sentence, he could be released in under a decade due to parole and time served.  

A copy of the criminal complaint is below:

 

Baccala Complaint

 

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