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Recent SEC Releases
Wednesday
Aug202014

Former Attorney Gets 10-Year Sentence For $4 Million Ponzi Scheme

A now-disbarred Minnesota attorney who swindled victims out of more than $4 million in an elaborate Ponzi scheme was sentenced to serve 10 years in federal prison.  Mark Holt, 45, received the sentence from U.S. District Judge Susan Richard Nelson as more than a dozen of his victims looked on, some of whom addressed both Holt and the Court in arguing for the maximum sentence.  Holt had previously pleaded guilty to a single count of wire fraud, which carries a maximum potential 20-year prison sentence.

Beginning in 2005, Holt used his affiliation with a Minnesota registered broker-dealer, Harbor Planning Investment Group ("Harbor Planning"), to solicit potential investors with the promise of steady returns through safe long-term investments.  Investors, many of whom were retired, were provided with periodic payments that purportedly represented returns on their investment, as well as investment statements showing increases in their accounts.  In total, Holt raised at least $4 million from dozens of investors.  

However, Holt failed to invest a majority of the funds he received from investors, instead using investor funds to make Ponzi-like payments and to sustain his lavish lifestyle.  Authorities alleged that Holt misappropriated at least $2 million through the formation of various entities each containing "Harbor" in their business name so as to facilitate the siphoning of investor funds from Harbor Planning.  Holt allegedly spent investor funds on a variety of personal expenses, including $14,000 on travel, $25,000 in gym and club dues, $16,000 on designer clothes, and $5,000 at an exotic dance club.  

Holt was also recently fined $300,000 by the Minnesota Department of Commerce.  

Wednesday
Aug202014

California Men Sentenced For $5 Million Real Estate Ponzi Scheme

Two California men will each serve at least a decade in prison for operating a real estate Ponzi scheme that duped victims out of nearly $5 million.  Terrance Brown, of San Jose, California, and Antranik Kabajouzian, of Morgan City, California, received a 15-year and 10-year sentence, respectively, from California Judge Shelyna Brown.  The men had previously pleaded guilty to multiple felonies, including financial elder fraud, grand theft, securities fraud and forgery.  Because the charges were brought by the State of California, the men will be eligible for parole after serving a minimum portion of their respective sentence.

Brown and Kabajouzian operated Bay Area Equity Group ("Bay Area Group"), telling potential investors that they could earn consistent 15% annual returns through the purchase and refurbishment of local rental houses.  Brown knew many of the victims through his occupation as a tax preparer, and used that relationship to convince many of his clients to invest with Bay Area Group. The men also used a well-designed website and made local presentations to potential investors in soliciting investments.  In total, at least 40 investors entrusted approximately $4.5 million to Bay Area Group.

However, the houses purchased with investor funds were not refurbished and filled with paying tenants, but rather were dilapidated and abandoned houses in Detroit that in some cases were condemned and torn down by the city.  Authorities learned of the scheme after a former Bay Area Group employee came forward voicing their suspicions, and the pair were later arrested - with Brown being arrested at a Las Vegas casino where he was gambling.  Victims suffered near total losses, with the 40 victims sharing in the $40,000 proceeds of an Aston Martin formerly owned by Kabajouizan and auctioned off.  

Tuesday
Aug192014

Zeek Receiver: Distributions To Start September 30; Foreign Clawbacks Coming In "Near Future"

The court-appointed receiver tasked with recovering assets for victims of the $600 million ZeekRewards Ponzi scheme announced that he had obtained court approval to move forward with a preliminary distribution of up to 40% of each investor's approved loss.  Kenneth D. Bell, the receiver, announced that the first distribution would be made on September 30, 2014, to eligible victims that had satisfied certain requirements.  Indicating he was "confident" that additional distributions would take place, Bell also indicated that he planned to commence "clawback" suits against foreign investors in the near future.  

Claims Process

The Securities and Exchange Commission filed an emergency enforcement action against ZeekRewards approximately two years ago, alleging that the company's promise of exorbitant returns through online auctions was the result of a massive Ponzi and pyramid scheme that had taken in hundreds of millions of dollars from hundreds of thousands of victims.  Following his appointment soon thereafter, Bell has worked to reconstruct the complex operations and recover funds for victims, and over $300 million has been secured to date.

In March 2013, the Receiver sought Court approval to commence a claims process.  Due to the sheer number of potential victims, Bell sought approval to deviate from typical claims procedures that were primarily done through written submissions in favor of an online portal that would not only save significant amounts but would also allow a more efficient review of the hundreds of thousands of claims expected. The Court approved the claims process and procedures in May 2013, and victims were given a September 2013 deadline to submit claims.  Ultimately, over 174,000 claims were received asserting total losses of nearly $600 million.

To date, Bell's team had sent out approximately 160,000 claim determinations to victims, who were then required to accept the determination and provide a release and OFAC certification before August 15, 2014 to be eligible to receive a distribution.  To date, more than 80,000 claimants have satisfied these requirements and are eligible to receive distributions beginning on September 30, 2014.  Those who have not completed the requirements by August 15, 2014 will be forced to wait longer to receive their distribution.

Foreign Clawbacks

In his announcement, Bell expressed confidence that ongoing and future efforts would allow him to make additional distributions.  These efforts include lawsuits against more than 9,000 "net winners" that were fortunate enough to profit from their ZeekRewards investment, as well as ongoing efforts to recover receivership assets currently in the possession of financial institutions.  Additionally, Bell also confirmed that he planned to soon initiate "clawback" lawsuits against foreign net winners.

In a motion filed August 15, 2014, Bell requested Court approval for:

leave to file one or more actions in this Court and in foreign courts to pursue claims for the return of fraudulently transferred money and disgorgement of net funds received against significant “net winners” who reside outside the United States. The foreign “net winners” to be pursued all won at least $1000, the threshold previously approved by this Court. With due regard for the interests of efficiency, cost and judicial economy, the Receiver intends to consolidate cases against net winners from each foreign country and from more than one country when possible and appropriate. 

While Bell did not expand on the specific procedures for pursuing foreign clawback victims, previous guidance provided in an earlier quarterly status report may shed some light on his strategy.  In a Quarterly Status Report from late 2013, Bell stated that:

The group of net winners identified to date includes numerous individuals residing outside of the United States, with the largest foreign winners living mainly in countries with established legal systems which are signatories to the Hague Convention for international service of process. While the pursuit of “clawback” claims against these foreign net winners raises various challenges, the Receiver intends to include these winners as parties to domestic litigation based on their contacts with the ZeekRewards Program in the United States so long as doing so will not delay the litigation against domestic winners. The Receiver will also pursue cost-effective foreign litigation to establish the repayment obligation and/or to collect judgments where necessary and appropriate.

Thus, it appears that Bell plans to initiate some or a majority of litigation against foreign net winners that profited by at least $1,000 in the Western District of North Carolina, which has exclusive authority over claims and property relating to ZeekRewards, based on those net winners' minimum contacts with Zeek by virtue of their investment and related transactions.  Upon securing a judgment against any net winner(s), the absence of any assets in the United States available to execute on to satisfy the judgment will likely necessitate the filing of foreign actions to enforce and collect on the judgments.  

Previous Ponzitracker coverage of ZeekRewards is here.

The Motion to Institute Actions Against International Net Winners is below. Thanks as always to ASDUpdates:

Zeek Doc 234

Tuesday
Aug192014

Navy Grad Pleads Guilty To $1.2 Million Ponzi Scheme

A Naval Academy graduate who fled to Colombia after authorities began investigating his failing hedge fund has pleaded guilty to operating a Ponzi scheme that fleeced victims out of at least $1.2 million.  Bryan Caisse, 50, entered his guilty plea last week after being indicted on four counts of Grand Larceny in the Second Degree, six counts of Grand Larceny in the Third Degree, and one count of Scheme to Defraud in the First Degree. Under the plea agreement, Caisse faces a minimum 1.5-year sentence and must pay restitution of approximately $1.4 million to his victims.

According to authorities, Caisse began soliciting family and former classmates in April 2008, telling them he was starting a hedge fund, Huxley Capital Management, and was seeking so-called working capital loans to cover short-term expenses until larger investors filled that void.  These were short-term loans ranging from one to two years, and promised annual rates of return of 8%.  Investors were drawn to Caisse as a result of his history as a former bond salesman and trader with now-defunct Bear Stearns.  In total, Caisse raised approximately $1.2 million from at least 20 family members and former classmates.  

However, Caisse's promises of forthcoming deep-pocketed investors soon fell through.  After the New York District Attorney’s Major Economic Crimes unit conducted an investigation, authorities alleged that instead of using the money to pay hedge fund expenses, Caisse spent investor funds on a variety of personal expenses that included rent, car services, tuition for his daughter's private school, and even $10,000 on a dating service.  

Investors that attempted to recoup their investment from Caisse encountered a variety of setbacks in their quest.  This included:

  • Claims that Caisse's bank, HSBC, could not wire funds except to another HSBC account;
  • Communications with Caisse's assistant, Kristy Smith, who would not speak on the phone because of her poor English;
  • Communications with another assistant, Christine Woo, who also refused to speak on the phone and eventually stopped communicating;
  • Representations to investors that Caisse had been in a horrific car accident that caused him brain damage and a broken hip; and
  • Numerous checks being lost in the mail.

A sentencing date has not yet been set

Monday
Aug182014

Tennessee Man Gets 14-Year Sentence For $18 Million Ponzi Scheme

A Tennessee man was sentenced to serve the next fourteen years in federal prison after pleading guilty to masterminding an $18 million Ponzi scheme.  Terry Kretz, 61, received the sentence from U.S. District Judge Todd J Campbell, and was also ordered to pay nearly $15 million in restitution to defrauded investors.  Kretz received the sentence after pleading guilty earlier this year to securities fraud, money laundering, conspiracy to commit securities fraud, wire fraud and mail fraud.

Kretz was the former chief executive officer of Hanover Corporation ("Hanover"), an investment firm that purportedly traded stock options, equities and other securities largely through the offering of promissory notes to potential investors.  In return, the client was promised lucrative regular interest payments and the return of their principal at maturation of the promissory note.  In total, Hanover raised more than $18 million from investors during the time period of January 2004 to August 2006.

However, authorities alleged that Hanover's representations to investors were false and that the handsome returns paid to investors were instead derived through a massive Ponzi scheme.  In addition to suffering consistent losses using investor funds, Kretz and other individuals used investor funds for their own personal use that included the payment of salaries and other luxury purchases such as a $600,000 residential building lot, a $176,000 donation to a church, and golf memberships.  Kretz and Robert Haley, Hanover's former chief financial officer, were indicted in November 2009.

Notably, Tennessee state securities regulators reportedly attempted to shut down Hanover in 2005, but their attempt was ultimately rejected by a Davidson County judge.  As a result, Hanover was able to raise an additional $7 million from investors before Hanover was placed into involuntary bankruptcy in October 2006.

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