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Recent SEC Releases
Monday
Apr292013

Orchestra Tuba Player Gets 17-Year Sentence in Rare Coin Ponzi Scheme

A Massachusetts man who plays the tuba for the Quincy Symphony Orchestra was sentenced to serve a 17-year prison term for defrauding investors out of millions of dollars in a Ponzi scheme that purported to deal in gold and rare coins  Arnett Waters, 63, received the sentence from United States District Judge Denise L. Casper after pleading guilty in November 2012 to seven counts of securities fraud, six counts of mail fraud, two counts of money laundering and one count of obstruction of justice.  Judge Casper also imposed restitution and forfeiture obligations in the amount of over $9 million.  

According to authorities, Waters operated A.L. Waters Capital, LLC ("AWC"), which was a registered broker-dealer and a member of the Financial Industry Regulatory Authority ("FINRA").  Waters also operated Moneta Management, LLC ("Moneta") with his wife, Janet, who also served as AWC's chief compliance officer.  Beginning in 2009, Waters began pitching two investment funds, Port Huron Partners, LP ("PHP") and Port Huron Partners II, LP ("PHP II"), advertising the funds on AWC's website as specializing in  trading in rare coins and gold.  Based on these representations, AWC raised nearly $1 million from investors, including $500,000 from his own church.  Additionally, Waters operated two rare coin dealerships, Moneta and Windsor Park Corp., that sold coins to investors at grossly inflated prices.  

However, Waters did little to no investing, but instead used investor funds to make a variety of unauthorized purchases, including  luxury travel, hunting club dues, medical appointments and even classical sheet music for Arnett's hobby as a longtime tuba player for the Quincy Symphony Orchestra.

When SEC officials began an investigation in April 2012, the Waters made a variety of misrepresentations designed to conceal their scheme from regulators, including statements that they were not engaged in securities-related activities, and that no one had invested in either the PHP or PHP II funds.  

When the SEC initiated a civil enforcement action in May 2012, Waters failed to disclose the existence of a hidden bank account that he used to launder nearly $200,000 until the SEC caught wind of the account. Waters was later charged with obstruction of justice as a result.  

After Waters pled guilty to criminal charges, the plea agreement contained covenants by the SEC not to appeal any sentence of at least 97 months as well as Waters' agreement not to appeal any sentence less than 188 months.  Because a 17-year sentence equates to a 204-month sentence, Waters technically has the opportunity to appeal.    

A copy of the SEC's complaint is here.

Thursday
Apr252013

Massive $3.6 Billion Ponzi Scheme Uncovered in India

Financial shockwaves are rippling throughout India as authorities announced they have uncovered a massive Ponzi scheme that appears to have taken in over $3 billion from thousands of investors.  Authorities announced they had detained Sudipta Sen, the man behind a conglomerate of companies operating under the Saradha Group name, who is to remain in custody for at least the next 14 days.  If true, the scheme would be not only one of the largest schemes in India, but would rank as one of the largest in history.  The effects of the scheme are expected to be widespread due to the large number of victims, many of whom rank among India's lower class.  Indeed, two individuals have already committed suicide, and a third that willfully ingested poison is believed to be in critical condition. 

According to authorities, Sen's Saradha Group operated a series of companies that dabbled in real estate, motor vehicles, and even bio gas.  Investors were solicited to make varying short-term investments that promised above-average returns.  One company, Saradha Realty, offered investors the ability to invest for a varying range of time, with the option to receive an allotment of land or a refund at the maturity of that investment along with the promised interest.  Depending on the amount invested, each investor was promised returns ranging from 12% to 24%.

Investors were solicited through a series of advertising, including a heavy presence in television and print media.  The editor and chief executive of the Saradha Group's media business also had significant ties to one of the leading Indian political parties, which also served to lend an air of legitimacy to the venture. In addition, an extensive network of agents was also used to solicit investors in return for commissions. Based on these efforts, it is believed that over $3 billion was raised from a large amount of investors - many of which were poor investors who entrusted their savings to the scheme. 

The mastermind, Sen, was arrested earlier this week after a brief stint on the lam.  However, authorities were able to locate him after Sen reportedly took little effort to conceal himself, staying at expensive hotels in highly-populated areas.  

According to one source, the Saradha Group is said to have been under investigation by the Securities and Exchange Board of India ("SEBI") since June 2010.  However, the Saradha Group is said to have buried SEBI with a flood of documents in order to stymie the investigation, which included the submission of 240 cartons of documents in 2012 alone.  After this strategy was successful in delaying the investigation, SEBI ordered the production of information in excel spreadsheets, which soon lead to the production of beneficial information.  However, by this time the Saradha Group had collapsed.  

Authorities have instituted an action in the Calcutta High Court asking for the appointment of a receiver to preserve assets and begin the process of returning funds to investors.  

Thursday
Apr252013

Zeek Receiver Blasts Objections to Claims Process

"Hundreds of thousands of Zeek victims have waited patiently for months as the Receiver has completed the work necessary to provide an easy to use, fair and efficient claims process.  But yet again, it appears that counsel pursuing their own agenda has come forward to delay and raise the costs of the Receiver moving forward in the best interest of all Zeek victims."

The court-appointed receiver tasked with recovering assets for victims of the $600 million ZeekRewards Ponzi scheme addressed objections to his proposal for the establishment of a claims process, dismissing the objections as meritless and questioning the underlying motivations of those objectors.  Kenneth Bell, the receiver, asked that the Court deny the objections, which currently stand in the way of the court's approval of a claims process that could begin returning funds to the estimated 800,000 victims of ZeekRewards.  The objections come from counsel for a parallel class action that was filed on behalf of Zeek victims, captioned as Belsome, et al v. Rex Venture Group, and raise three primary issues: (1) that the proposed notice to be send to interested parties somehow violated attorney rules of professional conduct prohibiting an attorney's interaction with represented parties, (2) whether a claimant's use of an attorney is permitted, and (3) that the proposed release sought in the Claims Process is improper.

The first objection takes issue with the proposed procedure of the mailing of a court-approved notice to all potential claimants, whether or not they are represented by counsel, notifying them of the beginning of the claims process.  Belsome's counsel claims that this would violate attorney rules of professional conduct governing communication with individuals that are currently represented by an attorney.  The Receiver dismissed this claim, noting that the rule was intended to protect adverse parties, which is clearly different than the current situation where the victims are those parties that the Receiver and the Court are attempting to help.  Additionally, while not noted in the response, it is axiomatic that the Receiver functions as an arm of the Court in his official functions as Receiver.  Indeed, the Receiver notes in a footnote that the only possible basis for such an objection could whether the lawyers' financial interests

will be harmed by their alleged clients visiting the receivership website and considering whether they want to pay counsel in connection with the claims process, which is intended to be simple and easy to use.

The Receiver indicated that he has already received communications from victims expressing their fear that they may be victimized by attorneys seeking to take advantage of their uncertainty in the claims process.

Second, the Receiver brushed aside any insinuation that he was seeking to limit a claimant's access to legal representation, noting that the Belsome clients and any potential claimants are free to seek the assistance of counsel on their behalf - that is, as long as appropriate notification is provided to the Receiver of that representation.  

Finally, the Receiver addressed the objection to the release sought in the claims process.  As part of the claims process, and in exchange for a claimant being permitted to receive pro rata distributions, the Receiver is requiring each claimant to release all claims a victim has against the Receiver, his team, and the Receivership Estate.  This arises partly due to the fact that, legally, each victim currently holds a claim against the Receivership Estate for the return of their pro rata share of funds.  In essence, if a claimant was permitted to retain that claim and receive pro rata distributions, they could theoretically recover more than their losses - which would be contrary to the intent and function of an equity receivership.  Bell states that the release is narrowly tailored to address these issues, and notes that each claimant remains free to pursue claims against current or former Zeek employees or entities.

In closing, Bell again takes aim at a growing group of counsel that, in "pursuing their own agenda," have only succeeded at "delay[ing] and rais[ing] the costs of the Receiver."  Ironically, it is this same group that also has been vocal about the Receiver's costs in maintaining the Receivership.  The Receiver asks that the objections be denied, and that his motion for the approval of a claims process be granted.  

A copy of the Motion is here

More Ponzitracker coverage of Zeek is here.

Sign up for Ponzitracker's free weekly email list for continued Zeek coverage here.

Tuesday
Apr232013

Wisconsin Man Who Duped Father and Brother in $5.3 Million Ponzi Scheme Ordered to Pay $5 Million in Penalties

The U.S. Commodity Futures Trading Commission announced it had obtained an order requiring a Wisconsin man to pay restitution and a fine exceeding $5 million for operating a Ponzi scheme that counted his own family among the victims.  Eric N. Schmickle, 37, was ordered to pay the penalties as part of a CFTC enforcement action that accused Schmickle of operating a commodity-based Ponzi scheme that raised more than $5 million from investors.  Schmickle was also criminally charged in connection with the scheme, and was sentenced to a three-year term last month. 

According to authorities, Schmickle promised to trade commodity futures contracts through his companies, Q Wealth Management and Aquinas.  Friends and family members, including Schmickle's father and brother, gave him $300,000 to start in 2009, with the understanding that Schmickle would be entitled to 25% of any investment profits.  Schmickle promised investors he would achieve substantial gains, which attracted additional investors that subsequently contributed over $4 million.  However, these promises of lucrative gains were untrue, and Schmickle was far from the successful trader he claimed to be.  In fact, rather than 25% gains, Schmickle instead racked up trading losses that exceeded $3 million.  Schmickle also misappropriated investor funds for his own personal expenses, and only several thousand dollars remained when the scheme was uncovered.

Schmickle plead guilty to a single count of wire fraud in July 2012, and his plea agreement called for him to pay approximately $3 million in restitution to victims.  While federal sentencing guidelines called for a sentence ranging from 57 to 71 months, the federal judge tasked with sentencing Schmickle chose to make a downward departure from the recommendation.  

Sunday
Apr212013

Utah Man Pleads Guilty To Running Two Separate Ponzi Schemes

A Utah man agreed to plead guilty for his involvement in two separate Ponzi schemes - while on parole for a previous conviction for a third Ponzi scheme - that took in more than $30 million from investors.  Wayne Ogden, of Koosharem, Utah, was convicted earlier this year for his role in one of the Ponzi schemes, and in a deal with authorities, agreed to plead guilty to one count of wire fraud and one count of securities fraud in exchange for a recommended 10-year sentence to be served concurrently in both cases.  As part of the deal, Ogden will also agree to an order of restitution exceeding $3 million for each scheme.

Ogden was originally indicted in December 2007 for running a real estate Ponzi scheme in Kiowa, Colorado, where investors were promised returns as high as 100% from the development of a 360-acre parcel of land.  However, while awaiting trial on those charges, Ogden was charged with concocting a separate Ponzi scheme that solicited underwater homeowners to provide assistance with refinancing and restructuring mortgages.  Ogden's company, Paradigm Acceptance LLC ("Paradigm"), promised short-term returns ranging from 20% to 100%, assuring investors their money was secured by property.  In total, Paradigm raised more than $29 million from investors.

However, each venture was nothing more than an elaborate Ponzi scheme where new investor funds were used to pay older investors, thus creating the appearance of a successful operation.  Of the $29 million Ogden raised from Paradigm investors, nearly $23 million was paid back to older investors, and nearly $2 million was paid in salaries to Ogden and his brother.  

Not surprisingly, at the time Ogden began soliciting investors for his first scheme, he was on parole for a $7 million Ponzi scheme he operated from 1995 to 1997 that ultimately netted him a 15-year prison sentence.  However, he was paroled after just 28 months, 

Ogden was convicted of yet another similar scheme during the mid-1990's when five hundred investors lost approximately $7 million.  He was sentenced to two consecutive terms of up to fifteen years, but was paroled after serving 28 months.