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Recent SEC Releases
Monday
Jan232012

SEC Obtains Default Judgment in PermaPave Ponzi Scheme

The Securities and Exchange Commission announced that it had obtained a default judgment against PermaPave Industries, LLC and other related entities that promised investors rich returns on water-filtering stone pavers but in reality operated a Ponzi scheme that swindled investors out of $26 million.  The judgment, entered by United States District Judge Jed S. Rakoff, prohibits future securities violations by the entities charged by the SEC.  The entities named as defendants and relief-defendants were also ordered to pay disgorgement, prejudgment interest, and civil monetary penalties.  

While the default judgment resolves the SEC's claims against the PermaPave companies and other entities that received proceeds from PermaPave's scheme, the charges remain against the individuals charged by the SEC in October 2011. These defendants include Eric Aronson, Vicent Buonauro, Jr., Robert Kondratick, and Frederic Aaron.  Addtionally, the wives of Buonauro and Aronson were charged as relief defendants as a result of receiving ill-gotten gains from the scheme.  

According to the SEC, Aronson controlled several entities that operated as PermaPave Companies and held the operation out to investors as a wildly successful business that had a substantial backlog of orders for Australian pavers that could then be sold in the United States at a substantial markup.  In return for their contribution, potential investors were promised monthly returns of 7.8% to 33%.  In reality, there was little demand for the pavers, and the cost far exceeded the revenue from sales.  When the scheme began to unravel and investors began clamoring for the return of monies owed to them, Aronson accused them of committing a felony by virtue of "loaning" money to PermaPave at usurious interest rates.  Aronson, along with his attorney Aaron, are also accused of pressuring investors to convert their securities into debentures that would defer payment for several years.  In total, approximately 140 investors entrusted $26 million with Aronson and the PermaPave entities.  

Rather than generate substantial profits, PermaPave operated at a substantial loss with the little legitimate business it did conduct, instead using new investor funds to make distributions masquerading as interest payments to existing investors.  A large amount of investor funds were siphoned off for the personal use of PermaPave executives, who bought luxury cars, travel to Las Vegas, and jewelry.  Ironically, the SEC also accuses Aronson of using investor funds to make court-ordered restitution payments stemming from his conviction in 2000 of swindling victims in a previous scheme.

Criminal charges are also pending against Aronson and several other PermaPave executives.  

Previous Ponzitracker coverage is here.

A copy of the SEC Complaint is here.

Monday
Jan232012

Jury Selection in Stanford Trial Set to Begin Today

The trial of disgraced financier R. Allen Stanford is set to begin today as prosecutors claim the once-billionaire swindled investors out of more than $7 billion in one of the largest Ponzi schemes in history. Delayed by over a year as questions arose about Stanford's competency following a prison beating and ensuing memory loss and prescription drug issues, United States District Judge David Hittner found Stanford competent to stand trial in December 2011 and ordered Stanford and his legal team to prepare for trial in January 2011.  Since that decision, Judge Hittner has rejected several last-ditch efforts by Stanford's team to delay the trial, including an unsuccessful request to withdraw from representing Stanford.  Much is at stake in the trial's outcome, which is expected to last at least a month.

Stanford was indicted in June 2009 as his once-prominent Stanford International Bank Ltd. ("SIB") crumbled under economic pressure and increasing investor redemptions.  Investors had been promised that their funds would be used to purchase certificates of deposit issued by SIB that promised above-average annual returns.  Overseeing a financial empire that once made him one of the richest Americans, Stanford was a prominent figure in Antigua, where he was knighted in 2006 and enjoyed relations with Antiguan financial regulators that allegedly included bribes to divert attention away from his alleged fraud.  After his scheme came to light in late 2008, Stanford was charged in 2009 with 14 counts of conspiracy, fraud, and obstruction.  

Stanford's defense will likely focus on shifting blame to former Stanford chief investment officer James Davis, who has been cooperating with prosecutors since pleading guilty in August 2009.  This strategy has been evident since Stanford was charged, as he has insisted in several interviews that the responsibility to oversee the investment portfolio was solely that of the CFO.  Davis is expected to testify against Stanford.

Stanford was also charged by the SEC in a parallel civil enforcement action in early 2009, and a receiver was appointed to recover assets for the estimated 20,000 investors.  The receiver, Ralph Janvey, has faced numerous difficulties in that process, and the federal judge overseeing the process has expressed concerns that the receiver's efforts were duplicative of efforts by the US Department of Justice. Additionally, investors have increasingly voiced their frustration that they have not seen any distributions from Janvey's recovery efforts despite the passage of nearly three years since the scheme's discovery.

A guilty verdict would provide a much-needed boost to Janvey's efforts.  As much of Stanford's operations operated outside of the United States, asset recovery efforts from international entities have been hampered without a finding of criminal conduct on Stanford's part.  It has been estimated that at least $100 million remains subject to this predicament.  

Previous Stanford coverage:

Another Setback for Stanford Receiver

Stanford Trial Delayed Again until January 2012

Judge to Stanford Receiver: Stop Looking for Pot of Gold and Start Repaying Investors

Judge to Stanford Receiver: Stop Looking for Pot of Gold and Start Repaying Investors

SEC Files Lawsuit Against SIPC in Dispute Over Coverage of Stanford Ponzi Scheme

Tuesday
Jan102012

28-Year Old Pennsylvania Man Sentenced to Prison for Ponzi Scheme 

A Beaver man received a twenty-one month prison sentence for operating a Ponzi scheme that bilked investors out of nearly $1 million.  Daniel M. Bull, 28, had previously pled guilty to a single count of mail fraud, which carries a maximum prison sentence of 20 years.

Bull operated Venture Advisors LP, and from November 2009 to February 2011, made representations that he had been quite successful in the sale of three businesses.  On the basis of this track record, fifteen investors entrusted nearly $1 million to Bull to invest in tax-free municipal bonds. To convince investors of the legitimacy of his operation, Bull made nearly $300,000 in purported interest payments to investors.  However, rather than invest in municipal bonds, Bull instead attempted to start a new business, and suffered a near-total loss.

United States District Judge David S. Cercone also sentenced Bull to pay $481,341 in restitution to defrauded investors, along with community service and supervised release following the completion of his sentence.

 

Tuesday
Jan102012

Ten Year Prison Sentence for Man who Operated $145 Million Ponzi Scheme

A Utah man who masterminded one of the largest Ponzi schemes in state history was sentenced to serve ten years in federal prison.  Travis L. Wright had previously pled guilty to a single count of mail fraud, which carries a maximum sentence of twenty years in prison, along with up to a $250,000 fine.  The sentence comes nearly six months after United States District Judge Clark Waddoups rejected a previous plea agreement that would have seen Wright receive an eight-year prison sentence.  While the move would have theoretically allowed Wright to withdraw his guilty plea, both parties had indicated their intention to seek a new arrangement that would be acceptable to the court.  Federal sentencing guidelines had called for a prison term of up to 188 months.  Wright was also ordered to pay $43.2 million in restitution to his victims

Wright managed Waterford Funding, a real estate loan fund. Prospective investors were told that their investments would be placed in a fund and used to make loans for commercial real estate projects.  Investors were sold promissory notes carrying promised annual returns ranging from eight to forty-four percent.  In total, over $145 million was raised from 175 investors.  However, Wright only used a small percentage of the funds to make the promised loans, which authorities estimate did not exceed 10% of total investor funds.  The remainder was used for several purposes, including the payment of fictitious profits to investors, and the expenditure of $15 million to support a lavish lifestyle that included the purchase of a former NBA basketball players home and $20,000 in monthly spending money for his wife.

While not binding, Wright will likely serve his sentence at a federal correctional facility in California.

 

Thursday
Jan052012

SEC Charges Three More in $16 Million Ponzi Scheme That Targeted Mormons

The SEC announced it had brought civil enforcement actions against three additional individuals for their role in a $16 million Ponzi scheme whose victims were primarily members of the Church of Jesus Christ of Latter-Day Saints.  Kevin J. Wilcox, Jennifer E. Thoennes, and Eric R. Nelson were each charged with multiple violations of federal securities laws.  In its complaint, the SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil penalties.  The mastermind of the scheme, Eric Nelson's brother Joseph Nelson, was previously charged by the SEC in June 2010, along with Wilcox and Nelson as relief defendants.

According to the SEC's complaint, Wilcox, Thoennes and Nelson played varying roles in three distinct Ponzi schemes operated by Joseph Nelson and Anthony C. Zufelt since 2005.  The first, operated by Zufelt, collected nearly $3 million from at least 36 investors who thought they were investing in "Income Stream Accounts" offered by Zufelt, Inc ("ZI").  Next, at least 11 individuals invested at least $770,000 in investments offered through Silver Leaf Investments, Inc. ("SLI").  Both ZI and SLI are owned and operated by Zufelt.  Along with Nelson and others, Zufelt solicited investments in ZI and SLI by claiming annual returns of up to 220% achieved through profits in a credit card processing business operated by Zufelt.  Investors were also falsely promised that the businesses were registered with the SEC. Of the nearly $4 million collected through SI and ZLI, approximately $1 million was paid to investors in the form of purported returns to maintain a facade of legitimacy.

The third scheme, operated by Nelson, started in June 2005 and consisted of the offering of promissory notes through various companies operated by Nelson (the "Nelson Companies").  Many of the investors were fellow members of the Church of Jesus Christ of Latter Day Saints that Nelson targeted through church functions.  Investors were promised exceedingly high short-term returns of up to 200% generated from Nelson's management of merchant portfolios that are then resolt to financial institutions.  In total, over $12 million was raised from approximately 100 investors.   Of this $12 million, the SEC alleged that Nelson repaid over half in the form of fictitious interest payments to investors.  

Instead of investing the approximately $16 million raised through the three Ponzi schemes, the SEC alleges that Zufelt and Nelson used funds to pay for a variety of personal and luxury expenses, including the funding of Zufelt's Fantasy Fight Club ("FFC"), which included $10,000 to paint the FFC logo on his Dodge Viper. 

The SEC's Complaint alleges that Eric Nelson received at least $200,000 in transfers consisting of investor funds, while Wilcox received approximately $46,000 in improper transfers.

The new charges come several weeks after the SEC charged a father-and-son duo with operating a $220 million Ponzi scheme that also preyed on connections with the LDS Church.  More coverage of that scheme is here.

A copy of the SEC Complaint is here.