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Recent SEC Releases
Thursday
Dec222011

Mastermind of Largest Ponzi Scheme in New Mexico History Pleads Guilty

A New Mexico real estate broker admitted to operating a $75 million Ponzi scheme in what New Mexico authorities estimated as the largest in state history.  Douglas F. Vaughn, 64, pled guilty to one count of wire fraud and one count of mail fraud in a Santa Fe federal courtroom.  Both charges carry a maximum sentence of twenty years in federal prison along with up to $1,000,000 in criminal monetary penalties.  While Vaughn faces a potential maximum sentence of forty years under the plea agreement, prosecutors agreed to recommend a sentence of 10 to 12 years.  Vaughn will also likely be ordered to pay restitution to defrauded investors.

Vaughn operated Vaughn Company Realtors ("VCR"), which was one the largest independent residential brokerage firm in New Mexico. Started in 1983,VCR, through Vaughn, solicited investments in the form of promissory notes, promising potential investors annual returns averaging 17.5%.  In return, Vaughn represented that investor funds would be used for real estate investments.  In total, VCR collected more than $86 million from investors.  However, rather than use the funds for real estate investments, Vaughn used monies from investors to pay returns to older investors under the guise of profits from his investments.  Authorities estimate that approximately 600 investors from eight different states suffered losses.

Vaughn was charged in early 2011 in a 30-count indictment that could have resulted in a guaranteed life sentence had Vaughn been convicted of all charges.  While he maintained his innocence until recently, the recent disclosure that his former assistant planned to testify against him may have spurred his change of heart.  Vaughn is due to be sentenced in several months.

A copy of the indictment is here.

Tuesday
Dec202011

First Day of Stanford Competency Hearing: Prison Psychologist Says Amnesia is "Highly Unlikely"

Several experts disagreed whether disgraced financier R. Allen Stanford was competent to stand trial in January on charges that he masterminded one of the largest Ponzi schemes in history.  In a packed Houston courtroom, Stanford's lawyers sought to convince United States District Judge David Hittner that Stanford's memory loss stemming from a late-2009 beating by a fellow inmate prevented him from being adjudged competent for trial next month.  Judge Hittner previously delayed a trial scheduled for this past January after competency issues arose.  

After undergoing rehab for addiction issues relating to the prescription of medication following the beating, Stanford completed eight months of treatment at the Butner Medical Center in Butner, North Carolina.  Coincidentally, Butner is also home to famous Ponzi schemer Bernard Madoff.  While at Butner, Stanford was examined by Dr. Robert Cochrane, who prosecutors called as their first witness.  While Cochrane acknowledged that several of Stanford's ailments, including Hepatitis B and cirrhosis of the liver, would require attention during a prolonged trial, he was adamant that Stanford's amnesia claim was unfounded.  During tests specifically administered to detect patients faking amnesia, Stanford performed so poorly that doctors suspected the incorrect answers were deliberate.  According to Cochran, patients with known problems routinely answered more questions correctly.  Called as the prosecution's first witness, Cochrane will be a difficult witness for Judge Hittner to ignore, considering that Cochrane met with Stanford nearly every day and had 60-90 minute evaluation sessions with Stanford nearly weekly.

Countering Cochrane's testimony, Stanford's attorneys called neuropsychologist Richard Pollock, who opined that Stanford would have difficulty focusing, concentrating, or staying on task.  A key determination of competency revolves around whether an accused may adequately assist his counsel in preparing his defense. Echoing this, Pollock stated that he believed Stanford would have a very difficult time assisting his attorneys at trial. Addressing the tests purportedly designed to detect patients faking amnesia, Pollock questioned their reliability, and compared the tests to having the same shortcomings as polygraphs.  

Stanford's lawyers have asked Judge Hittner to delay the trial until at least April to allow Stanford additional time to recover.  Judge Hittner has stated that he expects the competecy hearing to last three days.

Tuesday
Dec202011

California Lender Receives Maximum 15-Year Sentence in $7 Million Ponzi Scheme

A California man was sentenced to fifteen years in state prison after running a real-estate Ponzi scheme that duped investors out of $7 million.  Mark Alan Helsing, 53, had previously pled guilty in October to sixty-eight felony counts, including fifty-five counts of grand theft and six counts of exploitation of the elderly for financial gain.  Prosecutors had asked for the maximum sentence of fifteen years due to the severity of the crimes and involvement of elderly victims.  

Helsing told family and friends that he operated as a broker for "hard money lenders" through his four businesses: Sea View Investments, HLHS Financial Services, Inc., Foothill Realty, and Sea View Mortgage.  A "hard money lender" is a private investor who seeks loans from non-bank lenders.  From May 2004 to June 2007, Helsing solicited investors for funds to make short-term real estate loans, and promised annual returns exceeding 15%.  To add to the scheme's legitimacy, investors were provided with falsified documents purporting to show constant account gains.   In total, family and friends invested over $7 million in Helsing's scheme.  However, when several of Helsing's supposed interest checks bounced, California police began an investigation that eventually revealed Helsing's fraud.  

According to authorities, while Helsing will be ordered to pay restitution to his defrauded victims, it will be determined at a later date.

Sunday
Dec182011

Hedge Fund Manager Pleads Guilty to $5 Million Ponzi Scheme

A Florida man pled guilty to securities fraud in connection with a Ponzi scheme that raised over $5 million from investors.  Ward Onsa, of Marco Island, Florida, faces a maximum prison sentence of 20 years in connection with the guilty plea, although the actual sentence will depend on federal sentencing guidelines.  

Onsa founded New Century Investment Management LLC, which maintained offices in Pennsylvania andoperated the New Century Hedge Fund ("New Century").  From 2005 to 2010, New Century solicited investors by representing that it had formulated an investment strategy that purchased securities, futures contracts and options that would profit when the Dow Jones Industrial Average reached 10,748, on the theory that the market would not trade above this level.  New Century raised over $5 million from investors, most of this money coming from retirement accounts.  However, as the market surged in the period before the financial crisis and traded at levels exceeding 14,000, these bets suffered heavy losses. Instead of disclosing these losses to investors, which totaled $2.8 million when the fund stopped trading in late 2008, New Century generated fictitious account statements showing steady performance, and investors continued to receive returns from new investor funds.  

The U.S. Commodity Futures Trading Commission filed civil charges against Onsa and New Century in April 2011, charing the two with violations of the Commodity Exchange Act, and seeking disgorgement of ill-gotten gains and civil monetary penalties.  

A copy of the complaint filed by the CFTC is here.

Sunday
Dec182011

Two Florida Men Arrested in $7 Million Aircraft Parts Ponzi Scheme 

Authorities arrested two South Florida men and charged them with operating a $7 million Ponzi scheme that purported to buy and sell parts for military transport aircraft.  Victor Brown, 54, and Roger Green, 78, were arrested by Florida Department of Law Enforcement officials and charged each with one count of racketeering and one count of conspiracy to commit racketeering.  Racketeering carries a maximum prison sentence of thirty years.

Brown and Green operated Military Air Parts International ("MAPI") out of an office in Fort Lauderdale, Florida - the same city where Scott Rothstein's now-defunct law firm bilked investors out of over $1 billion in Florida's largest Ponzi scheme to date.  From 2004 to 2007, the company represented to investors that it bought and refurbished parts for C-130 and L-100 military aircraft, which were then resold to air forces in the United States, Great Britain, and South America. MAPI promised returns equating to 18% annually within a three to six month time period. Investors were provided statements confirming their account performance, and then solicited to roll over their investments into new deals.  

In total, MAPI raised over $7 million from approximately 24 investors.  However, an investigation found no evidence that MAPI acquired or possessed any aircraft parts.  Instead, Brown and Green used investor funds to pay operating expenses and withdraw nearly $2 million for personal use that included gambling and luxury cars.  Additionally, investor funds were used to pay returns of principal and interest to existing investors.

Brown's attorney asserted his client's innocence, and questioned whether the case could go forward, intimating that the activity occurred beyond the applicable statute of limitations.  Racketeering, codified at Section 895.02 of the Florida Statutes, requires that at least one of the predicate acts forming the pattern of racketeering activity must have commenced or began within 5 years after the cause of action accrues or the conduct terminates.  Additionally, at least two of the predicate acts must have occurred within 5 years of each other.  In this case, authorities allege that the criminal activity took place from 2004 to 2007.