Kansas Lawyer Sentenced to Four Years in Prison for Texas Ponzi Scheme

A federal judge sentenced a Kansas lawyer to nearly four years in prison for operating a Ponzi scheme that bilked investors out of more than $2 million. Clifford R. Roth, 62, was sentenced by United States District Judge Marcia Crone to forty-six months in prison and ordered to pay over $2 million in restitution to defrauded investors.  Roth pled guilty earlier this year to an information charging him with interstate transportation of money taken by fraud.  

Roth, a licensed attorney in Kansas, traveled to Beaumont, Texas, in November 2007 and began soliciting investors to finance the purchase of bank holding company stock, which in turn would purchase an Oklahoma bank that would open a branch in Beaumont.  Investors were promised that their stock purchases would be held in escrow until the bank purchase was completed, and in the event the bank purchase did not occur, investors would receive their initial investment along with accrued interest.  As a result of these misrepresentations, dozens of investors contributed a total of $2.5 million to Roth.  Yet, according to the FBI, Roth never acquired a bank.  Instead, Roth misappropriated investor funds to a company he controlled to pay personal expenses and make payments to previous unrelated creditors of Roth.  

Roth, once a name partner at Kansas City law firm Gaar Buxbaum & Roth, has been ordered to begin serving his sentence by August 23, 2011.

Court Orders California Ponzi Scheme Operators to pay $8 Million

A California district court recently ordered two men who operated a Ponzi scheme targeting members of the Spanish speaking community in Los Angeles to pay $8 million in restitution and penalties.  In conjunction with an earlier complaint filed by the United States Commodity Futures Trading Commission, Ruben Gonzalez, of West Covina, and Jose Naranjo, formerly of La Mirada, California, along with New Golden Investment Group, LLC ("New Golden"), were ordered to pay a total of $8 million consisting of over $4 million in restitution, $1 million in disgorgement, and $3 million in civil monetary penalties.  Gonzalez had previously pled guilty to one count of mail fraud, one count of money laundering, and one count of misuse of a Social Security number and was sentenced to over 11 years in federal prison in December 2010.  Naranjo is believed to have fled the United States and remains a fugitive.

According to the CFTC complaint, Naranjo and Gonzalez operated a Ponzi scheme that began in August 2008 and targeted approximately 165 members of the Spanish-speaking community in Los Angeles. Investors were solicited with advertisements in Spanish-speaking newspapers that promised returns exceeding 100% trading commodity futures.  The company, New Golden, had offices in West Covina, California, and Las Vegas, and claimed to also be involved in various business activities in Mexico including mining and real estate.  According to the complaint, New Golden was never registered with the CFTC.  In total, approximately $3.65 million was raised from investors, who were given promissory notes indicating their investment and promised monthly returns ranging from 5% to 15%.  Of this amount, nearly $2 million was used to pay purported profits to existing investors, and hundreds of thousands of dollars were misappropriated by Naranjo and Gonzalez.  Authorities estimate that the total loss to victims was $2.2 million.

Along with his 11-year prison sentence, Gonzalez was also ordered to pay over $2 million in restitution to defrauded investors.  

A copy of the CFTC Complaint filed May 20, 2010 is here.

Investors Win Civil Suit Against Defunct Arizona Ponzi Scheme Operators

A federal jury awarded $46.5 million to investors in a failed Arizona Ponzi scheme that bilked investors out of millions of dollars.  More than 1,000 victims brought a class-action suit seeking damages from the remaining high-ranking employees of several Fresno leasing companies after the alleged mastermind, John Otto, committed suicide.  The jury verdict against Dan Ramirez and Andy Fernandez came several days after Judge Donald Black found HL Leasing Inc., Heritage Pacific Leasing and Air Fred LLC liable to victims for almost $68 million, bringing the total award to $114 million.  

Otto created the three companies in 2001, soliciting investments from victims by representing that the money was being used to buy lease agreements from American Express at a discount.  Investors were promised above-average monthly returns based on the alleged success of the leasing arrangement.  To reassure investors, Otto false represented that he was registered with the California Division of Corporations.  However, there were no legitimate lease agreements with American Express, and Otto was not registered with the California Division of Corporations.  Instead, investor funds were used to fund the lavish lifestyle and salaries of corporate officers and to pay purported returns to older investors.  

The class-action plaintiffs argued that the corporate officers were aware of the scheme and engaged in fraud to keep the scheme sustainable.  For example, Ramirez made millions of dollars in salary between 2004 and 2008, and Fernandez was paid $125,000 per year with bonus for her role as CFO.  Attorneys for Ramirez and Fernandez argued they were unaware of the scheme and, upon its discovery, went to the FBI.  The jury rejected this explanation, finding Ramirez liable under the theory of fraudulent concealment and both Ramirez and Fernandez guilty of aiding and abetting the fraud. 

A hearing on whether Otto's wife can be held liable as a shareholder of the leasing companies is scheduled for September.  An FBI probe of the companies remains ongoing.

SEC Sues Estate of Deceased Houston Money Manager

The Securities and Exchange Commission ("SEC") charged  two Houston money management firms and their founders with operating a Ponzi scheme that allegedly took in over $50 million from investors, including nearly $8 million from at least 13 prominent college basketball coaches.  In a complaint filed August 1st, the SEC charged Select Asset Management, J. David Financial, Brian A. Bjork, and the Estate of Joel David Salinas with various securities law violations and sought an asset freeze during the pendency of the investigation.  As recently covered by Ponzitracker, Salinas committed suicide shortly after being interviewed by the SEC for his involvement in the scheme.  Salinas had gained fame for founding the Houston Select summer basketball program which became known in basketball circles for attracting a high caliber of attendees.  Many former and current NCAA basketball coaches are reported to having invested with Salinas.

According to the SEC's complaint, Brian A. Bjork and Salinas formed Select Asset Management and J. David Financial to orchestrate two fraudulent offerings of securities from at least 2004 until the present.  In the first scheme, over 100 investors purchased approximately $39 million in corporate bonds offering annual yields up to 9%.  Investors believed they were purchasing bond offerings of large US companies, including Ford and IBM, and were provided with monthly account statements reflecting such holdings.  In reality, these bonds were never purchased or retained by J. David Financial or Select Asset Management.  Instead, investor funds were commingled and used to pay fictitious coupon interest payments to older investors.

The second scheme involved the offering of securities in the form of units of membership interests issued by two private funds managed by Select Capital Management.  According to Private Placement Memorandums issued by the two funds, the Funds intended to build a commercial-loan portfolio by originating short-term commercial loans, purchasing loan participations and syndications, and investing in commercial-loan funds.  The SEC alleged that two offerings were held from August 2007 to December 2010, in which nearly $14 million was raised from over 50 investors.  

According to Bloomberg, a note purporting to be from Salinas was found during a search of his office claiming sole responsibility for the crimes.

A hearing is set before United States District Judge Keith P. Ellison on August 10th.  

A copy of the SEC Complaint is here.

Hawaii Couple Sentenced in $4 Million Ponzi Scheme Coordinated Behind Prison Walls

A Hawaii husband and wife were sentenced to federal prison for orchestrating a Ponzi scheme that bilked investors out of nearly $4 million.  Perry Jay Griggs, and his wife, Rachelle Griggs, received sentences of eighty-seven months and four years, respectively, for operating a scheme that authorities say Perry Griggs masterminded while he was incarcerated (incidentally while serving a sentence for an earlier Ponzi scheme).   The couple entered guilty pleas earlier this year to charges of wire and mail fraud.  Each of those charges carried a maximum sentence of twenty years in prison and additional criminal monetary penalties.

From at least 2005 until 2009, prosecutors say the Griggs operated Aloha Ventures, soliciting money from prison inmates and their families who thought they were investing in a commodity pool that purportedly traded commodity futures contracts.  While incarcerated following convictions for wire fraud and money laundering, Perry Griggs approached fellow inmates about the investment opportunity, while his wife solicited investments from the family of inmates and other members of the general public. Potential investors were told that Perry Griggs was a highly successful commodity trader and that they would receive monthly payments composed of trading returns.  In total, it is estimated that seventeen victims placed more than $4 million with Aloha Ventures.  Yet only a fraction of these funds were invested in commodity futures contracts, with authorities alleging that nearly all of these funds were lost.  Additionally, the Griggs misappropriated approximately $1 million for personal uses and $1.1 million to pay fictitious returns to investors.  Upon his release from prison, the Griggs became fugitives until their arrest in December 2010.

In addition to their respective prison sentence, both Perry and Rachelle Griggs were ordered to pay nearly $2 million each in restitution to investors defrauded by the scheme.  

A copy of the complaint filed by the US Commodity Futures Trading Commission is here.