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Recent SEC Releases

Authorities Make Second Arrest in $60 Million Silver Ponzi Scheme

Authorities arrested a second individual in connection with a $60 million Ponzi scheme that ranks as one of the largest in South Carolina’s history.  Wallace Howell, 60, was indicted and later taken into custody yesterday on the charge that he conspired to commit mail fraud in a $60 million Ponzi scheme masterminded by Ronnie Wilson that purported to profit off silver trading.  Wilson was arrested earlier this year, and pleaded guilty in July to two counts of mail fraud. 

Beginning in 2004, Howell is believed to have been involved with Wilson’s scheme as a promoter, touting the venture to investors as a lucrative opportunity.  Indeed, according to the Independent Mail, a South Carolina newspaper, many investors submitted questionnaires indicating that they became aware of the scheme through Howell.  However, likely unbeknownst to investors, Howell would later receive millions of dollars from Wilson as payback for the referrals.  This included nearly $3.5 million in “profits” realized by Wilson in trading for two investor accounts.  According to the indictment, Howell “instructed” Wilson to transfer those profits into his own account, which Howell later withdrew.  If true, the allegations would also likely constitute violations of federal securities laws if Howell was not licensed to offer or sell securities or investment advisory services in South Carolina. 

A receiver has since been appointed to recover funds for victim’s of Wilson’s scheme.  Wilson faces up to twenty years in prison when he is sentenced. 

The Receiver’s website is here.


Iraqi Man Receives 57-Month Sentence for $2 Million Ponzi Scheme

An Iraqi and Michigan citizen was sentenced to serve fifty-seven months in prison for operating a Ponzi scheme that preyed on Middle Eastern investors and ultimately defrauded victims out of over $2 million. Ahmed Alabadi, 45, received the sentence after pleading guilty to a single charge of wire fraud in July 2012.  Along with the sentence, Alabadi was ordered to pay $2.3 million in restitution to his victims and serve three years of supervised release following completion of the sentence.  

According to authorities, Alabadi used his company, Fedek Group, Inc., to solicit investors who thought their funds would be used to support rebuilding efforts in post-war Iraq, fulfill contracts with the United Nations, and various other ventures.  Alabadi preyed on individuals of Middle Eastern descent, relying on cultural taboos forbidding dishonesty and self-dealing when dealing with tribal brothers and sisters.  Investors were promised annual returns of up to 100% and told that their funds would be safe.

However, Alabadi did not conduct legitimate investments, but instead ran a classic Ponzi scheme by using investor funds to pay returns to existing investors.  Following the collapse of the scheme, Alabadi was the subject of a civil lawsuit brought by over 100 investors, who subsequently obtained a $170 million default judgment.  Alabadi was arrested in February 2012 at a Detroit airport after being charged with bank fraud, attempted bank fraud and money laundering.  A federal judge later denied Alabadi's request for release following his arrest, citing his potential flight risk.


Ponzi Scheme 'Victim' Faces Prison For Tax Evasion After Failing To Report Profits

A California man faces up to five years in federal prison after admitting he failed to report millions of dollars in profits he received from a massive Ponzi scheme.  Donald Lopez, 63, pled guilty to a single count of willful income tax evasion related to nearly $3.5 million in profits received from Matthew LaMadrid's massive Ponzi scheme that were not reported to the Internal Revenue Service.  Lopez faces up to five years in prison, as well as a maximum fine of $250,000.  

LaMadrid operated the Plus Money Return Premium Funds from 2004 to 2008, which advertised above-average returns through purported covered-call stock option trading.  However, rather than engage in legitimate trading, LaMadrid operated a Ponzi scheme, using investor funds to pay returns to ther investors and misappropriating investor funds to support a lavish lifestyle that included luxury cars, art, and gambling.  In November 2007, as the scheme was on the throes of collapse, LaMadrid caused $10 million to be wired to an account controlled by Lopez.  Lopez kept approximately $3.94 million of that amount for himself, of which $3.42 million should have been reported as taxable income to the IRS. As a result, the IRS was deprived of $1.3 million in revenue.  

La Madrid received a ten-year prison sentence for his scheme last July.  He was also ordered to pay $23.5 million in restitution to defrauded investors.  


Connecticut Man Receives 8-Year Sentence for $6 Million Ponzi Scheme

A Connecticut man was sentenced to serve more than eight years in prison after pleading guilty to operating a Pomzi scheme that duped more than 50 investors out of $6 million.  Gregory Viola, 60, had been arrested in August 2011 and charged with multiple counts of mail fraud.  United States District Judge Vanessa L. Bryant handed down the sentence to Viola and also ordered him to pay nearly $7 million in restitution to his defrauded victims.  Viola's financial status and ability to satisfy the restitution order remains unknown.

According to authorities, Viola provided tax advice for various companies from 1989 to 2006 while also serving as an unregistered investment advisor.  Beginning in 2007, Viola began operating an investment advisory business, purporting to earn lucrative returns for investors.  Viola provided investors with fictitious account statements showing steady returns, with total assets under management approaching $10 million at one point.  

However, Viola failed to achieve the advertised returns, instead operating  the classic Ponzi scheme by using new investor funds to pay returns to existing investors.  In addition to paying out $2.5 million to investors as fictitious returns, Viola misappropriated investor funds to cover his personal expenses, including jewelry purchases, country club memberships and the payment of his mortgage.  

In total, the scheme cost investors more than $6 million.   


'Restructuring' of Popular Online Gold Investment Venture Raises Eyebrows

An ominous announcement that a popular online gold investment company would be 'restructuring' its operations and suspending monthly 10% dividend payments has caused discontent among many of its investors and has many questioning the legitimacy of the company.  Virgin Gold Mining Corporation ("VGMC"), which purports to engage in gold mining operations worldwide, has gained an almost cult-like following due to its steady stream of monthly dividends paid in ounces of gold.  However, in an announcement earlier this week, the company announced that it would be suspending dividends, restructuring the company, absorbing "losses" in the gold program, and switching to a platinum investment program.  Additionally, gold fund investors would have their shares transferred into a closed-end fund that, if they disagreed, would not be able to request a "voluntary asset distribution" until the end of 2013.

In a lengthy press release on October 1st, 2012, which has since been removed and is inaccessible (a copy was obtained by Ponzitracker and is available here), VGMC outlined a lengthy process in which it would transfer its operations from Panama, where it was currently situated, to the British Virgin Islands ("BVI").  The company's offering of convertible preferred shares in gold, known as CPS-GOLD, would cease, and all gold mining assets would be transferred into a professional closed-end fund ("PCEF") housed in the BVI.  According to VGMC, this change is being undertaken to create public transparency and allow the company to seek listing on a financial exchange within 12-15 months.  

While shareholders were informed that their monthly dividends would be suspended, VGMC attempted to placate those investors by promising that the PCEF would be listed on a financial exchange by the end of 2012 at a price "of not less than USD10 per share" - an increase of 500% between now and the anticipated listing date.  To those shareholders who disagreed, VGMC stated it was "unable to offer any alternatives," and again stated that it expected "shares in PCEF to increase five (5) fold within the next 12-15 months."  Despite the obvious inability to predict the movement of gold prices, the company apparently is quite confident that the value of its assets will increase five-fold over the next year.

The October 1st press release comes on the heels of an earlier September press release informing investors that due to the implementation of a "monthly credit withdrawal policy", investors could only make redemption requests on the first day of every calendar month.  Additionally, the implementation of a "beneficiary bank registration" meant that many redemption requests made in early September would not be able to be processed.  In essence, the October 1st announcement marked the second month in a row that investors were not able to make redemption requests.

Despite the declaration by the Malaysian and Panamanian governments that VGMC was not authorized to sell securities, many elected to invest in VGMC due to its supposedly-dependable stream of monthly dividend payments.  However, the decision to suspend monthly payments and prevent redemption requests until late-2013 has not gone over well with investors, as evidenced by several posts at various Facebook pages devoted to VGMC operations:

In the meantime, both VGMC's press release and its main website have become inaccessible as of earlier today.  Investors must simply take a "wait-and-see" approach until VGMC provides further guidance.

A lively forum debate has emerged here at over the legitimacy of the scheme.