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Recent SEC Releases
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.  

Sunday
Dec182011

SEC Charges Father and Son in $220 Million Ponzi Scheme

The Securities and Exchange Commission ("SEC") obtained an emergency asset freeze and charged a father and son with operating a $220 million Ponzi scheme that ranks as one of the largest schemes uncovered to date.  Wendell Jacobson, 58, and his son Allen R. Jacobson, 33, along with their company Management Solutions, Inc., were charged with violations of multiple federal securities laws, including fraud and the sale of unregistered securities.  The SEC is seeking injunctive relief, disgorgement of ill-gotten profits, civil monetary penalties, and the appointment of a receiver to marshal assets for the benefit of defrauded investors.

According to the SEC, the scheme began in January 2008, and centered around soliciting investment in limited liability companies that directly or indirectly owned and maintained apartment complexes in multiple states. Operating as Management Solutions, investors were told that the company purchased apartment complexes with low occupancy rates at a deep discount.  The complexes were then renovated and resold within five years.  Investors were promised annual returns ranging from 5% to 8%, paid monthly, and assured that their underlying principal investment was safe.  Wendell Jacobson represented to investors that Management Solutions had achieved historic returns of 12% to 15%, and that only one apartment investment had failed to return a profit - in which case Jacobson covered the loss personally so that investor returns would remain unchanged.  Additionally, Management Solutions represented that, even during its worst performing years, investors had still enjoyed annual returns of approximately 13%.  Based on these misrepresentations, the company raised over $200 million from 225 investors.  

The Jacobsons were also members of the Church of Jesus Christ of Latter Day Saints, which the SEC alleges they exploited to solicit additional investors.  However, rather than use investor funds for their stated purpose, investments were almost immediately diverted to one of several collecting accounts, where funds were commingled with other investor funds.  Investor returns were paid from new investor funds - a classic hallmark of a Ponzi scheme.  According to the SEC's complaint, as of December 31, 2010, one of the collecting accounts had outstanding debts to investors and other LLC's of approximately $103 million.  However, the current balance of that account is under $200,000.  

Last month, attorneys for the Jacobsons indicated to the SEC that rescission offers were being made to members of all of the companies under the umbrella of Management Solutions.  Despite the fact that misrepresentations continue to be made in the offers, the Jacobsons cite the ministerial failure to register the investments with the SEC as the reason for rescission.

While the SEC acknowledges the FBI's assistance in the investigation, the Jacobsons have not been charged with any criminal wrongdoing.

A copy of the complaint is here.

Wednesday
Dec142011

Indiana Money Manager Pleads Guilty to $7 Million Ponzi Scheme

A once-prominent Indiana money manager acknowledged that he operated a Ponzi scheme that defrauded investors out of at least $7 million.  Keenan Hauke, 40, pled guilty to a single charge of securities fraud, which carries a maximum prison sentence of twenty-five years and a $250,000 fine.  Authorities were tipped off by a former business associate of Hauke, who had formerly appeared on financial channels including CNBC, appeared in Bloomberg Markets, and penned a regular column for nine years in the Indianapolis Business Journal.  According to the plea agreement between Hauke and prosecutors, the sentencing judge would be prohibited from handing down a sentence exceeding 17 years.

In 1999, Hauke formed a hedge fund, Samex Capital Partners LLC ("Samex"), in which he acted as chief executive officer.  After engaging in dozens of disastrous real estate investments that sustained heavy losses, Hauke generated false account statements listing purported investments and constant returns.  Hauke then split up the fund into two groups - the Brokerage Group and the Real Estate Group.  The fund's legitimate operations were moved into the Brokerage Group, while the ill-performing real estate investments were allocated to the Real Estate Group.  However, instead of engaging in legitimate trading, Hauke used new investor money to pay returns of principal and interest to existing investors.  Hauke also misappropriated investor funds to sustain a lavish lifestyle, including the purchase of a condo in Barbados.

Earlier this year, the Indiana Securities Division filed a civil suit against Hauke accusing him of operating a Ponzi scheme, and obtained the appointment of a receiver to recover assets for the benefit of defrauded investors.  The receiver, William Wendling, says he has recovered approximately $1.6 million for the benefit of investors by seizing Hauke's bank accounts and selling possessions including gold and silver coins.  Additionally, Hauke's Barbados condo may yield up to $400,000 at an upcoming sale.  

Wednesday
Dec142011

Two Utah Men Indicted in "Ponzi Scheme Within Ponzi Scheme"

In what is at least the second instance this year, two Utah men were indicted last week for operating separate Ponzi schemes in which one invested in the other.  Robert L. Holloway, 54, was arrested in San Diego on four counts of wire fraud and one of filing a false tax return in connection with his trading company.  Robert J. Andres, 60, was arrested in Houston and charged with five counts of wire fraud.  Each count of wire fraud carries a maximum sentence of twenty years in federal prison, along with a fine of up to $250,000.

Andres, who claimed to be an attorney, operated Winsome Investment Trust ("Winsome"), which solicited investors to participate in an unnamed commodities pool.  Since at least 2005, Andres and other Winsome employees provided potential investors with a prospectus that contained an overview of the purported trading program and describing it as a joint venture investment.  The program was said to generate historical returns of 2%-10% a day, and investors could reasonably expect a 1% daily return.  "Loss" days were described as "nonexistent," with only one "loss" day having occurred since the program's inception.  Investors were told that the pool funds would be managed by an experienced member of the securities industry who previously managed over 200 people at a brokerage firm and had a seat on the Chicago Mercantile Exchange.  In total, Winsome took in more than $25 million from investors. That "manager" was Holloway.

Holloway operated US Ventures LC ("USV"), which also purported to participate in an unnamed commodity pool, and controlled nine commodity futures trading accounts in the name of USV.  From May 2005 to November 2008, USV took in approximtely $29.3 million from investors - $24.8 million of which was directed from Andres and Winsome.  To conceal their fraud, both USV and Winsome distributed fictitious account statements to investors that depicted steady account gains.  Investors were shown that their accounts were purportedly generating daily average returns ranging from .2729% to .85% - a compound annual return easily exceeding 50%.  Additionally, virtually no losses were shown. 

Instead of generating consistent trading profits, both Andres and Holloway operated Ponzi schemes, using funds from new investors to pay returns to existing investors.  Engaging in trading partly funded by investors of Andres' scheme, Holloway sustained nearly $11 million in losses from February 2005 through March 2007, and withdrew an additional $15.7 million.  The majority of these withdrawals was used to make Ponzi-style payments to existing investors.  Both Holloway and Andres also misappropriated investor funds for personal use, including the financing of Holloway's wife's eBay business and Andres' purchase of an aerospace consulting business.  

A complaint filed against the two entities by the U.S. Commodity Futures Trading Commission ("CFTC") alleges that Andres recently contacted investors under the guise of confirming the amount to be returned to each investor.  If investors indicated that they had given or assisted others in taking legal action against Winsome or Andres, then the return of funds would be delayed and handled by an attorney.  None of these funds were returned.

Both Andres and Holloway are free on bail and required to appear in Salt Lake City for upcoming hearings.  A court-appointed receiver, Wayne Klein, has filed 22 lawsuits in attempts to recover money for defrauded investors, with plans to file an additional 42.  

A copy of a Justice Department press release announcing Holloway's arrest is here.

A copy of a Justice Department press release announcing Andres' arrest is here

A copy of the CFTC Complaint filed against Andres and Winsome Ventures is here.