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Recent SEC Releases
Thursday
Jan172013

70-Year Old Accountant Gets 3-Year Sentence For $6 Million Ponzi Scheme

A 70-year old former accountant who devised a $6 million Ponzi scheme to cover losses from a separate business venture was sentenced to a three-year prison term.  Alan Ritter, 70, of Monsey, New York, learned of his sentence from United States District Judge Paul A. Crotty, who also sentenced Ritter to serve three years of probation after his release from prison.  Ritter previously pled guilty in September 2012 to three counts of wire fraud, and could have faced a maximum of sixty years in prison.

According to authorities, the scheme began in 2001, when Ritter lost more than $500,000 in a separate and unrelated business venture.  Ritter decided that he would make up the losses by soliciting friends and clients for what he described as investments in real estate ventures.  This continued for over eleven years, and Ritter eventually took in more than $6 million from investors.  However, rather than use the money as he promised, Ritter instead misappropriated investor funds for a variety of purposes, including making Ponzi-style payments and paying his own personal expenses.  

Ritter was also ordered to pay restitution to his victims, although his attorney has previously indicated that Ritter is broke.  

Wednesday
Jan162013

Stanford Victims Set To Receive 1% Of Losses In First Distribution

Nearly three years after the Securities and Exchange Commission filed an emergency enforcement action accusing R. Allen Stanford of masterminding the second-largest Ponzi scheme in history, the Receiver appointed to recover assets for victims has proposed a distribution plan that envisions an initial payout of approximately 1% of victims' approved losses.  Ralph Janvey, the court-appointed receiver, filed his Motion for Approval of Interim Distribution Plan (the "Motion") last week, seeking court approval for an initial $55 million payment to victims on a pro rata basis.  Based on total claims received thus far of of $5.13 billion, the proposed payout would amount to an initial distribution of approximately 1% of each investor's loss.

In November 2011, Janvey began the process of returning money to victims by seeking court approval of a proposed claims process.  While the motion did not elaborate on victims' expected return, a status report filed by Janvey indicated that the Receivership had over $100 million on hand and estimated future asset recoveries could exceed $1 billion.  The court approved the proposed claims process in May 2012, and established September 1, 2012 as the deadline by which victims had to submit proof of claim forms detailing their losses.  

Janvey and his team received a total of 30,289 claims.  Of that amount, nearly one-third were determined to be duplicative, and nearly 400 were submitted past the deadline and thus not eligible for consideration. Of the remaining 20,673 claims, 18,400 came from investors in Stanford's CD's, while the other 2,273 claims represented non-investor claims.  Approximately 17,000 investor claims have been approved for a total aggregate claim amount of $4.237 billion, while nearly 1,000 claims remain unresolved due to outstanding requests by Janvey for further documentation or information.  In total, investor losses were estimated at $5,131,224,932.65.

Under the proposed plan, the first distribution would go out within 90 days after court approval.  Only CD investors would be eligible to receive a distribution, with other claimants such as secured and general creditors precluded from participating.  However, before any payments would be sent out, the Receiver is proposing that victims first complete and return a certification as to whether they have applied for or received any compensation for their losses from any sources other than the Receivership.  If so, the Receiver intends to reduce payments to those investors to the extent those recoveries exceed any proposed distribution(s).  As those certifications are returned, the Receiver proposes to make rolling distributions.  

Since its inception, the Stanford receivership has been tasked with the difficult job of sorting through Stanford's international fraud, which included disagreements with foreign regulators concerning jurisdiction over tainted assets, disputes with various creditor groups, and even an investigation by the SEC over Janvey's fees.  Janvey also filed over $200 million in clawback lawsuits seeking false profits from those investors fortunate enough to benefit from their investment.  

A copy of the Motion is here.

Monday
Jan142013

Former Lawyer Receives 10-Year Sentence For $7.8 Million Ponzi Scheme

In a courtroom packed with victims wearing a red ribbon to show solidarity, a former Houston lawyer who admitted to masterminding a real-estate Ponzi scheme that duped investors out of nearly $8 million was sentenced to serve ten years in federal prison.  Billy Frank Davis, 68, received the sentence from United States District Court Judge David Hittner, who took the unusual step of making an upward departure from the recommended range computed using federal sentencing guidelines.  Davis had previously agreed to a plea deal last year with prosecutors in which he pled guilty to a single count of wire fraud, which carries a statutory maximum term of twenty years. 

According to authorities, Davis held himself out as a successful real estate investor, telling potential investors that he could generate market-beating returns with little to no risk.  Davis was well-known at several Houston-area golf courses, where he frequently solicited investors and touted his investing prowess.  Man were convinced of the scheme's legitimacy after scheduled interest payments were made without a hitch for over a decade.  In total, more than 20 investors contributed millions of dollars.  

While Davis used a small portion of investor funds for legitimate investment activity, the majority was used to perpetrate a classic Ponzi scheme by using newly-invested funds to pay returns to older investors. Davis also misappropriated funds to sustain his lavish lifestyle.  Authorities pegged total victim losses at nearly $8 million.

Following the completion of his sentence, Davis must serve three years of supervised release.  He was also ordered to pay $7.8 million in restitution to his victims.

Monday
Jan142013

Two South Florida Cops Suspended For Rothstein Ties Amid Criminal Probe

A newly-installed south Florida sheriff made one of his first priorities the suspension of two deputies connected to Scott Rothstein's $1.4 billion Ponzi scheme, including one that unwittingly provided Rothstein a personal escort to a private plane on the eve of the scheme's collapse.  Lt. David Benjamin and Detective Jeff Poole, both employees of the Broward County Sheriff's Office, were suspended last week with pay by Sheriff Scott Israel after the disclosure that the men were "under criminal investigation by an outside agency." During his high-flying days, Rothstein regularly hired Fort Lauderdale police officers for personal protection, including round-the-clock patrols at his residence.     

While little is known of Detective Poole's relationship with Rothstein, it was Lt. Benjamin who Rothstein contacted in mid-October 2009 for a police escort to a waiting plane bound for Morocco.  However, little did Lt. Benjamin know that this 'business trip' came as Rothstein's Ponzi scheme was on the verge of collapse after missing scheduled investor payments. As detailed in Chuck Malkus's upcoming Rothstein tell-all, the trip's destination was far from random - instead the result of a seemingly-innocuous research project posed by Rothstein to his fellow lawyers just days prior asking which country(ies) did not have an extradition treaty with both Israel and the U.S.  

When Rothstein boarded the plane, he not only had a duffel bag containing at least $2 million and a collection of expensive watches, but had already wired at least $15 million to a Moroccan bank account. In exchange for his services, Rothstein allegedly gave Benjamin one of these watches - a high-priced Swiss timepiece.  Benjamin later agreed to return the watch, along with $30,000 in payments from Rothstein for various protection services, to the court-appointed bankruptcy trustee.

It remains unclear exactly what conduct the men are being investigated for, though it has long been rumored that Rothstein had extensive connections with law enforcement.  The speculation even prompted the publishing of an anonymous e-book purporting to shed light on rampant corruption in the sheriff's office, including the Rothstein connection.

Monday
Jan142013

Former Pastor Pleads Guilty in $2.5 Million Ponzi Scheme

A South Carolina man who once served as pastor of a local church has entered into a plea agreement with prosecutors to charges that he operated a commodities-based Ponzi scheme that bilked investors - some his former congregants - out of over $2.5 million.  Archie Larue Evans, 42, agreed to plead guilty to one charge of mail fraud and one charge of structuring financial transactions to avoid federal scrutiny.  In return, prosecutors agreed not to pursue an additional seven counts of mail fraud and five counts of money laundering.  The charges carry a combined statutory maximum of twenty-five years in prison, although federal sentencing guidelines will likely result in a lesser recommended range.

Evans was a farmer and former pastor at the Tilley Swamp Baptist Church ("Tilley Church") in Conway, South Carolina.  In addition, beginning in 2004, Evans also operated Gold & Silver LLC ("Gold & Silver"), which purported to invest in silver futures markets and offered quarterly returns ranging from 10% - 12%. Investors, some of whom included members of Tilley Church, were provided with regular account statements purporting to show regular account gains.

However, in reality, Evans misappropriated investor funds as he ran the classic Ponzi scheme.  Rather than achieve the exorbitant rates of return he represented to investors, he instead used funds for personal expenses, to make interest payments to investors, and suffered trading losses on the funds actually invested.  At the time Evans was indicted in late 2011, his seized bank accounts showed a balance of just $1,919.86.

Authorities also discovered Evans' ownership of two non-profit agencies apparently used to spread the message against homosexuality.  One of the non-profits, Pale Productions, apparently published a book entitled "Nature's Pairs: The Demise of Homosexuality," which featured Evans' 'indisputable' evidence against homosexuality.  According to this order form, the book appears to have been published while Evans operated the scheme, raising the possibility that investor funds may have been diverted to the venture.

Evans remains free on $25,000 bond pending sentencing.