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Recent SEC Releases
Monday
Oct082012

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.  

Thursday
Oct042012

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.   

Wednesday
Oct032012

'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 Panamaforum.com over the legitimacy of the scheme.

Tuesday
Oct022012

Prosecutors Unveil New Charges Against Five Long-Time Madoff Employees, Say Scheme Began in 1970's

Prosecutors unveiled criminal charges against five long-time employees of Bernard Madoff, alleging that they played a pivotal role in Madoff's $65 billion Ponzi scheme that spanned nearly four decades - two decades longer than previously admitted by Madoff.  A superseding 33-count indictment was filed against Madoff's former operations director Daniel Bonventre, back office employees Annette Bongiorno and Joann Crupi and former computer programmers Jerome O'Hara and George Perez.  The indictment added charges from the original November 2010 indictment, and also dated the conspiracy back to at least the early 1970s.  United States District Court Judge Laura Taylor Swain set a trial date for the accused for October 2013.  

According to the 153-page indictment, each of the five defendants had worked for Madoff for at least twenty-five years, with Bonventre and Bongiorno having served at Bernard L. Madoff Investment Services ("BLMIS") since 1968.  While Madoff had originally claimed that he alone had been responsible for perpetrating the massive fraud, authorities doubted those claims due to the sheer size of operations.  

Each played an active role for years in helping Madoff cover up the fraud.  This included the development of computer programs by O'Hara and Perez that contained fraudulent information designed to generate fictitious reports and evade suspicion from regulators. Bonventre allegedly falsified financial statements and other documents in order to obtain hundreds of millions of dollars in loans from financial institutions, as well as arranging for his son to obtain a "no-show" job by providing false information to the Department of Labor.  Bongirono and Crupi managed hundreds of accounts on the investment advisory side of the business, "executing" backdated trades in this accounts on paper only to achieve rates of return pre-determined by Madoff.  

Additionally, the indictment provides a new glimpse into the days leading up to the shocking discovery that Madoff had been orchestrating the largest Ponzi scheme in history.  In early November 2008, approximately a month before Madoff came clean to his two sons, Crupi prepared a report revealing that the amount of outstanding investor redemption requests outnumbered available cash on hand by a factor of three.  After Bonventre became aware of this he contacted a financial institution seeking a $200 million loan that would be collateralized by federal bonds held by a Madoff investor.  While this succeeded in allowing the scheme to continue several more weeks, during which time it would take in nearly $50 million more from new investors, it became clear in early December that the scheme was out of time.  Crupi then began rehearsing her story for law enforcement officials, and prepared $300 million in checks to be sent out to select clients.  

Including Madoff, eight people have pled guilty to various criminal charges for their role in the scheme since its discovery in December 2008.  It is expected that several of those participants may testify at trial should any of the five defendants decide not to plead guilty.

A copy of the indictment is here.

Tuesday
Oct022012

Judge Denies TD Bank's Effort to Overturn $67 Million Rothstein Verdict; Appeal Likely

A Miami federal judge denied efforts by TD Bank to obtain a new trial following a $67 million verdict in favor of a victim of Scott Rothstein's $1.2 billion Ponzi scheme.  United States District Court Judge Martha G. Cooke denied TD Bank's motion for judgment as a matter of law and motion for a new trial, finding that the evidence "adequately supported the award," and noting that the bank was sufficiently able to pay the award considering its 2011 net worth of $28 billion.  TD Bank had previously indicated that it intended to appeal the verdict, and the next step would be an appeal to the Eleventh Circuit Court of Appeals in Atlanta, Georgia.

After Rothstein's scheme came to light, one of its victims, Coquina Investments, filed suit against TD Bank alleging that the bank aided and abetted Rothstein's scheme by ignoring multiple red flags related to Rothstein's operations and issuing bogus documents to Rothstein victims bolstering the scheme's legitimacy.  After a trial late last year, a federal jury took only four hours to deliver a $67 million verdict against TD Bank - including $35 million in punitive damages.  

Following the jury's verdict, Coquina's attorney uncovered evidence that TD Bank and its attorneys, high-powered law firm Greenberg Traurig, either altered or withheld key documents during trial that could have potentially led to a higher verdict.  Judge Cooke found the omissions "simply incredible" and imposed sanctions against TD Bank and Greenberg Traurig.  Coquina later sought $500,000 in attorneys' fees and costs it allegedly sustained as a result of the sanctionable conduct.  That motion remains outstanding.

Before the conduct warranting sanctions was discovered, TD Bank filed motions with the court seeking judgment in its favor or, in the alternative, a new trial.  TD Bank made numerous arguments in support, including that Coquina had failed to prove its damages, the verdict was unsupported by the evidence, and that some jury instructions were flawed.  In a 38-page order, Judge Cooke analyzed and dismissed each argument.  Finding that the jury was entitled to make its verdict based on the "reprehensible" conduct of several TD Bank employees, and that the punitive damages awarded served to punish different conduct and were not duplicative, Judge Cooke denied all of TD Bank's requested relief.

While the bank indicated in a previous settlement with another Rothstein victim that it sought to "put this matter behind us," comments made after the Coquina verdict suggested that an appeal to the Eleventh Circuit was likely.  

A copy of Judge Cooke's order is here.