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Recent SEC Releases
Sunday
Mar242013

New Jersey Man Receives 12-Year Sentence for $7.5 Million Mortgage Fraud Ponzi Scheme

A New Jersey man was sentenced to a 12-year term in state prison for a mortgage refinance Ponzi scheme that duped more than 40 victims out of more than $7 million.  Frederick Tropeano, 47, received the sentence from Monmouth County Superior Court Judge Ronald L. Reisner, who also ordered that Tropeano would be ineligible for parole until mid-2019.  Tropeano previously pled guilty in January to the equivalent of money laundering, which carries a maximum prison sentence of twenty years. In handing down the sentence, Judge Reisner made a downward departure from the 14-year sentence recommended by prosecutors as part of Tropeano's plea agreement.  

Tropeano, through his company Hawthorn Capital Corporation, solicited homeowners to refinance their existing mortgage at a much lower rate, with the understanding that proceeds from the new mortgage would be used to satisfy the original mortgage.  In total, Tropeano raised over $7 million from more than 40 homeowners who thought they were taking steps to reduce their mortgage payments.

However, according to authorities, Tropeano and his conspirators failed to use proceeds from the new mortgages to satisfy the homeowners' existing mortgages.  Instead, they operated the classic Ponzi scheme, using investor funds for unauthorized purposes that included paying personal expenses to support a lavish lifestyle.  Many homeowners were shocked to discovery that their existing mortgage had never been satisfied, often resulting in negative implications on their credit scores.  Additionally, several homeowners had their identity stolen by Tropeano and his associates, who in turn secured additional refinancings unbeknownst to the homeowners.  

Three of Tropeano's co-conspirators previously pled guilty to third-degree conspiracy charges, and are awaiting sentencing.  Tropeano was also ordered to pay nearly $7 million in restitution to his victims.

Friday
Mar222013

Indiana Man Receives 5-Year Prison Sentence For Role in $9 Million Ponzi Scheme

An Indiana man was sentenced to serve over five years in federal prison for his role in a Ponzi scheme that duped victims out of nearly $9 million.  Jerry Smith, 50, was sentenced to serve 65 months in federal prison after previously pleading guilty to one count of conspiracy to commit mail and wire fraud, one count of obstruction of justice, and one count of income tax evasion. The sentence comes after Smith's co-conspirator, Jason Snelling, was sentenced in late-2012 to a nearly-11 year prison term.

Snelling and Smith operated Dunhill Investment Advisers ("Dunhill") and CityFund Advisory ("CityFund") in downtown Cincinnati, where they guaranteed high rates of returns to clients under the guise that the firms were successfully engaging in day-trading.  Investors were promised annual rates of return ranging from ten to fifteen percent, with some investors receiving promises of even higher rates.  Investors were assured that their position would be liquidated to cash at the end of each trading day.  In total, the scheme raised nearly $9 million from seventy-two investors.  

However, the purported day-trading operation was nothing more than a Ponzi scheme in which Snelling and Smith misappropriated investor funds for a variety of unauthorized purposes.  This included making so-called interest payments to investors and supporting a lavish lifestyle that included the purchase of boats, jet skis, plastic surgery, and private school tuition. 

After authorities began looking into Dunhill and CityFund, Smith admitted to fabricating trading statements in an attempt to thwart the investigation.  Smith was also accused of tax evasion for failing to declare the stolen investor funds as income.

Along with his sentence, Smith was ordered to pay $5.4 million in restitution to victims, as well as over $72,000 in restitution to the IRS.  

Wednesday
Mar202013

Former Exorcist/Attorney/Bishop Sentenced to 11-Year Term for Role in $6 Million Ponzi Scheme

A former New York attorney who also claimed to be a trained exorcist and bishop was sentenced to 11 years for his role in a Ponzi scheme that duped investors out of over $6 million.  James Lagona received the sentence from United States District Judge William M. Skretny, who dismissed Lagona's claims that he was unaware of the fraud being perpetrated by the purported scheme mastermind, Guy Gane.  Lagona also made headlines late last year after he offered a "quid pro quo" bargain to prosecutor Wiliam J. Hochul's wife, who was then a candidate for Congress, offering to throw his support behind her in exchange for favorable treatment by her husband at his upcoming sentencing.  Hochul contacted the FBI, and Lagona was subsequently arrested.

Lagona was an employee at Gane's company, Watermark M-One Financial Services ("Watermark").  Potential investors were promised 10% annual returns from waterfront real estate investments, and were provided with 'debentures' evidencing their investment as proof.  However, Gane made no such investments, and instead used investor funds for a variety of unauthorized uses that included Ponzi-style payments to existing investors, personal and business expenses, and cash advances to his children.  

While Gane cut a deal with prosecutors, Lagona maintained his innocence and chose to stand trial with another co-defendant, Ian Gent.  The decision backfired, as Gane testified against the two and a federal jury convicted the men on conspiracy and money laundering charges in February 2011.  Gane was subsequently sentenced to a thirteen-year term in September 2011, and Gent received an eight-year sentence in late 2012. 

A bizarre interview featuring "Bishop" Lagona offering fortune-telling to live callers is available here. According to the bio provided by the site,

Bishop Lagona, an accomplished medium, healer and medical intuitive, has had psychic-mediumistic experiences since his early childhood. He is a Reiki Master/Teacher, and has studied psychism and mediumship, various healing modalities and energy work, crystals, dowsing, and tarot. Bishop Lagona consults with and advises various businesses and corporations on internal policies and concerns, hiring and personnel matters, stock market, Dow Jones Average and foreign currency exchange rate forecasts and predictions. He is available for your private and business consultations.

Not surprisingly, the emphasized claims were removed from 'Bishop' Lagona's bio on his personal website.

Wednesday
Mar202013

Former Sheriff Pleads Guilty to $1.2 Million Ponzi Scheme That Duped Fellow Cops

“If it sounds too good to be true it probably is. People should diligently check out claims of unusually high rates of return before investing. Don’t become a victim of an investment scam,”

- Stephen Boyd, Special Agent in Charge, IRS-Criminal Investigation, Denver Field Office.

A former Denver sheriff's deputy agreed to plead guilty to charges that he operated a Ponzi scheme promising 100% annual returns to fellow law enforcement officers and their families.  David Hawkins, a former El Paso County deputy sheriff, entered into a plea agreement with prosecutors in which he pled guilty to one count of wire fraud and one count of money laundering.  Wire fraud carries a maximum sentence of twenty years in prison, while money laundering carries a maximum ten-year term. Hawkins could also face criminal fines, and will likely be required to pay restitution to his victims.

Hawkins was hired by the El Paso Sheriff's Office in 2001, and soon thereafter was sworn in as a sheriff's deputy.  In or around 2006, Hawkins began attending training courses on how to trade foreign currencies ("forex") in 2006.  Using this knowledge, he began to hold himself out as a sophisticated currency trader, telling colleagues, family, and friends that he had several years of experience in achieving consistent gains - sometimes as high as 62% - from forex trading.  Unbeknownst to his employer, Hawkins told potential investors that an investment in his PD Hawk Investment Fund would yield consistent 10% monthly returns - an annual return of over 100%.  Based on these representations, Hawkins raised more than $1 million from over 70 investors.

However, according to the FBI, "at no time were [Hawkins'] investments ever profitable."  Instead, Hawkins ran the classic Ponzi scheme, using investor funds to repay earlier investors and to make purported interest payments.  Hawkins used investor funds as his personal piggy bank, purchasing multiple automobiles, paying personal expenses, and even buying two semi-professional indoor football franchises in Illinois and Texas.  These teams never became operational, and authorities began investigating after Hawkins abruptly cancelled the 2012 season.  Authorities estimate that total losses to investors exceeded $200,000.  

Hawkins is scheduled to be sentenced on June 7, 2013, at 11:00 a.m.

 

Tuesday
Mar192013

Authorities: Florida Man Ran Ponzi Scheme Touting Pre-IPO Access to Facebook, Groupon Shares

Authorities unveiled civil and criminal charges against a Florida man, accusing him of soliciting over $8 million from investors who thought they were purchasing discounted pre-IPO shares of popular social media companies such as Facebook and LinkedIn.  However, instead of purchasing those shares, Craig L. Berkman, 71, allegedly misappropriated investor funds for his personal benefit and to partially satisfy a previous $28 million fraud-related judgment.  The United States Attorney's Office charged Berkman with two counts of securities fraud and two counts of wire fraud, each of which carry a maximum term of twenty years in prison.  Additionally, the Securities and Exchange Commission instituted administrative proceedings against Berkman, accusing him of violating multiple federal securities laws.

In late 2010, as investors salivated over the prospect of initial public offerings for popular companies such as Facebook, Groupon, and LinkedIn, Berkman began telling potential investors that he had special access to acquire pre-IPO shares.  Berkman solicited investors to invest in various entities he had formed which would purportedly purchase these shares, promising a "5% annual simple interest return on the investment until 100% of [the investor's] principal and accumulated interest has been returned."  Investors were told that Berkman had unique access to a variety of sources to purchase these shares, and that all proceeds would be used for this purpose.  

In February 2012, a potential investor (who also happened to be a securities attorney) requested written assurance that Berkman's fund had already acquired the Facebook shares it purported to own. Berkman had previously obtained a letter from a law firm attesting to his 3.1899% interest in a fund that did own Facebook shares (the "Facebook Fund") - an interest which in actuality would have equated to an indirect interest in approximately 22,000 shares.  However, Berkman or one of Berkman's associates used the letter to craft an elaborate forgery, altering the letter to show that the Facebook Fund had allocated nearly 500,000 shares to Berkman's the company.  

However, the law firm that authored the letter soon got wind of the fabrication, and wrote Berkman to advise him that his interest in the Facebook Fund had been terminated, and that his "misconduct is consistent with a general pattern of deceit." While Berkman's lawyer, who was also charged by the SEC, threatened legal action against the law firm, none such legal action was taken, and Berkman's interest in the Facebook Fund was terminated.

In total, Berkman raised nearly $10 million from investors who thought they were purchasing highly-coveted pre-IPO shares.  Additionally, Berkman also solicited investments for another company he owned called Face Off Acquisitions ("Face Off"), telling investors he planned to purchase another fund that owned a large number of Facebook shares.  Investors contributed approximately $2.6 million to Face Off, despite the fact that negotiations to purchase the fund never got past formalities.  Indeed, Berkman was advised that the fund's purchase price would be $28 million - an amount that was not disclosed to investors and which greatly exceeded the amount raised by Face Off.

Rather than actually purchase pre-IPO shares of Facebook, Groupon, or LinkedIn, the only legitimate purchase made by Berkman was the $600,000 interest in the Facebook Fund, which was later rescinded after the forged letter was discovered by the issuing law firm.  Berkman misappropriated the remainder of investor funds, transferring over $5 million to his personal bank account to pay legal fees and creditors from an earlier fraud judgment entered against him, as well as making large cash withdrawals to fund lavish trips and other unrelated personal expenses.  Additionally, Berkman used nearly $5 million to make payments to earlier investors, a classic hallmark of a Ponzi scheme.  

If convicted of all charges, Berkman faces up to 80 years in prison.

A copy of the SEC Order instituting administrative proceedings is here.