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Recent SEC Releases
Sunday
Apr212013

Utah Man Pleads Guilty To Running Two Separate Ponzi Schemes

A Utah man agreed to plead guilty for his involvement in two separate Ponzi schemes - while on parole for a previous conviction for a third Ponzi scheme - that took in more than $30 million from investors.  Wayne Ogden, of Koosharem, Utah, was convicted earlier this year for his role in one of the Ponzi schemes, and in a deal with authorities, agreed to plead guilty to one count of wire fraud and one count of securities fraud in exchange for a recommended 10-year sentence to be served concurrently in both cases.  As part of the deal, Ogden will also agree to an order of restitution exceeding $3 million for each scheme.

Ogden was originally indicted in December 2007 for running a real estate Ponzi scheme in Kiowa, Colorado, where investors were promised returns as high as 100% from the development of a 360-acre parcel of land.  However, while awaiting trial on those charges, Ogden was charged with concocting a separate Ponzi scheme that solicited underwater homeowners to provide assistance with refinancing and restructuring mortgages.  Ogden's company, Paradigm Acceptance LLC ("Paradigm"), promised short-term returns ranging from 20% to 100%, assuring investors their money was secured by property.  In total, Paradigm raised more than $29 million from investors.

However, each venture was nothing more than an elaborate Ponzi scheme where new investor funds were used to pay older investors, thus creating the appearance of a successful operation.  Of the $29 million Ogden raised from Paradigm investors, nearly $23 million was paid back to older investors, and nearly $2 million was paid in salaries to Ogden and his brother.  

Not surprisingly, at the time Ogden began soliciting investors for his first scheme, he was on parole for a $7 million Ponzi scheme he operated from 1995 to 1997 that ultimately netted him a 15-year prison sentence.  However, he was paroled after just 28 months, 

Ogden was convicted of yet another similar scheme during the mid-1990's when five hundred investors lost approximately $7 million.  He was sentenced to two consecutive terms of up to fifteen years, but was paroled after serving 28 months. 

Thursday
Apr182013

Judge Denies Former Senator's Claim in Rothstein Ponzi Scheme

A Florida bankruptcy judge has ruled that a former New York senator did not have a valid claim to participate in the claims process for victims of Scott Rothstein's $1.4 billion Ponzi scheme.  Alfonse M. D'Amato, a New York senator from 1981 to 1999, had invested $1 million with a fund that invested heavily with Rothstein.  United States Bankruptcy Judge Raymond Ray agreed with the court-appointed trustee, Herbert Stettin, that D'Amato's claim was "duplicative" and that he lacked standing to participate in the claims process established for investors that invested directly with Rothstein.

D'Amato originally invested $1 million with the Banyan Income Fund ("Banyan Fund"), which had invested over $775 million with Rothstein as its largest investor.  Banyan solicited investors for Rothstein's "employee settlement financing", touting the investment as a lucrative "niche market" that "lacks visibility due to confidentiality issues."  The Banyan Fund later was pushed into bankruptcy, and the co-founders, George Levin and Frank Preve, were later charged by the Securities and Exchange Commission for multiple violations of federal securities laws relating to their solicitation of investors for Rothstein's fraud.  Levin also previously agreed to surrender the bulk of his estimated $100 to $200 million in assets to the Rothstein bankruptcy estate.  

Stettin objected to D'Amato's claim, arguing that D'Amato did not make any 'investments' with Rothstein, but rather with Banyan Fund.  This logic flows from recent court decisions involving investors in feeder funds of Bernard Madoff's massive Ponzi scheme, where those 'indirect' investors were not permitted to recover from the bankruptcy estate because they were not customers of Madoff.  A recent Second Circuit Court of Appeals case cited several factors in support of this logic, including that the indirect investors:

  • Had no direct relationship or accounts with the firm;
  • Were not identified in the firm's books and record;
  • Had no property interest in the assets invested by the feeder fund; and
  • Lacked control over the feeder fund's investments.

Thus, because D'Amato had already filed a claim in the Banyan Fund bankruptcy, Stettin argued that the claim in the Rothstein bankruptcy was duplicative and, ultimately, unwarranted.  D'Amato never filed a response to Stettin's objection. 

Stettin has recently proposed a distribution plan that he believes could fully compensate investors for their losses.

A copy of Stettin's objection is here.

A copy of the Order sustaining the objection is here.

Tuesday
Apr162013

Oregon Hedge Fund Manager Pleads Guilty to $37 Million Ponzi Scheme

An Oregon hedge-fund manager has agreed to plead guilty to charges he raised as much as $50 million from investors in a massive Ponzi scheme.  Yusaf Jawed, of Portland, Oregon, pled guilty to seventeen counts of mail fraud and wire fraud in an agreement with prosecutors that will result in a recommended sentence of 6.5 years in prison.  While Jawed at one point claimed he managed more than $60 million, the deal calls for Jawed to repay just over $6 million to 10 investors taken from February 2008 and September 2009.  

Jawed operated Grifphon Asset Management, LLC ("GAM") and Grifphon Holdings, LLC ("GH"), which served as the advisers to numerous hedge funds created and managed by Jawed, including Gripfhon Alpha Fund, L.P. ("Alpha") and Grifphon Iota Fund, L.P.  Investors were told through private placement memoranda that the funds experienced annual returns ranging from 12.8% to 132.5% from 2002-2008 through an investment strategy comprised of holdings in publicly-traded securities, private equities, biotech companies, foreign currencies, and commodities.  Investors were supplied with account statements and tax returns that purported to show constant profits in investor accounts, and were assured that their funds would be held at prominent institutions such as Lehman Brothers and UBS.  In total, Jawed raised at least $37 million from over 100 investors all over the United States.

However, little, if any, of the claims made to investors were true.  According to authorities, Jawed misappropriated millions of dollars in investor funds for his personal use, which included luxury vacations, lavish meals, and the payment of nearly $60,000 to settle a sexual harassment lawsuit.  Additionally, Jawed used investor funds as the source of fictitious interest payments designed to lend an aura of legitimacy to the scheme. 

When the scheme appeared on the verge of collapse in 2008, Jawed hatched a scheme with the help of Robert Custis, an attorney.  The two began telling investors that a third party would soon purchase the funds' assets, and investors would soon be reimbursed for their investment at a healthy profit.  This pattern of deception lasted an additional two years with the use of various excuses such as the time zone difference of the banks, "dotting I's and crossing T's," and confidentiality problems.  However, this third-party purchaser was none other than an entity created and controlled by Jawed.  For his role in the scheme, Custis was also charged by the SEC.

As part of his plea agreement, Jawed is also expected to cooperate with a lawsuit brought by investors against Grifphon's former accounting and law firms.  A positive outcome in the lawsuit could be investors' best chance of any recovery, as a federal court previously found that Jawed was penniless, throwing into question whether the restitution obligation is anything more than symbolic.  

A copy of the SEC's complaint is here.
Tuesday
Apr162013

Former College Football Coach Indicted in $80 Million Ponzi Scheme

Federal authorities unveiled criminal charges against the former University of Georgia football coach, alleging he scammed dozens of investors, including fellow coaches and former players, out of more than $80 million.  Jim Donnan, of Athens, Georgia, was charged in an eighty-five count indictment that also named his former business partner, Gregory L. Crabtree.  The criminal charges come less than a year after the U.S. Securities and Exchange Commission ("SEC") filed civil charges against the men.  Both men were released on $25,000 bond, and ordered to restrict their travel plans and surrender their passports.

Donnan and Crabtree operated GLC Limited ("GLC"), also known as Global Liquidation Center, which was formed in 2004 and purported to be in the wholesale liquidation business.  Beginning in 2007, the men solicited potential investors, promising short-term returns ranging from 50% to 200% from the purchase and resale of discontinued or damaged merchandise acquired from major retailers at a discount, which ranged from out-of-season toys, patio furniture, or holiday decorations.  Donnan was in charge of attracting investors, using his contacts from his previous tenure as head football coach of the University of Georgia to recruit fellow coaches and former players.  In total, nearly 100 investors contributed over $80 million to the scheme.   

However, out of the $80 million raised from investors, slightly more than 10% was used to purchase merchandise for resale, and the company booked less than $6 million in total sales.  The remainder, or nearly $64 million, was used to make payments of purported interest and principal redemptions to investors.  Crabtree and Donnan also misappropriated millions of dollars of investor funds, with Crabtree profiting by approximately $1.6 million and Donnan taking home more than $13 million on an initial $4.7 million investment.  Donnan's family is also said to have profited by over $1 million from the scheme.  When GLC began falling behind on interest payments, a group of investors obtained the appointment of a Restructuring Officer, who discovered the fraud and, in February 2011, caused GLC to file a voluntary bankruptcy petition.  Donnan and his wife also filed for personal bankruptcy following increasing claims from GLC victims.

According to Donnan's attorney, the failed business venture wiped Donnan out financially, but maintained that "there is no criminal intention here."  

Donnan enjoyed a storied career in college football, leading Marshall to a national championship and later being inducted to the College Football Hall of Fame.  

Monday
Apr152013

Indian Regulators Warn Public of Goat-Raising Ponzi Scheme

Indian regulators have issued an alert to residents warning of a Ponzi scheme that promises lucrative returns in echange for investing in a goat-rearing venture.  Citizens of the Jammu and Kashmir province, the northermost state in India, were advised to steer clear of the Sheep Husbandry Department, which is advertising 2% monthly returns from an investment in goat-rearing farms. Ironically, the scheme comes just months after investors were warned of a similar scam also seeking investors for goat-rearing farms.

According to the Securities and Exchange Board of India ("SEBI"), Sheep Husbandry Department ("SHD") has solicited investments from the public basd on claims that its goat-rearing farms could double investors' money in 3-4 years by offering 2% monthly returns.   SEBI has opened an investigation, with details about the number of affected investors or estimated losses unavailable.

SEBI warned investors about a similar scheme in November 2012, opening an investigation into the Beetal Livestock & Farm (P) Ltd ("Beetal").  Beetal took out advertisements in local newspapers to solicit potential investors, who were told that they also could double their money in several years by offering consistent monthly returns.  For example, with an initial investment of several thousand rupees, an investor would purchase a goat.  Investors were told that an average goat had four kids per year, which offered the possibility of exponential returns through subsequent births by those offspring in later years.  The masterminds of Beetal did not cooperate with investigators, and are suspected to be on the lam.  

Surprisingly, such schemes are not uncommon in India, where unconventional investments such as livestock or farm animals have been the subject of similar schemes.  For example, a Ponzi scheme centered around raising emus recently collapsed, with thousands of investors facing up to $50 million in losses.  There, a company known as Susi Emu Farms ("Susi") promised investors a steady stream of income in return for raising an Emu chick.  After two years, investors were given the chance to "exchange" their two-year old Emu for another Emu chick.  A VIP program soon followed, in which investors could receive a similar return while Susi took on the obligation of raising the emu.  Word quickly spread of the dependability of the promised returns, and an advertising campaign headlined by popular Indian film stars quickly made Susi a household name.  The operation soon spread throughout India, gaining thousands of investors. When the scheme collapsed, total losses were estimated to be as high as $50 million.