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Recent SEC Releases
Tuesday
Oct302012

California Man Charged With $49 Million Ponzi Scheme

Federal authorities arrested a California man of Pakistani descent on charges that he masterminded an investment scheme that raised nearly $50 million from investors.  Syed Qaisar Madad, 65, a Pakistani native with Canadian citizenship living in the US as a lawful permanent alien, was charged in a sixteen-count indictment that included twelve counts of wire fraud, one count of making a false statement to a government agency and three counts of subscribing to a false tax return.  If convicted of all charges, he faces a statutory maximum of up to 260 years in federal prison.  

Madad was the CEO and co-owner of Technology for Telecommunication and Multimedia, Inc. ("TTM"). While details remain scarce as to the government's allegations due to the indictment remaining sealed, a January 2010 article from Pakistanlink.org provides a glimpse into Madad's life.  Portraying Madad as the "zenith of the American dream," the article paints a rags-to-riches story of a man who completed two Masters degrees in five semesters who spent over 25 years working in the oil and gas industry.  After he left the oil and gas industry, Madad founded TTM in 1993, which claimed to be in the business of securing large orders for the supply of equipment to a video-conferencing company in Massachusetts.  However, in a move that likely marks the beginning of his alleged scheme, TTM then transitioned to a primary focus on investments and trading in 1999.  According to the article,

Exploring and developing oil and gas fields involves operation and investment risks that require an educated, calculated estimate regarding available reserves. And as an added buffer to the speculative nature of the business, Madad’s engineering background was very useful in predicting market movement with chart and trend analysis.

Madad stated that his investment strategy centered around both beginning and ending the trading day with 100% cash.  Putting an emphasis on preservation of capital, Madad purported to first begin the day monitoring trends from European markets to determine how US markets will react when they open several hours later.  Despite never investing more than 10% to 15% of his cash in the market at any given point, Madad claimed to achieve extraordinary returns that regularly exceeded 30% and some years approached 65%.  

Now, according to authorities, Madad's purported investment prowess was nothing more than an elaborate Ponzi scheme, using money from new investors to pay fictitious returns to existing investors.  The scheme is estimated to have taken in nearly $50 million, and authorities have preliminarily pegged investor losses at $32 million due to trading losses and personal expenses including gambling.  Madad also allegedly provided the FBI with fraudulent documents supposedly representing brokerage statements for UBS accounts in Switzerland.  Madad is also accused of hiding income and benefits he received from TTM since 2007.  

A copy of the PakistanLink article is here.

Saturday
Oct272012

Admitted Ponzi Schemer Claims Innocence, Says Attorney Coerced Him To Plead Guilty

After pleading guilty five years ago to masterminding a $29 million Ponzi scheme, a 76-year old Pennsylvania man now wants a federal judge to allow him to stand trial on claims that his now-deceased defense attorney "coerced" him to plead guilty when, in fact, he was not.  Wesley A. Snyder, serving a 12-year prison sentence after pleading guilty to a single charge of mail fraud in 2007, appeared before United States District Court Judge Yvette Kane yesterday, claiming now that he never intended to defraud any of his 800+ victims.  Instead, he claimed, his representations to the contrary in his plea agreement were made at the direction of his then-lawyer.

Snyder operated Personal Financial Management, which offered "wrap mortgage" and "equity slide down" mortgages to consumers.  These types of mortgages typically featured a consumer who borrowed more money than necessary to mortgage or refinance their homes, with the understanding that the excess funds would be invested with the goal of reducing their interest rate and/or paying the loan off earlier than scheduled.  

However, investors were later shocked to discover that not only had Snyder failed to invest their excess funds as promised, but that they were on the hook for the large mortgages originally taken out.  When Snyders' companies ceased operations in 2007, the difference between the amount of funds purportedly paid to mortgage lenders and the actual amount was over $36 million.  Rather than make the promised mortgage payments, Snyder used a majority of investor funds to pay company operating expenses and hide millions of dollars in company losses.  

After he was arrested, Snyder enlisted the services of criminal defense lawyer Emmanuel H. Dimitriou. Snyder ended up pleading guilty to a single count of mail fraud, which carried a maximum sentence of twenty years in prison.  In 2008, Judge Kane handed down a 12-year sentence to Snyder.  

Now, Snyder claims in a 30-page filing that Dimitriou (who is since deceased) pressured him to plead guilty, telling him he could face up to 800 years in prison - one year for every victim.  Despite agreeing that the plea agreement was "completely correct" at his sentencing, Snyder now claims that at least 22 of those facts are incorrect.  Despite these apparent errors, Snyder claims that Dimitriou "badgered" him to respond to Judge Kane's questions in the affirmative.  Additionally, Snyder claims that Dimitriou's judgment was impaired due to medication Dimitriou was taking for cancer.  Had Dimitriou reviewed the allegations with Snyder, which Snyder claims never happened, Snyder alleges he would have chosen to go to trial.  

Snyder's prosecutor has opposed the claims, noting that Snyder was repeatedly advised of his rights, asked whether he had had a chance to review the allegations with his attorney, and asked whether he was entering into the plea agreement on his own free will.  Each time, noted the prosecutor, Snyder answered yes.  Additionally, Dimitriou's son-in-law and former law partner joined the prosecutor in opposing Snyder, noting that while Snyder may not have originally had criminal intent, the scheme's spiraling out of control certainly ended with criminal intent.  

Both sides will now submit written briefings based on Friday's hearing.  

Friday
Oct262012

Massive $384 Million Ponzi Scheme Busted in China

Arrest warrants have been issued for three Chinese men who allegedly operated a massive Ponzi scheme featuring online stock and feared to have swindled more than 200,000 Chinese citizens out of approximately $384 million.  Police have arrested several members of the scam allegedly masterminded by a Chinese man named Yun (Many Chinese go by only their surname), who remains the only suspect still on the lam.  The scheme operated through a website, Hootoot660, that was based in the United States.  Instances of widescale financial fraud are relatively rare in China, due in part to a booming economy and a government that seeks to tightly control the spread of unfavorable or harmful news.  

According to authorities, Hootoot660 offered investors the chance to achieve lucrative returns through the purchase of an online stock called Guquan that was purported to never drop in value.  After paying a membership fee to join, members could then further increase their returns by receiving commissions for recruiting new members to the scheme.  However, according to police, there was no "online stock" known as Guquan.  Instead, Hootoot660 used incoming investor funds to pay returns to existing investors - a classic Ponzi scheme.  The scheme is estimated to have taken in nearly $400 million from over 200,000 victims.  

Police arrested the scheme's co-founder, Pang, earlier this year, along with another co-conspirator. Details remain forthcoming.

Wednesday
Oct242012

Charged by CFTC in 2009, Authorities Now Unveil Criminal Charges Against Las Vegas Man Accused In $15 Million Ponzi Scheme

A Las Vegas man who curiously managed to avoid criminal charges despite having a $42 million civil judgment entered against him for a $14 million Ponzi scheme has seen his luck run out, as federal authorities filed criminal charges relating to the scheme earlier this month.  Gordon Driver, 54, was arrested October 9th and charged with two counts of mail fraud, nine counts of wire fraud, two counts of commodity pool operator fraud, and three counts of making false statements to the Securities and Exchange Commission.  If convicted of all charges, he faces up to 275 years in federal prison.

Driver was originally the subject of an enforcement proceeding brought by the Commodity Futures Trading Commission ("CFTC") in May 2009, alleging that Driver bilked investors out of millions of dollars by promising above-average returns purportedly achieved through trading commodity futures.  Driver was the sole owner and principal of Axcess Automation, LLC (“Axcess Automation”) and Axcess Fund Management LLC (“Axcess Management”).  Beginning in February 2006, Driver solicited investors, telling them he had developed proprietary trading software to trade E-Mini S&P 500 futures that had achieved average weekly trading returns of 1% to 5%.  Investors believed Driver, and ultimately approximately 100 investors contributed over $14 million to the venture.  

However, Driver was not nearly as successful as his alleged trading record suggested.  Not only did Driver invest less than $4 million of investor funds, but he experienced $3.5 million in trading losses - a realized loss of 94%.  Rather than achieving regular monthly returns of 1% to 5%, Driver had profitable trading months only twice, in March and May 2009, and when the CFTC obtained an emergency asset freeze, only $77,592 remained in Driver's accounts.  

The CFTC enforcement action featured celebrity attorney Mark Geragos as Driver's counsel until his withdrawal just before Driver was ordered to to pay restitution of $9,562,488.00 and civil monetary penalties of $31,800,000.00 by July 22, 2012.  

Despite being successfully prosecuted by civil regulatory authorities for masterminding a massive Ponzi scheme, any intervention by criminal authorities remained conspicuously absent.  In a Forbes article I authored earlier this summer pondering this same question, I noted that "while the CFTC outlined allegations in its complaint that could form the basis of mail and/or wire fraud, the five-year statute of limitations continues to tick." Among the criminal charges Driver now faces are two counts of wire fraud and nine counts of mail fraud.  

Also noteworthy is the decision to charge Driver with three counts of making false statements to the Securities and Exchange Commission.  Authorities rarely bring this charge against those accused of Ponzi schemes, with the only known exception to be Laura Pendergast-Holt, the former chief investment officer under Allen Stanford's massive $7 billion Ponzi scheme who received a three-year prison sentence after pleading guilty to obstructing an SEC investigation.  Driver was presumably charged under 18 U.S.C. 1001, which forbids making any false or fraudulent statement in "any matter within the jurisdiction of the executive, legislative, or judicial branch" of the U.S. government.  Each charge carries a maximum sentence of up to five years in federal prison.

Driver was scheduled to be arraigned this week.  

A copy of the CFTC’s Complaint is here.

A copy of the Final Judgment is here.

Tuesday
Oct232012

Ohio Man Receives 131-Month Sentence For $8.9 Million Ponzi Scheme

A Cincinnati man was sentenced to serve nearly 11 years in federal prison for his role in operating a Ponzi scheme that took in nearly $9 million from victims.  Jason Snelling, 48, received the sentence from United States District Judge Herman Weber, who also ordered Snelling to pay $5 million in restitution to his victims.  Snelling, along with co-conspirator Jerry Smith, pled guilty earlier this summer to three counts of conspiracy, obstruction, and tax evasion, and faced up to forty-five years in prison.

Snelling and Smith operated Dunhill Investment Advisers and CityFund Advisory in downtown Cincinnati, where they guaranteed high rates of returns to clients under the guise that the firms were successfully engaging in day-trading.  The two offered guaranteed rates of return ranging from ten to fifteen percent, with some investors receiving higher promised rates.  In an effort to convince investors of the safety of the operation, Snelling and Smith represented 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.  But instead of engaging in day-trading, Snelling and Smith spent the majority of investor funds to sustain an exorbitant lifestyle that consisted of boats, jet skis, plastic surgery, and private school tuition. 

Snelling was also ordered to pay nearly $600,000 in restitution to the Internal Revenue Service.