Most Recent
AdSurfDaily Agape agent American Integrity Aronson asset sales Attorney av bar reg baker bank bank of america Bankruptcy baumann bermudez black diamond blackwell bridge loan bull cattle CD celebrity cftc charity china China Voice church cityfund claims claims process clawback commission commodities commodity pool computer program congress Crown Forex currency death sentence denver diamond bar disgorgement Distribution Dodd-Frank donnan Dreier dunhill e-bullion elderly E-M Management SEC england Fairfield family FBI FDIC Fees female ponzi scheme financial advisor fine FINRA football forex fraud fufta fugitive Full Tilt gift card guilty plea GunnAllen hawaii Heckscher HSBC india invers forex janvey John Morgan JP Morgan kansas ken bell kenzie las vegas lawsuit lawyer libya Lifland machado Madoff Marian Morgan metro dream homes mets milberg millers a game Morgan European Holdings mortgage multiple schemes NCAA Net Winner new jersey notes objection Oxford Patrick Kiley paul burks PermaPave Pettengill Petters Picard poker Ponzi ponzi scheme ponzi scheme database ponzi scheme list Prime Rate profitable sunrise prosun pta puerto rico Rakoff real estate receiver receivership regulation relief defendants religion remission repeat offender restitution Rothstein RRA sec sentencing simmons sipa sipc snelling standing stanford stettin subpoena td bank telexfree treasury bonds treasury strip Tremont Trevor Cook UBS UFTA uga utah venture advisors Wachovia wilpon wire fraud woman zeek zeek rewards zeekler zeekrewards
Recent SEC Releases

CPA Convicted for Role in $40 Million Ponzi Scheme

A federal jury took 45 minutes to convict an Ohio man of multiple criminal charges relating to his involvement with the 'Black Diamond' Ponzi scheme that ranks as one of the worst financial frauds in North Carolina history.  Jonathan D. Davey, 48, was convicted of one count each of securities fraud conspiracy, wire fraud conspiracy, money laundering conspiracy, and tax evasion.  He could face up to fifty years in prison at sentencing if given the maximum for each charge.

According to the criminal charging document, Davey served as administrator for several of the hedge funds involved in the Black Diamond Ponzi scheme.  The scheme, masterminded by Keith Simmons, was presented to potential investors as a lucrative forex trading operation that promised risk-free annual returns exceeding 20%.  Simmons appealed to investors' faith, quoting Bible verses and stressing his devout Christianity to portray himself as trustworthy.  Over 200 investors bought Simmons' act, investing over $35 million in Black Diamond.  Many became convinced after they were provided with regular account statements purportedly showing consistent account growth.  

Over $10 million of these funds were raised by Davey through his own hedge fund, "Divine Circulation Services'.  Davey told investors that he was operating a legitimate hedge fund, and that he had conducted due diligence on Black Diamond.  However, neither was true.  Additionally, when the Black Diamond scheme began to collapse, Davey orchestrated a separate Ponzi scheme in which he raised over $5 million to use to pay fictitious 'returns' to old investors.  While investors were told that Davey managed a total of over $120 million, in reality the amount on hand was less than $1 million.  

In addition to making Ponzi-style payments to investors of nearly $20 million that purportedly represented investing returns, Simmons, Davey, and others diverted investor funds for a variety of unauthorized personal expenses.  In one example, Davey used an offshore shell company in Belize to fund the construction of an Ohio mansion.  Additionally, Simmons was said to have paid women for sex and furnished "lavish love condominiums" with investor funds.  Simmons was recently sentenced to a fifty-year term.  

Davey remains free on bond pending his sentencing, which has not yet been scheduled.  


Zeek Judge Denies Request For Appointment of Examiner, Has 'Utmost Confidence in Receiver's Efforts'

In a terse but strongly-worded order issued earlier today, the federal judge overseeing the $600 million ZeekRewards Ponzi scheme refused to appoint a separate examiner to essentially supervise the court-appointed receiver's efforts, finding such an action would be duplicative and "cause unnecessary and significant depletion" of receivership assets.  A group of 'net winners' - those who were fortunate enough to profit off their Zeek investment - had filed a motion seeking the appointment of, ironically, their own lawyer as a purported "voice" of all investors.  However, United States District Judge Graham C. Mullen summarily rejected this request, noting that it would be impossible for an examiner to represent the interests of both the net winner and net loser affiliates.

As examined in depth in this Ponzitracker article, the 'victims group' Fun Club USA had sought to have their attorney, Michael Quilling, appointed as an examiner and compensated out of the receivership estate.  As examiner, Quilling would essentially act as a voice for all interested parties.  As I explained previously, and as Judge Mullen implies, this could represent a serious conflict of interest, as the best interests of those who profited from their investment are, not surprisingly, much different than those who lost some or all of their investment:

A potential issue with the Examiner Motion lies with the choice of Fun Club's attorney, Michael Quilling, as Examiner.  Quilling has already entered his notice of appearance in the SEC enforcement proceeding on behalf of Fun Club, which is comprised of several individuals widely thought to have profited from their participation in Zeek.  Thus, those 'net winners' obviously have contrasting positions to those 'net losers' whose hopes of a full recovery rest in large part on the successful recovery of those 'false profits' paid to net winners.  This apparent conflict of interest is magnified when considering that the Examiner's recommendation to the Court of the position of investors could, at the least, be questioned as having any apparent or direct bias towards those previous (or current) individuals who have opposed the Receiver's efforts to pursue clawback litigation.  

Additionally, the appointment of an examiner would also cause the unnecessary duplication of efforts currently being performed by the receiver, Kenneth Bell.  Compounded with the fact that the examiner would be compensated with funds out of the receivership estate - which would reduce dollar-for-dollar those funds available for eventual distribution to victims - such a move would seem to have no real purpose but to complicate the receiver's efforts and line the examiner's pockets.  Judge Mullen echoed this opinion, expressing confidence in Mr. Bell's efforts thus far and noting his diligence in preserving and maximizing assets.

Indeed, the move to appoint an examiner should be seen for what it truly was - a thinly-veiled attempt by those who profited from Zeek to delay, stall, and further avoid their day of judgment.  While those net winners are content to employ a variety of tactics to frustrate the receivership's efforts, many fail to make the connection that efforts by the receiver and his team to defend these tactics not only divert manpower away from legitimate issues, but only add to the legal costs of the receivership.  Further, and perhaps most ironic, the war chest funding these efforts has likely been funded through the solicitation of more than $100,000 from victims in the immediate aftermath of Zeek's closing for the vague cause of fighting the Receivership and restoring Zeek.  

A link to Judge Mullen's Order is here.

A special thanks to ASDUpdates, which maintains a comprehensive Zeek blog and database of court filings available to the public.


Maine Woman Receives 80-Year Sentence For $4.7 Million Ponzi Scheme

In what is likely the stiffest sentence for a female Ponzi schemer, a Maine woman was sentenced to serve eighty years in prison for her role in a $4.7 million Ponzi scheme.  Karen Bowie, 61, received the sentence after being convicted at a week-long trial in Austin, Texas of property theft.  While Bowie was not charged with masterminding the scheme, authorities accused her of playing a focal role in promoting the scheme, in which she received over $2 million that was diverted from investors.  While Bowie would be eligible for parole due to her conviction on state crimes, the sentence will likely be a life sentence.

Bowie was part of Titan Wealth Management, LLC ("Titan"), which was in the business of recommending European mid-term notes ("MTN's") to clients.  Potential investors were told that the notes were low risk and offered outstanding short-term returns ranging from 10% to 50%.  Additionally, Titan's owner, Thomas Lester Irby, told investors that Titan would receive no fees or compensation from selling the notes, and in the event of emergency, Irby could easily liquidate a $10 million MTN that he personally owned.  Irby and Titan would eventually raise over $3 million from more than 30 investors.

However, investor funds were not pooled to purchase MTN's or even any interest in MTN's.  Instead, millions of dollars in investor funds were used to pay putative MTN 'profits', as well as diverted for Irby's personal benefit.  Bowie, who did not deal directly with investors but instead directed Irby to make false representations, also received nearly $2 million without providing any apparent consideration.  Irby was sentenced in 2010 to 24 years in prison after being charged with money laundering.

Bowie's 80-year sentence should serve as a stark reminder of the perils of proceeding to trial rather than accepting a guilty plea. The severity of Bowie's sentence is not only grossly disproportional to the relatively meager amount of funds involved, but is also easily one of the highest handed down to a Ponzi schemer - man or woman. (While women have been convicted of operating Ponzi schemes, they are handily outnumbered by men.)  Indeed, the 30-year sentence handed down to a Florida woman for orchestrating a $100 million Ponzi scheme pales in comparison to Bowie's sentence.  Other examples of women being sentenced for Ponzi schemes are herehereherehere, and here.


Could Rothstein Victims Recover 100% of Losses? Trustee Thinks 'Holy Grail' Outcome Likely


This is likely the first major Ponzi scheme case where payouts may fully compensate creditors holding general unsecured claims for their losses.


- Herbert Stettin, court-appointed bankruptcy trustee

As 2009 drew to a close, hundreds, if not thousands, of lives had been upended in Ft. Lauderdale, where Scott Rothstein's $1.2 billion Ponzi scheme - the largest in Florida history - imploded in grand fashion. In addition to the numerous victims that lost some, if not all, of their life savings, the scheme's disclosure resulted in the overnight shuttering of Rothstein's once thriving 70-lawyer law firm, Rothstein Rosenfelt Adler. When news broke, Rothstein was across the globe, having fled as his scheme unraveled with $15 million in cash and luxury watches as an escape plan. Many investors braced themselves for the worst, expecting that Rothstein had squandered away the entirety of funds entrusted to him.

Fortunately, they could not have been further from the truth. Three years later, in what could accurately be described as the 'holy grail' in the newly-emergent cottage industry of court-appointed receiverships and bankruptcies tasked with gathering assets for victims of Ponzi schemes, they can likely expect to receive 100% of their approved losses. Herbert Stettin, appointed in November 2009 as the bankruptcy trustee to recover funds for Rothstein's victims, announced in his final liquidation plan that he expected that "payouts may fully compensate creditors holding general unsecured claims for their losses."

A 100% recovery, or even anything close, would represent a remarkable and unprecedented feat in Ponzi scheme litigation. To put the feat in context, the Internal Revenue Service, in promulgating guidance for those victimized by Ponzi schemes, implicitly estimates that victims recover less than 5% of their losses on average. Indeed, recoveries thus far in the 40% range by the Bernard Madoff bankruptcy trustee and the Arthur Nadel receiver have been hailed as extraordinary. A closer look at the liquidation plan reveals that Stettin's blockbuster recovery is not only largely predicated on a familiar third-party's contribution, but could actually be much larger.

Proposed Settlement With Alleged Co-Conspirator TD Bank

Buried deep in the 300-page disclosure statement and 200-page liquidation plan detailing Stettin's efforts is a proposed $72.45 million settlement between Stettin and TD Bank. TD Bank, as those connected with Rothstein's scheme are keenly aware, is alleged to have played a key role in the scheme by serving as the scheme's banker, and at least one of its employees allegedly provided substantial assistance to Rothstein. This included falsification of bank documents, impersonation of investors and bank officials, and the general aura of the association with a banking powerhouse such as TD Bank.

While some may initially balk at what seems to be a pittance compared to hundreds of millions of dollars in losses, a closer look shows that Stettin's successful recovery is owed in large part not only to this settlement, but also to the large sums already paid out in ancillary litigation. Indeed, TD Bank has already been on the losing end of several investor lawsuits to the tune of $237 million. As part of the liquidation plan, Stettin proposes that those parties that have already recovered from TD Bank be barred from sharing in the distribution process until total claims paid out reach 95% of losses. This has the key effect of diminishing the applicable claims, and essentially operates as if Stettin had already satisfied those claims using available funds.

In light of its continuing exposure, TD Bank's settlement with Stettin is contingent on the entry of what is known as a 'bar order', which would permanently enjoin any current, contemplated, or future lawsuits against the bank based on Rothstein's scheme. While some involved in ongoing lawsuits have voiced their opposition to a bar order, a compelling argument in favor of the bar order is that the $72.45 million would be distributed to all of the affected investors - rather than those fortunate enough to be parties to the current investor lawsuits. Such an argument especially rings true in Ponzi scheme litigation, and TD Bank has explicitly indicated that it will not consummate the settlement if a bar order is not included.

With Money On Hand And Future Inflows, Total Recovery Could Be Even Higher...

Presently, Stettin indicated that he had received total claims filed in the amount of $461,078,446.36. Of that amount, Stettin has filed a variety of objections designed to reduce or eliminate a portion of those claims, and eventually expects those efforts to decrease the total claims for a majority of the creditor classes to approximately $141 million. Stettin has approximately $79.2 million in cash on hand, which, combined with the $72.45 million TD Bank settlement, would allow 100% payment of the estimated claim total of $141 million. Additionally, Stettin is pursuing numerous clawback lawsuits against investors fortunate enough to profit from their investment, with future recoveries belonging to the bankruptcy estate. Finally, as detailed in a previous Ponzitracker article, Stettin is embroiled in a dispute with the U.S. government over entitlement to an estimated $50 million in forfeited funds.

...With One Unlikely Beneficiary.

Ironically, the party that stands to benefit the most on the success of Stettin's ongoing recovery efforts is TD Bank. In the Liquidation Plan, TD Bank stands to collect on a $132.5 million claim in the event that the allowed classes with higher payment priorities are paid in full. This number reflects the current total of settlements and jury verdicts rendered thus far against the bank, of which a majority constituted various investors' claimed Rothstein losses. Specifically, the bank settled for $170 million with one group of investors, while a federal grand jury handed down a $67 million award last year. However, of the resulting $237 million total, $35 million of the jury award constituted punitive damages - and not investor losses. Thus, deducting that $35 million portion and the $72.45 million settlement with Stettin yields a $132.5 million claim.

Under Rule 326(a) of the Bankruptcy Code, Stettin is set to receive 3% of all payouts to investors. With the above outcome, one would be hard-pressed to argue.

The proposed liquidation plan will now be submitted to the Bankruptcy Court for examination and approval.

A copy of the Disclosure Statement is here.

A copy of the Final Liquidation Plan is here.

Previous Ponzitracker coverage of the Rothstein scheme is here.

Previous Rothstein coverage by Paul Brinkmann of the South Florida Business Journal is here.


Guilty Plea in $50 Million Real Estate Ponzi Scheme 

A New Jersey man pled guilty to orchestrating a real estate Ponzi scheme that took in more than $50 million from over 200 victims.  David Connolly, 51, agreed to plead guilty to one count of securities fraud and one count of money laundering.  In return for his plea, the government agreed to drop the remaining thirteen charges in the 15-count indictment originally returned by a federal grand jury in May 2012. The securities fraud charge carries a maximum sentence of twenty years, while the money laundering charge has a maximum term of ten years.  

Connolly was originally charged back in May 2012 by both the Department of Justice and the Securities and Exchange Commission.  According to authorities, Connolly began forming separate investment vehicles in 1996 to be used for separate offerings of securities to investors, who were told that the proceeds would be used to acquire and manager one or more rental apartment buildings in Pennsylvania or New Jersey.  For each offering, Connolly drafted an offering prospectus that was provided to investors and detailed the "shares" each would receive in return for their investment.  In total, Connolly raised more than $50 million from over 200 investors.

According to authorities, the operation turned criminal sometime in 2006, when Connolly fraudulently induced investors to purchase interests in certain investment vehicles by making material misrepresentations concerning the use and segregation of investor funds.  For example, while Connolly represented that the proceeds of an offering would be used solely to purchase the specific properties identified in the offering prospectus, this was inaccurate.  Instead, on numerous occasions Connolly used funds from one offering to purchase properties that were the subject of a different offering.  Additionally, Connolly used investor funds to make purported cash flow dividends from the performance of the properties tied to each offering, a classic hallmark of a Ponzi scheme.  Investor funds were also used to make improper payments totaling $2 million to Connolly, as well as refinance properties and other unauthorized uses.  When the scheme unraveled in 2009, the properties owned by the investment vehicles were forced into foreclosure, thus eliminating all investor interests.

Connolly is scheduled to be sentenced June 4, 2013, and faces up to thirty years in prison for the securities fraud and money laundering charges.  As part of his plea agreement, Connolly also agreed to forfeit nearly $10 million.   

A copy of the SEC lawsuit is here.