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Recent SEC Releases
Monday
Feb042013

California Man Pleads Guilty to $80 Million Ponzi Scheme, Agrees to 16-Year Sentence

A California man admitted he masterminded a massive Ponzi scheme that brought in more than $80 million from 300 investors.  Anthony Vassallo, 33, entered into a plea agreement with prosecutors in which he agreed to plead guilty to a single count of wire fraud.  While wire fraud carries a maximum sentence of twenty years in prison, prosecutors agreed to recommend a 16-year sentence. 

Vassallo and others operated Equity Investment, Management and Trading Inc ("EIMT") from April 2006 to March 2009, telling investors he had developed a computer program that could yield 36% annual returns by successfully 'timing' the stock market.  Investors were assured that their funds were safe from any risk of loss, and were provided fabricated investment information and forged brokerage and bank documents as proof of the scheme's success.  Eventually, over 300 investors, including friends and family, would entrust more than $80 million to Vassallo.

However, of the little trading EIMT did engage in, Vassallo suffered extensive losses, and hid these losses from investors by employing the use of "dummy screens."  Instead, in classic Ponzi fashion, he used funds from new investors to make regular dividend payments to existing investors who thought their investment was performing as advertised. By March 2009, the scheme had collapsed.

Vassallo's co-conspirator, Kenneth Kenitzer, has already pled guilty, and is awaiting sentencing.  Vassallo is scheduled to be sentenced May 3, 2012, and also faces criminal fines and mandatory restitution.

The case also featured an attempt at 'vigilante' justice when several investors were confronted by several of Vassallo's associates at gupoint who identified themselves as federal agents and demanded over $378,000.  The men, who brandished fake identification, bullet-proof vests, and radio earpieces, threatened at least one of the investor's families.  Michael David Sanders, along with three accomplices, was later charged with conspiracy, impersonating a federal agent, and attempted extortion.  The four were sentenced Friday, with each receiving probation.

Sunday
Feb032013

Two Prominent Law Firms Sued For Roles in Stanford and Shapiro Ponzi Schemes

In two separate lawsuits filed last week, court-appointed lawyers overseeing the fall-out from Allen Stanford's $6 billion Ponzi scheme and Nevin Shapiro's $930 million Ponzi scheme alleged that each scheme was assisted by lawyers at two prominent national law firms.  Ralph Janvey, the court-appointed receiver for Stanford's scheme, sued Proskauer Rose LLP and one of its attorneys for aiding and abetting Stanford's scheme.  Joel Tabas, the trustee for Shapiro's failed Capitol Investments USA, sued Shook, Hardy & Bacon ("SH&B") and one of its lawyers for providing legal assistance to Shapiro's scheme.  Each of the suits is seeking unspecified damages. 

Shapiro was accused of running a Ponzi scheme that raised nearly $1 billion from investors who thought they were investing in a highly-profitable grocery wholesaling business.  After pleading guilty to securities fraud, Shapiro was sentenced to a twenty-year prison term.  One of Shapiro's high-school friends, Marc Levinson, became an attorney at prominent Miami firm SH&B, where he soon began advising Shapiro on various issues.  According to Tabas, the firm "aided and abetted" Shapiro's violation of numerous federal securities laws, even after an internal memo circulated by the firm in December 2006 concluded that Shapiro was likely violating federal securities laws.  Tabas has recovered over $35 million for investors thus far.

As outlined in Janvey's lawsuit, attorney Thomas Sjoblom had spent twenty years at the Securities and Exchange Commission ("SEC") before working in private practice where Stanford became one of this clients.  During his tenure at prominent law firms Chadbourne & Parke LLP and Proskauer Rose, Sjoblum is accused of falsely stating to investors that he had personally confirmed that Stanford Financial was not a Ponzi scheme.  Additionally, Janvey alleges that Sjoblum thwarted the SEC's investigation of Stanford by instructing Stanford to hide documents, relaying misinformation to Stanford's auditors, and misleading the SEC. Janvey is preparing to make his first distribution to victims in the upcoming months. 

Owing partly to the existence of extensive malpractice insurance, law firms have increasingly found themselves as a target of charges that they assisted or failed to discover a client's perpetration of a Ponzi scheme.  This has resulted in recent high-profile settlements and jury awards involving several prominent firms, including:

  • Quarles & Brady LLP's and Greenberg Traurig $77.5 million settlement for their role in the $900 million Mortgages Ltd. Ponzi scheme; and
  • Holland & Knight LLP's $25 million settlement with the receiver for Arthur Nadel's $400 million Ponzi scheme.

 Both firms have denied wrongdoing.  

A copy of the SHB Lawsuit is here

Friday
Feb012013

Washington Developer, Wife, and Mistress Indicted in Multi-Million Dollar Real Estate Ponzi Scheme

Federal authorities arrested a Spokane businessman as he was about to board a plane, charging him, his wife, and his apparent lover with running a massive real estate Ponzi scheme described in in a 73-count indictment.  Greg Jeffreys, his wife Kimberly Jeffreys, and Jeffreys' girlfriend Shannon Stiltner were charged with multiple counts of conspiracy to commit bank fraud, bank fraud, theft of government property, wire fraud, and money laundering.  Each of the charges carries extensive possible prison terms as well as criminal penalties.  The three each entered a not guilty plea to the charges.

According to the indictment, Jeffreys began soliciting investors to finance the construction of various government and residential properties across the United States, such as a Military Entrance Processing Station in Denver and a condominium project in Idaho.  Jeffreys had received government stimulus funds for some of the properties, and had also obtained loans from several banking institutions including Washington Trust and Wells Fargo using the stimulus money as collateral.  Investors were promised above-average rates of return on the ventures, and received regular updates from Jeffreys' girlfriend about the progress of various projects.

Investors were not told that Jeffreys had received government stimulus money on some of the projects.  Additionally, several of the described properties did not even exist.  For example, Jeffreys' pitched projects such as a 200-unit condominium project in Seattle, a 100-unit apartment building in Louisiana, and a Military Entrance Processing Station in Denver.  However, not only were the Seattle and Louisiana projects nonexistent, but Denver already had a processing station, and the address investors were given for the Denver processing center was actually a federal office building.  The banks from which Jeffreys obtained construction loans also suffered losses, as, apparently unbeknownst to them, each loan was secured by the same collateral.  When the scheme collapsed, the banks foreclosed and suffered substantial losses.  

Instead, the Jeffreys and Stiltner ran the classic Ponzi scheme, diverting millions of dollars in investor funds to their bank accounts to pay various personal expenses, such as gambling debts in Las Vegas and gifts to their children. While authorities have yet to estimate total losses, the various incidents described in the indictment indicate the figure could be in the tens of million.

While purely speculation at this point, the inclusion of Stiltner in the indictment (and the sheer number of criminal charges) is likely an attempt to encourage her to cooperate with authorities.

The three remain in custody on $150,000 bond.

Friday
Feb012013

Cactus Theft Lands Convicted Ponzi Schemer Back in Prison

An Arizona man who spent nearly 7 years in federal prison for a $64 million Ponzi scheme is headed back to prison after pleading guilty to cactus theft.  Kenneth Cobb, 46, admitted to stealing eight saguaro cacti from Arizona federal land, and pled guilty in September to plead guilty to one count of theft of government property and one count of violation of the Endangered Species Act.  According to the agreed-upon sentence, Cobb will not only spend weekends in jail for the next eight months, but spend five years on probation and pay $32,000 in restitution.   

Cobb was involved in a "world-wide" Ponzi scheme that brought in over $64 million from investors that was uncovered in the early 2000's.  While not the ringleader of the scheme, he admitted that he acted as a promoter and sought to "bring as much money to the table as possible to line everyone's pockets.  He was sentenced in 2001 to a 78-month prison term, and also ordered to pay $23 million in restitution.  

Since being released from prison, Cobb apparently took a fancy to the Arizona saguaro cactus, stealing eight cacti that he then resold for $2,000 apiece to locations as far away as Austria.  Cactus theft is apparently a serious problem in Arizona

Thursday
Jan312013

High-Flying 'Prodigious Gambler' Indicted for $190 Million Ponzi Scheme; Gambled Away $175 Million

Authorities indicted a Las Vegas businessman on charges that he operated an elaborate Ponzi scheme that took in nearly $200 million from investors - $175 million of which was gambled away at various Las Vegas casinos.  Ramon DeSage, also known as Ramon Abi-Rached and Raymond Antoine Abi-Rached, was indicted by a federal grand jury on four counts of wire fraud - each of which carry a maximum prison term of twenty years.  Additionally, authorities are seeking the forfeiture of $191 million in scheme proceeds.  DeSage's attorney indicated he would plead guilty at his upcoming arraignment.  

The indictment is the latest in a string of legal troubles for DeSage.  He was arrested in July 2012 as the result of an investigation by the Internal Revenue Service that culminated in the filing of charges of wire fraud.  According to the IRS complaint, DeSage used his company, Cadeau Express, to solicit funds from investors with the promise of high returns.  The company, whose website is still active, describes itself as a "unique company that caters to hotels and casinos who roll out the red carpet for selective guests and high-end gamblers."  

Specifically, DeSage told investors that he was in the wholesale distribution business, and that their funds were used to purchase and resell items such as hand soap and luggage.  DeSage was accused of using Cadeau Express to defraud at least four wealthy investors and using those funds to pay off over $20 million of gambling debts owed by DeSage.  While details remain scarce, the IRS investigation indicated that DeSage's investors were owed at least $75 million.

One shocking revelation from the indictment reveals that, of the approximately $190 million raised from investors, approximately $175 million was sent to various casinos for gambling purposes.  According to the evidence presented for one fo the wire fraud charges, at least one of these hotels was the Hard Rock Casino.  Not suprisingly, DeSage's penchant for gambling continued even after his arrest in July 2012, when a federal judge was forced to change the terms of DeSage's electronic home monitoring after it was discovered he visited casinos over 26 times over an eight-week period while he was awaiting trial.

DeSage's arraignment is scheduled for February 8, 2013.  

A copy of the indictment is here.