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Recent SEC Releases
Friday
Nov302012

50-Year Sentence For Indiana Man That Ran $200 Million Ponzi Scheme

An Indiana man was sentenced to serve the next fifty years in prison for operating a Ponzi scheme that defrauded victims out of over $200 million, with the presiding federal judge summing up his crimes in three words: "Deceit. Greed. Arrogance."  Timothy Durham, 50, received what will likely be a life sentence from United States District Judge Jane Magnus-Stinson following his conviction earlier this summer on twelve criminal counts.  While Durham offered a short statement expressing regret, he stopped short of extending an apology to his victims.  Along with Durham, Judge Magnus-Stinson also sentenced two of Durham's co-conspirators, Jim Cochran and Rick Snow, to 25-year and 10-year sentences, respectively.All three men have indicated they plan to appeal. 

The sentencing followed a contentious hearing earlier this morning in which Judge Magnus-Stinson largely sided with the government's estimates of total victims and losses, finding that 5,122 victims suffered collective losses of approximately $250 million.  Notably,Durham's attorney maintained that his company, Fair Finance Co., was not a Ponzi scheme and that the government raiding of the company was to blame for the elaborate losses - a defense JudgeMagnus-Stinson suggested was the 'it was the government's fault' defense.  The figures were in dispute due to the weight they carry in federal sentencing guidelines. Over 1,000 victims submitted letters to the court describing the impact of the scheme on their lives, and Judge Magnus-Stinson indicated she had read every single letter.  

Also notable was the disparity between the sentencing recommendations offered - prosecutors wanted a 225-year sentence, while Durham's attorneys argued that a five-year sentence was more appropriate. While prosecutors did not get the literal life sentence they had asked for, Judge Magnus-Stinson did acknowledge that the 50-year sentence would serve as an "effective" life sentence.  Similarly, while prosecutors had urged 145-year and 85-year sentences for Cochran and Snow, respectively, the 25-year and 10-year respective sentences handed down emphasized the lesser roles the men had played in the scheme and will likely allow them to return to society after serving at least 85% of their sentences.  

Durham's sentence ranks as one of the highest sentences handed down in the post-Madoff era.  Madoff's 150-year sentence for the largest Ponzi scheme in history continues to serve as a symbolic measuring stick for later offenses, as Allen Stanford - convicted of running the next largest scheme on that list - received a 110-year sentence. Durham's scheme is notable in that it is identical to the sentences handed down in the Rothstein and Petters schemes - each of which was on a considerably larger magnitude than Durham's scheme in terms of total pecuniary losses.  The lack of an explicit acknowledgement of guilt and the sheer number of victims may have played a role in Durham joining this infamous club.  Further reading on several of the top recent Ponzi schemes is available here.

According to United States attorney Joseph Hogsett, who prosecuted the case, Durham's sentence is the longest white collar fraud sentence in Indiana history.  

Further coverage of the Durham case is here.

Tuesday
Nov272012

Prosecutors: 225-Year Sentence Appropriate for "Greediest, Most Selfish and Remorseless" Ponzi Schemer 

Prosecutors urged a federal judge to adopt a 225-year sentencing recommendation for an Indiana man convicted of running a $200 million Ponzi scheme, arguing a guaranteed life sentence was appropriate for someone they described as one of the "greediest, most selfish and remorseless of criminals."  Tim Durham, a former prominent Indianapolis businessman, was convicted this summer of securities fraud, conspiracy and 10 counts of wire fraud.  Prosecutors have also urged steep sentence for Durham's convicted co-defendants, Jim Cochran and Rick Snow, maintaining that terms of 145 years and 85 years, respectively, were warranted.  United States District Judge Jane Magnus-Stinson is scheduled to sentence the three men on Friday.

Durham, along with Cochran and Snow, were convicted by a federal jury of operating a massive Ponzi scheme through their company Fair Finance Company ("Fair Company").  Fair Finance promised lucrative returns by engaging in the purchase of high-interest contracts between businesses and their customers, profiting by pocketing the difference between the contract's purchase price and the total stream of interest payments collected over the life of the contract.  Durham and Cochran purchased Fair Finance in 2002, and purported to continue in the profitable business practice, ultimately raising approximately $230 million from oer 5000 investors lured from the prospect of steady above-average returns.

However, instead of using investor funds for legitimate purposes, Durham diverted large amounts of money to unauthorized purposes, including the financing of various businesses owned by Durham and Cochran.  Investors continued receiving what they thought were interest payments, which in reality were simply the re-distribution of existing investor's principal.  Durham and Cochran also lived extravagant lifestyles, which included a particular affinity for motor vehicles - at one point, their collection included more than 40 classic and exotic cars worth over $7 million, a $3 million private jet, and a $6 million yacht in Miami.  When the scheme began to unravel due to the drying up of investor funds, the company declared bankruptcy and authorities soon indicted Durham, Cochran, and Snow. 

Not surprisingly, attorneys for the three have radically different views of the prison sentences their clients deserve.  Durham's attorney, John Tompkins, called the 225-year recommendation "absurd", and argued that a five-year sentence was appropriate, of which Durham would spend three years in federal prison while serving the remaining two years in home confinement.  Tompkins pointed to Durham's extremely low rate of recidivism - the proclivity to commit later crimes - and argued that the sentence was based on an erroneous calculation under federal sentencing guidelines.  Snow and Cochran's attorneys have echoed Tompkin's claims that their proposed sentence is too severe, but have not proposed an appropriate prison term.  

Of the estimated $208 million in investor losses, only about $6 million of that amount has been recovered for eventual distribution to victims, and prospects of further recovery are bleak.  

Thursday
Nov222012

New York Recidivist Fraudster Sentenced For $31 Million Ponzi Scheme 

A New York man with a lengthy criminal history learned he will spend at least the next six years in prison for operating a Ponzi scheme targeting Florida retirees and Orthodox Jews that ultimately defrauded victims out of at least $31 million.  Joseph Greenblatt received a sentence of six-to-eighteen years after previously pleading guilty to charges of Grand Larceny in the First and Second Degrees, Criminal Violation of the Martin Act, Tax Fraud, and other related crimes.  Greenblatt had at least two prior fraud convictions since 1995, and is also awaiting trial on charges that he wrote nearly $2 million in bad checks to investors.

Greenblatt operated Maywood Capital ("Maywood"), which held itself out as a successful real estate investment company.  Beginning in October 1995, Greenblatt solicited investors to invest in Maywood, often placing advertisements in Florida newspapers to target retirees.  Investors were told that their funds would be used to buy, refurbish, and re-sell prime Manhattan real estate, and that each investment was secured by recorded first mortgages.  Ultimately, Greenblatt raised over $31 million from investors.

However, in reality only some of the properties acquired using investor funds were secured by a mortgage.  Additionally, where a mortgage did exist, it was often not a first mortgage and never specified that the investor was the mortgagor, thus rendering those investments unsecured.  Indeed, on several occasions, Maywood had no ownership interest in the subject properties.  In typical Ponzi scheme fashion, Greenblatt misappropriated investor funds for a variety of unauthorized purposes, including personal expenses and the payment of restitution owed in previous fraud convictions.

A simple criminal background check might have raised red flags for investors, who would have discovered that Greenblatt had a lengthy criminal background that included serving time for defrauding the Department of Housing and Urban Development, as well as a 1995 securities fraud conviction.

Two New Jersey attorneys also were implicated in the scheme, with one attorney joining Maywood after being disbarred - for misappropriating client funds.  Peter Vogel, 74, and Joseph Mongelli, 48, both pled guilty to fraud charges for their role in the scheme.  Mongelli received a six-month sentence, while Vogel received probation.  

Tuesday
Nov202012

SEC: Secretive 'Trust' With World War II Ties That Promised 38% Annual Returns Was $15 Million Ponzi Scheme

The Securities and Exchange Commission ("SEC") instituted a civil enforcement action against a Florida man and a California woman, alleging that the investment opportunity promising 38% annual returns and requiring strict secrecy was, in reality, a Ponzi scheme that raised more than $15 million from unsuspecting investors.  Billy W. McClintock, 70, and Diane Alexander, also 70, were charged with multiple violations of federal securities laws in connection with the alleged scheme, which promised lucrative gains through a highly-secretive entity known as the "Trust".  The SEC is seeking injunctive relief, an asset freeze, disgorgement of all ill-gotten gains, and civil monetary penalties.

According to the SEC, McClintock was a resident of Bradenton, Florida, and had previously served time in prison due to a cocaine trafficking conviction.  McClintock and Alexander apparently shared a long-time friendship, and sometime before 2002, McClintock confided to Alexander that he was associated with a secretive investment club known as the "Trust".  Apparently, while on a trip to London, McClintock had happened upon a man named "John" who was a member of the Trust and disclosed to McClintock that he could lend money to the Trust and receive a 38% annual return.  The "Trust" was allegedly formed after World War II by several wealthy European families, with offices in Luxembourg and Zurich, and had the power to create money "through fractional banking and the sale of banking debentures"

The "Trust" was shrouded by heavy secrecy, with McClintock being told that the communication of any details about the trust to any third person, such as an attorney, certified financial accountant, or financial planner, would result in that person's permanent ban from participating in the Trust.  After hearing McClintock's story, Alexander accepted McClintock's offer to serve as United States Regional Director for the Trust, in addition to three other unnamed Regional Directors.  Along with McClintock - the 'United States National Director' - the two relayed the same story to potential investors, along with the promise of steady annual returns of 38%.  The two also appealed to investors' religious beliefs, telling them to "put your money in the Trust and your trust in God.” In total, approximately 220 investors contributed over $15 million to the "Trust".

However, contrary to their representations, there is no evidence that any secretive Trust ever existed, and neither Alexander nor McClintock ever sent any investor funds to any Trust.  Rather, according to the SEC, investor funds were simply pooled together in classic Ponzi scheme fashion, and the regular interest payments made to investors were in fact comprised of these commingled funds.  Additionally, investors were not told that, in return for referring investors to the "Trust", Alexander received a 'management' fee of 5%, which she also received for every investor that 'rolled over' their principal investment upon expiration. As the SEC stated, 

the Trust is a Ponzi scheme in which new investor funds, not Trust profits, pay the purported fees  and interest owed to earlier investors. 

Ironically, Alexander sought to convince investors to disregard the old agage that  'If it sounds too good to be true, it probably is,' claiming that it was simply 'a lie that came from the pit of hell.' 

A copy of the SEC complaint is here.

Tuesday
Nov202012

Two Former Stanford Accounting Executives Convicted of Fraud Charges

A Houston federal jury found two former Stanford Group accounting executives guilty of multiple fraud charges as criminal prosecutions draw to a close in those accused of playing a role in R. Allen Stanford's $7 billion Ponzi scheme.  Gilbert Lopez Jr., 70, and Mark Kuhrt, 40, were each convicted of nine counts of wire fraud, as well as one count of conspiracy to commit wire fraud.  Each of those charges carries a maximum term of twenty years in prison.  Prosecutors had accused the two of conspiring to inflate the value of certain assets to meet massive shortfalls in Stanford's scheme, including trying to flip a Caribbean resort property among various Stanford entities to inflate its value from $63 million to over $3 billion - in a matter of months.  

According to the superseding indictment, both Lopez and Kuhrt joined Stanford Financial Group ("SFG") in 1997.  Lopez was hired as SFG's assistant controller, while Kuhrt initially served as the fixed aset manager of SFG affiliate Stanford Leasing Company.  Lopez rose up the ranks to become SFG's Chief Accounting Officer in 2006, while Kuhrt was named Global Controller of Stanford Financial Group Global Management ("SFGGM").  

During the course of their employment, Lopez and Kuhrt participated in a series of sham transactions designed to both inflate the amount of capital contributions purportedly made by Stanford and misrepresent the extent of Stanford's repayment of billions of dollars in personal loans made by Stanford International Bank ("SIB").  Emails between Lopez and Kuhrt discussing the sham payments were featured prominently in the charging documents and used by prosecutors to show their awareness and culpability.  

Defense lawyers sought to sway jurors by claiming that Lopez and Kuhrt were simply following Stanford's instructions and never intended to commit any crimes.  Rather, it was Stanford's 'inner circle', which included former Chief Financial Officer James Davis and Chief Investment Officer Laura Pendergast-Holt, who kept other Stanford executives in the dark about the true nature of the scheme.  But the jury didn't buy this explanation, and instead sided with prosecutors in convicting the pair.  Sentencing has been scheduled for February 14, 2013, where each defendant will likely face a hefty prison sentence.

The convictions also mark the end of a string of prosecutions brought against Stanford and other executives.  Along with Stanford, who received a 110-year sentence after standing trial earlier this year, others convicted for their role in the scheme include: 

  • Laura Pendergast-Holt - Chief Investment Officer - sentenced to 3-year prison term for obstructing SEC investigation;
  • Jim Davis - Chief Investment Officer - After entering plea agreement with prosecutors in April 2009, has cooperated extensively and served as government's star witness at several trials;
  • Tom Raffanello and Bruce Perraud - Stanford security team - Acquitted on charges relating to shredding of documents, where judge called evidence "extremely thin."

Davis, whose sentencing had been delayed while he provided extensive cooperation to prosecutors, is likely to see his sentencing date set in the near-future now that there are no pending trials.  While Davis will no doubt seek leniency for his cooperation, the charges to which he pled guilty to - conspiracy to commit mail/wire/securities fraud, mail fraud, and conspiracy to obstruct an SEC investigation - are serious charges with lengthy possible prison terms.  

A copy of the superseding indictment is here.

Previous Ponzitracker coverage of the Stanford scheme is here