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Recent SEC Releases
Sunday
Jul072013

Father and Son Convicted in $100 Million Ponzi Scheme

After a two-week trial, a federal jury convicted an Arizona father and son of orchestrating a $100 million Ponzi scheme that targeted members of the Church of Jesus Christ of Latter-day Saints.  Guy Williams, 42, and Brent Williams, 66, were found guilty of thirty-eight felony charges, including conspiracy, wire fraud, mail fraud, and money laundering.  Each could face hundreds of years in prison.  Based on the severity of the scheme and the numerous charges, the duo could potentially face a sentence of hundreds of years in prison.

The Williamses operated a group of investment funds known as the "Mathon" entities, which offered several investment opportunities involving short-term loans to third-party borrowers.  Beginning in November 2002, potential investors were promised high interest rates on the loans of up to 75% annually, and were told that the Williamses and their partners had substantial experience in this business.  Investors were assured that each loan was collateralized with specific assets having a value much higher than the value of the loan, and were also told that many of the loans were also further secured by personal guarantees from the borrowers.  Many of the investors were members of Arizona's Mormon community.  From November 2002 until February 2004, the scheme took in more than $100 million from over 175 investors.  

However, the Mathon entities were nothing more than an elaborate Ponzi scheme, using incoming investor funds to pay returns to existing investors as well as sustaining their lavish lifestyles.  Investor funds were also used to pay over $10 million in salaries and bonuses to the founders, as well as to operate businesses they secretly controlled.  

The Williamses are scheduled to be sentenced September 30.

A copy of the indictment is here.

Wednesday
Jul032013

'Muslim Madoff' Gets 12-Year Sentence for $49 Million Ponzi Scheme

A Pakistani-American who became known as the 'Muslim Madoff' received a 151-month prison sentence for orchestrating a Ponzi scheme that counted a number of Pakistani-Americans as victims.  Syed Qaisar Madad, 66, received his sentence after pleading guilty earlier this year to wire fraud and tax fraud, and had faced a statutory maximum sentence of up to 23 years in federal prison.  

Madad, a Pakistani native, founded Technology for Telecommunication and Multimedia, Inc. ("TTM") in 1993. Beginning in 2005, Madad solicited family and friends, including members of the Pakistani-American community in Diamond Bar, California where Madad was a prominent figure, to invest in TTM with the promise of significant profits through his proficiency as a day-trading investor.  Madad touted his day-trading strategy, telling investors they could expect annual profits ranging from 30% - 65%.  Investors were assured that Madad sought to avoid risk by both beginning and ending the trading day with 100% cash, and were provided with regular monthly account statements showing consistent trading gains.  In total, Madad took in nearly $50 million.

However, Madad's purported investment prowess was nothing more than an elaborate Ponzi scheme in which incoming funds from new investors was used to pay fictitious returns to existing investors.  Additionally, Madad stole over $15 million of investor funds to sustain his lavish lifestyle, which included $6 million in personal credit card bills, $1.3 million in improvements to his house, a 5.25-carat diamond ring and a $180,000 sapphire and diamond necklace, and a $600,000 down payment on a house for his daughter.  Additionally, Madad used investor funds to make more than $1 million in contributions to numerous charities in Pakistan, India, Egypt and the United States.  Madad even once hosted a fundraiser at his house that included an appearance by former Pakistan President General Pervez Musharref.

Madad was also ordered to pay restitution to his victims in an amount to be determined at a later date.

Wednesday
Jul032013

73-Year Old New Jersey Financial Advisor Sentenced to 15 Years For $9.8 Million Ponzi Scheme

A 73-year old New Jersey former financial advisor was sentenced to serve fifteen years in state prison for orchestrating a $9.8 million Ponzi scheme.  Maxwell Smith, of Fair Haven, New Jersey, received the sentence after previously pleading guilty to a state charge of money laundering.  He will serve the sentence concurrently with a seven-year sentence handed down by federal authorities after he pled guilty to federal mail fraud charges.  In addition to his prison terms, Smith is permanently barred from ever working again in the securities industry, and will also owe nearly $8 million in restitution to his victims.

According to authorities, Smith was employed as a financial advisor at various financial firms in New Jersey where he provided investment advice to individual clients.  In addition to providing investment advice, Smith also created Health Care Financial Partners ("HCFP"), which held itself out as an investment fund with hundreds of millions of dollars in assets.  In an investment prospectus provided to investors, HCFP advertised guaranteed annual returns ranging from 7.5% to 9% supposedly generated through lucrative loans to healthcare facilities such as nursing homes.  Investors were offered the opportunity to purchase bond offerings in amounts ranging from $25,000 to $300,000, and Smith touted the ability to treat any gains as tax-free.  In total, Smith raised over $9 million from investors.

However, rather than using these funds for a legitimate purpose, Smith instead misappropriated millions of dollars to live a life of luxury that included dining, gambling, entertainment, overseas travel, and renting a villa in France.  Smith paid out approximately $2 million in purported interest payments that were, in reality, simply principal belonging to other investors.

Ironically, the scheme's demise is attributed to suspicions raised by the daughter of an elderly investor couple that invested $7 million with Smith who thought that the venture seemed very similar to Bernard Madoff's Ponzi scheme.  This led to a civil lawsuit, which later led to criminal charges.  While Smith's home was sold to benefit defrauded investors, this led to a shortfall of nearly $9 million.  

Thus far, victims have recovered more than $4 million - the majority of which is comprised of FINRA arbitration awards against brokerage firms that employed Smith.  Even with an additional $1.3 million of claims, it is believed investors will still suffer collective losses of at least $4 million.

Tuesday
Jul022013

California Woman Receives 5-Year Sentence for $2 Million Real Estate Ponzi Scheme

A California woman who ran a multi-million dollar real estate Ponzi scheme has been sentenced to serve five years in prison.  Celia Gallardo, 42, received the sentence after pleading guilty to a single charge of wire fraud last October.  While prosecutors recommended a sentence of 41 months based on federal sentencing guidelines, U.S. Judge Doug Pregerson opted for a higher sentence.  Gallardo was also ordered to pay full restitution of $2,389,400 to her victims.

From September 2007 to September 2008, Gallardo soliicited investors through her companies Gold Feather Realty and Gold Credit Investment, pitching a real estate program that promised exorbitant returns through the purchase of unfinished condominiums in Florida and Tennessee for 'pennies on the dollar.'  Some investors were even told that Gallardo could triple their money within ninety days.  In total, Gallardo raised several million dollars from victims.

However, instead of investing the vast majority of investor funds, Gallardo used the funds to prop up a lavish lifestyle that included paying her mortgage, foreign luxury travel, and cash withdrawals.  Additionally, Gallardo used investor funds to make interest payments to existing investors - a classic hallmark of a Ponzi scheme.  

While the vast majority of Ponzi schemes are committed by men, a growing number have been committed by women, including several schemes with sizeable losses.  More information on Ponzi schemes committed by women is available here.

Tuesday
Jul022013

Judge Doubles Ponzi Schemer's Sentence For Failure to Pay Pre-Sentencing Restitution

“What’s clear is he isn’t going to get 2 to 6 years. He didn’t pay back one cent.”

- Manhattan Supreme Court Judge Charles Solomon.

A convicted Ponzi schemer who agreed to pay pre-sentencing restitution to his victims in exchange for a reduced prison term landed in hot water with a New York State Judge last week after he failed to pay a single cent of the promised restitution.  Steven Bingaman, 57, had previously pled guilty to 23 counts of grand larceny, money laundering, forgery and securities fraud before Manhattan Supreme Court Judge Charles Solomon.  In an agreement with prosecutors, Bingaman agreed to pay over $1 million in pre-sentencing restitution to his victims in return for a reduced prison term of two-to-six years.  However, after it was revealed at sentencing that not 'one penny' of restitution had been paid, Judge Solomon delayed sentencing and later doubled Bingaman's punishment to a four-to-twelve year sentence.

Bingaman solicited investors through a variety of ventures, including a telecommunications company called Appleby Telecommunications LLC and raising funds for an unnamed investment project.  Investors were promised above-average returns and told that their investment would be 'liquid' and kept in escrow and available for refund on short notice.  In total, Bingaman raised more than $1.5 million from investors.

However, rather than investing investor funds or attempting to obtain financing, Bingaman misappropriated the funds for his own use to support a lavish lifestyle that included the payment of country club dues and mortgages on multiple homes.  Additionally, Bingaman used investor funds to make Ponzi-like payments to other investors who thought they were receiving legitimate returns from the advertised investments.  

Of note, Bingaman had previously lashed out at prosecutors after he was indicted, calling the accusations "salacious" and saying "The New York district attorney has terrorized my family and me for six months."