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Entries in real estate (15)

Wednesday
Aug222012

Woman, 71, Sentenced To Nine Years For $60 Million Ponzi Scheme

An Ohio woman was sentenced to serve nine years in prison after being convicted of assisting her husband in operating a $60 million Ponzi scheme that fleeced hundreds of investors.  Joanne Schneider, 71, pled guilty to multiple state fraud charges in exchange for the nine-year sentence, marking the culmination of a drawn-out legal process that started with an original three-year sentence being thrown out for being too lenient.  Her husband, Alan Schneider, was previously sentenced to a term of probation after pleading guilty in 2009.  Schneider will receive credit for the past 2.5 years in which she has been jailed, and will serve out the remaining 6.5 years in an Ohio state prison.

According to authorities, the scheme began in 2003, when Joanne Schneider solicited family and friends to invest in real estate development projects.  Potential investors were promised a high rate of return ranging from 16% to 20%.  From 2003 until January 2005, Schneider collected $60 million from nearly 900 investors.  A family member later became suspicious and contacted the Ohio Department of Commerce, who issued a cease-and-desist order against Schneider.  After Schneider continued to defy the cease-and-desist order, the state obtained injunctive relief and secured the appointment of a receiver.

After Schneider pled guilty to the original charges, a county judge sentenced her to three years in prison.  Prosecutors appealed, arguing that one of the counts Schneider had pled guilty to carried a mandatory minimum sentence of 10 years.  A state appeals court agreed, and sent the case back to an Ohio county court where Schneider was then sentenced to ten years.  After successfully arguing she had not been able to withdraw her original guilty plea, Schneider had been scheduled to stand trial this week, and entered into her guilty plea at the eve of the trial.  

A court-appointed receiver eventually recovered $10.5 million for the benefit of victims.  A large portion of that amount came from a settlement with the Schneiders' bank, FirstMerit Corp., which was accused of ignoring the classic signs that the Schneiders were running a Ponzi scheme through their bank accounts.  As part of the settlement, FirstMerit did not admit any liability or wrongdoing.  

Tuesday
Aug142012

SEC Charges Utah Man With Operating $27 Million Ponzi Scheme; Is Utah 'Ponziland'?

The Securities and Exchange Commission ("SEC") charged a Utah man with operating a real estate Ponzi scheme that may have bilked investors nationwide out of up to $27 million.  In the latest in a string of Ponzi schemes recently uncovered in Utah, Ivan Wade Brown, 45, is alleged to have duped investors by purporting to provide "bridge loans" to homebuilders.  The SEC's complaint, filed Monday, charges Brown with multiple violations of federal securities laws, and seeks injunctive relief, disgorgement of all ill-gotten gains, and civil monetary penalties.  Additionally, the SEC has requested an asset freeze and the appointment of a receiver over Brown's companies.

Brown owned and operated Avanti Capital Partners, LLC (“Avanti”) and Highland Residential, LLC ("Highland"), which he formed for the purpose of raising capital to make real estate loans.  Potential investors were told that they could expect above-average returns achieved by making "bridge loans" to aspiring homeowners who were currently unable to obtain a conventional home loan.  These investments were advertised as nearly risk-free, with a worst case scenario resulting in only a 10% loss to an investor's principal.  Investors were provided with promissory notes evidencing their investment and containing their promised rate of return.  Ultimately, Brown issued nearly $13 million in Highland notes from October 2004 to January 2007, and nearly $14 million in Avanti notes from January 2007 to May 2008.  Nearly 100 individuals nationwide invested with Brown, though a large amount were Utah residents.

However, according to the SEC, Brown failed to invest the majority of investor funds as promised.  Instead, investor funds were used to make millions of dollars in interest and principal payments to existing investors, as well as to sustain Brown's lavish lifestyle.  These personal expenses included the purchase of a luxury home in Alpine, Utah, a $120,000 down payment on his residence, a $225,000 airplane, and $650,000 towards the production of a motion picture.

Ironically, of the investments Brown did make on behalf of his investors, several were unwittingly made in unrelated Ponzi schemes.  These included $1.25 million placed with DGB Enterprises, a company that purportedly operated a mineral refinery that promised a return of $11 million in nine months - a 1,040% return.  Not surprisingly, DBG ended up being a fraud, and did not pay any of the advertised returns.  Additionally, Brown purchased $28,000 in real estate insurance contracts, called LIVE-GRIPS, that promised to protect the value of Avanti's properties even if the real estate market took a downturn.  This was also a fraud, and Brown lost his entire investment in LIVE-GRIPS.  

The case is the latest in a number of high-profile Ponzi schemes recently uncovered in Utah.  In late June, Wayne LaMar Palmer ("Palmer") and his company, National Note of Utah were charged with operating a $100 million Ponzi scheme.  Additionally, a Utah father and son were accused in December 2011 with masterminding a massive Ponzi scheme that raised over $200 million.  The widespread frauds prompted a CNBC segment hosted by Scott Cohn, dubbing Utah as "Ponziland" and noting that fraud had become so widespread that public authorities launched a public service campaign in 2010 to try and educate citizens.  The piece pegged the current caseload at over 100 cases with an estimated $1.5 billion in losses.  Authorities point to the large Mormon population as a primary target for fraudsters in what is termed "affinity fraud."

The CNBC Video can be viewed here:

 

A copy of the SEC's complaint is here.

Thursday
Aug092012

Kansas Lawyer Receives Three-Year Prison Sentence for Assisting Priest in $52 Million Ponzi Scheme

A Kansas lawyer has been sentenced to three years in federal prison for his role in a $52 million Ponzi scheme that bilked investors out of millions of dollars.  James Scott Brown, of Leawood, Kansas, received the sentence after previously pleading guilty in September to charges of conspiracy to commit mail and wire fraud.  Brown was originally indicted in April 2011.  

Brown practiced law in England for several years before associating with the British Lending Program ("BLP"), a program organized by Martin Sigillito, an ordained bishop and attorney.  BLP purported to operate as a loan program in which the proceeds were used to purchase land in England.  Potential investors were solicited through family and friends, as well as Sigillito's church, and received marketing materials that contained a variety of misrepresentations.  Investors were told that, in exchange for a 1-year "loan" made to BLP, they would receive an annual return ranging from 17.5% to 25%.  In addition, Sigillito and Brown assured investors that there was little to no risk involved, as BLP had sufficient assets to cover its operations, and in the event of a default, English laws contained a quick and efficient process to reclaim the land that would have an investor's original principal investment returned within 60 to 90 days. At the end of the loan period, investors were urged to roll-over their investment into a new loan.  In total, BLP raised more than $52 million from approximately 140 investors over the ten-year period from 2000 to 2010.

Rather than purchase land in England, authorities allege that BLP paid extravagant management fees to its principals and used new investor funds to make purported interest payments to existing investors.  For instance, Brown collected nearly $1.5 million in management fees, while Sigillito pocketed approximately $6 million. Sigillitolived a lavish lifestyle, collecting expensive antiques, including a $120,000 German book from the 15th century, Persian rugs, and British jewelry.  He was regularly shuffled around in a black Lincoln town car by his chauffeur, Virgil.  

As the real estate market collapsed in tandem with financial markets during 2008 and 2009, many concerned investors began to demand the return of their investment.  Many of these requests were rebuffed by Sigillito, who blamed the delays on the "world of international funding/transfers."  The Federal Bureau of Investigation ("FBI") became involved in May 2010 after being contacted by an investor, eventually convincing Sigillito'ssecretary to wear a wire.  The secretary (who later pled guilty to tax fraud for stealing money from Sigillito) provided the FBI with evidence of Sigillito's fraud and in April 2011, Sigillito, along with Brown and another co-defendant, was charged with twenty-two counts of fraud.  A federal jury later found Sigillito guilty of twenty counts.  

In addition to his sentence, Brown was also ordered by United States District Court Judge Linda R. Reade to pay $34 million in restitution to defrauded investors.  Sigillito is awaiting sentencing after his request for a new trial was denied

Wednesday
Oct192011

SEC Halts $35 Million Ponzi Scheme

The Securities and Exchange Commission announced that it obtained an emergency order freezing the assets of a Texas man accused of operating a $35 million Ponzi scheme through the sale of distressed mortgages.  James G. Temme, 42, of Plano, and the entities he controls, including Stewardship Fund, LP, were charged with multiple violations of federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. In addition to the emergency asset freeze already obtained, the SEC is also seeking injunctive relief, civil monetary penalties, and disgorgement of ill-gotten gains with prejudgment interest.

According to the SEC, Temme controlled various limited partnerships, including Stewardship, which functioned as the general partner of at least sixteen entities through which interests were marketed to investors.  Since at least 2008, Temme lured potential investors by describing a plan to purchase non-performing home mortgage loans.  Temme would then work with homeowners in restructuring the non-performing loans into performing loans.  Investors would then share either in the payment stream from those performing loans or from the resale of the repackaged mortgages or underlying properties.   

Prior to the SEC instituting its enforcement action, Temme and the Stewardship entities were the targets of multiple civil lawsuits that raised similar allegations.  However, rather than curtail the fraud, the SEC alleges that Temme continued to raise funds from new investors.  This included at least $1.6 million in a Texas bank account, which represented the recommendation of the Stewardship Philanthropy Fund 4, LP ("SPF") by an investment adviser representative of a major investment bank.  That account was later closed due to questionable activity, but Temme continued to move funds around in efforts to pay various investor groups.  But Temme did not stop there and continued to solicit new investors.  In early 2011, Temme pitched the newly-created Equitas Housing Fund III, LP, which also promised to acquire non-performing home loans.  This resulted in new investor funds exceeding $3 million.  Since 2008, Temme raised at least $35 million from over 30 individuals and entities. 

The SEC has also sought the appointment of a receiver to marshal assets for the benefit of defrauded investors.  A hearing has been scheduled by United States District Judge Michael Schneider for October 27th.  

A copy of the SEC's Complaint is here

Saturday
Oct152011

Colorado Ponzi Schemer Receives Eight Year Prison Sentence

A federal judge sentenced a Colorado man to eight years in federal prison for his role in a Ponzi scheme that bilked investors out of over $30 million.  Philip Lochmiller Jr. faced up to fifteen years in prison after he pled guilty in November 2010 to one count of conspiracy to commit wire and securities fraud and one count of money laundering.  Lochmiller's father, Philp R. Lochmiller Sr., who chose to go to trial rather than to plead guilty, was convicted by a federal jury in July of thirty-one counts, including money laundering, mail fraud, conspiracy, and conspiracy.  He currently is awaiting sentencing.

The Lochmillers operated Valley Investments, which purported to originate mortgages for as a licesned Colorado mortgage broker.  Along with assistant Shawnee Carver, the company acquired several parcels of land to develop affordable housing communities.  Newspaper advertisements solicited potential investors to finance the acquisition, promising annual returns of ten to eighteen percent in return.  Investors were given promissory notes that were purportedly secured by lots of land in the communities.  In total, over $30 million was raised from investors.  However, instead of using the funds for business purposes, the defendants paid expenses, personal bills, and made payments to existing investors in the form of interest and principal repayments.  The scheme came to an end in 2008 when the three were indicted.

Shawnee Carver was sentenced alongside Lochmiller Jr., and received a two-year sentence.  The elder Lochmiller faces a sentence of up to 415 years in federal prison, although federal sentencing guidelines will likely recommend a lower amount.  

A copy of the criminal complaint is here.

A link to the website established by the Receiver appointed to distribute assets to victims is here.