Elementary School PTA Moms Accused of $3M Ponzi Scheme

Three members of the Parent Teacher Association at Armstrong Elementary School in central California are in custody after they were arrested for allegedly operating an elaborate Ponzi scheme in which victims are suspected of losing nearly $3 million.  The three women - Marciela Barajas (aka Marciela Torres), 41, Juliana Menefee, 50, and Eva Perez, 51 - were arrested on multiple state felony charges, including seven counts of grand theft and fifteen counts of securities fraud.

According to police, investors were approached at social functions and school events under the ruse that the three women had the exclusive rights to sell AltaDena dairy products at small retailers and Disneyland.  Promising annual returns exceeding 100%, unwitting investors were convinced to fund their investments with second mortgages on their homes and maxing out credit cards.  In total, police say the three women raised over $14 million in the scheme.  Of the $14 million, $10 million was returned as payments to investors, while $1.5 million has been confirmed as losses.  Approximately $2.5 million remains unaccounted for, with police speculating that the three women used the amount for luxury items and travel.  According to a local news site, nearly 40 victims invested amounts ranging from $5,000 to $208,000.

Two of the women, Barajas and Menefee, are scheduled to be arraigned Thursday, July 7.  The remaining woman, Perez, incidentally, is already in jail after after pleading guilty in 2010 to a similar scheme.  In addition to serving her current 11-year sentence, Perez is expected to face new charges for her role in this scheme.  The arrests came with the culmination of a six-month fraud investigation conducted by the Los Angeles County Sheriff's Commercial Crime Bureau.  It is unknown whether the women will face federal charges as well.

Stanford Investors Must Wait Until September for SIPC's Decision

As covered by Ponzitracker in an earlier post, the Securities and Exchange Commission recently recommended that investors defrauded by R. Allen Stanford's multi-billion dollar Ponzi scheme were entitled to receive compensation from the Securities Investor Protection Corporation ("SIPC").  SIPC was established to compensate investors of failed broker-dealers, and is funded entirely by its member organizations.  Investors who fall under the protection of SIPC are entitled to compensation for up to $500,000 of brokerage losses.  

While SIPC had originally issued its opinion that Stanford's investors were not entitled to SIPC's protections, this opinion was made informally.  The SEC issued its recommendation on June 15, threatening to take legal action against SIPC if its recommendation is not heeded.  In response, SIPC recently announced that it was reviewing the SEC's decision, and would announce its decision on or around September 15th.  

SIPC has recently come under fire for its handling of several cases, including claims it was slow to pay out to Madoff victims and the decision to exclude Stanford investors. Often analogized to the Federal Deposit Insurance Corp. ("FDIC"), which covers deposit holders at failed banking institutions, SIPC was created in 1970 to provide similar protection to clients of failed broker-dealers.  In addition, criticism has increased that the $500,000 limit for payout to customers of failed brokerages, in place since the organization was established in 1970, should be increased.  However, such an increase can only be achieved through Congressional amendment of SIPC's enacting legislation.

2 Indicted for Operating Ponzi Scheme in Kentucky

Two men were indicted Friday for allegedly operating a Ponzi Scheme in Kentucky.  Swainson Hawke of Macon, Ga., and William A. Humes of Elizabethtown were each charged with conspiracy to commit mail fraud and aiding and abetting each other.  If convicted, each faces up to forty years in prison, a $500,000 fine, and forfeiture of any property gained as a result of the offenses.  The two men have pled not guilty, and are currently free on $10,000 bail.

Hawke and Humes operated several businesses, including Guardian International Travel LLC ("Guardian"), sold discounted gift cards to participants, who were then 'paid' commissions based on subsequent sales to investors.  Participants in the scheme were given incentive to recruit as many new investors as they could, since the amount of compensation was directly tied to the quantity of solicited investors. Another business operated by the two, Pinnacle Concrete & Construction, was transferred to Humes in return for the sale of his interest in Guardian to Hawke.  Authorities allege that Pinnacle was capitalized with monies raised in the scheme operated by Guardian.  

Sentencing set for Wednesday for South Florida Ponzi Schemer

A Key Biscayne man is due to be sentenced Wednesday for his operation of a Ponzi Scheme that caused investors losses of nearly $3 million.  Lorn Leitman, 61, a lawyer and accountant, pled guilty to one count of mail fraud in connection with the scheme where investors were lured to the possibility of annual returns exceeding fourteen percent.  He will face a sentence of at least twelve years in federal prison, and the federal judge overseeing the case, U.S. District Court Judge Donald Graham, has suggested that he may impose a higher sentence due to the severity of the crime.

Leitman is said to have operated the scheme for a decade, until incoming funds were no longer sufficient to pay interest to older investors.  The scheme consisted of a home-loan investment deal, and ultimately over 25 investors would entrust nearly $3 million to Leitman.  Even before Leitman is alleged to have started the scheme, he ran into trouble in the early-1990s in a similar capacity making loans to Florida investors.  As a result of an investigation by the Department of Banking and Finance, Leitman was forced to surrender his broker's and registered investment advisor's license.  

Additionally, Wednesday's sentencing is not Leitman's only legal problem.  A South Florida grand jury recently returned an indictment charging Leitman with stealing from the South Florida Emergency Physicians, P.A. Profit Sharing Plan, an employee pension benefit plan. These new charges carry a maximum prison sentence of five years.  

Atlanta Man Indicted for $7 Million Ponzi Scheme

Federal authorities unveiled an indictment charging an Atlanta man with a Ponzi Scheme that allegedly resulted in losses exceeding $7 million.  In an indictment unsealed last week, Charles Michael Vaughn, 42, of Atlanta, Georgia, was charged with five counts of wire fraud and nine counts of mail fraud.  Under federal sentencing guidelines, Vaughn could face up to 20 years and a $250,000 fine for each convicted offense. Vaughn has since been released on a $50,000 bond.

According to the indictment, Vaughn solicited investors from several states during the time period spanning July 2004 through at least March 2008.  At least 25 investors residing from Florida, Georgia, North Carolina and Tennessee placed their funds with Vaughn, who claimed he operated a hedge fund called "CM Vaughn, LLC."  Yet, according to the FBI, Vaughn never filed required documentation with the National Association of Securities Dealers or to become an investment adviser.  To entice investors, Vaughn promised monthly returns of 2% - 3.5% and annual returns as high as 50%.  Additionally, Vaughn represented that the investments were insured and could not fall below certain levels.  However, according to the FBI, Vaughn never invested any of the funds.  

To convince investors that the returns they were receiving were authentic, Vaughn allegedly generated fictitious monthly account statements and sent several checks purporting to be dividend income. Instead, Vaughn is accused of paying investor returns with new investor funds and misappropriating the remaining funds.  Vaughn allegedly purchased several luxury items with investor money, including expensive jewelry and automobiles.  

Vaughn's scheme was uncovered in late 2008, and he quickly filed bankruptcy as the scheme began to unravel.  An attorney was appointed by the court to begin liquidating Vaughn's assets.  According to published reports, Vaughn fled the country after the FBI began investigating his scheme.