SEC Charges Accountants in Failed $50 Million Ponzi Scheme

The Securities and Exchange Commission announced today that it had filed a settle civil action in a Philadelphia federal court against participants of Joseph S. Forte's failed $50 million Ponzi scheme.  John Irwin, and his consulting firm, Jacklin Associates, Inc., were charged for their role in the scheme that spanned over a decade, specifically for violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.  These violations included allegations that Irwin and his firm solicited investors by providing false information to investors.  

Irwin and Joseph Forte formed Forte LP in 1995, promising high returns to investors through a strategy of investing in stock index futures.  Irwin performed accounting services for Forte LP, including the preparation and issuance of quarterly investor statements and tax returns.  From 1995 to 2008, Forte LP reported annual returns ranging from 18% to 38%, and Irwin is alleged to have used these figures to entice new investors to purchase limited partnership interests in Forte LP.  According to the SEC, Irwin provided this information to investors without conducting any due diligence or independent verification  of the figures provided by Forte.  Additionally, Irwin and his firm prepared quarterly and annual statements given to investors that contained fictitious account information.    Numerous other red flags were also ignored that the SEC alleges should have alerted Irwin to Forte's scheme.

Instead, Forte was charged in 2009 with operating a massive Ponzi scheme that ultimately resulted in losses exceeding $50 million to 100 investors.  Forte was sentenced later in 2009 to fifteen years in prison and ordered to pay nearly $35 million in restitution to investors.  

Irwin has agreed to settle the charges alleged by the SEC without admitting or denying any wrongdoing. In the settlement, Irwin and Jacklin have agreed to a consent judgment enjoining future securities violations, the disgorgement of profits along with pre-judgment interest, and the possibility of civil penalties.  Irwin will also be forbidden from practicing as an accountant for any SEC-registered company.

Indiana Police Arrest Two in $4.5 Million Ponzi Scheme

Two men were arrested on charges that their investment company was in reality a Ponzi scheme that cost investors $4.5 million.  Jerry Smith, 49, of Brookville, Indiana, and Jasen Snelling, 47, of Anderson Township, were charged with 18 felonies by Indiana prosecutors, including securities fraud and theft. While authorities have arrested Smith, Snelling's whereabouts remain unknown.

Snelling and Smith operated Dunhill Investment Advisers and CityFund Advisory in downtown Cincinnati, where they guaranteed high rates of returns to clients under the guise that the firms were successfully day-trading.  More than thirty people invested $4.5 million with the operation, which, instead of being invested, was used to pay owner salaries and purchase a boat, furniture, and plastic surgery.  Following his arrest, Smith, through his attorney, claimed he and his family had also lost a great deal of money and was a victim of Snelling.

Following a tip by an investor whose accountant questioned the legality of the operation, the Indiana Securities Division filed a civil complaint in June 2010 freezing Smith and Snelling's assets.  Smith and Snelling have also been charged in two other Indiana counties.  The filing of federal charges is also a possibility. 

Ex-Attorney Indicted for $7 Million Ponzi Scheme in San Francisco

A federal grand jury has indicted a San Francisco man on charges that he operated a Ponzi scheme that blked investors out of $7 million.  Robert Tunnel, 72, was indicted on seven counts of mail fraud, thirteen counts of wire fraud, and one count of money laundering.

According to the indictment, Tunnel told friends and relatives that he was a sophisticated investor and could achieve substantial returns with low risk.  In an affidavit filed by a FBI agent, Tunnel told one victim taht he was a semi-retired international attorney and had achieved handsome returns investing in commodities such as coffee and copper. From 2006 until his arrest last month, Tunnel took in $10 million from new investors consisting mainly of family and friends.   Rather than investing in commodities, Tunnel made risky trades resulting in losses of $7 million of the original $10 million.  Other funds were paid to investors as returns to create the appearance that Tunnel was successfully trading.

Tunnel was an attorney in California for nearly 35 years before resigning from the California bar amid allegations of misappropriation of funds from his law firm.  Tunnel studied at Dartmouth and obtained his law degree from Harvard Law.  Incidentally, Tunnel is not the first Harvard Law graduate to be accused of running a Ponzi scheme in recent years - Marc Dreier, a fellow Harvard Law grad, is currently serving time for masterminding a $400 million scheme in New York.

Tunnel is no longer in jail after posting a $10 million bond.

Mets Owners File Additional Brief in Bid to Dismiss Madoff Trustee's Lawsuit

In a filing July 7, lawyers for New York Mets team president Saul Katz and other team executives submitted additional briefing in support of their previous motion to dismiss Irving Picard's lawsuit. Picard, the court-appointed trustee liquidating Bernard L. Madoff Investment Securities LLC, filed suit in January seeking hundreds of millions of dollars from the Mets owners and team executives, alleging that as sophisticated investors, they had to know that the consistent returns achieved by Madoff could not have been legitimate.  

Unique from the typical clawback lawsuit - which now total over 1,000 - Picard sought not only money withdrawn in excess of invested principal - termed "false profits" - but also the return of 'fraudulent transfers' withdrawn from Madoff into accounts owned or controlled by the executives.  Picard asserted that such an approach was appropriate in light of "certain indicia of fraud by the Sterling Partners.".  Not surprisingly, the Mets executives fired back, lambasting Picard and his team for their overzealous pursuit and pointing to the subsequent financial damage suffered by the Mets organization after the Madoff fraud was exposed.

In their motion to dismiss and subsequent reply in support, the Mets executives seek to refute the many facts alleged by Picard in support of his contention that the defendants knew or should have known of the illegality of Madoff's operation.  Calling Picard's motion without a "factual or legal foundation," the defendants specifically sought to refute several of the allegations, arguing that (1) the Sterling Partners never shopped for Ponzi Scheme Insurance, and (2) Mets executive David Katz was not concerned that Madoff's scheme was a Ponzi scheme.

The issue is now fully briefed, and a hearing will likely be scheduled in the near-future.  However, any hearing will be held in a New York federal court, rather than Bankruptcy Court, after a ruling that the legal issues raised were more suitable to be heard in federal court.  This is seen as an advantage for the Mets defendants, as the Southern District of New York is highly experienced in dealing with such issues.

Stanford Investors Accuse Receiver of Collecting Nearly All Money Recovered As Fees

Ralph Janvey, the court-appointed receiver tasked with dismantling the alleged multi-billion dollar scheme perpetrated by R. Allen Stanford, today faced an unlikely threat: the investors for whom he has been seeking to recover assets.  In a motion filed in Texas federal court Friday, a group of investors claimed that Janvey's expenses to date amounted to nearly all of the assets recovered thus far as a result of Stanford's fraud.

Several investors filed a motion to intervene on July 7, making several startling accusations.  First, it states that out of the $120 million collected thus far to date by Janvey, nearly all - $118.2 million - has been paid to Janvey and his legal team as expenses, leaving just $1.5 million available to investors.  This includes allegations that Janvey billed $20 million in his first eight weeks as Receiver, and $46 million during the first year of the receivership.  Additionally, the investors allege that not one distribution has been made to investors since Janvey's appointment.  As if the amount itself was not enough, the motion breaks down each investor's pro rata share of that $1.5 million - approximately $71.42 per investor.  

But that's not all.  The motion further alleges that the Stanford Investors Committee - the court-installed group responsible for overseeing the Receiver's actions - had made an arrangement with the receiver to  receiver 25% of all recoveries from the multitude of fraudulent transfer lawsuits filed on behalf of the Receivership estate.

Ultimately, the investors seek the appointment of a representative to the Stanford Investors Committee to represent the rights of over 500 investors who had accounts with Stanford.  There has been no response from the Receiver.  Stanford is set to stand trial in January.