Jury Convicts Two Members of Forex Ponzi Scheme

A Virginia federal jury convicted two members of a Ponzi scheme that ultimately took in approximately $1.4 million from investors.  Following a nine-day trial, the jury convicted Angela Allison Duty Smith, 35, and Terrance Keith Cunningham, 39, on a combined 420 counts of wire fraud, 40 counts of money laundering, two counts of commodities fraud, and two counts of conspiracy to commit wire fraud.  The charges carry a combined maximum sentence of hundreds of years in federal prison, although federal sentencing guidelines will likely call for a lower sentence.

Smith and Cunningham were part of the Safeguard 30/30 Investment Club, which was masterminded by Smith's husband, Ronald Wade Smith, Jr.  According to authorities, prospective investors were promised annual returns of thirty percent through sophisticated foreign currency trading.  Instead, funds from new investors were used to pay older investors, a classic hallmark of a Ponzi scheme.  Smith also misappropriated investor funds to build a new home.  

Smith and Cunningham are scheduled to be sentenced November 14.  Ronald Smith, Jr. pled guilty in June to 239 counts of wire fraud, one count of commodities fraud and one count of conspiracy to commit wire fraud.  He is due to be sentenced September 19.

Florida Couple Ordered to Pay Restitution in Forex Trading Ponzi Scheme

The United States Commodity Trading Futures Commission announced that a North Carolina federal judge has approved a consent award against a Florida couple and their company in a foreign-currency trading Ponzi scheme that took in over $20 million from investors.  Gary D. Martin and Brenda K. Martin (the "Martins"), of St. Augustine, Florida, and their company Queen Shoals Consultants, LLC, were issued permanent trading and registration bans, along with orders of full restitution to defrauded investors and a yet-undetermined civil monetary penalty.  

According to a complaint filed by the CFTC, Sidney Stanton Hanson was accused of running several entities, including Queen Shoals, LLC, that fraudulently solicited $22.5 million from investors for the purported purpose of trading foreign currencies.  Prospective customers were promised annual returns ranging from eight to twenty-four percent, along with an additional 1% to investors who rolled over their IRA balances.  Hanson, who pled guilty earlier this year to charges of securities fraud, mail fraud, and money laundering, did not disclose to investors the use of more than 30 "consultants" who were paid referral fees in return for funnelling customer funds to Queen Shoals. 

Authorities alleged that the Martins operated as so-called "consultants" for Queen Shoals.  Through their company Queen Shoals Consultants, over $20 million was solicited from investors through in-person solicitations, written materials, and a website.  Prospective investors were told that the Martins and Queen Shoals had extensive experience trading foreign currency, which was in fact false.  All funds raised by the Martins were then turned over to Hanson, who paid the Martins at least $1.44 million in undisclosed referral fees.  

In reality, the foreign currency trading operation was an elaborate Ponzi scheme that engaged in minimal currency trading.  Heavy losses were incurred in the little forex trading that did occur.  The remainder of the funds taken in from investors were used to pay quarterly interest payments to existing investors, referral fees to so-called "consultants", and to sustain Hanson's lavish lifestyle.  

In April 2011, Hanson was sentenced to twenty-two years for his role in the scheme and also ordered to pay more than $33 million in restitution.  

A copy of the CFTC Complaint is here. 

A copy of the SEC Complaint is here.

Kansas Lawyer Sentenced to Four Years in Prison for Texas Ponzi Scheme

A federal judge sentenced a Kansas lawyer to nearly four years in prison for operating a Ponzi scheme that bilked investors out of more than $2 million. Clifford R. Roth, 62, was sentenced by United States District Judge Marcia Crone to forty-six months in prison and ordered to pay over $2 million in restitution to defrauded investors.  Roth pled guilty earlier this year to an information charging him with interstate transportation of money taken by fraud.  

Roth, a licensed attorney in Kansas, traveled to Beaumont, Texas, in November 2007 and began soliciting investors to finance the purchase of bank holding company stock, which in turn would purchase an Oklahoma bank that would open a branch in Beaumont.  Investors were promised that their stock purchases would be held in escrow until the bank purchase was completed, and in the event the bank purchase did not occur, investors would receive their initial investment along with accrued interest.  As a result of these misrepresentations, dozens of investors contributed a total of $2.5 million to Roth.  Yet, according to the FBI, Roth never acquired a bank.  Instead, Roth misappropriated investor funds to a company he controlled to pay personal expenses and make payments to previous unrelated creditors of Roth.  

Roth, once a name partner at Kansas City law firm Gaar Buxbaum & Roth, has been ordered to begin serving his sentence by August 23, 2011.

Court Orders California Ponzi Scheme Operators to pay $8 Million

A California district court recently ordered two men who operated a Ponzi scheme targeting members of the Spanish speaking community in Los Angeles to pay $8 million in restitution and penalties.  In conjunction with an earlier complaint filed by the United States Commodity Futures Trading Commission, Ruben Gonzalez, of West Covina, and Jose Naranjo, formerly of La Mirada, California, along with New Golden Investment Group, LLC ("New Golden"), were ordered to pay a total of $8 million consisting of over $4 million in restitution, $1 million in disgorgement, and $3 million in civil monetary penalties.  Gonzalez had previously pled guilty to one count of mail fraud, one count of money laundering, and one count of misuse of a Social Security number and was sentenced to over 11 years in federal prison in December 2010.  Naranjo is believed to have fled the United States and remains a fugitive.

According to the CFTC complaint, Naranjo and Gonzalez operated a Ponzi scheme that began in August 2008 and targeted approximately 165 members of the Spanish-speaking community in Los Angeles. Investors were solicited with advertisements in Spanish-speaking newspapers that promised returns exceeding 100% trading commodity futures.  The company, New Golden, had offices in West Covina, California, and Las Vegas, and claimed to also be involved in various business activities in Mexico including mining and real estate.  According to the complaint, New Golden was never registered with the CFTC.  In total, approximately $3.65 million was raised from investors, who were given promissory notes indicating their investment and promised monthly returns ranging from 5% to 15%.  Of this amount, nearly $2 million was used to pay purported profits to existing investors, and hundreds of thousands of dollars were misappropriated by Naranjo and Gonzalez.  Authorities estimate that the total loss to victims was $2.2 million.

Along with his 11-year prison sentence, Gonzalez was also ordered to pay over $2 million in restitution to defrauded investors.  

A copy of the CFTC Complaint filed May 20, 2010 is here.

Investors Win Civil Suit Against Defunct Arizona Ponzi Scheme Operators

A federal jury awarded $46.5 million to investors in a failed Arizona Ponzi scheme that bilked investors out of millions of dollars.  More than 1,000 victims brought a class-action suit seeking damages from the remaining high-ranking employees of several Fresno leasing companies after the alleged mastermind, John Otto, committed suicide.  The jury verdict against Dan Ramirez and Andy Fernandez came several days after Judge Donald Black found HL Leasing Inc., Heritage Pacific Leasing and Air Fred LLC liable to victims for almost $68 million, bringing the total award to $114 million.  

Otto created the three companies in 2001, soliciting investments from victims by representing that the money was being used to buy lease agreements from American Express at a discount.  Investors were promised above-average monthly returns based on the alleged success of the leasing arrangement.  To reassure investors, Otto false represented that he was registered with the California Division of Corporations.  However, there were no legitimate lease agreements with American Express, and Otto was not registered with the California Division of Corporations.  Instead, investor funds were used to fund the lavish lifestyle and salaries of corporate officers and to pay purported returns to older investors.  

The class-action plaintiffs argued that the corporate officers were aware of the scheme and engaged in fraud to keep the scheme sustainable.  For example, Ramirez made millions of dollars in salary between 2004 and 2008, and Fernandez was paid $125,000 per year with bonus for her role as CFO.  Attorneys for Ramirez and Fernandez argued they were unaware of the scheme and, upon its discovery, went to the FBI.  The jury rejected this explanation, finding Ramirez liable under the theory of fraudulent concealment and both Ramirez and Fernandez guilty of aiding and abetting the fraud. 

A hearing on whether Otto's wife can be held liable as a shareholder of the leasing companies is scheduled for September.  An FBI probe of the companies remains ongoing.