California Man Sentenced to Prison for Running Ponzi Scheme

A California man was sentenced to almost five years in federal prison for operating a Ponzi scheme that authorities say bilked investors out of over $2 million.  Luis Fernandez, 37, of Folsom, California, received a prison sentence of four years and nine months, to be followed by three years of supervised release.  Fernandez had previously pled guilty in June 2010 to a charge of wire fraud, which carries a maximum prison sentence of twenty years in prison and criminal monetary penalties.

According to his guilty plea, Fernandez owned and operated Fernandez Financial Inc. in Folsom.  From September 2004 to March 2009, Fernandez solicited investors by promising monthly returns of up to three percent and falsely representing that Fernandez Financial was profitable in both good and bad markets.  In total, approximately $7.4 million was collected from investors, who were primarily natives of the Dominican Republic.  During that period, roughly $4.6 million of that amount was invested in the stock market, and Fernandez incurred trading losses in five of the six years the fraud was ongoing.  Yet investors were provided with false documentation showing positive performance in their investments, and Fernandez used money from new investors to make monthly interest payments to existing investors.  In total, authorities allege that Fernandez caused a total loss to investors of $2.1 million. 

Fernandez was also ordered to pay restitution to defrauded investors, although the exact amount will be set at a later hearing.  

A Department of Justice Press Release announcing the indictment is here.

Florida Man Accused of $2.3 Million Ponzi Scheme

A 27-year old Florida man has been arrested on suspicion of running a Ponzi scheme that defrauded investors out of at least $2.3 million.  Anthony Klatch II, 27, of Tampa, Florida, was charged by federal authorities in an 18-count indictment that included charges of conspiracy, securities fraud, wire fraud, and money laundering. Wire fraud and mail fraud each carry a twenty-year maximum sentence in prison, along with criminal monetary penalties.  

According to authorities, Klatch and partner Tim Sullivan founded TASK Capital Partners, LLC ("TASK"), where Klatch served as senior managing director and chief investment officer.  Potential investors were provided with investment prospectuses that contained misleading information and material omissions, including the claim that TASK had been achieving positive investment returns since 1997 when TASK had not been formed until 2009.  From April 2009 to October 2009, Klatch solicited at least eight investors to place over $2.3 million with TASK.  Yet, only a small percentage of funds were used for investing purposes, and authorities allege that Klatch lost this entire amount.  Klatch misappropriated the remainder of funds for non-investment purposes, including transfers to his personal bank account and the purchase of a home and several luxury automobiles. In the indictment, authorities are seeking the forfeiture of these items.

Klatch was arrested in July, and is currently being held on bond in a Florida jail.

Woman Sentenced in $3 Million Ponzi Scheme

A California woman was sentenced to one year in jail for her role in a Ponzi scheme that bilked investors out of at least $3 million.  Gina McGee, 43, had entered an Alford Plea to charges of securities fraud and grand theft earlier this year.  An Alford Plea is a type of plea agreement in which the accused does not admit guilt but acknowledges that the weight of evidence brought by prosecutors is enough to succeed in court.  Because McGee received credit for time served before sentencing, she was released after the plea was approved by the sentencing judge.  McGee will remain under probation for the next eight years.

McGee, along with her husband Glenn K. Jackson, solicited victims to invest in an investment vehicle called Highlands Capital Partners, L.P.  Investors were under the assumption that their funds would be used to trade foreign currencies.  In total, Jackson and McGee received over $3 million from investors, including at least $2.4 million from 11 identified investors.  Nearly half of the money - $1.4 million - was never used to trade foreign currencies and was instead misappropriated by the pair.  Investors became wary when requests for partial or full distributions were refused during the financial downturn in 2008 and 2009.  McGee and Jackson were arrested in June 2010.

As part of her sentence, McGee is required to pay at least 25% of her future income towards restitution to defrauded victims.  Her husband, Jackson, is currently awaiting trial on more than forty counts of securities fraud, grand theft, and conspiracy.  

Two Indicted In Mortgage Fraud Ponzi Scheme

Two New York residents were indicted for orchestrating what authorities termed a home mortgage fraud Ponzi scheme that scammed victims out of at least $1 million.  Loronda Murphy, 47, and Scott Forcino, 45, were charged with varying counts resulting from the alleged fraud.  Murphy faces nineteen counts, including residential mortgage fraud, grand larceny, falsifying business records, and conspiracy.  Forcino, who is an attorney, was charged with scheme to defraud, conspiracy, and criminal facilitation.  Each faces multiple years in prison if convicted.

According to prosecutors, Murphy and Forcino operated Settle One Corporation with an office in Armonk, New York.  Prospective victims were enticed to take out a new mortgage on their home, with the understanding that the new mortgage proceeds would pay off the pre-existing mortgage.  Murphy would pose as a closing attorney, and stole the money from the new mortgage rather than pay the existing mortgage.   From April 2009 to June 2009, the pair swindled five victims, including Murphy's father, out of over $1 million.  The proceeds were commingled and in some instances used to make mortgage payments on various unpaid mortgages.  Ultimately, the victims were left with the prospect of having to pay off both an existing and new mortgage.

Bond was set for the pair, who are due next in court on September 15, 2011.

Madoff Trustee Files Seven Clawback Lawsuits Against Feeder Fund Investors

The court-appointed trustee overseeing the liquidation of Bernard L. Madoff Investment Securities filed seven "clawback" lawsuits seeking the return of at least $173 million from entities that invested in one of the largest feeder funds to Madoff's scheme.  Irving Picard, the trustee, filed the suits after previously negotiating a settlement with the feeder fund, Fairfield Sentry, that allowed him to claw back profits from investors who placed funds with Madoff through Fairfield.  Last week, Picard filed suit against the Abu Dhabi Investment Authority seeking $300 million from investments with Fairfield.

The lawsuits, termed "clawback" suits, proceed under bankruptcy and state law allowing avoidance of transfers of funds made by Madoff to both initial transferees and any subsequent transferees.  According to the complaints, a total of $3 billion was transferred from Madoff to Fairfield during the six-year period preceding BLMIS' bankruptcy filing.  The seven entities sued by Picard and amount sought are as follows:

• Concord Management LLC - $10 million
• Parson Finance Panama S.A. - First Gulf Bank - $11.1 million
• Lion Global Investors Limited - $50 million
• Meritz Fire & Marine Insurance Co. Ltd. - $21.8 million
• Quilvest Finance Ltd. - $37.8 million
• Orbita Capital Return Strategy Limited - $30.6 million

The lawsuits were filed by David Sheehan, counsel to Picard.

Each complaint can be found here.