North Carolina Man Charged With $2.3 Million Ponzi Scheme

Federal authorities charged a North Carolina man with operating a Ponzi scheme that defrauded investors out of over $2 million.  John Knox Bridges, 50, of Salisbury, North Carolina, was charged with securities fraud and money laundering in connection with the scheme whose alleged victims included individuals and charitable groups.  The charges come nearly a month after Bridges was wounded after a self-inflicted shotgun blast in what police termed an attempted suicide.  Bridges was treated for his injuries and had since been discharged.  

According to the indictment, Bridges began to solicit investors in 2004 through his company called "Logan Investments".  Investors were told that their money would be invested in a Texas oil company that was constructing an oil pipeline, and that investors would receive quarterly dividends.  Authorities allege that the quarterly dividends were not paid from oil company profits, but instead from the funds of new investors commingled in Bridges' personal accounts.  Victims were later convinced to loan Bridges money when he convinced them his computer had been hacked and $600,000 stolen from his bank account.  Bridges was also accused of misappropriating funds in connections with his various positions with charitable organizations.

Bridges entered a plea of not guilty to the charges, and was released on $25,000 bail.  

Milberg LLP Founder Seeks Dismissal of Madoff Trustee's Clawback Suit

The former co-founding partner of Milberg LLP is seeking to dismiss a clawback suit filed by the court-appointed trustee seeking assets for victims of Bernard Madoff's Ponzi scheme, alleging that the funds sought are beyond the time periods allowable under Bankruptcy and New York state law.  Irving Picard, the court-appointed trustee, filed suit in November 2010, seeking the return of over $20 million in false profits from Melvyn Weiss and David J. Bershad.  Both are former lawyers in Milberg, which was later disbanded after admitting to paying clients to file securities fraud lawsuits.

In the filing, Weiss argues that Picard is prevented from recovering any alleged false profits due to the length of time over which the profits were made, stating

“The trustee’s claims violate the statutory ‘look back’ periods limiting avoidance to six years prior to the filing date for state law,”

Both the Bankruptcy Code and New York state law govern the time period preceding the filing of a bankruptcy petition that a trustee may recover transfers from the debtor.  Under the Code and New York law, the maximum length of time preceding the petition filing date is six years.  According to Weiss, Picard is seeking the return of funds acquired over a fifteen-year period.  Picard has sought the return of funds from defendants in similar cases beyond the six-year limitation, but on the premise that those defendants knew or should have known of the fraudulent nature of the transfers.  Weiss attempts to distinguish those cases, arguing that Picard has not demonstrated that Weiss knew or should have known of Madoff's fraud.  

Weiss also asked United States Bankrtupcy Judge Burton L. Lifland to transfer the case to a district court, arguing that the case involved issues raising non-bankruptcy questions and would be more appropriately decided in a federal court.  

Arkansas Lawyer Surrenders Law License After Guilty Plea to Ponzi Scheme

An Arkansas man who authorities say perpetrated the largest financial fraud in Arkansas history has surrendered his license to practice law after pleading guilty to orchestrating the scheme.  Kevin Lewis, 43, tendered the surrender of his law license after pleading guilty last month to one count of bank fraud.  As previously covered by Ponzitracker, losses to investors are estimated to exceed $40 million.

Lewis's scheme entailed the issuance of paperwork for false rural improvement bonds to several Arkansas banks.  The bonds were then used by Lewis as collateral to receive financing from banks.  At least one bank involved in the fraud was forced into federal receivership after having purchased nearly $23 million of the fake bonds.  Lewis had obtained majority ownership of the bank through the use of fraudulent proceeds of a previous bond sale to another bank.  Instead of developing the property described in the bonds, Lewis used the financing for personal and business expenses. 

Lewis is one of several lawyers who in recent weeks have faced disciplinary proceedings including disbarment for their role in Ponzi schemes.  This includes Michael McNerney, the lead lawyer for Mutual Benefits Corp., later accused of being a Ponzi scheme, and Howard Kusnick, who pled guilty to his role in Scott Rothstein's $1.2 billion south Florida Ponzi scheme.

Judge Rejects HSBC Settlement With Madoff Feeder Fund

A federal judge refused to approve a proposed settlement between HSBC Holdings and Thema, an Irish fund that acted as a 'feeder fund' in funneling money to Bernard Madoff's Ponzi scheme.  HSBC acted in a custodial role for Thema International Fund, whose investors lost their entire investment valued at over $300 million to Madoff's scheme.  The two parties had announced in June that they had reached a settlement in which HSBC, while admitting no wrongdoing, would pay $62.5 million, or roughly 20% of Thema investor losses.  The balance in the fund at the time of Madoff's arrest was over $1 billion, but most of those profits were fictitious.

United States District Judge Richard Berman, while noting that he generally favored the settlement of suits - especially class actions - noted several "obvious deficiencies" in refusing to accept the proposed settlement, including the setting aside of a $10 million reserve for attorney's fees to pursue claims against non-settling defendants also named in the suit.  Judge Berman also took issue with what he perceived as the inadequate disclosure of legal costs.  Reflecting on the settlement, Judge Berman noted that while he would consider a revised accord, the current settlement was "not fair, reasonable or adequate -- even at this preliminary stage." 

Proposed settlements, while subject to a judicial stamp of approval, are routinely approved and viewed as essential to trimming judicial dockets of cases that should not be tried.  The rejection is notable in that HSBC had recently won the dismissal of common law claims filed by Irving Picard, the court-appointed trustee overseeing the liquidation of Madoff's failed brokerage.  There, United States District Judge Jed S. Rakoff had ruled that Picard lacked standing to bring those claims against HSBC, and that the proper party to bring those claims were the wronged investors.  Picard has appealed that decision to the Second Circuit Court of Appeals.

A Copy of Judge Berman's Order is here.

South Florida Man Pleads Not Guilty to Ponzi Scheme

A Miami man entered a plea of not guilty to charges he operated a Ponzi scheme that allegedly bilked family and friends out of $1.3 million.  As earlier covered by Ponzitracker, Scott Siegal, also known as Michael Scott Segal, was charged last week with twelve counts of mail and wire fraud.  He faces up to twenty years in prison on each charge if convicted, along with criminal monetary penalties and restitution to defrauded investors. 

Siegal operated Bright Jewel Holdings several months after being released from serving a seven-year prison sentence for attempted murder.  The company purported to purchase consumer goods from China at a discount which were then resold in the United States for a substantial profit.  Along with entering his not guilty plea, Segal's attorney that represented him in his attempted murder prosecution also successfully petitioned the court to serve as Siegal's court-appointed attorney.   Siegal also requested a trial by jury. 

Siegal remains in prison on $600,000 bail.