Guilty Plea in "Battle of the Bands" Ponzi Scheme

A Southern California woman recently pled guilty to charges she bilked investors out of nearly $1 million in a classic Ponzi scheme.  Lauren Baumann, 43, pled guilty to a charge of wire fraud.  She faces a maximum prison sentence of twenty years, but which will likely be lower due to federal sentencing guidelines.  

According to authorities, Baumann solicited investors for Stewardship Estates LLC, a business she ran that sought to finance "battle of the band" events featuring Christian rock bands.  Some investors were also told that Baumann would use their funds to flip real estate.  Investors were promised guaranteed interest payments, and in total, more than two dozen victims invested nearly $1 million with Baumann.  However, instead of using investor funds for the stated purposes, Baumann used new investor funds to pay returns to existing investors, a hallmark of a Ponzi scheme.  Authorities also accused her of failing to disclose her previous conviction for securities fraud.

This is not Ms. Baumann's first Ponzi scheme.  She was previously convicted of securities fraud in Texas in 1999, when she was charged with fraudulently raising at least $5 million in connection with low-risk mortgage investments.  She served three years in prison for that scheme.  

Baumann is scheduled to be sentenced December 12, 2011.

A copy of the 1998 SEC Press Release is here.

Guilty Plea Expected in $40 Million Forex Ponzi Scheme

A North Carolina man is expected to plead guilty this week to charges that he participated in a $35 million foreign currency trading Ponzi scheme.  Court records indicated that a change of plea hearing is currently scheduled on October 12 for Bryan Keith Coats, of Clayton, North Carolina.  Coats and several companies he operated were named in a January 2011 complaint filed by the Commodity Futures Trading Commission ("CFTC"), a foreign currency regulator.  Criminal charges followed, and Coats faced charges of investment fraud and money laundering.  Money laundering carries a maximum prison sentence of twenty years in federal prison, along with a fine of the greater of (1) $500,000 or (2) twice the value of property involved in the transaction.

According to the complaint filed by the CFTC, the scheme started in April 2007, when Coats, along with defendants Keith Simmons and Deanna Salazar, solicited customers to invest in various entities operating as Black Diamond Capital Solutions, LLC and Black Diamond Holdings.  Potential customers were told that Black Diamond operated a sophisticated forex trading system, with three years of experience engaging in highly successful forex trading. Average monthly returns of up to four percent were promised, and investors were assured that trading stop mechanisms were in place and that no more of twenty percent of invested funds were at risk.  In June 2008, Coats established his own hedge fund, Genesis Wealth Management, LLC, through which he solicited customers for Black Diamond.  As a result, at least 240 individuals invested $35 million with Black Diamond.  However, in March 2009, Black Diamond began to refuse principal redemptions and interest payments, providing investors with several false excuses.  Following an investigation by the CFTC, a company principal admitted that Black Diamond "has never traded currency, held brokerage accounts, or advised anyone on currency trades," and utilized hypothetical trading results to calculate the gains customers were supposedly making.  

One of the company executives, Keith Simmons, was arrested in December 2010 and charged with conspiracy to commit money laundering, wire fraud, and securities fraud.  Another, Deanna Salazar, recently pled guilty to charges of investment fraud conspiracy and tax evasion.

A copy of the CFTC Complaint is here.

Ponzi Schemer Who Contributed to Demise of Brokerage Firm Sentenced to Prison

A Michigan federal judge handed down a sixteen-year sentence to a man whose Ponzi scheme contributed to the demise of one of the fastest growing broker-dealers in the country.  Edward P. May, 75, who was indicted in October 2009 on fifty-nine counts of mail fraud, pled guilty to each count in April 2011.  Each count of mail fraud carries a potential maximum sentence of twenty years in federal prison, along with a fine of up to $250,000 and and restitution to victims.  Authorities had described May's Ponzi scheme as the largest in the history of cases prosecuted in the Eastern District of Michigan.

Beginning in 1997, May operated E-M Management Co. LLC in Lake Orion, Michigan.  May then created over 150 limited liability companies that purported to acquire telecommunications equipment and provide service to various hotels in the United States and foreign countries.  Potential investors were provided with fictitious offering documents such as private placement memoranda outlining the various contracts and agreements May had allegedly entered into with hotels such as the Hilton, Sheraton, and Hyatt hotel groups.  Investors were guaranteed a certain monthly amount of interest income ranging from $30,000 to $100,000.  To solicit investors, May utilized the services of Frank Bluestein, a former registered representative at GunnAllen Financial. In total, over 1,000 individuals invested over $200 million with May, not knowing that May's alleged contracts and agreements did not exist and that May was operating a massive Ponzi scheme.  Authorities have estimated investor losses exceeded $35 million.  

The scheme was widely acknowledged as one of the primary reasons for the collapse of GunnAllen, then one of the nation's fastest growing broker-dealers.  The company faced a barrage of investor lawsuits following the discovery of May's scheme.  Frank Bluestein, the former GunnAllen registered representative, has denied knowledge of the scheme and claimed that he too was a victim of May, having bought the investments himself.

The SEC also charged May with various securities law violations in November 2007.

A copy of the SEC Complaint is here.

Guilty Plea in $25 Million Real Estate Ponzi Scheme

A San Francisco real estate developer pled guilty to charges that he operated a Ponzi scheme that took in more than $25 million from investors.  Maher Talal Muhawieh, 32, pled guilty to one single count of wire fraud, which carries a maximum sentence of twenty years in federal prison, along with a fine of up to $250,000 and restitution to defrauded investors.  Muhawieh had originally been indicted on twelve counts of wire fraud.

According to the Department of Justice, Muhawieh represented to victims that their funds would be used to purchase and to renovate specific residential properties in San Francisco that would then be sold at a profit.  Potential investors were told that they would receive guaranteed high rates of return, and that their funds were secured with deeds of trust on the properties supposedly purchased.  In reality, Muhawieh operated an elaborate Ponzi scheme that used investments from new lenders to repay older investors.  Muhawieh also used investor funds for a variety of unauthorized activities such as personal expenses and investing in retail businesses located in San Francisco.  

Muhawieh is scheduled to be sentenced March 7, 2012.

A link to the criminal indictment is here.

Madoff Trustee Seeks Over $200 Million in Latest Round of Clawback Lawsuits

The trustee overseeing the liquidation of Bernard Madoff's defunct brokerage firm continued his quest to recover funds from investors of Madoff's largest feeder fund, filing five lawsuits seeking over $200 million from five entities.  Irving Picard, the court-appointed trustee, is seeking over $1 billion from entities who invested with Madoff through Fairfield Sentry.  Picard reached a settlement with Fairfield Sentry earlier this year that allowed him to pursue clawback claims against Fairfield customers.  Fairfield received over $3 billion during its relationship with Madoff, $1.6 billion of which was subsequently transferred to Fairfield customers.  Picard has now filed suits seeking over $1 billion of the $1.6 billion allegedly transferred from Fairfield to investors.  

Today's suits seek the return of funds from ABN AMRO Bank, Bank Luxembourg, Lighthouse Investment Partners, Nomura International PLC, and KBC Investments Limited.  In total, the latest round of suits seeks nearly $220 million consisting of the following amounts from each entity:

• ABN AMRO Bank - $25,469,129
• Bank Luxembourg - $50,082,651
• Lighthouse Investment Partners - $11,165,251
• Nomura International PLC - $21,449,920
• KBC Investments Limited - $110,000,000     

These clawback actions derive their authority from various federal and state laws.  Under Sections 550 and 551 of the Bankruptcy Code and various sections of the New York Debtor & Creditor Law, initial and subsequent transfers from a debtor within the six-year time period preceding the filing of a bankruptcy petition are subject to avoidance.  

Copies of each complaint can be found here:  ABN AMRO, Bank Luxembourg, Lighthouse Investment Partners, Nomura, and KBC.

Related Ponzitracker coverage:

Madoff Trustee Seeks $189 Million in Clawback Suits

Madoff Trustee Files Seven Clawback Lawsuits Against Feeder Fund Investors

Madoff Trustee Fires Next Salvo of Clawback Lawsuits

Madoff Trustee Files Five More Clawback Lawsuits Against Feeder Fund Investors Seeking Nearly $100 Million

Madoff Trustee Seeks $300 Million From Abu Dhabi Investment Arm