Colorado Ponzi Schemer Receives Eight Year Prison Sentence

A federal judge sentenced a Colorado man to eight years in federal prison for his role in a Ponzi scheme that bilked investors out of over $30 million.  Philip Lochmiller Jr. faced up to fifteen years in prison after he pled guilty in November 2010 to one count of conspiracy to commit wire and securities fraud and one count of money laundering.  Lochmiller's father, Philp R. Lochmiller Sr., who chose to go to trial rather than to plead guilty, was convicted by a federal jury in July of thirty-one counts, including money laundering, mail fraud, conspiracy, and conspiracy.  He currently is awaiting sentencing.

The Lochmillers operated Valley Investments, which purported to originate mortgages for as a licesned Colorado mortgage broker.  Along with assistant Shawnee Carver, the company acquired several parcels of land to develop affordable housing communities.  Newspaper advertisements solicited potential investors to finance the acquisition, promising annual returns of ten to eighteen percent in return.  Investors were given promissory notes that were purportedly secured by lots of land in the communities.  In total, over $30 million was raised from investors.  However, instead of using the funds for business purposes, the defendants paid expenses, personal bills, and made payments to existing investors in the form of interest and principal repayments.  The scheme came to an end in 2008 when the three were indicted.

Shawnee Carver was sentenced alongside Lochmiller Jr., and received a two-year sentence.  The elder Lochmiller faces a sentence of up to 415 years in federal prison, although federal sentencing guidelines will likely recommend a lower amount.  

A copy of the criminal complaint is here.

A link to the website established by the Receiver appointed to distribute assets to victims is here.

Hawaii Woman "Bestowed by Jesus to Trade Commodities" Sentenced to Prison for $1 Million Ponzi Scheme

A Hawaii woman who told investors that she had been "bestowed by Jesus Christ to with the ability to trade commodities", but instead operated a Ponzi scheme, was sentenced to federal prison on Friday.  Kapua Keolanui, 36, was sentenced to thirty-three months in federal prison by United States District Judge David Ezra, who called her behavior callous and also ordered her to pay nearly $900,000 in restitution to her victims.  Keolanui, who had previously pled guilty to one count of wire fraud, was sentenced to the maximum sentence under federal sentencing guidelines.  Wire fraud carries a maximum sentence of up to twenty years in federal prison.  

The scheme derives out of Keolanui's association with Rachelle and Perry Griggs, who were recently sentenced to prison for masterminding the scheme.  Previous Ponzitracker coverage of the Griggs is here.  Perry Griggs became associated with Keolanui's husband when both were incarcerated; ironically, Perry Griggs was serving time for his role in a previous Ponzi scheme.  Through his relationship with Keolanui's husband, Perry Griggs convinced Keolanui to form Paradise Trading, LLC with Rachelle Griggs in late 2006.  Keolanui then solicited friends and family, telling them that she had been given the gift of finding money by Jesus Christ.  In total, six different individuals gave Keolanui over $1 million to invest.  Instead of using the money to invest, Keolanui funnelled some of the money to Aloha Trading, which was Perry Grigg's operation that he was running from behind prison walls.  When Grigg's scheme was uncovered, nearly all of the victims' money had disappeared.  

Keolanui was scheduled to report to prison on November 28, 2011.  She was also ordered to three years of probation upon release from prison.  

A copy of the Complaint filed against Griggs and Aloha Trading by the U.S. Commodity Futures Trading Commission is here.

Former FBI Agent and Wife Indicted in Alleged $1.3 Million Ponzi Scheme

A Virginia man and his wife were indicted for their role in what authorities described as a $1.3 million Ponzi scheme.  John Robert Graves, 52, and his wife Sara Tuberville Graves, 44, both of Fredericksville, Virginia, were each charged with one count of conspiracy to commit mail and wire fraud, one count of mail fraud and four counts of wire fraud in an indictment unsealed in the Eastern District of Virginia.  Graves, a former FBI special agent, also faces three counts of Investment Adviser Act fraud and one count of making false statements.  The pair were originally charged by the Securities and Exchange Commission ("SEC") with violations of federal securities laws on April 18, 2011 in conjunction with a larger Ponzi scheme.  If convicted of the criminal charges, Mr. Graves could be sentenced to a maximum of 140 years in federal prison, while his wife faces a sentence of up to 120 years.

While Graves and his wife are charged with misappropriating $1.1 million from 11 investors, the charges apparently derive out of John Graves' involvement in a larger Ponzi scheme detailed in the SEC complaint filed in April.  According to the complaint filed by the SEC, John Graves resigned from the FBI in 1999 and became a registered representative at AIC, Inc., a privately-held holding company run by Nicholas D. Skaltsounis.  Graves was associated with Community Bankers Securities, LLC ("CBS"), one of the broker-dealers associated with AIC. Additionally, Graves was a certified financial planner and the founder and president of Brooke Point Management, Inc.  These companies participated in the sale of nearly $8 million in common stock, preferred stock, and promissory notes in AIC to at least 74 investors.  

 

Potential investors were given false and misleading documentation concerning AIC's financial condition, the risk associated with an investment in AIC, and the intended use of the funds raised.  Investors were promised annual returns ranging from 9% to 12.5%, which would purportedly be paid out of the proceeds of successful investments by AIC.  Instead, the business functioned as a Ponzi scheme, using new investor funds to pay interest and make principal redemptions to existing investors.  According to the SEC, approximately $2.5 million was used to make such payments to existing investors.  AIC had little or no revenue from business operations, and had not been profitable since it was formed in 2000.  The scheme collapsed in December 2009 when the operation could no longer pay existing investors with funds from new investors.  

 

As readers of Ponzitracker may remember, this is not the first time that an individual with ties to the FBI has been accused of running a Ponzi scheme.  In August, Cary Alan Burdette was sentenced to twenty years in prison for operating a Ponzi scheme that bilked investors out of $4 million.  Burdette was an attorney and a former FBI agent.

 

A copy of the SEC Complaint is here.

New York 'Mini-Madoff' Receives Twenty-Five Year Prison Sentence

A New York man whose $400 million Ponzi scheme earned him the nickname of Long Island's Mini-Madoff was sentenced to twenty-five years in federal prison on Friday.  United States District Judge Denis Hurley handed down the sentence to Nicholas J. Cosmo, 40, along with an order to pay $179 million in restitution to more than 4,000 investors defrauded by the scheme.  Originally indicted on thirty-two counts of wire fraud and mail fraud, Cosmo pled guilty on October 29, 2010 to one count each of wire fraud and mail fraud.  He had faced a maximum sentence of forty years in prison at his sentencing.  

From October 2003 to January 2009, Cosmo owned and operated Agape World, Inc ("Agape") and Agape Merchant Advance ("Agape Merchant").  Potential investors were told that their money would be used to fund short-term bridge loans to commercial borrowers and loans to other businesses that accepted credit cards.  Investors were promised annual returns as high as eighty percent.  In total, Cosmo convinced thousands of investors to entrust approximately $413 million with Agape and Agape Merchant.  However, Cosmo used only $30 million of investor funds to make short-term bridge loans, and made roughly $80 million of unauthorized trades in commodities and futures positions.  The remainder was used to perpetuate a massive Ponzi scheme, using funds from new investors to pay returns to existing investors and create the appearance of a highly successful operation. Cosmo also used investor funds to support a lavish lifestyle and to pay over $60 million in commissions to Agape brokers for continuing to bring in new investors.

The scope of the operations were so large that Bank of America at one point established an unofficial branch within Agape headquarters in Hauppauge, New York, to provide on-site banking services.  The branch, staffed by one Bank of America employee, was dedicated solely to Agape's banking needs, and had access to Agape's business records.  After the fraud was exposed, Bank of America was named, along with several other defendants, in several lawsuits alleging claims of negligence, aiding and abetting fraud, and aiding and abetting breach of fiduciary duty.  The suits alleged that Bank of America ignored many "red flags" that should have alerted them to Agape's fraud.  However, the standard in assessing liability against banking institutions such as Bank of America is a high one; actual, rather than constructive, knowledge is required.  The Eastern District of New York granted Bank of America's motion to dismiss based on this heightened standard, concluding that:

The Plaintiffs have failed to adequately allege that BOA had actual knowledge of Cosmo's scheme. Nor have they adequately alleged that BOA provided substantial assistance to that scheme. 

Additionally, this is not Cosmo's first fraud conviction.  In 1999, he was sentenced to a 21-month prison sentence after pleading guilty to a fraudulent scheme while employed as a stockbroker at Continental Broker Dealers.  Following that conviction, Cosmo was forbidden from associating with any other broker-dealers and was forced to surrender his broker's license.  The U.S. Commodity Futures Trading Commission has also instituted proceedings against Cosmo.

A copy of the complaint filed by the U.S. Commodity Futures Trading Commission is here.

A copy of the order granting Bank of America's motion to dismiss the civil lawsuit is here.

A copy of the 1997 criminal complaint against Cosmo is here.

Guilty Plea in $50 Million Ponzi Scheme

A Detroit man who was the chief executive of what authorities are calling a $50 million Ponzi scheme has agreed to plead guilty for his role in the scheme.  Richard Trabulsy, of Northville, Michigan, will enter a guilty plea to  a single count of wire fraud, and will also agree to cooperate with prosecutors in their ongoing case against John Bravata and his son, Antonio Bravata.  In exchange for the plea deal, prosecutors have agreed to drop charges of conspiracy, securities fraud, and money laundering.  Wire fraud carries a maximum sentence of twenty years in federal prison, along with up to a $250,000 fine.  Trabulsy may also be ordered to pay restitution to defrauded investors.

According to authorities, the defendants operated BBC Equities, LLC ("BBC") and Bravata Financial Group, LLC ("Bravata Financial").  According to Bravata, BBC stands for "Billionaire Boys Club."  BBC and Bravata Financial were marketed to potential investors as successful real estate investment funds.  In the beginning, Defendants sought investments from family and friends.  After raising $3 million, Defendants then began hosting "free lunch" seminars for senior citizens, who were told that their purchase of membership interests in BBC would be used to purchase various forms of real estate.  Investors were provided with offering materials, including private placement memoranda outlining the proposed use of investor funds.  BBC advertised to potential investors in Forbes magazine in December 2008, and also operated a website extolling the benefits of an investment in BBC or Bravata Financial.  In return for their investment, BBC promised annual returns of 12%, which were then reduced to 8% after investors expressed skepticism that 12% seemed "too good to be true."  In total, over $50 million was raised from approximately 440 investors.

However, instead of operating a successful real estate investment fund, authorities allege that the defendants orchestrated a massive Ponzi scheme that survived only through the soliciting of new investors.  Nearly $25 million was used to perpetrate the Ponzi scheme, leaving approximately $21 million for BBC to invest in real estate.  Of the real estate purchased, much was extremely leveraged, and mortgages on these properties exceeded $128 million at the time the fraud was uncovered.  Additional funds were used to fund an extravagant lifestyle for the Bravatas and Trabulsy, with purchases ranging from luxury vehicles to vacations to artwork.  Additionally, authorities allege that neither the Defendants nor their two funds were registered with the Securities and Exchange Commission.  

The Securities and Exchange Commission also filed a complaint against the defendants, BBC, and Bravata Financial in July 2009, alleging various violations of federal securities laws and seeking relief including permanent injunctions, disgorgement, and civil monetary penalties.  

Trabulsy is scheduled to be sentenced in January 2012.  John and Antonio Bravata remain charged with conspiracy to commit mail and wire fraud, securities fraud, money laundering, and aiding and abetting wire fraud. 

A copy of the SEC Complaint is here.

A Receiver has been appointed to recover assets for defrauded investors.  A copy of his second interim report is here.