Rothstein Trustee Files Clawbacks Seeking Funds Spent on Jewelry and Cars

Herbert Stettin, the bankruptcy trustee appointed to recover assets for the benefit of victims defrauded by Scott Rothstein's $1.4 billion Ponzi scheme, filed several more clawback suits seeking the return of funds spent by Rothstein on expensive jewelry and exotic automobiles.  The clawback suits, known in bankruptcy parlance as preference actions, seek the return of funds transferred from Rothstein prior to the filing of the petition putting Rothstein's law firm, Rothstein Rosenfeldt Adler, P.A. ("RRA") into bankruptcy.  

Stettin is proceeding under the Florida Uniform Fraudulent Transfer Act ("FUFTA") and the Bankruptcy Code, which allow avoidance of preferential transfers made with actual intent to defraud or that were constructively fraudulent and thus made without reasonably equivalent value.  While bankruptcy laws provide for the avoidance of these transfers within two years of the bankruptcy petition filing date, its FUFTA counterparts extend this "lookback" period to four years from the filing date.  The latest round of clawbacks seek over $10 million from the following six entities:

• Levinson Jewelers - $9.8 million
• Braman Motors of Miami - $1.5 million sought;
• Recovery Racing, LLC - $560,000 sought;
• Euro Motorcars - $177,000 sought;
• Thunder Cycle - $69,000 sought; and 
• Muhammed Sohail's Ultimate Cigars - $57,500 sought

The majority of funds sought relate to Rothstein's affinity for expensive jewelry and cars.  Stettin is seeking the return of nearly $10 million from Levinson Jewelers, whose owners were allegedly close friends with Rothstein.Stettin is also seeking the return of funds from Braman Motors used to purchase a 2009 Bugatti Veyron, which was sold at auction last year for nearly $900,000.  

Rothstein is currently serving a 50-year sentence in federal prison.  

The suits filed by Stettin can be found here.

SEC Halts $35 Million Ponzi Scheme

The Securities and Exchange Commission announced that it obtained an emergency order freezing the assets of a Texas man accused of operating a $35 million Ponzi scheme through the sale of distressed mortgages.  James G. Temme, 42, of Plano, and the entities he controls, including Stewardship Fund, LP, were charged with multiple violations of federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. In addition to the emergency asset freeze already obtained, the SEC is also seeking injunctive relief, civil monetary penalties, and disgorgement of ill-gotten gains with prejudgment interest.

According to the SEC, Temme controlled various limited partnerships, including Stewardship, which functioned as the general partner of at least sixteen entities through which interests were marketed to investors.  Since at least 2008, Temme lured potential investors by describing a plan to purchase non-performing home mortgage loans.  Temme would then work with homeowners in restructuring the non-performing loans into performing loans.  Investors would then share either in the payment stream from those performing loans or from the resale of the repackaged mortgages or underlying properties.   

Prior to the SEC instituting its enforcement action, Temme and the Stewardship entities were the targets of multiple civil lawsuits that raised similar allegations.  However, rather than curtail the fraud, the SEC alleges that Temme continued to raise funds from new investors.  This included at least $1.6 million in a Texas bank account, which represented the recommendation of the Stewardship Philanthropy Fund 4, LP ("SPF") by an investment adviser representative of a major investment bank.  That account was later closed due to questionable activity, but Temme continued to move funds around in efforts to pay various investor groups.  But Temme did not stop there and continued to solicit new investors.  In early 2011, Temme pitched the newly-created Equitas Housing Fund III, LP, which also promised to acquire non-performing home loans.  This resulted in new investor funds exceeding $3 million.  Since 2008, Temme raised at least $35 million from over 30 individuals and entities. 

The SEC has also sought the appointment of a receiver to marshal assets for the benefit of defrauded investors.  A hearing has been scheduled by United States District Judge Michael Schneider for October 27th.  

A copy of the SEC's Complaint is here. 

Fugitive Arrested in $1.8 Million Ponzi Scheme

A California man wanted since 2006 for allegedly masterminding a $1.8 million Ponzi scheme was arrested after being captured in Thailand and extradited back to California.  John Chiyuan Lee, 40, was arrested Friday evening after landing at Los Angeles International Airport.  Lee was arrested by immigration police in the city of Pattaya, located on the east coast of the Gulf of Thailand.  According to news reports, Lee was traveling under a false identity and had four fake passports.  He is scheduled to be arraigned on 31 felony charges.

According to authorities, Lee founded and operated Legacy International, Inc. ("Legacy Inc."), and Legacy International, Ltd ("Legacy Ltd.").  From January 2000 to at least September 2005, Lee told potential investors that he was an experienced trader, and solicited the purchase of shares in Legacy Ltd.  In return, investors were promised above-average returns of up to twenty-five percent annually.  Lee provided potential investors with offering documents that described the fund's investment objective as capital appreciation, and stated that the fund would invest in any mix of U.S. and non-U.S. commodities, currencies, debt obligations and equity securities. In total, approximately 45 individuals invested over $3 million with Lee.  Investors were provided with fictitious account statements showing purported trading gains.  However, in reality, Lee experienced heavy losses when trading using investor funds.  As a result, Lee used new investor contributions to pay returns to existing investors, a classic hallmark of a Ponzi scheme.  

Lee is currently being held on $1.869 million bail.  

Suspected Ohio Ponzi Schemer Disappears

An Ohio man suspected of swindling investors in an elaborate Ponzi scheme has apparently disappeared with millions of dollars in investor funds.  Jeffrey Kelly, of Dublin, Ohio, supposedly vanished from his downtown office over the summer, leaving behind office supplies and unpaid rent.  While the FBI declined to confirm whether an investigation was ongoing, victims stated that they had been alerted to the alleged scam by the FBI this summer.

In the July 2011 disciplinary actions published by the Financial Industry Regulatory Authority, Kelly entered into a consent order permanently barring him from associating with any securities firm.  According to the consent order, Kelly was employed with several brokerage firms starting in 1994.  From 2005 to 2010, Kelly was registered as an Investment Company Products/Variable Contracts Representative with three brokerage firms. During this time period, Kelly founded and operated three companies: (1) Superior Financial Resources, LLC ("SFR"), (2) JGK Group, LLC ("JGK"), and (3) Practitioners Wellness Network, LLC ("PWN").  In connection with SFR, Kelly solicited money from investors that would allegedly be loaned to managed real estate companies and businesses.  However, contrary to industry rules, Kelly failed to disclose these outside business activities to his employers.  

Several victims have filed a complaint against Kelly through the arbitration tribunal of FINRA.  In the complaint, they name the three brokerage firms where Kelly was employed from 2005 to 2010, accusing them of contributing to their losses by failing to supervise Kelly.  The victims allege that Kelly induced his then-customers to invest in several bogus funds he operated, promising them annual returns ranging from 7% to 10%. According to the complaint, the victims allege losses of approximately $627,000.  The attorney representing the victims described the fraud as "a Ponzi scheme right out of the playbook of Ponzi schemes." 

Ponzitracker Nominated for LexisNexis Top 25 Business Law Blogs

 

Ponzitracker is honored to announce that it has been nominated by LexisNexis as one of the top Business Law Blogs on the site's Corporate and Securities Law Community. Each year the site honors a select group of blogs that set the online standard for a given industry.  At the end of a voting and review process, LexisNexis will choose the top 25 corporate and securities law blogs, and ultimately, the top business law blog of the year.  The list of nominees includes many prominent and established law blogs, and is a fascinating resource for those interested in staying up to date with other aspects of business and securities law. 

Ponzitracker is designed to function as a resource and authority for those interested in tracking the proliferation of Ponzi schemes and to bring more focus to an increasingly prevalent form of financial fraud.  To support Ponzitracker or any of the other nominees, go to the link and leave a comment until October 25th.