Man Sentenced to Seventeen Years for $75 Million Ponzi Scheme

A Texas man that was convicted of operating a $75 million Ponzi scheme whose victims included former NFL players was sentenced to seventeen years in federal prison.  Kurt Barton, former chief executive of Triton Financial, was previously convicted of thirty-nine charges relating to the scheme in an August jury trial and had faced an effective life sentence if sentenced to the maximum.  Barton will be released from prison when he is 60 years old.

Barton, through Triton Financial, took in more than $75 million from nearly 300 investors who thought their funds would be used for legitimate business activities, including real estate investment and short-term business lending.  Barton only used approximately $20 million for those activities, diverting the remainder to make fictitious interest payments to existing investors and to fund a lavish lifestyle.  Barton chose to stand trial rather than accept a plea deal with prosecutors, unlike the former Triton CFO, John DiMeglio, who received a five-year sentence after accepting into a plea agreement.  The tactic backfired, with a jury convicting Barton of all thirty-nine counts he was charged with.

Barton's attorneys cited DiMeglio's sentence, among other factors, in a sentencing memorandum filed with United States District Judge Sam Sparks that lobbied for a shorter sentence than the effective life sentence possible under the charges.  Additionally, Barton's attorneys also compiled a list of 26 other white-collar criminals and their respective prison sentences in an effort to provide Judge Sparks with a comparative sentencing range.  The move apparently worked, with only eight of those listed having a longer sentence than Barton.  Interestingly, Judge Sparks also alluded that Barton's victims should have been more careful, citing the age-old principle that "if it sounds too good to be true, it is." 

It is unknown as to when Barton is scheduled to report to federal prison.

New Jersey Man Indicted in $200 Million Ponzi Scheme

Federal authorities indicted a New Jersey man on charges that he operated a $200 million Ponzi scheme through bogus real estate investments.  In a 45-count indictment unsealed last week, authorities charged Eliyahu Weinstein, 36, with one count of conspiracy to commit wire fraud, 29 counts of wire fraud, two counts of wire fraud while on pretrial release, one count of bank fraud and 12 counts of money laundering.  Weinstein was originally arrested in August 2010 and had been free on $10 million bail.  According to the United States Department of Justice, Weinstein continued to defraud investors even while out on bail.  

According to the indictment, Weinstein operated a multitude of corporate entities (the "Weinstein Entities") along with co-defendant Vladimir Siforov.  Starting in at least June 2004 and continuing through August 2011, Weinstein solicited funds from potential investors by representing that he was investing in specific real estate transactions.  Investors were told that Weinstein had unique access to certain real estate opportunities due to his connections at a bank in the Orthodox Jewish community, which allowed him to purchase certain properties at below-market prices.  Investor funds would be used to "flip" these properties, and would be safely held in escrow during the pendency of the transaction.  In order to convince investors of the legitimacy of the scheme, Weinstein and others created numerous fictitious documents including forged checks, operating agreements, leases, and mortgages.  

In a transaction described in the indictment, a victim denoted as S.W. was informed by Weinstein that he could purchase an interest in a particular parcel of property for $630,000.  S.W. was also told that Weinstein had a buyer and contract in place for an immediate "flip" of the property for $1.5 million which could only be accomplished by providing the money immediately.  However, as alleged in the indictment, Weinstein never had a contract lined up to purchase the property, nor did he arrange for S.W. to obtain an ownership interest. Another investor, H.D.W., committed $70 million to buy property through Weinstein, including $5.4 million to purchase property in Trotwood, Georgia.  However, there is no town of Trotwood in the state of Georgia.  Instead, investor funds were misappropriated by Weinstein and the Weinstein Entities, and were used for a variety of purposes including the payment of prior victims and to fund his own lavish spending.  

In an increasingly common theme, Weinstein used his standing and knowledge in the Orthodox Jewish community to both meet new victims and elevate his reputation with existing victims.  Among the tactics used by Weinstein include using a portion of investor funds to donate to charitable and religious causes, and asking rabbies and community members to introduce him and serve as references to new victims.  After the scheme imploded in mid-2010 and Weinstein's reputation in the community was tarnished, Weinstein and others went outside of the Orthodox Jewish community to solicit victims who were unaware of the scheme's fraudulent nature.  

Weinstein faces hundreds of years in federal prison if convicted of all charges, along with millions of dollars in criminal monetary penalties.  He may also be ordered to pay restitution to victims.  According to his attorney, he intends to plead not guilty.

A Copy of the Indictment is here.

Judge Dismisses $20 Billion in Madoff Claims Against JP Morgan and UBS

In a severe blow to the quest to recover funds for the benefit of victims of Bernard Madoff's $50 billion Ponzi scheme, a New York federal judge threw out $20 billion of common law claims that the court-appointed trustee had asserted against banking giants JP Morgan Chase & Co. ("JP Morgan") and UBS AG ("UBS").  In granting the motions to dismiss previously filed by JP Morgan and UBS, United States District Judge Colleen McMahon ruled that court-appointed trustee Irving Picard lacked standing to assert common-law claims, including allegations of aiding and abetting fraud and breach of fiduciary duty, on behalf of victims of Madoff's fraud.  

To put the magnitude of the dismissal in context, the $20 billion in dismissed claims, combined with the $9 billion dismissal of claims by Judge Rakoff against HSBC in late-July, is over three times the amount of funds recovered thus far by Picard and his legal team and nearly double the amount of principal estimated lost by Madoff victims. Picard estimated that he has recovered approximately $8.6 billion to date out of approximately $17 billion in valid customer claims.

In the decision, Judge McMahon echoed Judge Rakoff's reasoning in his dismissal of common-law claims against HSBC that Picard lacked the standing, and was thus legally prevented from bringing claims, to sue on behalf of former customers of Madoff's brokerage firm Bernard L. Madoff Investment Services ("BLMIS").  Thus, Picard can only assert claims in his capacity as trustee of the bankruptcy estate of BLMIS.  Rationalizing her decision, Judge McMahon stated that:

giving the Trustee the power to pursue claims on behalf of creditors would usurp the creditors' right to determine whether and in what forum to vindicate their legal injuries.

In an interesting analogy, Judge McMahon drew parallels between Picard's attempt to sue Madoff for damages on behalf of his victims to the situation of a parking garage owner attempting to assert claims on behalf of a car that suffered damage while in traffic and before it entered the garage.  Like Picard, she stated, the garage would have no legal standing to pursue recovery for the injury sustained before the car entered the garage.  

Picard will most likely appeal Judge McMahon's decision to the Second Circuit Court of Appeals simply due to the amount potentially at stake.  He has already declared his intention to seek review of Judge Rakoff's July decision dismissing similar claims against HSBC.  

Assuming that Picard does not succeed with his planned appeal, the dismissal of common-law claims leaves the only remaining avenue of recovery against JP Morgan and UBS in federal bankruptcy claims, of which $425 million is sought from JP Morgan and $1 billion from UBS.  Because the remaining claims solely concern issues of bankruptcy law, they will be transferred back to federal bankruptcy court before United States Bankruptcy Judge Burton R. Lifland.   

Canadian Accused of $2 Million Ponzi Scheme as New Legislation Takes Effect Imposing Tougher Penalties for Financial Crimes

A Toronto man was recently arrested and charged with operating a Ponzi scheme that allegedly defrauded victims out of over $2 million.  Andre Lewis, 47, of Mississauga, Ontario, was charged with twelve counts of fraud over $5,000 in connection with at least twelve victims whose collective loss is estimated at over $2.3 million. Authorities have stated that they believe there are more victims.  The arrest comes on the eve of the introduction of new penalties for individuals convicted of financial crimes, including Ponzi schemes.  

Authorities alleged that Lewis operated LexxCo Corporation ("LexxCo") out of the East Mall in Toronto.  LexxCo solicited potential investors through advertisements in local papers that promised a 10% to 12% return on investments that would be made in real estate and small business loans.  However, instead of making investments, police allege that Lewis instead used funds from new investors to make interest payments to existing investors in typical Ponzi scheme fashion.  Originally scheduled to appear in court today, authorities requested the postponement of the hearing while they worked to uncover the depths of the fraud and possibly add further charges.  One news report stated that the amount of potential victims could reach 40.

Overshadowing Lewis' arrest is the enactment of Bill C-21, titled "The Standing Up For Victims of White Collar Crime Act" (the "Bill") that officially took effect today.  The Bill targets those convicted of financial crimes, imposing mandatory minimum sentences of two years for fraud over $1 million, along with the addition of aggravating factors that courts may now consider in deciding to toughen sentences.  These aggravating factors include:

• If the fraud had a significant impact on the victim, given the victim's particular circumstances, including his/her age, health and financial situation; 
• The offender's failure to comply with applicable licensing rules or professional standards; and;
• The magnitude, complexity, and duration of the fraud and the degree of planning that went into it.

Additionally, the legislation requires judges to consider the imposition of restitution orders, and allows the court the authority to enjoin the offender from taking employment or volunteer positions in which they would assume control over other's money.  

In comparison to its American counterparts, the Bill is similar on several levels, but one distinguishing feature is the imposition of mandatory minimums in the context of financial fraud.  While wire fraud and mail fraud, two common charges often found in criminal indictments of Ponzi schemers, each carry hefty potential punishments of up to twenty years in prison, the application of federal sentencing guidelines often significantly reduces an offender's sentence.  Judges are also free to sentence an offender outside of federal sentencing guidelines. In the context of restitution, U.S. courts often impose restitution orders against offenders, which stems from several federal victims' rights statutes, including the Mandatory Victim Restitution Act, codified at 18 U.S.C. 3663A, and the Victim and Witness Protection Act of 1982, codified at 18 U.S.C. 3663.  Additionally, parallel civil proceedings often initiated by the Securities and Exchange Commission or Commodity Futures Trading Commission often impose similar restitution orders.

A full copy of the Canadian bill is here.

Illinois Man Indicted For Operating $4 Million Ponzi Scheme

An Illinois man who promised returns of up to 200% was charged with operating a Ponzi scheme that bilked investors out of more than $4 million.  James Pantazelos, 61, of Rockford, Illinois, was charged with six counts of mail fraud and four counts of wire fraud.  Each count of mail fraud and wire fraud carries a maximum penalty of 20 years in prison and a $250,000 maximum fine.  

According to an indictment, Pantazelos was the owner and CEO of Destiny's Partners, Inc. ("Destiny's Partners"). From May 2007 to December 2010, Pantazelos hosted conferences throughout the United States pitching investment opportunities in Destiny's Partners.  Potential investors were told that Destiny's Partners invested in “Private Investment Trading Platforms” which traded bank notes in foreign markets, and that a substantial portion of profits generated would be donated to charitable and humanitarian causes.  Pantazelos offered a variety of investment options, for terms ranging from 90 days to 365 days, and promised investors annual returns of up to 200%.  Investors were assured that any investment would be kept in an escrow account and therefore safe.   However, when the investment terms of various investors expired, investors were not provided with their original principal investment.  As alleged in the indictment, instead of investing in "private investment trading platforms," Pantazelos and Destiny's Partners operated a Ponzi scheme in which funds from newer investors were used to make Ponzi-style payments to existing investors.  Pantzelos also used investor funds to support an extravagant lifestyle, purchasing homes for himself and a family member and attempting to open a restaurant known as "Jimmy P's".  

Earlier this year, the State of Illinois Securities Department issued a temporary issue of prohibition accusing Pantazelos and Destiny's Partners of various state securities law violations and prohibiting the future sale of securities by either.  

A copy of the Temporary Issue of Prohibition issued by the State of Illinois  is here.

A copy of the indictment is here.