Questions About Stanford's Competency Linger as January 2012 Trial Date Appears Uncertain

A Texas businessman scheduled to stand trial in January 2012 to face charges he orchestrated a $7 billion Ponzi scheme is not competent to stand trial, according to his attorney.  Disgraced financier R. Allen Stanford, 61, has remained in federal custody since his arrest in June 2009, but became addicted to prescription medication following a severe beating at the hands of fellow prison inmates in October 2009.  While he has received extensive medical treatment, his attorneys dispute that he has progressed to a state where he would be found competent to stand trial.  Should questions remain about Stanford's competency, his trial, currently scheduled to begin January 30, 2012, appears likely to be delayed.

In January 2011, United States District Judge David Hittner found Stanford incompetent to stand trial following complications resulting from his injuries including prescription medication addiction.  Doctors testified that Stanford may have suffered brain damage from the beating.  Judge Hittner ordered Stanford to undergo medical treatment at the Bureau of Prisons medical center in Butner, North Carolina.  Coincidentally, several other convicted high-profile Ponzi schemers also call Butner home, including Bernard Madoff and Arthur Nadel.  After apparently completing his treatment earlier this month, Stanford was transferred to a federal detention center in Houston, Texas, where he is being held without bail due to the determination that he is a flight risk.  

While Stanford's attorneys are under a gag order not to discuss his medical condition, one of Stanford's civil lawyers revealed in a court filing earlier this month that Stanford continued to suffer memory loss.  Judge Hittner rebuked the lawyer and barred him from having any contact with Stanford until the completion of the criminal proceeding.  

The receiver appointed to recover assets for defrauded investors, Ralph Janvey, has faced difficulty since his appointment and to date has recovered just pennies on the dollar for victims.  Janvey has insisted that many of the assets sought to compensate investors, including nearly $1 billion outstanding and potentially recoverable, are overseas and obtainable only with a successful prosecution and resolution of the criminal charges.  Janvey recently submitted filings seeking to initiate a claims process to eventually begin distributions to victims.  

Michigan Stockbroker Charged in $6 Million Ponzi Scheme

A Michigan stockbroker has been charged with mail fraud in connection with an alleged Ponzi scheme that bilked investors out of over $6 million.  Martin T. Wegener, of Grand Rapids, faces the criminal charges after previously being charged by the Securities and Exchange Commission in a parallel civil proceeding.  

From at least 2007 through March 2010, Wegener was a registered representative at NES, a broker-dealer registered with the SEC.  Through his position at NES, Wegener encouraged investors to withdraw funds from their brokerage accounts and represented to investors that he would invest their funds through several companies he owned and operated, including Wealth Resources, Inc. and Wealth Resources, LLC (collectively, "Wealth Resources").  Investor funds were allegedly placed in a variety of investments, including publicly traded stocks and mutual funds, private companies in which Wegener had an interest, and other private companies and funds.  In return, investors received purported account statements, a sample which is provided below:

In total, Wegener received at least $6.5 million from roughly twenty investors, whose investments had grown to a total of $10.5 million by April 1, 2010.  However, rather than use client funds to purchase the described investments, Wegener used customer money for, among other things, the payment of expenses for several private companies in which he had an ownership interest, and to make Ponzi-style payments to existing investors in the form of principal and interest distributions.  Additionally, nearly $1 million of investor funds was transferred to the personal bank accounts of Wegener.

If convicted of mail fraud, Wegener faces a maximum sentence of twenty years in federal prison along with criminal monetary penalties.  

A copy of the SEC complaint is here.

Two Sentenced to Prison in $18 Million Georgia Ponzi Scheme

A federal judge sentenced two Georgia residents to prison for their roles in a Ponzi scheme that took in nearly $30 million from investors.  Myra J. Ettenborough, 56, of Roswell, was sentenced to seven years in prison, and Geoffrey A. Gish, 57, was sentenced to twenty years in prison.  Both must also serve three years of supervised release upon the completion of their sentence.  The two were indicted in August 2010 on one count of conspiracy and ten counts of mail and wire fraud.  After a jury trial in September 2011, Gish was convicted on all counts, while Ettenborough was convicted on five counts.

According to prosecutors, Gish owned and operated several entities including Weston Rutledge Financial Services, Inc., ("Weston Rutledge"), Zamindari Capital, LLC ("Zamindari"), Lexington International Fund ("Lexington"), and Oxford Adams Capital, LLC ("Oxford Adams").  From at least February 2004, Gish solicited investments in Zamindari, Lexington, and Oxford Adams through Weston Rutledge, promising annual returns ranging from 44% to 100%.  Investors were assured there was no risk of loss if investing in the Zamindari or Lexington funds. Oddly, while Gish represented the Oxford investment as a fund, investors were told to wire or write checks to Oxford Adams Capital, LLC.  Each purported fund had a different investment objective, with Zamindari allegedly investing in short term bond purchases, Lexington allegedly trading foreign currency contracts, and Oxford engaged in options trading.  Investors were provided with fictitious account statements in connection with their investment that depicted extraordinary rates of return.  In total, Gish raised nearly $30 million from his investors.  

However, Gish failed to tell his investors that he was operating a classic Ponzi scheme.  Of the nearly $30 million raised from investors, $11 million was returned in the form of principal redemptions or interest payments.  The remainder of approximately $18 million was misappropriated, used for a variety of personal and business expenses that were not consistent with Weston Rutledge's stated investment objectives.  When the fraud was uncovered, only $1 million of investor funds remained in Weston Rutledge's bank accounts.  

Along with their respective sentences, both Gish and Ettenborough were each ordered to pay $17,245,275 in restitution.  A receiver has been appointed to marshal and distribute assets to victims of the scheme.

A copy of the complaint filed in a parallel civil action by the SEC is here.

A copy of a Department of Justice press release announcing the indictments is here.

Massachusetts Man Sentenced to Eight Years in Prison for 20-Year Ponzi Scheme

A Boston man was sentenced to 102 months in prison for orchestrating a Ponzi scheme that spanned over two decades and took in over $28 million from approximately 200 investors.  Richard Elkinson, 78, received the sentence after previously pleading guilty in April 2010 to 18 counts of mail fraud.  Elkinson faced as much as 360 years in prison if sentenced to the maximum under each count.  Along with the sentence, Elkinson was ordered to pay $17 million in restitution to his victims.

According to authorities, Elkinson told potential investors that he was in the business of brokering business deals on behalf of a Japanese firm that manufactured uniforms to be sold to various governments throughout the world.  Investors were told that their funds would be used to finance these uniform contracts, and were promised an annual return ranging from 9% to 13%.  Investors were provided with promissory notes signed by Elkinson, which promised payment of principal and accrued interest within one year.  Upon maturation, investors were also given the opportunity to roll over the balance into a new contract.  

Adding to the aura of legitimacy, Elkinson obtained the assistance of a broker-dealer named RossFialkow Capital Partners, LLP ("RFCP") in 2005 which actively recruited investors.  Elkinson provided RFCP and its principals with purported copies of letters from his Japanese customers and various state governments, which were all later discovered to be fictitious.  In total, over $28 million was raised from approximately 200 investors.  However, there were no contracts with Japanese manufacturers or contracts with state governments.  Instead, Elkinson misappropriated investor funds in typical Ponzi scheme fashion, using new investor funds to pay principal and interest payments to existing investors.  The remainder of the funds were used for numerous personal expenses of Elkinson, including numerous gambling excursions to Las Vegas.  Perhaps fittingly, Elkinson was arrested in January 2010 at a Biloxi, Mississippi casino after returning from a Las Vegas trip.  

Along with the criminal action, the Securities and Exchange commission also filed a parallel civil action against Elkinson, seeking injunctive relief and disgorgement of ill-gotten gains. Elkinson did not fight the charges, and the SEC obtained a default judgment on June 9, 2010. He was ordered to pay over $29 million in disgorgement, pre-judgment interest, and civil monetary penalties.

A copy of the criminal complaint is here.

A copy of the SEC Complaint is here.

A copy of a class-action lawsuit filed against a facilitating broker-dealer is here.

Madoff Trustee Seeks Approval of $326 Million Settlement With IRS

The trustee overseeing the liquidation of Bernard Madoff's $65 billion Ponzi scheme announced that he had reached a settlement with the Internal Revenue Service that, if it receives judicial approval, will add $326 million to the funds recovered for Madoff's victims. If approved, the settlement will bring the total amount of assets recovered thus far to over $9 billion - roughly half of the $17.2 billion of principal that trustee Irving Picard has determined was lost to Madoff's fraud.  If approved, the settlement marks a strong end to an admittedly difficult year for Picard, who saw 

The settlement stems from the recovery of payments made by Madoff pursuant to certain provisions of the Internal Revenue Code (the "Code") requiring the withholding of certain portions of profits paid to foreign citizens. Sections 1441 and 1442 of the Code require persons paying income to non-resident aliens and foreign corporations to withhold tax equal to thirty percent.  In his investigation of Madoff's brokerage records, Picard identified 145 foreign accountholders from which Madoff withheld approximately $330 million (the "Payments") that was subsequently sent to the IRS.  After accounting for $4 million of erroneous refunds paid by the IRS, Picard arrived at the amount of $326 million.  Picard theorized that Madoff's compliance with the withholding statutes was meant to give the scheme an air of legitimacy:

by making the "withholding" payments, it would appear to the outside world that real stock was held in the accounts at BLMIS and real dividends.

Under the proposed settlement, the IRS will make a payment of $326 million (the "Settlement Amount") in return for a release of any claims Picard may have against the IRS relating to payments made by Madoff and/or Madoff's brokerage firm.  The Settlement Amount represents over 98% of the total funds paid to the IRS by Madoff, and will begin to accrue interest if the IRS does not tender complete payment to Picard within 180 days of the date the settlement agreement is approved (the "Approval Order").  Under the settlement, Picard agreed to reserve approximately $103 million to satisfy any potential future administrative decisions or judgments against the IRS or the Trustee that might be entered with respect to the Payments.  Upon the passage of two years and sixty days after the Approval Order, the funds shall be available for distribution to Madoff victims. 

United States Bankruptcy Judge Burton Lifland will consider the motion at a December 21, 2011 hearing.  

A copy of the Motion is here.