SEC Charges Three More in $16 Million Ponzi Scheme That Targeted Mormons

The SEC announced it had brought civil enforcement actions against three additional individuals for their role in a $16 million Ponzi scheme whose victims were primarily members of the Church of Jesus Christ of Latter-Day Saints.  Kevin J. Wilcox, Jennifer E. Thoennes, and Eric R. Nelson were each charged with multiple violations of federal securities laws.  In its complaint, the SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil penalties.  The mastermind of the scheme, Eric Nelson's brother Joseph Nelson, was previously charged by the SEC in June 2010, along with Wilcox and Nelson as relief defendants.

According to the SEC's complaint, Wilcox, Thoennes and Nelson played varying roles in three distinct Ponzi schemes operated by Joseph Nelson and Anthony C. Zufelt since 2005.  The first, operated by Zufelt, collected nearly $3 million from at least 36 investors who thought they were investing in "Income Stream Accounts" offered by Zufelt, Inc ("ZI").  Next, at least 11 individuals invested at least $770,000 in investments offered through Silver Leaf Investments, Inc. ("SLI").  Both ZI and SLI are owned and operated by Zufelt.  Along with Nelson and others, Zufelt solicited investments in ZI and SLI by claiming annual returns of up to 220% achieved through profits in a credit card processing business operated by Zufelt.  Investors were also falsely promised that the businesses were registered with the SEC. Of the nearly $4 million collected through SI and ZLI, approximately $1 million was paid to investors in the form of purported returns to maintain a facade of legitimacy.

The third scheme, operated by Nelson, started in June 2005 and consisted of the offering of promissory notes through various companies operated by Nelson (the "Nelson Companies").  Many of the investors were fellow members of the Church of Jesus Christ of Latter Day Saints that Nelson targeted through church functions.  Investors were promised exceedingly high short-term returns of up to 200% generated from Nelson's management of merchant portfolios that are then resolt to financial institutions.  In total, over $12 million was raised from approximately 100 investors.   Of this $12 million, the SEC alleged that Nelson repaid over half in the form of fictitious interest payments to investors.  

Instead of investing the approximately $16 million raised through the three Ponzi schemes, the SEC alleges that Zufelt and Nelson used funds to pay for a variety of personal and luxury expenses, including the funding of Zufelt's Fantasy Fight Club ("FFC"), which included $10,000 to paint the FFC logo on his Dodge Viper. 

The SEC's Complaint alleges that Eric Nelson received at least $200,000 in transfers consisting of investor funds, while Wilcox received approximately $46,000 in improper transfers.

The new charges come several weeks after the SEC charged a father-and-son duo with operating a $220 million Ponzi scheme that also preyed on connections with the LDS Church.  More coverage of that scheme is here.

A copy of the SEC Complaint is here.

Oregon Man Charged with $1 Million Ponzi Scheme

An Oregon man was arrested and charged with operating a Ponzi scheme that cost its victims over $1 million.  Allen Leroy Kayser, 60, was arrested by Oregon state police and charged with nine counts of securities fraud, five counts of first-degree theft, two counts of racketeering, and selling unregistered securities.  He has since pled not guilty.

In early 2006, Kayser began placing ads in several Oregon newspapers soliciting investors.  He represented that he was in the business of purchasing and refurbishing foreclosed homes, and profiting from their later resale.  Investors were guaranteed an annual return of 15% to 17.5%.  While Kayser apparently first conducted a legitimate operation, mounting losses forced him to use money from new investors to pay returns to old investors in order to perpetuate the scheme.  Authorities estimate that at least 9 investors entrusted more than $1 million to Kayser.

Kayser is currently being held on $500,000 bail.  A pretrial hearing has been scheduled for January 9.

This post was edited on January 6, 2012.

Stanford Ruled Competent to Stand Trial in January 2012; Attorneys Seek Delay

“He wants to con his way out of this case the same way he conned investors for more than 20 years...Don’t let him do it.” 

- Assistant U.S. Attorney Gregg Costa

A Houston federal judge ruled that R. Allen Stanford, accused of masterminding a $7 billion Ponzi scheme, was competent to stand trial after a three-day hearing, and scheduled jury selection to begin January 23.  United States District Judge David Hittner ruled that Stanford was able to assist in his own defense, a conclusion that Stanford's lawyers had vigorously disputed during the hearing through the testimony of several experts.  The prosecution produced several of its own experts to counter the defense, including Stanford's prison psychologist who interacted with Stanford on a weekly basis during an eight-month period of treatment at a North Carolina federal prison and strongly felt Stanford was "faking" his amnesia.  

The two-and-a-half day hearing saw various medical professionals argue over the extent of injuries suffered by Stanford following a beating at the hands of a fellow prison inmate in 2009.  This included testimony during the second day of the hearing by a forensic psychiatrist hired by Stanford's team that Stanford couldn't recall some of his children or romantic encounters.  Additionally, news coverage of testimony from a defense-hired neurologist that Stanford was a suicide risk resulted in Stanford's placement in psychiatric watch for observation that night.  

Stanford's situation is unique in that he has maintained his innocence rather than plead guilty.  As a result of the majority of assets controlled by his financial empire being located overseas, many see their recovery occurring only with the aid of a forfeiture order obtained through a criminal trial verdict.  The court-appointed receiver, Ralph Janvey, has estimated that over $1 billion in recoverable assets remain outstanding.  

Along with Stanford, several other accomplices were indicted and are expected to stand trial soon after Stanford. These include Antigua's top regulator responsible for overseeing the offshore bank.  The former chief financial officer for Stanford's bank, James Davis, earlier pled guilty to conspiracy and is expected to testify against Stanford and the remaining accused.  

Immediately after Judge Hittner's ruling, Stanford's lawyers filed papers seeking a three-month delay in the commencement of the trial due to the voluminous documents that Stanford would now have to review having been found competent.  The defense claims that Stanford must review millions of pages of documents in order to prepare for trial, and that a month to do so is simply impossible.  Judge Hittner is expected to rule on the motion sometime next week.  

Previous Stanford Coverage:

Another Setback for Stanford Receiver

Stanford Investors: Receiver Can't Prove Stanford Operated Ponzi Scheme

Stanford Trial Delayed Again until January 2012

Judge to Stanford Receiver: Stop Looking for Pot of Gold and Start Repaying Investors

SEC Files Lawsuit Against SIPC in Dispute Over Coverage of Stanford Ponzi Scheme

Mastermind of Largest Ponzi Scheme in New Mexico History Pleads Guilty

A New Mexico real estate broker admitted to operating a $75 million Ponzi scheme in what New Mexico authorities estimated as the largest in state history.  Douglas F. Vaughn, 64, pled guilty to one count of wire fraud and one count of mail fraud in a Santa Fe federal courtroom.  Both charges carry a maximum sentence of twenty years in federal prison along with up to $1,000,000 in criminal monetary penalties.  While Vaughn faces a potential maximum sentence of forty years under the plea agreement, prosecutors agreed to recommend a sentence of 10 to 12 years.  Vaughn will also likely be ordered to pay restitution to defrauded investors.

Vaughn operated Vaughn Company Realtors ("VCR"), which was one the largest independent residential brokerage firm in New Mexico. Started in 1983,VCR, through Vaughn, solicited investments in the form of promissory notes, promising potential investors annual returns averaging 17.5%.  In return, Vaughn represented that investor funds would be used for real estate investments.  In total, VCR collected more than $86 million from investors.  However, rather than use the funds for real estate investments, Vaughn used monies from investors to pay returns to older investors under the guise of profits from his investments.  Authorities estimate that approximately 600 investors from eight different states suffered losses.

Vaughn was charged in early 2011 in a 30-count indictment that could have resulted in a guaranteed life sentence had Vaughn been convicted of all charges.  While he maintained his innocence until recently, the recent disclosure that his former assistant planned to testify against him may have spurred his change of heart.  Vaughn is due to be sentenced in several months.

A copy of the indictment is here.

First Day of Stanford Competency Hearing: Prison Psychologist Says Amnesia is "Highly Unlikely"

Several experts disagreed whether disgraced financier R. Allen Stanford was competent to stand trial in January on charges that he masterminded one of the largest Ponzi schemes in history.  In a packed Houston courtroom, Stanford's lawyers sought to convince United States District Judge David Hittner that Stanford's memory loss stemming from a late-2009 beating by a fellow inmate prevented him from being adjudged competent for trial next month.  Judge Hittner previously delayed a trial scheduled for this past January after competency issues arose.  

After undergoing rehab for addiction issues relating to the prescription of medication following the beating, Stanford completed eight months of treatment at the Butner Medical Center in Butner, North Carolina.  Coincidentally, Butner is also home to famous Ponzi schemer Bernard Madoff.  While at Butner, Stanford was examined by Dr. Robert Cochrane, who prosecutors called as their first witness.  While Cochrane acknowledged that several of Stanford's ailments, including Hepatitis B and cirrhosis of the liver, would require attention during a prolonged trial, he was adamant that Stanford's amnesia claim was unfounded.  During tests specifically administered to detect patients faking amnesia, Stanford performed so poorly that doctors suspected the incorrect answers were deliberate.  According to Cochran, patients with known problems routinely answered more questions correctly.  Called as the prosecution's first witness, Cochrane will be a difficult witness for Judge Hittner to ignore, considering that Cochrane met with Stanford nearly every day and had 60-90 minute evaluation sessions with Stanford nearly weekly.

Countering Cochrane's testimony, Stanford's attorneys called neuropsychologist Richard Pollock, who opined that Stanford would have difficulty focusing, concentrating, or staying on task.  A key determination of competency revolves around whether an accused may adequately assist his counsel in preparing his defense. Echoing this, Pollock stated that he believed Stanford would have a very difficult time assisting his attorneys at trial. Addressing the tests purportedly designed to detect patients faking amnesia, Pollock questioned their reliability, and compared the tests to having the same shortcomings as polygraphs.  

Stanford's lawyers have asked Judge Hittner to delay the trial until at least April to allow Stanford additional time to recover.  Judge Hittner has stated that he expects the competecy hearing to last three days.