Michigan Man Accused of $1.5 Million Google AdWords Ponzi Scheme

A Michigan man has been indicted for allegedly operating a Ponzi scheme that promised no-risk returns through the placement of Google advertisements on internet websites.  Jeffrey Curtis Folkert, of Holland, Michigan, was charged with thirteen counts of mail fraud stemming from the scheme. Each charge carries a maximum sentence of up to twenty years in prison, along with criminal monetary penalties. 

Until approximately February 2008, Folkert operated iStorm Solutions LLC (“iStorm”) as a small computer consulting business in Hamilton, Michigan.  Sometime in 2005,  Folkert devised the idea to make money off internet advertising in connection with the creation of internet websites, and began soliciting investment.  Through the use of Google’s advertising program Google AdWords, third-party websites receive a portion of the advertising income when a user accesses a Google advertisement on their webpage.   Folkert represented to investors that iStorm could earn substantial revenues through these “click ads,” that the underlying principal was guaranteed and a "no-risk" investment, and that investors would receive monthly income from the revenue generated.  Investors were provided with monthly account statements showing steady growth.  

In total, Folkert raised more than $1,500,000 from investors from 2005 to 2007.  However, Folkert used little, if any, of these funds to operate iStorm’s advertising business.  Instead, investor funds were commingled with Folkert’s personal bank accounts, where they were used for various personal expenses, including the purchase of new cars.  Additionally, investor funds were used to make fictitious “dividend” payments to investors to make it appear as if the scheme was legitimate.

Along with the mail fraud charges, the government is also seeking the forfeiture of $1,500,000 in money and/or assets deriving from proceeds of Folkert's scheme.  

Anyone who believes they may have been a victim of Folkert’s scheme is urged to contact the U.S. Attorney's Office at(616) 456-2404 or visit here for details.  

A copy of the indictment is here.

Death Sentence Overturned for Chinese Woman Convicted of $60 Million Ponzi Scheme

Following public outcry, China’s supreme court overturned a death sentence for a former Chinese businesswoman who once ranked as China’s sixth-wealthiest woman before she was convicted of operating a Ponzi scheme that bilked investors out of 380 million yuan, or approximately $60 million.  After a re-trial, Wu Ying was sentenced to death with a two-year reprieve – a common sentence in China for those who are deemed to have sufficiently reformed.  Under Chinese law, individuals sentenced to death have the opportunity to have their sentenced commuted to life sentences if they do not commit a crime after two years.

From May 2005 to February 2007, Ms. Ying raised approximately 770 million yuan, or $121 million, from investors who thought their funds would be used to start companies, extend loans, or prop up cashflow at existing businesses.  In return for their contribution, investors were told they could expect annual rates of return of up to eighty percent.  While initially Ms. Ying solicited family and friends, she expanded the scheme in 2006 when she formed Bense Holdings Group Co. and invited outsiders to invest, promising even higher rates of return.  Instead, according to Chinese authorities, she used the funds to service existing debt and fund extravagant purchases such as real estate and a Ferrari.  After being arrested, Ms. Ying confessed and disclosed that she had bribed several government workers in connection with the scheme.  She was then convicted of promising high interest to attract money for fictitious investment projects and sentenced to death.

All death sentences are reviewed automatically by the Supreme People’s Court, which announced it would review the case “with care”.  It then rejected the death penalty in April, and ordered the case returned to Ms. Ying’s home province of Zheijiang for re-sentencing.  In addition to the reprieve, the court also ordered that Ying forfeit all of her personal property and be stripped of all political rights for life.  

SEC, DOJ Charge New Jersey Man With Operating $50 Million Ponzi Scheme

The Securities and Exchange Commission ("SEC") and Department of Justice ("DOJ") filed charges against a New Jersey man, charging that he operated a Ponzi scheme that raised over $50 million from investors who believed they were investing in rental apartment buildings in New Jersey and Pennsylvania.  The SEC charged Connolly with multiple violations of federal securities laws, while the DOJ brought a 16-count indictment consisting of one count of securities fraud, five counts of mail fraud, three counts of wire fraud, and seven counts of money laundering. 

Beginning in 1996, Connolly formed at least twenty-five separate investment vehicles, each of which was used for a separate offering of securities to investors and purported to use the proceeds to acquire and manager one or more rental apartment buildings in Pennsylvania or New Jersey.  For each offering, Connolly draft an offering prospectus given to investors that detailed the "shares" each would receive in return for their investment.  In total, Connolly raised more than $50 million from over 200 investors until the scheme unraveled in 2009.

According to authorities, the operation turned criminal sometime in 2006, when Connolly fraudulently induced investors to purchase interests in certain investment vehicles by making material misrepresentations concerning the use and segregation of investor funds.  For example, while Connolly represented that the proceeds of an offering would be used solely to purchase the specific properties identified in the offering prospectus, this was inaccurate.  Instead, on numerous occasions Connolly used funds from one offering to purchase properties that were the subject of a different offering.  Additionally, Connolly used investor funds to make purported cash flow dividends from the performance of the properties tied to each offering, a classic hallmark of a Ponzi scheme.  Investor funds were also used to make improper payments totaling $2 million to Connolly, as well as refinance properties and other unauthorized uses.  When the scheme unraveled in 2009, the properties owned by the investment vehicles were forced into foreclosure, thus eliminating all investor interests.

The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains, and financial penalties.   Each of the criminal charges except money laundering carries a maximum sentence of twenty years in prison, while Connolly faces a maximum potential sentence of ten years for the money laundering charge.  

A copy of the SEC lawsuit is here.

Guilty Plea in $110 Million AdSurf Ponzi Scheme

A Florida man pled guilty to operating an internet-based Ponzi scheme that took in $110 million from thousands of unsuspecting victims.  Thomas A. Bowdoin, 77, of Quincy, Florida, entered a guilty plea to a single charge of wire fraud before a federal judge in Washington, D.C.  He had faced a much stiffer possible sentence after being indicted in December 2010 on five counts of wire fraud, one count of securities fraud, and one count of unlawful sale of unregistered securities.  While the charge carries a prison sentence of up to twenty years, Bowdoin will only face a maximum term of seventy-eight months under the terms of his plea agreement, as well as fines up to $175,000.  

From September 2006 to August 2008, Bowdoin owned and operated AdSurf Daily Inc. ("AdSurf"), which held itself out as an online advertising company.  Lauding himself as a "money magnet", Bowdoin stated that it was his goal to make "100,000 millionaires in three years".  Through his scheme, Bowdoin promised investors a return of 125 percent on every dollar paid into AdSurf, with the onyl requirements being that each investors had to view other members' websites for several minutes each day.  Investors were also paid commissions for recruiting new members to the scheme.  Bowdoin held several rallies across the country in 2008 where he recruited potential members on the benefits of AdSurf.  The audience was told that Bowdoin could be trusted because George W. Bush had personally given Bowdoin a medal of distinction, and a criminal background check revealed only a single speeding ticket.  Overall, Bowdoin raised approximately $110 million from over 96,000 members.  

However, Bowdoin's operation, like his background, was a lie.  Bowdoin admitted that AdSurf was nothing more than a gigantic pyramid scheme, and approximately $45 million was paid out to members to service their investment and give the scheme an air of legitimacy.  Bowdoin also spent $8 million to promote AdSurf, and over $1 million was used to sustain a lavish lifestyle that included the purchase of a Florida lake house, a boat, vehicles, and other items.  Additionally, Bowdoin failed to disclose to investors that he had been convicted of three securities-related felonies in Alabama in the 1990s and had also been charged in at least thirteen other indictments in Alabama alleging securities fraud.  As a result, Bowdoin had been was barred from selling securities in Alabama.  And the "medal of distinction" allegedly personally bestowed by George W. Bush was also a lie, with the medal's true origin the result of donating $25,000 of investor funds to the National Republican Congressional Committee.  

Ponzitracker previously covered the announcement by the U.S. Department of Justice that it had begun to distribute funds seized after the fraud to victims.  These funds totaled nearly $80 million and came from several bank accounts used in the scheme.  A total of approximately $55 million was distributed to roughly 8,400 victims through several distributions.  According to the website established by the DOJ for victims here, the final distribution was made in March, and the recent termination of an email and phone contacts suggest that the remission process is complete.

Bowdoin is currently free on bail.  A hearing is scheduled for June 12, 2012 to determine whether he should remain free until his sentencing.

The original indictment is here.

Victims of "Three Hebrew Boys" $80 Million Ponzi Scheme Receive Distribution Checks Totaling Nearly Half of Their Investment

The court-appointed receiver of the Three Hebrew Boys Ponzi scheme has announced that victims of the scheme have been mailed distribution checks that contain a recovery of 46% of each investor's principal loss - a stunning outcome in the receivership community and one of the highest recoveries in recent memory.  Beattie Ashmore, the receiver, issued 3,800 checks representing a total distribution of $19 million to investors with approved claims.  The outcome is particularly noteworthy considering that the average Ponzi scheme victim will typically only receive pennies on the dollar of their original investment.

The Three Hebrew Boys was a scheme concocted by Tony Pough, age 47, Joseph Brunson, age 47, and Timothy McQueen, age 52, all of Columbia, South Carolina.  The scheme derived its name from the biblical story of three men whose faith saved them after they were thrown into a fire after refusing to bow to a statute but emerged unscathed.  From 2004 to 2007, the three used this religious link to convince investors that they were part of a ministry, and promised exorbitant returns from a forex trading operation.  Investors were told that, for a contribution of a few thousand dollars, they could use the promised profits to pay off a mortgage, car payment, or other financial obligation.  The men held seminars to attract investors, promising that they could expect monthly returns of ten percent on their initial investment for the rest of their life.  In total, approximately 7,000 investors contributed over $80 million to the operation.

Yet, rather than investing the funds, the trio used investor funds to make interest payments to investors to give the appearance that the operation was legitimate and successful.  Additionally, each of the group enjoyed a lavish lifestyle that included the payment of an annual salary of $1 million, the purchase of a private jet, luxury suites at the Atlanta Falcons and Carolina Panthers stadiums, and a $900,000 party bus, among other items.  The three were indicted in June 2008 and charged with thirty-five counts of mail fraud and one count of conspiracy to commit mail fraud, with more counts added as further information was discovered.  Following a trial, a jury took less than three hours to convict the trio of fifty-eight counts of mail fraud, money laundering, and transporting stolen goods.  Two of the men later received twenty-seven year sentences in federal prison, while the remaining fraudster received a thirty-year sentence due to an existing criminal record.

Since being appointed as receiver in late-2007, the Receiver has faced the daunting task of determining the gains or losses for the estimated 7,000 investors duped by the scheme, and pursuing those who were "net winners" - that is, who withdrew more funds than originally invested - for return of those profits to the receivership.  Often, early investors may receive more than their original investment as a result of the continuing exorbitant returns.  A review of the docket shows that this was a daunting task, and at least several investors who resisted the demand to have the profits returned saw the issuance of arrest warrants for civil contempt.  Additionally, the receiver conducted the sale of numerous properties and exotic automobiles seized after the men were arrested.  In total, the receiver recovered approximately $19 million for distribution to victims, representing nearly half of their initial investment.   By contrast, the first interim distribution made to victims of Bernard Madoff's massive Ponzi scheme received approximately 4% of their initial investment.  Additionally, another Charleston-based Ponzi scheme involving economist Al Parish saw victims ultimately recoup less than 14 cents on the dollar.  

The Receiver's website is here.