North Carolina Man Sentenced to Fifty Years in Prison for $40 Million Ponzi Scheme

A federal judge sentenced a North Carolina man to fifty years in prison for what prosecutors called "the worst financial crime in this district in memory."  Keith Simmons, 47, received the sentence after being convicted of one count of securities fraud, one count of wire fraud and two counts of money laundering in December 2010.  In delivering the sentence, which was the term sought by prosecutors, United States District Court Judge Robert Conrad labeled the case the most damaging financial crime he had presided over.  

Simmons was the mastermind of a foreign currency ("forex") trading operation known as Black Diamond.  Through a network of co-conspirators and feeder funds, Simmons solicited investors beginning in 2007 for the purported purpose of engaging in forex trading through a Black Diamond trading platform that had been highly successful.  Potential investors were told that average returns exceeded four percent per month, and that their investment was safe as no more than 20% of invested funds would be at risk at any time.  Additionally, Simmons is said to have quoted Bible verses and stressed his devout Christianity to induce people into investing with Black Diamond.  In total, approximately 240 investors contributed at least $35 million to the scheme.  These investors received monthly account statements that made it appear as if investors' accounts were enjoying steady growth.

However, rather than conducting any forex trading, Simmons and several co-conspirators misappropriated millions of dollars for personal and business expenses.  This included funding a lavish lifestyle of money, sex, and wealth for Simmons, who prosecutors alleged paid women for sex and furnished "lavish love condominiums" with investor funds.  Additionally, approximately $18 million was returned to investors in the form of fictitious monthly returns.  

After monthly interest payments ceased in March 2009, Simmons was arrested by the FBI in December 2009. Several of Simmons' co-conspirators have also been arrested or pled guilty.  One of his co-conspirators, Brian Coats, pled guilty in October 2011 to one count of conspiracy to commit fraud and one count of money laundering conspiracy.  Coats is awaiting sentencing and faces up to fifteen years in federal prison.  Additionally, Deanna R. Salazar, 53, was also sentenced on Wednesday, receiving a fifty-four month sentence from Judge Conrad and ordered to pay $5,112,687 in restitution.  She pled guilty in December 2010 to conspiracy to commit securities, commodities and wire fraud and tax fraud.   

The case was also significant in that the bank used by Simmons to perpetuate the scheme, CommunityONE Bank, N.A., was criminally charged over its lack of an effective anti-money laundering program.  The bank entered into a deferred prosecution agreement ("DPA") with the government, under which the bank, after paying $400,000 in restitution to the victims of Simmons' scheme, will be able to have the criminal charges dismissed after two years.  According to U.S. Attorney Anne Tompkins,

This bank’s failure to detect and report a ponzi scheme cost it 16 percent of its value.  Other financial institutions should heed this warning:  the Bank Secrecy Act applies to more than just drug and terrorist financing.”

CommunityONE Bank is not the only bank to suffer financially after failing to detect a Ponzi scheme.  In January 2012, a federal jury awarded $67 million to victims of Scott Rothstein's $1.4 billion Ponzi scheme, finding that the bank ignored clear signs of Rothstein's scheme and facilitated its existence.  Rothstein was also sentenced to fifty years in prison for masterminding his scheme.  

The government's sentencing memorandum is here.

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.