South Carolina Company Accused of Running $90 Million Silver Ponzi Scheme

The Commodity Futures Trading Commission ("CFTC") announced it had filed charges against a South Carolina man and his company for operating a $90 million Ponzi scheme involving the sale of silver contracts.  Ronnie Gene Wilson ("Wilson"), along with Atlantic Bullion & Coin, Inc., ("ABC"), were charged in a South Carolina federal court with violations of the newly-passed Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank Act"), which prohibits the use of a manipulative or deceptive device in connection with the sale of commodities.  In the complaint, the CFTC is seeking restitution to defrauded investors, the disgorgement of any and all ill-gotten gains, injunctive relief, and civil monetary penalties.  

According to the CFTC, from at least 2001 to February 29, 2012, Wilson and ABC purported to engage in the business of purchasing contracts of the sale of silver.  Potential investors were solicited to contribute to ABC's "Silver Investment Account" based on representations that silver was poised to increase in value exponentially, and were assured that any silver purchased would be held in safe-keeping at a Delaware depository.  Additionally, Wilson and ABC issued financial statements that supposedly contained (1) the amount of silver owned by ABC, (2) the value of ABC's silver investment, and (3) the profitability of ABC's silver investment.  Based on these representations, over $90 million from nearly 1000 investors over the 11-year period, with nearly $12 million raised during the six-month period from August 2011 to February 2012 alone.  However, in reality, neither Wilson nor ABC ever purchased any silver, and there was no Delaware depository which was housing this silver investment.  Instead, Wilson and ABC misappropriated investor funds and little is known as to the amount of funds remaining.

[EDIT 6/19] - Wilson was arrested in March and charged with mail fraud, which carries a maximum sentence of twenty years in prison and up to a $250,000 fine.

A copy of the CFTC complaint is here.

Latest Guilty Plea in Madoff Case Suggests Prosecutors Focusing on Peter Madoff

A former employee of Bernard Madoff's now defunct brokerage has pled guilty to federal charges related to his obstruction of the criminal investigation following the scheme's collapse.  Craig Kugel, who oversaw the budget for the firm's market-making operation and employee benefits, pled guilty to five charges, including conspiracy to obstruct or impede the Internal Revenue Service, making false statements in relation to documents required by Employment Retirement Income Security Act and filing false tax returns.  He continued to deny that he had nothing to do with Madoff's Ponzi scheme, which bilked thousands of investors out of billions of dollars and remains the largest financial fraud in history.  Kugel is also the son of David L. Kugel, a longtime Madoff employee and former supervisory trader in Madoff's proprietary-trading operation.  The elder Kugel pled guilty to six charges in November 2011 and is currently cooperating with authorities.

Kugel's guilty plea resulted from his filing of false forms that attested to the employment of certain individuals at Madoff's firm when, in reality, they were not employed.  Additionally, Kugel failed to declare as income certain personal expenses that were charged to a corporate credit card.  In the plea, prosecutors detailed an instance in which the wife of an unnamed Madoff employee allegedly received salary and benefits even though she was never employed at the firm.  The revelation is significant, as the court-appointed trustee, Irving Picard, alleged in a 2010 lawsuit that Peter Madoff's wife received approximately $1.5 million from 1996 to 2008 for an unspecified managerial position.  The unnamed employee, denoted as "CC-1" in the court papers, is also said to have supervised Kugel and approved the non-disclosure to the IRS of Kugel's use of his corporate credit card to pay for personal expenses.  

While many have speculated that Madoff's children must have known of their father's fraudulent scheme, no charges have been brought to date, and many speculate that none will be filed.  However, should "CC-1" turn out to be Peter Madoff, prosecutors could bring charges related to false tax returns or conspiracy to obstruct or impede the IRS. According to prosecutors, "CC-1" and others abused the corporate credit card similar to Kugel.

A copy of correspondence sent to the sentencing judge outlining the charges and possible prison sentences is here.

Madoff Trustee Files $800 Million in Clawback Lawsuits

The trustee appointed to recover funds for the victims of Bernard Madoff's $65 billion Ponzi scheme filed a flurry of clawback lawsuits seeking the return of nearly $800 million allegedly derived from investments by 'feeder funds' with Madoff.  The lawsuits come on the eve of a one-year statute of limitations resulting from Picard's settlement with Fairfield Sentry ("Fairfield"), the largest so-called feeder fund to Madoff's scheme.  The settlement, reached a year ago this Thursday, triggered the countdown of the one-year statute of limitations that applies to subsequent transfer cases.  The lawsuits seek the return of funds transferred to investors who entrusted funds to Fairfield with the understanding that those funds would be invested with Madoff.  

The targets of the latest clawback suits are mostly sophisticated financial institutions whose sizeable investments allowed Madoff's fraud to continue to pay fictitious returns to investors.  The list of entities sued include:

• EFG Bank SA - $354.9 million
• Lombard Odier Darier Hentsch & Cie - $179.4 million
• ABN Amro Fund Services (Isle of Man) Nominees Ltd - $122.2 million
• Banque Degroof SA - $108.1 million

Along with the entities that invested with the feeder funds, Picard also continues to pursue claims against Fairfield's owners, including Walter Noel.

Prosecutors: 'Ruthless Predator' Stanford Deserves 230 Years in Prison

"Robert Allen Stanford is a ruthless predator responsible for one of the most egregious frauds in history.  The sheer magnitude of the money stolen, the duration of the crime, and the extent to which Stanford lived a life steeped in deceit are almost unrivaled."

-Prosecutors

In a court filing today, federal prosecutors urged United States District Court Judge David Hittner to sentence R. Allen Stanford to 230 years in federal prison, amping up the rhetoric as a June 14 sentencing hearing approaches.  Stanford, was convicted in March 2012 of thirteen charges, including conspiracy to commit mail fraud, money laundering, and obstruction of justice, after the Government accused him of masterminding a $7 billion global Ponzi scheme that involved nearly 30,000 victims in 113 countries.  

In support of the 230-year sentence, which is the maximum allowed under federal sentencing guidelines, prosecutors pointed to the utter path of devastation left by Stanford and urged that such a sentence would place Stanford "among the greediest, most selfish, and utterly remorseless criminals."  The sentence, if imposed, would exceed that of disgraced Bernard Madoff, who was sentenced to 150 years in prison in June 2009.  Prosecutors also cited Stanford's lack of remorse, commenting that "after everything that he has done to so many innocent victims, Stanford does not show a hint of remorse for his misconduct, only the same arrogant, narcissistic behavior that led to it."

In stark comparison, Stanford's legal team is seeking a prison term of 31-44 months.  Prosecutors were quick to point out that adopting this recommendation could result in Stanford's immediate release should he receive credit for time served since his arrest in June 2009.  

Sentencing is scheduled for June 14.  Stanford's attorneys have already indicated they intend to appeal the conviction.

71-Year Old California Man Accused of $20 Million Ponzi Scheme

A California man has been arrested and charged with operating a Ponzi scheme that duped victims, mostly elderly, out of at least $20 million.  Aldo Joseph Baccala, 71, of Petaluma, California, was arrested Tuesday and charged with 131 counts of untrue statements/omissions in the sale of a security, 24 counts of grand theft, 8 counts of elder financial abuse, and 1 count of securities fraud.  He was also charged with several sentencing enhancements relating to the amount of money allegedly stolen.  The arrest is the culmination of a three-year investigation, which began after a group of investors brought a civil lawsuit against Baccala after the scheme allegedly unraveled in late 2008.  If convicted of all charges, Baccala faces hundreds of years in prison.

According to authorities, Baccala owned and operated Baccala Realty, Inc.  From 2003 to 2008, Baccala solicited potential investors, many of whom were elderly and family friends of Baccala, by promising annual returns exceeding twelve percent in return for investment in one of Baccala's ventures that included assisted living facilities, a car wash, and other businesses.  Potential investors were assured that each project was secured by a first or second deed of trust on the property.  However, in reality, no deed of trust was ever recorded.  Instead, Baccala used the more than $20 million raised to make speculative bets in the stock market, which yielded losses of at least $8 million from 2003 to 2008.  Additionally, investor funds were used to make purported interest payments to existing investors.  As Baccala's losses grew, he continued to solicit new investors, offering increased rates of return of up to 27.5%.  

In November 2008, after investors were told that Baccala would no longer be making monthly payments, a group of investors sued Baccala.  According to news reports, that lawsuit settled, with Baccala promising to make payments of $22 million to the plaintiffs "when the real estate market rebounds."  

A copy of the criminal complaint is here.