South Carolina Man Pleads Guilty to $90 Million Ponzi Scheme

A former city councilman agreed to plead guilty to charges that he operated a Ponzi scheme that bilked investors out of at least $60 million.  Ronnie Wilson, of Anderson County, South Carolina, pled guilty before U.S. District Judge J. Michelle Childs to two charges of mail fraud during a hearing Monday in a South Carolina federal court.  Wilson was arrested in April and charged with multiple counts of mail fraud, which carries a maximum prison sentence of twenty years per charge and up to a $250,000 fine.  A sentencing date has not yet been set.

According to authorities, Wilson operated Atlantic Bullion & Coin, Inc., ("ABC") from at least 2001 through 2012, telling investors they could expect above-average returns through profits earned from the purchase and sale of silver futures contracts.  To convince investors of the scheme's legitimacy, Wilson represented that all silver purchased would be held in safe-keeping at a Delaware depository.  In total, Wilson raised approximately $90 million from over 1000 investors in 25 states.  

However, Wilson failed to purchase a sufficient amount of silver to reflect the funds raised from investors.  Instead, a majority of investor funds were used for a variety of unauthorized purposes, including personal expenses of Wilson and his family and to make Ponzi-style payments representing fictitious interest to investors.  Authorities estimate that Wilson lost at least $60 million of the $90 million raised from investors.

In addition to the criminal action, Wilson and ABC are also the subject of an enforcement action filed by the U.S. Commodity Futures Trading Commission.   That proceeding, which is pending, seeks rrestitution to defrauded investors, disgorgement of ill-gotten gains, injunctive relief, and civil monetary penalties.  

Wilson remains free on $1 million bond.  The court-appointed receiver, Beattie B. Ashmore, indicated that he has met with Wilson several times during his investigation, but at this point, "would paint a very dim picture" in terms of recovery.

Indonesian Man Suspected of $630 Million Ponzi Scheme Involving Meat-Trading Company

While Ponzitracker usually reports on Ponzi schemes in the United States, a scheme recently uncovered int he Indo-Pacific region is drawing attention due to the severity of the alleged losses.  Indonesian authorities announced they had arrested a man they suspected of running a Ponzi scheme that had bilked its victims of $630 million since 2010.   Jaya Komara was arrested at a hotel in Purwakarta following a manhunt led by the special crimes unit of the Indonesian National Police.  Komara, who was arrested carrying a large amount of cash, is believed to have stashed most of his assets in Purwakarta and is currently being questioned there.

Komara owned Kooperasi Langit Biru, a meat-trading company that operated on a multi-level marketing program ("MLM").  MLM programs operate in a pyramid-like style, compensating sales agents not only for their personal sales but also for sales of other salespeople that they recruit.  Komara, who started out selling meat door-to-door in 2003, instituted a program in 2010 through a company, Transindo Jaya Komara, where investor funds could be used to purchase meat from producers and then sell to retailers.  In exchange, Komara offered exorbitant returns of 240% in just ten months.  The company continued to grow, and at point one had over 125,000 members.

However, the scheme imploded in June when Komara stopped paying dividends to investors and later disappeared.  As is the case with Ponzi schemes offering substantial rates of return, when the inflow of new investor funds cannot support the monthly "dividend" payments, the scheme unravels.  Authorities are still trying to account for the missing money.  

Massachusetts Man Accused of $10.4 Million Ponzi Scheme

A Massachusetts man was accused of operating a Ponzi scheme that defrauded victims nationwide out of over $10 million.  John W. Cranney, of Belmont, Massachusetts, was accused of multiple violations of the Massachusetts Uniform Securities Act, including the failure to register his companies as broker-dealers with the State and the sale of unauthorized securities to investors.  In the complaint, the Massachusetts Securities Division is seeking a cease-and-desist order, disgorgement of ill-gotten proceeds, injunctive relief, and administrative fines.

According to authorities, Cranney used his affiliation as an independent distributor with Shaklee Corporation ("Shaklee") to lure in family, friends, and colleagues.  Shaklee is a multi-level marketing system of independent distributorships that sell health and personal nutrition products, and Cranney's family was credited for introducing Shaklee to the east coast.  Cranney has been with the company since 1967, and served as a "sponsor" for approximately 50,000 distributorships in a business model similar to Avon or Mary Kay Cosmetics.  

Through these connections, Cranney held himself out as a financial advisor and operated several companies including Cranney Capital I, LLC, Cranney Capital II, LLC, Cranney Capital III, LLC, Cranney Industries, and Cranney Capital I Employee Stock Ownership Plan. Beginning in mid-2002, Cranney solicited potential investors by offering short to medium-term investments with annual returns ranging from 10% to 12% annually through a legitimate investment vehicle as part of a qualified retirement plan.  These investemnts were memorialized in the form of promissory notes, and when the note matured, many investors opted to "roll-over" their investment into a new promissory note offering similar returns.  

Based on these representations, Cranney raised approximately $10.4 million from thirty-six investors nationwide, many elderly and at least one of Cranney's relatives. However, according to authorities, instead of making investments as promised, Cranney misappropriated investor funds to fund his Shaklee distributorships, pay personal expenses, and meet investor redemptions.  When the financial markets began experiencing difficult times in 2008, Cranney began to default on making payments of principal and/or interest to investors, and soon altogether ceased returning investor funds.  Several investors later filed suit against Cranney, obtaining attachments on his personal residence that was recently listed for sale at an asking price of $3.8 million.  

Cranney's lawyer acknowledged that his client was aware of the investigation and ihad been cooperating with authorities.  

A copy of the Complaint filed by the Massachusetts Securities Division is here. 

Wisconsin Man Pleads Guilty to $4 Million Ponzi Scheme

A Wisconsin man entered into a plea agreement with prosecutors admitting that he masterminded a Ponzi scheme that defrauded investors, including his brother, out of at least $3 million.  Eric Schmickle, 37, indicated that he planned to plead guilty to a single charge of wire fraud, which carries a maximum sentence of twenty years in federal prison along with a $250,000 fine.  However, Schmickle will likely serve much less than the maximum, with federal sentencing guidelines calling for a sentence in the range of 57 to 71 months in prison.  The plea agreement also calls for Schmickle to pay $2.9 million in restitution to his victims.

According to prosecutors, Schmickle promised to trade commodity futures contracts through his companies, Q Wealth Management and Aquinas.  Friends and family members gave him $300,000 to start in 2009, with the understanding that Schmickle would be entitled to 25% of any investment profits.  Schmickle claimed to achieve substantial gains, which attracted additional investors who contributed a total of approximately $4.2 million.  However, Schmickle admitted that any reported gains were untrue, and in reality, he racked up trading losses that exceeded $3 million when the scheme was uncovered earlier this year.  Investor funds were also used for a variety of Schmickle's personal expenses.  According to authorities, only a few thousand dollars remained when the scheme came to light. 

As part of his obligation to pay restitution, Schmickle agreed to turn over various bank accounts and title to his home in Bolivar, Missouri.  It is unknown whether the assets will satisfy the $2.9 million restitution order.  Schmickle's sentencing date is unknown.  

Accused Utah Ponzi Schemer Held in Contempt For Hiding Assets From Receiver

A Utah federal judge ordered a Utah man accused of operating a $200 million Ponzi scheme to be held in contempt for his failure to turn over assets to the court-appointed receiver.  Allen Jacobson, charged with his father Wendell in what Utah authorities say is one of the largest Ponzi schemes uncovered to date, is alleged to have withheld over $200,000 in tax refunds that should have been turned over to the receivership estate. United States District Judge Bruce Jenkins agreed, ordering the turnover and forfeit of those assets to the receivership estate and reserving the option to impose further sanctions.

In a May 2012 filing, the court-appointed receiver, John A. Beckstead, contended that Allan Jacobson had violated the court-imposed asset freeze when they received $208,393.33 in state and federal tax returns that were not disclosed to the receiver and instead "secretly deposited into undisclosed bank accounts" held by Jacobson's wife, Cami.  While Jacobson (but not his wife) was released from the asset freeze in March 2012, his wife was not.  In the filing, the SEC detailed a series of transactions taking place in late 2011 and early 2012 between bank accounts held by the Jacobsons and undisclosed to the receiver.  In these accounts, the receiver presented evidence that the Jacobsons deposited state and federal income tax refunds into the accounts, only to turn around and covert the funds to cashier's checks made out to Ms. Jacobson.  For example,

On January 26, 2012, C. Jacobson and A. Jacobson endorsed and deposited into the account two checks from the State of Utah.  Both are income tax refund checks.  The first check (Warrant Number T4621485) was dated January 20, 2012, and was for $51,037.34.  The second check (Warrant Number T4621486), was also dated January 20, 2012, and was for $112,493.40.  

...

The account records show that on January 27, 2012, C. Jacobson purchased five cashier’s checks from the Bank of American Fork using a total of $74,600 of the funds from the income tax refunds deposited the previous day.  The cashier’s checks were for $6,800, $9,200, $8,600, $20,000, and $30,000.  All were made payable to C. Jacobson who also withdrew $9,500 in cash from the account.  

None of these transactions were disclosed to the receiver.  The receiver also contended that the Jacobsons had failed to turn over a 2008 BMW 528xi as previously ordered by the court.  Finally, the receiver informed the court that he had learned of an impending sale of the Jacobsons' personal residence, held in the name of Ms. Jacobson, and that any net proceeds were properly payable to the receivership rather than the Jacobsons.

The restating of previously-filed tax returns is an often-overlooked source of funds in a receivership. Somewhat ironically, Ponzi scheme perpetrators rarely fail to timely file their income tax returns detailing their income from the scheme.  That large income is in turn often accompanied by a substantial tax liability to the IRS.  However, after the discovery of fraud, insiders of the scheme can usually amend previously-filed returns to seek overpayment of taxes for phantom trading profits and newly-discovered investment losses.  Investment losses can then be "carried back" over a period of several years through the filing of a Form 1045 with the IRS, sometimes resulting in refunds in the millions of dollars for larger schemes.

Follwing the discovery of the missing funds, Jacobson turned over $170,000 to the receiver and stated that the remaining $50,000 had been paid to a former attorney.  

A copy of the SEC's motion for contempt is here.