SEC Sues Pennsylvania Man Who Facilitated $100 Million Ponzi Scheme

The United States Securities and Exchange Commission ("SEC") initiated a civil enforcement action against a Pennsylvania man for his role in funneling at least $30 million in investor funds into a $100 million foreign currency Ponzi scheme.  Emanuel L. Sarris, and his company, Sarris Financial Group, Inc. ("Sarris Financial") were charged with multiple violations of federal securities laws in their solicitation of investors for the Kenzie Fund, which defrauded investors worldwide out of over $100 million.  The SEC is seeking injunctive relief, disgorgement of ill-gotten proceeds, and civil monetary penalties.  

According to the SEC, Sarris provided estate planning and insurance sales to investors through Sarris Financial.  By soliciting existing Sarris Financial clients and holding numerous seminars and "free dinners", Sarris convinced over 70 individuals to invest over $30 million with the Kenzie Funds, making a variety of misrepresentations designed to lend an air of legitimacy to the investment.  For instance, Sarris told investors that he was independent of the Kenzie Funds and that his advice was unbiased and objective.  Additionally, Sarris represented that he had performed due diligence on the Kenzie Funds, and that he had personally seen the Funds' trading and banking records.

However, each of these representations was false.  In reality, Sarris received hundreds of thousands of dollars in salary as an employee of the Kenzie Funds, and also was paid approximately $1.5 million in incentive fees based on the amount of assets under management attributable to Sarris.  Sarris also never saw any foreign currency trading records or communicated with Kenzie's bankers.  Instead, Sarris ignored numerous red flags about the safety and legitimacy of the Kenzie Funds, including that some clients often received different returns for the same time period, and that the telephone number for the Funds' outside auditor had been disconnected since 2006.  Additionally, on at least two occasions, Sarris proposed to Kenzie executives that investor redemption requests be funded by using investor funds. Nevertheless, Sarris continued to solicit new investors for the Kenzie Funds.

The SEC obtained an emergency restraining order and asset freeze against the Kenzie Funds in June 2010.  Shortly thereafter, the operator of the Kenzie Funds was ordered to pay $44 million in disgorgement, along with a $150,000 civil penalty.

A copy of the complaint is here.

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.