Rothstein Victim Seeks Nearly $500,000 In Legal Fees For TD Bank Discovery Violations

An investment group victimized by Scott Rothstein's $1.4 billion Ponzi scheme has asked a Florida federal judge to award it nearly half a million dollars in legal fees as a result of discovery violations by TD Bank and its counsel during a trial earlier this year.  Coquina Investments was awarded $67 million in compensatory and punitive damages by a federal jury that faulted TD Bank for its frelationship with Rothstein's massive Ponzi scheme.  After the trial, it was discovered that several crucial documents in TD Bank's possession had been withheld or altered in what Coquina attorney David Mandel referred to as "Rambo litigation tactics."  Coquina filed several motions for sanctions, which United States District Court Judge Martha G. Cooke granted earlier this month.  As part of the relief ordered, Judge Cooke ordered that Coquina's legal fees and expenses incurred as a result of these discovery failures were to be paid by TD Bank and its counsel, Greenberg Traurig.

In a filing this evening, Coquina submitted its request for attorney's fees, arguing that it was entitled to nearly $500,000 in fees and costs brought about by TD Bank's gaffes.  Mandel's firm, Mandel & Mandel, accounts for nearly $300,000 of the amount, while Washington, D.C. firm Gibson Dunn & Crutcher ("Gibson Dunn") accounts for the remainder.  Florida federal courts have determined that fee determinations are calculated using the "lodestar method", which multiplies a reasonable hourly rate by the number of hours reasonably expended by counsel.  

While affidavits submitted in support of the request have been filed under seal, the motion makes it clear that the rates charged by Gibson Dunn, while assumedly higher than those typically charged by attorneys practicing in South Florida, are warranted "as a sanction for litigation misconduct [and serve] the important purpose of deterring future misconduct..."  Gibson Dunn's expertise in this area of law, argues Mandel, warranted the premium involved in securing their representation.

Upon review of the submissions, Judge Cooke has the authority to adjust the award upward or downward based on a variety of judicially-created factors.  It is unknown whether TD Bank or Greenberg Traurig will object to the amount.

A copy of the fee motion is here. 

A copy of Coquina's Motion for Sanctions is here.

Additional coverage of the Rothstein Ponzi scheme is here.

Woman, 71, Sentenced To Nine Years For $60 Million Ponzi Scheme

An Ohio woman was sentenced to serve nine years in prison after being convicted of assisting her husband in operating a $60 million Ponzi scheme that fleeced hundreds of investors.  Joanne Schneider, 71, pled guilty to multiple state fraud charges in exchange for the nine-year sentence, marking the culmination of a drawn-out legal process that started with an original three-year sentence being thrown out for being too lenient.  Her husband, Alan Schneider, was previously sentenced to a term of probation after pleading guilty in 2009.  Schneider will receive credit for the past 2.5 years in which she has been jailed, and will serve out the remaining 6.5 years in an Ohio state prison.

According to authorities, the scheme began in 2003, when Joanne Schneider solicited family and friends to invest in real estate development projects.  Potential investors were promised a high rate of return ranging from 16% to 20%.  From 2003 until January 2005, Schneider collected $60 million from nearly 900 investors.  A family member later became suspicious and contacted the Ohio Department of Commerce, who issued a cease-and-desist order against Schneider.  After Schneider continued to defy the cease-and-desist order, the state obtained injunctive relief and secured the appointment of a receiver.

After Schneider pled guilty to the original charges, a county judge sentenced her to three years in prison.  Prosecutors appealed, arguing that one of the counts Schneider had pled guilty to carried a mandatory minimum sentence of 10 years.  A state appeals court agreed, and sent the case back to an Ohio county court where Schneider was then sentenced to ten years.  After successfully arguing she had not been able to withdraw her original guilty plea, Schneider had been scheduled to stand trial this week, and entered into her guilty plea at the eve of the trial.  

A court-appointed receiver eventually recovered $10.5 million for the benefit of victims.  A large portion of that amount came from a settlement with the Schneiders' bank, FirstMerit Corp., which was accused of ignoring the classic signs that the Schneiders were running a Ponzi scheme through their bank accounts.  As part of the settlement, FirstMerit did not admit any liability or wrongdoing.  

Court Approves Second Distribution to Madoff Victims; Customers With Allowed Claims Set to Receive 33.54% Distribution

A New York federal bankruptcy judge approved a request by the trustee liquidating Bernard Madoff's now-defunct brokerage to make a second distribution to victims that could be as high as $2.4 billion.  The ruling by United States District Judge Burton Lifland clears the way for victims holding approved claims to receive a payment representing approximately 33.5% of their net investment with Madoff.  The expected distribution will dwarf the roughly 4% payment made last year that saw Irving Picard, the court-appointed trustee, unable to distribute a majority of recovered funds due to pending legal challenges.  If the timetable of the previous distribution  serves as any guide, victims can expect to receive a payment sometime in early October.

Picard's request for a second distribution was unusual in that the exact amount of any distribution was contingent on the resolution of a new legal issue involving victims' disagreement with Picard's decision not to include interest on investor losses.  These "Time-Based Damages" were not warranted, argued Picard, and certainly not at the 'statutory rate' of 9% as alleged by victims.  Picard also observed that allowing Time-Based Damages would essentially reward older investors at the expense of new investors, for those holding long-term claims would recoup their principal amount at a quicker pace.  Victims would also see their pro rata distribution reduced to approximately 20% of their allowed claim.  

In lieu of reserving over $1 billion to account for the Time-Based Damages, Picard instead proposed a compromise in which he would reserve an amount equivalent to a 3% rate of Time-Based Damages in the event victims succeeded in their argument.  This compromise would allow Picard to make a total distribution of $2.4 billion, which would represent a pro rata distribution of 33.541% of each customer's allowed claim.  Based on the outstanding 1,229 allowed claims, a $2.4 billion distribution would represent an average payment of $1.975 million and would fully satisfy nearly 90% of outstanding approved claims when accounting for funds previously advanced by Picard and the Securities Investor Protection Corporation ("SIPC").

 

At a hearing held Wednesday morning, Judge Lifland heard argument and overruled several objections to Picard's motion.  It is expected that Picard will provide guidance to victims in the near-future.

A copy of the Order is here.

Another Day, Another Ponzi: SEC Busts $7 Million Puerto Rican Ponzi Scheme

Continuing its aggressive campaign to root out Ponzi schemes, the Securities and Exchange Commission ("SEC") announced the filing of civil fraud charges against a Puerto Rico man in what is alleged to be one of the largest Ponzi schemes to originate out of the U.S. territory.  Ricardo Bonilla Rojas ("Rojas") and his firm Shadai Yire ("SY") were charged with multiple violations of federal securities laws after taking in at least $7 million from investors primarily located in Puerto Rico.  The SEC is seeking disgorement of ill-gotten proceeds, injunctive relief, and civil monetary penalties.  Simultaneously with the SEC's announcement, the Department of Justice also announced the filing of criminal charges against Rojas.

Beginning no later than August 2005, the SEC alleged that Rojas and SY solicited investors, including Evangelical Christian groups and factory workers, for a "risk-free" investment that promised 15% to 50% annual returns derived from commodities trading.  Rojas told investors that he had a long history of successful returns in trading commodities, and touted SY as an international enterprise in the business of global private investments.  Besides personal solicitations, Rojas also engaged the services of sales agents who solicited potential investors on a commission basis.  From the beginning of the scheme until February 2009, Rojas and SY collected at least $7 million from investors based on these representations. 

In reality, the SEC claimed that Rojas began misappropriating investor funds as early as October 2005 - two months after the scheme started.  Additionally, Rojas alleged failed to invest any of the funds raised from investors, and instead sent out false account statements purporting to show continued growth in investor accounts.  Instead, at least $4 million was returned to investors in the form of fictitious trading profits and principal redemptions.  Additionally, Rojas used hundreds of thousands of dollars of investor funds for his personal use without the consent or knowledge of investors.  

It has been a busy week for the SEC.  In the past seven days, the SEC has (1) filed charges against a Utah man accusing him of operating a $27 million Ponzi scheme, (2) charged 2 Denver men with a $16 million Ponzi scheme, (3) charged a former college football coach with a $80 million Ponzi scheme, and (4) busted a $600 million multi-level marketing scheme called ZeekRewards.  Whether it represents a shift in department priorities remains to be known, but this recent enforcement spree is easily above average for the SEC.  

While the majority of victims are said to be located in Puerto Rico, investors were also located in the mainland U.S., including Florida, North Carolina, and New York.  

A copy of the SEC's complaint is here.

ZeekRewards Victims: What Happens Next

"“It's a process...We're going to try to gather as much money as we can and figure out who deserves what.”

Kenneth Bell, Court-appointed Receiver of ZeekRewards

The Securities and Exchange Commission ("SEC")'s shutdown of ZeekRewards last Friday left many of the estimated one million victims shocked and confused, with many still refusing to believe that they had fallen victim to one of the largest Ponzi schemes in history. With the SEC alleging that Zeek's cash reserves were far insufficent to cover the nearly 3 billion "profit points" accumulated by members, it will be up to the court-appointed receiver to begin the arduous task of trying to recover assets for the benefits of victims. The Receiver has already indicated that the process will likely "take a long time." A court-ordered asset freeze on the $225 million currently held by Zeek in various financial institutions ensures that victims can be assured of at least some recovery.

The establishment of a receivership is common in the wake of an exposed Ponzi scheme. Usually simultaneously with the filing of charges, the SEC also requests the appointment of a receiver. In this case, the SEC chose Kenneth Bell, a North Carolina attorney with law firm McGuireWoods who is experienced in white collar fraud. According to Lexington newspaper The Dispatch, Bell visited Zeek headquarters for the first time today. There, Bell likely took possession of investor files and office computers, which he will try to use to piece together to fully understand the scheme. Bell also announced that he will be establising a website, www.zeekrewardsreceivership.com, where he will communicate with all concerned parties. At the time this article was published, the website was not yet live.

Likely due to the staggering amount of victims, Bell also stated that communications with investors would be through email only, and provided this address for victims: info@ZeekRewardsReceivership.com. Before any distribution process can be established, it is likely that Bell will first provide the court with a report on his investigation and findings. This process will likely take weeks or months.

In addition to any funds recovered by the Receiver, both the SEC and Department of Justice ("DOJ") allow for any funds forfeited or paid as penalties to be returned to investors. In the context of an SEC proceeding, this is known as a "Fair Fund", while the DOJ process to return funds to victims is known as remission. For those familiar with the AdSurfDaily Ponzi scheme, which was similar to ZeekRewards in that it purported to pay investors daily returns in exchange for visiting websites daily, those investors received approximately $55 million in funds seized by the Department of Justice from foreign bank accounts.

After the Receiver completes his initial investigation, he will then begin the process of recovering assets for the benefits of victims. These efforts may include securing or disposing of property owned by Zeek and/or Burks. Additionally, there is also the possibility that the Receiver could employ the use of "clawback" lawsuits, which target those investors that withdrew funds in excess of their initial investment. This will especially be important in the context of Zeek, where those that invested early in the scheme and grew their "downline" affiliates likely received exponential returns exceeding their original investment. Mr. Bell said that it was still unclear as to whether clawback lawsuits were likely. He may also look to financial institutions or other third parties who were involved with Zeek that ignored or should have noticed "red flags" relating to the scheme.

In the near future, many will simply be waiting for word from the Receiver as to his initial findings. Some investors have already begun to secure legal representation as well. Kevin Thompson, a well-known attorney in the direct sales industry who operates themlmattorney.com, indicated that he had already been contacted by 2,000 victims seeking help whose losses ranged from $500 to $70,000. Many of these stories, according to Thompson, were "heartbreaking", and involved many victims who had cashed out their retirement accounts to invest in Zeek. Thompson estimated that there could potentially be up to 1.2 million victims.

The North Carolina Attorney General's ("NCAG") office has also warned Zeek's victims to be wary of "reload scams", which purport to "help them replace the income they were receiving from Zeek Rewards." Some of these programs even refer to themselves as the "Zeek rescue program." The NCAG urged investors to cut their losses rather than lose even more.

The Receivership website will be established at www.zeekrewardsreceivership.com. All investors seeking to contact the Receiver should email info@zeekrewardsreceivership.com.

A statement released by the Receiver this evening is here.