Man Who Offered "Get Rich For Sure" Investment Accused of $20 Million Ponzi Scheme

A California man has been arrested for what authorities called a massive Ponzi scheme that may have defrauded investors and lenders out of more than $20 million. Lawrence "Lee" Loomis, 54, along with six other associates, was named in a 50-count indictment charging him with mail fraud and wire fraud. According to the indictment, Loomis is accused of perpetrating multiple fraudulent schemes through his company, Loomis Wealth Solutions ("LWS"), at least one of which with the assistance of his father-in-law, John Hagener. Each count of mail fraud and wire fraud carries a maximum sentence of twenty years in prison as well as a fine of up to $250,000.

According to the Federal Bureau of Investigation, which conducted the investigation along with assistance from the Internal Revenue Service, Loomis pitched investors on the possibility of acquiring real estate at no cost through an investment in LWS. Specifically, investors were told to (1) purchase whole life insurance, (2) "harvest" home equity and retirement accounts to buy shares in the Naras Funds, and (3) to serve as "nominees" in the purchase of residential real estate controlled by Loomis. For each house an investor agreed to serve as "nominee" for, Loomis promised a monthly payment of $300 that could be applied to the life insurance premiums. According to Loomis, this investment plan was

"simply the best financial plan ever created." 

As part of the plan, investors purchased shares in the Naras Funds, which offered guaranteed annual returns of 12%. According to Loomis, these above-average returns were the result of investments in junior mortgages paying 14% annual returns. To assure investors that their contributions would be safe, Loomis represented that the Funds were guaranteed by secured deeds of trust and the backing of a third-party company. Loomis is also accused of participating in several other schemes designed to artificially inflate home values through property-flipping.

Loomis held numerous hotel seminars in California, Washington, and Illinois in which he solicited potential investors. Investors were provided with literature extolling the benefits of Loomis' investments. According to a California news-station, Loomis told investors that

"It's not get rich quick. But the reality of it is it's get rich for sure."

All told, it is estimated that nearly 200 investors entrusted at least $20 million with Loomis and his various schemes. However, according to authorities, Loomis used the constant infusion of investor funds to operate a massive Ponzi scheme and sustain his lavish lifestyle. Investors were provided with false account statements showing investment growth when, in reality, Loomis was simply using new investor funds to pay Ponzi-style returns to existing investors. The Sacramento Bee quotes unnamed federal authorities in estimating that losses could potentially top $100 million. 

Hagener was released on $1 million bond, while Loomis was ordered to remain in federal custody over fears that he posed a flight risk due to the severity of the charges.

Accountant Pleads Guilty in $6 Million Ponzi Scheme

A New York man pleaded guilty to fraud charges for masterminding a Ponzi scheme that bilked victims out of $6 million.  Alan Ritter, 69, appeared in a New York federal court today where he agreed to plead guilty to three counts of wire fraud.  Wire fraud carries a maximum prison sentence of twenty years as well as criminal monetary penalties.  According to Ritter's attorney, Ritter's gambling problem was "the root cause of these really awful acts."

Since 2001, Ritter used his position as a self-employed accountant to solicit funds towards various business investments from clients and personal friends.  As Ritter continued to receive funds from investors, the majority of incoming funds were used to make Ponzi-style payments on the loans and for personal expenses that apparently included a penchant for gambling.  

The guilty plea to three charges of wire fraud is on the high side for sentencing based on the amount of victim losses.  While it is highly unlikely that Ritter's eventual sentence will be anywhere near the maximum sentence of sixty years, it is likely that the sentence could be a life sentence given Ritter's age.

Sentencing is scheduled for January 16, 2013.  While it is likely restitution will be ordered to Ritter's victims, his attorney has indicated that Ritter is destitute.  

Former Stanford Chief Investment Officer Receives Three-Year Prison Sentence

The former chief investment officer of Allen Stanford's financial empire was sentenced to serve three years in prison after she pled guilty to obstructing an investigation by the Securities and Exchange Commission ("SEC") into Stanford's operations.  Laura Pendergest-Holt, 39, had agreed to plead guilty only days after Allen Stanford was sentenced to 110 years in prison after being convicted of operating a $7 billion Ponzi scheme rivaled only by Bernard Madoff.  The sentence is consistent with her plea agreement, in which prosecutors agreed to recommend a sentence of thirty-six months in prison followed by a term of supervised release.  It was unclear from immediate news reports whether United States District Judge David Hittner ordered Pendergest-Holt to pay restitution.  

The charges derived from the SEC's initial investigation into Stanford's operations, which resulted in the issuance of subpoenas to Stanford and another employee to provide testimony on the operations of Stanford International Bank, Ltd. ("SIB").  After the subpoenas were issued, a Stanford attorney convinced the SEC to allow the substitution of Pendergest-Holt to give testimony, intimating that she was more familiar with operations than Stanford.  Pendergest-Holt then participated in several weeks of meetings with Stanford executives where she was coached on the testimony she was expected to give.  Her testimony omitted crucial details of SIB's finances and omitted or misrepresented other relevant information.  According to prosecutors,

"Holt acknowledged that her eventual appearance and sworn testimony before the SEC was a stall tactic designed to frustrate the SEC's efforts to obtain important information about SIB's investment portfolio.  Holt admitted she took this action intentionally and corruptly, knowing that her testimony would impede the SEC's investigation and help SIB continue operating."

Holt is the third-highest ranking official to receive prison time after Stanford and Stanford's CFO, James Davis.  Incidentally, Pendergest-Holt carried on an affair with Davis, who served as the prosecution's chief witness against Stanford.  Two other Stanford officials are scheduled to stand trial beginning later this month.  

A copy of the indictment is here.

Zeek Receiver: Nearly $300 Million Recovered, Clawbacks Likely

The receiver appointed to recover assets in the $600 million ZeekRewards Ponzi scheme announced today that he had recovered nearly $300 million in assets for eventual distribution to the estimated one million victims.  The receiver, Ken Bell, also estimated that "tens of millions of dollars more" are still unaccounted for, and hinted at their eventual recovery as well.  While victims certainly should be optimistic about the developments to date, Mr. Bell urged patience going forward, stating that "this process will take months, if not longer."

Also of note in the letter was Mr. Bell's most pointed statements to date that he intends to pursue clawback litigation against those "affiliates who took more out of Rex Ventures than they put in."  While many victims received few, if any, distributions and instead chose to re-invest their gains, some affiliates were rumored to have withdrawn tens or even hundreds of thousands of dollars in excess of their initial contribution.  Citing principles of equity, Mr. Bell declares that "in order to make everyone as whole as possible, those who profited from participating should surrender their gains" (emphasis added). Courts routinely approve the use and legal theory surrounding clawbacks, and they are very difficult to defend.

It also appears that the beginning of a claims process is near.  Mr. Bell indicated that an "information template" will be posted to the Receivership website soon that, while it will not function as an official claims form, will allow the Receivership to begin collecting victim information and also enable an accurate method of communication as the case proceeds.

Finally, and likely in response to increased and rampant speculation over recent comments made by some affiliates in which they purported to have spoken to the Receiver or the SEC about the negative merits of the case, the Receiver issued a strong statement denying the rumors.  According to Mr. Bell, false information is being circulated by these claimants" (emphasis added). Going forward, Mr. Bell urged victims to consider only what the SEC posts on its website for its position on the matter.

Ponzitracker published an article several days ago consistent with Mr. Bell's comments after having been forwarded an email that purported to contain comments attributed to the SEC concerning the "weakness" in Zeek's case.  In a conversation with a top SEC official involved in the litigation, Ponzitracker was able to confirm that the statements being circulated were false.

New Mexico Ponzi Schemer Sentenced to Twelve Years in Prison

"Unfortunately, you have become the most infamous criminal in New Mexico history. You have exceeded Billy the Kid, (train robber) Black Jack Ketchum, others who have been notorious in this territory."

- United States District Judge Bruce Black

An Albuquerque man who masterminded the largest Ponzi scheme in New Mexico's history was sentenced to serve twelve years in prison.  Doug Vaughn, 64, operated the scheme, which spanned decades, that scammed more than 600 investors nationwide out of approximately $75 million.   After being charged in a 30-count indictment unsealed in early 2011, Vaughn pled guilty to wire fraud and mail fraud charges in December 2011.  As part of the agreement, prosecutors agreed to recommend a prison sentence ranging from 10 to 12 years .  While some victims urged United States District Judge Bruce Black to reject the plea agreement and give Vaughn the maximum sentence, Judge Black sentenced Vaughn to the high end of the range recommended by prosecutors, concluding that ""I don't think despicable covers it quite frankly."  

Vaughn operated Vaughn Company Realtors ("VCR"), which was once the largest independent residential brokerage firm in New Mexico. Started in 1983,VCR, through Vaughn, solicited investments in the form of promissory notes, promising potential investors annual returns averaging 17.5%.  In return, Vaughn represented that investor funds would be used for real estate investments.  In total, VCR collected more than $86 million from investors in eight states.  

However, rather than use the funds for real estate investments, authorities alleged that Vaughn used investor monies to (1) make Ponzi-style payments to investors; (2) pay himself under the guise of salary or bonuses; and (3) to prop up VCR corporate operations, which was not generating sufficient revenues through legitimate operations.  Indeed, VCR was hemorrhaging money, losing $54 million from 2004 to 2009 and nearly $14 million in 2009 alone.

The scheme began to collapse in late 2009, with Vaughn unable to meet monthly interest obligations and unilaterally deciding which investors would receive checks.  Finally, in February 2010, Vaughn filed for personal and corporate bankruptcy protection, claiming that nearly 600 investors were owed approximately $75 million.  

Vaughn was given 48 hours to report to prison.  Given his age, it is likely to be a life sentence.

A copy of the indictment is here.