Judge Denies TD Bank's Effort to Overturn $67 Million Rothstein Verdict; Appeal Likely

A Miami federal judge denied efforts by TD Bank to obtain a new trial following a $67 million verdict in favor of a victim of Scott Rothstein's $1.2 billion Ponzi scheme.  United States District Court Judge Martha G. Cooke denied TD Bank's motion for judgment as a matter of law and motion for a new trial, finding that the evidence "adequately supported the award," and noting that the bank was sufficiently able to pay the award considering its 2011 net worth of $28 billion.  TD Bank had previously indicated that it intended to appeal the verdict, and the next step would be an appeal to the Eleventh Circuit Court of Appeals in Atlanta, Georgia.

After Rothstein's scheme came to light, one of its victims, Coquina Investments, filed suit against TD Bank alleging that the bank aided and abetted Rothstein's scheme by ignoring multiple red flags related to Rothstein's operations and issuing bogus documents to Rothstein victims bolstering the scheme's legitimacy.  After a trial late last year, a federal jury took only four hours to deliver a $67 million verdict against TD Bank - including $35 million in punitive damages.  

Following the jury's verdict, Coquina's attorney uncovered evidence that TD Bank and its attorneys, high-powered law firm Greenberg Traurig, either altered or withheld key documents during trial that could have potentially led to a higher verdict.  Judge Cooke found the omissions "simply incredible" and imposed sanctions against TD Bank and Greenberg Traurig.  Coquina later sought $500,000 in attorneys' fees and costs it allegedly sustained as a result of the sanctionable conduct.  That motion remains outstanding.

Before the conduct warranting sanctions was discovered, TD Bank filed motions with the court seeking judgment in its favor or, in the alternative, a new trial.  TD Bank made numerous arguments in support, including that Coquina had failed to prove its damages, the verdict was unsupported by the evidence, and that some jury instructions were flawed.  In a 38-page order, Judge Cooke analyzed and dismissed each argument.  Finding that the jury was entitled to make its verdict based on the "reprehensible" conduct of several TD Bank employees, and that the punitive damages awarded served to punish different conduct and were not duplicative, Judge Cooke denied all of TD Bank's requested relief.

While the bank indicated in a previous settlement with another Rothstein victim that it sought to "put this matter behind us," comments made after the Coquina verdict suggested that an appeal to the Eleventh Circuit was likely.  

A copy of Judge Cooke's order is here.

California Man Pleads Guilty to $8 Million Tax Lien Ponzi Scheme

A California man entered a guilty plea to charges he masterminded an $8 million Ponzi scheme that masqueraded as a tax lien investment venture.  Daniel Tynon, 55, pled guilty to a single count of mail fraud before United States District Court Judge Stephen V. Wilson, which carries a maximum sentence of twenty years in prison.  Having originally fled to Thailand when the scheme collapsed, Tynon was later detained and extradited back to the United States when prosecutors charged him with fraud.  Many of the victims are said to be members of the Rotary International service organization, where they knew Tynon through a previous appointment as district governor.

According to authorities, Tynon operated Dant Corp. ("Dant"), which held itself out as an investment company that specialized in the purchase of tax liens.  State counties and municipalities often hold annual tax lien auctions where outside investors are allowed to "purchase" outstanding or unpaid tax liens, often at above-average interest rates.  Purchasers are guaranteed that interest rate, and if the tax lien remains unpaid, have the possibility to take possession of the property.  Tynon and Dant solicited potential investors by promising whopping annual returns of 18%.

However, a later investigation showed that neither Tynon nor Dant had purchased any tax liens on behalf of investors.  Instead, investors had been part of an elaborate Ponzi scheme that re-distributed funds from investors purporting to be returns from profits.  Authorities estimated that victims suffered a net loss of over $2 million.  

Tynon is scheduled to be sentenced December 10, 2012. 

$50 Million Avian Ponzi Scheme Busted in India; 100,000 Emus Looking For New Home

"When you whistle, they dance," he said. "And they peck at your jewelry. They like gold, like most Indians."

In what may be the most bizarre Ponzi scheme in recent memory, more than 10,000 Indian investors are said to have lost $50 million after the collapse of what authorities are calling a massive Ponzi scheme centered around raising Emus.  According to Indian authorities, investors who agreed to raise an Emu chick were promised to double their investment within two years.  The alleged mastermind behind the scheme, M.S. Guru, was arrested in early August and charged with conspiracy and cheating after initially fleeing his hometown following the scheme's collapse.  Authorities must deal not only with the  thousands of victims, but also what is estimated to be 100,000 emus abandoned by the fraudsters when the scheme later collapsed.  

Guru founded Susi Emu Farms ("Susi") in 2006, offering investors the promise of a steady stream of income in return for raising an Emu chick.  Additionally, after two years, investors were offered the ability to "exchange" their two-year old Emu for another Emu chick.  A VIP program soon followed, in which investors could receive a similar return while Susi took on the obligation of raising the emu.  Word quickly spread of the dependability of the promised returns, and an advertising campaign headlined by popular Indian film stars quickly made Susi a household name.  The operation soon spread throughout India, with numerous copycat operations springing up demonstrating the popularity of the operation.  Thousands of Indians chose to invest with Susi, with many mortgaging their home or dipping into their savings to increase their return.

However, while many investors simply took at face value claims that emu meat and oil was highly sought after, the truth was that neither emu meat, oil, or skin was a profitable venture.  Instead, authorities believe that Guru and his associates ran a massive Ponzi scheme that used incoming investor funds to pay Ponzi-like returns to existing investors.  This was possible when potential investors could be depended on for a constant stream of incoming funds.  Additionally, existing investors were offered reinvestment "bonuses" to roll-over their investments at the end of the two-year investment term.  However, when the pace of incoming funds was eclipsed by the required outflows to existing investors, monthly distribution checks ceased and the scheme soon collapsed. Authorities estimate that losses from 8,000 to 12,000 investors could eventually total more than $100 million.

To compound issues facing authorities in the wake of the scheme's collapse, at least 100,000 emus were abandoned at various Susi farms as Guru and his associates fled.  When a public uproar ensued following the revelation that the emus were being left to starve, the Indian government was forced to step in and purchase $200,000 in emergency rations to feed the emus.  Additionally, the price of emu meat has collapsed from $6/pound to just $1/pound as both the Indian government and afflicted investors pursue all avenues to get rid of their "investments".    

To date, more than 4,000 investors have filed complaints with Indian authorities.  In addition to Guru, seven others have been charged with various crimes for their involvement in the scheme.  Authorities have also taken steps to freeze company assets.  

Recidivist Fraudster Convicted in $6 Million Ponzi Scheme

A Texas man was convicted by a federal jury for operating a Ponzi scheme that duped investors out of $6 million. It took a Houston jury four hours to convict Richard M. Plato, 64, of one count of conspiracy to commit mail fraud and five counts of mail fraud.  Plato, who has previously been convicted of fraud on three other occasions in Taxas, Florida, and Louisiana, could face up to 120 years in federal prison for the charges, although federal sentencing guidelines are likely to produce a much lower recommendation.  

Plato, a former attorney before being disbarred, was indicted in October 2011, along with his business partner and long-time mistress.  Authorities charged that Momentum Production Corp ("MPC"), owned and operated by Plato, held itself out as an owner and servicer of oil-producing wells.  Plato and his business partner allegedly promised potential investors high rates of return in exchange for an investment in one of several MPC funds.  Investors were assured that each of the funds was secured by MPC's interests in various oil and gas wells.  Between June 2005 and December 2006, nearly forty investors entrusted over $6 million to MPC.  None of these investments were registered with federal or state regulatory authorities.

However, investors were not informed of Plato's checkered past, which included his criminal history and outstanding restitution orders totaling nearly $30 million for previous frauds.  Instead, Plato used investor funds to make interest payments on various promissory notes issued to investors - a classic hallmark of a Ponzi scheme.  Of the approximately $6.2 million raised from investors, Plato was alleged to have misappropriated nearly $2 million for his personal use.  When the scheme collapsed, investors were told that a downtown in the oil and gas markets, along with operational difficulties at various wells, were to blame.  

Plato's trial lasted ten days, after which a federal jury needed only four hours to deliver a guilty verdict. Many damning internal emails , featured prominently in Plato's indictment, may have played a role, as Plato made no secret of his misuse of investor funds.  Indeed, one email from Plato stated that

"My thoughts are after paying off your car at the bank and paying several past due vendors and the Am Ex cards, we should have about $100,000 left to put towards our needs..."

Plato will remain in custody until his sentencing hearing, which does not yet appear to have been scheduled.  

A copy of the indictment is here. 

Co-Founder of Zeek “Victim Group” That Openly Challenged SEC Reportedly Receives SEC Subpoena

One of the individuals leading an advocacy group openly critical of the Securities and Exchange Commission’s (“SEC”) handling of the alleged $600 million Zeek Rewards Ponzi scheme has reportedly been subpoenaed to appear before the SEC.  The individual, Robert Craddock, made this disclosure in a September 22, 2012 mass email directed to victims who have rallied behind claims that the SEC may have mis-handled the case.  While the SEC did not provide the reason for the subpoena, some have speculated that recent comments attributed by Craddock to the SEC concerning purported admissions of fault in the SEC's case against Zeek which were later refuted may have piqued the SEC's interest.

The SEC shut down Zeek in mid-August, alleging that the operation was nothing more than an elaborate Ponzi scheme that paid existing investors with funds raised from new investors.  The same day the SEC filed its complaint containing these allegations, it also disclosed that the two defendants, Rex Venture Group, which was the parent company of Zeek, and Paul Burks, the company's founder, had agreed to enter into consent judgments to resolve the case without admitting or denying the conduct alleged. Burks also agreed to pay a $4 million civil penalty.  With the cases against RVG and Burks all but resolved, the SEC then obtained the court's approval to appoint Kenneth Bell as receiver over Zeek's assets.

However, within days after Zeek was shut down, several groups were formed protesting Zeek's shutdown and rallying victims by promising to take action.  The groups appeared to be operating in tandem, and one group, "Zeek Rewards Affiliates United Against The SEC," claimed that the SEC had "mislead" the federal judge overseeing the Zeek case and began soliciting funds from victims for the establishment of a "united legal front" to petition the court to re-open Zeek.  The group, in conjunction with Zteambiz.com, claimed it was formed by the "leaders of Zeek Rewards," and promised that "donating anything from $20 dollars to $100 dollars (sic) will allow us to hire one of the best if not the best firm in the country to protect us."  The quest seemed to be quite successful; in a chart posted on Zteambiz (but later removed), it appeared to show that at least 6,000 victims had contributed a minimum of $20 towards this "legal fund" – if true, this indicates that over $100,000 had been raised.

As the group grew in number, the regular updates continued to lambaste the SEC's handling of the case and appeal for donations.  An August 25th message from another "leader" of the group, Dave Kettner, promised recipients that information would be provided "which will disprove everything the SEC has stated”, and, in return for their donation, they would be "part of the protected group who will be fully represented by our law firm that will be retained."

However, it was a September 8th update that gained immediate attention when a law firm purportedly hired by the group disclosed several "facts" to Craddock in a phone call, including: 

The SEC acknowledged that there are a couple of problems with the case against Zeek Rewards and Rex Venture group. Here are the problems:
1.    We (the SEC) are not able to find a victim in this case. We are not able to find anybody at this time that has been harmed by Zeek Rewards.
2.    We (the SEC) are having a hard time finding a security. In the complaint, it said that Zeek was selling securities and was an investment scheme.
Based on their (the SEC) new knowledge of the Zeek Rewards business model, they are having a hard time moving forward in making their case. And they are now looking for a path or way to back out of this.

If true, the SEC would be taking the nearly-unprecedented step of admitting a massive mistake even though the company and individual behind the alleged scheme had already entered consent judgments in which they did not deny the allegations made.  However, several issues with the revelation  raised suspicions, including that such admissions would be highly unlikely to originate from the SEC and especially to an unrelated party to the civil proceeding.  Ponzitracker confirmed these suspicions several days later during a conversation with an SEC lawyer involved in the case who categorically denied the allegations as "inaccurate" and "false".   A later update from Zteambiz decried the "junk and lies being posted around the internet," and began directing victims to join a private mailing list to avoid future updates from being posted publicly.

The group continued to criticize the SEC, and in a September 12, 2012, update, Dave Kettner urged victims to "disregard" letters from the receiver, Ken Bell, as they were "nothing important."  An update several days later on September 18th from Craddock cautioned victims not to "fall for the trap the receiver would like everyone one (sic) of you to fall into," questioning why victims should fill out a claim form for the receiver "thus saying they were a victim."  Just after that announcement, Craddock reported that he had been served with a notice to appear in front of the SEC - the timing of which he deemed "highly suspect."

According to Washington, D.C. white collar defense lawyer Mark Schamel with Womble Carlyle Sandridge & Rice, assuming Craddock did indeed receive an SEC subpoena, “he has picked up a sufficiently large stick to poke the tiger in the eye."  By making statements to a mailing list of likely thousands of victims purporting to contain admissions of fault by the SEC and urging non-compliance with the court-appointed receiver, the SEC may have felt it had no choice but to act to prevent the spread of misleading information on such a large scale, especially in the infancy of what may be the largest receivership proceeding ever conducted.  While Craddock is certainly entitled to make the statements, according to Schamel, "it is not freedom of speech if you are obstructing an investigation."  In an update several days later, Craddock hinted at the SEC's focus, indicating that:

“My day has been filled with getting the requested files showing my involvement with Zeek.”

The move also comes as a Texas law firm has sought court approval to appear as legal counsel for Fun Club USA, Inc. and other victims whose “assets were seized” as a result of the receivership.  As discussed in a previous article, Fun Club is a Florida entity operated by Craddock. 

It appears the alleged subpoena may have had its desired effect; in an update yesterday, Craddock indicated that "after speaking with the attorneys today they have requested that I go silent for a while and not give any more updates."