Prosecutors Unveil New Charges Against Five Long-Time Madoff Employees, Say Scheme Began in 1970's

Prosecutors unveiled criminal charges against five long-time employees of Bernard Madoff, alleging that they played a pivotal role in Madoff's $65 billion Ponzi scheme that spanned nearly four decades - two decades longer than previously admitted by Madoff.  A superseding 33-count indictment was filed against Madoff's former operations director Daniel Bonventre, back office employees Annette Bongiorno and Joann Crupi and former computer programmers Jerome O'Hara and George Perez.  The indictment added charges from the original November 2010 indictment, and also dated the conspiracy back to at least the early 1970s.  United States District Court Judge Laura Taylor Swain set a trial date for the accused for October 2013.  

According to the 153-page indictment, each of the five defendants had worked for Madoff for at least twenty-five years, with Bonventre and Bongiorno having served at Bernard L. Madoff Investment Services ("BLMIS") since 1968.  While Madoff had originally claimed that he alone had been responsible for perpetrating the massive fraud, authorities doubted those claims due to the sheer size of operations.  

Each played an active role for years in helping Madoff cover up the fraud.  This included the development of computer programs by O'Hara and Perez that contained fraudulent information designed to generate fictitious reports and evade suspicion from regulators. Bonventre allegedly falsified financial statements and other documents in order to obtain hundreds of millions of dollars in loans from financial institutions, as well as arranging for his son to obtain a "no-show" job by providing false information to the Department of Labor.  Bongirono and Crupi managed hundreds of accounts on the investment advisory side of the business, "executing" backdated trades in this accounts on paper only to achieve rates of return pre-determined by Madoff.  

Additionally, the indictment provides a new glimpse into the days leading up to the shocking discovery that Madoff had been orchestrating the largest Ponzi scheme in history.  In early November 2008, approximately a month before Madoff came clean to his two sons, Crupi prepared a report revealing that the amount of outstanding investor redemption requests outnumbered available cash on hand by a factor of three.  After Bonventre became aware of this he contacted a financial institution seeking a $200 million loan that would be collateralized by federal bonds held by a Madoff investor.  While this succeeded in allowing the scheme to continue several more weeks, during which time it would take in nearly $50 million more from new investors, it became clear in early December that the scheme was out of time.  Crupi then began rehearsing her story for law enforcement officials, and prepared $300 million in checks to be sent out to select clients.  

Including Madoff, eight people have pled guilty to various criminal charges for their role in the scheme since its discovery in December 2008.  It is expected that several of those participants may testify at trial should any of the five defendants decide not to plead guilty.

A copy of the indictment is here.

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.