Massive $384 Million Ponzi Scheme Busted in China

Arrest warrants have been issued for three Chinese men who allegedly operated a massive Ponzi scheme featuring online stock and feared to have swindled more than 200,000 Chinese citizens out of approximately $384 million.  Police have arrested several members of the scam allegedly masterminded by a Chinese man named Yun (Many Chinese go by only their surname), who remains the only suspect still on the lam.  The scheme operated through a website, Hootoot660, that was based in the United States.  Instances of widescale financial fraud are relatively rare in China, due in part to a booming economy and a government that seeks to tightly control the spread of unfavorable or harmful news.  

According to authorities, Hootoot660 offered investors the chance to achieve lucrative returns through the purchase of an online stock called Guquan that was purported to never drop in value.  After paying a membership fee to join, members could then further increase their returns by receiving commissions for recruiting new members to the scheme.  However, according to police, there was no "online stock" known as Guquan.  Instead, Hootoot660 used incoming investor funds to pay returns to existing investors - a classic Ponzi scheme.  The scheme is estimated to have taken in nearly $400 million from over 200,000 victims.  

Police arrested the scheme's co-founder, Pang, earlier this year, along with another co-conspirator. Details remain forthcoming.

Charged by CFTC in 2009, Authorities Now Unveil Criminal Charges Against Las Vegas Man Accused In $15 Million Ponzi Scheme

A Las Vegas man who curiously managed to avoid criminal charges despite having a $42 million civil judgment entered against him for a $14 million Ponzi scheme has seen his luck run out, as federal authorities filed criminal charges relating to the scheme earlier this month.  Gordon Driver, 54, was arrested October 9th and charged with two counts of mail fraud, nine counts of wire fraud, two counts of commodity pool operator fraud, and three counts of making false statements to the Securities and Exchange Commission.  If convicted of all charges, he faces up to 275 years in federal prison.

Driver was originally the subject of an enforcement proceeding brought by the Commodity Futures Trading Commission ("CFTC") in May 2009, alleging that Driver bilked investors out of millions of dollars by promising above-average returns purportedly achieved through trading commodity futures.  Driver was the sole owner and principal of Axcess Automation, LLC (“Axcess Automation”) and Axcess Fund Management LLC (“Axcess Management”).  Beginning in February 2006, Driver solicited investors, telling them he had developed proprietary trading software to trade E-Mini S&P 500 futures that had achieved average weekly trading returns of 1% to 5%.  Investors believed Driver, and ultimately approximately 100 investors contributed over $14 million to the venture.  

However, Driver was not nearly as successful as his alleged trading record suggested.  Not only did Driver invest less than $4 million of investor funds, but he experienced $3.5 million in trading losses - a realized loss of 94%.  Rather than achieving regular monthly returns of 1% to 5%, Driver had profitable trading months only twice, in March and May 2009, and when the CFTC obtained an emergency asset freeze, only $77,592 remained in Driver's accounts.  

The CFTC enforcement action featured celebrity attorney Mark Geragos as Driver's counsel until his withdrawal just before Driver was ordered to to pay restitution of $9,562,488.00 and civil monetary penalties of $31,800,000.00 by July 22, 2012.  

Despite being successfully prosecuted by civil regulatory authorities for masterminding a massive Ponzi scheme, any intervention by criminal authorities remained conspicuously absent.  In a Forbes article I authored earlier this summer pondering this same question, I noted that "while the CFTC outlined allegations in its complaint that could form the basis of mail and/or wire fraud, the five-year statute of limitations continues to tick." Among the criminal charges Driver now faces are two counts of wire fraud and nine counts of mail fraud.  

Also noteworthy is the decision to charge Driver with three counts of making false statements to the Securities and Exchange Commission.  Authorities rarely bring this charge against those accused of Ponzi schemes, with the only known exception to be Laura Pendergast-Holt, the former chief investment officer under Allen Stanford's massive $7 billion Ponzi scheme who received a three-year prison sentence after pleading guilty to obstructing an SEC investigation.  Driver was presumably charged under 18 U.S.C. 1001, which forbids making any false or fraudulent statement in "any matter within the jurisdiction of the executive, legislative, or judicial branch" of the U.S. government.  Each charge carries a maximum sentence of up to five years in federal prison.

Driver was scheduled to be arraigned this week.  

A copy of the CFTC’s Complaint is here.

A copy of the Final Judgment is here.

Ohio Man Receives 131-Month Sentence For $8.9 Million Ponzi Scheme

A Cincinnati man was sentenced to serve nearly 11 years in federal prison for his role in operating a Ponzi scheme that took in nearly $9 million from victims.  Jason Snelling, 48, received the sentence from United States District Judge Herman Weber, who also ordered Snelling to pay $5 million in restitution to his victims.  Snelling, along with co-conspirator Jerry Smith, pled guilty earlier this summer to three counts of conspiracy, obstruction, and tax evasion, and faced up to forty-five years in prison.

Snelling and Smith operated Dunhill Investment Advisers and CityFund Advisory in downtown Cincinnati, where they guaranteed high rates of returns to clients under the guise that the firms were successfully engaging in day-trading.  The two offered guaranteed rates of return ranging from ten to fifteen percent, with some investors receiving higher promised rates.  In an effort to convince investors of the safety of the operation, Snelling and Smith represented that their position would be liquidated to cash at the end of each trading day.  In total, the scheme raised nearly $9 million from seventy-two investors.  But instead of engaging in day-trading, Snelling and Smith spent the majority of investor funds to sustain an exorbitant lifestyle that consisted of boats, jet skis, plastic surgery, and private school tuition. 

Snelling was also ordered to pay nearly $600,000 in restitution to the Internal Revenue Service. 

Accused Ponzi Schemer Kidnapped By Victims In Attempt To Recoup Investment

Apparently not content to let the justice system run its course, three Indian men decided to take matters into their own hands when they kidnapped a man suspected of a multi-million dollar Ponzi with the goal of forcing the man to return their investment.  Asif Hussain Siddique, Ayub Siddique, and Iqbal Sheikh (the "Trio") face criminal charges in connection with the failed attempt, and police remain on the lookout for two more accomplices who remain fugitives.  The accused Ponzi schemer, Imtiyaz Saiyad, is said to have defrauded over 12,000 investors across India in an investment operation that purportedly promised 120% annual returns.  Saiyad has denied involvement.

Indian authorities became involved last year after several investors contacted authorities with suspicions about Saiyad's investment venture.  Known as Imtsons Ltd., investors were allegedly solicited with the promise of annual returns exceeding 120%.  Saiyad was subsequently arrested, along with six 'sub-agents', on charges of duping.   According to authorities, Saiyad's operation involved over 12,000 investors that contributed over $10 million to Imtsons on the promise of lucrative returns.  However, according to Saiyad, he never promised investors the purported 120% returns; instead, he blamed his 'sub-agents' for luring investors into their own schemes under the name of Imtsons.  Saiyad was ultimately released by authorities on the condition that he would make restitution to investors by the end of October 2012.

The Trio had invested over $300,000 with Saiyad.  When they learned of Saiyad's arrangement with authorities, they devised a ruse to kidnap Saiyad, luring him to a city called Lucknow with a story that a Lucknow-based investor wanted to invest over $10 million with Imtsons.  However, no such high-rolling investor existed.  Instead, the Trio kidnapped Saiyad at gunpoint upon arriving in Lucknow, keeping him in a house under armed guard and demanding that he repay the funds lost by the Trio.  Saiyad was forced to call family members to ask for cash or gold jewelry to satisfy the Trio's demands.  Saiyad was able to turn over nearly $10,000.

However, unbeknownst to his kidnappers, Saiyad had managed to send out a text message to a family member informing them of his predicament.  After consulting with police, the family devised a plan to have the kidnappers believe that an Indian businessman was ready to invest $100,000, but required Saiyad to travel to his state to sign papers evidencing the investment.  When Saiyad arrived at the agreed-upon location with several of his kidnappers in trail, police arrested three while two managed to escape.  

It remains unclear as to the severity of the charges lodged against the kidnappers.

Former Attorney Pleads Guilty To $7.8 Million Ponzi Scheme

A Houston man admitted that he operated a Ponzi scheme that defrauded victims out of at least $7.8 million.  Billy Frank Davis, 67, a former attorney, attracted potential investors by claiming he was a successful real estate investor.  Pleading guilty last week to a single count of wire fraud, Davis admitted that the operation was nothing more than a Ponzi scheme.  Wire fraud carries a maximum possible sentence of twenty years in prison, as well as a $250,000 criminal penalty.

According to the Federal Bureau of Investigation, Davis operated the scheme for over a decade, telling investors he could generate high returns through a variety of real estate investments.  Many of these investors knew Davis through his contacts at several prominent Houston golf courses, including Champions Golf Usa.  Some knew that Davis had previously been disbarred during a previous unrelated incident, but were reassured by his standing within the golf community and his representations to investors.  In total, more than 20 investors contributed millions of dollars.  However, While Davis did engage in a small amount of legitimate investment activity, he admitted that the majority of investor funds were not used as advertised.  Instead, Davis used investor funds to make Ponzi-style payments and support his lavish lifestyle.  

Davis is scheduled to be sentenced before United States District Court Judge David Hittner on January 11, 2013.  Coincidentally, Judge Hittner is the same judge that recently sentenced R. Allen Stanford to serve 110 years in federal prison for his $7 billion Ponzi scheme.  Davis has also agreed to pay restitution to his victims.