Canadian Regulators Levy Charges Against Washington Woman Accused Of $135 Million Ponzi Scheme

Canadian securities regulators became the latest to bring charges against a Washington woman accused of orchestrating a massive $135 million payday loan Ponzi scheme.  Doris Nelson, a Canadian citizen, faces charges of fraud, illegal distribution of securities, and making false statements after the British Columbia Securities Commission initiated civil enforcement proceedings against her with the filing of a Notice of Hearing.  Nelson is currently under house arrest in Colbert, Washington after she was civilly and criminally charged by US authorities in late 2011.  The hearing, which Nelson or her counsel is required to attend, has been set for February 19, 2013.

This marks the third set of charges against Nelson, who is accused of using numerous businesses to operate a payday/short-term lending business known as the Little Loan Shoppe ("LLS").  LLS was originally based in British Columbia, but moved operations in 2001 to Spokane, Washington.  According to authorities, she began the scheme in the late-1990s or 2000 by soliciting potential investors to finance her payday loan business by promising annual returns ranging from 40%-60%.  Investors were told that the operation was wildly successful, and received post-dated interest checks at the time of their investment.  

However, the scheme was nothing more than an elaborate Ponzi scheme, with Nelson using incoming investor funds to satisfy principal and interest payments.  Nelson also diverted investor funds to sustain her lavish lifestyle, including spending nearly $500,000 at various Vegas casinos, buying $50,000 of artwork from an at-sea auction, and buying nearly $500,000 on high-end clothing from retailers such as Nordstrom. 

As all Ponzi schemes do, LLS began encountering financial difficulties that eventually led to its demise. Nelson first tried to offer new investors a reduced 10% return, and was later forced to declare bankruptcy in 2009.  Of the $135 million raised by the scheme, Nelson paid out approximately $118 million to investors, $2.2 million in commissions, and $17 million in operating costs and other expenses. 

A copy of the Indictment is here.

Uproar As Madoff's Brother Delays Prison To Attend Granddaughter's Bat Mitzvah

When Peter Madoff appeared before United States District Court Judge Laura Swain in late December to learn his fate for his role in his brother's $65 billion Ponzi scheme, he did not attempt to protest his innocence or sway the sympathies of those present.  Rather, he had one simple request - that Judge Swain delay his incarceration date until early 2013 so that he could attend his granddaughter's Bat Mitzvah.  Perhaps swayed by pleas from family and Madoff's rabbi, Judge Swain granted the request and ordered Madoff to report to prison by February 6, 2013.  

But Madoff neglected to tell Judge Swain that the Bat Mitzvah, which took place this past weekend, would be an extravagant event splashed across the front page of the New York Post and leave many of Madoff's victims seething with rage.  The ceremony, which took place at historic Central Synagogue in Midtown Manhattan and was also streamed online, featured Madoff saying a brief prayer in Hebrew before his granddaughter took the stage, telling the congregation that "the suffering of others should not be forgotten."  After the ceremony, the party continued at the ritzy venue 404 NYC for a 200-guest event estimated to cost approximately $100,000.    Several Madoff victims were quoted in various news outlets expressing their displeasure with the situation.

Madoff agreed to plead guilty in June to changes of commit securities fraud and falsifying documents, accepting a 10-year prison sentence that represented the maximum possible under the charges.  Madoff also agreed to turn over all of his assets as part of a $143.1 billion criminal forfeiture order.  He will report to the Otisville medium-security prison in early February, which features a full-time Jewish chaplain, a kosher kitchen, and was named by Forbes as one of the "12 Best Places to Go to Prison."

Two North Carolina Men Sentenced in Separate Ponzi Schemes

Two North Carolina men received prison sentences for their role in two separate commodities-based Ponzi schemes that bilked investors out of millions of dollars.  Mitchell Brian Huffman, 52, received a five-year sentence for orchestrating a $2.5 million Ponzi scheme, while Robert S. Moss, 49, received a 57-month term for his $1.5 million scheme.  Each man had previously pled guilty in September 2012 to a single count of commodities fraud, which carries a maximum potential sentence of twenty-five years.  

According to authorities, Huffman solicited potential investors by promising extraordinary annual returns sometimes exceeding 100% by using a proprietary trading program to trade in commodity futures markets.  Investors were directed to transfer funds into Huffman's personal bank account, and in turn provided with monthly statements showing consistent trading profits.  In total, from 2006 to March 2011, Huffman raised more than $3.2 million from 30 victims.  However, Huffman used less than half of this amount to engage in actual commodities trading, and suffered massive trading losses.  Huffman also used investor funds to make Ponzi-style interest payments and for a variety of personal expenses that included luxurious vacations and charitable contributions.

Robert Moss also sought to lure investors by promising consistently above-average returns as the result of options trading in the commodities futures market.  Beginning in 2001, Moss told potential victims that he had not had a losing year trading since 1993, and generated market-beating annual returns ranging from 22% to 41%.  Investors were also assured that none of Moss's investors had ever lost capital, and that Moss kept liquid capital on hand that exceeded his tradeable assets by a factor of three.  Based on these representations, twenty-two investors entrusted more than $3 million with Moss.

However, Moss was not the astute commodities trader he portrayed himself to be.  Instead, Moss lost hundreds of thousands of dollars in investor funds.  To conceal these losses and maintain the appearance of his investing prowess, Moss instead made interest payments to investors that were, in reality, derived from investor funds.  Total investor losses were estimated at $1.5 million.

Both of the men were also ordered to pay restitution, with Moss ordered to pay $1.46 million and Huffman's amount to be determined at a later date.  

70-Year Old Accountant Gets 3-Year Sentence For $6 Million Ponzi Scheme

A 70-year old former accountant who devised a $6 million Ponzi scheme to cover losses from a separate business venture was sentenced to a three-year prison term.  Alan Ritter, 70, of Monsey, New York, learned of his sentence from United States District Judge Paul A. Crotty, who also sentenced Ritter to serve three years of probation after his release from prison.  Ritter previously pled guilty in September 2012 to three counts of wire fraud, and could have faced a maximum of sixty years in prison.

According to authorities, the scheme began in 2001, when Ritter lost more than $500,000 in a separate and unrelated business venture.  Ritter decided that he would make up the losses by soliciting friends and clients for what he described as investments in real estate ventures.  This continued for over eleven years, and Ritter eventually took in more than $6 million from investors.  However, rather than use the money as he promised, Ritter instead misappropriated investor funds for a variety of purposes, including making Ponzi-style payments and paying his own personal expenses.  

Ritter was also ordered to pay restitution to his victims, although his attorney has previously indicated that Ritter is broke.  

Stanford Victims Set To Receive 1% Of Losses In First Distribution

Nearly three years after the Securities and Exchange Commission filed an emergency enforcement action accusing R. Allen Stanford of masterminding the second-largest Ponzi scheme in history, the Receiver appointed to recover assets for victims has proposed a distribution plan that envisions an initial payout of approximately 1% of victims' approved losses.  Ralph Janvey, the court-appointed receiver, filed his Motion for Approval of Interim Distribution Plan (the "Motion") last week, seeking court approval for an initial $55 million payment to victims on a pro rata basis.  Based on total claims received thus far of of $5.13 billion, the proposed payout would amount to an initial distribution of approximately 1% of each investor's loss.

In November 2011, Janvey began the process of returning money to victims by seeking court approval of a proposed claims process.  While the motion did not elaborate on victims' expected return, a status report filed by Janvey indicated that the Receivership had over $100 million on hand and estimated future asset recoveries could exceed $1 billion.  The court approved the proposed claims process in May 2012, and established September 1, 2012 as the deadline by which victims had to submit proof of claim forms detailing their losses.  

Janvey and his team received a total of 30,289 claims.  Of that amount, nearly one-third were determined to be duplicative, and nearly 400 were submitted past the deadline and thus not eligible for consideration. Of the remaining 20,673 claims, 18,400 came from investors in Stanford's CD's, while the other 2,273 claims represented non-investor claims.  Approximately 17,000 investor claims have been approved for a total aggregate claim amount of $4.237 billion, while nearly 1,000 claims remain unresolved due to outstanding requests by Janvey for further documentation or information.  In total, investor losses were estimated at $5,131,224,932.65.

Under the proposed plan, the first distribution would go out within 90 days after court approval.  Only CD investors would be eligible to receive a distribution, with other claimants such as secured and general creditors precluded from participating.  However, before any payments would be sent out, the Receiver is proposing that victims first complete and return a certification as to whether they have applied for or received any compensation for their losses from any sources other than the Receivership.  If so, the Receiver intends to reduce payments to those investors to the extent those recoveries exceed any proposed distribution(s).  As those certifications are returned, the Receiver proposes to make rolling distributions.  

Since its inception, the Stanford receivership has been tasked with the difficult job of sorting through Stanford's international fraud, which included disagreements with foreign regulators concerning jurisdiction over tainted assets, disputes with various creditor groups, and even an investigation by the SEC over Janvey's fees.  Janvey also filed over $200 million in clawback lawsuits seeking false profits from those investors fortunate enough to benefit from their investment.  

A copy of the Motion is here.