Two Former Stanford Execs Get 20-Year Prison Terms

The last of the executives involved in Allen Stanford's massive Ponzi scheme were each sentenced to a twenty-year prison term for their role in the swindle that bilked investors worldwide out of billions of dollars.  Gilbert Lopez Jr., who once served as Stanford's chief accounting officer, and Mark Kuhrt, a former global comptroller, received their sentence from United States District Judge David Hittner, who also previously sentenced Stanford to a 150-year term.  Defense attorneys had attempted to downplay their clients' role in the scheme, asking for a 3-year and 5-year sentence for Lopez and Kuhrt, respectively.  

Lopez and Kuhrt chose to stand trial on charges that they participated in a series of sham transactions designed to both inflate the amount of capital contributions purportedly made by Stanford and misrepresent the extent of Stanford's repayment of billions of dollars in personal loans made by Stanford International Bank ("SIB").  At trial, prosecutors introduced a series of emails between Lopez and Kuhrt that discussed the sham payments to dispute the men's claims that they were neither aware nor culpable in Stanford's fraud.  A Houston federal jury sided with the government, and convicted the men of nine counts of wire fraud, as well as one count of conspiracy to commit wire fraud.

The men were the last of a lengthy list of Stanford executives accused of wrongdoing, which included:

• Allen Stanford - sentenced to 150-year term in June 2012;
• Laura Pendergast-Holt - Chief Investment Officer - sentenced to 3-year prison term for obstructing SEC investigation;
• Jim Davis - Chief Investment Officer - After entering plea agreement with prosecutors in April 2009, cooperated extensively and served as government's star witness at several trials, and was sentenced to a five-year term earlier this year; and
• Tom Raffanello and Bruce Perraud - Stanford security team - Acquitted on charges relating to shredding of documents, where judge called evidence "extremely thin."

A former Antiguan banking official was also named in the indictment, and is currently awaiting extradition to face the charges.  

Feds Indict Florida Man For Astrology-Based Ponzi Scheme

A Florida man is facing criminal charges for orchestrating a Ponzi scheme that defrauded investors out of over $1 million by utilizing a trading strategy based on lunar cycles and the gravitational pull of the moon. Gurudeo "Buddy" Persaud, 47, was charged with one count of mail fraud and four counts of wire fraud in connection with the scheme.  Each charge carries a maximum prison term of twenty years as well as criminal monetary penalties.  The charges are the latest in Persaud's legal troubles, who was the target of a civil enforcement action brought by the Securities and Exchange Commission in mid-2012.  

According to the indictment unsealed this past Tuesday, Persaud told potential investors that he was a certified financial planner with extensive experience in the financial services industry.  According to Persaud's Broker Check Report provided by the Financial Industry Regulatory Authority, Persaud was employed at Money Concepts Capital Corp. which is based in Palm Beach Gardens, Florida.  Persaud touted his company, White Elephant Trading Company LLC ("White Elephant"), to investors as a safe investment option that guaranteed annual returns ranging from 6% to 18% through investments in the futures markets and other markets.  Investors were also provided with a personal guarantee from Persaud that their investment would be secure. Based on these representations, Persaud was able to raise over $1 million from 14 investors.

However, many of the statements made by Persaud to investors were false or misleading, including the failure to disclose that Persaud's trading strategy was based on lunar cycles and the gravitational pull of the moon.  Had they been informed, investors might have rightly questioned such a philosophy; Persaud suffered net trading losses in his first month of trading and would ultimately lose over $400,000.  Additionally, Persaud misappropriated over $400,000 in investor funds for a variety of unauthorized purposes that included sustaining he and his family members' lavish lifestyles.  

A copy of the indictment is here.

A copy of the SEC Complaint is here.

Valentine's Day Surprise for Madoff Victims as Trustee Seeks To Make Third Interim Distribution

Just in time for Valentine's Day, the court-appointed bankruptcy trustee overseeing the aftermath of Bernard Madoff's $65 billion Ponzi scheme has sought court approval to make a third distribution to victims.  Irving Picard, the bankruptcy trustee, indicated his intention in today's court filing to make payments totaling over $500 million on 1,103 claims, representing an average distribution of $457,800.  If approved, the distribution would represent approximately 5% of each customer's net equity claim.  Many will be happy to know that the proposed distribution comes ahead of the schedule seen in the previous two distributions, which each came in the latter half of 2011 and 2012, respectively.

Under the scenario envisioned by Picard, a total of 1,103 accounts will each receive 4.703% of their total net equity claim.  Due to each eligible account already having received up to $500,000 as provided by the Securities Investor Protection Act ("SIPA"), each subsequent distribution made by Picard fully satisfies a number of claims.  According to Picard, if the proposed distribution is approved, 31 customer accounts stand to receive 100% of their approved net equity claims, which would bring the total number of fully satisfied account holders to 1,106.  Thus, 1,072 accounts would remain partially satisfied and eligible to participate in future distributions.  

According to Picard, the total amount available for the third distribution is significantly higher than the proposed payout.  Specifically, over $2.6 billion is currently available in the customer account.  However, over $1.6 billion of that amount remains tied up in required reserves due to pending litigation and appeals. Of this amount, the majority is attributable to the current objection by over 1,000 investors concerning Picard's decision not to adjust the value of losses based on the amount of time each investor's funds were invested with Madoff's brokerage ("Time-Based Damages"). As ordered in the previous distribution, Picard is required to maintain 3% reserves of the potential Time-Based Damages until a final ruling is obtained.

If approved, the distribution will bring the total payouts to victims to date to $5.44 billion - nearly half of the $11.05 billion in claims allowed thus far by Picard.  This statistic does not take into account the $500,000 SIPA distribution, which as mentioned has satisfied over 1,000 investor claims.

Remission Process

Picard also references the separate Department of Justice ("DOJ") remission proceeding, which was established to deal with the billions of dollars in forfeited assets seized by the DOJ.  A remission proceeding is very similar to a claims process, and it is expected that many, if not all, of the victims currently participating in the claims process overseen by Picard will also be eligible for remission payments.  Indeed, the DOJ received over $2.2 billion alone as part of Picard's $7.2 billion settlement with Jeffrey Picower, who was Madoff's largest investor.  In connection with the remission proceeding, the DOJ has retained Richard C. Breeden to serve as special master. However, investors should not expect to 'profit' from both distribution processes by receiving more than their initial investment - Picard alludes that no claimant will receive more than his or her net equity claim:

Any determination as to the amounts owed to a claimant—whether a “customer” under SIPA or a “victim” under the forfeiture regulations—will take into account monies received from either fund such that no claimant receives in this SIPA proceeding more than his or her net equity claim under SIPA.

A copy of the Distribution Motion is here.

Previous Ponzitracker coverage of the Madoff scheme is here.

A transcript of a recent CNBC exclusive interview with Picard is here.

CPA Convicted for Role in $40 Million Ponzi Scheme

A federal jury took 45 minutes to convict an Ohio man of multiple criminal charges relating to his involvement with the 'Black Diamond' Ponzi scheme that ranks as one of the worst financial frauds in North Carolina history.  Jonathan D. Davey, 48, was convicted of one count each of securities fraud conspiracy, wire fraud conspiracy, money laundering conspiracy, and tax evasion.  He could face up to fifty years in prison at sentencing if given the maximum for each charge.

According to the criminal charging document, Davey served as administrator for several of the hedge funds involved in the Black Diamond Ponzi scheme.  The scheme, masterminded by Keith Simmons, was presented to potential investors as a lucrative forex trading operation that promised risk-free annual returns exceeding 20%.  Simmons appealed to investors' faith, quoting Bible verses and stressing his devout Christianity to portray himself as trustworthy.  Over 200 investors bought Simmons' act, investing over $35 million in Black Diamond.  Many became convinced after they were provided with regular account statements purportedly showing consistent account growth.  

Over $10 million of these funds were raised by Davey through his own hedge fund, "Divine Circulation Services'.  Davey told investors that he was operating a legitimate hedge fund, and that he had conducted due diligence on Black Diamond.  However, neither was true.  Additionally, when the Black Diamond scheme began to collapse, Davey orchestrated a separate Ponzi scheme in which he raised over $5 million to use to pay fictitious 'returns' to old investors.  While investors were told that Davey managed a total of over $120 million, in reality the amount on hand was less than $1 million.  

In addition to making Ponzi-style payments to investors of nearly $20 million that purportedly represented investing returns, Simmons, Davey, and others diverted investor funds for a variety of unauthorized personal expenses.  In one example, Davey used an offshore shell company in Belize to fund the construction of an Ohio mansion.  Additionally, Simmons was said to have paid women for sex and furnished "lavish love condominiums" with investor funds.  Simmons was recently sentenced to a fifty-year term.  

Davey remains free on bond pending his sentencing, which has not yet been scheduled.  

Zeek Judge Denies Request For Appointment of Examiner, Has 'Utmost Confidence in Receiver's Efforts'

In a terse but strongly-worded order issued earlier today, the federal judge overseeing the $600 million ZeekRewards Ponzi scheme refused to appoint a separate examiner to essentially supervise the court-appointed receiver's efforts, finding such an action would be duplicative and "cause unnecessary and significant depletion" of receivership assets.  A group of 'net winners' - those who were fortunate enough to profit off their Zeek investment - had filed a motion seeking the appointment of, ironically, their own lawyer as a purported "voice" of all investors.  However, United States District Judge Graham C. Mullen summarily rejected this request, noting that it would be impossible for an examiner to represent the interests of both the net winner and net loser affiliates.

As examined in depth in this Ponzitracker article, the 'victims group' Fun Club USA had sought to have their attorney, Michael Quilling, appointed as an examiner and compensated out of the receivership estate.  As examiner, Quilling would essentially act as a voice for all interested parties.  As I explained previously, and as Judge Mullen implies, this could represent a serious conflict of interest, as the best interests of those who profited from their investment are, not surprisingly, much different than those who lost some or all of their investment:

A potential issue with the Examiner Motion lies with the choice of Fun Club's attorney, Michael Quilling, as Examiner.  Quilling has already entered his notice of appearance in the SEC enforcement proceeding on behalf of Fun Club, which is comprised of several individuals widely thought to have profited from their participation in Zeek.  Thus, those 'net winners' obviously have contrasting positions to those 'net losers' whose hopes of a full recovery rest in large part on the successful recovery of those 'false profits' paid to net winners.  This apparent conflict of interest is magnified when considering that the Examiner's recommendation to the Court of the position of investors could, at the least, be questioned as having any apparent or direct bias towards those previous (or current) individuals who have opposed the Receiver's efforts to pursue clawback litigation.  

Additionally, the appointment of an examiner would also cause the unnecessary duplication of efforts currently being performed by the receiver, Kenneth Bell.  Compounded with the fact that the examiner would be compensated with funds out of the receivership estate - which would reduce dollar-for-dollar those funds available for eventual distribution to victims - such a move would seem to have no real purpose but to complicate the receiver's efforts and line the examiner's pockets.  Judge Mullen echoed this opinion, expressing confidence in Mr. Bell's efforts thus far and noting his diligence in preserving and maximizing assets.

Indeed, the move to appoint an examiner should be seen for what it truly was - a thinly-veiled attempt by those who profited from Zeek to delay, stall, and further avoid their day of judgment.  While those net winners are content to employ a variety of tactics to frustrate the receivership's efforts, many fail to make the connection that efforts by the receiver and his team to defend these tactics not only divert manpower away from legitimate issues, but only add to the legal costs of the receivership.  Further, and perhaps most ironic, the war chest funding these efforts has likely been funded through the solicitation of more than $100,000 from victims in the immediate aftermath of Zeek's closing for the vague cause of fighting the Receivership and restoring Zeek.  

A link to Judge Mullen's Order is here.

A special thanks to ASDUpdates, which maintains a comprehensive Zeek blog and database of court filings available to the public.