10-Year Sentence For Florida Man in $32.5 Million Ponzi Scheme

A North Carolina federal judge handed down a 10-year prison sentence to a Florida man for his participation in a commodities and foreign exchange Ponzi scheme that duped investors out of nearly $30 million.  Gary D. Martin, of St. Augustine, Florida, received the sentence from United States District Judge Robert Conrad for his role in soliciting tens of millions of dollars from investors that was subsequently funneled into a massive Ponzi scheme.  Martin pled guilty to one count of money laundering conspiracy approximately a year ago, and received the maximum 10-year term available under the statute.  Along with his sentence, he was also ordered to pay $28.5 million in restitution to scheme victims.

According to authorities, Sidney Stanton Hanson ("Hanson") operated a network of entities, including Queen Shoals, LLC ("Queen Shoals"), which purported to be in the forex and commodities trading business. Hanson, who pled guilty earlier this year to charges of securities fraud, mail fraud, and money laundering, did not disclose to investors the use of more than 30 "consultants" who were paid referral fees in return for funnelling customer funds to Queen Shoals.   Martin and his wife, Brenda (the "Martins"), acted as so-called "consultants" who, after forming Queen Shoals Consultants, LLC ("QSC"), solicited potential investors by telling them that QSC had over 20 years of experience in financial services, and that Martin had vast experience dealing with commodities and foreign currencies. Investors were promised annual returns ranging from eight to twenty-four percent, along with an additional 1% to investors who rolled over their IRA balances.  

Through QSC, the Martins raised over $20 million from investors through in-person solicitations, written materials, and a website.  All funds raised by the Martins were then turned over to Hanson, who paid the Martins at least $1.44 million in undisclosed referral fees.  

However, Queen Shoals was far from a legitimate operation.  Instead, Hanson masterminded an elaborate Ponzi scheme that incurred massive losses in the minimal forex trading that actually did occur.  The remainder of the funds taken in from investors were used to pay quarterly interest payments to existing investors, referral fees to so-called "consultants", and to sustain Hanson's lavish lifestyle.  In April 2011, Hanson was sentenced to twenty-two years for his role in the scheme and also ordered to pay more than $33 million in restitution.  

Martin and his wife previously agreed to settle an action brought by the U.S. Commodity Futures Trading Commission by agreeing to permanent bans from the commodities trading industry, as well as agreeing to make full restitution to defrauded investors.  Between Hanson and the Martins, over $9 million has been paid into the Court registry for eventual distribution to victims.

A copy of CFTC and SEC complaint filed against the Martins are here and here.

After Two Days of Trial, Florida Man Agrees to Plead Guilty to $10 Million Ponzi Scheme

In an unlikely turn of events, a Florida man decided to change his plea from 'not guilty' to 'guilty' on the third day of his trial, effectively ending the trial.  George Elia, 69, made his decision after hearing a morning of testimony from a number of his victims and several more scheduled to take the stand during the afternoon.  Elia agreed to plead guilty to all ten charges he was facing, including nine counts of wire fraud that each carry a maximum sentence of twenty years in prison.  

Elia was accused of targeting members of the south Florida gay community Wilton Manors, telling them that he was an established day trader who could achieve quarterly returns of 20% for investors. From March 2005 to January 2012, Elia raised more than $11 million from investors for various entities he controlled, including Investor Funding Group and a series of Vision Equity Funds.  

However, rather than use the entirety of investor funds for their promised purpose, Elia misappropriated large amounts of investor funds, transferring money to other companies he controlled and paying personal expenses such as mortgage and car payments.  In the marginal amount of trading actually conducted, Elia did not achieve the advertised lucrative gains, but instead incurred losses or only minimal gains.  

Elia was arrested in March after returning from "vacation" in Cyprus - a country known for its lack of extradition treaties with the United States.  After plea negotiations that would have had Elia plead to a single count of wire fraud, authorities unsealed a subsequent indictment in September that levied eight more charges of wire fraud.  

Elia is scheduled to be sentenced on May 14, 2013.  Elia's attorney indicated that they will be disputing the amount of investor losses, which plays a crucial role in the recommended sentencing range.  Elia could potentially face a life sentence. 

A copy of the SEC's complaint against Elia is here. 

Authorities Confiscate 60 Pipe Bombs From Suspected Ponzi Schemer

Authorities conducting a search of a storage locker belonging to a Pennsylvania man suspected of masterminding a $2 million investment fraud made an unlikely find when they discovered over 60 foot-long pipe bombs.  The turn of events is the latest in twists involving Istvan Merchenthaler, a native of Hungary currently residing in Chester County, Pennsylvania, who currently faces charges that his prepaid phone-card venture was an elaborate Ponzi scheme.  Merchenthaler was charged last year with four counts of wire fraud, one count of aggravated identity theft and two counts of money laundering.  A superseding indictment unsealed last week contained several additional charges, including an additional count of aggravated identity theft, two additional counts of money laundering, two counts of filing false tax returns, and two counts of interstate transportation of stolen property.

Merchenthaler operated PhoneCard USA from at least May 2006 through February 2013, telling potential investors that he was a "premier distribution source" for prepaid phone cards and cell phones with "lucrative" contracts with national retailers like WalMart and 7-Eleven.  Investors were offered "generous" returns in exchange for investing, and Merchenthaler raised approximately $2 million from over 200 investors.  

However, in reality, Merchenthaler had none of the "lucrative" contracts he boasted about, nor did he have relationships with high-ranking executives at WalMart or 7-Eleven.  Rather, he ran a classic Ponzi scheme, using investor funds for a variety of unauthorized uses, including paying 'returns' to investors and living a lavish lifestyle that included the purchase of jewelry, firearms, and luxury vehicles.  

Merchenthaler's criminal indictment was not his first run-in with the law.  Indeed, in 2004, he was arrested in Sao Paolo, Brazil on charges of drug trafficking after he was caught with 20 kilograms of cocaine.  He was released in 2005 (and his lawyer was later disbarred after Merchenthaler accused him of defrauding him).  Even after his indictment, Merchenthaler ran into more problems after he stole two cars, including a 2012 Jeep Grand Cherokee.  He was arrested again, and faced two more charges of grand theft.  

In addition to the pipe bombs discovered in the Pennsylvania storage locker, one report also links Merchenthaler to the discovery of explosive devices in a Monkey Junction, North Carolina rental.  As it isillegal to possess and manufacture explosive devices such as pipe bombs, Merchenthaler will likely face additional charges.  It is unknown as to why Merchenthaler was in possession of the pipe bombs or their intended use.  

Former Model Pleads Guilty To $7 Million Construction Ponzi Scheme

A single mother and former model agreed to plead guilty to charges that her promises to double investors' money through financing construction projects was, in reality, nothing more than an elaborate Ponzi scheme.  Tina Louise Mangiardi, pictured below in her former days as a model, will plead guilty to one count of mail fraud and one count of wire fraud in a plea agreement reached with federal prosecutors in Orlando, Florida.  Both mail fraud and wire fraud carry maximum terms of up to twenty years in federal prison, as well as criminal monetary penalties.  However, under federal sentencing guidelines, Mangiardi will likely face a much lighter term.

Mangiardi, a former model and single mother, was the principal of two Orlando businesses, T.L.M. Builders & Design, LLC, and Tlm Design and Construction, Inc.  Beginning in or around 2008, Mangiardi began pitching potential investors to invest in "bid bonds" for various Orlando-area projects, including restaurant chains, local hospitals, and even Disney.  A bid bond, which is not considered investment grade, are used to guarantee the financial viability and amount of a bid given by a construction company, and are typically issued by insurers.  In return for this authentication, the contractor usually must pay a small fee to the insurance company.  Mangiardi explained that she could double or triple investors' money within weeks, and lured investors by stressing her strong Christian faith and explaining that her gender would allow her to qualify as a minority in bidding for government contracts.  

Based on these promises, Mangiardi raised millions of dollars from at least 40 Orlando-area victims.  Many of these victims, according to authorities, were male business associates.

However, complaints soon began mounting when scheduled payments fell behind, and at one point the U.S. Secret Service began an investigation.  Court records show at lest eight lawsuits against Mangiardi and her companies since 2010, with $1.4 million in judgments obtained to date.  This week Mangiardi confirmed those suspicions by admitting that, rather than obtaining lucrative gains by financing bid bonds, Mangiardi was operating a classic Ponzi scheme using funds from new investors to fund payments to older investors.  Interestingly, before pleading guilty, Mangiardi had a series of exchanges with The Ledger, a Lakeland, FL area newspaper, in which she maintained her innocence, blasted those who had sought repayment of their loans, and even maintained that she was in possession of agreements that provided that any investor "talking or defaming me and my company causes instant void of payment plans and forfeit of payments."

A sentencing date has not yet been set.

Guilty Plea Expected By 26-Year Old 'Jet-Setter' Accused of $10 Million Ponzi Scheme

A 26-year old south Florida man is expected to plead guilty to criminal charges that he masterminded a $10 million Ponzi scheme that financed a his worldwide jet-setting lifestyle.  Donald R. French Jr., 26, is scheduled to appear before a Florida federal judge on March 15, 2013 to enter a plea agreement to at least one of the criminal charges he currently faces, which include single counts of conspiracy to commit mail and wire fraud.  Each charges carries a maximum sentence of up to twenty years in prison as well as criminal penalties.  

French formed D3 Capital Management, LLC ("D3") in early 2008 (when he was just 21 years old) in the upscale Mizner Park shopping area of Boca Raton, Florida.  The company advertised itself as the 'premier provider of global investment management,' and told potential investors they could expect annual returns of up to 50% through a variety of unconventional investments including the purchase and resale of precious stones, solar energy, and foreign currencies.  In total, nearly 30 investors entrusted French and D3 with approximately $10 million - including nearly $2 million from one single investor.

However, the supposed address in Mizner Park was nothing more than a mailing address and phone number designed to appeal to the wealthy contingent of south Floridians no doubt familiar with the implications such an upscale address carried.  Instead, French invested only a small amount of investor funds, using the majority of funds to fund a playboy lifestyle that included residences in Boca Raton and Rome, frequent foreign travel, and hundreds of thousands of dollars in gambling losses at popular Las Vegas casinos.  French later bounced more than $600,000 in checks in attempts to pay off gambling losses at the Cosmopolitan casino, which resulted in the filing of bad check charges.  

Authorities arrested French this past summer in South Africa on the outstanding Nevada bad check charges, where French later pled guilty in exchange for a 30-month prison sentence.  He was then extradited back to South Florida.

French is expected in court on March 15, 2013 for a change of plea hearing.