Former Polaroid CEO Faces Clawback Lawsuits Targeting Kickbacks, Bonuses From Petters Ponzi Scheme

The former chief executive officer of Polaroid, a once-iconic photography company that recently succumbed to bankruptcy, is the subject of multiple 'clawback' lawsuits relating to his role as an executive of one of the many companies ensnared in Thomas Petters' $6.5 billion Ponzi scheme.  Lorence Harmer faces clawback lawsuits seeking nearly $6 million from both the court-appointed Petters receiver as well as the Polaroid bankruptcy trustee.  

Petters raised billions of dollars from investors who were promised lucrative returns through the purported purchase and resale of consumer electronics to big-box retail stores. Investors were shown falsified invoices and bank records to paint the illusion of a highly-successful company, but in reality Petters was running a massive Ponzi scheme that ranks as one of the largest in history.  Instead of using investor funds as promised, Petters built up an elaborate business empire by purchasing legitimate companies such as Polaroid and Sun Country Airlines.  However, when the fraud was uncovered in late 2008, those once-legitimate companies imploded along with the rest of Petters' empire.  Petters was eventually sentenced to serve fifty years in prison for the fraud.

One of Harmers' duties was to locate manufacturing facilities in China for the consumer brands division. While Harmer successfully located such manufacturers, later information showed that he had received nine kickback payments from a certain Chinese manufacturer totaling over $5 million.  The kickbacks were not discovered until after Harmer had left the company, and when confronted, Harmer confessed to the charges and agreed to repay the company for the full amount by signing a promissory note.  However, Petters' fraud collapsed shortly after this agreement, and Harmer never made the required payments. 

Additionally, the Petters receiver alleged that Harmer received nearly $500,000 in bonuses and fees in efforts to create the appearance that Petters' businesses were legitimate.  However, because of his close relationship with Petters, the receiver claims that Harmer knew, or should have known, that Petters and his enterprise was a massive fraud.  

The newly-filed cases bring the total amount sought in clawback litigation from Harmer to nearly $10 million, as Harmer also was employed as an executive at several other Petters companies including Petters International and Petters Consumer Brands.

Zeek Receiver Seeks Approval of Claims Process, Notice Procedures, and Proof of Claim Form

The court-appointed receiver overseeing the $600 million ZeekRewards Ponzi scheme has filed a motion seeking approval of a claims process to compensate what could be nearly 1 million victims.  In a 21-page motion (the "Motion"), the receiver, Kenneth Bell, seeks court approval for the proposed procedures and manner of filing claims to be used by victims, as well as the use of an online claims submission form. Victims would be notified by email, would have 120 days from the Order approving the Motion to submit their claims, and any late-filed claims would be disallowed in their entirety.   

The Proposed Claims Process

In the Motion, the Receiver estimates that while approximately 1 million affiliates paid money into Zeek, over 800,000 suffered losses, and the remainder were fortunate enough not only to recoup their principal investment but may also have profited.  Should the Court approve the Motion in its current form, the Receiver proposes that he will provide notice to all interested parties via several methods: 

1. Making the Claims Process publicly available on the Reeiver's website at a soon-to-be-functional Claims Portal;
2. Emailing all known affiliates through email addresses obtained from Receivership records and collected at the Receiver's website; 
3. By U.S. Mail to trade creditors and other known, non-affiliate creditors; and
4. Publishing the Receiver's Notice on the Receiver's website, certain multilevel marketing sites, certain newspapers, and sending the Notice to certain trade groups in the financial industry.

As previously alluded to in earlier articles on Ponzitracker, the Receiver cites the "great cost" of serving the over-2 million claimants by any other method and seeks court approval for the proposed notice procedures.  As a last resort, should an email be found to be no longer valid, the Receiver will attempt service of the notice by an alternative method, which includes a different email address or postcard to the last known address.  

Within 14 days of court approval of the Motion and included in the court-approved notice to claimants, the Receiver proposes to have a Claims Portal active on his website, www.zeekrewardsreceivership.com.  According to the Receiver, the Portal is "designed to capture the claims of all Claimants...in the most cost effective way possible."  Thus, all claimants, whether affiliates or non-affiliates, should files claims at the Claims Portal.  Indeed, 

Failure to submit a validly completed claim on the Claim Portal (or by alternative means that are agreed to between such Claimant and the Receiver prior to the Bar Date) will preclude a Claimant from receiving a distribution from the Receivership Defendant regardless of the validity of the Claimant’s claims.

The Receiver proposes that, if a Valid Proof of Claim is not received by any claimant within 120 days from the date of the Order approving the claims process, that claim shall be forever barred and precluded from sharing in any distribution.  As the Receiver has already collected over half of what he estimates are the $500-$600 million in losses, this could be a substantial penalty for those who fail to timely follow the claims procedures.  

The Claim Form will allow each claimant to upload supporting documentation, if any, for its claim that may be helpful to the Receiver and his team.  The failure to provide any documentation will not automatically cause that claim to be disallowed, but could delay approval - and payment - of the claim. Before submitting any claim, each claimant will be required to attest under penalty of perjury that the supplied information is accurate.  

VIP Points Not Allowed

One issue of note is the Receiver's proposal to omit any inclusion of "Retail Profit Points" or "VIP Points" in the calculation or determination of any claim.  Akin to interest, the VIP Points were accrued by purchasing sample or VIP bids and then re-distributing them to retail customers or back to Zeek.  The VIP Points then allowed the affiliate to participate in the daily percentage payout from Zeek, which averaged approximately 1.5%.  As is universally understood in other receiverships, victims of Ponzi schemes are entitled only to their lost principal balance, and not to any fictitious interest (or, in this case, points) that they may have accumulated.  Indeed, especially since the vast majority of Ponzi schemes are unable to accomplish a total return of victim losses, allowing interest as part of a valid claim would reward some victims at the expense of others.  

A copy of the Motion is here.

A copy of the proposed Claims Form is here.

'Billionaire Boys Club' Executives Convicted of Running $50 Million Ponzi Scheme

A federal jury convicted a Detroit father-and-son for their roles in a massive Ponzi scheme that raised more than $50 million from investors.  John Bravata, and his son Antonio, 25, were each convicted of a single charge of conspiracy to commit wire fraud, and John Bravata was also convicted of 15 counts of wire fraud.  Each count carries a maximum possible prison term of twenty years, as well as a criminal fine of up to $250,000.  

John Bravata operated BBC Equities, LLC ("BBC") and Bravata Financial Group, LLC ("Bravata Financial"), and according to Bravata, the 'BBC' is an acronym for 'Billionaire Boys Club.'  Along with the aid of his son, Antonio, who served as a sales associate, and Richard Trabulsy, who served as chief executive, BBC was touted as a successful real estate investment fund, raising more than $3 million from family and friends.  Later, BBC and Bravata Financial hosted free seminars where potential investors were provided with a free lunch and told that their investments would be used to purchase real estate that would provide a guaranteed annual return of 12%.  Investors were provided with offering materials, including private placement memoranda outlining the proposed use of investor funds.  BBC also used magazine advertisements, including a spread in Forbes magazine in December 2008, as well as a website extolling the benefits of an investment in BBC or Bravata Financial. In total, over 400 investors contributed approximately $50 million.  Neither the Bravatas nor their two funds were registered with the Securities and Exchange Commission.  

However, neither BBC nor Bravata Financial was a legitimate business, and instead were used by John Bravata to perpetrate a massive Ponzi scheme that survived only by constantly soliciting new investors. Of the $50 million raised from investors, approximately $20 million was spent on highly-leveraged real estate that, contrary to Bravata's representations, was not profitable and did not produce income.  Indeed, it is estimated that, at the time the fraud was uncovered, existing mortgages on these properties exceeded $128 million.  The remainder of investor funds were used to sustain an elaborate lifestyle for the Bravatas and Trabulsy, with purchases ranging from luxury vehicles to vacations to artwork.  

The Securities and Exchange Commission also filed a complaint against the defendants, BBC, and Bravata Financial in July 2009, alleging various violations of federal securities laws and seeking relief including permanent injunctions, disgorgement, and civil monetary penalties.  Trabulsy pled guilty in late 2011 and agreed to cooperate with authorities.

A receiver was appointed to recover funds for investors, but concluded that "there does not appear to be a reasonable prospect of any significant recovery for creditors and investors."

Sentencing has been scheduled for June 18, 2013.

29-Year Old New York Man Charged With $50 Million Ponzi Scheme

Authorities have arrested a New York man and charged him with operating a real estate Ponzi scheme that may have bilked investors out of $50 million.  Gershon Barkany, 29, was arrested by FBI agents earlier today and charged with wire fraud, which carries a maximum potential sentence of twenty years in prison.  Barkany was scheduled to make an initial appearance earlier this afternoon.

According to authorities, Barkany solicited at least five investors to entrust large sums of money with him, which he represented would be used to make real estate purchases in Manhattan, Queens, the Bronx, and Atlantic City, New Jersey.  Barkany assured potential investors that the real estate purchases would be "risk-free," since under the arrangement he had with the sellers of these properties, the purchases would only be made once Barkany had secured a buyer at a slightly-higher purchase price.  Based on these representations, Barkany was able to raise more than $50 million from at least five investors.

However, authorities allege that there were no such 'risk-free' real estate deals.  Rather, Barkany is accused of perpetrating the classic Ponzi scheme, using new investor funds to pay off older investors.  Additionally, Barkany misappropriated investor funds to support a lavish lifestyle that included gambling trips.  While further details have not yet emerged, it remains to be seen whether any investor funds remain.  

While criminal charges were just filed today, civil litigation appears to have been ongoing for nearly two years by several individuals/entities that claim to have invested substantial sums with Barkany, who are identified as Mr. San LLC, Jordan Most, Gerad Pinsky, Botnick Trust, Motti Hellmans, and Cortland Realty Investments.  Those plaintiffs originally filed suit against a law firm, Zucker & Kwestel LLP, alleging that the firm aided and abetted Barkany's fraud by accepting the investors' funds in a firm escrow account.  The law firm then added Barkany as a third-party defendant, and the lawsuit remains ongoing.  

Authorities Indict Two Men For 'Quick-Fix Scheme to Hide Assets' For Ponzi Scheme Suspect

Federal authorities indicted two Arizona brothers for their role in helping a South Carolina man implicated in a $60 million Ponzi scheme attempt to hide money from authorities.  Gordon and Benton Hall were charged with conspiracy to commit wire fraud, and are currently in route to South Carolina after being arrested in Arizona.  Authorities allege that the brothers agreed to provide monthly payments to Wallace Lindsey Howell, a South Carolina man charged in the $60 million silver bullion scheme masterminded by Ron Wilson, in exchange for hiding over $1.5 million in Howell's assets.  Wire fraud conspiracy carries a maximum prison sentence of twenty years, along with criminal fines of up to $250,000.

From 2001 to 2012, former Anderson County councilman Ron Wilson solicited investors for his company, Atlantic Bullion & Coin, Inc. ("ABC"), which purported to make healthy profits from trading in silver futures contracts.  Telling investors he would purchase silver bars that would be held in safe-keeping in a Delaware repository, Wilson raised approximately $90 million from 1,000 investors.  However, according to authorities, Wilson was not actually buying the quantity of silver he represented to investors, but rather was running a massive Ponzi scheme that bilked investors out of nearly $60 million.  After being arrested in April 2012, Wilson pled guilty in July and was later sentenced to serve 19 years in prison.  

However, Wilson was not alone in carrying out the scheme, and authorities later charged Wallace Howell with mail fraud conspiracy on the basis that he acted as a promoter for the scheme and touted it to investors as a lucrative opportunity.  Investors, however, were not told that Howell was paid handsomely for his efforts and received millions of dollars in commissions from Wilson.  Howell pled guilty earlier this year to wire fraud conspiracy.  

According to authorities, Howell contacted the Halls shortly after Wilson was arrested in an attempt to dispose of a portion of the illicit profits he had received from Wilson.  The men allegedly came to an agreement, in which the Halls agreed to pay Howell's legal bills and provide him a guaranteed monthly payment for life in exchange for at least $1.5 million Howell transferred to the pair that included real estate, a truck, 55 gold coins, and 1,000 ounces of silver.  The silver alone, based on a current market price of $28.50 per ounce, is worth nearly $300,000.  

A receiver has been appointed to gather assets for Wilson's victims, and any assets recovered from the Halls would likely go to the Receiver's efforts.  The receiver, Beattie Ashmore, has indicated that his investigation thus far "would paint a very dim picture" of a meaningful recovery of assets for distribution to victims.  

The Receiver's website is here.