Petters Wants 50-Year Sentence Overturned

The man responsible for the third-largest Ponzi scheme in history has filed papers seeking to have his fifty-year sentence overturned, claiming that his former attorney failed to disclose that prosecutors had previously offered a 30-year sentence in plea negotiations.  Thomas Petters, 56, chose to stand trial in 2009 on allegations that he masterminded a $3.7 billion Ponzi scheme, even taking the witness stand to profess his innocence.  However, the strategy backfired, and Petters was sentenced to a fifty-year term after a federal jury found him guilty of all charges.  Petters' previous efforts to challenge the sentence have failed, and he is currently scheduled to be released in 2052 - just shy of his 95th birthday.  

Petters was arrested on October 3, 2008 after prosecutors alleged that his company, Petters Company, Inc., was not operating a successful and highly-profitable re-sale business as he claimed, but rather a massive Ponzi scheme that had taken in billions of dollars from investors.  According to Petters' motion, Petters' then-attorney, Jon Hopeman, spoke several days later with an assistant U.S. attorney, who allegedly informed Hopeman that the government would agree not to recommend a sentence of more than 30 years in exchange for Petters' guilty plea.   Petters was subsequently indicted on twenty charges, including wire fraud, mail fraud, money laundering, and conspiracy, which carried a possible term of hundreds of years in prison.  

Shortly after the indictment was unsealed, Petters met with Hopeman, who allegedly told Petters that he had not received any plea offer from the government.  The next week, Hopeman against met with the U.S. Attorney, who reiterated the 30-year sentence offer.  According to the motion, and as allegedly depicted in Hopeman's personal files, Hopeman informed the prosecutor that, "as a matter of personal pride," his "professional integrity would not allow" him to advise Petters to accept the offer.  In an affidavit filed with the Motion, Petters avers that he was never advised of this offer.  Petters then proceeded to trial, and on December 2, 2009, was convicted on all counts.  

Following Petters' conviction, Hopeman met with Shauna Kieffer to discuss possible issues that might arise during post-conviction proceedings.  In an affidavit, Kieffer claims that Hopeman told her of the Government's offer, and that he did not advise Petters of the offer because he felt "it was not a respectable offer."  The Motion concludes by stating that the sentence should be vacated or modified because of Hopeman's ineffective assistance of counsel and, in a claim likely disputed by Petters' victims, that the sentence was cruel and unusual because it was disproportionate to Petters' crimes.  

In the Motion, Petters' current counsel cites to Missouri v. Frye, a recent case decided by the U.S. Supreme Court involving the ramifications of the failure to disclose plea offers to an accused.  In Frye, the Court acknowledged the crucial role plea bargaining plays in the criminal justice system, stating that " Ours is for the most part a system of pleas, not a system of trials…To a large extent ...horse trading [between prosecutor and defense counsel] determines who goes to jail and for how long.  That is what plea bargaining is. It is not some adjunct to the criminal justice system; it is the criminal justice system."   Missouri v. Frye, 132 S. Ct. 1399, 1402 (2012).  Holding that there were certain responsibilities required of defense counsel in the plea bargain process to render adequate assistance of counsel under the Sixth Amendment, the Court ruled that, as a general rule, defense counsel had an affirmative duty to communicate formal offers for settlement from the prosecution to the accused defendant.  

While it is almost certain that the government will oppose the Motion, it will be interesting to see what position the response will tae.   Frye stands in contrast to the position that  an accused's guarantee to a fair and impartial trial is an adequate backstop that immunizes any errors in the pre-trial process. The government may also seek to distinguish its communications with Petters' former counsel from the "formal offers for settlement" addressed by the Court in Frye, noting that the lack of any written offer of settlement supports a position that the 30-year offer was merely part of an informal negotiating process that did not progress to any meaningful discussion.  

A copy of the Motion is here.

Judge Approves Claims Process For Zeek Victims, Claims Due By September 5th

A federal judge overseeing the ZeekRewards Receivership has issued an order approving a claims process that clears the way for hundreds of thousands of victims to eventually recoup some of their losses.  Judge Graham C. Mullen granted a motion by the Receiver, Kenneth D. Bell, seeking to establish a claims process, set a bar date, and approve notice procedures in what is likely the most complicated receivership process in history.  Notably, in his order, Judge Mullen did not even address the objections lodged by counsel involved in a separate class action proceeding on behalf of Zeek victims, which had been lambasted by the Receiver as meritless and done only in pursuit of "their own [financial] agenda."

In his Order, Judge Mullen ruled that all claims must be received by the Receiver within 120 days, which would fall on September 5, 2013.  This date is known as the claims "bar date," which, by its name, means that any claim(s) not received on or before that date is forever barred from participating in the claims process.  This was also reiterated in Judge Mullen's Order.  The Order also approved the Receiver's request to establish a centralized claims website that would be the primary means by which a claimant could submit a Proof of Claim Form.  That website, which will be avaialble through the Receiver's website at www.zeekrewardsreceivership.com, will be functional within 14 days of the Order.

Because of the sheer number of potential claimants, which the Receiver estimated at nearly 1 million, extensive notice procedures were proposed to ensure that all potentially interested parties would receive notice that they had a limited period of time to submit a claim.  Additionally, the Receiver sought to utilize methods that would not result in exorbitant costs to the Receivership Estate, such as email and publication.  For example, the cost of postage alone for nearly 1 million pieces of mail would approach nearly $500,000.  The Receiver proposed several methods to provide notice to parties, which the Court approved in its Order.  These methods were:

1. Making the Claims Process publicly available on the Receiver'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.

In the event that an email was no longer found to be 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.  The Court approved the Claim Submission Form that will be utilized on the Claims Portal. 

Another issue worth noting is the Court's affirmation of the Receiver's determination that "Retail Profit Points" accumulated by affiliates could not serve as the basis for any claim and would not be included in any calculation of an approved loss amount.  These "VIP Points", as they were also known, were essentially interest payments that were disguised in the form of a daily 1.5% payout purportedly resulting from daily profits.  Courts have universally rejected attempts by victims to recover anything other than investors' principal balances, since allowing fictitious interest payments would serve only to reward investors that had been involved in the scheme longer at the expense of newer victims.

In the event that the Receiver determines that an investor's claim should be rejected, that victim will then have 30 days from that date to submit an objection to the Receiver.  

A copy of the Order is here.

Questions or Comments regarding the claims process?  Contact Ponzitracker here.

Special Thanks to ASDUpdates.

Bernie Madoff's Yacht Can Be Yours For Only $5.5 Million

Those in the market for a superyacht with historic significance need look no further.  Bernard Madoff's superyacht, aptly named 'Bull', is back on the market and can be had for $5.5 million - less than the notorious fraudster himself paid.  The 88-foot Arno Leopard, which was built to Madoff's exact specifications, is being sold by an international yacht broker acting for the liquidator for Madoff Securities International, Ltd., which was the title of Madoff's London operations.  Madoff had purchased the yacht in April 2007 for approximately $6 million after negotiating a $1 million discount for, ironically, paying in cash for the yacht.  The yacht is currently being stored in Gibraltar, after having been moved from France due to a legal dispute between liquidators and a French creditor.  

Perhaps owing to the short period of time in which Madoff had possession of the yacht before his scheme imploded, a key selling point lies in the fact that the yacht has barely been used.  With less than 500 engine hours, the yacht is being marketed as the best of its kind available.  Additionally, with two engines each producing over 2000 horsepower, the yacht is also hailed as "one of the fastest 27M motor yachts ever built."

As for accommodations, the yacht boasts three "sumptuous" cabins, including an owner's stateroom, a VIP cabin, and a guest cabin, as well as quarters for three crew members.  According to the yacht broker, the yacht is in "as new" condition, due to Madoff's strict prohibition on guests bringing any food aboard, as well as a penchant for "ordering carpet over carpet."  Additionally, the owner's stateroom features towels and bedsheets embroidered with Madoff and his wife, Ruth's initials. 

The yacht has been on the market for several years after several potential sales fell through - most recently a contingent of Russian buyers that pulled out of the transaction.

A link to the listing is here.

Suicides Mount As Details Emerge From Massive Indian Ponzi Scheme

As investors begin to come to terms with a Ponzi scheme that is estimated to have duped hundreds of thousands of Indian investors out of billions of dollars, details are beginning to emerge about the scheme and its mastermind, while suicides continue to mount in a grim reminder of the true human toll of Ponzi schemes.  In a script perhaps better suited for a Hollywood movie, there are tales of bribes paid to politicians, a factory where workers pretended to work to impress potential investors, and a mastermind so opposed to having his picture taken that his website simply features a picture of an empty chair in his stead.  Now, two weeks after the scheme unraveled, many are trying to piece together what is likely the largest scam in India's history.

Shockwaves began emanating out of India in late April that Sudipta Sen, the man behind an Indian conglomerate known as the Saradha Group, was missing amid rumors of financial irregularities and increased scrutiny from India's Securities and Exchange Board of India ("SEBI").  Sen's Saradha Group operated a series of companies that offered 'depositors' the ability to invest in a wide range of ventures ranging from real estate to motor vehicles to even bio gas.  Investors were offered the ability to make short-term investments with promised returns based on the duration.  

Sen was able to promote his investments to the masses through a wide range of sources, including an extensive presence in television and newspapers and connections to members of one of the leading Indian political parties.  Sen also employed an extensive network of approximately 300,000 agents that were paid commissions to recruit new investors into the scheme. In total, it is estimated that hundreds of thousands of Indian investors may have entrusted billions of dollars to Sen's many ventures.  

However, as details have emerged from India, it is now becoming increasingly apparent that Sen's massive business empire may have been nothing more than a devastating Ponzi scheme.  As the Hindustan Times reports, Sen appears to have taken elaborate measures to attract investors to his scheme - even creating a full motorcycle factory spanning nearly 8 acres and manned by 150 employees who did little more than perform for busloads of potential investors.  As the article relates,

For two years since January 2011, employees at the Saradha group-owned Global Automobiles were forced to pose in front of the conveyor belt to give the impression that the plant was operating in full swing.

They pretended to work whenever truckloads and busloads of prospective depositors of Saradha Realty visited the plant for a first-hand check before investing.

Just before the depositors reached the factory, the workers would get dressed in their blue uniforms, rush to the shed where the assembling of motorbikes used to be done and pose in front of the conveyor belt as if they were really assembling the twowheelers.

They also used to turn on the fountains inside the campus. The prospective investors had no way of doubting that the plant had actually stopped production in January 2011.

There has also been an immense amount of scrutiny directed towards the ruling Trinamool Congress that has been linked to Sen.  Some politicians had extensive ties to Sen's businesses, including Kunal Goosh, a member of the Trinamool Congress Parliament who also served as head of Sen's media operations.  As the Hindu BusinessLine has reported, Sen filed an 18-page complaint letter wth the Central Bureau of Investigation shortly before he fled, accusing at least two members of Parliament for receiving bribes in return for protecting him from potential prosecution.  Additionally, Chief Minister Mamata Banerjee has made several comments that have been ill-received by investors, including admonishing victims that "what's gone is gone."

Minister Banerjee has since proposed the establishment of a relief fund that would provide $9.2 million for defrauded investors, that plan too has sparked a backlash - this time from Banerjee's announcement that 30% of the fund would be collected by increasing cigarette taxes.  Said Banerjee, 

"Smoke a little more to help the investors,"

Finally, in a grim reminder of the true devastation of Ponzi schemes, there have been multiple reports of suicides linked to the scheme.  Two victims are believed to have committed suicide in the immediate aftermath, with one woman setting herself on fire while another man hung himself.  Additionally, another deliberately drank poison and remains in critical condition. Recent news reports out of West Bengal suggest that two more individuals committed suicide within the past several days, including the father of an individual who served as a commission agent for the scheme who was being heckled by investors at his house.  According to the Hindustan Times, this brings the total number of deaths attributable to the scheme to ten - with seemingly no end in sight.  

Sen remains in police custody, and recent news reports have indicated he is cooperating with authorities.

California Man Receives 10-Year Sentence for $17 Million Ponzi Scheme

A California man was sentenced to ten years in prison for masterminding a Ponzi scheme that duped dozens of investors out of nearly $17 million.  Jeffrey J. Sykes received the sentence from a Texas federal judge after previously pleading guilty earlier this year to two counts of securities fraud.  U.S. District Judge John McBryde also ordered Sykes to pay nearly $17 million in restitution to his victims.

Sykes operated Gemstar Capital Group ("Gemstar"), which solicited investors for what was billed as a U.S. Treasury Bill trading program.  In 2006, Sykes met an individual identified only as M.K. while at a golf tournament, telling him that Gemstar was looking to expand its operations by enlisting the services of a brokerage firm to buy and sell U.S. Treasury Bills.  M.K. agreed to assist Sykes, forming a limited liability company known as KCG in order to solicit investors.  Investors were provided with quarterly account statements purpritedly showing consistent account growth.  In total, M.K. and Sykes raised more than $45 million from dozens of investors.

However, unbeknownst to investors, there was no U.S. Treasury Bill trading program, and Sykes did not use investor funds as represented.  Instead, Sykes operated a Ponzi scheme, in which money from newer investors was used to pay older investors in the form of interest and principal redemptions.  Additionally, Sykes used a great deal of investor funds for personal expenses.  In a fortunate stroke of luck for investors, at the time Sykes was arrested there remained a great deal of investor funds in money market accounts that allowed investors to receive some of their funds back.