Ponzi Schemer's Ferrari, Harley, Boats Scheduled For Auction

Several luxury cars, boats, and a motorcycle, including a Ferrari Spyder 348 Convertible, are scheduled to be auctioned off after their previous owner was convicted of operating a Ponzi scheme that duped hundreds of investors out of more than $50 million.  John Bravata, of Kalamazoo, Michigan, was found guilty in March 2013 of fifteen criminal charges, including fourteen counts of wire fraud.  Each count of wire fraud carries a maximum statutory sentence of up to twenty years in prison, as well as up to a $250,000 fine.  The auction is scheduled for June 18th - the same day Bravata is scheduled to be sentenced.

The Scheme

 Bravata operated BBC Equities, LLC ("BBC") and Bravata Financial Group, LLC ("Bravata Financial"), along with his son, Antonio, who served as a sales associate, and Richard Trabulsy, who served as chief executive.  According to Bravata, the 'BBC' used in the entity names was an acronym for 'Billionaire Boys Club.'  BBC was touted to potential investors as a successful real estate investment fund, initially 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 a variety of advertisements to reach potential investors, including an elaborate websites and magazine advertisements, including a spread in Forbes magazine in December 2008.  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, only $20 million was spent on real estate that was not only highly-leveraged, but 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 Toys

The Securities and Exchange Commission filed a complaint against Bravata and his related entities in 2009, and a receiver was ultimately appointed to marshal assets for the benefit of defrauded investors.  In its complaint, the SEC alleged that Bravata had used investors funds for a variety of purposes, including to sustain a luxury lifestyle that included the purchase of fancy boats and cars.  One car, a 1995 Ferrari 348 Spyder, was the source of legal wrangling between Bravata and the SEC, with the SEC ultimately seeking to have Bravata held in contempt after they alleged he traded the Ferrari with a business associate to settle previous debts.  Bravata later claimed he needed the Ferrari as collateral to pay his legal debts. 

In March 2011, after a criminal case was instituted, a federal judge ordered the seizure of numerous luxury automobiles and watercraft belonging to Bravata.  This included:

• 1969 Ferrari conversion
• 2007 Maserati Quattroporte
• 1995 Ferrari 348 Spider
• 2003 Ford Pickup
• 2004 Seadoo personal watercraft
• 2003 Seadoo personal watercraft 
• 2006 Chevrolet Corvette
• 2004 Nortech Catamaran

Since their seizure, the cars and boats have been maintained by an auction company.  With Bravata's conviction, five of those items have been scheduled for auction: the 1995 Ferrari, the 2007 Maserati, two of the Seadoo personal watercraft, and a 2003 Harley Davidson.  The auction is scheduled to begin June 18, 2013, at 8:00 A.M. EST, and each item will have a beginning asking price of $1,000.  

All proceeds from the auction will go to Bravata's victims.  

A link to the auction website is here.

Accounting Firm Ordered to Pay $180,000 in Sanctions For Withholding Documents Relating to Seattle's 'Mini-Madoff'

A federal judge ruled that an accounting firm should pay $180,000 in legal fees resulting from multiple failures to respond to a subpoena issued by the trustee overseeing a massive Seattle Ponzi scheme whose mastermind became known as Seattle's 'Mini-Madoff'.  Moss Adams, the nation's 12th-largest accounting firm, had been asked to produce documents relating to its dealings with Darren Berg, who pled guilty in July 2011 to running a $150 million Ponzi scheme.  Moss Adams, which counted Berg as a client for ten years, had been found in contempt in April for failing to timely produce thousands of documents.

The trustee in charge of recovering funds for Berg's investors served a subpoena on Moss Adams shortly after Berg was arrested in July 2010.  While nearly 12,000 pages of documents were initially produced in response to the subpoena, Moss Adams would eventually make several additional supplemental productions of thousands of pages of additional responsive documents over the next two years.  This included additional emails, billing records, voicemails, and Berg's tax returns.  Finally, after the engagement of a third-party to assist in discovery efforts, Moss Adams made their last production in January 2013 of another 1,200 pages of documents.  

The trustee's counsel sought sanctions against Moss Adams, arguing that their failure to fully comply with the subpoena had significantly hampered their efforts to gain a thorough understanding of Berg's scheme, especially since crucial documents such as Berg's tax records and other financial documents were not produced until much later after the deadline for compliance.  Additionally, due to restrictions in place with Moss Adams file retention systems, the failure to timely respond to the subpoena meant that some documents had been lost forever.  This was especially prejudicial, argued the trustee's attorneys, since they believed that those records may have bolstered their claim that a Moss Adams employee had an inappropriate relationship with Berg that may have helped to further Berg's scheme.   

The federal judge overseeing the case, United States District Judge Karen A. Overstreet, agreed that these shortcomings significantly hampered the trustee's ability to accurately ascertain the financial status of Berg's financial empire.  As Judge Overstreet concluded,

"Moss Adams’ failure to fully comply with the Subpoena hampered the Trustee both with regard to his duties to marshal the estates’ assets and his efforts to evaluate the estates’ claims against Moss Adams."

While the trustee had sought up to $277,000 in legal fees, Judge Overstreet ruled that $180,000 was an appropriate amount in sanctions.  Moss Adams' counsel has filed a motion asking the judge to reconsider her ruling.

$27 Million ATM Ponzi Scheme Results in Prison For California Brothers, Woman

Two California brothers and a woman who lived with them were sentenced for masterminding a $27 million Ponzi scheme based on video advertisement screens mounted on ATMs and vending machines.  Alan G. Flesher, 65, Wayne D. Flesher, 62, and Nancy Carol Khalial, 65, (the "Trio") received sentences of 210 months, 72 months, and 48 months, respectively.  Flesher's sentence was significantly higher than his two co-defendants as he was recognized as the leader of the scheme.  Under statutory sentencing guidelines, each of the Trio had faced up to 340 years in federal prison after pleading guilty last year to seventeen counts of mail fraud.

From 2001 to 2005, the Trio operated Unlimited Cash Inc. ("Unlimited Cash") and Douglas Network Enterprises Inc. ("DNE").  Potential investors were promised lucrative returns made possible through the placement of Ad Toppers - video monitors capable of displaying video advertisements - on vending machines and ATMs.  The Ad Toppers would show advertisements for popular companies such as Coca-Cola, Gold’s Gym, and Paramount Pictures, taking in a portion of ATM transaction fees and advertisement revenue.  Based on these promises, nearly 800 investors invested more than $40 million with the two companies.

However, contrary to their representations, the Trio did not use a majority of the funds raised to place ATMs and Ad Toppers.  Rather, investor funds were used for a multitude of unauthorized purposes, including personal salaries, sales commissions and payments to existing investors - a classic hallmark of a Ponzi scheme.  In addition to the prison sentences, the court also ordered a total of $27.4 million in restitution - the estimated amount of investor losses.

Death Sentence for Chinese Woman Convicted of $70 Million Ponzi Scheme

A Chinese woman who masterminded a $70 million Ponzi scheme has been sentenced to death by a Chinese court - possibly by firing squad.  Haiyan Lin, 39, from the Wenzhou province, received the sentence as part of a broader push by Chinese authorities to crack down on the underground lending industry that has found itself awash with cash as part of Chinese stimulus efforts.  Haiyan is the latest of several women who have received a death sentence for their role in investment frauds.

According to Chinese authorities, Lin began soliciting funds in 2007, telling friends, former classmates, and family members that she could deliver high returns with little risk.  While evidence suggests that her business began as a legitimate venture, she soon began to encounter heavy losses as a result of investing in multiple high-risk investments, including futures and speculative stocks.  Lin eventually collected approximately $70 million from investors. 

However, instead of disclosing her mounting losses to investors, Lin instead continued to solicit new investments.  In turn, Lin used funds from these newly-solicited investments to make payments to existing investors - a textbook example of a Ponzi scheme.  The scheme eventually collapsed in October 2011.

China differs from the United States in that it allows the imposition of the death penalty for nearly sixty offenses, including fraud and economic crimes.  By contrast, the United States allows only a handful of offenses to qualify for the death penalty.  This results in one of the highest amounts of executions annually, with it estimated that China executed approximately 4,000 prisoners in 2011.  This has also included death sentences for women accused of Ponzi schemes, including Wang Caiping, was sentenced to death last year after an investment fraud that racked up losses of nearly $20 million through risky futures and gold trading.  

However, Chinese courts allow the commutation of a death penalty to life in prison after serving two years of the sentence, which was recently seen in the case of Wu Ying.  Ying, who had been sentenced to death for a $60 million Ponzi scheme, had her sentence commuted to a life sentence in May 2012.  

California Man Guilty in $250 Million Ponzi Scheme

A federal jury has returned a guilty verdict against a California man for masterminding a massive Ponzi scheme that bilked investors out of over $250 million.  James Stanley Koenig, 60, was found guilty of all but one of the three dozen criminal charges levied against him by prosecutors.  Koenig will remain in custody until his June 11, 2013 sentencing, and could receive a sentence of up to 50 years in prison.

Koenig ran Asset & Real Estate Investment Company ("AREI") along with fifty affiliated companies, telling potential investors that it specialized in senior housing centers.  Beginning in 1997, AREI controlled more than twenty senior housing and residential assisted-living centers, representing that they were suitable as a secure and profitable vehicle for tax-sheltered property exchanges.  After purchasing an assisted living facility, Koenig would then sell ownership shares in the property to investors.  Eventually, more than 1,000 victims would invest hundreds of millions of dollars with Koenig.

However, while Koenig represented that investor funds and facility revenues were reinvested back into the facilities, this was not the case.  Instead, Koenig used investor funds to to pay returns to existing investors, as well as finance a luxury lifestyle enjoyed by himself and two co-conspirators.  This lifestyle included an 80-acre castle estate, a Lear jet, luxury homes and fancy cars.  

While investigators charged that AREI was insolvent no later than May 2007, Koenig continued to bring in new investors based on promises of false profitability.  After an investigation, criminal authorities arrested Koenig in 2009 and charged him with 77 criminal charges - 40 counts of securities fraud and 37 counts of residential burglary that were predicated on Koenig's entry into investor homes to induce them to invest in his scheme.  Investor losses were estimated at over $200 million.

According to authorities, Koenig failed to disclose to investors that he had a previous 1986 conviction stemming from his role in a gold-selling scam.  He served two years in federal prison and was ordered to pay over $5 million in restitution to defrauded investors.