Introducing BriefCache by Ponzitracker

 Two years ago, Ponzitracker was launched with a simple goal in mind - to serve as a comprehensive resource on the proliferation of Ponzi schemes.  This has included regular reporting on schemes across the world, as well as other educational information regardless of whether the audience was a victim, litigant, or lawyer. (This audience apparently also included perpetrators, as one recent decision from the Seventh Circuit Court of Appeals showed.)  This information has remained free of charge, and free of advertisements or other distractions.  Since its launch, Ponzitracker has strived to stay at the forefront of Ponzi litigation, and in doing so has been recognized as a Top 25 Business Blog by Lexis Nexis and is routinely ranked as one of the top blogs by Avvo.  Today, it will go one step further by introducing Briefcache.

With a steadily-growing library of 500+ articles, the thought recently occurred as to how Ponzitracker could function as a resource not only for the casual reader, but for practitioners in the rapidly growing niche industry of Ponzi litigation.  As hundreds of Ponzi schemes have been uncovered in the past several years, a strengthening legal jurisprudence is emerging.  However, much of this information is not easily available.

Today, Ponzitracker will launch Briefcache, which is the beginning of efforts to make the burgeoning jurisprudence of Ponzi litigation available to all.  Briefcache features thousands of legal documents categorized by topic that have been filed, litigated, and decided in Ponzi scheme receivership and bankruptcy cases.  From the sale of airplanes to status reports to recovering land to returning funds to victims, these documents are all now available after months of preparation and indexing.  

Best of all, Briefcache will be free of charge.  While it will remain a work in progress, it is my sincere hope that it may function as a valuable and worthwhile resource to whatever audience may decide to utilize it.  

A link to Briefcache is here.

Questions, comments, or criticism are welcome at inquiries@ponzitracker.com

Former Middle School Teacher Charged in $1 Million Ponzi Scheme

A former middle school teacher has been charged with fraud after authorities accused him of operating a Ponzi scheme that took in more than $1 million from friends and family, including school district colleagues. Federal authorities announced that Carl David Wright, 52, had agreed to plead guilty to a single count of mail fraud in connection with the scheme, which carries a maximum possible prison term of twenty years.  In a parallel action, the Commodity Futures Trading Commission ("CFTC") announced it was also filing civil charges against Wright.  

Wright worked as a schoolteacher at Lincolnton Middle School in Cherryville, North Carolina since 1986, where he taught career and technical education, and also worked as a painter on the side.  Sometime in 2008, he opened a futures trading account, and began soliciting family and friends to invest in a commodity pool he operated named Commodity Investment Group ("CIG").  Potential investors were promised short-term returns ranging from 10% to 30%, and understood that their funds would be used as loans for Wright's painting business, for the purchase and resale of gas stations, or to trade commodities such as grain futures, crude oil futures, or currency futures.  At least some of these investors were provided with a Special Renewable Note Agreement (the "Note"), which often carried a 2-6 month term and a fixed interest rate.  In total, Wright raised more than $1 million from investors.

However, rather than use investor funds as promised, Wright misappropriated funds and operated the classic Ponzi scheme by using incoming investor funds to pay returns to existing investors.  Of the approximately $60,000 that was actually used to trade commodity futures, Wright suffered nearly 100% trading losses.  Instead, the majority of funds was used to pay back investors, and Wright also misappropriated approximately $300,000 for his own personal use.  

After Wright abruptly retired from the school district on March 15, 2013, an investigation by the U.S. Postal Service and North Carolina securities regulators resulted in Wright's confession to operating the scheme.  At the time of the investigation, less than $1,000 of investor funds remained.

A sentencing hearing has not yet been scheduled.

A copy of the CFTC complaint is here.

Former Bank of America Banker Charged in $2.1 Million Ponzi Scheme

A Massachusetts woman who worked as a personal banker at Bank of American for more than a decade has been charged with operating a Ponzi scheme that duped victims out of more than $2 million.  Elaina Patterson, 53, was charged with 16 counts of larceny over $250 and 15 counts of larceny over $250 from a person over 60.  Each charge of larceny over $250 carries a maximum jail term of five years (less if a fine is also ordered), while each charge of larceny from a person over 60 carries a maximum imprisonment of ten years.  

According to authorities, Patterson began working at Bank of America in 1999 at a branch in Reading, Massachusetts.  After gaining the trust of family and friends, she began pushing investments that she represented were reserved only for corporate and high-level clients due to their lucrative annual returns ranging from 10% to 15%.  Customers were given fake depository receipts and tax forms to add an air of legitimacy, and Patterson took in a total of more than $6 million from over 30 investors.

However, Patterson allegedly did not use the funds as intended, instead setting up a series of shadow accounts that she used to funnel investors funds both to herself and to other investors under the guise of interest payments.  In total, nearly $4 million was paid back to investors.  When the scheme began to falter in 2009, Patterson allegedly stole money from the accounts of older investors to disguise the theft.

Bank of America became aware of the fraud after doing its own initial investigation, and subsequently notified authorities. 

After Several Bizarre Twists, California Man Receives Sixteen Years for $80 Million Ponzi Scheme

“You are a liar. Numerous victims have described their financial crisis as a result of your crime and the heart rendering consequences they are enduring because of your fraudulent conduct....A substantial prison sentence will be important...to protect the public.”

-U.S. District Judge Garland E. Burrell, Jr. 

After a series of bizarre events that included an extortion attempt involving the impersonation of federal officers and an unsuccessful attempt to withdraw a guilty plea, a California man was sentenced to serve the next sixteen years in federal prison for masterminding a Ponzi scheme that took in more than $80 million from investors.  After originally pleading guilty to one count of wire fraud in February 2013, Anthony Vassallo, 34, recently tried to change his plea when he claimed that he had been coerced into entering the plea agreement by prosecutors and his own defense attorney.  However, United States District Judge Garland E. Burrell Jr. did not mince his words in rejecting this attempt, declaring that Vassallo had no credibility and branding him a 'liar' at a later hearing.

Beginning in April 2006, Vassallo, along with several others, operated Equity Investment, Management, and Trading Inc. (EIMT) in Folsom, California.  EIMT purported to be a hedge fund investment company that achieved lucrative returns through the use of a computer program designed by Vassallo to time the stock market.  These returns, which were as high as 36% annually, were promised with little to no risk of loss of an investor's principal.  To convince investors of the scheme's legitimacy, investors were invited to visit Vassallo's office to observe the trading program in action.  In total, investors contributed more than $80 million to the scheme.

However, according to authorities, the computer screens shown to investors were nothing more than 'dummy' computer screens designed only to fool investors.  Rather than deliver the exorbitant returns through legitimate trading, Vassallo perpetrated the classic Ponzi scheme by using investor funds to make payouts to existing investors.  While Vassallo did engage in some trading, he experienced heavy losses of investor funds, and by September 2007 he had virtually ceased trading.  Of the remaining funds, Vassallo made Ponzi-like payments to investors, as well as sustaining a lavish lifestyle that included the purchase of a $103,000 Lexus for his wife.

The case also featured an attempt at 'vigilante' justice when Vassallo's former bodyguard was charged with impersonating a federal agent in an attempt to 'shake-down' a pair of businessmen who had recently invested with Vassallo.  Along with several others, the bodyguard confronted the men and demanded the return of over $378,000.  The men, who brandished fake identification, bullet-proof vests, and radio earpieces, also threatened at least one of the investor's families.  The bodyguard and the men were each sentenced to a term of probation.

A hearing has been set for August 23, 2013 to determine the amount of restitution Vassallo will be ordered to pay to his victims.

Appeals Court Rules Madoff Trustee Can't Pursue Banks for $30 Billion in Claims

"No doubt, there are advantages to the course Picard wants to follow. But equity has its limits." 

A federal appeals court dealt a significant setback to the quest to recover funds for victims of Bernard Madoff's $65 billion Ponzi scheme, ruling that the court-appointed bankruptcy trustee could not pursue claims totaling more than $30 billion against financial institutions accused of aiding the scheme.  The U.S. Court of Appeals for the Second Circuit issued a unanimous order Thursday upholding the dismissal of claims that JP Morgan, HSBC, Unicredit, and UBS (the "Financial Institutions") 'aided and abetted' Madoff's fraud by ignoring numerous red flags that should have alerted them to the fraud.  The three-judge panel agreed that, under the theory of in pari delicto, because the bankruptcy trustee, Irving Picard, stood in the shoes of Madoff's former firm, he was precluded from bringing claims against third parties for their role in a fraud that Madoff's firm masterminded.  

Picard filed lawsuits against a multitude of financial institutions in 2009 and 2010, including the Financial Institutions.  Originally filed in bankruptcy court, the Financial Institutions sought to have the actions removed to federal district court based on Picard's standing to assert the claims, as well as whether the claims were precluded by the Securities Litigation Uniform Standards Act.  In late 2011, two different federal judges in the Southern District of New York granted motions to dismiss the trustee's common-law claims against the Financial Institutions, finding that Picard's claims were barred by the doctrine of in pari delicto.  Picard immediately appealed those decisions.

The doctrine of in pari delicto, translating to 'in equal fault,' is a compelling defense in the realm of bankruptcy jurisprudence, as "a debtor’s misconduct is imputed to the trustee because, innocent as he may be, he acts as the debtor’s representative." The Wagoner rule, drawn from the seminal case of Shearson Lehman Hutton, Inc. v. Wagoner, bars a trustee from suing to recover for a wrong that he himself essentially took part in. 944 F.2d 114, 118 (2d Cir. 1991).  Under this authority, the Second Circuit reasoned that

Picard alleges that the Defendants were complicit in Madoff’s fraud and facilitated his Ponzi scheme by providing (well-paid) financial services while ignoring obvious warning signs. These claims fall squarely within the rule of Wagoner and the ensuing cases: Picard stands in the shoes of BLMIS and may not assert claims against third parties for participating in a fraud that BLMIS orchestrated.

Dismissing Picard's claims that the doctrine did not apply or, in the event that it did, he was exempted as a trustee under the Securities Investor Protection Act, chief Judge Dennis Jacobs remarked that "Picard's scattershot responses are resourceful, but they all miss the mark."  

While Picard appealed to principles of equity in contending he should be permitted to bring the claims, the Court questioned the merits of this approach, remarking "it is not obvious why customers cannot bring their own suits against the Defendants."  As the Financial Institutions pointed out, indeed some victims have already done so.

While Picard still holds bankruptcy claims against the Financial Institutions totaling more than $4 billion, the Second Circuit's decision is a significant setback in the quest to recover funds for Madoff's victims, who to date have received three distributions of approximately 43% of approved losses.  To date, Picard has approved approximately $11 billion in claims, while he has recovered approximately $9.3 billion.

A copy of the Court's decision is here.