SEC Charges Utah Man With Operating $4 Million Ponzi Scheme

A Utah man was hit with civil fraud charges by the Securities and Exchange Commission, who alleged that he had duped investors out of more than $4 million in an elaborate Ponzi scheme.  Steven B. Heinz, of Provo, Utah, was charged with multiple violations of federal securities laws in a complaint filed today in Utah federal court.  The Commission is seeking disgorgement of all ill-gotten gains, as well as injunctive relief and civil monetary penalties.

Heinz worked as a registered representative at several registered broker-dealers from 1986 to 2012, including Northwestern Mutual and Ogilvie Security Advisors Corp.  Beginning in January 2012, Heinz began soliciting current and former brokerage clients to provide "loans" to his company, S.B. Heinz & Associates, Inc ("S.B. Heinz"), telling prospective investors that he had been so successful investing his personal funds that he had decided to assist a select group of others.  These investors, including church associates, family members, and friends, were told they could earn "tax-free" income by providing "loans" to S.B. Heinz, and that they could expect annual returns ranging from 6% to 120%.  To convince investors that their funds would be safe, Heinz represented that he maintained ample cash reserves in the account to repay all investments at any time.

However, Heinz was not the fabled trader he represented himself as to investors.  Rather, since January 2012, Heinz has incurred more than $1.5 million in day-trading losses sustained from trading high-risk futures contracts.  Heinz misappropriated investor funds for a variety of purposes, including to make Ponzi-like payments of interest and principal redemptions to existing investors.  Additionally, Heinz spent more than $1 million on personal expenses including trips to Mexico, cash withdrawals, and funding his adult children's online business opportunities.  By June 2013, only $311,000 was left in Heinz's trading accounts.

The complaint noted that Heinz was believed to have made monthly sizeable cash payments to his wife, who was named as a relief defendant.

A copy of the complaint is here.

$4 Million Ponzi Scheme Purportedly Run By Reincarnation of Hindu Goddess Is Busted

"He had claimed that goddess Vahnavati Sikotar Mata was pleased with him and that she wanted to make members of the Chhara community millionaires. Accordingly, whosoever offered money as prashad to the goddess, would get triple of the amount in three days."

Indian authorities recently froze the assets of an Indian man who told investors he was the reincarnation of a Hindu goddess and could use these powers to triple their money in just three days.  Ashok Jerambhai Jadeja, currently in a county jail in India, is accused of raising more than $4 million from investors in a scheme called "Ek-ka-teen" that spanned several years.  After investors attacked Jadeja when the scheme collapsed, police became involved and Indian authorities later accused Jadeja of money laundering case.  Assets totaling nearly $500,000 were recently frozen by the special money laundering court in Delhi.

According to authorities, Jadeja touted his "Ek-ka-teen" scheme to numerous investors, touting himself as the incarnation of Hindu goddess Vahnavati Skiotar Mata and depicting himself as Jaymadi-Ashok madi.  Jadeja preyed on members of the Chhara community, telling investors that the Hindu goddess was pleased with him and wanted to make members of the Chhara community millionaires. With promises of having their funds tripled within three days, Chhara community members handed over more than $4 million to Jerambhai.  

However, as the number of investors increased, Jadeja was forced to increase the investment term from 3 days to 7 days, and eventually to 25 days.  Instead of possessing divine powers, authorities allege Jadeja's ability to triple investor funds was the result of a massive Ponzi scheme.  Jadeja is accused of using investor funds to purchase a variety of luxury items, including gold and silver ornaments and real estate.  Investor funds were also deposited in bank accounts in the name of Jadeja and his family members.  

42-Year Sentence For Mastermind of $200 Million Ponzi Scheme

A California man that orchestrated a Ponzi scheme that took in more than $200 million from victims has been sentenced to a 42-year prison term.  Shasta County Superior Court Judge Bradley Boeckman handed down the sentence to James Koenig, 60, after a jury convicted Koenig of thirty-five criminal charges back in May 2013.  The scheme is one of the largest in California history, with estimated total losses to victims in excess of $90 million.

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, pitching the centers as secure and profitable vehicles 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, rather than reinvesting funds back into the centers, Koenig ran a massive Ponzi scheme that used investor funds to pay returns to existing investors, as well as financing a luxury lifestyle for himself and two co-conspirators.  This included the purchase of 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 based on Koenig's entry into investor homes to induce them to invest in his scheme.  

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. 

Please Nominate Ponzitracker For ABA Journal's Blawg 100 List

The ABA Journal is soliciting submissions for its seventh annual Blawg 100 - a collection of the 100 best legal blogs on the internet as determined through reader submissions.  If you've found Ponzitracker to be helpful over the past two years, whether as a resource or news source, it would be greatly appreciated if you could take a few minutes to submit a "friend-of-the-blawg brief" to ABA Journal nominating Ponzitracker.  That form is available here.

When Ponzitracker was formed just over two years ago, the mission was simple: to provide a free and comprehensive resource for those interested in tracking the (increasing) proliferation of Ponzi schemes, both nationally and worldwide.  The site is able to provide unique insight into the subject matter due to the editor's role as counsel to the Receiver in one of Florida's largest Ponzi schemes.  Since then, Ponzitracker has published over 600 articles, provided Ponzi scheme rankings and resources, and launched the most comprehensive and free database of legal briefing for those involved in Ponzi scheme litigation.  Best of all, these features have been offered free of charge since inception, as well as without any distracting advertising.  The site is usually updated daily, and serves as an authority on everything related to Ponzi schemes.  

With that said, Ponzitracker humbly requests that you consider nominating the site as one of ABA Journal's top 100 legal blogs.  To ensure unbiased submissions, ABA Journal prohibits any form of self-promotion and relies on reader submissions.  Ponzitracker will be filling out its own friend-of-the-blawg briefs for several of its favorite blogs, and invites you to do the same.  Just remember - submissions are due before August 9, 2013.

Thank you for your support!

Two NY Men Charged in $100 Million Ponzi Scheme

Two New York men have been arrested by the Federal Bureau of Investigation ("FBI") for masterminding a $100 million Ponzi scheme.  Brian R. Callahan, of Old Westbury, N.Y., and Adam J. Manson, of New York, N.Y., were indicted on three counts of conspiracy to commit wire fraud, two counts of securities fraud, seventeen counts of wire fraud, and two counts of aggravated identify theft.  If convicted of all charges, the men could face hundreds of years in potential jail time.  The government is also seeking forfeiture of any proceeds of the fraud, including several houses located in Montauk, Old Westbury, and Westhampton Beach.

According to the indictment, Callahan managed multiple offshore investment funds organized in Nevis and the British Virgin Islands. Several of these funds operated as "fund-of-funds", meaning that they purportedly used investor funds to invest in other hedge funds.  Callahan told investors that their funds would be invested in various New York hedge funds, and told investors that a $5 million minimum investment was required.  Another fund, the Fiduciary Select Income Fund, LP ("Fiduciary"), advertised itself as a short-term investment similar to a money market fund, but claiming above-average returns through investments in high-dividend stocks, bonds, and certificates of deposit.  In total, the funds raised nearly $120 million from at least 40 investors, and investors were provided with regular account statements purportedly showing consistent account growth.

However, rather than using investor funds as promised, the men diverted tens of millions of dollars for a variety of unauthorized purposes and used new investor funds to make payments to existing investors in Ponzi-scheme fashion.  Investor funds were used for a myriad of personal expenses, including credit card bills, golfing club dues, down payments on multiple houses, and payments for luxury automobiles including a Range Rover and BMW.  The men also acquired a 10-acre property in Montauk, New York, that consisted of multiple buildings and beach-front cottages.

In addition to the fraud charges, the indictment also charged Callahan with two counts of aggravated identity theft for his use of the identification of other individuals.  

A copy of the indictment is here.