Michigan Man Gets Six-Year Prison Term For "GetMoni" Ponzi Scheme

A Michigan man who agreed to solicit investors for a "GetMoni" venture only after he learned it was a Ponzi scheme was sentenced to serve more than six years in federal prison.  John James Missitti, of Genesee Township, Michigan, was sentenced by U.S. District Judge Mark A. Goldsmith after previously pleading guilty to one count of wire fraud conspiracy and one count of filing a false tax return.  Missitti was also ordered to pay nearly $300,000 in restitution to the Internal Revenue Service.  

Missitti was originally an investor in GetMoni.com, which promised above-average returns through several ventures, including (1) making loans to building contractors; (2) providing loans for air conditioning contracts; and (3) extracting gold and silver from mines.  However, Missitti soon learned that the venture was a Ponzi scheme, but instead of going to authorities worked out an arrangement with the principals, Ronald and Bonnie Brito, to receive commissions for soliciting new investors to the scam.  

Missitti then began soliciting investors by holding seminars, even passing around a silver bar to investors that supposedly was produced from one of the mines.  At these seminars, potential investors were told that they could expect annual returns of up to 100%.  Missitti would ultimately be responsible for bringing more than 100 investors into GetMoni.com who suffered total losses of approximately $4.5 million.  For his role, Missitti received hundreds of thousands of dollars in bonuses and commissions.

The case against the Britos and several other defendants remains ongoing.  

A cease-and-desist order filed by Michigan is here.

Petters Associate Sentenced to 17-Year Prison Term

A Minnesota hedge fund manager will spend the next 17 years in prison for his role in soliciting investors for the $3.65 billion Ponzi scheme perpetrated by Thomas Petters - the largest Ponzi scheme in Minnesota history and third-largest in U.S. history behind only Bernard Madoff and Allen Stanford.  James Fry, 59, was sentenced by U.S. District Judge Richard Kyle to a 17.5-year prison term.  Fry was convicted by a federal jury this summer of twelve counts of wire fraud and securities fraud - each of which carried a maximum prison term of twenty years.  Prosecutors had been seeking a 25-year term for Fry.

Fry was the CEO of Arrowhead Capital Management, LLC ("Arrowhead"), which served as an investment advisor to a number of hedge funds.  Beginning in 1999, Fry began working with Frank Vennes - who had a felony criminal record that was withheld from investors - to raise funds to invest in promissory notes issued by Petters' company, Petters Company Inc. ("PCI").  PCI raised billions of dollars from investors who believed their funds were being used by PCI to purchase and resale consumer electronics to big-box retailers.  

However, despite learning that Petters did not have the large-scale deals he purported to have with big box retailers, Fry was accused of continuing to solicit millions of dollars from investors to entrust with Petters.  Indeed, while Fry told investors that a 'big-box' retailer would make payments directly to an Arrowhead bank account, the reality was that Arrowhead received all payments from PCI.  In total, Fry received more than $41 million in commissions alone from PCI, and authorities attributed the losses attributable to Fry's funds at Arrowhead at close to $130 million.  

Vennes, who served as Fry's link to Petters' scheme, is scheduled to be sentenced October 18th.  Pursuant to his plea agreement reached with prosecutors, Vennes faces a maximum potential sentecne of 15 years.

Trial Set To Begin Tuesday For Madoff Employees

Five of Bernard Madoff's closest employees are set to begin trial on Tuesday to face charges that they played key roles in assisting Madoff orchestrate the largest Ponzi scheme in history.  Jury selection is set to begin Tuesday for the five, who consist of three of Madoff's most tenured employees as well as two computer programmers.  The "Madoff Five," as they have been referred to, consist of long-time employees Daniel Bonventre, the firm's back-office director of operations, Annette Bongiorno, Madoff's longtime secretary, and Joann Crupi, an account manager, as well as computer programmers Jerome O'Hara and George Perez.  Each of the five face a series of charges, including conspiracy to defraud, securities fraud and falsifying records of a broker-dealer, which could result in a potential prison term of several decades.  

While Madoff has maintained that he acted alone in perpetrating his scheme, prosecutors will seek to paint each of Madoff Five as playing a crucial role in his scheme. In a statement announcing the arrest of Bongiorno and Crupi, Manhattan U.S. Attorney Preet Bharara provided a glimpse of the prosecution's strategy when he stated that "a house of cards is almost never built by one lone architect." This includes a collection of evidence implicating the five, including:

• The discovery of a handwritten note in O'Hara's desk from 2006 saying "I won't lie any longer,"
• The awarding of salary increases and bonues to O'Hara and Perez as hush money,
• The allegation that Bongiorno created bogus financial records for Madoff,
• Bongiorno's management of nearly $9 billion in Madoff investor accounts,
• Crupi's management of approximately $900 million in Madoff investor accounts, and
• Bonventre's role in providing false reports and data to outside reviewers.

The prosecution will also be introducing the testimony of several former Madoff employees that have agreed to cooperate with the government, including star witness Frank DiPascali, Jr., who worked at Madoff's firm for over 30 years and served as Madoff's top lieutenant.  DiPascali pleaded guilty to 10 felony counts, including conspiracy and tax evasion, in August 2009 and has been cooperating with the government ever since.  While DiPascali pledged at his plea hearing that he "would dedicate all my energy to trying to explain to others how this happened,” he is expected to be face intense questioning from attorneys for the Madoff Five, whose focus will be to discredit DiPascali's testimony and perhaps shift the focus to DiPascali's own culpability.  

According to the Guardian, Madoff's claims that he acted alone stand in stark contrast to the seven guilty pleas entered besides the Madoff Five that have been indicted.  Madoff was sentenced to a 150-year prison term in June 2009 - the longest sentence handed down for a Ponzi schemer.  

The indictment against the Madoff Five is below:

Madoff Indictment by DealBook

Money Manager That Committed Suicide Suspected in $10 Million Ponzi Scheme

Indiana authorities are seeking to freeze the assets of a Kokoko investment advisor who recently committed suicide amid suspicions he ran an elaborate Ponzi scheme with potential losses of at least $10 million.  According to the Indiana attorney general's office, Richard Schwartz, who committed suicide in August 2013 shortly after authorities began an investigation, may have left behind sizeable assets that can be used to repay investors, including a $13 million life insurance policy.  Indiana Secretary of State Connie Lawson has stated that some of Schwartz's victims include former NFL players.

Schwartz was the owner of RAS & Associates ("RAS"), a Kokomo financial services company that offered wealth management services to clients and sold life insurance through Schwartz's affiliation with New York Life.  The Indiana Attorney General believes that Schwartz persuaded clients to liquidate their insurance holdings in order to place their funds with Schwartz, who touted different investments carrying higher rates of return.  In total, authorities believe Schwartz raised at least $10 million from investors.

However, Schwartz was terminated from New York Life last year due to a negative ledger balance that New York Life indicated represented "compensation credited to Schwartz for policies which were rescinded, declined, not issued, canceled, surrendered, foreclosed, expired, or reduced and replaced with new policies.”  After authorities began an investigation in July 2013, Schwartz committed suicide in late August at a million-dollar estate in Simpsonville, Kentucky believed to be his home.  Authorities recently discovered the existence of a $13 million life insurance policy belonging to Schwartz, thus prompting the commencement of litigation.  Details as to the viability of the policy remain unknown, but any payout could be used to compensate victims.

Victims are urged to contact the Indiana Secretary of State's securities division at 317-232-6681 or the state’s securities fraud hotline, 800-223-8791. 

Zeek Receiver Seeks To Auction Former Headquarters, Inventory

The court-appointed receiver overseeing the fallout from the $600 million Zeek Rewards Ponzi scheme has filed papers (the "Filing") seeking court approval for the public auction of real and personal property to raise funds for nearly two hundred thousand victims.  The Receiver, Kenneth Bell, has recovered over $300 million thus far, and last month announced that 174,000 victims had submitted claims for aggregate losses of approximately $550 million.  Along with the former warehouse and office of Rex Venture Group, the parent company of Zeek Rewards, the Receiver is also seeking to dispose of over 1,000 pieces of personal property that include office furniture, music, and even entertainment memorabilia.

The shutdown of Zeek Rewards by the Securities and Exchange Commission ("SEC") in August 2012 exposed one of the largest Ponzi schemes in history, if not the largest based on the sheer number of victims.  The SEC announced that, while Zeek had daily investor obligations of approximately $45 million, it had only $225 million on hand - meaning that the scheme could have collapsed within a week.  Zeek had become well known through its representations that investors could earn daily "awards" of 1.5% based on a daily commitment of no more than 5 minutes.  The scheme featured a referral-based network that rewarded users based on investors they attracted to the company, and over 1 million would join - including over 100,000 that would ultimately profit from their investment.  

After his appointment, Bell began marshaling assets for the benefit of investors.  This included securing Zeek's former headquarters, located in Lexington, North Carolina, as well as other real estate the company had purchased, such as a warehouse holding various personal property.  The Filing seeks court approval for the sale, by public auction, of Zeek's former headquarters and the warehouse, as well as the personal property collected thus far.  According to Nash Dunn at the Lexington Dispatch, this personal property includes home and office furniture, Zeek promotional material such as water bottles and coffee mugs, and approximtely 600 items relating to country music memorabilia.  

Under the procedures proposed by the Receiver, the real estate and personal property will be sold through public auction by a professional auctioneer company.  The sale, which is proposed to take place within 60 days of a court order approving the sale, will be heavily advertised and also be broadcast over the internet to ensure maximum exposure.  The Receiver cites maintenance and upkeep costs as an incentive to sell the property, as well as additional funds for the benefit of victims.

In a quarterly report filed for the period ending July 31, 2013, Bell stated he had recovered approximately $325 million for investors.

Memo in Support of Motion to Approve Sale of Real Property by jmaglich1