Indian Ponzi Scheme Raised At Least $335 Million From Investors

As Indian authorities continue to piece together the massive Saradha Ponzi scheme suspected of swindling thousands of investors out of their life savings, a new report has estimated that the scheme raised at least $335 million from investors.  The Saradha Ponzi scheme, as it is known, was exposed earlier this year after Indian authorities detained Sudipta Sen, who headed the Saradha Group conglomerate.  Besides a heavy financial toll, the scheme's aftermath has also seen at least ten people commit suicide, including investors and employees associated with the scheme.  

The Saradha Group operated a series of companies that dabbled in real estate, motor vehicles, and even bio gas.  Investors were solicited to make varying short-term investments that promised above-average returns.  One company, Saradha Realty, offered investors the ability to invest for a varying range of time, with the option to receive an allotment of land or a refund at the maturity of that investment along with the promised interest.  Depending on the amount invested, each investor was promised returns ranging from 12% to 24%.

The Saradha Group focused on attracting investors through numerous mediums, including a heavy presence in television and print media.  The editor and chief executive of the Saradha Group's media business also had significant ties to one of the leading Indian political parties, which also served to lend an air of legitimacy to the venture. In addition, an extensive network of agents was also used to solicit investors in return for commissions. Based on these efforts, it is believed that over $3 billion was raised from a large amount of investors - many of which were poor investors who entrusted their savings to the scheme. 

Since Sen's arrest, the Indian government has taken several measures, including the establishment of a fund to compensate Saradha investors.  When it became apparent that the fund would not be enough to compensate all of the investors, the government moved forward with commissioning the sale of Saradha Group assets, including properties throughout India and at least seventy-three automobiles.  

Guilty Plea In $30 Million Ponzi Scheme Targeting Haitian Community

A Florida man will plead guilty to operating a $30 million Ponzi scheme that targeted members of the south Florida Haitian-American community.  George Theodule, 52, agreed to plead guilty to a single count of wire fraud.  In return, prosecutors will drop the remaining thirty-nine charges Theodule faced when he was indicted in August.  While the wire fraud charge carries a potential maximum statutory sentence of twenty years in prison, Theodule is likely to face a lesser sentence under federal sentencing guidelines.  

Theodule owned and operated several companies, including Creative Capital Concept$, LLC ("Creative Capital") and Creative Capital Consortium, LLC ("CCC").  Using these companies, and a variety of other entities and investment clubs he formed, Theodule held himself out as a financial expert to the Haitian community, touting his 17+ years of experience trading stocks and options.  Theodule promised astronomical returns, guaranteeing potential investors 100% returns on their investment in just 90 days. As if these exorbitant returns were not enough, Theodule also told potential investors that part of his trading profits were used for a variety of humanitarian purposes, including the funding of start-up businesses in the Haitian community as well as contributing to business projects in Haiti and Sierra Leone.  Based on these representations, Theodule is said to have raised more than $30 million from as many as 2,500 investors from July 2007 to December 2008.

However, authorities alleged that Theodule's claims of trading success were completely false, and that instead he was operating a massive Ponzi scheme.  Rather, Theodule supposedly suffered trading losses of at least $18 million, and spent the remainder of investor funds to sustain a lavish lifestyle that included exotic car collections, motorcycles, rings, and even trips to Vegas.

The Securities and Exchange Commission filed charges in December 2010, accusing Theodule of multiple violations of federal securities laws.  According to the court-appointed receiver, Theodule had spent early 100% of the money he took in, and little remained for victims.

A copy of the indictment is below:

Theodule Indictment.pdf

Could JP Morgan Face Criminal Charges For Role in Madoff Ponzi Scheme?

credit: New York TimesIn an unprecedented move, federal authorities are reportedly weighing the filing of criminal charges against financial behemoth JP Morgan for its role in Bernard Madoff's massive Ponzi scheme.  According to the New York Times, both the Federal Bureau of Investigation and the U.S. Attorney's Office have opened an investigation into whether JP Morgan failed to sound the alarm on Madoff's Ponzi scheme even as red flags emerged amidst the bank's relationship with Madoff.  The FBI and USAO are the latest agencies to take a closer look at the bank's two-decade relationship with Madoff, and the bank has also reportedly been notified by the Office of the Comptroller of the Currency ("OCC") that it is likely to face fines for inadequate controls.

Ignoring Warning Signs as Madoff's 'Primary Banker' 

Madoff shifted the majority of his banking to JP Morgan back in 1986, which involved the frequent transfers of billions of dollars through Madoff's accounts.  Despite these significant transfers, virtually none of the funds were used to purchase securities.  However, as Madoff's success continued, JP Morgan began to sell structured products based on Madoff feeder funds, and even became an investor.  

Even while JP Morgan became more and more intertwined with Madoff's business, which reaped it an estimated $500 million in fees and commissions, bank employees increasingly voiced their skepticism as to Madoff's ability to generate such consistent returns. This included concerns by JP Morgan's internal due diligence team, as well as employees.  Some of these concerns, made by email internally, included:

“The Private Bank chose not to invest with any BLMIS feeder funds because it had never been able to reverse engineer how they made money”; and 

"For whatever it[']s worth, I am sitting at lunch with [JPMC Employee 1] who just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a [P]onzi scheme." 

While these concerns were voiced internally, no steps were taken by the bank to alert auditors until October 2008 when it submitted a "filing of suspicious activity" with the U.K. Serious Organized Crime Agency indicating it knew Madoff was "too good to be true."  At about the same time, the bank redeemed its $276 million investment in a Madoff feeder fund, and Madoff's fraud was exposed just weeks later.

While the Bank's talks with authorities are in preliminary stages and could ultimately lead nowhere, the New York Times cites unnamed sources that suggest the most likely resolution would be the payment of a fine.  The possibility of entering into a deferred prosecution agreement ("DPA") was also mentioned, which would avoid the bank pleading guilty to any changes in lieu of payment of a fine and other corrective measures.  However, a DPA in such a situation would be extremely rare, as they are typically used for severe infractions such as Foreign Corrupt Practices Act prosecutions.  

It is unknown whether any fine paid by J.P. Morgan would be eligible for distribution to Madoff's victims. 

Bank Still Being Pursued By Madoff Trustee

The news comes just weeks after the court-appointed trustee tasked with recovering funds for Madoff's victims, Irving Picard, asked the Supreme Court to review a federal appeals court decision ruling that prevented Picard from pursuing significant claims against JP Morgan.  

A copy of Picard's original civil complaint against JP Morgan is below:

020311madoffjpm.pdf

In Last-Ditch Effort, Petters Seeks Sentence Reduction For $3.65 Billion Ponzi Scheme

"Your honor, I was scared, scared to death.  It's not a great excuse. But I kept thinking about my kids and being gone from them for life. I'm sorry I lied in the courtroom, on the stand. I didn't want to go to trial. It's a horrible excuse. But I lied. I'm begging for your forgiveness."

-Tom Petters

Admitting his guilt for the first time, a Minnesota businessman convicted and sentenced for the third-largest Ponzi scheme in history begged for leniency from a federal judge today, claiming that his 50-year sentence should be reduced to a 30-year sentence.  Tom Petters, currently serving time for masterminding a $3.65 billion Ponzi scheme, took the stand today in his quest to show that his former attorneys provided "ineffective assistance of counsel" by failing to allegedly communicate a lesser 30-year plea bargain offer.  Petters was ultimately convicted of twenty fraud counts and sentenced to a 50-year prison term.  

After his arrest in October 2008, Petters' former attorney, Jon Hopeman, met with an assistant U.S. attorney who purportedly indicated that the government would agree not to seek more than a 30-year sentence if Petters would plead guilty.  After an indictment was issued shortly thereafter charging Petters with twenty fraud counts, Petters alleges that he met with Hopeman and was told that no plea offer had been made.  Following this, Petters also alleged that Hopeman had a subsequent meeting with the prosecuting attorney and indicated that "as a matter of personal pride," his "professional integrity would not allow" him to advise Petters to accept the offer.  Petters has offered his sworn testimony in favor of these claims.  After proceeding to trial, Petters was convicted of all counts on December 2, 2009, and later sentenced to serve 50 years in prison.

At the evidentiary hearing today, Petters took the stand to face intense questioning from prosecutors, who insinuated that Petters would "say anything" in order to win a sentence reduction.  For the first time, Petters admitted his role in the massive scheme, explaining that "we were robbing Peter to pay Paul."  However, Petters maintained that he was not the mastermind, and that the scheme was simply "a culmination of ideas that got messed up."  

Petters' former attorney, Hopeman, also took the stand to address claims that he had not communicated the 30-year plea bargain offer to Petters.  Hopeman adamantly denied the allegations, contending that he had informed Petters of the offer, and that Petters thought the offer was "ridiculous" at the time.  Additionally, Hopeman indicated that Petters had instructed him not to settle for less than 15 years, and was trying to "piss off" the prosecutors.  In a slight reversal of the position taken in Petters' filing, Petters' attorney sought to paint the picture that, instead of never presenting the offer to Petters, Hopeman told Petters he "couldn't recommend" the sentence.  

Motions are now due November 5th from each side, and a ruling will likely follow shortly thereafter.  

SEC Stops $20 Million Pyramid Scheme Touting Youth Education Courses

The Securities and Exchange Commission announced it had obtained an asset freeze and filed civil fraud charges against the operators and promoters of a worldwide pyramid scheme that targeted Asian-Americans through the allure of risk-free returns based on the sale of internet-based youth educational courses.  According to the Commission, a consortium of entities based in Hong Kong, Canada, and the British Virgin Islands that operated under the trade names "CKB" and "CKB168" (collectively, "CKB") raised more than $20 million from U.S. investors alone, and millions more from investors around the world.  The Complaint named three CKB executives, Rayla Melchor Santos, Hung Wai Shern, and Rui Ling Leung, as well as eight CKB promoters located in the U.S.: Daliang Guo, Yao Lin, Chih Hsuan Lin, Wen Chen Hwang, Toni Tong Chen, Cheongwha Chang, Joan Congyi Ma, and Heidi Mao Liu. The Commission was granted a temporary restraining order, and is seeking injunctive relief, disgorgement of ill-gotten gains, and civil monetary penalties.

According to the Commission, CKB began in mid-2011 and was portrayed as a profitable multi-level marketing company engaged in the business of distributing web-based children's educational courses.  Potential investors were told that, by investing in CKB, they would earn exponential and risk-free returns in the form of Profit Reward Points ("Profit Points").  Investors received these Profit Points in the form of dividends and 2-for-1 splits, and were told that an online exchange was also available as an easy way to buy and sell Profit Points.  CKB also told investors that the Profit Points would be convertible into shares of CKB stock when the company went public on the Hong Kong Stock Exchange sometime in 2014.  Investors were solicited through promotional materials, seminars, and videos posted to the internet.  Over $20 million was raised from approximately 400 U.S. investors, with millions more raised from other investors worldwide.

However, contrary to these representations, CKB had little to no retail consumer sales needed in order to support the returns promised to investors.  Instead, CKB operated as a classic pyramid scheme by using incoming funds from new investors to pay purported interest and principal redemptions to existing investors.  The Commission cited CKB bank records that purportedly showed that the majority of funds were used to pay commissions, and that the bulk of these commissions were paid to the named defendants.  According to the Commission, the CKB investments constituted securities, and did not comply with registration and antifraud provisions of the federal securities laws.  

The Commission also issued investor alerts highlighting the telltale signs of pyramid schemes.  

The Commission's complaint is below:

SEC Complaint - CKB