Suspected Fake Cop Pleads Guilty to $1.1 Million Ponzi Scheme

A Connecticut man already facing charges he sexually assaulted prostitutes while impersonating a police officer was arrested and subsequently pleaded guilty to charges that he duped investors out of more than $1 million in a suspected Ponzi scheme.  Frank Mete, 55, appeared before a Connecticut federal judge on Wednesday to plead guilty to counts of wire fraud and tax evasion.  While a sentencing date has not yet been set, the wire fraud charges carries a maximum penalty of twenty years in prison while the tax evasion charge carries a maximum five-year prison term.

Beginning in 2009, Mete solicited potential investors by promising annual returns ranging from 15% to 18% through his efforts as a "hard money lender."  According to Mete, these returns were possible through linking up potential investors with purported individual borrowers seeking alternative financing. To convince investors of the legitimacy of the scheme, Mete would provide documents bearing borrower details and even created separate bank accounts for each borrower.  In total, Mete raised over $1 million from investors.

However, Mete admitted that there were no borrowers, and that rather than make "hard money" loans, Mete instead used investor funds to cover his personal expenses and pay returns to existing investors.  Mete also admitted that he failed to file income tax returns from 2009 to 2012, thus depriving the government of hundreds of thousands of dollars in tax revenue.

Incidentally, Mete has been in custody since early November, when he was arrested on charges he had sexually assaulted multiple women by posing as a police officer when he met prostitutes at several Connecticut hotels.  Mete would then allegedly blackmail the prostitutes for sex and money in lieu of arresting them.  Mete was arrested on various charges including first-degree sexual assault, unlawful restraint, first-degree robbery, impersonating a police officer and sixth-degree larceny.

Guilty Plea Expected in $300 Million Ponzi Scheme

Lawyers for a Cincinnati man accused of orchestrating a massive Ponzi scheme that bilked investors out of hundreds of millions of dollars and currently under criminal investigation indicated that a guilty plea to criminal charges is likely in the next few months.  Glen Galemmo is currently facing multiple lawsuits from victims alleging total losses exceeding $300 million, and has also acknowledged that he is the target of criminal investigations by the Internal Revenue Service and U.S. Attorney's Office.  During a recent hearing, Galemmo's attorneys cited the likelihood of a soon-to-come guilty plea as the basis for a requested 90-day delay in civil proceedings.  

Galemmo operated Queen City Investment Fund ("Queen City"), along with a dozen other investment entities.  In a 2001 newspaper article touting his successes, Galemmo claimed that he focused on identifying "severely-undervalued" stocks that were poised for a potential runup.  Likening the strategy to a search for "diamonds in the rough that can soar," investors were promised hefty profits.  Indeed, from 2006 to 2011, Galemmo and his funds claimed a 432% return - including a 9.84% return in 2008 when the S&P 500 index was down nearly 39%.  At Queen City's peak, Galemmo claimed that he had total assets under management of $200 million.  Based on these figures, Galemmo would have collected over $60 million in management fees.

However, Galemmo's clients were shocked in mid-July when they received an email from Galemmo announcing that the fund had shuttered, and directed all further inquiries to an IRS Special Agent.  Investors later filed a flurry of lawsuits against Galemmo, alleging that he duped approximately 165 investors out of over $300 million.  Galemmo was accused of using investor funds to make interest and principal payments to existing investors in a classic example of a Ponzi scheme.  

Shortly after the lawsuits were filed, federal authorities moved to seize various assets under forfeiture laws allowing turnover of funds derived from criminal acts, including

• A condominium on Marco Island, Florida;
• Five cars totaling over $100,000 in value;
• Bank and brokerage accounts containing nearly $1 million; and
• Galemmo's firm's former office building.

In addition, the Internal Revenue Service has announced it has seized over $500,000.  

Authorities recently interviewed Galemmo's wife, Kristine, a former second-grade teacher purportedly referred to as "Kris the Closer" for her ability to bring investors into the scheme.  According to attorneys present at her deposition, Galemmo's wife repeatedly invoked her Fifth Amendment right against self-incrimination.  

Madoff's Right-Hand Man: Scheme Was Obvious To Everyone

As the trial of five of Bernard Madoff's closest employees entered the seventh week, jurors heard testimony from the government's star witness, Madoff's former right-hand man, that Madoff's scheme was an obvious scam and that "it was virtually impossible not to know what was happening."  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, an account manager and supervisor, 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.  

Frank DiPascali, the former chief financial officer of Bernard L. Madoff Investment Securities, took the stand in the latest part of his extensive cooperation with the government since his arrest and subsequent guilty plea shortly after Madoff's scheme was exposed.  Under questioning from Assistant U.S Attorney John Zach, DiPascali indicated that multiple red flags were apparent after he began working for BLMIS in 1975 fresh out of high school.  DiPascali explained how employees worked to retrieve historical stock price movements to create investor account statements that seemingly displayed constant and steady returns.  While stopping short of accusing the Madoff Five of direct complicity in the scheme, he has attempted to illustrate the overwhelming signs that the employees had to have known of the fraud.  

Defense attorneys have openly scoffed at DiPascali's credibility, touting his extensive cooperation with the government.  Indeed, by DiPascali's own admission, he has spent hundreds of hours trying to explain the scheme to criminal and civil authorities.  In opening statements, DiPascali was branded as a compulsive liar who would say anything in the face of a potential 125-year sentence.  Defense attorneys will have the chance to cross-examine DiPascali following his direct testimony.

A copy of the indictment against the Madoff Five is here.

A copy of the indictment against DiPascali is here.

Florida Man Charged in $18 Million Ponzi Scheme

A Miami man faces criminal charges in New Jersey where he is accused of masterminding a Ponzi scheme that duped nearly $20 million from dozens of investors.  Louis Spina, 56, was arrested by New Jersey authorities and charged with a single count of wire fraud.  Wire fraud carries a maximum potential sentence of twenty years in prison and a $250,000 fine.

Between August 2010 and November 2013, Spina operated LJS Trading LLC ("LJS Trading"), which purported to offer investment services.  Potential investors were told that Spina used proprietary algorithmic computer trading software to achieve guaranteed monthly rates of return ranging from 9% to 14%, and agreed that LJS Trading would be entitled to retain any profits above the specified rate of return.  In total, Spina and LJS Trading received approximately $18 million from nearly 30 investors.

However, authorities allege that Spina and LJS Trading were not able to achieve the represented astronomical rates of return - which amounted to annual gains of 108% to 168% on an uncompounded basis.  Indeed, of the $18 million received from investors, approximately $8 million was used by Spina for investing and ultimately resulted in trading losses.  When investors began voicing suspicions about the legitimacy of LJS Trading's returns, Spina reassured investors by sending them "screenshots" of his trading account displaying a large balance.  According to the FBI, this balance was not the accurate balance, but simply a display of the 100-to-1 margin purchasing power used by Spina.

Spina is accused of using approximately $10 million of investor funds for a variety of unauthorized purposes, including the payment of fictitious interest payments to investors, luxury apartment rental payments, and even a $400,000 donation to a private university.

A copy of the complaint is below:

Louis Spina Criminal Complaint

Judge Orders Rothstein To Testify At Colleague's Trial - If Defense Foots The Bill

A Florida federal judge has ruled that Scott Rothstein, a convicted Ponzi schemer and current participant in the federal witness protection program, must testify as a defense witness at the upcoming trial of a former attorney accused of assisting Rothstein with his massive $1.4 billion Ponzi scheme. U.S. District Judge Daniel T. Hurley granted defendant Christina Kitterman's request to have Rothstein testify at her trial, but with one exception - that Kitterman be responsible for footing the bill to transport Rothstein to and from trial.  Because of his participation in the witness protection program, it has been estimated that the costs to produce Rothstein could exceed $20,000. 

After Rothstein quickly pleaded guilty to masterminding the $1.4 billion fraud, his hopes for leniency were dashed when U.S. District Judge James I. Cohn handed down a 50-year sentence - 10 years more than prosecutors had requested and 20 years longer than the sentence sought by Rothstein's attorneys. Following his incarceration, Rothstein began extensively cooperating with prosecutors in an effort to win a reduction in his sentence.  

Rothstein's cooperation included providing testimony against other alleged co-conspirators that assisted Rothstein's scheme, including former colleagues at Rothstein's law firm, Rothstein Rosenfeldt Adler ("RRA").  One of these colleagues, Kitterman, was named by Rothstein at a deposition in Summer 2012 as having agreed to pose as a Florida Bar investigator to help dupe investors.  Interestingly, Rothstein named someone else as posijng as the Florida Bar investigator at a December 2011 deposition.

After prosecutors announced the charges against Kitterman, it became clear that the case against Kitterman would rely heavily on Rothstein's post-incarceration deposition testimony.  Defense lawyers then sought to compel Rothstein's presence at trial, arguing that Rothstein's deposition transcript alone was insufficient and prevented defense lawyers from effectively cross-examining Rothstein.  This principle, known as the confrontation clause, provides that an accused shall have the right under the Fourteenth Amendment to a face-to-face confrontation with witnesses who are offering testimonial evidence against the accused in the form of cross-examination during a trial. 

While ordering Rothstein to testify, Judge Hurley included a rare caveat in his order in adopting prosecutors' recommendation that the defense be responsible for covering the costs of producing Rothstein at trial - a task that is complicated (and more expensive) because of Rothstein's participation in the witness protection program.  Several criminal defense attorneys immediately questioned the ruling, noting whether the requirement that the defense be required to foot the bill of confronting their accuser could possibly violate the defendant's right to a fair trial.  

Kitterman has been charged with one count of conspiracy to commit wire fraud, and faces up to twenty years in prison.