Texas Men Charged in $18 Million Oil-and-Gas Ponzi Scheme

The Securities and Exchange Commission filed an emergency enforcement action charging two Texas men with operating an oil-and-gas Ponzi scheme that allegedly scammed victims out of at least $18 million.  Robert A. Helms and Janniece S. Kaelin, both residents of Austin, Texas, are accused of masterminding the scheme, and are facing charges that they committed multiple violations of federal securities laws.  The Commission successfully obtained an emergency asset freeze against the operation, and is seeking disgorgement of all ill-gotten gains, civil monetary penalties, and injunctive relief.

According to the complaint filed by the Commission, Hels and Kaelin began soliciting investors in 2011 for Vendetta Royalty Partners ("VRP"), a limited partnership they controlled.  Formed in 2009, VRP initially acquired oil-and-gas royalty interests from another limited partnership the two men controlled.  However, beginning in 2011, VRP filed documents with the Commission seeking to raise $50 million through the sale of limited-partnership interests.  In offering documents, potential investors were told that (1) 99% of the raised proceeds would be used to purchase oil-and-gas royalty interests, (2) that Helms had extensive experience in the oil-and-gas industry, (3) that investors would receive periodic reports on VRP's progress, and (4) no legal proceedings were pending against the company.  Potential investors were told to expect a return ranging from 150% - 200% in just several months.  In total, approximately $18 million was raised from nearly 100 investors in a dozen states.

However, VRP did not achieve the profitable returns promised by Helms and Kaelin.  Indeed, rather than invest 99% of raised offering proceeds in oil-and-gas royalty interests, only 10% was in fact invested as advertised.  These investments generated de minimus returns.  The representations made to investors were also false.  Helms did not have 10 years of experience in the oil-and-gas industry; rather, his sole experience came from operating VRP.   Investors were never provided with periodic progress reports, and were not informed of significant pending litigation against VRP by an existing investor accusing the company of fraud.  Instead, nearly $6 million was paid to existing investors in the form of "income distributions" that was, in reality, funds from new investors in a classic example of a Ponzi scheme.  Millions of dollars were also allegedly misappropriated by Helms and Kaelin for their own personal benefit.

Also noted in the Commission's complaint was VRP's employment of a University of Texas undergradudate student who was introduced to potential investors as VRP's financial analyst.  Helms and Kaelin allegedly told investors that the student had a college degree, and threatened to demote the student if he divulged his true educational status to investors.   

After falling behind on its line of credit, VRP ultimately defaulted.  

A copy of the complaint is below:

comp-pr2013-256

Judge Rejects Petters' "Final Con" To Reduce Sentence

"Staring into the abyss of nearly 15,000 days of incarceration, Petters has tried to pull off one final con..." 

U.S. District Judge Richard Kyle

(AP Photo/Sherburne County Jail via KSTP-TV, File)A Minnesota man serving a 50-year prison sentence for operating the third-largest Ponzi scheme in history saw his hopes for a reduced sentence dashed when a Minnesota federal judge denied his request for a shorter sentence.  Thomas Petters, 56, was convicted in 2009 after standing trial on charges he masterminded a $3.7 billion Ponzi scheme, and was sentenced to a fifty-year prison term.  Petters filed a motion back in May seeking a reduction in his sentence based on claims his then-attorney failed to advise him of a government plea bargain that included a 30-year prison term.  Calling it Petters' "final con," U.S. District Judge Richard Kyle stated in a 22-page order that Petters was "entitled to neither relief nor sympathy from this Court," and that the "last-ditch attempt to escape just punishment for his crimes does not hold water."

Petters claimed that, after his arrest in October 2008, his former attorney failed to convey a plea bargain from the government that would include Petters serving a 30-year prison sentence.  Arguing that this failure to communicate the plea offer constituted ineffective assistance of counsel, Petters sought judicial modification of his sentence from a 50-year term to the 30-year term previously offered  on the basis that Petters would have readily accepted that sentence if he had been aware.  

At an evidentiary hearing in October, Petters was grilled on the witness stand by prosecutors, who claimed Petters would say anything in order to win a sentence reduction.  For the first time, Petters admitted his guilt in the scheme, but countenanced that with the claim that he was not the mastermind and that the scheme was simply a "culmination of ideas that got messed up."  Petters' former attorney also testififed that he did communicate the plea offer to Petters, and that Petters had deemed the offer "ridiculous" at the time.  The former attorney, Jon Hopeman, also testified that Petters had instructed him not to settle for anything less than a 15-year term.  

In a ruling issued yesterday, Judge Kyle rejected Petters' claims in ruling that he received "constitutionally effective counsel and his sentence was not unlawful."  Judge Kyle discounted Petters' version of events, remarking that 

Staring into the abyss of nearly 15,000 days of incarceration, Petters has tried to pull off one final con.

Petters' attorney indicated he is evaluating his options.  Petters is currently scheduled to be released in 2052 - just shy of his 95th birthday.  

A copy of Petters' Motion is here.

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.