$65 Million Ponzi Fugitive Arrested in Peru

Peruvian authorities have arrested an Ohio man wanted by the Federal Bureau of Investigation since 2003 on charges he masterminded a massive Ponzi scheme that took in at least $65 million from victims.  Eric Bartoli, 59, was arrested by Peruvian police after leaving his oceanfront home in Lima - two years after U.S. authorities requested his extradition and CNBC featured Bartoli on "American Greed: The Fugitives."  While Bartoli faces fraud charges in Peru, it is expected that he will be extradited back to the United States, where he faces an October 2003 indictment on charges of money laundering, securities fraud, wire fraud, conspiracy and attempted tax evasion.  Additional charges are also likely as a result of Bartoli's decision to flee.

Sometime in 1995, Bartoli created the Cyprus Funds, Inc. ("Cyprus Funds") as an open-ended mutual fund that purportedly would invest throughout Latin America and the United States.  Cyprus was advertised to potential investors as a safe and conservative investment that would provide a constant stream of steady returns.  In total, Bartoli would raise more than $65 million from approximately 800 investors in the United States and Latin America - of which roughly $30 million was returned to investors.  

Initially, all signs pointed to Cyprus being a great success, with Bartoli making numerous real estate purchases in his hometown Doylsetown, Ohio, including a Victorian mansion, three storefront boutiques, and a huge 12-acre farm house.  He even transformed a building into a replica of a 16th century pub - where authorities later found jewelry and gold coins hidden in a passage behind a wall.  

However, in 1999, investors stopped receiving their regular dividend checks.  After authorities became involved, an indictment and arrest warrant was issued in October 2003, and Bartoli subsequently skipped town.  After moving through several states, he then moved to Europe before finally settling down in Peru where he had gained citizenship in 2000.  Despite allegations that authorities knew of his whereabouts in Peru, Bartoli made no attempt to conceal his presence, working as an financial adviser, Internet finance commentator, and real estate prospector.  Bartoli is alleged to have maintained blogs under the pseudonym Enrico Orlandini, discussing gold and silver investments as well as Dow Theory analysis.  These efforts also resulted in the loss of hundreds of thousands of dollars by unsuspecting victims.

Receiver Michael Goldberg has already paid back nearly $10 million to victims.  This recovery could likely increase as a result of Bartoli's capture and hopeful cooperation.
The October 2003 indictment is below:

Ex-Soccer Club President Accused of $5 Million Cigarette Ponzi Scheme

A New York man is accused of using his former position as head of a local soccer club to dupe victims out of more than $5 million in an elaborate Ponzi scheme that promised sky-high returns from the financing of wholesale cigarettes to a Native American Indian reservation.  Robert Rocco, 48, was indicted on five counts of wire fraud and nine counts of mail fraud, each of which carries a maximum potential sentence of twenty years in federal prison.  In addition, the government is also seeking forfeiture of all proceeds traceable to the fraud, including Rocco's New York house.

According to the indictment, Rocco was the president of the Dix Hills Soccer Club ("DHSC"), which allowed him exclusive control of the club's bank accounts.  Rocco was also the founder and owner of Limestone Capital Services ("Limestone"), which purported to provide wholesale financing of cigarette purchases for a tobacco shop located on the Shinnecock Native American Reservation (the "Reservation").  Limestone also allegedly provided credit card services to retail users seeking to purchase cigarettes from the Reservation.

Beginning in 2006, Rocco solicited friends and family members of the DHSC to invest in Limestone, representing that investor funds would be used to finance the wholesale purchase of cigarettes on the Reservation.  Investors were provided with promissory notes that stated annual rates of return ranging from 15% to 18%.  Rocco also solicited the assistance of an unnamed acquaintance to recruit additional investors.  In total, over two dozen investors entrusted amounts ranging from $25,000 to $1.2 million with Limestone for a collective investment of over $5 million.  

While investors received regular checks purporting to be interest payments, Rocco revealed in February 2009 that a rival Indian tribe had stolen approximately $4 million - $5 million of uninsured cigarette inventory from the Reservation, resulting in a massive loss.  Rocco then formed Advent Equity Partners ("AEP"), which purported to deal in credit card processing services, and solicited a total of $1.3 million from an unnamed victim.

According to authorities, Rocco was not able to pay his advertised returns through legitimate businesses such as Limestone or AEP, but rather used incoming investor funds to pay returns to existing investors in classic Ponzi scheme fashion.  In addition, Rocco is accused of diverting nearly $67,000 from DHSC bank accounts to cover redemption obligations to investors.  This had the effect of depleting club coffers, and only through soliciting donations from benefactors was DHSC able to stay afloat.  

After his arrest and arraignment, Rocco is reported to have posted bond.  

The indictment is below:

Rocco Indictment by jmaglich1

Zeek Rewards Headquarters, Inventory Up For Auction

The former headquarters of collapsed Ponzi scheme Zeek Rewards, as well as thousands of items such as country music memorabilia and office equipment, is scheduled to be auctioned off next week as the court-appointed receiver seeks to amass funds for eventual distribution to victims that suffered nearly $600 million in collective losses. The auction, which is scheduled to be held at Zeek's former warehouse in Lexington, North Carolina, is scheduled for December 16th and 17th, and will allow interested parties a chance to bid on the schemes former warehouse and headquarters, as well as a variety of personal items seized when authorities shut down the scheme.  

Back in October, court-appointed receiver Kenneth Bell sought court approval to conduct the auction, arguing that the proposed auction "will result in additional cash being deposited into the Receivership Estate’s accounts and will increase the overall recovery for claimants."  The Receiver also sought to auction thousands of pieces of personal property that had been located in the various offices seized in the aftermath of the scheme.  Notably, the Receiver indicated that he anticipated "certain third parties will claim an interest in some portion or all of this property," and requested the presence of a United States Marshall in addition to the auction company's provided security "in the event that there are any challenges to the Receiver’s authority to auction the real and personal property."  U.S District Judge Graham Mullen signed an order approving the proposed terms of the auction in late October.

The two properties up for auction include the building that formerly served as Zeek's primary office and  an attached laundromat.  In addition to the real properties, the items up for auction include an extensive country music memorabilia collection that includes autographed items, guitars, and even clothing worn by famous country entertainers including Merle Haggard, Alan Jackson, and Travis Tritt.  An official from Iron Horse Auction Co., which is overseeing the auction, remarked that "it's a big collection and is drawing a lot of attention."  Both the real properties and the memorabilia collection are scheduled to be auctioned off on Monday, December 16th.  On Tuesday, December 17th, a variety of furniture and office equipment will be offered for auction, including bedroom sets, office chairs, and even a "heavily soiled" love seat.  

Interested bidders will not only be able to attend the auction in person, but will also be able to submit bids through an online portal established by the auctioneer company.  This portal, available in two separate webpages for the Monday and Tuesday sale, is currently live and the entire auction catalog is available for browsing.  

A copy of the Motion to Approve Sale of Real Property is below:

 

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.