2013 Ponzi Schemes In Review: Nearly $3 Billion of Ponzi Schemes, Over 1,000 Years Of Prison Time

While now a household word thanks in part to infamous schemers such as Bernard Madoff and Allen Stanford, many do not realize how pervasive Ponzi schemes have become. Indeed, while the larger schemes such as Madoff, Stanford, and Petters make headlines for defrauding thousands of victims out of billions of dollars, the majority of Ponzi schemes are much smaller in size and do not achieve such widespread coverage despite causing the same damage to their victims. With this in mind, Ponzitracker presents a comprehensive database containing both new Ponzi schemes uncovered in 2013 and the sentences handed down to Ponzi fraudsters in 2013. The simple truth is that there is no resource compiling these statistics in an easily accessible format, and this resource aims to fill that gap.

While the figures below include a more thorough summary, the numbers behind Ponzi schemes in 2013 are truly staggering. At least 67 Ponzi schemes were exposed in 2013, with the average Ponzi scheme coming in at approximately $44 million. In terms of sentencing, over 1,000 total years of sentences were handed down to at least 117 individuals involved in Ponzi schemes, and the total dollar amount of the underlying Ponzi schemes exceeded $13 billion. Males were the predominant perpetrators, constituting approximately 90% of the individuals being sentenced.

As a disclaimer, this database is meant for educational purposes only, and was compiled through articles published on Ponzitracker as well as through reporting available on the internet through various sources. Kathy Phelps' monthly Ponzi roundups at ThePonziSchemeBlog.com were also a great resource. The database generally only included Ponzi schemes of $1 million or more. Please feel free to direct any comments or inquiries to inquiries@ponzitracker.com.

2013 Ponzi Schemes

2013 was a busy year in the Ponzi Scheme world. In total, at least 67 Ponzi schemes were uncovered, with the total cumulative dollar amount of nearly $3,000,000,000 - that's 3 billion dollars. This equated to the discovery of a Ponzi scheme (1) more than once per week, (2) every 5.4 days, or (3) every 130 hours. This included at least eight Ponzi schemes with estimated losses or at least $100,000,000 or more, with Edward Fujinaga's estimated $800,000,000 Ponzi scheme ranking as the largest Ponzi scheme exposed in 2013.

A full database containing Ponzi schemes uncovered in 2013, arranged by date, is below:

In terms of sentences handed down, at least 117 offenders received prison sentences that totaled more than 1,000 years. These sentences ranged from mere months to decades in prison, with Karen Bowie's 42-year sentence ranking as the highest Ponzi sentence handed down in 2013. The total dollar amount of the Ponzi schemes for which sentences were levied: over $13 billion.

A full database of the sentences handed down in 2013 is below:

Ponzi schemers receiving prison sentences in 2013 hailed from more than half of the fifty states, with California, Texas, Florida, and New York unsurprisingly harboring over 40% of the offenders. A chart displaying the amount of sentenced offenders per state is below:

Chinese Court Hands Down Life Sentence For $4.9 Million Ponzi Scheme

A Chinese man has been sentenced to a term of life imprisonment for orchestrating a Ponzi scheme that defrauded investors out of nearly $5 million.  Wang Xiaoqing, 30, received the sentence from a Chinese court in southeast China's Zhejiang province.  Xiaoqing promised investors double-digit interest rates in exchange for an investment that would purportedly be used to build a luxury hotel.  Instead, Xiaoqing simply used investor funds to make Ponzi-style payments and to sustain his lavish lifestyle in classic Ponzi scheme fashion.  In addition to this life sentence, all properties belonging to Xiaoqing will be forfeited to the government.

While a corresponding sentence in the United States would have likely been no more than ten years, the sentence handed down to Xiaoqing is consistent with the hard line previously taken by Chinese authorities against financial fraud.  While the true pervasiveness of financial fraud in China is not readily ascertainable due to reporting prohibitions and government secrecy, at least two individuals have received death sentences in recent years for their role in masterminding Ponzi schemes: Ying Wu received a death sentence after being convicted of operating a $60 million Ponzi scheme, while Haiyan Lin was sentenced to death by firing squad for a $70 million fraud.  (Wu subsequently saw her sentence commuted to a life sentence).  China was also reported to have recently executed a an convicted of operating a $400 million scheme and subsequently referred to as "China's Madoff."

Former Airline Pilot Charged With $44 Million Telecom Ponzi Scheme

“Let me make it simple: You rip people off, you get indicted.”

-U.S. Attorney Anne Tompkins

A North Carolina man who once served as an airline pilot has been charged with operating a Ponzi scheme disguised as a wireless internet venture that took in more than $44 million from victims.  Daniel Harold Williford, 55, was indicted on one count of securities fraud, one count of wire fraud, and five counts of money laundering.  Both securities fraud and wire fraud carry a maximum twenty-year prison term, while money laundering carries a potential ten-year term.  The counts also carry potential criminal monetary penalties of up to $5.5 million.  

According to authorities, Williford operated several entities, including Velocenet, Broadband Leasing, and Connect Inc.  Beginning in January 2007, Williford solicited potential investors by promising significant returns through investments in wireless internet equipment, internet towers, and other facilities and equipment.  For example, Williford promised one investor significant returns through an investment in what Williford termed the "Velo JV-Boone Project," thorugh which Williford would purportedly acquire telecom accounts and facilities.  In total, Williford used the entities to raise at least $44 million from hundreds of investors.

However, less than $8 million of the $44 million raised from investors was used by Williford as promised.  The remainder - more than $32 million - was misappropriated by Williford to make Ponzi-style payments to investors, as well as a variety of personal expenses that included the payment of credit card bills and even funding his son's college tuition at Georgia Tech.  

Authorities File Criminal and Civil Charges Against ZeekRewards Ponzi Employees (UPDATED)

Federal authorities announced the filing of criminal and civil fraud charges against an Arkansas woman and her stepson for their roles in the $600 million ZeekRewards Ponzi scheme that collapsed last summer. Dawn Wright-Olivares, one of the main spokespersons of ZeekRewards, and her step-son Daniel Olivares, were charged in separate criminal and civil actions unveiled today. According to court documents, the pair has entered into arrangements with criminal and civil authorities to settle the charges. While the details of the resolution of the criminal charges remain unclear, the SEC announced the pair had agreed to settle the civil fraud charges by agreeing to pay a settlement of over $11 million representing ill-gotten gains and prejudgment interest. It is likely that the fines and penalities paid in the civil and criminal cases will likely be distributed to victims.

According to the SEC's complaint, which is displayed below, Wright-Olivares worked as the chief operating officer or principal marketer for ZeekRewards, while her step-son Olivares worked as the master computer programmer. In 2010, Wright-Olivares and several others, including Paul Burks, formed Zeekler.com, which purportedly operated as a penny auction website offering merchandise such as personal electronics. Users participated in the auction by purchasing bids. While the operation was not particularly successful at first, the formation of ZeekRewards in 2011 quickly attracted many users through the establishment of various investment programs that promised astronomical returns by recruiting new investors.

These programs required the purchase of monthly subscription plans, enrollment of new customers, the sale and/or give-away of auction "bids," and the placement of ads. Satisfaction of these criteria allowed the Qualified Affiliate to receive a daily "award" of 1.5% of their investment - an astronomical rate of return. Rather than withdrawing these "awards" as cash, investors were encouraged to convert the awards into additional profit points that had a compounding effect. Another program, the Matrix, rewarded investors solely based on how many new investors they were able to recruit into the scheme.

According to the SEC, ZeekRewards did not start as a legitimate company, but instead was designed as a fraudulent scheme from inception. Wright-Olivares and Olivares are accused of learning that the daily "award" bore no relation to the company's net profits, but was rather the product of an arbitrary and unilateral determination by Burks. Despite this knowledge, neither Wright-Olivares nor Olivares disclosed this information to potential investors. Additionally, after learning that ZeekRewards was under investigation by state and federal law enforcement, Wright-Olivares and Olivares withdrew large amounts of money from the scheme or caused the forgiveness of previous loans made to them by the company. According to the SEC's press release, these ill-gotten gains were approximately $10 million to $11 million.

The charges are significant for several reasons. First, they mark the first criminal charges brought in the aftermath of Zeek's collapse last August, which resulted in losses in excess of $600 million and an estimated 600,000 victims. Notably, the scheme's alleged mastermind, Paul Burks, has not faced any criminal charges in the scheme despite being initially charged by the SEC when the company was shut down. It remains unknown as to whether or not this delay is due to Burks' cooperation or simply the building of a case by prosecutors. Indeed, little has been reported about Burks since he agreed to pay a $4 million fine in connection with the SEC's case. The charges are also significant in that they represent authorities' belief that others were criminally involved with operating the scheme.

UPDATE 1:53 P.M. EST: The criminal complaint filed against Wright-Olivares and Olivares charges each with two counts of criminal conspiracy. One of the conspiracy charges relates to conspiracy to commit investment fraud through ZeekRewards, while the second count alleges the pair conspired to commit tax fraud by reporting fictional income through submission of Form 1099's to the Internal Revenue Service. The criminal docket indicates that both Wright-Olivares and Olivares have entered into plea agreements with authorities. Those documents remain restricted and thus further details are unknown.

The docket also includes a motion seeking to have the court-appointed receiver in the SEC's civil enforcement action also oversee distribution of any ordered restitution through the already established receivership.

Prior Ponzitracker coverage of the ZeekRewards Ponzi scheme is here:

A copy of the SEC Complaint is below:

comp-pr2013-270 by jmaglich1

A copy of the Criminal Information (thanks Don at ASDUpdates!) filed against Wright-Olivares and Olivares is below:

Doc 1-main by jmaglich1

Ex-NFL Kicker And Recidivist Fraudster Pleads Guilty To $2 Million Ponzi Scheme

Eight years after serving a ten-year sentence for fraud charges stemming from a $30 million foreign currency trading scheme, a former college All-American and NFL kicker agreed to plead guilty to charges he orchestrated a Ponzi scheme that duped victims out of approximately $2 million.  Russell Erxleben, 56, pleaded guilty to a single count of wire fraud and a single count of money laundering - each of which carried a maximum twenty-year term of imprisonment.  Under the terms of the plea agreement, Erxleben and prosecutors agreed to a 90-month prison sentence, which remains subject to judicial approval.

Erxleben was a college All-American while attending the University of Texas in the late 1970s, and later had the distinction of being only one of three kickers drafted in the first round of the NFL draft.  However, after playing six seasons in the NFL, Erxleben turned to investing.  He was later arrested and charged with securities fraud after authorities accused him of masterminding a foreign currency trading scheme in which investors lost tens of millions of dollars.  In 1999, he received a ten-year prison sentence and was ordered to pay $28 million in restitution to defrauded investors.

However, after being released from federal prison in 2005, Erxleben again became involved in the investment business, forming several companies under a main entity Erxleben Entities that promoted various investment opportunities including the ability to profit from post-World War I German government gold bearer bonds.  Investors were solicited to purchase the bonds for $1,000 apiece, after which Erxleben would place the bonds in trust and create securities that would then purportedly be in high demand by outside investors.  While the scheme lasted several years, investors ultimately never received the bonds or any associated returns.

After the German bond venture fizzled out, Erxleben began soliciting investors in 2009 for another venture, Gauguin Partners LLC ("Gauguin").  According to Erxleben, he had in his possession a rare painting commissioned by Paul Gauguin, a 1800's French artist.  Investors were told that if the painting could be certified as authentic - a process that cost $75,000 - the painting could then be sold for nearly $60 million.  Again, investors saw no returns, and instead their funds were diverted by Erxleben for the payment of personal expenses.

Erxleben was arrested in January 2013 and charged with five counts of wire fraud, two counts of money laundering and one count of securities fraud.  Prosecutors then successfully argued for Erxleben to remain in custody pending trial on the basis that he was a flight risk.  A federal magistrate judge later issued an order concluding the absence of any conditions for Erxleben's pre-trial release, citing Erxleben's propensity for posing a financial danger to others, as well as testimony by a former inmate that Erxleben had attempted to hire him to intimidate a key witness.  

Erxleben still shares the record for the longest field goal in NCAA history, kicking a 67-yard field goal in 1977.

A copy of the indictment is below:

US v. Russell Erxleben Indictment by jmaglich1